Pat McKeough recently replied to an Inner Circlemember seeking his opinion on the DNA-and medical-testing company. While OraSure faces increased competition, says Pat, its strong sales, new products and partnerships with industry leaders improve its prospects.
Q: Hi Pat: What are your thoughts on OraSure Technologies? Thanks.
A: ORASURE TECHNOLOGIES (symbol OSUR on Nasdaq; www.orasure.com) manufactures HIV tests, Hepatitis C tests, substance abuse tests, freezing systems for removing warts, and genetic tests.
The company has two business segments: OraSure contributes 75% of overall revenue; DNA Genotek accounts for 25%.
OraSure’s HIV infectious disease tests contribute 38% of annual revenue, followed by molecular and genetic tests (25%), substance abuse tests (10%) and freezing systems (10%). Other sources of revenue (17%) include funding support from the Biomedical Advanced Research and Development Authority for OraSure’s work on a test for the Zika virus; the company is also paid by drug maker AbbVie to co-promote its OraQuick HCV (hepatitis C virus) test in the U.S.
OraSure won approval March 1, 2017, from the Global Fund to supply the OraQuick HIV Self-Test in countries most affected by the infectious disease. The Fund is a partnership between governments and the private sector; it invests $4 billion annually to fight AIDS, tuberculosis and malaria epidemics.
On April 24, 2017, OraSure announced it had signed a five-year extension of its contract with Grifols. That healthcare company provides recombinant antigens for OraSure’s OraQuick HCV Rapid Antibody test (Hepatitis C). That test allows healthcare providers to get results within 20 minutes.
OraSure’s revenue in 2012 increased 7.2% to $87.8 million from $81.9 million in 2011; the gain was the result of the company’s 2011 acquisition of DNA Genotek. Revenue then increased to $98.9 million in 2013, $106.5 million in 2014, $119.7 million in 2015, and $128.2 million in 2016.
The company lost $0.29 a share (or $15.1 million) in 2012, 52.6% higher than in 2011. Most of the increase was due to development and marketing costs for its OraQuick In-Home HIV Test. OraSure’s loss shrank by 31.0% to $0.20 a share (or $11.2 million) in 2013 and improved again in 2014 to $0.08 a share (or $4.6 million). In 2015, the company made a profit of $0.14 a share (or $8.2 million) and $0.35 a share (or $19.7 million) in 2016.
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In the three months ended March 31, 2017, OraSure’s revenue rose 11.9%, to $32.5 million from $29.1 million a year earlier. That gain was mostly due to higher sales internationally. This included the second of four product shipments under an $18 million supply contract with a foreign government. The order is mainly for OraQuick HCV tests.
Earnings in the quarter were $12.4 million, or $0.22 a share. That’s up sharply from $2.4 million, or $0.04 a share. As of March 31, 2017, the company held cash of $141.5 million, or $2.45 a share. It had no long-term debt.
The stock now trades at 39.7 times the $0.38 a share OraSure is forecast to earn this year.
The company operates in growing but highly competitive markets. Still, it remains profitable and has a sound balance sheet. OraSure’s affiliations with Abbvie and the Global Fund—as well as its new contracts—add appeal.
Inner Circle recommendation: OraSure Technologies is okay to hold for aggressive investors.
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