OraSure Technologies Inc (OSUR) 2010 Q1 法說會逐字稿

Good day, everyone and welcome to OraSure Technologies 2010 first quarter financial results conference call and simultaneous webcast. (Operator Instructions). For opening remarks and introductions, I will now turn the call over to Judy Clarke 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 2010 first quarter financial results and certain other matters. The press release is available to you on the website, at www.orasure.com, or by calling 610-882-1820. If you go to our website, the press release can be found 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 12, 2010, by calling 800-642-1687 for domestic, or 706-645-9291 for international. The access code 69378968. 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 question and answer sessions. 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 the results are discussed more fully in the SEC filings of OraSure Technologies, including its registration statements, its annual report on Form 10-K for the year ended December 31st, 2009, 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 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 would like to turn the call over to Doug Michels.

Thank you, Judy, and good afternoon, everyone. I'll started today's call with an update on several recent developments, including our first quarter performance. Ron will then follow with a more detailed overview of our first quarter results and our guidance for the second quarter. I will conclude the call with a brief discussion of our major clinical programs and certain other business developments, and we will then open the floor for your questions. As I indicated in our press release, revenues for the first quarter were $17.9 million. This represents an increase over the comparable period of 2009, but fell below our top line guidance for the quarter. Despite the lower than expected revenues, we exceeded our guidance on the bottom line. The revenue shortfall was driven primarily by lower than expected domestic sales of our OraQuick ADVANCE HIV test and international sales of our over-the-counter Cryosurgical wart removal product.

Continuing economic challenges have had a greater than expected impact on some of our OraQuick customers. Funding cuts at both the state and local level resulted in lower sales during the quarter, primarily the public health segment which depends heavily on funding. Reduced funding also impacted our OraQuick sales to hospitals, but to a lesser degree. Funding challenges are not new, and we built our 2010 plan and first quarter forecast anticipating their impact. However, it is becoming more apparent that the extent and timing of the reductions and their impact on our business can be very difficult to predict with precision. For example, during the first quarter, several large customers unexpected reduced their purchases from committed levels previously communicated to us. In fact, one state's reduction did not occur until after an early March meeting of the state legislature, which focused on reducing expenditures by the Department of Health.

Several other jurisdictions were unable to expand their HIV testing programs in the first quarter, as they had previously planned. Funding issues were more pronounced where customers had accumulated higher levels of product inventory. As you may recall, we reported strong results in the third and fourth quarters of 2009, in part because several public health customers made large purchases of OraQuick tests during those periods. This is not unusual, as customers often try to spend unused funds prior to the September 30th or December 31st end of their respective fiscal years. However, because of the continued funding cuts associated with testing initiatives, some of these customers were unable to deploy their purchased inventory at what would have been normal or expected rates, and this in turn adversely affected their first quarter purchases. Reduced funding has also placed increased pressure on pricing for our OraQuick HIV test. And while we continue to maintain a premium on price compared to our competitors and our 2010 forecast did reflect a lower average selling price, the price degradation during the first quarter was somewhat greater than expected.

And despite the state and local funding challenges, our OraQuick HIV test continues to be the key tool in the fight against HIV/AIDS. HIV testing is strongly supported at the Federal level, as evidence by the CDC's funding decisions during the past few years ,and we certainly expect this to continue. In fact, on April 1st, the CDC announced the $31.5 million expansion of its program to fund HIV testing in healthcare settings. As a result, total funding of $142.5 million is planned for the three-year period beginning later this year, October 2010. We believe this will mitigate some of the funding issues currently being experienced by our public health and hospital customers. With respect to our Cryosurgical business, we experienced lower than expected sales of our over the counter wart removal product in Latin America during the first quarter. As explained on prior calls, our distributor, [Hunoma], launched our product in Brazil beginning late last year.

The launch has gone well, and the product has been well received by retailers and consumers; however, late in the first quarter, Hunoma decided to cancel two purchase orders, which we had included in our first quarter forecast. These orders totaled more than $500,000 and were canceled in order to give Hunoma more time to gauge the level of consumer purchases so as to avoid an inventory build up at retail outlets. Looking forward, we believe the economic climate and funding challenges will continue to impact our business for the rest of 2010, particularly here in the United States. And while the exact impact is difficult to predict at this time, we believe that revenues for the year may well be at or near the levels recorded in 2009. And Ron will provide more detail on our specific expectations for the second quarter later in the call.

Regarding some key accomplishments for the quarter, we recently completed a facility and quality systems audit, performed by the FDA, in connection with the pre-market approval application for the OraQuick HCV test. This audit occurred during March and it went well. We have submitted our formal response, which we believe satisfies all of the FDA's observations and clears the path for approval of our OraQuick HCV test for use with whole blood. The completion of the audit was the result of excellent work by a cross functional group of employees from our regulatory quality operations and R&D groups, and their efforts are certainly very much appreciated. And one find comment before Ron provides his update relates to an organizational matter. Manuel Mendez, who joined OraSure last year and has led our sales and marketing group, will be leaving the Company to pursue another opportunity. We appreciate Manuel's contributions and we wish him well in his new endeavor. A search for his successor is underway, and in the interim, I will directly manage the sales and marketing function, as I have done from time to time in the past. And with that, I'll turn things over to Ron.

Okay. Thanks, Doug, and good afternoon, everyone. Our first quarter 2010 revenues were $17.9 million, representing a 4% increase from the $17.3 million reported in 2009. Increased licensing and product development revenues and increased sales of our Cryosurgical systems products were partially offset by a decline in infectious disease testing and insurance risk assessment revenues. Our first quarter 2010 licensing and product development revenues include a $1 million milestone payment received from Merck as a result of our achievement of certain regulatory objectives pursuant to our collaboration agreement for the development and promotion of our OraQuick Rapid HCV test. Infectious disease testing revenues were $9.5 million in the first quarter of 2010 compared to $10.5 million in the first quarter of 2009.

As we discussed during the previous call, we have observed an increasing number of our public health customers are supplying hospitals with OraQuick HIV tests purchased from us. This overlap makes it difficult to separately track OraQuick sales to these markets. Since this trend is likely to continue, we began reporting public health and hospital sales as a combined domestic market beginning with the first quarter. The overall 9% decline in our infectious disease revenues in first quarter of 2010 was a result of decreased OraQuick HIV sales in both the domestic and international markets. Domestic OraQuick sales were down 6%, primarily due to the lower average selling prices and lower volumes. International OraQuick revenues declined 27%, largely as a result of some customer losses caused by increased price competition, as well as the non-reoccurrence of customer orders from the prior year period.

Moving to substance abuse testing, revenues remained flat at $2.7 million in the first quarter of 2010, compared to the first quarter of 2009, as lower sales of our Intercept Drug Testing system were offset by increased sales of the QED Rapid Saliva Alcohol Test. First quarter 2010 Cryo revenues increased 40% compared to the first quarter of 2009. International over-the-counter sales increased $952,000 when compared to sales in the same period of 2009, largely as a result of $1.1 million of sales to our Latin American OTC distributor, Hunoma, in support of launch of our product in Brazil. This was partially offset by lower European OTC sales to our distributor, SSL, during the first quarter. On the professional side, a 28% increase in sales of Histofreezer in the United States was offset by a 57% decrease of Histofreezer sales in the international market.

Domestic sales were up largely due to increased purchases by our distributors in anticipation of price increases implemented in January and April 2010. The decline in the international sales is largely due to a discontinuous of sales to certain foreign distributors that had been diverting product to the US market. We believe our efforts to stop diversion by certain foreign distributes, along with the addition of two manufacturer sales representative organizations, or MROs, are having a positive impact on our domestic Histofreezer business. On the over-the-counter front, we expect additional orders from Hunoma for Brazil, despite the first quarter cancellations, and we expect that sales this year to SSL for Europe will be higher than last. Our insurance risk assessment sales decreased from $1.6 million in 2009 to $1.4 million in 2010, due to variations in laboratory ordering patterns and a decrease the issuance of new insurance policies.

Turning to gross margin, we're pleased that our overall margin of Q1 of 2010 remained at 64%, essentially unchanged from the first quarter of 2009. Gross margin in the current quarter benefited from the increase in licensing and product development revenues, as well as a decrease in royalty and licensing expenses. However, these benefits were offset by an increase in unabsorbed overhead costs due to lower product production in light of existing inventory levels, as well as the lower selling price realized by our OraQuick products. Our total operating expenses for the first quarter increased $747,000 or 6% compared to 2009. Lower R&D costs were offset by higher sales and marketing and G&A spending. R&D expenses for Q1 declined 7% or approximately $246,000 from the first quarter of 2009, primarily due to a decrease in clinical trial spending associated with our OraQuick HCV and OraQuick HIV OTC programs, as well as decrease in validation and vendor qualifications costs for those same programs.

Our sales in market expenses increase 13% or approximately $672,000 as a result of additional market research activities, increased recruiting and consulting costs, and commissions paid to the two new manufacturer sales representative organizations that we retained during the first quarter to support sales of our Histofreezer product in the US position office market. G&A expenses also increased approximately 7% or by $322,000, primarily due to increased consulting costs, partially offset by a decrease in legal expenses. From a bottom line perspective, we reported a net loss of $2.2 million or $0.05 per share, which exceeded our guidance. This compares to a net loss of $1.6 million or $0.04 a share for the same period of 2009. Turning briefly to our balance sheet and cash flow, our cash balance remains strong, with cash and short-term investments of $73.4 million at the end of the first quarter. Our working capital of $86.6 million at March 31st, 2010 is down somewhat compared to the working capital balance at December 31st, 2009 of $89.4 million.

Our current ratio improved from 6.81 at the December 31, '09 to 8.48 at March 31, 2010. During the first quarter of 2010, we used $5 million in cash flow from ops compared to $2.7 million used during the first quarter of '09. The increase is largely the result of our increased net loss, coupled with payments of our 2009 accruals and accounts payable, as well as increases in inventories and other assets. These uses of cash were partially offset by a decrease in accounts receivable of $1.6 million as a result of timely collection of amounts due and the decrease in product revenues experienced in the first quarter of 2010 compared to the fourth quarter of 2009. Our days sales outstanding were 61 days at March 31, 2010 compared to 59 days at March 31, 2009. Turning to our guidance for the second quarter of 2010, we are projecting revenues of approximately $17 million to $17.5 million, and a loss per share of approximately $0.07 to $0.08. And with that, I'll turn things back over to Doug.

Thanks, Ron. We have continued to progress all of our major clinical programs. With the FDA audit behind us, we believe there's very little left to do before we receive a first US approval of our OraQuick HCV test for a whole blood claim. We're in discussions with the FDA on our labeling, and we expect this approval shortly. With respect to the other applications, as you know, the FDA has required an additional study to support claims for finger stick, whole blood, and oral fluid. This study is now complete, and within the next 30 days we expect to submit our final data to the FDA. With respect to a CLIA waiver, our protocols for the required studies were submitted to the FDA in the form of a pre-investigational device exemption, or IDE submission. We're waiting feedback from the agency, and once we receive this we'll finalize the protocols as quickly as possible.

As stated previously, our plan is to submit the clinical day a from our CLIA studies and request a CLIA waiver as soon as possible after we receive approval of our finger stick whole blood and oral fluid claims. Finally, you'll recall that we received CE mark approval for the OraQuick HCV test in 2009 which allowed us to sell the product in Europe. In April, we formally launched the OraQuick HCV test at the meeting of European Association for the Study of the Liver or EASL meeting. The launch went well, and we are now focused on building awareness and acceptance for this product in a number of European countries. Since the last call, we have prepared and filed with the FDA an amendment to our IDE, which contains a proposed protocol for the final phase of clinical studies related to our rapid HIV over-the-counter test. The FDA has reviewed the protocol and we're incorporating their feedback.

We've also made some further revisions to our product labeling which we believe will further improve the performance of the product in the user's hands, and we're in the process of testing these changes in several small validation studies. This will then be followed by a larger study demonstrating the efficacy of our final product labeling. And after completion of these studies, we intend to submit the labeling validation data along with the revised clinical study protocol for final approval by the FDA. Once this approval is received, we'll initiate subject enrollment for the final phase of clinical testing, and we remain on schedule for this product with clinical testing still expected to extend into 2011. And we also continue to believe that an additional Blood Product Advisory Committee will be needed before final approval would be issued by the FDA.

In the substance abuse testing area, we continue to prepare for the commercialization of fully automated homogenous drugs of abuse assays, which are being developed with Roche Diagnostics. Submissions for FDA 510-K clearance were filed at the end of the 2009 for opiates, PCP, amphetamines and the methamphetamine assays, and the submission for cocaine was filed recently in late April. Once 510-K clearance is received for each of these assays, which is expected later this year, OraSure and Roche will launch a partial NIDA-5 panel into the workplace testing and other markets. The assay for THC is expected to be filed later this year, and we have also started development on yet a second group of assays which will continue into 2011. And overall, I want to emphasize that we're very pleased with our collaboration with Roche on these important products. As discussed on the last call, we believe our Intercept business is stabilizing despite the ongoing effort adverse employment conditions.

To supplement this part of the business, we intend to launch some new drug testing products later this month. These include a group of MICRO-PLATE assays for the detection of various prescription medications which will extend our offering in the forensic, toxicology, criminal justice and pain management markets. We will also start offering a rapid urine drug screening test into the criminal drug treatment and workplace testing markets, which will allow us to more effectively compete for customers that use urine as their sole or primary drug testing matrix. And finally, before we take your questions, I want up to update you on a shelf life for the current OraQuick HIV test. Our ongoing real-time stabilities have now reached the 20-month mark, and so a submission requesting a dating extension to 18 months is being finalized and we expect that we'll be filing that within the next few weeks. So with that, I'll now open the floor to your questions.

(Operator Instructions). Our first question comes from Sameer Harish of Needham & Company.

Hi, guys, thanks for taking the questions.

Hi Sameer.

Hi Sameer.

Hi. Can you tell me a little bit more about the impact that pricing and volumes had on OraQuick in the quarter?

Sure. If you're looking quarter over quarter, Sameer, I would say that you're probably looking at a impact in the range of say about a quarter of a million dollars or so for ASP and OraQuick for the first quarter of 2010 versus 2009, with the rest made up of volume.

And was that across both the hospital and the public health market?

There was a -- I'd say, yes, that would be, that would be the case generally, yes. Both in --

Okay.

Both in public health and in hospital.

Got it. And in terms of ACV, can you give us an update as to the marketing preparations that are going on with your partner out there? Is he prepared to heavily market that product?

Absolutely, I mentioned that we had a big event at the EASL meeting. We had key leaders from across Europe participate in a full day session with us. That obviously also included our partners at Merck and other pharmaceutical representatives. We spent a day with these key opinion leaders from multiple countries identifying key segments and stakeholders in each country and listing their advocacy support and actually developing some country-specific action plans. We had a great presence at the EASL meeting itself, and literally generated hundreds of leads, which right now we're qualifying and developing follow-up plans with our distribution partners.

Remember, as I indicated during our last call, we're developing a market here, and so there's a lot of effort being put into that. We'll be having another meeting with Merck later this month as we prepare for them to begin detailing the product sometime, I would expect, in July in those territories where we have approval. So the dialog, collaboration and joint effort continues.

Okay. And switching back to OraQuick, can you talk a little bit about the VA markets? I know it's pretty early with that group. Can you talk about any wins or successes that you've had there, or has that also been kind of slower than you were expecting?

Yes, I don't want to talk specifically about where the wins occurred; but suffice it to say that our business is up fairly substantially in the VA year on year. We continue to focus at both the [Vizon] and the hospital level. We've had the opportunity to sign agreements at the integrated health system level at the Vizon. That would be with the hospitals and the community based outpatient clinics and the other points of care within the VA. Obviously it's been easier to secure institutions contracts versus the whole Vizon-wide system agreements because it requires a little bit more collaboration, but we are having success. We wish it was going faster and moving, moving quicker, but we are having success and that business is growing.

Okay. And lastly in terms of public health ordering, have you had any indication that because of the combined volume effect and pricing effect maybe some of the health centers are moving back towards cheaper blood products, or is it just natural delays that you expect to keep your relationships.

The challenge that we had in Q1 specifically related to a handful of some of our largest jurisdictions where we were expecting some large orders -- actually the jurisdictions told us that that should be our expectation. It was their forecast to us. And when you're talking about some of these largest jurisdictions, they'll order 10,000 or more units at a time. At our pricing, that's hundreds of thousands of dollars potentially in an order, so it doesn't take too many of those if they delay or defer their orders to have an impact on near-term revenues. I want to emphasize that the reduced purchases in the first quarter were not about losing accounts or about losing business to competition. It was really about local, either program delays or deferring their purchases until they were able to deploy the tests that were already in their inventory.

Some of their challenge in deploying that test is a result staff cutbacks and staff reductions, and just recently the National Association of State and Territorial AIDS Directors released information that they had gathered from their different jurisdictions, members of NASTAD; indicated from the survey what we are realizing in the marketplace, that of the nearly 50 jurisdictions that they surveyed, almost half of them indicated that they have had some budget cuts. 55% of the jurisdictions said that they had cuts to their HIV prevention programs, and the implications of those cuts are that fewer community based organizations are going to be funded by the jurisdictions.

And while state and local funding isn't the majority of the funding that these jurisdictions receive -- actually it represents only an estimated about a third of their funding, two-thirds comes from the Feds -- and as we said in the script, that Federal funding is still very strong, and is expected to actually increase, and hopefully that will make up for some of these challenges at the state and local level. But all that just says that we expect to continue to have a fight at the local level with the state and local budget, city budget challenges, and we're going to do the best we can to help them work through that.

And just as a follow-up, have you gotten any indication from these handful of centers that they expect orders to maybe pick up in the back half of the year or is it kind of more of an annual budgetary things that they are not seeing orders coming in?

Well, tey're all on different budget cycles, so that makes it somewhat of a challenge, too. Some go on a July 1st to June 30th. Some go on what's the typical Federal Government schedule. Some go on the fiscal year -- calendar year, fiscal year. And so it varies by jurisdiction, and I'll just highlight how challenging this is. We had one just jurisdiction -- it's a state, and it's been pretty public -- they said that they were reducing their HIV prevention dollars by 80%. And so of course, we knew about that going into 2010 and we correspondingly reduced our expectations for their purchases in 2010. That was a surprise in the opposite direction now, where they placed some pretty big orders on us in the first quarter, and we expect some larger orders from them for the remainder of the year. So it somewhat goes both ways. All we can do is communicate -- and literally, we're communicating with our largest jurisdictions, as you might imagine, on a weekly basis -- and monitoring their inventory and their purchases and trying to assist them with their programs so that they can deploy the testing, and that we can rely on consistent purchases.

Thank you.

Thank you. Our next question comes from Caroline Corner of William Smith and Company.

Hi, guys, thanks for taking my call. Can you hear me?

Hi, Caroline, yes.

Sure can. Hi, Caroline.

Hi. So I was wondering with regard to the public health funding issues you've been facing, as you move forward and move towards getting Hepatitis C approval, that product is also going to be entering a similar market where it's going to be somewhat dependent, as I see it, on public funding as well. Can you talk a little bit about your expectations for the Hep C product, when it hits the US market, and are those somewhat lessened by the recent developments on the public funding side?

Well, generally speaking, the Hepatitis prevention and funding is generally separate from HIV prevention, although obviously we're going to be relying on public funding in the public health sector to support that. You may recall that we've talked about our efforts to build support for legislation that would provide more funding for HCV prevention -- or I shouldn't say HCV -- Hepatitis prevention. And there is a bill currently circulating within Congress calling for $90 million in incremental funding for next year. It's a bill jointly sponsored by Congressmen Honda and Dent. It's my understanding they've got a large number of signatures in support of that bill at this time, and once they have an adequate number of signatures, our expectation is that that will be presented and a vote taken to hopefully approve that incremental funding. And we also know that there's other budgets in different agencies that could be tapped to support increased HIV or HCV prevention and testing, including SAMSA, even HRSA and the NIH. And so we're working on that real hard. We're communicating broadly across the different sectors, and I can tell you from the discussions we've had so far, support for what we're doing and support for the availability of a rapid Hepatitis C test is extremely high.

Okay. That's helpful, thanks. On the research and development line, you're $3.1 million reported this quarter came in below where I expected it. Is that a good base number going forward until you get into the thick of the HIV OTC trials, or are you expecting an update towards the end of the year? Can you elaborate a little bit on your expectations for R&D going forward?

Sure, Caroline. Our expectations are that the R&D line will begin escalating in the second quarter here as we engage further in prep for the HIV OTC trials and then begin executing them towards serious accrual on the second half of the year. We're also involved in the CLIA waiver studies for Hepatitis C, and so there's a significant spend coming in the last three quarters of 2010 here related to R&D, so this should be the low watermark for R&D spend for the year.

Thanks. And then last question, your revenue guidance of 17 to 17.5 million, given that there was a $1 million payment -- milestone payment in this current quarter, in the first quarter, looks like your revenue estimate is an uptick quarter over quarter, first quarter to second quarter. Is that a reflection of your expectations of a recovery in the infectious disease segment, or is it in some other revenue segments?

No, it is in the infectious disease segment, Caroline, and that's an astute observation. The $1 million will not be a recurring revenue item in the second quarter, although there is an expectation that we will receive another milestone payment under the Merck collaboration agreement in the second half of 2010, and that will be related -- yes, go ahead.

That's all my questions. Thank you.

Okay.

(Operator Instructions). Our next question comes from Jeff Frelick of ThinkEquity.

Yes. With respect to the funding again, can you give us a little bit more color just how the timing works with the state and local funding? You did mention it kind of varies by jurisdiction, but do they kind of forecast by quarter? Do they give you some visibility you know for the year? When is their year's end -- is it staggered from jurisdiction to jurisdiction?

Yes, so first of all, it is staggered by jurisdiction by jurisdiction. It relies on how the different cities or states -- what their budget cycles are. We generally have multi-year agreements with these jurisdictions, and they are -- the agreement is built on some kind of an expectation for annual purchases. And from that committed volume, then we work out our pricing arrangements. As it breaks down to a quarterly or monthly forecast for product purchases, these are worked out at the local level, and they're pretty real-time. They give us their best estimate, generally speaking, over a 60 to 90-day. We monitor that here really on a monthly basis, in some cases an every two-week basis; and it's with that kind of intelligence that we create our quarterly forecasts. Obviously, as the time line moves out beyond a quarter, the numbers get a little softer, because the deployment of the test that these jurisdictions buy from us is dependent oftentimes on the community based organizations that they're relying on to actually perform the testing.

So I'll give you an example; the New York City Department of Health, they might have as many as 400 community based organizations that they supply product to, that they buy product from us. They will also provide those community based organizations with grant money to support the deployment of those tests in the form of counselors and testers and educators. And so as the money gets reduced, let's say, from the City of New York to the Public Health Department, they've got to make decisions on where they're going to make corresponding reductions and grants to their CBOs, and that's kind of the model that happens around the country, less or more. And in some cases, they rely on state funds, in some cases it's city, or in some cases it's county funding for those different programs. And when these cities or states are in crisis, and they need to make some quick or near term decisions, some of these things can be knee jerk or real short-term decisions.

What kind of kind of inventory levels do you think the public health clinics are running at?

They're generally pretty low. I would say generally within the 30-day range. It depends on the jurisdiction, and sometimes when they're approaching the end of their fiscal year and they might have extra monies, if they can deploy them, they will. Obviously with longer dated product, it's a benefit to them if they can use up some of that money and get the product into their inventory. It's variable.

Okay. And then just switching gears to HCV in Europe. So you had the product approved in CE Mark approval in late December, and had your pan-European launch at EASL. I know Merck sales training is coming up this summer. With respect to timing, when do you expect to start receiving some HCV sales or orders in Europe?

We received some in the first quarter; they were minimal. We would expect obviously to see a ramp through the remainder of 2010.

Okay. Great. I'll jump back in queue.

Thank you. Our next question comes from Caroline Corner of William Smith and Company.

Launch with Roche, can you give us a little bit more detail on your expectations there regarding the Intercept product? Who will be selling it, and is it expected to be a launch of the -- as I understand it, a launch of the product minus the PHC capabilities; is that right?

Yes. Caroline, you cut out at the beginning of your question, so could you repeat it from the beginning, please?

Yes. Sorry about that. The question is regarding the Intercept product, the automated panels that have been developed with Roche. You said that later this year you're expect to go do you a partial panel launch with Roche. Could you give us a little bit more detail around that? Is it going for a launch into all of your customers with a partial panel or just select customers?

No. So we're going to launch the product after we have five of the six initial assays approved. The THC assay will not be approved this year. As I mentioned, we expect to just file that later this year sometime, I would expect in the fourth quarter. But once we receive 510-K clearance for the other assays, we intend to launch the product across all of the different market segments, and Roche will be launching the assays into their customer base. We'll be launching it into ours. And obviously it's all going to be dependent on when we receive 510-K clearance, get the product labeled into inventory and ready to go.

And all of Roche's salespeople in that sector will be selling the product? All of their diagnostics people?

I think it will be those that are calling on the labs, Caroline, that are performing drugs of abuse testing and using urine-based testing as a matrix and offering the oral fluid as an alternative.

Okay. Thanks, that's helpful. Last question, with regard to your pipeline, do you have anything that you can speak about on the R&D side beyond HIV OTC? Any new additions to the platform that you're developing?

I don't want to speak about specific analytes at this time, but we are working on some feasibility work on the OraQuick platform with several different analytes, and we're also working on some new formats and enhancements to our HIV product offering, and sometime in probably the not too distant future, we'll be talking about the specifics of those programs.

Great. Look forward to. Thank you.

Yes.

Thank you. The allotted time for the call is up. We apologize to those who are still holding to ask a question. I will now turn the call over to Doug Michels for closing remarks.

Okay. I just want to thank everybody for being on the call with us this afternoon. I hope you all have a great night, and you I look forward to talking to you all again real soon. Take care. Bye bye.

This does conclude your program. Thank you for your participation and have a wonderful day. You may disconnect your lines at this time.