OraSure Technologies Inc (OSUR) 2009 Q1 法說會逐字稿

Good day, everyone, and welcome to OraSure Technologies 2009 first quarter financial results conference call and simultaneous webcast. As a reminder, today's conference is being recorded. (Operator Instructions). For opening marks and introductions, I would now turn this call over to Judy Clark at OraSure Technologies. Please go ahead.

Thank you. 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 2009 first 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, May 13, 2009 by calling 800-642-1687 for domestic or 706-645-2991 for International. The access code is 96095225.

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 which will be followed 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 statement, its annual report on form 10-K for the year ended December 31, 2008, its quarterly reports on form 10-Q and its other SEC filings.

Although forward-looking statements help to provide complete information about future prospects, listeners should keep in mind that such 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. Also, please note that today's results will include a discussion of certain non-GAAP financial measures. Non-GAAP reporting is provided to help you better understand our business and certain items which impacted our results.

However, non-GAAP financial results are not meant to be considered as a pendulum measurement of performance or as a substitute for, or as superior to GAAP results. You should be aware that non-GAAP measures have inherent limitations and should be used only in conjunction with OraSure's consolidated financial statements, prepared in accordance with GAAP. Our press release includes a table detailing the non-GAAP measures, together with the corresponding GAAP results and a reconciliation to GAAP. We encourage listeners to review these items. With that, I would like to turn the call over to Doug Michels.

Ok, thank you, Judy. Good afternoon, everyone. Welcome to our first quarter 2009 earnings conference call. Ron Spair will begin with a review of our financial performance for the first quarter. As you will see, both our top and bottom line results exceeded the guidance provided during the last earnings conference call. Ron will also provide financial guidance for the second quarter of 2009. And after that, I will describe the progress we're making on the Company's major clinical development programs and provide some more general business updates. We will conclude by opening the floor for your questions. Now, let's turn to Ron's financial overview.

Ok. Thanks, Doug. Good afternoon, everyone. First quarter 2009 revenues were $17.3 million, representing a 5% decrease from the $18.1 million reported in 2008. Increased sales and infectious disease and insurance risk assessment testing were offset by decline in sales of our cryosurgical systems and substance abuse testing products. The overall 10% growth in our infectious disease revenues in the first quarter of 2009, was a result of strong sales of our OraQuick Advance Rapid HIV - 1/2 AntibodyTest. Sales to public health increased 5% over the first quarter of 2008.

In addition and as you may recall, we switched to a direct sales model for US hospitals on January 1, 2009. We are very pleased with the smooth transition from Abbot selling our OraQuick ADVANCE product, to using our own direct sales force to serve the US hospital market. Direct sales to hospitals are off to a great start with a 41% increase over prior year sales levels to Abbott. This increase is due to the higher average selling price realized under the direct model.

Offsetting these increases in infectious disease revenues, was a 29% decline in international OraQuick revenues as a result of lower sales into Africa. Sales volumes were up in all other international markets including Europe, Asia and Latin America.

First quarter 2009 cryosurgical revenues decreased 36%, compared to the first quarter of 2008. International over-the-counter sales were down 67%, when compared to sales in the same period of 2008. European OTC sales to our distributor SSL are tracking below 2008 levels with a 55% decrease. This reduction was the result of lower unit selling prices and volatility in SSL's ordering patterns.

In addition, during the first quarter of 2008, we had approximately $400,000 of sales to our Latin-American OTC distributor, Genomma. This compares to no sales volume during the first quarter of 2009. We believe Genomma has largely worked through their excess inventory which we previously reported and we expect sales to Genomma to begin again during the second quarter of 2009.

Also, during the quarter, we launched our own nationally-branded cryosurgical wart removal product in the US OTC market. We have shipped product to one major retailer, Rite-Aid and we will look to expand distribution to other retailers in the future. On the professional side, our combined cryosurgical sales decreased by 11%, compared to the first quarter of 2008. As you may recall, we were experiencing diversion of this product domestically from sources outside the US. We believe we have substantially corrected the issue, although we did see some impact during the first quarter.

Moving to substance abuse testing. Revenues decreased 18% in the first quarter of 2009, compared to the first quarter of 2008. Sales of our Intercept Drug Testing System continue to be directly impacted by the current challenging economic and employment environment. Our insurance risk assessment sales increased 6% from $1.5 million in '08, $1.6 million in 2009, while licensing revenues decreased from $453,000 to $335,000.

Turning to gross margin, our overall margin for Q1 of '09 was 64%, an increase from 59% for Q1 of 2008. This is the highest gross margin the Company has achieved in over two years. The improvement resulted from a decrease in scrap and spoilage charges, when compared to the prior year quarter, as well as the incremental gross margin associated with the switch to a direct sales model in the US hospital market. We are very pleased with the hard work of our operations and R&D groups in lowering our scrap and spoilage levels over the prior year. We expect there will be some volatility in this number from quarter to quarter.

Our total operating expenses for the first quarter were down $823,000 or 6%. R&D expenses for Q1 were down 27% or approximately $1.2 million from the first quarter of 2008, primarily due to a decrease in clinical trial spending associated with our OraQuick HCV and OraQuick HIV OTC programs and a decrease in staffing costs. We do expect that our clinical spend will increase above first quarter levels later this year.

Sales in marketing expenses decreased 4% or approximately $193,000, despite an increase in staffing and related charges as a result of the recruitment of our direct sales force for the US hospital market. The increase in staffing was offset by decreases in many expense categories across the board, as we focused on cost control and limiting our discretionary spending. For the remainder of '09, we expect sales and marketing expenses will increase above first quarter levels.

G&A expenses increased approximately 16% or by $616,000, primarily due to increased legal fees associated with the continuing patent infringement lawsuit filed by Inverness Medical and Church & Dwight. From a bottom line perspective, we reported a pretax loss of $1.6 million or $0.04 per share which exceeded our guidance. This is an improvement compared to an adjusted non-GAAP pretax loss of $2.1 million for the same period of 2008, as our bottom line benefited from the improvement in gross margin and decreases in operating expenses.

Turning briefly to our balance sheet and cash flow, our cash balance remains strong with cash and short-term investments of $78.6 million at the end of the first quarter. Our working capital of $90.1 million at March 31, 2009, is comparable to the working capital balance at December 31, 2008, of $90.9 million. Our current ratio improved from 6.95 as of December 31, '08 to 8.97 at March 31, '09.

During the first quarter of 2009, we used $2.7 million in cash flow from operations, compared to $3.7 million used during the first quarter of 2008. The decrease in cash used in operating activities is largely the result of improved accounts receivable collections, as we collected a large outstanding balance due from one of our international customers. Day sales outstanding improved from 69 days at March 31, '08 to 59 days at March 31, 09.

Accounts receivable at March 31, '08 were inflated by large balances due from two of our largest distributors, Quest Diagnostics and SSL. Decreases in accounts payable and accrued expense balances, offset by noncash charges for stock comp and depreciation and amortization contributed to the cash used in operations. It should also be noted that our use of cash during the first quarter included the contract termination fee paid to Abbott and accrued at year end.

In addition during the quarter, we purchased 108,293 shares of common stock under our stock repurchase program, for an aggregate consideration of $308,605. Cumulative purchases under the Company's Board approved repurchase program now total $5,429,713 and cover $1,256,023 shares of the Company's common stock. The initial authorization was for a maximum purchase of up to $25 million.

Turning to guidance for the second quarter of 2009, we are projecting revenues of approximately $18.5 million to $19 million and a loss per share of approximately $0.06 to $0.07. And with that, I'll turn things back over to Doug.

Ok, thanks, Ron. I will now provide an update on our major clinical programs. Since our last earnings call, we have continued to communicate with the FDA regarding our premarket approval PMA application for our OraQuick HCV test. We provided additional information and responded to questions as the FDA's review has progressed. We were recently contacted by the FDA to schedule a full facility audit, which is a normal part of the PMA review process. It appears that this audit will be scheduled during midsummer, which is generally in line with our expectations for this project.

Other matters that we continue to work on with respect to the OraQuick HCV test include studies required for a CLIA waiver and for CE mark approval. These activities are continuing in line with our internal schedules. As you may recall, the studies required for a CLIA waiver are being timed for completion so that a submission can be filed as soon as we receive FDA approval. Completion of additional data analysis and clinical reports required for CE mark approval should occur within the next couple of months, with our submission expected to be made shortly thereafter.

Finally, there are two investigational studies being initiated by independent third parties. But first, we'll examine the utility of a prototype OraQuick HCV test to identify HCV infection in at-risk individuals and the second will be used to test the product against current laboratory methods when used to test HCV positive and HCV negative individuals.

Regarding OraQuick's stability, as we have discussed on prior calls, we've been working for some time to extend the shelf life for our OraQuick HIV test to at least 12 months. We were able to do that initially in certain international markets outside of Europe. And at the end of last year, as you know, we received FDA approval to extend the shelf life here in the United States. More recently, we received an e-mail from our notifying body that an extension to 12 months was approved for the European Union. We expect to receive their final report confirming this approval in the very near future and this final approval enables us to sell OraQuick product with 12 month dating now on a worldwide basis.

Turning now to our efforts to obtain FDA approval for an OraQuick rapid HIV over-the-counter test, we had previously submitted the results of our observed user study to the FDA. This study was designed to assess an individual's ability to interact with our packaging and comprehend the instructions for use, to take the test and interpret the results while a trained professional observed those activities. At the end of last year, we met with the FDA to review the data from this study and to discuss our draft protocol for testing the device with consumers in an unobserved setting. The FDA contacted us several weeks ago and they indicated that our observed study results, along with our proposal for the final unobserved study were going to be presented to upper management within the FDA. It is our understanding that this meeting recently occurred and we expect to receive guidance from the FDA shortly.

We obviously remain very excited about this opportunity because of the enormous potential for both our Company and the public in general. As we gain greater clarity from the FDA, we'll provide you with updates as appropriate.

Turning to litigation, we are very pleased with the court's recent decision to deny the motion for summary judgment filed by Inverness and Church & Dwight on the issue of infringement. The motion was denied without prejudice, which means the plaintiffs can reinstate the motion after the court's Markman hearing is completed. The Markman process is a normal part of a patent lawsuit in which the court will define the meanings of various patent claims relevant to an infringement determination.

Depending on the court's Markman ruling, we may also decide to file our own motion for summary judgment, seeking a determination of non-infringement. We remain very confident and I say very confident, in our position in this litigation.

Finally, I would like to provide some perspective on major parts of our business as we begin a new year. As Ron explained, our infectious disease testing business and in particular, sales of our OraQuick rapid HIV tests were strong during the first quarter and we remain bullish on this part of the business. Despite the challenging economy, there remains a high level of focus on HIV prevention and specifically, on the expansion of HIV testing. And we believe that increased funding will be made available through various legislative efforts. These legislative activities reinforce the priority being placed on HIV/AIDS, including the need for more testing. We believe this will continue to create an environment for increased HIV testing in the years to come.

As Ron mentioned, the transition to a direct sales approach in hospitals has gone extremely well. Sales for the first quarter exceeded our expectations, despite a slower start in January, which was due to an acceleration of sales to hospital customers by Abbott at the end of last year.

Based on the results in the first quarter, we have already established and received product orders from more than 1,000 individual hospital accounts. In addition, we saw the percentage of hospitals ordering increase by nearly 10% from the start to the conclusion of the first quarter. And we have secured agreements with five major hospital group purchasing organizations, providing thousands of hospitals with immediate access to our OraQuick product. We believe that we've secured most of the business previously managed by our distributor Abbott Laboratories and we're now focused on expanding sales to this very important critical marketplace.

As Ron indicated, revenues from our cryosurgical business were down compared to the year ago quarter. We're working very hard to improve the performance of this business. Our cryosurgical business is already benefiting substantially from increased management focus and attention. As you may recall, last year, Mike Formica, who also heads our operations, assumed responsibility for this business on a global basis. He's doing a fine job by providing our cryosurgical products with the additional attention that they need.

One of Mike's immediate objectives has been to stop the diversion of his Histofreezer product back into the United States from some of our foreign distributors. This has been a difficult and a time-consuming endeavor, but we believe this is largely resolved and should have little impact during the remainder of this year.

Another area of focus has been to improve the performance of our over-the-counter product line internationally. We have extended the contract with our European distributor SSL on favorable terms and we expect better performance in 2009, as they work through an inventory position built at the end of last year.

We're in a similar position in Latin America. Although our distributor Genomma made no purchases in the first quarter, we expect that to change as orders have been placed for the remaining three quarters of 2009.

On the domestic over-the-counter front, we've shipped a small quantity of product to Rite-Aid and recently received both a second and a third order from this retailer. Discussions with other chains and with some retail internet sites are ongoing.

The economic downturn and the reduction in hiring has no doubt negatively impacted sales of our Intercept product line, primarily in the workplace testing segment. The US Department of Labor announced in March that the number of individuals unemployed reached 13.2 million and the unemployment rate rose to 8.5% nationally. Pre-employment drug screening accounts for the majority of drug testing conducted in the workplace.

The declining trend we experienced is also consistent with the public pronouncements from the nation's largest laboratories. For example, Quest Diagnostics which is our largest Intercept customer, indicated that its first quarter drugs of abuse testing volume declined by 25%, primarily due to the hiring trends. A similar experience was reported at the nation's second largest laboratory, LabCorp, where they saw a 20% decline in drug testing year-over-year in the first quarter. A change in these trends is not expected until we see improved economic and employment conditions.

On the positive side, there has been added federal support in drug court funding, where we've seen some success with our Intercept test. President Obama signed the 2009 Omnibus Appropriations Bill in March, which increased drug court funding to $63.9 million in 2009, a 250% increase over last year's mark.

The final item I want to mention is that we recently launched a newly redesigned website. This product -- project has been underway for a number of months and our focus was to improve both the content and function of our website, to make it easier to use for our customers, our investors and any others interested in OraSure. We're very proud of the new site and believe you will be impressed as well. If you have not already done so, I encourage you to visit our website at www.oraSure.com.

So, in summary, we accomplished a great deal in the first quarter. We successfully transitioned to a direct sales model for hospitals. We continued to grow the infectious disease business in a difficult economic climate. Continued to advance our major clinical initiatives. Received 12-month dating on our OraQuick advance test. Substantially ended the diversion in the professional cryosurgical market. Launched our over-the-counter cryoproduct into the domestic market. We improved yields on scrap and spoilage and we brought down our day sales outstanding substantially.

2009, we believe, is off to a great start. And we intend to deliver a very successful remainder of the year. And with that, I'll now open the floor to questions.

(Operator Instructions). Your first question comes from the line of Sameer Harish with Needham and Company.

Hi, guys, can you hear me?

Hi, Sameer.

Hi, Sameer.

Hi, couple of questions for you. Wanted to start off on the direct to hospital sales as you've transitioned. Can you give us a number for where the sales -- how many sales reps you have right now?

Yes, total number of reps managers in the field is between 20 and 30. Now, when we went to the direct force, we also added inside sales people. We also had to add customer support folks as well as additional infrastructure. So, that represented some of the cost increase on the sales and marketing side. Obviously as Ron indicated, that was largely offset with some of the other reductions we took in sales and marketing.

All of our positions are fully staffed right now. And we are extraordinarily happy with A, the talent that we were able to attract into the organization and how they've transitioned the business very effectively. We -- I said I think during our last call, Sameer, that we were going to spend the early part of the first quarter, probably through the first couple of months, securing the base. Making sure he that we transitioned the existing business with Abbott successfully and then begin -- and once that was done to begin aggressively driving for growth. We were able to do that ahead of our internal schedule. Right now, we're in a great position. I've got to say, we have more visibility to what's going on in the hospital market today than we've ever had. And we're four months into this transition. It has been a very positive effort.

Did that 20 to 30 -- was that for the whole organization there or just including the quota carrying reps?

That's the folks in the field, directly calling on hospitals.

How large is the organization as a whole? Including the inside sales and customer support?

Customer support, obviously, handles more than just the hospital products. So, we have several individuals that are solely focused on telesales and customer support of hospitals. But then obviously, the rest of the organization is leveraged across all of the product lines.

It was an impressive quarter from that standpoint. It seemed like the orders were higher than we've seen in the past with Abbott. Does it reflect kind of the pre-existing account, if you will, that you had with Abbott or have you expanded the number of accounts since the beginning of the quarter?

I think it is the combination of both. We took the decision to build a direct organization because we felt we could accelerate sales growth in the hospital channel. And we -- all signs point to our belief that we're going to see continued growth in the hospital channel through the rest of 2009 and beyond. So, we've got a team that's very motivated. They're focused. Obviously,they're spending 100% of their time focused on OraQuick versus the Abbott reps. that were out there. Even though there were more of them, they were probably spending less than 10% or maybe even less than 5% of their time on OraQuick. We think our effective FTEs, full time equivalents in the field, focused on OraQuick right now is much higher than when we were distributing through Abbott.

Okay. And switching real quick to cryo. Can you give me a sense, from the Genomma side, obviously they've gone through some inventory reductions there and we didn't see any orders this quarter. What gives you confidence that the orders that you're expecting through the year are sort of realistic and in line with seasonality and expectations that they have?

Actually, we have purchase orders in hand, Sameer. So, we fully anticipate that we'll be shipping that product out here, beginning in the second quarter. Mike Formica has been meeting with them several times already this year down in Mexico, identifying the inventory levels that they have in the various countries for which we have already secured approval. And understanding to the best we can the actual sell-through at the retail point of sale. So, we understand what that demand is and respond accordingly. So, we're confident that product will ship to Genomma this quarter and throughout the balance of the year.

Great. I'll get back in queue. Thank you.

Thanks.

Your next question comes from the line of John Putnam with NextWave Research.

Hi, guys, I was wondering if you might talk a little bit more specifically about the FDA process for the Rapid HIV. Have they had this meeting? And I guess, what are your expectations if they come back with a positive response?

You know, the ball is in the FDA's court, John. Good to hear from you again, by the way.

Thanks.

We had a meeting with them at just before the Christmas holiday. They said they were going to get back to us shortly after the first of the year. We've had several follow-up conversations with them. This is obviously new for them. We're talking about moving into our final study, the unobserved study as we've discussed previously. The results, from the observed trial were excellent. That's what we submitted to them in 2008. The protocol for the final unobserved study is what's primarily being discussed right now. We submitted that and we're just waiting for their guidance on when we can start.

We included approximately 11 sites in the observed use trial. All of those are ready to go. For the unobserved study, we expect that we will add sites to the final study. Those have been identified. We're ready to get them trained up and put online. So, we're just waiting for the go ahead and the clarity from the FDA.

They said they were going to have a discussion with higher levels within the FDA. They said that was going to happen recently. In the recent past, we're waiting to hear the results of that discussion as soon as we get some guidance on that and we've got clarity on the path forward, we'll communicate as appropriate.

Ok. But do you think the unobserved portion will be as long as the observed portion, Doug?

You know what, John, it is hard to tell. You know, in the observed study, we had two main arms, right? There was an HIV-positive arm and those were presumed negative. Healthy, normal individuals. That was -- when the initial two or three years ago, when the initial total study design was proposed, it was proposed that we would just repeat what we did in the observed condition in the unobserved studies. And it would be in essence, an identical study.

The study went so well with the observed use study, we personally didn't see a whole lot of value in repeating a large number of HIV-positive individuals. They've already demonstrated they knew how to use the test. They already demonstrated they could get the right result. So, what's the benefit? But we're going to do whatever the FDA asks us to do. I mean, we've taken this down the road three years. We've invested a lot of money. We're in the final leg of this race and we're just eager to get it started and hopefully we'll get some clarity real soon.

That's great. Thanks very much.

You're welcome.

Your next question comes from the line of Aaron Lindberg with Wm Smith and Company.

To follow up on an earlier question regarding advance sales to the hospital, can you just break down how much of the sales -- the change in sales was based on unit change versus just a higher ASP?

It is all based on a higher ASP, Aaron.

The units are essentially identical year over year?

Slightly lower. But we saw that as a result of -- there was an effort by Abbott to sell out of inventory as much product as they possibly could at the tail end of 2008, out of their inventory levels, as well as some hospitals possibly buying in some additional product to make sure that the transition was seamless. And so although our January numbers were down a little bit, we saw increases in February and March and bringing the total number just slightly below where we were for Q1 of '08. So, very pleased with the results there. But all of it really is as a result of the ASP differential from Abbott to the direct model.

Great. That helps a lot. Thanks. Can you just update on us on broad legislative efforts to increase HIV testing and specifically, what signs of progress are you seeing with the CDC's initiative for increased HIV testing?

I mentioned that there is a lot going on on the legislative front. I wasn't going to detail it at all because there is a bunch. In January, funding for CDC's HIV testing program, for example, was increased $12 million. Funding for their early diagnosis for pregnant women program was increased by $15 million. In early April, the Obama Administration announced the launch of a five-year, $45 million campaign to increase HIV awareness, with a focus on prevention and testing. We think that's going to significantly increase demand for testing.

There has been a lot going on on the legislative front, Maxine waters has been extremely busy in early April, I think it was. She sent a letter to HHS requesting $610 million for the minority HIV/AIDS Initiative for fiscal year 2010. I realize that's for 2010, but it is a lot of activity. She came back at the end of April and sponsored legislation to -- I think it was the Stop HIV in Prison Act. And that bill proposes uniform standardized testing both on intake and upon release in prisons which is a very fertile market.

There was another piece of legislation recently introduced by Charlie Rangel. It's known as the National Black Clergy for the Elimination of HIV/AIDS Act. That legislation, I believe, authorizes over $600 million to be spent through a number of agencies across HHS and other government agencies.

There have been a lot of changes in the laws to enable routine HIV testing. When the CDC released its new guidelines on routine HIV testing, more than half of the states have laws that required pretest counseling and written consent for an HIV test. And now, at least a dozen of those states including California, Illinois, Maryland and the like have brought their laws into compliance with the CDC guidelines.

Just a lot going on on the whole legislative front, whether it is bills to request and encourage more funding for prevention and testing or legislation that's paving the way for the adoption of routine HIV testing. It is -- there is a lot here we're trying to drive a lot of it and encourage a lot of it. But I think what it -- all it says in summary, is that we're going -- I believe we're going to continue to see significant interest and increase in funding for these programs and not a decrease. I think that's good for the business. I think it is good for public health.

Excellent. Thanks. With the -- do you anticipate 2009 gross margins staying similar to Q1 and one of the comments, Ron, you made earlier is that you might see some volatility in the scrap and spoilage. Based on just good manufacturing processes, why do you expect to see that volatility going forward?

Aaron, that's a great question. And we have seen in the past, over the last several years that there's been volatility with scrap and spoilage and frankly, we have to recall that there's more product out there that we make other than just OraQuick. These products are biologicals. And their production invariably generates some level of scrap and spoilage. But to mitigate that, we have a cross functional team that is tasked with identifying and implementing process improvements across all of our products in a continual improvement strategy to keep that at a minimum. But I think it is just part of the diagnostic business, dealing with biologicals that we'll see some volatility there.

Ok. Now, with the higher ASP on advances, is Q1 a pretty good bogey for the year though?

Plus or minus, yes. Certainly aspirationly, where we want to be. And we're going to work very hard to push that. And obviously the more product we put through the hospital channel direct, that will further enhance our ability to deliver that kind of gross margin.

Ok. Thanks. One last question for you. Do you see an opportunity to develop a relationship with a company whether it is Gilliad or some other HIV therapeutic company like the one you have with Schering to try to find another avenue for increasing HIV testing?

We work with some of the drug companies on a local level today. Some of the city initiative programs, those drug companies that are as committed as we are to HIV prevention and treatment come in and they support other aspects of these different programs. It is not out of the question that we could enter into some kind of an agreement but right now, obviously, we don't have anything to talk about in that regard.

We're eager to get approval for our Hepatitis C products so that we can begin our efforts with Schering-Plough. Obviously we're in constant discussion with them about that exciting launch and look forward to it.

Ok. But that's not a priority right now on the HIV space?

Our priority is to -- is to continue to grow our HIV business and get more people tested so to the extent we can work with anybody to do that, obviously, we're going to continue to try to do that.

Ok, thanks.

(Operator Instructions). Your next question comes from the line of Shaun Bevik with SIG.

How you doing, guys?

Hey, Shaun. How are you?

I'm doing well. On the gross margins, how much of that increase was attributed to the ASP increase for the direct or quick in the hospital.

About 190 basis points. And scrap and spoilage improvement contributed about 160 basis points. And just a tighter shift on the manufacturing side. And mix contributed about another 170 basis points.

Ok. What is your guys' expectation for -- I guess a time line, loosely, for the HCV product. You have the inspection coming, you think, this summer. Do you think you'll need a panel meeting for this? And then once you get FDA approval, how much longer will you get -- will it take to get a CLIA waiver and all of that stuff?

Right. So, we do not anticipate that we'll be in front of a panel. There's been no discussion about this being a panel track submission. We're comparing to already approved laboratory base methods. So, it is pretty straight forward PMA in that regard.

Obviously, being contacted by the FDA to schedule our preapproval inspection is a very positive development. And so we're eager to host them and have them come in and evaluate our production capabilities and all of our protocols and procedures, our readiness, for approval. Then, after that, it is -- the ball will be in their court as to how much additional time they want to review before granting us approval. We've said that -- but generally, that's not -- generally, a long time. Could be a matter of months. But certainly wouldn't expect it to be a matter of years.

CLIA waiver, as we've said, we're going to conduct a study, we're going to initiate those within the next couple of months and we expect that those will be completed and the submission ready to go when we get FDA approval for the product itself. We want to submit that coincident with receiving FDA approval. That's the best I can give you from a timing perspective. We're very -- we're right on track with everything that we've expected and the FDA's call to schedule the audit is a very good sign.

How long does it -- in general, does it take for them to approve CLIA waiver status? Do you have --

we have experience of one with our OraQuick test. They did it the same day.

Oh, okay.

But I don't expect that -- that that's normal. But, we're talking about a device that's already CLIA waived and with the HIV product and relatively straightforward, I hope it is not going to be too long, a month or two, I would hope.

Ok. Thanks, guys.

Thanks, Shaun.

Your next question comes from the line of Aaron Lindberg with Wm Smith and Company.

I just keep firing here. On the stock buyback, do you have any plans to modify that going forward? I kind of thought you would have bought more stock by this point here with the price being where it was. Is there any change to the plan that's in place? I know that you said you have the $25 million authorization and $5 million of it spent.

Right. That plan was approved by the Board for $25 million and it is not -- it has not been altered.

And no expected change going forward at this point?

It is considered on a quarterly basis, Aaron. And so it is up for review and consideration for what we will execute in the upcoming quarter.

Ok. Can you just update us on distribution of ADVANCE outside the US on the last call? You told us that you added some distributors in Europe, the Far East and Middle East. Are those guys often selling? What should we expect there?

Yes, as -- I think Ron indicated, we've seen nice growth in all of those areas that you just described. We're starting to get some traction in Europe, as well as Asia, Latin America. The primary reduction in revenues quarter-on-quarter for our international OraQuick sales were the result of some timing of sales in Africa and we expect that that will correct itself here in the back part of 2009. So, Brian Reid, our new Vice President of International Sales is doing a good job together with his team and working to develop the market opportunities, as well as to begin to prepare the international market for the pending approval and of the launch of Hepatitis C.

And then do you expect to see some traction from these new distributors in Q2? That was one area where I was a little surprised that international ADVANCE revenues were down essentially 50% from the prior quarter.

That decrease was primarily, as I mentioned, Africa.

Okay. I was just thinking that we would start to see some growth. The numbers are small enough that I thought we would see -- when we see these come online, I thought it might be pretty noticeable.

We expect we're going to see improvement in the back part of the year.

Ok. And the last question, do you anticipate launching another cryosurgical product in the US this year?

We have interest in possibly getting other indications approved for our professional cryosurgical product that we can take over-the-counter. We haven't given anymore specificity to that, other than we're interested in that and pursuing that and when we've got more definitive information to share in that regard, we'll do it. Right now, I would not put that in any projections that you might have or -- and we're not projecting that internally for 2009.

Is Mike running that process?

I'm a sorry?

Is Mike responsible for that piece?

Yes.

Ok, thanks.

Thank you for your questions. I will now turn the call over to Doug Michels for closing remarks.

Ok, I just want to once again thank you all for participating in today's call. And we look forward to talking with you again after the close of the second quarter. Have a good afternoon and evening, everyone.

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