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OraSure Technologies (OSUR) Q3 2019 Earnings Call Transcript

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OSUR earnings call for the period ending September 30, 2019.

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OraSure Technologies ( OSUR )
Q3 2019 Earnings Call
Nov 06, 2019, 5:00 p.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Good afternoon, everyone, and welcome to the OraSure Technologies 2019 third-quarter financial results conference call and simultaneous webcast. As a reminder, today's conference is being recorded. [Operator instructions] OraSure Technologies issued a press release at approximately 4:00 p.m. eastern time today regarding its 2019 third-quarter financial results and certain other matters.

The press release is available on our website at 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 press releases. With us today are Dr. Stephen Tang, president and chief executive officer; and Mr.

Roberto Cuca, chief financial officer. Dr. Tang and Mr. Cuca will begin with opening statements, which will be followed with a question-and-answer session.

Before I turn the call over to Dr. Tang, you should know that this call may contain certain forward-looking statements, including statements with respect to revenues, expenses, profitability, earnings or loss per share and other financial performance, product development, performance, shipments and markets, business plans, regulatory filings and approvals, expectations and strategies. Actual results could be significantly different. Factors that could affect results are discussed more fully in the company's SEC filings included -- including its registration statements, its Annual Report on Form 10-K for the year ended December 31, 2018, 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 are based solely on information available to management as of today. 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 Dr. Stephen Tang.

Stephen Tang -- President and Chief Executive Officer

Thank you, Jeanne. Good evening, everyone, and welcome to our call. During today's call, we would like to address two subjects that are most likely top of mind. The first is an update on the implementation of our innovation growth strategy, where I will outline our ongoing efforts to position Orasure to capitalize on some of the fastest-growing segments within the molecular and diagnostic markets.

Secondly, we will break down our financial performance for the third quarter and provide updated guidance. The information we share today will provide context and demonstrate that our business is largely on track with the exception of consumer genomics. The announcement earlier today that we've signed an agreement to acquire Diversigen is yet another example of the progress we're making in executing our growth strategy. Diversigen is an exceptional company and a proven leader in the microbiome laboratory and analytic services industry.

This acquisition will further strengthen our microbiome business and improve our ability to provide customers with industry-leading end-to-end microbiome products and service offerings. With over $200 million in cash on the balance sheet as of the end of the third quarter, we're well-positioned to make further additions to the company. We believe OraSure is at the forefront of several nascent but large growth opportunities. Another recent strategic step was the sale of our cryosurgery systems business, which we announced in August.

The divestiture really has allowed us to shed nonstrategic business line, prioritize our product portfolio and refocus our resources on growing our core molecular solutions and infectious disease businesses. Turning to the quarter. As I said, the trends we've outlined on prior calls, particularly those affecting the consumer genomics market continue to impact our business. Overall, however, our business continues to perform largely as expected.

Revenues came in a bit below our guidance. However, this was primarily caused by a timing issue, specifically three HIV self test orders valued at $1.9 million could not be delivered until the first week of October because of unexpected logistical delays. Otherwise, the business performed as reflected in our guidance. As reported in prior calls, our genomic testing business remains healthy.

Apart from the previously discussed single large customer that changed its promotional strategy, this business grew by strong double digits in the third quarter. The microbiome market continues to shine with a very robust performance in the third quarter. We continue to expect revenue growth in the double-digit range for the remainder of this year. Our integration of Novosanis and CoreBiome, which we acquired in January, is nearing completion.

And we're seeing increasing contributions from both companies. We're also far along in planning the integration of Diversigen into our microbiome services business. On the infectious disease front, our HIV self test business performed very well during the third quarter. We generated revenue growth of 36% over the prior-year quarter despite the slippage of the orders I just mentioned.

We continue to project double-digit revenue growth for our international HIV franchise through the remainder of this year, primarily due to sales of our self test. And finally, although not usually a focus of our earnings call, our risk assessment testing business for directive abuse, grew 17% in the third quarter compared to the prior-year period. We're optimistic about the future prospects for this business. As you may have seen, new federal drug testing guidelines were recently issued, which authorized the use of oral fluids in drug testing for federally regulated markets for the first time.

We believe these guidelines will open up a large potential market for us that we are currently not serving. And with that, I'll now turn the call over to Roberto for his financial review. I will then provide some additional commentary on our business, and then we'll take your questions.

Roberto Cuca -- Chief Financial Officer

Thanks, Steve, and good evening, everyone. Our third quarter net revenues decreased 22% to $36 million from $45.9 million reported in the third quarter of 2018. Our net product and services revenues decreased 19% to $35.3 million compared to the prior-year period. Our molecular net revenues, including other revenues, decreased 31% to $18.3 million in the third quarter compared to $26.6 million in 2018.

Royalty income declined 33% to $758,000 in the third quarter of 2019 from $1.1 million in the same period of 2018. This also represents a sequential declines in the second quarter of 2019 of 32% versus a 46% sequential decline from the second quarter to the third quarter of 2018. Molecular product revenues decreased 32% to $17.4 million in the third quarter of 2019 compared to $25.5 million in the third quarter of 2018. Sales of our genomic products declined 41% to $14.1 million, largely due to lower customer demand, primarily from a large customer -- consumer genomics customer that changed its promotional strategy, which impacted its purchasing patterns.

Notably, excluding this single customer, genomic product revenues grew 30% compared to the third quarter of 2018. Microbiome sales increased 81% to $3.1 million from $1.7 million in the third quarter of last year, primarily due to the inclusion of lab services revenues generated by our newly acquired subsidiary of CoreBiome, but also from healthy double-digit organic growth. Domestic HIV sales decreased 4% to $4.3 million in the third quarter of 2019 compared to $4.5 million in the third quarter of 2018, largely due to lower sales of our over-the-counter product. International HIV sales increased 36% to $5.9 million from $4.3 million in the third quarter of 2018 due to higher sales of our HIV self test into Africa, notwithstanding the shipping challenges with three international orders that Steve described.

All three of these shipments were completed in the first week of October. Domestic HCV sales decreased 4% in the third quarter of 2019 to $2 million from $2.1 million in the prior-year period, largely due to the timing of customer orders. International HCV sales in the third quarter of 2019 decreased 3% to $1.1 million from $1.2 million in the same period of 2018, primarily due to lower sales into the Middle East, partially offset by sales growth in Asia. Other revenues were $4.0 million in the current quarter compared to $10.9 million in the prior year.

The decrease is largely due to the lower royalty income I mentioned earlier, and decreases in BARDA funding and cost reimbursement under our charitable support agreement with the Gates Foundation. The reduced BARDA funding reflects the conclusion of our projects under this program and our rotation of R&D resources to projects that are aligned with our long-term growth strategy. Gross profit percentage for the third quarter of 2019 was 60% compared to 62% reported for the third quarter of 2018. The decline in gross profit percentage is directly related to the decline in other revenues, which contributes 100% of the gross profit percentage and to the lower margins generated by CoreBiome and Novosanis, partially offset by lower royalty and freight costs during the quarter.

Our operating expenses for the third quarter of 2019 were $8.6 million compared to $17.7 million in the comparable period of 2018. Operating expenses in the third quarter of 2019 included a pre-tax gain on the sale of the cryosurgical systems business of $10.2 million and $2.4 million of noncash acquisition-related contingent consideration benefits, offset by the incremental operating expenses generated by CoreBiome and Novosanis and $443,000 of acquisition-related transaction costs. As a reminder, we provide EPS guidance that does not include the impact of changes in the fair value of acquisition-related contingent consideration and acquisition-related transition costs -- the transaction costs since these items cannot be estimated. There were no similar acquisition-related costs in the third quarter of 2018.

In the third quarter of 2019, we recorded income tax expense of $1.2 million compared to $3.3 million in the same period last year. The decline in tax expense reflects the lower pre-tax earnings generated by our Canadian subsidiary and the results generated by Novosanis. We reported net income of $13.1 million or $0.21 per share for the third quarter of 2019 compared to net income of $8.1 million or $0.13 per share for the third quarter of 2018. We continue to maintain a solid cash and liquidity position.

Our cash and investments balance at September 30, 2019, was $201.2 million compared to $201.3 million at December 31, 2018. During the first quarter of 2019, we used $13.2 million of cash to acquire CoreBiome and Novosanis and in the third quarter of 2019, we received $12 million in proceeds from the sale of our cryosurgical systems business. Cash generated by operating activities through the first nine months of 2019 was $10.8 million compared to $20.8 million in the same period of 2018. Turning to guidance.

For the full year of 2019, we're projecting revenues of $150 million to $153 million and net income of $0.28 to $0.31 per share. These projections do not account for the impact of changes in the fair value of acquisition-related contingent consideration or potential business development transaction costs since the full extent of those items cannot be determined at this time. The decrease in projected revenues and EPS from our prior guidance is driven primarily by revised expectations for our genomics collection device sales, with a smaller contribution from international sales of HIV testing devices. As many of you know, during the third quarter, the U.S.

Justice department in guided 35 individuals and accused of offering fraudulent genetic testing, primarily to seniors in order to collect insurance. This has no effect on any of our customers in the third quarter, but it's created enough uncertainty in the market that customers have signaled the likelihood of lower orders in the fourth quarter. Additionally, the media attention this has drawn can create mistrust and cynicism toward genetic testing and may be contributing to the more general slowdown that we and others are seeing in the broader consumer genomic space. Based on discussions with our customers and the trends we saw persisting in the third quarter, we've lowered our forecast for genomics revenues in the fourth quarter.

The revision to our expectations for international HIV testing sales is a result of forecasted slippage of an order from the fourth quarter of this year into next year. Note that this is unconnected to the $1.9 million in orders that moved from the third to the fourth quarter of this year. The fourth-quarter slippage is related to the increasing expansion of our sales outside the original STAR country markets. Under STAR, the ordering and shipping processes were consistent from country-to-country with long predictable lead times.

As we've expanded our sales outside of the original STAR countries, we've expanded the addressable markets for our products considerably, but we've also increased exposure to significant variability in ordering and shipping processes and timelines between markets. Once each new market is established, the process will stabilize and be more predictable, but we're experiencing some delays in planned orders in the meantime. We're, of course, disappointed that we've had to make this change. Nonetheless, to the extent that all of our infectious diseases and some of our genomics reduction was due to the timing of sales, we continue to be confident in the underlying health of our business.

Moreover, in light of our ongoing success with regards to business development opportunities, the continued expansion of our self test markets in Africa, the growth we continue to see in the disease risk management submarket of the genomics business and the strength of the microbiome products and services markets, we remain very optimistic about our future prospects. With that, I'll turn the call back to Steve.

Stephen Tang -- President and Chief Executive Officer

Thanks, Roberto. I'll first focus on our molecular solutions business. As mentioned in my opening remarks, and in Roberto's report, both the positive and negative trends that impact our genomics business are continuing. On the one hand, we see many signs of growth in our genomics business despite the impact of a single large consumer genomics customer.

Product revenues, excluding this one customer, were up 30% in the third quarter compared to 2018. We're also seeing consistent growth in a number of new commercial genomics customers being added to our business. Importantly, we continue to see growth in the number of disease risk management companies adopting our FDA cleared collection devices for clinical applications. Overall, there seems to be an uptick in the use of FDA-cleared devices and platforms in the genomics testing market.

We believe this is being driven, at least in part by the FDA's efforts to enforce the need for using clear devices in clinical genomic testing applications. As we've shared in the past, we have an active regulatory program to bolster our global growth. We're also actively working with several customers to obtain FDA clearance for their tests. This type of collaboration is important and that it strengthens our regulatory position and deepens our relationships with emerging clinical test providers.

Despite the underlying strength in much of genomics, the ancestry or genealogy testing segment within the consumer genomics market continues to decline and is impacting our product revenues and royalty income. As we've noticed in previous calls, over time, we expect that other submarkets within genetic testing, most notably, disease risk management, augmented by animal health and lifestyle genomics will eventually offset these declines. So in summary, despite the challenges in this consumer genomics market, we continue to believe that our overall genomics business is healthy and offers a great opportunity. Excluding the large customer that has negatively impacted this business, we continue to believe that genomics will deliver double-digit growth for the remainder of this year.

Another bright spot is the microbiome business, which delivered a strong third quarter. New customer acquisitions grew by double digits compared to the third quarter of 2018. Overall, the microbiome business, including both products and services, was up 81% over the same quarter of 2018, with the highest growth rates coming from Asia Pacific and European markets. This growth was driven by a 53% increase in product revenue and a 152% increase in service revenue during the third quarter compared to 2018 as a result of our acquisition of CoreBiome.

I would note that the third-quarter 2019 service revenue was also sequentially up 29% compared to the prior quarter. We're clearly starting to see the impact of our CoreBiome acquisition, both in terms of revenue generation and the expansion of our microbiome offerings. In fact, CoreBiome was recently chosen as the sequencing and custom biosomatics partner for the development of a new microbiome diagnostic test. In addition, members of the CoreBiome scientific team recently published a peer-reviewed longitudinal multiomic study of the avian microbiome that integrates host gene expression with the microbiome to measure the effects of alternate treatments to antibiotics.

We believe the acquisition of Diversigen will provide significant benefits and further strengthen our position and presence in the microbiome arena. Diversigen is truly a pioneer in providing solutions for sequencing, analysis and consulting, focused on the microbiome of living organisms and environments. They've developed state-of-the-art techniques to extract high-quality nucleic acids from a variety of sample types for metagenomics analysis using technology licensed from the Baylor College of Medicine. Their strength, expertise, regulatory status and focus on superior customer service, have been key factors in establishing a leadership position in the industry with an impressive customer list that includes many of the top 10 pharma companies in the world, along with a leading microbiome therapeutics provider.

Diversigen was the first company to establish microbiome protocols in accordance with the College of American Pathologists, CAP accreditation and Clinical Laboratory Improvement Amendments of 1988, clear guidelines. Approximately 90% of diversion business is from big pharma. And the leading microbiome therapeutics company is also a top customer. The powerful combination of Diversigen's strength, expertise and focus on customer service, along with CoreBiome's technical innovation and microbiome analysis and DNA Genotek's proven microbiome sample collection and stabilization devices will give us industry-leading product and service offerings from sampling to rich analytics that can provide actionable insights.

Collectively, Diversigen and CoreBiome represent over 100-person years, a microbiome experience and 300 scientific publications on the microbiome. We're very excited about expanding our presence within the microbiome service market and look forward to aligning and growing these businesses in 2020 and beyond. In addition to our new products and services focused on the microbiome, we continue to see a significant growth potential in the broader field of multiomics. As I've described in previous calls, this emerging area of life science and data analytics provides a multifactorial examination of an individual's health by examining the different homes, including the microbiome and the genome.

Our initial entry into multiomics materialize with a number of our existing human genomics customers adding a microbiome component to their studies and offerings. Year to date, we have seen a 35% increase in the number of customers who are using both genomics and microbiome kits, and we expect this trend to continue. Finally, there've been continued positive developments in Novosanis', urine collection business. As I noted in our last call, Novosanis entered into a nonexclusive agreement with Fujirebio, for the distribution of the Colli-Pee collection device for use with Fujirebio's Inno-Lipa HPV genotyping extra two assay.

The assay has now been CE-IVD mark for use with Colli-Pee collected first board urine samples. During the third quarter, Novosanis completed development and launched two new versions of its Colli-Pee collection device that allow the collection of either a smaller or larger volume for first void urine as compared to the original 20-milliliter device. These new versions will now enable Novosanis to expand the use of the Colli-Pee device, with additional applications in the area of infectious disease and oncology. The smaller version captures up to 10 milliliters of urine and is compatible with many high throughput instruments, therefore, offering improved lab workflow in collection for a biomarker-rich urine sample.

The larger version captures the first 45 milliliters of first void urine, supports multiomic testing that could be used to solve issues related to low analyte concentrations. This larger volume version has applications in the detecting and monitoring of some cancers where a large volume of urine may be required. In our last call, we mentioned the Colli-Pee device being used with a lab-developed tests offered by Bio-Techne called ExoDx Prostate IntelliScore or EPI, which allows a physician to predict if a patient's presenting for biopsies does not have a high-grade prostate cancer. Bio-Techne recently announced the issuance of a local insurance coverage decision for the EPI test for men who are considered to be -- being considered for initial prostate biopsy.

This decision enables Medicare reimbursement for the test and is effective for tests administered on or before December 1. Well, excuse me, on or after December 1. Bio-Techne also knows that its EPI test has received FDA Breakthrough designation, is included in the national comprehensive cancer network guidelines for early detection in men for both initial and repeat biopsy. This is obviously good news and its evidence of how Colli-Pee device can be used with this and other LTD applications in the future.

Turning now to infectious disease. The third quarter was a good one for our HIV franchise. Global revenues were up 16% when compared to 2018, driven primarily by a 36% increase in international HIV self test sales. We sold approximately 1.5 million HIV self test in the third quarter.

Importantly, these strong results were achieved despite the fact that $1.9 million in self test orders had to be moved to early in the fourth quarter as a result of unexpected logistical issues. As you know, we previously participated in the STAR or self test Africa program, which has been largely been completed. We continue to see new country registrations for our self test in countries outside of the STAR program. To date, we've received 19 registrations.

Two since our last earnings call, and there are 13 additional submissions pending. One recent important registration for our self test is in Nigeria. We expect to receive their initial scale-up order in the fourth quarter, and we believe the Nigerian program will eventually be one of the largest programs that's deploying our tests. We're also participating in the formal launch of HIV self testing in Uganda, with the full support of the Ministry of Health's Permanent Secretary and USAID.

Plans for deployment of our self tests are under way, and we expect our initial shipment to grow out this quarter. We recently received a change notification from the World Health Organization, WHO, to add a pediatric test claim to both our pre-qualified professional HIV test and our HIV self test. These new claims will allow us to participate with PEPFAR in the Rome Action plan for Pediatric HIV, a program intended to enhance and expand pediatric diagnostic testing for HIV around the world. They should also give us a competitive advantage for these products in an increasing competitive marketplace.

While good news, these new claims alone do not drive further adoption of our products. We still need evidence of the utility of pediatric testing for HIV in order to drive investment by international funding sources. Those impact studies are now -- are under way with monies provided by the Center for Disease Control and Protection, CDC. We expect these changes to eventually allow doctors with our professional test, and parents, and guardians with our self test to test children as young as age two.

On the domestic front, the U.S. Department of Health and Human Services has proposed a new initiative called ending the HIV epidemic, a plan for America, with the goal of ending HIV in the U.S. within 10 years. The Plan for America will leverage highly successful programs, resources and infrastructure for HIV prevention, diagnosis, treatment, and outbreak responding to coordinate action across several federal agencies.

The initial focus of this initiative will be in communities that are now hardest hit by the HIV epidemic. Since much of the initial work will occur outside of clinics and hospitals, we believe our OraQuick in-home HIV test, which is the only FDA-approved test of its kind for home use, can play an important role in outreach programs to achieve the goals of this initiative. Funding in the amount of a $291 million is currently in the administration's 2020 budget and is working its way through congressional approval process. The CDC is beginning to put plans in place to begin execution in 2020.

So in short, we remain optimistic about the overall long-term potential for our HIV franchise, and we're projecting double-digit growth in international HIV revenues for the full year. Turning brief for the HCV. Revenues from this part of the business were down for both international and domestic markets due to a mix of reasons. However, we expect to see ongoing funding and demand for our HCV product in future quarters, and we continue to expect our HCV franchise to contribute growth to our infectious disease business going forward.

Another area I want to touch on is risk assessment testing, which includes our oral fluid drug testing product line. Under a long-awaited oral fluid drug testing guidelines recently announced by the substance abuse a mental health service administration, SAMSA, oral fluid drug testing is now permitted in federally regulated markets. Oral drug test -- drug testing allows for better differentiating between recent drug use and historic use to effectively determine potential impairment on the job. The guidelines stipulate test parameters and oral fluid collection device requirements that manufacturers have to meet to be able to sell their products into the regulated markets.

We have finalized the design of an oral fluid collection device that we believe will meet these requirements and are working with Thermo Fisher to develop automated drug test assays that meet these new requirements. In addition, laboratory is interested in being an accredited oral fluid testing facility under the guidelines, can begin making their applications beginning on January 1, 2020. It is estimated that the implementation of the new guidelines will take approximately 18 months. SAMSA expects that approximately 25% to 30% of federally funded regulated drug testing will eventually be oral fluids, which translates into roughly 12 million tests per year at the low end of the range.

This obviously is a positive development, and we believe it could have a significant impact on our risk assessment testing business. The last point I want to mention is the FDA's recent decision to grant 510(k) clearance for our OraQuick rapid Ebola test. This test can be used with blood samples from living individuals and oral fluid samples taken from recently deceased individuals. The clearance came through the FDA breakthrough device programs that allows for expedited clearance for the treatment or diagnosis of life-threatening or irreversibly debilitating diseases.

The claims for our tests are limited to individuals who meet certain criteria indicating they may be infected, so the test will not be available for the general screening of individuals who do not meet this criteria. This is the first and only rapid Ebola test to be cleared for sale in the U.S. and should be commercially available in the first quarter of 2020. We continue to believe that the largest opportunity for this product will be outside the U.S.

and that the CDC and WHO will be the primary purchaser of this product. We're currently in discussions with these organizations to understand their potential short and long-term needs for the test. In closing, despite the slowdown in our consumer genomics market, overshadowing many positive developments of the company. We continue to make demonstrable progress in executing against our innovation-driven growth strategy.

We have improved our competitive profile and expanded our addressable markets by adding new capabilities, and those efforts will continue. So far, we completed three acquisitions this year and divested a nonstrategic business line. We are confident that our strategy will allow us to capitalize on multiple large opportunities, which are still in their early days. Our strong balance sheet affords us the ability to continue acquiring additional products and services to augment our current capabilities.

Our pipeline of acquisition candidates remains robust. We expect continued growth from both our global HIV and HCV franchises and believe our molecular solutions business is healthy and we're well-positioned to leverage a number of growth opportunities. We expect the growth from these burgeoning areas to be more evident as the impact of consumer genomics rolls out of our quarter-to-quarter comparisons beginning in 2020. So with that, we'll now take your questions.

Operator, please proceed.

Questions & Answers:


[Operator instructions] Your first question comes from Brandon Couillard from Jefferies.

Brandon Couillard -- Jefferies -- Analyst

Hey, thanks. Good afternoon.

Roberto Cuca -- Chief Financial Officer

Hey, Brandon.

Brandon Couillard -- Jefferies -- Analyst

Roberto, maybe start with you. Just in terms of the guidance, I mean, you came out in mid-August and kind of pointed to the $160 million to $165 million revenue for the year. Now kind of lowering that range by about $10 million or so. Could you sort of articulate, what exactly has changed? I mean, I know you spoke to the one HIV self test that order that got pushed out of the fourth quarter, but help us sort of understand the moving parts in the business as it's transpired over the last two months? And then also, if you could help us bridge the delta in the EPS guidance range relative to the figure you put out in mid-August?

Roberto Cuca -- Chief Financial Officer

Sure. So I'll start with the EPS range. So that's pretty much a direct result of the change in the revenue forecast. With a little bit of cost savings in the back part of the year.

So there's nothing -- there's nothing hidden in there really is just the revenues. As far as the change in the revenue guidance, the $10-or-so million of production as we said, a small part of that was an order -- a larger order in HIV self test international, the remainder, though, is in the consumer genomics business. And as we said in the prepared remarks that DOJ initiative which didn't -- which occurred in the third quarter, but didn't affect our third-quarter sales has, based on our conversations with customers is likely to affect the fourth quarter. And additionally, we're seeing just in general, greater overhang in that business.

And so the general business all around the DOJ business, the DOJ affected business has come down.

Brandon Couillard -- Jefferies -- Analyst

Got you. And then if you could sort of share with us what you're embedding for the DNA Genotek business in the fourth quarter? And as you look out to next year, assuming that one large customer kind of only maintains their minimum orders as they have through this year, should we expect that business to maybe return to double-digit growth, as you've kind of articulated it being at least through the third quarter?

Stephen Tang -- President and Chief Executive Officer

So as you pointed out, we did say that our guidance for the year included an assumption that that business would -- that the largest company would -- largest customer would order at their contractual minimums for the year. If they do continue to order at the contractual minimums next year, that large part of the business is likely to be flattish. And so the question then is, what happens with the remainder of the business? As we pointed out, through the third quarter of this year, excluding that largest customer, we did see pretty healthy double-digit revenue growth from the other parts of the business. And we've often pointed to disease risk management as a source for that growth and our expectation that that will be a continued source for growth.

So we would consider -- we would expect to still see outside of that one big customer growth particularly driven by that disease risk management business. The question is, would they together average to more than double digits, and we haven't provided guidance on that. We have said, though, that disease risk management is a smaller part of the business right now.

Brandon Couillard -- Jefferies -- Analyst

Sorry. And then any color you can share in terms of the moving parts on the fourth quarter guide, which does imply about a $10 million step-up sequentially?

Stephen Tang -- President and Chief Executive Officer

So the continued growth that we see sequentially or we expect to see is the traditional seasonality in the consumer genomics business that's driven by how they gift-giving around the end of the year. If you do some Internet searches, you'll see that there's a lot of advertising going on in support of that even still this year. And that may actually be a bit more -- there may be a bit more investment into that than we otherwise would have expected, given that one of the -- the two largest players in that space has put out a new offering. The other thing that we -- as it drives our expectation of the step-up in the fourth quarter over the third quarter is, as we pointed out, we did get two additional country approvals in Africa for sales of our products.

I think every quarter, we list the number of countries that we've had approved and the number that we have pending. As Steve mentioned, Nigeria was one of those big countries. And as we've described in the past, when a country issues approval for -- registration approval and begins eradication program initiatives, they typically start with a large stocking order and then move to a smaller sustaining refilling orders. So given the timing of that approval -- the Nigerian approval, we do expect that their first order will be coming in, in the fourth quarter -- will be delivered in the fourth quarter.

Brandon Couillard -- Jefferies -- Analyst

Gotcha. I'll follow the rules and jump back in the queue. Thanks.

Stephen Tang -- President and Chief Executive Officer



[Operator instructions] Your next question comes from John Hsu from Raymond James.

John Hsu -- Raymond James -- Analyst

Good afternoon.

Stephen Tang -- President and Chief Executive Officer

Hey, John.

John Hsu -- Raymond James -- Analyst

Hey, Steve. Hey, Roberto. If you could just stay on the fourth-quarter guide for a second. Just to be clear, you mentioned Nigeria, you expect initial order in the fourth quarter and then Uganda, I believe, shipments as well.

But you also talked about this dynamic where the lead times have lengthened a bit. So I guess, could you help us think about is, how risk-adjusted the fourth-quarter guide is for those dynamics specifically?

Stephen Tang -- President and Chief Executive Officer

Yes. So we're in discussion with ministries of health about their eradication programs and plans before they issued the regulatory approval for the product. So we have our plans in place. They have purchase orders ready to go.

So notwithstanding that this is a non-STAR program country and so uses a different ordering pathway. We did actually have a reasonable amount of visibility into both of those programs orders. So we believe that there's lower risk of slippage, although there's always some, but we've essentially begun working on those orders even already. So the risk around those two orders is actually a bit less than the risk of the order that slipped from the fourth quarter into the first quarter of next year where that Ministry of Health has not fully completed the order process.

John Hsu -- Raymond James -- Analyst

OK. Then on the SAMSA guidelines, it sounds like that's a pretty nice opportunity for you. Just to be clear, is there any work that needs to be done for you to participate in that market? If so, when do you expect to be, I guess, game ready to address that opportunity?

Stephen Tang -- President and Chief Executive Officer

Yeah, John, I think it is a big opportunity for us. I think, typically, drugs abuse testing is done with urine sample today and those urine samples, unfortunately, have been subject to a dollaration, and the chain of the custody of samples is always a difficult challenge. So using oral fluids makes compliance and the chain of custody, much easier and tighter. And for us, it's developing the collection device and then coupling it with assays.

And as I mentioned in my remarks, we're working with Thermo Fisher to develop those assays. So the timeline for implementation is set to begin January 1, 2020, and run 18 to 24 months. And so we'll be working with Thermo on those assays which we believe will give us a strong competitive position in the marketplace to capitalize on this beginning in 2021 mid-year and beyond.

John Hsu -- Raymond James -- Analyst

OK. Great. And then last one, just on the Diversigen. Could you maybe expand a little bit on the strategic benefits and then Roberto, anything you can share with us regarding financial impact in the near term?

Stephen Tang -- President and Chief Executive Officer

Sure. I think it's clear that with Diversigen, it will help enhance OraSure's standing as a microbiome service market leader by combining the capabilities with CoreBiome. It's really a great combination of diverses and track record. And in particular, the customer focus, 90% of their customers are pharma companies, they clearly have been cultivating the customer relationships for a long period of time.

And because they got into the market three years before CoreBiome, their sales and marketing, as you would expect, is a bit more mature. Having said that, CoreBiome's technical innovation and analysis and DNA Genotek's sampling kits give us and our customers now industry-leading workflows that's been sampling to the actual result or statistics that we deliver to the customer. So we're essentially uniting the pioneers and the people who're charting a path in the future by these two great founding organizations, one founded by Denise at CoreBiome and the other by Joe Petrosino at Diversigen. So this -- from our perspective, creates for us the opportunity to become the premier provider of microbiome services in the industry as it scales, that means higher throughput, higher complexity, faster turnaround, bigger data sets, and increased regulatory scrutiny.

Those are all the defining factors of our competitive advantage.

Roberto Cuca -- Chief Financial Officer

And John, on the financial impacts, we expect that for the full year, including the part of the year for which we didn't own them, they will have revenues on the order of both CoreBiome and NovoSanis combined for 2019. But because we'll only be owning them for about seven weeks of the year, the effect on our P&L will be nominal on the revenue line and the bottom line. But as a reminder, as we've said about our acquisition strategy in general, we target companies that will be accretive to our growth rate. So those revenues are things -- are revenues that we expect to grow faster than the average of the existing company today.

John Hsu -- Raymond James -- Analyst

Great. Thank you so much.

Roberto Cuca -- Chief Financial Officer

Thank you, John.

Stephen Tang -- President and Chief Executive Officer

Thanks, John.


Your next question comes from Brandon Couillard from Jefferies.

Brandon Couillard -- Jefferies -- Analyst

Alrighty. Just had a question about Ancestry, they're launching a new health service with Quest using saliva. Just curious if you can confirm whether or not, that product is a spicket from DNA Genotek or it is actually includes a royalty? I know you've had some litigation with them related to a new service offering that they were planning on launching? Any color you can share with us on that?

Stephen Tang -- President and Chief Executive Officer

Well, as far as we know, if they continue to use the device that they currently use in the marketplace. Which relies on our patents, and they'll continue to pay royalty to us. We do not yet have any visibility on any new kits, they may be offering for commercialization. And obviously, our settlement with them from 2017 has a provision for arbitration, as you mentioned, and we believe we'll get a decision on that sometime in 2020.

Roberto Cuca -- Chief Financial Officer

And to be clear, Brandon, they do not use our DNA Genotek's picket, but the kit that they have been using to date is one that's subject to the royalty that we settled under our agreement with them.

Brandon Couillard -- Jefferies -- Analyst

OK, thanks. And then on Diversigen, the earn-out. Just curious why it's tied to 2019 revenues rather than 2020? And then secondly, the contingent consideration reversal in the quarter. Does that mean they're suggested CoreBiome and Novosanis maybe aren't ramping to deal models?

Stephen Tang -- President and Chief Executive Officer

So on the first issue, I think what we were looking for is, firmness in revenue for 2019 for Diversigen, which has embedded in a number of customer relationships, which we believe will be scalable into 2020. And so having that assurance for 2019 was very important to us. And as Roberto was saying, we believe that they will grow in the short and the long-term remarkably.

Roberto Cuca -- Chief Financial Officer

And with regard to the contingent consideration change, so that is tied to revised forecasts for the two acquisitions, one or both of them. We haven't disclosed which. And as a reminder, there are payouts associated with both 2019 and 2020 with one or more of those company acquisitions. But yes, the revision to the forecast is what drove those revaluation for the contingent consideration.

Brandon Couillard -- Jefferies -- Analyst

Super. Thank you.


I am showing no further questions at this time. That brings to an end to the Q&A session of today's call. I will now turn the call over to Dr. Tang for closing remarks.

Stephen Tang -- President and Chief Executive Officer

Well, we thank you very much for participating in today's call and for your continued interest in OraSure. Have a pleasant afternoon, and evening. Thank you.


[Operator signoff]

Duration: 48 minutes

Call participants:

Stephen Tang -- President and Chief Executive Officer

Roberto Cuca -- Chief Financial Officer

Brandon Couillard -- Jefferies -- Analyst

John Hsu -- Raymond James -- Analyst

More OSUR analysis

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