OraSure Technologies Inc (OSUR) 2010 Q3 法說會逐字稿

Good day, everyone, and welcome to OraSure Technologies 2010 third quarter financial results conference call and simultaneous webcast. As a reminder, today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer period. (Operator Instructions) To allow time for as many questions as possible, questioners are asked to limit themselves to only a single question with no more than one follow-up question related to the same topic. Once the follow-up is completed the questioner can rejoin the queue for further questions. For opening remarks and introductions, I will now turn this call over to Judy Clarke at OraSure Technologies. Please go ahead.

Good afternoon, everyone, and thank you for joining us. OraSure Technologies issued a press release at approximately 4 PM Eastern Time today regarding its 2010 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 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 a recorded copy will be archived there for seven days. Alternatively, you can listen to an archive of this call until midnight, November 17, 2010, by calling 800-642-1687 for domestic or 706-645-9291 for international. The access code is 209 45 862.

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, clinical studies 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, 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.

That's great. Thanks, Judy, and good afternoon, everyone. I'm pleased to announce that we delivered a solid third quarter and, that both of our revenues and bottom line exceeded our previously-issued guidance. Ron Spair will begin today's discussion with some highlights from our third-quarter financial results followed by guidance for the rest of 2010. I'll then discuss our major clinical programs and certain other business matters, and we will conclude by opening the floor for your questions. So with that, I'll turn things over to Ron.

Okay, thanks, Doug, and good afternoon, everyone. Before discussing our sales performance for the third quarter, I believe we need to take a brief look back at the prior year. As you may recall, our third-quarter 2009 revenues included the elimination of a $2.2 million backlog for OraQuick HIV orders existing at June 30, 2009. Had the backlog been fulfilled in the second quarter of 2009, we would have reported an increase in our third quarter of 2010 in overall infectious disease revenues when compared to the third quarter of 2009. This growth was largely due to higher domestic OraQuick sales volumes as the cautionary spending we saw in the early part of the year by our public health customers subsided somewhat and led to an increase in spending during the third quarter of 2010, as certain of these customers approached their fiscal year-end.

Internationally, OraQuick HIV revenues declined during the third quarter as a result of price competition, changes in the use of our test within government-testing algorithms and lower funding for HIV-testing initiatives. In substance abuse testing, revenues decreased 8% from $3.3 million in the third quarter of 2009 to $3 million in the third quarter of 2010 as a result of lower domestic sales of our Intercept drug-testing system and the absence of laboratory equipment sales. That was partially offset by a 17% or $83,000 increase in international Intercept sales due to variability in ordering patterns experienced with our largest customer.

Third quarter 2010, cryosurgical revenues increased 12% compared to the third quarter of 2009 due to a 39% increase in professional sales in the domestic market. The higher US professional sales were caused by elimination of the diversion issue and the impact of adding our new manufacturer sales representative organizations. Over-the-counter cryosurgical sales decreased 12% to $992,000 when compared to the same period of 2009, primarily as a result of the ordering patterns of our Latin American over-the-counter distributor Genomma.

Turning to gross margin, our overall margin for Q3 was -- of 2010 was 62%, compared to 64% reported for the third quarter of 2009. As you may recall, OraQuick HIV production during the third quarter of 2009 had increased significantly in order to fill the backlog of orders existing at June 30, 2009. This increased production allowed for a higher absorption of overhead costs, and consequently drove the higher gross margin for the prior-year quarter. Gross margin in the current quarter is more representative of normalized production levels and benefited from an improved product mix and lower scrap.

Turning to operating expenses. Our total operating expenses for the third quarter decreased $603,000 compared to 2009, primarily as a result of a decrease in sales and marketing expenses of 12%, or approximately $635,000, as a result of decreased staffing, consulting and market research expenses. On the bottom line, we reported net income of $274,000, or a $0.01 a share for Q3 of 2010. This compares to net income of $1.8 million or $0.04 a share in the third quarter of 2009.

Turning briefly to our balance sheet and cash flow, our cash balance remains strong with cash and short-term investments at $73.7 million. During the current quarter, we generated $3.3 million in cash flow from operations, compared to $4.3 million generated during the third quarter of 2009.

Turning to our guidance for the fourth quarter of 2010, we are projecting revenues of approximately $18 million to $18.5 million. When preparing these projections, we took note of the increase in funding at the federal level to supplement the state and local funding available to test and treat HIV. While we believe these grants will positively impact our results by stimulating product purchases by grant recipients, the timing and extent of these purchases over the next few quarters is hard to predict. From a bottom-line perspective, we expect to be spending heavily during the fourth quarter on research and development activities related to the CLIA waiver studies for our OraQuick HCV test, the initiation of our final OraQuick HIV over-the-counter clinical trial and the development of our next generation OraQuick HIV test. These expenditures, together with revenues projected for the fourth quarter, will produce a loss per share in the $0.08 to $0.09 range. And with that, I'll turn things back over to Doug.

Thanks again, Ron. During the third quarter there were a number of positive developments in our major clinical programs. As you know, last quarter we received FDA approval of our OraQuick HCV test for use with venous whole blood specimens. Since that approval, we've been focused on gaining approval for additional specimen types and executing our CLIA waiver studies. During the third quarter we filed our pre-market approval supplement, the PMA, for fingerstick whole blood with the FDA. We have been in regular dialogue with the agency regarding our submission, and we were advised that audits were recently conducted at two of our clinical sites. These audits are a routine part of the PMA review process that is designed to verify the quality and the integrity of our clinical data. This activity confirms that our fingerstick submission is under active review by the FDA.

As previously discussed, we still plan to pursue an oral fluid claim for this product, although the filing of a PMA supplement remains on hold pending further discussions with the FDA. Our strategy is to further progress our fingerstick submission before we move forward on oral fluid. With respect to a CLIA waiver, the studies required for fingerstick and venous whole blood have been started and they are progressing on schedule. We expect the CLIA studies to wrap up by the end of this year. Our plan is to file a CLIA waiver request as soon as possible after approval of a fingerstick claim is granted by the FDA. We also expect to pursue CLIA waiver for oral fluid once our PMA supplement for this claim is filed and approval is received.

With respect to our rapid-HIV-over-the-counter test, final validation of our labeling is complete. We have submitted a formal investigational device exemption, or IDE, to the FDA containing this validation data and we are anticipating final approval of our study protocol for the final phase of clinical testing. Site selection, training and preparation and IRB review for the final clinical studies is well underway. We've also been working with our call center contractor to update and finalize call scripts and prepare for operation of the call center in connection with the final clinical studies. We still plan to begin the final phase of clinical testing this quarter. And as previously indicated, we expect enrollment will continue through mid-2011 and, of course, we will continue to provide updates as appropriate.

In substance abuse testing, submissions for FDA 510(k) clearance remain pending for the high throughput oral fluid assays for opiates, PCP, amphetamines, methamphetamines and cocaine developed under our collaboration with Roche. In response to requests from the FDA for more data, additional studies are now being executed for these assays, and we expect the studies to be completed and the data submitted to the FDA in the next couple of months. The most likely timing for FDA 510(k) clearance of the initial panel five assays is the first half of 2011. And, of course, commercial launch of these assays would then occur as soon as possible after final FDA clearance is received. We would also expect to complete testing and submit for the 510(k) approval for the THC assay during the early part of 2011.

As you know, an important objective of the Company has been to extend the shelf-life for our OraQuick HIV test, and this is important for several reasons. A longer shelf-life helps both OraSure and our customers manage our respective inventory levels more effectively. In international markets, extended dating is needed to accommodate the additional time required to ship and deliver product through our distribution network. And most importantly, a longer shelf-life enhances our ability to sell our OraQuick HIV test in the over-the-counter market after FDA approval is obtained.

Data from our real-time stability studies indicate that the product is extremely stable, and we recently filed a request to extend our dating from 18 months to 24 months. Given the FDA's approval of similar extensions in the past, we expect to hear something back from the agency in the relatively near future. And another ongoing program has been to automate manufacturing for our OraQuick HIV test. As indicated in prior calls, the validation of our manufacturing process was approved by the FDA, and I'm pleased to report that we've begun manufacturing our test using this fully automated equipment. We expect that automation will reduce costs and improve our gross margin, particularly as sales volumes increase for this important product line.

On the organizational front, Tony Bernardo recently joined OraSure as our new Senior Vice President of Business Development. Tony has over 30 years of healthcare experience, including general management, business development, operations and R&D. He had nearly 20 years experience in the diagnostic field with companies such as Inverness Medical, Dade International and Instrumentation Laboratories, or IL. We're very happy that Tony has joined our Management team and we believe he'll be a significant contributor to our Company's future success. And finally before we take your questions, I'd like to provide an update on an important issue affecting our business, and that's the status of government funding for HIV testing. As previously discussed, ongoing economic challenges have caused funding cuts at both the state and local levels, resulting in lower purchases in the public health market,primarily during the first half of this year. Although we believe that these difficult conditions will continue for the foreseeable future, the third quarter benefited from the need by some customers to fully spend their HIV-testing budgets before the September 30 end of their fiscal year. The same pressure to complete year-end spending may also benefit our fourth-quarter results as well.

While state and local HIV/AIDS budgets have been impacted by the economy, and in some cases jurisdictions have curtailed HIV-testing activity, on the federal funding side there continue to be favorable developments. Earlier this year the CDC announced an expansion of its program to fund HIV testing and prevention in healthcare settings. This program was increased to provide up to $60 million annually over a three-year period beginning in October of this year. More recently the CDC announced a $9.6 million one-time supplemental funding program to support HIV prevention programs. The purpose of this supplemental funding is to enable state and local health departments to address funding gaps in their HIV prevention and testing programs. Several of the 59 eligible jurisdictions have competed for this supplemental funding, which is required to be spent by the end of 2010. The National Institutes of Health also announced funding for the prevention and treatment of HIV among people in the criminal justice system. Funding for NIH's test-and-treat program in the prison system is set at $10 million per year for a five-year period. And finally, as previously discussed earlier this year, President Obama released his national HIV/AIDS strategy, which reaffirms the administration's focus on HIV/AIDS through increased testing and treatment, especially in communities where the disease has had the greatest impact. We continue to believe that the federal government's ongoing priority and support for HIV testing and prevention will help mitigate somewhat the negative economic conditions adversely effecting our public health customers at the state and local levels. And obviously, we'll try to keep you updated as we gain additional information on how these funds are appropriated. So with that, I'll open up the floor to your questions.

(Operator Instructions) Our first question comes from Scott Gleason with Stephens.

Doug and Ron, thanks for taking my questions.

Yes, hi Scott.

Hi, Scott.

I guess, Ron, first when we look at the OpEx assumptions you guys laid out in terms of your guidance for the fourth quarter here, it seems like you would have to have a pretty big ramp-up, I guess, to hit that guidance range somewhere in the $4.5 million range. I guess, is a majority of that going to be tied to the clinical trials you guys referenced or is there something else in terms of the SG&A lines that we should think about as well?

It's really concentrated very heavily, Scott, in the execution of the clinical programs. One for HIV, OTC and then also the completion of the CLIA waiver studies for both the OraQuick HCV finger-stick, as well as the venous whole blood claims. So all of that, and also combined with further R&D spend on the next generation OraQuick HIV test works to drive that kind of a guidance that we gave you.

Okay. Great. And, Doug, I guess can you give us a little bit of detail around some of the market development work you guys will be doing on the over-the-counter HIV side next year? And then in terms of incremental costs, will there be any, I guess, incremental operating expenses tied to those -- that market development work when we start looking at 2011?

Yes, we've got a pretty robust plan on the HIV OTC program for 12011. Now obviously that is all going to be gated by the progress we make with the clinical studies. We obviously don't guide to 2011 right now so we'll provide more color on that as the quarter -- fourth quarter progresses and as we get into early 2011. But given that we'll be starting this, our final study, here in the fourth quarter, we expect that to enroll through the first half of 2011, assuming we stay on track with that, assuming that the data is good, we'll get our submission in as soon as possible after that study is enrolled, and hopefully we'll get a rapid response from the FDA. We do know that it's going to -- that we're going to be back in front of an advisory committee, so that will take some time to schedule, but once we get that submission in, the timing is going to be in the FDA's hands.

What we're going to be doing on our end, obviously in advance of that, is we're going to go out and be testing our messaging, we're going to have to engage ad agencies, we're going to be talking to potential partners early in 2011 to finalize any plans in that regard. There's certainly opportunities for co-promotion once the product is ultimately approved. It's just a whole lot of work we're going to have to do with the trade. We have a robust plan. And we'll be set to execute that as we progress into early 2011, we'll provide the financial implications of that plan as we get a little bit further down the line. That's domestically.

On the international front, I think I made comment to this, if not, we've done an assessment of the global market opportunity for quick test -- quick HIV test sold over-the-counter. We've evaluated the regulatory environment, the social environment to evaluate how receptive different governments might be to having a quick test made available directly to consumers. We prioritize those countries by HIV prevalence, and obviously then as we progress here in the United States we're going to then turn that work into quantitative analysis on an international front so we can begin to attack the opportunity internationally. So very exciting time for the Company as we look to begin our final study here of HIV OTC.

Great. And then, Doug, just one last question. In terms of the drug of abuse assays on the Roche platform, can you talk a little bit about the additional data that the FDA was requesting, I guess just give us a little bit more color around what the content was related to there?

I can -- I've mentioned this I think in the last call. Basically the FDA was asking us to do two sets of studies. One was precision studies and one was another set of studies. These are all laboratory-based studies, so we're doing some here at OraSure and some at Roche. So the prevision studies, those were done at Roche and then we had to do some work here where we compared results of the high throughput assays with neat oral fluid specimens as tested by liquid chromatography and mass spec, and that was done here. The precision studies are complete. We've got another month to six to eight weeks to complete on the comparative studies, that will be done either by the end of the year or into January.

Our expectation is that we'll wrap those studies up and make the submission in the first quarter. And our estimates are that the studies are pretty straightforward, we've got a good look at what the data is, certainly from Roche now that the studies are complete. So our estimate is that that could lead towards approval during the first half of 2011. We also, as I mentioned earlier in the call, will be submitting for THC during the first half of 2011, as well.

Great. Thanks for taking my questions, guys.

You bet.

Our next question comes from Sean Bevick with SIG.

Hi, thanks, guys.

Hi, Sean.

Hey, Sean.

A question on the operating expenses, that big tick-down in sales and marketing. Should we think of that as staying down at that lower level or is that just a one-time thing.

Yes, I think it was really more of a one time thing, Sean, I think it will return back to a more normalized level in the fourth quarter.

Okay. And then turning to the HCV, how is the dynamic for identifying HCV-infected patients differ from testing HIV patients? Will you be following a similar sales and distribution strategy for HCV once you get the finger-stick approval?

In many respects it's going to be similar. Certainly one of our -- the first markets that we're going to be pursuing where there is a great deal of interest is in the public health sector. I think we're all aware that the primary mode of transmission for hepatitis C is through intravenous drug use, and of course we're selling our HIV products into that market segment. All individuals who are diagnosed HIV-positive are tested for hepatitis C. There is a huge reservoir of undiagnosed infection in hepatitis C, much like HIV, even though the prevalence is three or four times higher. So it's going to follow that HIV model in its early rollout here in the United States. The CLIA waiver is very, very important, obviously, to the commercial success of the rapid hepatitis C test, CLIA waiver and the finger-stick approval.

So obviously we're very happy that those are progressing, the CLIA waiver study, as I mentioned, is on track for completion before the end of the year, and assuming we obtain approval for the finger-stick sometime in early 2011, we're going to be prepared to submit that application for CLIA waiver as soon after approval as possible. CLIA waiver also is essential, it enables the product to be used in the physician's office and that's where our relationship with Merck comes in and is so important, and combine all of that with the excitement in the market around the new drugs that are -- that were just talked about at the AASLD meeting in Boston, and hopefully those will be submitted for approval before the end of the year, both here and in Europe. Hopefully approved sometime in mid-2011. We're looking at a very new and exciting day in HCV diagnostics and treatment and we're right in the mix.

Do you guys think you have a big enough hospital direct sales force to go after the HCV opportunity? Or are you going to have to expand that there?

We have real good coverage in the public health marketplace, there is no question. We're going to service the physician office market through physician office distribution organization. We enhanced our capabilities in the physician office market through our cryosurgery efforts this year by partnering up with Manufactures Rep organization. You've seen some positive impact on that -- out of that effort in our professional cryosurgical sales. We're going to be expanding their coverage. We're going to be taking our OraQuick HIV product through the MRO group here starting in the fourth quarter.

So I think, yes, from a coverage perspective we're in pretty good shape. Obviously we monitor that very closely. We segment our hospital market by bed size. We know how many accounts reps are calling on. We have call standards by rep, by territory and we'll manage our capacity effectively to maximize the opportunity.

Okay. Were there any HCV -- OraQuick HCV revenues in the quarter?

Not a significant amount. And they were more in Europe than they were obviously in the United States.

Okay. And then last one. With the agreement that you guys had with Inverness following the resolution of the patent infringement case, did you guys ever identify any tests that you were considering distributing as a private label?

We have not private labeled anything as of yet. There are some tests that we're interested in evaluating in the infectious disease area, may not necessarily come from Inverness.

Okay. Thanks, guys.

Our next question comes from Sameer Harish with Needham & Company.

Hi guys. Good afternoon.

Hey, Sameer.

Hi, Sameer.

I thought I would start by asking a little bit about some of the performance. OraQuick, obviously, infectious disease side was a bit higher than we were expecting. Can you talk about traction you've gotten in that market in terms of the hospital market versus public health? Were both of them up sequentially? Any more details you can provide there?

Yes, hospital was up sequentially slightly. We continue to manage that process very aggressively, very strong target account, funnel management activity and call activity management and we continue to see a pretty healthy pipeline on the hospital front. If you back out, obviously that artificial increase in 2009 -- third quarter 2009 in the public health sector, you saw nice improvement quarter-on-quarter from a unit perspective. And the public health business in the third quarter of 2009 did have some benefit, as we mentioned from this year-end spend, but our position within the different jurisdictions is -- continues to be very strong.

Just to put this in perspective, was that the highest public health quarter that you've seen thus far or is it close?

It certainly is right up there, Sameer. Technically the highest one was the third quarter of 2009 as we fulfilled the backlog, but stripping that out and looking at the other quarters, that was right up at the very high end.

Yes, fourth quarter 2009 was also comp.

In the ballpark, yes.

Got it. In terms of the guidance, I just want a clarification. Are you not including any of that incremental federal funding that, Doug, that you highlighted at the end of your comments in the fourth quarter guidance or is it included?

Well, thanks for raising that. What I tried to do in talking about that at the end of the call there was to try to provide some balance as we think about what is going to happen going forward. The economy has had an impact on our business here in the US, particularly at the state and local level. It's impacted our business internationally. Fortunately the feds have recognized this and have allocated appropriated monies to help support and sure-up what is going on at the local level.

The numbers that I mentioned reflect the total grant monies that are available -- that the feds have made available, but it doesn't say that all of that money has to be spent on testing. It can go to support infrastructure, it can go to support other prevention activities. Some of the monies that have to be spent by the end of 2010 in the fourth quarter here, as an example, some of the jurisdictions will -- they'll certainly spend it, but they might defer spending on, let's say, tests that they would have spent normally in the fourth quarter, now they'll just defer that money into 2011 and that money will be available in 2011.

So we're working with each one of the jurisdictions to get a handle on just how much of this money is going to flow in to the fourth quarter, how much is going to actually be spent on test kits versus other prevention or infrastructure activities. It's a challenge. But what I try to do is give you some flavor for at least -- we're hopeful that the issue we had earlier in the year, the impact of lower funding, hopefully we're going to be a little bit beyond that and that will stabilize as we look out into the future.

So should we take more of those comments on the federal funding to indicate upside to 2011 sequentially, or if some of that drops into the fourth quarter it could be above and beyond what you are thinking about in terms of (inaudible -- multiple speakers).

I don't want to give you any view on 2011 right now. I think we're optimistic about Q4 and we'll see how the bolus of money that's coming into Q4 translates into tests and hopefully we'll have some view out of that on what kind of impact that might have for 2011.

And equally, Sameer, you have to, as Doug pointed out, the predictable nature of this is very tough at the moment, and consequently some of the money spent in the fourth quarter here could actually negatively impact us even in the first quarter of 2011, as they may buy some tests and use them in the first quarter, second quarter. So I think we have to be very cautious, and we internally are being very cautious with setting expectations for revenues.

Very good. Understood. If I could ask two questions on HCV. The first in regards to the CLIA test that you guys have started. Can you just generally outline the nature of those tests, how they compare in magnitude and design to the pivotal study tests that you use to submit for FDA approval? And then the second, any early indications on HCV reimbursement or funding? Thank you.

Yes, a couple of comments on the CLIA studies. We're talking somewhat less than 1000 subjects, so it's in the high 100s. We're probably 50% to 70% through enrollment right now, so that's gone pretty well, and we're on track with what we're expecting with human subjects. We also have laboratory studies that we are also conducting, reproducibility studies and the like, and we're about 50% complete on those and scheduled to complete those by the end of the year. So as I mentioned, we expect to have all of this complete and the spend out of -- out in 2010 and then, obviously, our objective is to have the application ready for approval as soon after we get the finger-stick approval as possible. The second part of your question was?

Reimbursement on HCV.

Reimbursement on HCV. Current reimbursement is -- HCV is reimbursed just like a laboratory reimbursement is conducted. And much like HCV, clinicians will be able to charge for the time spent with the patient. The CDC has indicated that they intend to issue new testing guidelines for HCV. They had originally said they were going to do that in 2011. Right now they just announced at the AASLD conference that they would release those in the first quarter of 2012.

Obviously what they've communicated is that through the what is called the Hep C cohort study, all indications are they want to take an age-based approach to HIV testing and screening. And I think we'll hear more about that as we move through 2011. But clearly reimbursement is going to need to follow those guidelines, and we'll be working with the insurers, with CMS, Medicaid, Medicare to ensure that reimbursement is set up for that.

Great. Thank you, guys.

(Operator Instructions) Our next question comes from Caroline Corner with William Smith & Company.

Hi, guys. Thanks for taking my call.

Hi Caroline.

Hi, Caroline.

Hi. So on the substance abuse side, I was wondering if you could tell us about any information you've gotten from Roche so far about their commercialization plans, given that they're also selling the urinalysis testing. Have you gotten any input from them as to about what they plan to do around launch?

We do. We have a joint commercial team that meets regularly and talks about those plans. I think right now it's probably premature to detail that, Caroline, but as we move out into the first quarter we'll give you complete coverage on that when appropriate.

Okay. Very good. And then moving back to the HCV, the sales in Europe, I know they're pretty minimal right now, but I was just wondering, have you been able to collect any information that might be of interest to us as we look at moving toward US sales and who are the major customers that have been buying? I know there is not too many yet but -- and also have you been having reorders?

Let me address Europe. Europe is a difficult market, and we've communicated this previously. For hepatitis C rapid testing, it's a market development effort. Look at the HIV business, not only ours but anyone else who's participating in the European market, it's not a rapid testing market. It's a laboratory-based testing market and so it's -- what we're doing is market development.

To that end, however, the product is, as I mentioned previously, is registered and approved for sale in nearly 20 countries in Europe. We've got distributors identified and secured globally in over 28 countries. We have several pilot programs underway or ready to start in Europe in Italy, targeting pharmacies and general practitioners, and in Spain, I know in drug treatment centers, mobile vans looking -- targeting the IDU market. In the UK we've got some programs in prisons and corrections, hospital-based studies. In Korea we've got a multi-site hospital study going on. So there is a lot of market development going on, not only in Europe but around the globe.

The Merck effort, to continue to update you on that, 19 countries in the EU now have been trained on OraQuick HCV. We've begun detailing in three countries, and the plan right now is that all countries should be on board either by the end of the year or early in the first quarter of 2011. So a lot of work going on and our expectation is that's going to translate into revenues.

Okay. And then my last question, when you were mentioning the R&D spending, you were talking about the HIV over-the-counter efforts, the CLIA waiver for the HCV efforts and you also mentioned next generation OraQuick. You can talk a little bit about what you mean by that, and also just the pipeline in general as we move forward, what is next for OraSure?

Yes, we've been working on enhancements to our OraQuick test for sometime. Obviously you've seen those in terms of our existing product with its enhanced stability. The product in the field has just performed exceptionally well since we introduced the enhanced product a year-and-a-half ago or so now. Specificity of the product in the field that we monitor through sentinel site data is in excess of 99.95%, it's extraordinary. It's over hundreds of sites and hundreds of thousands of data points.

At the same time, we have always believed that we could enhance the sensitivity of the test. The product claim today is 99.6% sensitive in blood, and 99.3% in oral fluid. So that's been a design goal as we look to improve the product. We have a 20-minute test. We'd like to see if we could knock that down a bit and see if we could get the same kind of performance in a little bit faster test. That's been one of our designs. The product has been largely redesigned. The next phase of the development effort is to begin human subject testing with all of those different specimen matrices and that's going to kick off in the fourth quarter here and certainly into the first part of 2011. That drives a lot of expense. And so that's a big part of that development effort.

Relative to the rest of the pipeline, we have numerous opportunities that we're looking at in terms of other infectious disease targets. I'm not prepared to talk about those today, but suffice it to say they're in the infectious disease STD area generally.

Great. Thank you for answering my questions.

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

Okay. I just want that thank you again for coming on the call with us tonight. We're looking forward to delivering a good solid fourth quarter and obviously look forward to connecting back up with you next call. Have a good afternoon and evening, everybody. Thanks a lot. Bye-bye.

Ladies and gentlemen, thank you for your participation on today's conference. This concludes the program and you may now disconnect. Everyone have a great day.