OraSure Technologies, Inc. (OSUR) Earnings Call Transcript & Summary

Welcome, Dan Brennan. Hopefully, you've been with us throughout the conference day 3 of the UBS Global Healthcare Conference. Really pleased to be joined with me here on the virtual stage for 2:00 session with the senior management team of OraSure. Virtually, we have Stephen Tang, President and CEO; and Roberto Cuca, the Chief Financial Officer, who may or might not be with us on video, but he's certainly going to be with us on the phone. As I've suggested on prior presentations, feel free for those of you on the webcast, I think there's a Ask a Question link. Feel free to shoot one to me. I will certainly try to look during the presentation and get to that if time permits. I thought maybe just to kick it off. Well, first, Steven and Roberto, welcome and glad you guys can join us for the conference. And I was hoping maybe Stephen, I'm going to turn it over to you just to kind of kick it off maybe with an introduction of OraSure in a few years since new management took over. I'll leave it up to you to maybe describe maybe the direction you've taken the company, and may provide a brief update on the business, and then we can dig into some of the questions.

Sure. Dan, I really appreciate you having us at the conference on behalf of Roberto Cuca, our CFO, and Senior Vice President, Scott Gleason, who just joined us recently as Head of Investor Relations and Corporate Communications. As a company for those of who are listening and are watching that aren't intimately aware of OraSure, OraSure Technologies is highly focused on enhancing health and well-being through effortless diagnostics and self-collection technologies on a global scale. We're really one of only a few public companies in the diagnostic business focused exclusively on these goals. It's been a very exciting time for us at OraSure because we believe we're on the cusp of receiving our first emergency use authorization from the FDA for our COVID-19 rapid antigen test. And while there's been an overall decline in COVID testing in the U.S., we continue to believe that our fast and frequent testing will play a vital ongoing role in addressing this unprecedented public health crisis, both within and outside the United States. Because, unfortunately, the disease will be with us for some time. We believe once approved, our COVID-19 rapid antigen test will provide a significant increase in near-term revenue and cash flow that we can utilize to fund future growth. Longer term, we see this as an endemic disease, COVID-19, and we believe the accuracy, simplicity and value provided by our test will also be long-term revenue driver for the company as well. Looking at our Molecular Solutions business. We're a global leader in sample collection systems that help facilitate the dramatic expansion of consumer genomics, clinical genomics and direct-to-patient laboratory markets. Most of the data we've seen in these markets has been growing at greater than 15% per year over the next 5 years. And we believe we have very early innings of a significant change in the way health care is delivered in this country as we look at the advent of near patient in-home testing. Our longer-term vision with this business is to be able to facilitate multiple sample types, provide incremental customer solutions such as data management and truly be a partner of choice for our customers as part of our multiomics strategy. We have strong intellectual property around our products in this segment, and we're expanding our barriers to entry by obtaining regulatory approvals by many of our customers. I'd like to also take a second to highlight our work in the microbiome space while today, this is a relatively small revenue driver for our business. It's growing rapidly, and we're seeing increased traction with our pharmaceutical partners. We see the microbiome market as one of the most exciting areas in diagnostics, and we're positioned as a future leader in this space. And finally, I would highlight that as a company, we're focused on reinvigorating innovation through increased internal R&D, driving inorganic growth through M&A and strategic partnerships. We had over $240 million of cash and cash equivalents at the end of March and no debt. We believe that strong balance sheet will lead to opportunities to deploy capital to increase shareholder value. You mentioned, Dan, that this is a relatively new management team. I've been at the helm for 3 years now. So I'd just like to highlight a few points of what's happened during that time. So first, as I shared, as a company, we're highly focused right now on the COVID-19 testing opportunities in the near term. And we see that as a near-term driver of significant revenue growth and cash flow, which will fund further investment and growth in important long-term diagnostic products as we enter the endemic phase of COVID-19. And second of all, we're working on reinvigorating innovation from internal R&D to drive higher growth through strategic and financially sound M&A, and we're evaluating strategic partnerships. Well, micro business, we're in early innings of genomic and near patient in-home testing. We're going to build that capability to handle other sample types. You saw that with our acquisition of Novosanis, which is a unique urine collection sample company and the breadth of services we provide customers to extend the barrier of entries for our products. I'd also emphasize what I said about the microbiome area, significant growth driver offer currently small base but growing significantly. And last but not least, it's really the talent that we put together including CFO, Roberto Cuca; and Senior Vice President, Scott Gleason; as well as Senior Vice President, Ted Rauth, who heads Operations; David Rappaport, who heads Corporate Development; and Executive Vice President and Business Unit Leader, Lisa Nibauer. So these are incredibly exciting times for us, Dan, and we're happy to have this time with you to further discuss it. Dan, you might be on mute.

Sorry about that, Stephen. Yes, so I thought we'd start with COVID, go through a series of questions there, just to understand kind of frame the opportunity for you, where you are, which one of your products, obviously, you mentioned the EUA, which is coming here. So that could be an import driver. So net-net just what is the expectation for this year from an aggregate dollar basis or a revenue basis that we should be considering from contribution from COVID for or assuring? Then we could dig into some of the details.

Well, Dan, we haven't given specific guidance on revenue for the various contributions of the COVID products. But I think we can point to 2020 and the fact that on the molecular collection side, that is saliva and swab collection kits for COVID-19 testing was over $50 million. And so we've seen growth already based on products that are on the market. And because we are a relatively small company in the world of COVID testing, I think we expect the impact on us to be significant. So just a recap, we submitted an emergency use authorization, EUA application, to FDA for our rapid antigen test for both prescription home use and professional use in point-of-care clearly wave settings. We announced last quarter that the company collected all the data series, resubmit 2 requested EUA applications for its oral fluid antibody tests. And we actually filed an 8-K this morning indicated that we did indeed submit that application on May 21. And we currently have 8 EUAs for the use of our 2 collection devices in conjunction with laboratory tests offered by our customers. So that's led to significant increase in revenues for our molecular collection business over the last 8 -- 15 months. So, so far, that's all looking very positive. In terms of guidance, we've only given guidance for the second quarter. And if you like, Roberto can share more about that projection or we can take us in different direction?

Sure. Maybe stepping back and when you think about the rapid antigen and the antibody test, how do you character? Well, maybe starting with rapid antigen, I guess, like we could see what Quidel and kind of Inex now and Veritor are kind of doing. What kind of capacity, I guess, have you discussed in terms of your ability to serve the market? And then just how should investors think about the opportunity? I think right now, we're coming off a real peak level, so things are certainly slowing. But to your point, it's going to be with us for a while in OUS, there's opportunity. So there's a lot of -- it was kind of easy, if you will, in 2020 to watch case counts and just predict up to the right. Now I think we're in a new period where we're just trying to figure out what's the durability and how much is use case. So any way to help us frame just the building blocks for what could be fewer business?

Yes. So I'll talk a little bit about the opportunity and then Roberto can talk about the capacity that we've invested in, okay? So this has been an incredibly volatile discussion, right? And I think what's happened, Dan, and I think you certainly recognize this firsthand is that people overpredicted the market early. And now I think they're underpredicting it. I think what's underappreciated in the opportunity for self-testing overall, whether it's prescription self-testing or over-the-counter, is that this is a use case, which has never been widely extended before. So the consumer is literally learning about this as new products come to market. And we, of course, know a lot about this because we put the first over-the-counter diagnostic test for HIV on the market back in 2011. So we had 9 years of experience with this product -- sorry, 2012. So 9 years experience with that product. I think what you're going to see for OraSure is that the use case for our rapid antigen test will be its simplicity and ease of use, which is something the market has not seen as yet. And we intend to capitalize on that with the capacity expansion that we've made for that product. So Roberto, do you want to talk about the capacity a bit?

Absolutely. So as of the end of May, we will have expanded our total OraQuick capacity to 55 million tests annually. That covers all of our products and about 17 million units will be going to our HIV, HCV and Ebola applications. We are further expanding that to 70 million tests annually by the third quarter of this year and one step further to 120 million tests annually by the second quarter of 2020. So we'll be able to capture as much capacity as it comes down the pike at us. We've been investing in capital expenditure to get to these levels. As we've described to some investors, the payback period for these investments is pretty quick given the volumes we're able to produce. We -- CapEx was $11.1 million in the last quarter versus $2.6 million in the prior year. So you can see that we're investing nontrivial amounts into the capacity expansion. But we expect to, a, be paid back quickly on that investment; and b, be able to redeploy that manufacturing capacity to in-line products as needed.

And in terms of the competitive landscape for the self-testing for rapid antigen, just I don't follow Quidel or Abbott or BD. So I know many of them have been trying to talk through, I think Abbott in particular. So where does the landscape stand today? And where do you -- how do you think your test gets used? Like, who is the typical user or a customer for your test going forward?

Yes, certainly. So keep in mind that the over-the-counter COVID-19 rapid antigen tests have really only hit the market in the last 3 or 4 weeks. I think that the retail channels say that the product is doing well. And so I think that bodes well for our prospects as well. So what's going on is there is a conditioning in the marketplace today by users. And that can be anybody from employers who buy the test in volume to be used in testing employees and back-to-work programs. It can be universities and schools back-to-school programs. There are also use cases for congregate living facilities or people that have called for rapid testing and frequent testing for those visiting nursing homes, for example. And then there's a whole other number of uses that involve travel and entertainment. In other words, how do you test people coming into venues to ensure that if we go to full capacity in these venues that people are there and attending safely. So I think we're developing the use cases as we go along. And I think the differentiator for us will be the ease of use and the simplicity of our design and the try and true reliability of OraSure tests beginning with our HIV over-the-counter test that's been on the market for 9 years.

Right. And in terms of -- in some of the following, like, like are there -- are there others that are there today or others planning to be there? I'm not asking you to apply another competitive landscape. But when you think about, you're obviously spending the money to invest, obviously, you're expecting to get your fair share of kind of usage, but we need to be competing with -- like, will this become a crowded market over the next 6 to 12 months, do you think, with over-the-counter rapid antigen?

Well, it's really up to the FDA to approve the number of products. So I can't really comment on what's in their mind in terms of that process. But I do think that those that have debut on the market have had to meet a very high standard. And of course, we know about the high standards for OTC testing because we've been there with HIV. I don't think it will be a wide number of companies that come to market. I mean, remember, we were the only one in the market for 9 years. And so the industry itself doesn't have a lot of experience in developing an over-the-counter product. And I think that part of the secret of our design is, it's designed for use, it's designed for manufacturability. It also has an integrated swab. In other words, there's no external swab that needs to be used to take our test. The swab is integrated into the design of the device. That's important because over time and over the pandemic, the swabs themselves have been in short supply. So there's many, many features in addition to the ease of use and simplicity of our design, which I think will give us a competitive and comparative advantage in the marketplace.

Got it. I mean I was going to ask as a follow-up question. Like what would be the -- to the extent there are other players out there, what would be the factor that would decide who wins? Is it the accuracy of the test, which it just seems to be a wide span of like what's on label and what's real use case for? I'm sure there's a bar, which you have to clear for EUA. But anyway, maybe just one more question on the competitive profile. So ease of use self-contained kit, which is good accuracy. Just how would you characterize, like if we looked at it 12 months from now, would you expect your test to be the leading over-the-counter choice? And if so, for what reasons?

Well, I think it's the design. So our moniker is, it's as simple as swab, swirl and see the result. So you swab your lower nostril, you swirl in the developing solution and you see the results, okay? So the amount of time that you actually have to spend with the test is probably a minute or less. So there are less steps to go through to actually get to a result. What we found is that consumers like the test or like tests that are simple to do and where they're confident they produce -- they're actually doing the test correctly. So that will come into play. Obviously, you have to have a standard of performance, which I think we will meet well as well as price point. So I think that the market is just getting used to the pricing right now at the OTC level and at the prescription self-test level, and that will be a big factor also. So we are ramping up our production for strong demand. And our rationale for that is the strong demand we've heard from inbound interest as we've been closer to getting our EUAs.

And would you think liked in a normal as we get to the back half of this year, and there'll be a typical flu season, maybe not as typical given probably masking is still in place. But as we get back to the back half of the year and folks are like, oh boy, and maybe those who were vaccinated, maybe begin to think they've had the flu, what do I have? They would typically probably run down the block to a minute clinic, like do they go to CVS and Walgreens zone or buy your product? Is that the way you envision this market playing out?

Well, yes, because we -- hopefully, we will have the prescription self-test approved and, hopefully, the over-the-counter test soon thereafter. So yes, that's exactly how we see the buying behavior. I think it will be important because people will be concerned if they have cough or cold symptoms that it's not COVID-19 and something else. And so I think that will be important for us to know also. The other interesting use case in conjunction with the vaccine, I think, was best illustrated by the dilemma that the New York Yankees had 1.5 weeks ago, which is 8 members of the team tested positive. But in fact, none of them were symptomatic and none of them were actually infectious. And the reason that they were quarantined and taken out of play was that they were using molecular tests, which are extremely sensitive, but tend to offer false positives as well. So what rapid antigen tests will do with frequent testing is make sure that you determine whether you're infectious. That's the most important threshold, not where that you have a counter of virus per se, but whether you have enough to be infectious. So I think that's where our tests will shine.

And maybe final one, just in terms of like employees and universities, I mean, they could just order directly from, I guess, Quidel as well or someone who doesn't have and over-the-counter option. So how do you think about the use case between the examples and some of the other players who are very established in this market already in the more commercial setting, if you will?

Well, I think we're established as well, but in different ways. I mean we're established in the OTC market. We don't have quite the capacity that either of those 2 companies that you mentioned have, but that's helping to our benefit. So we don't have to have large market penetration to make our sales consequential to our top line and to our shareholders. And so I think that puts us in a very different position as a company.

Okay. And then maybe just in terms of -- you mentioned at the beginning, kind of the antibody test and that market really just hasn't taken off. There's a hope with vaccines, maybe it could, some survey work we've done suggests it's not. But we'll see. What are kind of the expectations for that test?

Right. So we are not aware that there is any oral fluid-based antibody test that is going through the FDA at this point. So we could be the first. The reason that oral fluid versus blood-based antibody test is important is because the more people you can get to enroll in testing for antibodies, better off it will be. I think it's easy to see that giving us a sample with your saliva is better than giving a sample with blood because most people don't like to stick themselves and draw blood, right? And we've learned that from our experience with genomic testing and wide spread genomic testing that people would rather spin into a tube rather than have their blood draw. And so to the extent that we need widespread seroprevalence or surveillance studies for the antibody, our collection kit and our ELISA assay could be very useful.

Interesting. yes, they did. There seems to be like a real heightened degree of like focus on the accuracy of these antibody tests. Are they neutralizing antibodies, which seem to be this gaming factor you heard in the beginning. Is that an important element to your test like to prove these are neutralizing antibodies or not? Maybe just give a little color on that, if you don't mind?

Well, we are going to test on a spectrum of IgG, IgA and IgM-based antibodies. Okay? So I won't comment on the performance because it's with the FDA. But I think the more germane point, Dan, it's going to be that at some point, we're going to need a quantitative test, not just a qualitative test. In other words, we're going to need to see how high in numbers people's expression is of antibodies based on their exposure to the virus or the reaction to the vaccine. And so our product right now is being sold as a research-use-only product for both saliva collection and the antibody test itself by developers who are looking to make a quantitative test. So I think that's equally exciting.

Got it. Okay. Okay. Great. We're going to circle back to COVID maybe in the interest of time, but maybe we'll just kind of move ahead. My light of question was going to focus on DNA Genotek right now. That's back when I was on the buy side, we spent a lot of time on OraSure back then. Obviously, this was a time when direct-to-consumer was really big and the business was booming. Maybe just give us a sense of where you are today, what the future is? Obviously, you've got a special capability. But just kind of give us a favor of reference on this business and kind of what the outlook is?

Certainly. So as I have mentioned in my upfront remarks, we believe the consumer genomics industry and direct-to-patient testing industries are poised for growth in the rates above 15% per year when we look at most market data. There was obviously a law in those markets with some headwinds from 23andMe a few years ago. But we are actually seeing those businesses returning to nice growth rates right now. I think the fact that 23andMe is now a public company gives everybody, including ourselves, more visibility in what they're doing in the marketplace. And their product needs from suppliers like us. And obviously, we're seeing a number of applications for genomics and home testing increase significantly with the number of disease indications and cancer markers that are out there. So we see this positively after the correction, if you will, in the industry a couple of years ago.

Interesting. So you were pretty concentrated at the time 23andMe ancestry and, obviously, by not going to disclose customer concentration now. But just qualitatively, like could you just talk about like the kind of where your product goes, just how broad-based it is, how now it might be? Just any color on those topics?

Yes. We're not in the same situation we were a few years ago when we had a customer concentration issue. And so I think we're in much better shape. The industry is actually diversified a bit since then. The way we've described it is that there are a number of segments in consumer genomics. One is the ancestry -- small ancestry business, where you're looking at your genealogy. Another is what we call disease risk management, which is really our sweet spot, which are more of the serious health concerns people have that are linked to their genome. We also see an uptake in the area we call companion animals, which are people testing their dog's and cat's genealogy because there is such a large uptick on pet adoption starting with pandemic, a lot of people have been curious about the genealogy and the breed of their pets. And then there's the leisure area, I mean, areas where people are trying to match their genome to their preference in wine and things like that. So of those segments, there's been much more diversification and we're seeing strong growth in the disease risk management piece. But I think the additive feature these days is a renewed interest on the ancestry piece as well. I think during the pandemic, a lot of people did a lot of family tree mapping and genealogy work on their own. And of course, your DNA relative has become a big part of that.

Interesting. Okay. And are you any different whether on the testing's array base or sequencing base? I mean you're facing clients...

We are. I mean so far, the use of our product as a collection device is agnostic to the analysis method.

Right. Right. Okay. Okay. And maybe -- so you're talking about a 15% growth rate and you talked about like some -- maybe some market data that shows 15% a year. And I guess you're seeing this recover. If we look out the next 3-type years, would you think that level of growth is sustainable from the trends that you're seeing across these core markets? And maybe there's others that might materialize? Just trying to get a flavor of what the conviction and what some of the funnel looks like?

Well, I think you'll see -- continue to see strong growth in genomic testing. I mean, keep in mind that genomic testing from companies like 23andMe ancestry is primarily North American based. Because the rest of the world has not really participated in this. And obviously, we're only 6% of the world's population. So a lot of the world is yet to be touched by this. But the other factor, which is feeding our strategic outlook is the need to combine genomic data with other layers of information like the microbiome, the metabolome, the proteome, et cetera. And that's why we've made investments in acquiring companies that have capability, not only in areas like microbiome and sample collection, but also the services, the data treatment of that data as well. So I think you're going to see layers of information, which is what we call our multiomics strategy.

Interesting. Okay. Great. Well, yes, maybe we can actually jump to that because I was going to jump over to some other product areas. But just walk me through that business today. Is it a revenue? Is it a material revenue driver for the company? Is it something that's being put in place today that will ultimately become a big revenue driver? Just kind of walk us through what the investment has been and what it looks like?

Yes, certainly. So we sell kits for the gut microbiome. We debuted a product last year kit to sample the skin microbiome. So we have products just in sample collection, which is our strength. We also acquired companies over the past couple of years with capability to do laboratory analysis and the data treatment to actually deliver a result to the customer when that result is specifically the quantity and type of microorganisms, either in your gut microbiome or your skin microbiome. So those are fairly unique skills in the marketplace right now. And so we made sizable investments there. It's not yet a big part of our business, but it's growing rapidly. And we see that as we have customers in the pharmaceutical industry or developing drugs, these drug candidates are going through Phase III clinical trials to get to FDA approval. And in some ways, you can view our contribution to that is as being a companion diagnostic to these therapeutics as they come to the market to make sure that not only are they working therapeutically, but that they're cultivating a healthy gut microbiome in the process. So we see this as one of the key growth drivers for our future.

Yes. And yes, okay. So what does FDA say? I know there was a tap down on a few of the companies in that space at some point in the past. So right now, you're saying, there's a number of companies going through FDA. But in terms of -- you mentioned delivery results back to the customer, just -- is that -- do you need special clearance to do that? Or just kind of what type of result is that, that you're giving back?

Well, so these are not direct-to-consumer results, by and large. They're being reported to companies that develop therapeutic products that are going through FDA approval. And so that part of the area of microbiome has been a very lucrative part for pharmaceutical customers. So we believe that will continue on.

Okay. I want to talk about the HCV. Maybe just bring us up to speed on that business, kind of size or HCV business, both U.S., OUS and just maybe start it off, and then I can dig into with some additional questions.

Roberto, do you want to take that one?

Absolutely. So Dan, the business was a little under a $10 million run rate last quarter, pretty evenly split between the U.S. and OUS. So HCV is obviously a significant problem in the U.S. and outside the U.S. In the U.S. alone, there is estimated to be over 2 million individuals with HCV and many are unaware of the status. Because HCV is highly curable today, there's a demand for diagnosing it so that those cure is going to be applied against it. So we see a real future for this, both in the U.S. and ex-U.S.

And then OUS, I know under prior management, there was a huge initiative there with the HCV eradication. There was some really big government contracts. And it was lumpy, and it created some little tension in the stock because there were some real opportunities and maybe the timing at which they played out. But just is that still a meaningful chunky revenue opportunity OUS with some of these eradication programs?

Well, it is, but we're not predicting any large windfalls so far. I think that the assumptions made a while ago have been challenged. And basically, what's happened since then is the therapies actually cures for HCV have gone generic in many countries, which makes them more affordable from an overall health care economic perspective. And so I think we're in a better place today than ever before. But I think the challenge has always been to gather the political and economic will to eradicate HCV in the same way that there is political and will to eradicate HIV. And so far, we haven't yet reached that tipping point overall, but we continue to monitor the situation carefully. And I believe there is an opportunity to have widespread eradication programs in which testing like ours can be a key component. But so far, that hasn't happened on a widespread basis.

Right. Okay. And maybe one final one there seeing like, are there any -- to the extent, we would have called in the Internet and look on a lot of these eradiation global sites and I know there's a bunch of global entities involved. Are there any really large tenders in the next 12 to 18 months that are coming up for any new programs or not necessarily?

Not that we're aware of. So that's not been a key area of focus. We'll continue to look at opportunistically eradication efforts for HCV and ways we can play a role in it.

Yes. Okay. And then even in the U.S., I know there was -- I mean, obviously, Rob, you talked about the opportunity in the U.S. Where does that program sit? Like with COVID, did it get a little bit pushed to the side and the crisis in dealing with this? And could it come back in to the forefront? Because I know there's a really big push in the U.S. a few years ago, and it's probably still ongoing. So I'm just wondering like the trajectory of that business, how do you think about it over the next couple of years? So it's a $10 million business, you said last quarter, $5 million in the U.S., like that quarterly run rate, does that stay the same? Or could it really go up meaningfully?

Well, 2020 was challenging for a lot of reasons, not the least of which is the clinics, which previously would have been administering our HIV test were closed. And unfortunately, there are in areas of the country, which also experienced high opioid abuses. So the rise of HCV is coordinated, I think, with the rise in opioid abuse. And those communities tend to be places which don't have great health care infrastructure. So that leads to the use case for our product, which is a point-of-care test for which there's no lab needed. So I think we would expect, as we come out of the pandemic, that we'll see more settled growth rates and the use of our product to detect HCV because the government continues to fund opioid eradication efforts in areas that we serve.

Okay. And then maybe before we get into some of your internal innovation strategies and M&A, just obviously on HIV, your critical product, you're a leader. Maybe just discuss kind of what are your priorities in the business today? You've been out of a long time. There's still a lot of global opportunity there. In the next 12 to 24 months, what are the key focal points for the company?

Sure. So one of the key factors in HIV testing in the U.S. is public funding, of course. When we recently saw the Biden administration proposed an increase of $267 million for HIV treatment and prevention, so that will certainly help. We also believe that the advent of PrEP, which is the use of prophylactic drugs to take to help you withstand HIV infection. Those are going to be helpful to our business, given the ease to know if you're HIV positive before taking the drug. And then outside the U.S., we continue to see demand for HIV testing, especially in sub-Saharan Africa. The HIV international business has grown throughout the pandemic, and we remain very optimistic about our prospects there.

So in terms of -- have you articulated like for investors modeling out that line and you articulated any way to think about the go-forward growth rate there, Stephen?

Dan, I'm sorry. You froze up on my screen. I'm not been able to see you.

Yes. Sorry, I asked like, to the extent investors are trying to model out your business, have you articulated a go-forward growth rate for your HIV business or no?

Well, we have not.

Got it. Got it. Okay. How about historically, like when you look back over time and you piece together your commentary, COVID obviously notwithstanding. But if you look at like '19, '18, '17, was that like a double-digit grower? Was it single digits? Any way to think about the historical trend line?

Roberto, would you like to comment on that?

Sure. So historically, we have had pretty significant growth in the HIV business, particularly driven by ex-U.S. So in 2020, we saw international HIV growing 15.7%, notwithstanding some challenges from COVID-19. The prior year growth was 15.2%. And as you know, Dan, our international HIV business is augmented in part by some incentives given to us by the Gates Foundation, which end at the end of June this year. But the purpose of that program with the Gates Foundation was, in fact, to get us to a point where our -- the use of the product is growing naturally and country health systems are able to purchase and work on our replication programs independent of the Gates Foundation funding. So we do expect to see continued double-digit growth going forward with a little bit of a step down partway through this year just because of the ending of the subsidy we're getting from the Gates Foundation. But that's picking up again next year.

Got it. Okay. Maybe switching over to the balance sheet to discuss and kind of tied with that, the focus on internal investment to drive more even a broader set of pipeline opportunities. So on the M&A front, just kind of walk us through a little bit of where you sit today? What the pipeline looks like, one of the key needs? OraSure has always been blessed, I guess, with the profitability of our business with a really strong balance sheet. So any color there would be helpful.

Certainly. So we have a very active mergers and acquisition program. And we're constantly evaluating deals from multiple sizes from tuck-in acquisitions to more transformative deals. It's really important, I think, now, given some of the volatile valuations in the marketplace to maintain acquisition discipline. However, we have return on invested capital targets and other strategic metrics that we use in a way to evaluate any acquisition we consider. So the watch word for us is a large pipeline and disciplined evaluation to transact.

And any particular areas -- are you looking for technologies? Are you looking for channels? Just any other kind of color about the types of deals that would fit for you?

Certainly. So certainly, adjacencies to our business unit strategies, so our -- the area of effortless diagnostics and related diseases that may offer good solutions for point-of-care testing, leveraging off the ease of use of our testing. Those are ripe areas, the multiomics areas that we've talked about before. But there are also areas to perhaps look at progressive opportunities outside the U.S., where we don't currently have a presence as well as potentially more transformative opportunities, which are not related to our 2 business units. So there's a pretty wide spectrum. And I think our balance sheet health gives us a lot of optionality in the marketplace.

Got it. And then maybe just one more on the internal investment. So there, what have you articulated -- so your R&D investment, is that going up as a percentage of revenues? And what areas have you discussed are key focal points for the company? And maybe give us a glimpse, have you had any successes thus far in the past couple of years internally and kind of what can we expect going forward?

Yes. So I'll comment just on the overall product portfolio because if you go back pre-pandemic, we indicated that we were looking at extending our drugs of abuse and risk assessment testing businesses because SAMHSA, which is the substance abuse and mental health services administration, had put a focus on oral fluid testing within regulated markets. So we've been working on a product launch in the next year or so to accomplish that. Obviously, the COVID products or pivots off of our card platforms. So our ability to respond quickly to those opportunities is a key part of our innovation strategy. We acquired a company called UrSure, which has a private adherence lab test, which we are looking to transform into a point-of-care test off of our OraQuick platform. So there are any number of pipeline products that I think will help us maximize the COVID opportunity and even give us legs beyond that as well. I think Roberto can comment on the overall investment.

Sure. So Dan, as far as progression of R&D investment, with the UrSure acquisition and with the drugs of abuse testing that Steve just mentioned, we'll be seeing a step-up in non-COVID-19 R&D investment. Obviously, we invested a considerable amount last year to support the 2, the antigen and antibody test, and the addition of EUAs and CE Marks for our collection device for purposes of COVID-19 testing. Because there's likely to be a large step-up in revenues associated with the COVID-19 products this year, I wouldn't expect the R&D investment to rise at the same rate as that. But you will see us investing some of the proceeds from the COVID-19 products into future R&D.

Got it. And then maybe just sort set of time, maybe Stephen or Roberto, how -- if you think about investors and who -- those who know the OraSure story, maybe those who come the way and haven't revisited in a while, is there anything you think that really stands out or people's views are X and they should be Y? Is anything really misunderstood kind of the traditional softball question, but I always interested in just to get your perspective.

We appreciate it. Dan, I think a lot of investors recently have seen this as a COVID play and that put a lot of weight on the strength of our core business. And obviously, pure-play COVID companies have been recently out of favor. But I'm really excited about the opportunity with COVID 19. And I do believe it will be a source of long-term value for the organization. I also believe there's a significant growth backdrop for the company when we think about opportunities to present ourselves as a global leader and easy to use point-of-care diagnostics and molecular collection sampling systems. So trends like home health, direct-to-patient laboratory testing and consumer genomics are not going to go away. In fact, they're only going to get stronger. And we even plan to be a major player in facilitating and performing testing in those markets. And so I think there is great upside opportunity for us. And those who follow us and we know we need to execute, and we are on it.

Excellent. Well, Stephen and Roberto and Scott, I know we didn't get to connect, but thanks again for participating at the conference this year. Hopefully, you have a series of good meetings, and good luck with driving the business forward.

Thank you, Dan. Thanks for having us. Pleasure to be here.

Thanks, Dan. Take care.

Thanks, Dan.