OraSure Technologies Inc (OSUR) 2007 Q3 法說會逐字稿

Good day, everyone, and welcome to OraSure Technologies' third quarter financial results conference call and simultaneous webcast. As a reminder, today's conference is being recorded.

(OPERATOR INSTRUCTIONS.)

For opening remarks and introductions, I will now turn the call over to Eileen Tavarez at OraSure Technologies. Please go ahead.

Good afternoon, everyone, and thank you for joining us today.

I would like to begin by telling you that OraSure Technologies issued a press release at approximately 4:00 p.m. Eastern time today regarding our third quarter financial results and certain other matters. The press release is available to you on our website at www.orasure.com, or by calling 610-882-1820. If you go to our website, the press release can be accessed by opening the Investor Relations page and clicking on the link for News Releases.

This call is also available real-time on our website and will be archived there for seven days. Alternatively, you can listen to an archive of this call until midnight, November 5, 2007, by calling 800-642-1687 for domestic, or 706-645-9291 for international. The access code is 21207217.

With us today are Doug Michels, President and Chief Executive Officer, and Ron Spair, Chief Operating Officer and Chief Financial Officer. Doug and Ron will begin with opening statements and then follow with a question and answer session.

Before I turn the call over to Doug, I must also remind you that this call may contain certain forward-looking statements, including statements with respect to revenues, expenses, profitability, earnings per share, and other financial performance, product development, performance, shipments and markets, and regulatory filings and approvals. Actual results could be significantly different.

Factors that could affect results are discussed more fully in the SEC filings of OraSure Technologies, including its registration statements, its annual report on Form 10K for the year ended December 31, 2006, its quarterly reports on Form 10Q, and its SEC filings.

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 circumstances after this call.

With that, I'd like to turn the call over to Doug Michels.

Thanks, Eileen, and good afternoon, everyone, and welcome to our third quarter 2007 earnings conference call.

For today's call, Ron Spair will begin with a review of our financial performance for the third quarter of 2007. As you can see from our earnings release, our third quarter financial results were in line with expectations. And the nine months ended September 30, 2007, were strong.

Following Ron's remarks, we will open the floor for your questions on these items. And then, during the remainder of the call, we will update our progress against our principle strategic initiatives and provide some brief additional business updates. We will also discuss our financial guidance for the rest of 2007. We will conclude by, again, opening the floor for your questions.

So, now, let's turn to Ron's financial overview. Ron?

Thanks, Doug, and good afternoon, everyone.

Our third quarter results on both the top and bottom lines were consistent with our most recent guidance. When combined with our results for the first half of the year, we are pleased with the Company's financial performance.

Total revenues for Q3 were $21.4 million, a 21% increase over the same period in 2006, and a record for OraSure. Increased sale of the Company's OraQuick Advance Test and it's international and domestic over-the-counter Cryosurgical Wart Removal products were the primary revenue drivers for the quarter.

In the infectious disease market, we booked sales of $8.2 million, a 9% increase over the third quarter of 2006. Primary reasons for continued growth in the infectious disease testing business were a 31% increase in sales to Abbott Labs for distribution in the U.S. hospital market, a 17% increase in direct sales of OraQuick to the public health market, and higher international OraQuick sales, primarily to Africa.

In substance abuse testing, sales were $4.1 million, which is slightly lower than Q3 of '06. Included are $3.2 million in sales of our Intercept drug testing system, which represents a 3% increase over '06. Our workplace testing business was up 7% over 2006, which was partially offset by decreases in our criminal justice business and international sales, which were down 4% and 20% from '06 respectively.

Our direct sales grew 56% for the quarter. Cryosurgical system sales were $6.7 million, an increase of 67% compared to the same period in 2006. Higher sales of our U.S. and Mexican OTC Cryosurgical products were the main reason for this increase, partially offset by lower sales of Histofreezer to physicians' offices and lower sales of our European OTC product.

During the third quarter, we had approximately $2.5 million in sales of our U.S. OTC product to Prestige Brands. However, Prestige purchased no product in Q3 of '06, which included the period just prior to their acquisition of the competing Wartner brand in September of that year.

As a result of the arbitration decision and the termination of our agreement with Prestige at the end of this year, we do not expect further revenues from Prestige in 2008.

Sales of our OTC Cryosurgical product to SSL, our European distributor, were primarily because SSL is working off its existing inventory in anticipation of launching a product with an enhanced configuration and labeling early next year. Finally, the launch of our OTC Cryosurgical product in Mexico continues to exceed our expectations.

During the third quarter, we recorded $720,000 of funded R&D work pursuant to our agreement with Schering-Plough for the development of a rapid Hepatitis C test on the OraQuick platform.

Finally, insurance risk assessment sales in the third quarter were $1.6 million, compared to $1.7 million in the comparable period of 2006.

Turning to gross margin, our margin for Q3 of 2007 was 60%, a decrease from 64% for Q3 of 2006. This decline was primarily due to increased scrap and spoilage, higher product support costs, and an unfavorable product mix versus the year-ago period.

Research and development expenses for Q3 were up approximately $1.9 million over 2006, primarily as a result of costs associated with the clinical development work for our OraQuick Advanced HIV-1/2 OTC test and product development costs for our OraQuick HCV test.

Sales and marketing expenses increased approximately $1.4 million. That's primarily due to increased staffing and related charges, such as travel, recruiting and relocation expenses.

G&A expenses increased to approximately $1.7 million because of higher legal fees related to the Prestige arbitration and increased staffing related charges. Pursuant to the arbitration decision, we expect to recover our legal fees and certain costs incurred in the Prestige matter in an amount to be determined by the arbitrators.

From a net income perspective, we were at break-even on the bottom line for Q3 and within the guidance announced during the last quarterly investor conference call. This compares to net income of $2.1 million, or $0.05 a share for the same period of 2006.

Our cash balances remained strong with $92.3 million at the end of Q3. During the first nine months of the year, we generated $7.8 million in cash flow from operations. Accounts receivable increased partially as a result of higher revenues.

Days sales outstanding held steady at 52 days compared to 53 days in the prior year. However, importantly, this represents a reduction of 11 days from the June 30, 2007, days sales outstanding metric.

And with that, we would now like to open the floor for questions regarding our third quarter financial results.

Thank you. (OPERATOR INSTRUCTIONS.) Dave Turkaly, SIG.

Great, thanks. I guess quickly on the infectious disease front, is there any -- and looking back at last year, and it does appear that there was some seasonality to sort of the direct to U.S. public health.

And I know that we've seen the CDC allocate some new money, so I guess -- do you think there's any impact of people waiting for some of these monies to be allocated? Maybe any update you can give us on that front.

I think we probably saw -- this is Doug, Dave. I think we probably saw a little bit of that in the third quarter. Certainly, the second quarter is historically our strongest quarter. That's when national HIV testing day occurs, and there's a lot of activity.

But, I think we turned in a solid quarter in the third quarter in infectious diseases. Fourth quarter should be strong, as well. That's when I think we're going to start to see some of the CDC money start to be spent, although jurisdictions are telling us that they are also going to be investing in infrastructure during the fourth quarter. And so, the bulk of that CDC money will come, we believe, in 2008.

Okay, just to be fair, I'll leave it to one for now.

Thank you. Aaron Lindberg, William Smith & Company.

A quick question on public health, as well. How much of the public health sales went direct to cities or city-wide initiatives, like Philly, L.A., Oakland, some of the ones you've talked about in the past?

Just a little less than $400,000, Aaron.

Great, thank you.

Yes.

Jeff Frelick, Lazard Capital.

Hi, guys. Given that Abbott had a pretty decent number, can you tell me how many hospitals were Abbott in the quarter?

Well, we're up to approximately 2,000 or so now, Jeff. And so, I would imagine that we're probably looking at something of approximately a couple of hundred or so that were added during the last quarter.

Okay. Thanks, Ron.

Yes.

John Putnam, Dawson James Securities.

Yes, thanks. Hi, guys. I was wondering if you might just give us a little color on what's going on in the substance abuse testing market. Some areas were up, some areas were down. Can you just give us a little color on that, as well?

Sure, I'd be happy to. The workplace testing business continues moving on. The criminal justice was a little softer than we had hoped in the third quarter compared to the prior year's comps. That business is highly competitive and always funding-challenged.

And I think that we felt a little bit of that in the international business, as well, where we saw that down 20% versus a year ago period. And that is from our distributor over in the U.K., John. And they sell into the criminal justice marketplace, and public funding in that marketplace was down, as well as the effect of competition over there in the U.K.

Thanks a lot.

Okay.

Aaron Lindberg, William Smith & Company.

Which products drove the higher scrap and spoil cost in the Q?

There were a number of products where we had scrap and spoilage, including OraQuick, Aaron.

Okay. No one that drove it particularly higher than another?

I'd have to look back at the numbers but, certainly, OraQuick was involved with that, yes.

If you look -- I don't know what the easiest way to look at the data for you is, just off the top of your head, but can you give us just a sense of what the impact was there, either sequentially or year-over-year?

I would say you're probably looking about half of that reduction was based on scrap and spoilage, from a margin perspective.

Perfect, thank you.

And then, you had the -- oh, okay.

Ed Shenkan, Needham & Company.

Thanks, Doug and Ron. Can you hear me?

Yes.

Hey, Ed.

Good. But, I was just wondering if you could give any further breakdown on the infectious disease. You gave some percentages. I'm not sure -- just to make it easy, if you could give what some of the revenues were in the breakout?

Sure. In the press release that we put out there, the total revenues for OraQuick in the quarter were $7.5 million, $4.5 of which went direct to public health, and $2.2 to Abbott. And then, really, the bulk of the remainder was in the international market segment of about $850,000 or so.

So, that's a nice trend on the international side. Do you expect it to continue? And is it mostly Madagascar, are you finding it around Africa? Any additional color you could provide.

We'll comment on that a little later in the call. But, certainly, Africa continues to grow pretty nicely. Madagascar has been strong. We're working on several other initiatives on the continents that we're excited about.

I don't have anything formal to announce on that as of yet. But, we believe that's going to provide some nice growth in the future. We'll talk a little bit later about our efforts to prepare for the European launch before the end of the year. That's moving along pretty nicely.

So, we're expecting good things on the international front, certainly through the rest of this year and through '08 and '09.

And Ed, just to round it out, OraSure accounted for approximately $700,000 of rev in the infectious disease segment in the quarter.

Thank you. And for the Cryosurgical business, could you do the same thing as far as maybe breaking out the business, as far as revenues go, the OTC, U.S., rest of world, and professional U.S., rest of world?

Sure, no problem. In the professional marketplace, domestically, we recorded approximately $1 million in revenues. The international marketplace, approximately $600,000 in the professional space. OTC in the U.S. was $2.5 million, and OTC international was $2.7 million.

And in the other areas of business, insurance risk was particular strong in the quarter. Anything you can attribute it to? And might this be a trend, or how do you think about that business going forward?

Ed, it actually turned in a performance of approximately $1.6 million, and that was pretty much [blot]. And I think that that's what our expectation is going forward, until we bring on additional companies in the insurance field that we use oral fluid testing.

And I'm not sure if now is the time, but [Genoma], it sounds like, might have been real strong. Can you give more details there, if they're expanding throughout South America or wherever at?

All the revenues that were recorded from Genoma in the third quarter were related to their activities in the Mexican market only.

Okay, thanks.

All right.

John Putnam, Dawson James Securities.

Yes, just going back to the gross margin situation, have you been able to improve the yields on products that were giving you trouble, or is there anything specific you can do about that?

That's a certainly of paramount interest to us, John, and it has our--.

--Sorry about that--.

--That has our laser focus on improving that situation and turning around our margins in that area. Yes, absolutely.

Okay. So, have you been able to make any progress in doing that?

We believe that we have.

Yes.

Okay, great. Thanks.

At this time, there are no further questions.

Okay. Well, thanks for the questions.

And now, we'll discuss the progress that we're making against our strategic initiatives and certain other business developments.

So, first, let me start with our ongoing efforts to obtain FDA approval to sell the OraQuick Advanced HIV test over-the-counter. During the last earnings call, I indicated that we would be starting a more robust label comprehension study. This study has now been completed.

During the quarter, we also initiated our Phase 2 interpretive studies, which evaluate an individual's ability to properly interpret test results without having to actually perform the test. And these studies are ongoing, and we expect them to conclude during the fourth quarter.

We expect to submit the IDE amendments for the Phase 2b and Phase 3 user studies in the next few weeks. As previously discussed, Phase 2b will access an individual's ability to use the test properly in an observed setting, and Phase 3 will do the same in an unobserved, at-home setting.

These studies are scheduled to begin next year. The results of the robust label comprehension study and the Phase 2, 2b, and 3 studies will all be included in our FDA submission for over-the-counter approval.

Work also continues on the development of a 24-hour per day, 7-day a week customer resource and medical referral system. As previously reported, The Constella Group, a leading global provider of professional health services and a long-term HIV/AIDS-related services provider for the CDC, is helping us with the design and implementation of this system.

Draft call center scripts have been completed, and a prototype system is nearing completion. Training on the system is planned for December, and a fully developed system will be operational in time for the Phase 2b user studies next year.

So, in summary, the schedule I announced during the last earnings call remains intact. There is still a great deal of clinical work to be accomplished that we expect will take us to mid-2008.

We have requested a meeting with the FDA to review clinical progress to date and our plans for completion of the clinical study effort in 2008. We hope that meeting will occur before year-end. We still plan to submit a PMA application with the FDA for OTC approval upon completion of our studies as soon as possible in 2008.

Turning to the development of our rapid Hepatitis C test on the OraQuick platform, this project also continues to progress nicely. Previously, we reported the completion of our product design and the generation of clinical performance data equivalent to existing laboratory-based HCV tests.

We have since made good progress in establishing and verifying the manufacturing specifications for production of the OraQuick Hepatitis C device. As a result, this product has now been transferred from R&D to manufacturing, and is now being produced in our production facility.

Following successful production of three clinical trial lots, we will begin the clinical studies to support product approval. These studies should begin before the end of the year and are expected to continue through the early part of next year.

As you know, a critical project has been to extend the shelf-life of our OraQuick HIV test beyond six months. Real-time stability studies are progressing and have gone well. We recognize this an important issue for our infectious disease business and we are working to extend the shelf-life of this product as quickly as possible.

Another key program is the development of homogeneous, fully automated drugs of abuse assays with Roche Diagnostics for use with our Intercept oral fluid collection device. The development work continues to go extremely well.

In fact, three posters with preliminary performance data for prototype assays for cocaine, opiates, amphetamines and methamphetamines were presented at the Society of Forensic Toxicologists, or SOFT, meeting on October 18th of this year. These prototypes showed excellent correlation with current confirmatory methods for drugs of abuse.

The performance of these prototype assays was very encouraging and indicated that we should we able to develop state-of-the-art drugs of abuse assays using oral fluid on automated systems. Interest in the assays at the SOFT conference was tremendous, with customers specifically visiting the OraSure and Roche booths to inquire when they can anticipate using these assays in their labs.

Development of the assays for PCP and THC, or marijuana, also continues to progress. Once all these tests have been developed and optimized, Roche will initiate the clinical studies with our assistants, and the data generated will be used as a basis for our 510(k) submission to the FDA.

A final area I would like to address is operations. During the quarter, we completed the qualification of our new fully automated manufacturing equipment for OraQuick. The team is in the process of completing validation activities and compiling the final data set for an FDA submission.

Since our last investor call, an additional assembly station was added to the line to increase capability of the system. In addition, equipment installation and validation was completed in a recently constructed semi-automated manufacturing space for OraQuick devices.

Data and documentation for an FDA submission have been compiled, and the submission should be filed in the fourth quarter. Once FDA approval is obtained for both the new semi-automated assembly space and our fully automated system, we will have completed a major expansion in our manufacturing capacity for OraQuick HIV and HCV.

These additions to capacity are important steps in the execution of our five-year facility and manufacturing plant, designed to ensure that our infrastructure can support the future growth of the Company.

Now, I would like to provide some additional details regarding each of our businesses. In our infectious disease testing business, the primary driver will continue to be, in our view, the increased support for and adoption of the CDC's revised recommendations for routine HIV screening in healthcare settings.

To help implement these recommendations, the CDC previously announced that it had identified $35 million in additional funding to increase HIV testing opportunities among populations disproportionately affected by HIV, primarily African-Americans.

In September, the CDC awarded this funding to 23 states in major metropolitan areas. We've been working closely with many of the grantees and, because many are already OraQuick customers, we believe that we are in a strong position to capture a significant portion of the these incremental funds.

In addition to financial support, the CDC is providing implementation and communication support for the funded jurisdictions. For example, the CDC has completed strategic planning workshops to help grantees implement their recommendations in Las Angeles, Chicago, Boston and Miami, and additional workshops are currently scheduled for Washington, D.C., New York and San Antonio. Eight additional workshops are planned for other funded jurisdictions.

The CDC recommendations have received broad support from the American College of Emergency Physicians, the AMA, the NMA and others, and a number of states have adopted legislative changes since last year, designed to increase HIV testing, including eliminating the requirements for written informed consent and requiring opt-out prenatal testing. These are all very positive developments, and we expect more to come.

At a recent meeting of the President's Advisory Commission on HIV/AIDS, or PACHA, data was provided for the CDC's hospital emergency department demonstration projects and several public health testing programs. This data shows that adoption of the CDC's revised guidelines is resulting in increased HIV screening and identification of new HIV infections.

And earlier this month, we participated in a two-day meeting convened by the National Black Leadership Commission on AIDS, or NBLCA, which brought together many of the nation's most prominent African-American clergy, representatives of the National Medical Association, the Congressional Black Caucus, and other organizations to discuss a plan to fight HIV/AIDS within the African-American community.

At this meeting, there was overwhelming support for increased testing, education and treatment, and to prioritize these efforts. In partnership with the Latino Commission on AIDS also participate in a rapid HIV testing initiative on National Latino Awareness Day, 2007. We donated OraQuick HIV test and educational materials to the Commission which, in turn, distributed the test kits to more than 100 community testing sites and events nationwide.

And during the quarter, we continued our efforts to expand HIV testing initiatives in cities that have launched major campaigns. Washington, D.C.'s program continues to expand. The District was one of the 23 jurisdictions awarded CDC funding for expansion of its program.

And likewise, Philadelphia also continues to grow its program, expanding into traditional public health and corrections settings, and partnering with hospitals to deliver rapid HIV testing.

Finally, our work continues with the City of Los Angeles on the development of their testing initiative, and we anticipate a more formal announcement about this initiative will be issued in the near future.

Sales to Abbott increased 31% during the quarter, and Abbott's out-sales increased 30% compared to 2006. OraQuick is now being used in almost 2,000 hospitals and is now on contract with seven major hospital group purchasing organizations.

As you may know, the initial term of our agreement with Abbott ends at the end of this year, and there are provisions concerning the renewal of this agreement. We are currently in renewal discussions with Abbott and expect the Abbott agreement will continue for 2008.

We're also making good progress on the international front. Since our OraQuick Advanced HIV test is CE marked, we've been aggressively pursuing distribution in the European Union. We've signed distributors in the U.K. and Ireland, and are close to signing a distributor in Spain. We're also making good progress in Italy and France.

Several sites in Europe are currently conducting investigational studies with the OraQuick Advanced test. We believe studies like this will help facilitate our European launch.

And as mentioned earlier, OraQuick sales to Africa during the third quarter more than doubled, compared to 2006. Sales to the Government of Madagascar remain strong, as that country's testing program continues to expand. And we're also making significant progress, as I mentioned earlier, in other African countries, which we believe will help fuel future growth.

In the substance abuse area, there were several important developments during the third quarter. Intercept sales in the workplace testing market grew 9% and 41 new accounts were closed in the quarter across both workplace and criminal justice. Two of those closes were large criminal justice accounts. And we also recently reached agreement to extend our Intercept contract with Quest Diagnostics.

In the Cryosurgical systems market, apart from the Prestige arbitration, the most important developments were in the international arena. Significantly, we are close to signing agreements to distribute our over-the-counter Cryosurgical product in a number of additional Latin American countries.

Regarding litigation, last week we received the decision in our pending arbitration with Prestige Brands, the distributor of our U.S. over-the-counter Cryosurgical product. The arbitrators found that Prestige had breached the nine-compete provision of our distribution agreement when it acquired the competing Wartner product.

The arbitrators also concluded that we were entitled to an award of our legal fees and a share of the arbitrators' costs. To receive payment, we have to submit proof of our legal fees for approval by the arbitrators.

The panel also concluded that the agreement with Prestige will terminate on December 31, 2007. And as a result, we've been evaluating alternative product and distribution strategies for the domestic over-the-counter Cryo market. The domestic over-the-counter Cryosurgical market is important, and we intend to participate in the future.

With respect to the Schering-Plough litigation, this matter remains pending, and we look forward to bringing this litigation to a conclusion, as well.

I'll now turn it back over to Ron, who will update our financial guidance.

Thanks, Doug.

Starting first with our fourth quarter guidance, we are now expecting revenues to range from $19.5 to $20 million, and earnings per share to approximate break-even. We do expect R&D expenses to increase as we progress our clinical development activities. To the extent we can accelerate spending to achieve our desired outcome sooner, we will do so with a corresponding impact on EPS.

With respect to guidance for the full-year 2007, we are reiterating our revenue forecast of approximately $83 million, representing a 22% increase over 2006.

As we close out the year, we intend to aggressively advance our clinical development plans on OraQuick, HIV OTC, our rapid HCV test on the OraQuick platform, a product line extension for our Cryosurgery product line, and the automated assays under development with Roche, all of which are running concurrently.

We believe that there is nothing more important to securing our future than the successful completion of this work and obtaining final approval of our next generation of products. And as management team, we are focused on executing each required step as rapidly as possible.

As we have discussed previously, forecasting the exact timing of clinical trial expenses is a difficult task. And the actual timing of these costs will have a significant impact on our EPS.

In addition, in Q4, we have our Schering-Plough litigation and the pending resolution and quantification of our legal fee recovery in the Prestige dispute. It is against this background, a difficult to predict variable, some of which are outside of our control, that we feel comfortable with leading full-year earnings guidance at $0.05 per share.

With respect to 2008 guidance, we will be providing estimates on our fourth quarter earnings call in early February 2008.

So, in closing, I continue to believe that our activities in 2007 will position us for future growth in the years to come. And with that, we'll now open again the floor to questions regarding our business update.

Thank you. (OPERATOR INSTRUCTIONS.) Ed Shenkan, Needham & Company.

Thanks, Doug and Ron. I just wanted to follow-up on the CDC disbursements to the cities which we recently had. Are you finding that the cities are purchasing more product than they previously did because of this funding from the CDC, or is the funded displacing what you have expected those cities to order?

Ed, this is Doug. We expect that this funding is going to be incremental to what they've been granted and spent in the past. However, as I mentioned earlier, we expect most of this new funding to actually be spent in 2008.

Okay.

If you recall, the jurisdictions had to submit their grant proposals to the CDC. And they were just notified within the last 30 or 45 days or so that they received those grant awards. They then, now, have to take that money and begin to implement.

And in virtually all cases, these dollars represent new programs. So, the different jurisdictions are building infrastructure to be able to execute and deploy these new funds.

So, that's why we're going to see some funding, some of this new money in the fourth quarter. But, we believe that most of it will be in 2008.

And the way those programs were designed, the grants that they had to write, it had to explicitly show that it was additive, these were new programs. Is that right?

That's exactly right. And there will be an accountability and a reporting mechanism set up by the CDC with the grantee, so that we should have some indication as we progress through 2008 as to just what the incremental funding impact was.

And Ron, two clarifications in the guidance for the fourth quarter. Does it include any U.S. OTC? What revenues from Prestige? And also, did you include in your guidance expectation of litigation reimbursement from, I guess, Prestige also?

Sure. With respect to your first question, Ed, there is an amount of product that we shipped in early October to Prestige of approximately $700,000 in the fourth quarter. And yes, we do have an estimate in there for legal expense recovery.

So, other than the $700,000, that's all you'd expect for Prestige?

Yes, that's it.

Great. I'll get back in queue.

Dave Turkaly, SIG.

Thanks. And on the clinical front, can you just review with us the ultimate timing? I think you spoke about when you submit HIV over-the-counter. Could you refresh our memory on Hep C and when an ultimate approval could actually come from the FDA?

Okay. So, on the HIV OTC, we still have to complete the Phase 2 studies, which we expect will be completed yet this year, and then we expect to complete the Phase 2b and Phase 3 studies during the first half of 2008. Assuming those studies are completed on time, the actual HIV OTC submission will be somewhere mid-year or into the back half of 2008.

On the HCV front, we're going to initiate our clinical studies before the end of this year. They will certainly last through the first quarter or so. And then, we will compile that data and make our submission as soon thereafter.

And just quickly, my recollection is that it's PMA, but it may not need a panel. Is that still the way you guys are thinking today?

We would expect that the HIV OTC submission will be reviewed by the blood product advisory committee. The HCV submission, we expect, will be more straightforward PMA approval.

And just one last one to that front. I know you're not speaking too much about the exact design of the trial that you have to do but, I mean, is it similar to what we saw data on in July, or is it a completely different kind of analysis you'll need to do for the FDA?

No, I think that the data that was shared at the AACC on the HCV prototype is represented of the types of specimens and the types of studies that are part of our HCV clinical trial protocol. It will just be a bit larger.

Thanks a lot.

Um-hmm.

John Putnam, Dawson James Securities.

Yes, I was just wondering on the Prestige, or the OTC market, could you possibly speculate on some of your options? What are you kind of looking at trying to do?

I prefer not to speculate although, obviously, we've enjoyed a good position with the Compound W brand. Our technology has been well received in the marketplace, so we'd like to make sure that that technology still has a place in the market.

We could introduce an additional branded product. We could, obviously, also do something with potentially a private label product. We haven't rule any of those things out at this point. But, I wouldn't speculate on which of those, or both of those, we'd pursue. I think as we progress discussions with potential partners or make decisions on our own to launch one or more of those products, we'll share that information as soon as possible.

Yes. Thanks, Doug.

Aaron Lindberg, William Smith & Company.

Just a clarification on an earlier question. In your Q4 estimates, you are included that recoup of the PVH arbitration costs?

Yes.

Okay. So, that's already in there, and we're netting out at break-even.

Yes.

Okay. When would you expect to once again have a U.S. over-the-counter Cryo product?

We're not prepared, at this time, to give an estimate on that, Aaron.

Okay. In your financial plans, do you have any purchases from the CDC or SAMSA directly, whether that's 2007, '08, beyond?

We'll give guidance on 2008, as Ron mentioned, in our February call.

But, broadly speaking, are you planning on any direct purchases from either one of those agencies for OraQuick Advance?

You want to comment on any fourth quarter?

Well, no. I mean, in the fourth quarter, which is really the one that we have been discussing and giving guidance on, Aaron, again, I think it'll be the CDC's money that has been directed down to the various public health entities around the country, will be utilized and, as Doug indicated, that the majority of that is likely to be an '08 event. But, we will likely see some dollar purchases using CDC money in the fourth quarter here, but not direct purchases from the CDC, indirect purchases.

Okay. That was just my -- and that's all that I'm looking for is clarification because my sense is that the likelihood of direct purchases from those organizations going forward is low. You said it'll be through programs like the rapid HIV initiative that's underway now, that we just saw the allocation for, rather than a direct purchase.

Okay.

And that's what I'm looking for clarification on.

As it relates to your final Phase 3 OTC trial for HIV, do you know how many patients you anticipate enrolling in that now?

We have not reviewed that study protocol yet with the FDA. So, no, I can't comment on that right now.

Okay. And then, last question, it'll be just a follow-up on an earlier one, as well. Can you just walk us through, from your vantage point, what you see as the pros and cons of a new branded product versus a private label OTC Cryo product in the U.S.?

Well, I think, on the branded side, we have a leading technology, so that technology put into -- under any brand -- obviously, it depends on the strength of the brand -- could be an attractive offering.

There is not a private label offering in the marketplace today, and that could be interesting, as well. None of these options are off the table right now. As I mentioned, as we have something more to report, we'll share it with you.

Okay, thanks.

Jeff Frelick, Lazard Capital.

Yes. Doug, could you comment maybe on the timing of platform enhancements for OraQuick?

I'm not sure I understand the question, Jeff.

Increasing the sensitivity or specificity of the product?

The sensitivity and specificity of the product is extremely, extremely high right now. Sensitivity of OraQuick HIV and blood is 99.6%, 99.3% oral fluid. Specificity is 99.9% and blood 99.8% in oral fluid. So, the product's absolutely robust and performing very well in the field.

We have learned some things, quite frankly, through the development of our Hepatitis C assay, that we think might make those numbers even better. We haven't made any firm decisions yet to develop an improved or reengineered HIV test but, certainly, something that we might consider as we look down the road.

Okay. And with respect to shelf-life extension, maybe help us understand a little bit what's kind of needed to -- kind of the to-do list, next step, other than just waiting for time to elapse.

I think, as we've mentioned previously, we've identified some process improvements that we've implemented in the OraQuick manufacturing process. We've developed some enhanced lots that we believe will enable us to extend our shelf-life and those new lots are currently on stability.

We indicated previously, I think, that we put those lots on stability in April. And in order to extend the shelf-life of the product, we have to have real-time stability. Our current shelf-life is six months. Obviously, as we pass the six-month timeframe and continue to demonstrate extended stability, we will make the appropriate adjustments to our shelf-life.

Okay, thank you.

Thank you. At this time, there are no further questions. Mr. Michels, I'll return the call to you.

Okay. Well, I want to thank everyone for participating in this afternoon and this evening's call. We're certainly looking forward to finishing a very successful 2007, and I look forward to updating you again on our progress during our next conference call in February.

Have a good afternoon and evening, everyone. Thanks again. Bye-bye.

Thank you. This concludes today's conference call. You may now disconnect.