OraSure Technologies Inc (OSUR) 2002 Q2 法說會逐字稿

Good day everyone and welcome to Orasure Technologies second quarter financial results conference call and simultaneous webcast. As a reminder today?s conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer period. If you would like to ask a question during that time, simply press star and then the number 1 on your telephone keypad. If you would like to withdraw your question, press star, then the number 2. For opening remarks and introduction, I will now turn this call over to Shannon Morin at OruSure technologies. Miss. Morin, please go ahead.

Good Afternoon everyone and thank you for joining us today. I would like to begin by telling you that OruSure Technologies issued a press release shortly after 4 pm eastern time today regarding its second quarter financial results. The press release is available to you on OruSure Technology's web site at www.orasure.com or by calling 610-882-1820. This call is also available real time on OruSure Technology's web site and will be archived there for seven days. Alternatively, you can listen to an archive of this call until midnight August 1, 2002 by calling 800-642-1687 for domestic, 4706-645-9291 for International and entering the conference Id number 475-1370. With us today are Mike Gausling, President and Chief Executive Officer , Ron Spair, Chief Financial Officer and Sam Niedbala, Chief Science Officer.

Mike will begin with an opening statement and then follow with the question and answer session. Before I turn the call over to Mike, I must remind you that this call will contain certain forward-looking statements, including statements with respect to revenues and other financial performance, product development, performance, shipments in market, and regulatory filings and approval. Actual results could be significantly different. Factors that could affect results are discussed more fully in the Securities and Exchange Commission filing of OruSure Technology, including its registration statements, its annual report on Form 10-K, for the year-end of December 31, 2001, and its quarterly report on Form 10-Q.

Although forward-looking statements help to provide complete information about future prospects, listeners should keep in mind that forward-looking statements may not be reliable. The company undertakes no obligation to update any forward-looking statements to reflect events or enforce circumstances after this call. With that, I would like to turn your call over to Mike Gausling.

Thank you, Shannon and good afternoon, everyone. Before I begin, I want to mention that we changed the time of our conference call from 11 am to 5 pm eastern standard time, after we received several requests from some of our investors on the West Coast and we also learned at a recent Nasdaq conference, that many companies are deciding, as a matter of best practices to hold their calls after the market closes, rather in the morning. As a convenience for all of our stockholders, we decided to change for these reasons at this time. Now turning to today?s agenda, I would give you a brief financial review of the second quarter of 2002, second an update on our progress towards meeting our 2002 priorities, third our current outlook of the second half of 2002, and finally some preliminary thoughts regarding 2003. Lets start with the discussion of our second quarter financial performance. Revenues for the second quarter came in at 7.9 million as compared to guidance of 7.3 to 8.3 million that I gave during our conference call for first quarter. This is up just slightly over first quarter of 2002, but down 7 percent or 600,000 dollars from the comparable period in 2001.

The primary reason for this was a 400,000 dollars reduction in our licensing and product development revenues, this reduction is principally due to an absence of development in milestone payments from our corporate partners Meridian Bioscience and Drager, which we had last year. In addition revenues in the substance abuse testing market were down due to lower analytical equipment sales in the second quarter versus a year ago. The company also experienced reduction in sales of the Histofreezer product line to the physicians office market. As I discussed in our last earnings call, we had a significant increase in Histofreezer sales in the first quarter of 2002 due an announced price increase effective April 1st 2002. The resulting sales increase in first quarter of this year, advance of the price increase negatively affected the volume of Histofreezer sales in the second quarter, however the good news is that Histofreezer product revenues for the six months ended June 30th 2002 are actually up 22 percent over the comparable period last year.

I expect that it will return to a more normalized pattern of Histofreezer sales beginning in the third quarter of 2002. More importantly sales of OraSure oral fluid collection devices and test kits and the Infectious Disease testing market increased 25 percent in the second quarter, this increase provides validation of the significant progress in penetration oral fluid testing is making especially in the public health markets. Investors should also note that despite the trying economic times in lower sales to LAB 1 as we previously discussed. Product sales rose 2 percent during the first six months of this year, highlighting the diversity and resilience of our current product portfolio. Our gross margin during the second quarter was 60 percent down from 65 percent during the same period last year, the decrease from the comparable periods in 2001 was principally attributable for licensing and product development revenues and higher than anticipated scrap levels. I expect margins to improve as sales volumes of Intercept and OraQuick increase in the near future.

Operating expenses remained essentially flat for the three months ended June 30th 2002, although individual categories of expenses did vary over the comparable levels from last year. Research and development expenses were down approximately 10 percent as a result of lower consulting fees, while sales and marketing expenses were up 16 percent due to the previously announced consulting fees, related to the development of strategic marketing plan. General and administrative expenses were down 7 percent due to lower investor relations and professional recruiting fees.

we continue to be keenly focused on managing expenses very carefully and are trying to tighten up our cost structure wherever reasonable. For example since I became CEO in February, full time employment has been trimmed from 221 employees at December 31st to 196 full time employees at June 30th. Included in the 196 are 23 on pay-to-stay contracts as part of our announcements to permanently close the west coast facility, hopefully by the end of 2003. We also have eliminated over 20 full time temporary employees since year-end. We expect these reductions will begin to show themselves, in our financial results over the next few quarters. The net loss for the three months ended June 30th was approximately, 1.3 million dollars or three cents per share. This is a penny better than consensus street estimates.

Our cash and short-term investments at June 30th, totaled 12.3 million, roughly a 135,000 dollars less than our cash and short-term investment position at the end of the first quarter of this year. This very small burn rate is note worthy, and is the result of multiple factors including cost cutting efforts, judicious capital expenditures, aggressive collection on accounts receivable and inventory management. You may recall that our cash flow from operations as reported on our cash flow statement for first quarter was the use of 2.1 million dollars of cash. I'm pleased to report that our cash flow from operations, for the second quarter, actually provided 100,000 dollars a turn around of 2.2 million dollars in the second quarter and evidence, of the effectiveness of our working capital management initiatives, and our intense focus on cash management.

On the banking front, we are in the process of renewing our credit facilities and refinancing our existing term-debt with a new bank. I am happy to report, that we have recently received a commitment letter from a major bank, and we expect to close this financing activity in the near future. When we do, we will make further announcements with more details regarding this. Finally I am pleased to report that Orasure was again included in the Russell 2000 index. Shifting now to our non-financial milestones, I'd like to review our progress against our major 2002 priorities, which are set forth in our 2001 annual report and has been discussed on my prior calls. Although we have just begun the second half of this year, I believe that we are making great progress to meet most of the non-financial milestones for 2002. The first major milestone was to sign up additional intercept labs. As previously announced early in the first quarter we signed distribution agreements with Quest, Clinical Reference Labs and Northwest toxicology, three pre-eminent labs in the work place drug testing market.

During the second quarter we devoted significant resources towards helping each of these labs set up their back room operations including the installation of specialized analytical lab equipment and training of the technical and sales personal. I am happy to report that this work has been completed. All the labs are currently able to process oral fluid samples and their sales forces have begun selling Intercept into the workplace testing market. This was an enormous undertaking and I would like to thank our employees who have kept this on track to meet this important milestone. With its recent acquisition of two smaller labs, has approximately 50 sales reps selling Intercept. When combined With CRL North west tox and lab one starting in July, we now have approximately 60 independent sales reps for Intercept up from only 3 reps at lab one in June. These labs and in particular Quest have provided their sales reps with incentives to aggressively market Intercept and we are co-traveling extensively to assist these reps in converting existing and new customers from urine to oral fluid testing.

We expect sales to the new labs to start moderately in the third quarter and subjects conversion rates pick up momentum in Q4. While the rate of conversion is virtually impossible to quantify, we are collaborating with Quest target conversion of 25 percent of their urine accounts or approximately 2 million specimens per year to Intercept by the end of 2003. If successful, this would ultimately result in incremental annual sales between 7 and 8 million dollars per year for OraSure. Obviously, this is an ambitious goal, we work very hard to help convert customers as quickly as possible. While I am on the topic of Intercept; I should point out several other developments that occurred during the quarter. First it is previously announced, we received FDA clearance of our test for detecting benzodiazepine in oral fluid. This brings the total of FDA cleared oral fluid tests to 9 and it is expected to help us further penetrate each of the markets in which Intercept is sold.

Secondly, our Chief Science Officer, Sam Niedbala and other scientists at and lab one have submitted an article on oral fluid drug testing for publication in the journal of analytical toxicology. This article will report the results of the first large scale data base on oral fluid drug testing in private industry. This data is part of a larger study presented by lab one at the substance abuse program administrators association staff meeting in June, which compared urine and oral fluid drug testing. The data indicates that oral fluid testing is at least equivalent and in several cases superior to urine testing for capturing positive drug samples. This represents yet another piece of persuasive evidence on why our potential customers should buy Intercept. One major reason, we believe oral fluid testing is better as a result of this data is because it reduces or eliminates that segment of the specimen that are exposed to urine adulteration.

Finally as you probably heard the US Supreme Court recently issued a decision, upholding the right of an Oklahoma school district to require middle and high school students to consent the Urine Drug Testing, in ordered to participate in any Extra-Curricular activities. We believe, that in oral fluid drug test, because it is less embarrassing, and easier to administer, will be even more supportable than urine testing under the court's decision. While, we have not yet focused on School Testing. I would expect this market to be highly fragmented and probably slow to materialize into a substantial volume opportunity. Nevertheless, we are evaluating it very carefully. Conceptually, an oral fluid tests is a better choice when compared to collecting urine in school of .

Our second key milestone was to secure distribution partner for OraQuick for the Hospital market in the United States. As you know, on June 17, 2002, we were featured in the Health Care section of the Wall Street Journal, for a recent distribution agreement with Abbott Labs. Abbott is the clear market leader in infectious disease testing products, especially in the hospital and positioned office lab markets. This deal took a long time to complete, and Abbott did a great deal of due-diligence about facilities, about Quality Assurance Programs, and the performance of the OraQuick product before signing the agreement. I've been asked numerous times by our investors, whether or not the deal with Abbott was a good one. And I must assure you that I'm quite proud of the win-win deal that we have with Abbott, and I believe, it's a clear winner for investors over the long term.

Our agreement with Abbott contains certain minimum purchase commitments. Assuming that final FDA approvals received by the end of the third quarter, we would expect to start selling OraQuick devices to Abbott beginning in Q4. Based on these timelines, we expect to receive product revenues, of up to 4 million dollars through the end of 2003. Now that, we have finalized distribution deal in the United States with Abbott, we will be turning our attention to the international market place. We are presently evaluating our international OraQuick distribution strategy, which will most likely require a test for both HIV 1, and HIV 2. This remains a complex business model to predict, especially given the difficulties typically encountered with selling products to, and receiving payments from developing countries. I hope that from some further news to report to you on this in the future.

Our third milestone, let's prepare for an FDA inspection, about facility our OraQuick in the second quarter of 2002. As you know, we met that milestone, as the FDA completed it's initial facility inspection during the second quarter and issued an approvable letter for OraQuick on May 13th of this year.

Our fourth milestone was to secure FDA approval of OraQuick for whole blood HIV 1 testing, and begin sales in the second half of this year. The FDA's approvable letter indicated it's final approval, if subject to our cementing product labeling and resolving certain validation and design control issues, identified during the inspection.

As you might expect we have been very very busy addressing the issues raised by the FDA, and our team is working virtually around the clock. I am happy to report that things are progressing reasonably well, and that the FDA recently completed a follow up inspection just last week, in which no major issues were identified. We still have some work to do in the production and validation lots, and completion of our batch records for review by the FDA, and the FDA is planning one more visit. The FDA also needs to complete its review and must approve final product labeling. Assuming no other issues are identified by the FDA, and the labeling approval proceeds smoothly, we're cautiously optimistic that we'll receive final FDA approval sometime late in September. Obviously it is difficult to predict the timings, regulatory action was certainty that we believe that we're on our way towards attaining final approval and meeting this important milestone. Sales to EBIT will begin roughly 30 to 60 days after final approval. Our fifth milestone was to begin clinical trials of oraquick for oral fluid HIV 1 testing, and submit an application to the FDA by the second half of 2002. Once final approval is received the finger-stick whole blood test, we anticipate that the FDA will act on our IDE for all fluid trials.

Assuming the FDA approval is received by late September we expect to see the IDE and begin the oral fluid clinical trials by year-end. We are expected to file our PMA with the FDA within roughly six months of receiving the IDE, obviously this timing is dependent entirely on the FDA's actions so stay tuned for more developments as they unfold over the next few months. One other matter, which is not one of our stated objectives but is noteworthy is the importance of securing a clear waiver for oraquick. We recently got some strong support for this waiver. Then in June the presidential advisory council on HIV and AIDS voted unanimously 35 to 0 in support of a recommendation to the President of the United States calling for a immediate availability of a rapid HIV test with a clear waiver, clear refers to the clinical laboratory improvement act of 1988 which prohibits laboratories from performing diagnostic testing without meeting certain quality control and other requirements.

This action strongly supports the urgency in obtaining FDA approval of a rapid HIV test and in particular one that's also received a clear waiver. We intend to seek a clear waiver for both our whole blood and especially our oral fluid oraquick test. The practical will effect the clear waver is that our oraquick device would not need to be administered by a laboratory medium at quality and other requirements imposed by the act but will be more broadly available to out reach and other non-laboratory customers, coupled with the continence of oral fluid testing we believe a clear waiver should substantially expand the potential of market ability of oraquick in the United States for all segments of the market but especially in out reach programs for our public health customers. Of course if this depends on FDA action we can't be certain if and when these benefits will be obtained. Our sixth milestone was to resubmit a five-panel UPlink drug test for FDA review by mid-year and to secure FDA clearance by the end of 2002. Other than preparing the facility for the OraQuick Inspection by the FDA, this milestone is consumed the largest amount of our company's resources for the past 6 months. At the beginning of the quarter, we were thrilled to receive FDA clearance for the UPlink test system together with an test. This was the first and only FDA cleared point of care, Oral Fluid Drugs of Abuse Test System in the United States.

This gave us FDA clearance for the reader, collector, software, and the assay and it provided a road map for the submission of a full five-paneled task. We also received UL approval of the UPlink analyzer, which certifies what the analyzer needs. International electrical safety requirements. UL certification is also required in order to obtain a CE mark on the analyzer, which in turn will be required to sell UPlink into the European markets. With all of the other demands on our manufacture quality assurance team with OraQuick we are proud to say that the UL approval process included in inspection of our manufacturing facilities before we received approval; another great job by our team.

As you know, we have been working to optimize the five-paneled test, scale up manufacturing, and collect the data required for the next FDA submission. Unfortunately, although we had made good progress, stability of the full five-paneled test is not currently up to the high standards we have set for this product. The principle reason for this technical issue is the chemistry surrounding the assay for THC or marijuana. THC is typically the most difficult assay to optimize and our goal has always been and will remain to produce the highest quality product possible. We will not compromise on that principle. Consequently, our product development efforts are going to take a bit longer than anticipated in order to get the performance of the five-paneled test to the level we feel we need to effectively market this product to the onsite Criminal Justice and workplace Drugs of Abuse Testing Markets.

The average result of this is that our submission of a five-paneled test to the FDA will be delayed until this optimization is complete. I must emphasize that I remain completely confident in this product and the underlying Up-Converting Phosphor Technology. This type of technical issue is very common placed and is not at all unusual for assays of this type at this early stage of the development of a platform technology and in fact, we experienced and resolved similar assay issues with the intercept THC Drug Test. I can assure you that overcoming this final technical hurdle continue to be our top developmental priority and I hope to be able to report positive developments in this area soon.

Our seventh mile stone was the purpose on delivering against our two UPlink partners, Drager and Meridian Biosciences. As result of the days delays in the UPlink DOA project the market launched by a partner Drager in Europe in the road testing market would need to be delayed until we optimize the TAC assay. However, the development continues to go well with our first assay for RSV for Meridian. The assay is performing well and we still expect to transfer to Meridian for clinical trials yet this year. Additionally during the quarter, a new pattern was issued to OraSure expanding the lateral floor claims relating to the UPlink test. We also filed applications for several new patterns on the design and utility of the UPlink platform.

These are examples of our ongoing efforts to add to an already strong intellectual property position for UPlink. The 8th and last of our milestone was to seek additional UPlink and OraQuick partnerships in the second half of 2002. I cannot go into specifics at this time we have commenced the initial discussions for the feasibility of several exciting new applications for both Abbot Quick and for UPlink platforms. Each of these opportunities could provide funding for the development of new products and a distribution channel with a strong partner in the near future. Stay tuned for more on these possible deals in the coming months.

Now I would like to turn to our financial expectations for the rest of 2002. We previously indicated that revenues were expected to be flat or in the range of 15 to 16 million for the first two quarters of this year. We met that projection with total revenues of approximately 15.7 million for the first six months of 2002. While things are going extremely well with the expansion of Intercept as seen by the progress we are setting up our new labs, it is difficult to predict the rate of conversions from year end to all fluid testing, especially given current market conditions. Similarly, while we have made tremendous progress with OraQuick and have stated that minimum initial sale that expected be up to 4 million through 2003 under our agreement with Abbot, those sales will not begin until at least 30 days after FDA approval, which is currently expected by late September.

In addition, while we remain optimistic, the regulatory process for OraQuick is still underway and final approval is dependent fully on the FDA and finally as I explained we still have some work to do to complete the optimization of our UPlink drugs of abuse test before we conduct begin our field trials in the criminal justice market. As a result, we currently expect Q3 revenues to be comparable revenues for the second quarter of this year with somewhat higher revenues building in Q4 as we see more Intercept sales and some initial OraQuick purchases by Abbot. We are now anticipating revenues in the range of 17 to 18 million for the second half of 2002 up from 15.7 in the first half. During the second half of 2002, we will focus on balancing our need to invest into our new product launches with our desire to conserve cash and achieve profitability as soon as possible.

Despite the forward and expected growth in 2002, the milestones we have met and most that we expect to meet during the remainder of this year, they should set the stage for a very strong 2003. As previously discussed, we expect up to 4 million dollars in incremental revenues to the end of 2003 based on the minimum purchase obligations, under the average distribution arrangements for OraQuick subject to course, to time of recieval of FDA approval and if the ramp of Intercept continues, we should see at least an additional incremental 2 to 4 million dollars in revenue in 2003 from that product line. This does not factor in any new partnerships or the successful completion of the UPlink POA project, which we fully anticipate will contribute to revenues next year.

I would like to emphasize that these are only our very preliminary views on 2003, which, we will continue to examine and refine over the next several months as the rest of 2002 unfolds. However, this potential 6 to 8 million revenue increase would represent in round numbers roughly, a 20 to 25 percent increase in annual revenues which we exactly follow closely by profitability. I plan to provide more formal guidance for 2003 at our next earnings call after the third quarter. Before opening the meeting up for questions, I would like to briefly discuss one other matter. As you know recent events have done a lot to undermine the trust that investors in the market have in public companies. Since becoming CEO in January one of my priorities has been to rebuild our investor's trust in OraSure. I had been with this company for 14 years with the founder of STC technologies and personally hold a very large equity stake in the success of this company.

I want there to be absolutely no doubt about my commitment to growing this company in building shareholder value. I have been through a lot of tougher times in the early days of starting this business, beginning in November of 1987 when we saw a similar downturn in investor confidence. We will survive these trying economic times and will come out stronger as a result of these challenges. In order to gain your trust since becoming CEO,I outlined the major milestones for 2002 as part of the 2001 annual report and I have reported routinely on our progress against these milestones. By any measure, I think we have been very open, and in most cases successful in meeting these milestones. I will continue to give you timely and accurate information. While increased revenues have not come as quickly as we had originally hoped I remain extremely bullish about your prospects and I firmly believe that by meeting many of our milestones that we have established a solid foundation for increasing revenues in building shareholder value in the future. And with that I would like to open the call up for questions. Thank you.

Ladies and gentleman at this time I would like to remind everyone, in order to ask a question, please press star and then the number 1 on your telephone key pad. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Bud Leedom with Wells Fargo Securities.

Hi guys.

Hi Bud.

Just had a couple of questions initially. What was your CAPEX for the quarter?

That would be disclosed in our filing, we have put our 10-Q out there, but then I will tell you. We spent 650,000 dollars over the 6th month in CAPEX.

Okay and in terms of cash burn through the second half of 2002, do you have any projections for that, or we cannot see similar to what we saw here in Q2 or similarly start our programs to see that its starting to escalate a little bit?

Bud, this is Ron, I think the cashburn of 135,000 in Q2 was just tremendous, and we managed just outstanding along those lines, but as we do move up in anticipation of launch and moving into our new facility capital expenses will increase over the second half of the year, so we, although we continued to manage our cash resources we do see our expenditures going up.

Okay. Is there anything that you can leverage in the operating spaces, you did a good job controlling it in Q2. Do you see any other areas that you can identify for further cuts there?

Ultimately as Mike had indicated when we began to look at the cost reductions out on the West Coast we would see some additional test outlaying reduction, expense reduction as a result of that in consolidating here on the East Coast.

Okay and with there, in terms of Intercept itself was there any new corporate customers that you signed in Q2 that you could identify?

No substantial customers. Number of small customers with lab 1, but the new labs haven't kicked into gear yet.

Okay and you know, in terms of type, further type of DLC for CNE of those, in the offing here in the second half or is it going to be pretty much down exclusively through the new partners?

Well, all of the business is focused to going through our lab partners as probably was to lab 1. We are going to you know, support the efforts of our laboratory partners and not compete with them.

Okay. Fair enough and finally in the insurance market, you saw an Intercept in Q2 and I was just wondering if you foresee any more strength there. That was kind of a nice rebound from similar levels that we had seen.

I think the insurance risk is set with March at place. We will continue to depend on us converting additional insurance companies over to the oral fluid testing modality while we battle against the revenue decreases on the attributable to the efficiencies, gained by our lab partners who are doing much better on the utilization process.

Okay. Thanks very much.

Okay. Thanks bud.

Your next question comes from the line of Ted with Herns and Plant

Mike, just wanted to ask you the question on, it is my understanding that the DLT approval of the saliva based test would be reasonably significant to someone like . Could you elaborate on that?

I would like Sam answer the question. He has been intimately involved in that with discussion with the FDA.

Hi, I have actually talked to health and human services about this issue just to get offence from were we are there. The large draft regulations, which have to go through public common period and so the hope is that sometime in the reasonably near future there will be issuing those for public for the first round of public comment. This is high on the list of the agencies goals and they have recognized you know, through a lot of the work that's been done by OraSure that oral fluid testing for drug abuse is a great tool against the current which is really the outcome they hope for.

Ted

Your next question comes from the line of John with White Spine Capital.

Hi guys any guidance on when you predict the announcement that will be made by additional strategic partners, can you give us any idea when you make some outward news on that?

No there is really you know, the deal going to play itself out and you know, EBIT took a long time get a win deal because the further you are down the development curve, the more value that it has and you know, we feel comfortable that we have both Uplink and OraQuick some substantial opportunities there and in some interested parties but they just going to play themselves out but clearly its beyond initial discussion, it's you know, its definitely in the later stage on indulgence and discussions. So, I won't sign up for a bad deal which could take longer and it will play self out but I hope yet this year to have at least one more substantial deal.

speaking of the type two HIV progress less with the to middle any speculation on when you have a fall through on development for a type 2?or with

Clearly HIV Abbot has an HIV2 license. So it provides a lot of flexibility if the combination of Abbot in our sales believe that, that's a product that the market wants and you know, as we look for partnering together in strategic opportunities in the future, that will be one of the things we talk about.

Well there... Okay, all right. Thank you.

Sure.

Your next question comes from the line of Mark Antonelli with the Alliance Capital.

Good afternoon.

Hi Mark.

Hi. Could you go into any detail as to, I think you said its vertical that you expect to be flat and you're looking at 18 million of revenue for the back half of the year. Could you go into any detail what expectations go into that number and what its potential upside that is not in the number?

Sure. Hey Mark its Ron. The revenue increase that we anticipate really is dependant upon the large and successful commercialization of the new product and that would be the launch of order quick with Abbot closed FDA approval and also the ramp up of the intercept product line with CRO, CRL in northwest and any upside, if it would come to us would necessarily come from an acceleration of the FDA approval which we still believe will be in late September, and a faster adoption curve and conversion curve in the Intercept product with our Lab partners.

Okay, so...Secondly, I am sorry if I didn't grab this, but the inventory issue the company was going through the last few quarters, is that pretty much behind you now or are you still working off the inventory?

Well, still with the inventory a large part of the inventory represents OraQuick and UPlink hardware, and consequently after approval we will be in a position where we can begin to sell off some of the OraQuick inventory that we have on hand which is going to be great for our cash flow and working capital management reducing our inventory levels and UPlink will come as we progress that project development.

Al right. And I think that there is a thanks to the hardware to pay off, thank you.

Thanks Mark.

Your next question comes from the line of Ricky Goldwasser with UBS Warburg.

Yes. Hi, I like to ask that when you gave the guidance for the second half of the year, did you talk about lost per share?

We actually did not comment on our lost per share, Ricky. We really did guidance more on the revenue top line.

But can you comment on that now? In our model, you should have break even in this third quarter and I assume that will be pushed back now and can you just talk about that and when do you expect to break even?

It is in the annual meeting I gave guidance that said clearly, you know, where inflation point lies at quarterly revenues at 10 million dollars and we have been working very hard internally to lower that number so, we beat expectations against that level. You can clearly see from our cash management this quarter, that you know things are moving in the direction and it could be been at a better number, but we need better gross margins in order to get those sooner than later.

So, is this was driven down?

If we end up with 18 million to the fourth quarter, I expect to start to see profitability in the fourth quarter.

Okay. Thank you.

Your next question comes from the line of Bill Smith with William Smith & Co.

Hi Mike, could you comment on what the cost differential is between on the UNICEF product, between oral and fluid, oral and the urine test? What the cost differential is there?

Cost in meaning that ...

What is the cost of the urine test versus an oral test?

For the customer to purchase it? Well, since the laboratories are actually selling the service. I am not specifically, you know, what price points or deals that they make. But clearly the opportunity for the laboratories if they cut out the middleman or the collection side, which roughly represents about 50 percent cost relative to the revenues and then you can take 50 percent out of your cost structure, you have lots of choices, either improve profitability or lower cost or some combination there are. I can share structure for the relative profitability prospective, when you take the cost of our intercept device and as I take into consideration, I believe that in round numbers we provide somewhere between 25 and 35 percent margin gain. Not percent increase but close margin point improvement to the average selling price for the lab partners.

Right. So that is pretty well and should be up there and aggressively market at the end of share product.

Yeah it was great feedback in quest to have them say that they would be as motivated to convert customers, as they would be to get new customers, because they of the preference of all fluids and that the potential for improved profitability in all the other benefits that we believe OraSure provides.

All right. And there was an announcement recently by Taiwan where they granted a license to Abbot for Hepatitis C, is there any impact is that event any implications for OraSure going forward because of your relationship in place with Abbot?

Now that would be natural follow on.

Absolutely.

Ok, thank you.

Once again ladies and gentlemen I would like to remind everyone in order to ask a question please press star 1on your telephone keypad. Your next question comes from Mitra Rangapal of Citadel.

Yes, hi good afternoon guys I am not sure if you mentioned it earlier but I believe you on track ton do about 33 million, 34 million in the revenue for 2002. Assuming things go well in terms of the approval of OraQuick and interest at launch picks up, what's your sense in terms of 2003?

Well, consistently with what I just stated earlier, just looking at OraQuick and intercept and I believe you know relative to only be the minimum contractual obligations on the part of Habit for OraQuick and you know marginal penetration by our lab partners with intercept I mentioned earlier 6 to 8 million dollars in increase in revenues. The map is very straight forward against that 33 to 34 million dollar base, which I said holding those constant without any other development opportunities it's 20 to 25 percent growth for next year.

Yeah, thanks.

Gentlemen with that we will conclude the question and answer session. We will now turn the call back over to Mr. Guasling for closing remarks.

I would like to thank everyone for joining us in this afternoon session, our first afternoon session, we moved it here, what we thought we are listening to our investors, give us feedback if that's not appropriate, but importantly we listen and reflect on the milestones that we have set for ourselves for small company the size of, Ora is having many different activities and substantial opportunities going on with multiple platforms, its just a terrific opportunity and time for us. I can't overstate the amount work and efforts that's been put in by our team, you know to try to simultaneously commercialize OraQuick and Uplink and Scale up Intercept simultaneously.

That's an extraordinarily monumental task and our team is taken it on and you know we are doing a great job to try to move forward. The Abbott partnership validates the validity of OraQuick as a technology, and it is a product opportunity. The Qwest deal validates Intercept as a viable Ora fluid alternative to urine testing. Uplink offers infinite permutations of opportunities for partnerships and value for our investors in the future. Be patient with us, we are a technology company, we are going to continue to communicate openly, and frankly about our progress. We are going to manage cash very carefully, profitability is of at most importance, but we won't be bashful to invest into our future. Thank you for your time. We look forward to giving you information in the future, take care.

Ladies and gentlemen thank you for participating in today's OraSure Technologies second quarter financial results conference call. You may now disconnect.