Wall Street Journal - April 12, 2006
Cynthia Koons, cynthia.koons@wsj.com

A federal panel recommended last month how OraSure should design clinical trials in its effort to win approval to sell OraQuick, the rapid oral-swab test, without a prescription, for use in a home setting.

The OraSure oral-swab test currently is used at public-health clinics, doctors' offices and hospitals. Hospitals pay $12 to $17 for the test.

OraSure stock has bounced around with the prospects of over-the-counter approval for the quick test. An FDA advisory panel's positive attitude toward OTC testing and a few boosts by CNBC-TV's "Mad Money" host Jim Cramer in the late fall helped spur the stock to a 52-week high of $14.14 on Nov. 30. Then, in December, reports of patients' receiving false-positive results with OraQuick at public-health clinics in New York City, Los Angeles and San Francisco sent the stock to the $7 range, a shade above its 52-week low of $6.91. And, though investigations have concluded the false positives weren't a fault of the tests, it has taken time for OraSure to clear its name.

"We've conducted an exhaustive assessment of how the product's performing in the field. We've collected information from more than 35 states," said Chief Executive Doug Michels. "All of the data indicates that the test is performing with a specificity in excess of 99.8%, which is completely consistent with our U.S. Food and Drug Administration-approved package-insert claims."

Investigations by both the Centers for Disease Control and Prevention and the company concluded the cluster of false positives was a function of issues at each of the testing sites in question, rather than a problem with OraQuick. Neither the CDC nor the company would be more specific about the problems at those sites.

As early as this summer, management expects to begin trials to prove that inexperienced users can properly handle the oral-fluid version of its 20-minute test.

"The studies will be designed to validate the ability of an untrained user to perform the test, to understand the instructions for use, to interpret the test result correctly and be able to follow the instructions after they've conducted the test," Mr. Michels said. Currently, positive rapid-HIV results must be followed up with confirmatory tests.

"To actually use it, it's very easy," said Stacey Keith, a testing coordinator at the AIDS Service Center of New York. Results are determined by the number of lines that appear on the test after a swab culture is taken from a user's mouth.

Management couldn't offer a timeline for over-the-counter approval, but analysts believe a product launch is still at least a year off.

HIV and AIDS advocates have emphasized the importance that an over-the-counter HIV test be both accurate and offer users easy access to counseling and treatment options.

Judy Auerbach, vice president at the Foundation for AIDS Research, said it is important that those who test positive receive proper medical referrals. She also said counseling about healthy behaviors should be offered to those who test negative.

Largely, HIV and AIDS advocacy groups have supported a rapid test for at-home use, citing an alarming statistic that about 25% of the nearly one million Americans infected with HIV don't know they're infected.

OraSure said its study shows substantial consumer desire for a rapid OTC test. "Our market research indicates that there are privacy concerns among consumers, that they would purchase an HIV test over the counter if it was available," Mr. Michels said.

The test could be a profit driver for the Bethlehem, Pa., diagnostics company. RBC Capital Markets analyst William Quirk said OraSure could eventually make $20 million to $40 million a year from an OTC test, beginning in either the second half of 2007 or in 2008. In context, OraSure posted sales of $69 million in 2005 and forecast revenue of $86 million for 2006.

On a revenue basis, Ed Shenkan of Needham & Co. said the stock is currently trading at 4.3 times his 2007 sales expectations while the sector trades at 3.7 times 2007 revenues. He expects the group's multiple to expand by year end.

Analysts said OraSure has other near-term catalysts, including European approval for the OraQuick test and some delayed federal reorders, which are weighing on first-quarter estimates. OraSure maintains it hasn't set a deadline for the timing of such bulk orders and therefore doesn't consider them delayed.

In the meantime, making the test available in pharmacies appears a priority at the federal level.

"We think there is a likely place for OTC testing. We have observed during the FDA hearings and other times that there appears to be strong community support," said Bernard Branson, the CDC's associate director of Lab Diagnostics in the HIV and AIDS division. "But we want to be sure that [the tests] are safe and effective."

Thomas Weisel makes a market in OraSure stock and has had an investment-banking relationship with the company. Needham and RBC make a market in OraSure stock.

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