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OraSure Technologies (OSUR -5.93%)
Q4 2019 Earnings Call
Feb 19, 2020, 5:00 p.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Good afternoon, everyone, and welcome to the OraSure Technologies 2019 fourth-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 fourth-quarter financial results and certain other matters.

The press release is available on our website at www.orasure.com or by calling (610) 882-1820. If you go to our website, the press release can be found by opening the Investor Relations page and clicking on the link for 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 note 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, 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, Gene. Good evening, everyone, and welcome to our call. We are pleased to report solid financial performance for the fourth quarter of 2019. These results are evidence of the momentum that our innovation-driven growth strategy continues to generate.

Revenues were the third highest of any quarter in the company's history and brought a close to a very productive year for OraSure. I'd like to take a minute to mention a few highlights from 2019. We advanced our innovation growth strategy with the acquisition of two leading microbiome laboratory services pioneers. CoreBiome and Diversigen and Novosanis with its first-void urine collection technology.

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These acquisitions increased our product and service offerings to capture and expand new market opportunities, which will contribute to our future growth. We divested our cryosurgery systems product line in order to better align with our strategy and focus our efforts on the high-priority growth opportunities. We received several important regulatory approvals, including a generic 510(k) clearance of our Oragene family of molecular collectors, 510(k) clearance of our rapid Ebola test and approval to use our WHO prequalified OraQuick HIV professional and self-test products for pediatric testing. These approvals will substantially improve the competitive positioning of these products.

During Q4 and throughout the year, we saw continued strong growth in international sales of our OraQuick HIV self-test and dramatic growth in our microbiome business, including both products and services. We expect these trends to continue in 2020. Despite the challenges we've seen in the consumer genomics market, in particular, in the Ancestry testing market, our overall business remains strong, as demonstrated by our Q4 financial performance. Q4 net revenues came in at $49.7 million and marked the third highest revenue quarter in the company's history.

We achieved these revenues despite the absence of our cryosurgical product line, which we sold in August of 2019. Our cryosurgical systems business generated revenue of $2.9 million in Q4 2018. International HIV sales showed robust growth of 123% for the fourth quarter compared to 2018, showing the ongoing strength of our HIV self-test. This performance continues its trends, which we saw throughout 2019 and is a key driver in the 37% increase in Q4 infectious disease testing revenue compared to 2018.

Our microbiome business continues to be a stellar performer during the fourth quarter, including contributions from our new laboratory services subsidiaries, CoreBiome and Diversigen. Our microbiome revenues more than doubled in Q4 compared to 2018. Our molecular collection systems' products and services revenues for Q4 were flat when compared to the fourth quarter of 2018 despite the continued decline in the consumer genomics market. Looking at it from a different perspective, those results showed the underlying strength in other parts of our molecular business, which offset the challenges in the consumer Ancestry market.

Our GAAP EPS for the quarter of $0.04 includes $1 million or $0.02 of acquisition-related transaction costs and change in value of contingent consideration for two transactions we completed in January of 2019. We continue to prioritize the identification in pursuit of external growth opportunities consistent with our long-term innovation growth strategy. Finally, our cash balances at the end of the year were almost $190 million and should provide sufficient firepower for continued funding our growth priorities, so we're pleased with the way that 2019 closed and are confident that we are on the right track. While some ongoing challenges remain, we are encouraged that our infectious disease and molecular segments are well-positioned to capitalize on their respective growth opportunities.

Our recent acquisitions are generally lining up with expectations, and we are especially excited about future prospects in our emerging microbiome laboratory service business. With that, I'll now ask Roberto to provide some financial review of the quarter. I will then share some additional thoughts on our business, and we'll take your questions.

Roberto Cuca -- Chief Financial Officer

Thanks, Steve, and good evening, everyone. Our fourth-quarter net revenues decreased 1% to $49.7 million from $50.2 million reported in the fourth quarter of 2018. Our net product and services revenues increased 5% to $47.2 million compared to the prior-year period. Notably, the fourth quarter of 2018 included cryosurgical revenue of $2.9 million, which did not recur in 2019 since we sold this line of business in August of 2019.

Excluding these sales dollars from fourth-quarter 2018 revenues, would result in an aggregate product and service revenue increase of 12% in the fourth quarter of 2019. As Steve mentioned, international HIV sales increased 123% to $9.8 million from $4.4 million in the fourth quarter of 2018 due to higher sales of our HIV self-test into Africa and Latin America and increased sales of our professional HIV product into Asia, partially offset by lower sales in Europe. Domestic HCV sales increased 7% in the fourth quarter of 2019 to $2.2 million from $2.1 million in the prior-year period largely due to higher sales into the public health and physician office's markets principally caused by the ongoing opioid crisis and its impact on HCV infections. International HCV sales in the fourth quarter of 2019 decreased to 19% to $1.3 million from $1.6 million in the same period of 2018, primarily due to lower sales into Africa, partially offset by sales growth in Asia.

Our total molecular revenues, including other revenues, decreased 8% to $27.8 million in the fourth quarter, compared to $30.2 million in 2018. Royalty income declined 55% to $2.2 million in the fourth quarter of 2019 from $4.8 million in the same period of 2018. This reflects the continuing challenges faced in the consumer genomics Ancestry market. Molecular product revenues remained largely flat at $25.5 million in the fourth quarter of 2019, compared to $25.4 million in the fourth quarter of 2018.

Sales of our genomic products declined 11% to $21 million, flat largely due to a large order shipped in the fourth quarter of 2018 that did not recur in 2019 and due to the purchase ordering patterns of two other large genomics customers. Microbiome sales increased 133% to $4.4 million from $1.9 million in the fourth quarter of last year primarily due to the inclusion of lab service revenues generated by our newly acquired subsidiaries, CoreBiome and Diversigen. Gross profit percentage for the fourth quarter of 2019 was 60%, compared to 69% reported for the fourth quarter of 2018. The decline in gross profit percentage is related to a product mix of higher sales of lower-margin products and services, including the absence of higher-margin cryosurgical product sales and a decline in other revenues, which contribute 100% to the gross profit percentage.

Our operating expenses for the fourth quarter of 2019 were $25.8 million, compared to $22.2 million in the comparable period of 2018. Operating expense in the fourth quarter of 2019 included the incremental operating expenses generated by our subsidiaries acquired in 2019, increased spending on the development of automated oral fluid drug assays, $797,000 of transaction costs related to completed acquisitions and $179,000 of noncash acquisition-related contingent consideration expenses, partially offset by a decline in bonus and stock compensation costs that are directly tied to company performance. Operating expense in the fourth quarter of 2018 included $1.2 million of transaction costs associated with the acquisitions, which occurred in January of 2019 and $973,000 of additional transition costs associated with executive management changes that occurred earlier in that year. In the fourth quarter of 2019, we recorded income tax expense of $2.1 million, compared to $3.8 million in the same period last year.

The decline in tax expense reflects the lower pre-tax earnings generated by our Canadian subsidiary, DNA Genotek. We reported net income of $2.4 million or $0.04 per share on a fully diluted basis for the fourth quarter of 2019, compared to net income of $10.3 million or $0.16 per share for fourth quarter of 2018. The transaction- and transition-related expenses amounted to approximately $0.02 and $0.04 in the fourth quarters of 2019 and 2018, respectively. We continue to maintain a solid cash and liquidity position.

Our cash and investments balance at December 31, 2019 was $189.8 million, compared to $201.3 million at December 31, 2018. During the year, we used $23.8 million of cash to acquire CoreBiome, Novosanis, and Diversigen. And we received $12 million in proceeds from the sale of our cryosurgical systems business. Cash generated by operating activities during the year ended December 31, 2019 was $9.8 million, compared to $39.1 million in the same period of 2018.

Turning to guidance. For full-year 2020, we are projecting revenues of $145 million to $155 million and a net loss of $0.07 to $0.10 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. These estimates reflect two developments about which Steve will provide additional detail shortly.

With that, I'll now turn the call back over to Steve for his further business updates.

Stephen Tang -- President and Chief Executive Officer

Thanks, Roberto. Starting first with our molecular solutions business segment. As we've shared on previous calls, the commercial genomics market has been undergoing a major evolution that has created headwinds for our molecular business. We see this trend continuing into 2020.

However, we are optimistic that opportunities in other critical growth areas within the genomic market will help offset this trend. We have always categorized our primary genomics market is either academic or commercial. In 2019, we started to more closely examine the submarkets within our commercial category and are classifying opportunities into Ancestry, animal, lifestyle, and disease risk management testing. Typically, the Ancestry, animal and lifestyle submarkets are consumer-led with vendors offering services directly via the web.

In contrast, the disease risk management submarket currently requires some form of medical practitioner or genetic counselor support. We expect that the Ancestry or genealogical testing submarket will continue to decline as we've seen in prior periods. The primary factors driving this are the change in promotional and business strategies of the major players in this market. As you will recall, we first started seeing the impact of this trend in early 2019 when a large consumer genomics customer unexpectedly told us of a change in promotional strategy and a reduction in forecasted purchases.

We took several actions in 2019 to respond to these marketplace changes. First, we reduced our expectations regarding royalty payments from a third-party, as well as orders from our large customer in this area. In 2019, this large customer accounted for 15% of overall revenue. Second, toward the end of the year, we renegotiated and amended our contract with a large customer that has most affected our performance by extending the agreement for two additional years.

This had the effect of reducing the annual minimum requirements to reflect the new marketplace dynamics but did not change the overall aggregate financial commitment of this customer for the life of the contract. The amendment also aligned the contract years and their respective minimums with calendar years. We believe these actions will improve predictability for this part of our business. To this end, we expect that the customer will order at the annual minimum this year, which is approximately half of what it ordered last year.

The annual minimums increase over the remainder of the contract term, so we expect the customer to be a contributor to growth again in 2021. As I mentioned on previous calls, we expect disease risk management, the next largest submarket within commercial genomics, to continue to grow and eventually eclipse Ancestry testing. Disease risk management includes pharmacogenomics testing, hereditary disease screening, prenatal or carrier screening, population health initiatives and other molecular tests using microbial DNA or human RNA for a diagnosis of acute disease. This emerging submarket experienced some volatility in 2019 when the Department of Justice or DOJ pursued indictments related to alleged fraudulent Medicare billing against several companies that offered screening in pharmacogenomics testing.

The fallout from these events has been lab closures and uncertainty regarding DNA regulatory scrutiny in this area. Both of these factors had a negative impact on demand in this space. We believe that the DOJ actions were a onetime event and expect that the demand for screening in pharmacogenomics will continue to grow at a rate of 7% to 10% per year. When added to the strong ongoing growth and diversification within disease risk management, we project robust growth in the overall disease risk management market for 2020 and beyond.

We also believe, we are well-positioned to capitalize on this growth opportunity. We secured a unique regulatory advantage when the FDA granted a generic 510(k) clearance for our Oragene Dx product, making our product the first and only saliva collection device that can be used for prescription or over-the-counter use. This clearance simplifies FDA approvals for genetic testing manufacturers, who want to add saliva as a sample collection method for their offerings. We expect this clearance to enable broader use of our devices in the growing disease risk management arena and potentially other markets.

We've also secured long-term customer contracts with several of the largest players in disease risk management, including those with patient-initiated testing programs and large-scale population programs. The number of companies offering these applications continues to increase, and we are also seeing continued growth within most accounts. These contracts will provide a good foundation for continued growth in this part of the genetic testing market. Our microbiome business is also in a strong position as evidenced by our Q4 performance, thanks to our acquisitions of CoreBiome and Diversigen, we are now effectively the leader in end-to-end solutions for microbiome from sample collection through analysis.

We continue to grow our customer base within the microbiome space with double-digit sales growth from our microbiome product portfolio for the year. The number of first-time kit purchasers in Q4 grew 13% quarter over quarter, and revenue for first-time purchasers increased 33% for the full-year 2019 compared to 2018. As you expect, we are excited about the outlook of our laboratory service business with several trends supporting robust growth expectations, including continued expansion in microbiome services as an endpoint in clinical trials and our growing relationships with both established biopharma and innovative biotech start-up companies. We also see direct-to-consumer wellness applications as a future growth driver as the market matures and leads toward actionable insights and clinical applications.

We recently won a request for proposal for shotgun metagenomics and analysis in a large epidemiological study. Under this study, we expect to provide services for both prospective and retrospective clinical trial projects. We also have a robust and ongoing pipeline of proposals across commercial and academic opportunities for our service offerings. Perhaps the best bellwether of the microbiome market's health and potential is the growing number of scientific studies.

There have been many new seminal studies within the last year, demonstrating that the microbiome field is continuing to move toward clinical applications. One study offers new evidence that a person's microbiome may determine how well a common drug for treating Parkinson's disease will work. Another found evidence that certain microbes can predict graft-versus-host disease in stem cell transplant patients. These two studies are among the over 14,000 research articles published about the microbiome in 2019, a 29% increase over 2018 and a sign of the rapid acceleration of discovery within this field.

We also continue to make good progress in the integration of CoreBiome and Diversigen into our operations. Our plan is to consolidate the CoreBiome and Diversigen businesses into one unified premier, science-led lab services company, offering validated protocols for best-in-class lab offerings and superior data analytics. While both brand names carry equity in the marketplace, we will unify our service offering under the Diversigen name. We will consolidate line of operations in the Minneapolis-St.

Paul area where CoreBiome is located. Construction on a new state-of-the-art lab facility is expected to be complete by the end of 2020. We've restructured the team to support the stronger unified vision for the company and are investing in expert resources to grow the business. As we look into the future, we continue to see opportunities beyond our genomic and microbiome businesses with significant growth potential in the broader field of multiomics.

This emerging area of life sciences and data analytics provides a multifactorial examination of an individual's health by examining the different oms in a person including the microbiome and the genome. We are seeing continued growth in a number of our existing human genomics customers, who are also purchasing microbiome products and services for their studies and offerings. For both the fourth quarter and the full-year 2019, the number of customers, who are using both genomic and microbiome kits, increased by more than 30%. We expect this trend to continue.

We are also exploring other development opportunities to expand our product portfolio into additional sample types and analytes that are of interest to our customers. We continue to be optimistic about our Novosanis Colli-Pee, a urine collection device, which is increasingly becoming used in clinical trials and validated for use for key studies. This foundational work is imperative in demonstrating effectiveness of the product in utility of first-void urine for key applications within high-growth screening opportunities. The paper presented at the EUROGIN Conference in 2019 demonstrated that samples collected with Colli-Pee provided non-inferior clinical sensitivity when compared to performance with cervical samples.

These preliminary results from the ongoing VALHUDES study provide a starting point for validating Colli-Pee for human papillomavirus assays. Similarly, Sciensano, the Belgian institute for health, is performing a study using Colli-Pee device to guide chlamydia prevention in Belgium. These and other similar studies will be important for the development in this part of the business. Turning now to infectious disease.

The fourth quarter was another strong performance for our infectious disease business, with revenues increasing 37% compared to Q4 2018. The major driver was our HIV franchise, which reported a 57% increase in global revenues when compared to the prior year, driven principally by a 123% increase in revenues from our international HIV business. We shipped 2.9 million HIV self-test in Q4, an all-time record for this product. We expect the recent growth trends in HIV self-test sales to continue in 2020, resulting in high-teens growth in global revenues for the year.

Our product registration strategy for self-test continues to progress with 20 registrations currently in place and 15 more in progress. The latest registration we received was for the Ivory Coast. Each registration opens up a new market for us and expands the opportunity for growth. We now have all the registrations in place we need to support our 2020 business plan for self-test sales.

Importantly, we have continued to grow our self-test business and maintain our strong market share position, even though, two blood-based rapid HIV self-tests have received WHO prequalification. One cautionary note is that our quarterly international revenues will likely continue to be a bit choppy as individual countries determine their ongoing utilization of our product. This is a natural way these markets have developed with order sizes varying as specific in-country programs create awareness and assess ongoing demands for HIV self-testing. Our domestic HIV professional business has also turned in a strong fourth quarter, with revenues up 17%, reflecting sales growth to public health hospitals and physician offices.

This growth was primarily driven by the timing of orders as discussed in our last earnings call, some product issues experienced by our competitors and competitive wins in certain jurisdictions. This double-digit growth is likely to moderate to single digits in future quarters as the competitor issues and competitive wins are absorbed in our ongoing revenue stream. In prior calls, I've mentioned the U.S. Department of Health and Human Services initiative called ending the HIV epidemic, a plan for America, which has a goal of ending HIV in the U.S.

within 10 years. A total of $291 million of funding for the Plan for America was approved late December of 2020. And the CDC and state jurisdictions are moving ahead with implementation. We expect specific testing plans to be approved in most jurisdictions as the year progresses, which should help drive sales of our HIV testing products.

We are working closely with CDC on implementation with 57 targeted jurisdictions, many of which are recognizing in-home or self-testing as an important tool for achieving planned goals. We expect the opportunities under the Plan for America to continue beyond this year as additional funding for this multiyear initiative becomes available. The recent budget proposed by the administration includes $716 million in funding for a second year of the initiatives, which, if approved, will represent a significant increase in funding for the next fiscal year. Finally, there have been several recent studies demonstrating the benefit of HIV self-testing with our in-home HIV test.

One of the most recent reports came from the State Department of Health, which is a longtime customer of ours. This report included data indicating that HIV self-testing reaches those people who are not accessing HIV testing through normal channels, reaches those people whose behavior puts them at elevated risk for HIV infection, empowers individuals who know their HIV status by testing more frequently and talking with their peer group about HIV testing more often. It's popular because it's easy to use, provides a sense of confidentiality and puts the user in firm control of his or her own health and successfully allows HIV-positive individuals to be linked to care and begins receiving treatment in a timely manner. For all these reasons, we remain optimistic about the overall long-term potential for our HIV franchise.

Turning briefly to HCV. Our performance for the fourth quarter was a bit mixed with overall global revenues down 5%, compared to the prior-year quarter. Domestic sales for the quarter increased 7%, primarily due to new programs and program expansions as we are seeing increased rates of HCV infection resulting from opioid use. International revenues were down largely as a result of timing issues as two large purchases that occurred in 2018 did not repeat in 2019.

The announcement of oral fluid drug testing guidelines by the Substance Abuse and Mental Health Services Administration or SAMHSA last year positively impacted the risk assessment testing portion of our infectious disease business. As mentioned in prior calls, these guidelines will give us access to businesses where employee drug testing is regulated by the federal government. This is a large untapped market for us. In the second half of 2019, we amended our development agreement with Thermo Fisher and are now optimizing our Intercept collection device and the Thermo assays in order to meet these new federal guidelines.

This development work will be a priority throughout 2020 and is expected to drive growth in subsequent years after the appropriate regulatory clearance are obtained. And the final topic I want to address is the recent arbitration process against Ancestry.com DNA. As you may recall, we settled patent infringement and breach of contract litigation with Ancestry back in late 2017. Under the settlement agreement from that litigation, our process was established to evaluate new DNA collection products developed by Ancestry to determine whether they fall within the royalty provisions of the agreement.

Because we disagreed with Ancestry view of its new collection device, we engage in arbitration to resolve the dispute. To our surprise, the arbitration panel recently issued decision found that the new Ancestry product does not infringe on the patents we asserted in the arbitration. As a result, the new product will not be subject to royalties under the settlement agreement once it's commercialized. Although this decision is final and binding on the parties with respect to patents asserted in the arbitration, it does not cover any patent continuations that we may obtain or new patents that we may acquire in this area.

Our strategy has always been to build a strong patent portfolio for DNA collection devices, to expand that portfolio where possible and to aggressively defend our intellectual property rights. And that is exactly the strategy we've been following and will continue to follow. In conclusion, we ended 2019 in a good position with solid financial results in the fourth quarter. During 2019, we had to deal with our fair share of challenges as we work to replace a significant amount of revenue that was lost due to a dramatic slowdown in our consumer genomics business.

I want to thank all those at OraSure who help navigate that significant headwind to get us back on track and finish the year on solid footing. We made great progress in executing against our long-term innovation growth strategy that calls for us to invest in emerging technologies and become a leading provider of end-to-end solutions for molecular customers that takes them all the way from sample to answers. To that end, we improved our competitive profile and expanded our addressable markets with the completion of three acquisitions and a divestiture of a nonstrategic business. Our strong balance sheet affords us the ability to acquire additional products and services to augment our current capabilities.

Our focus on finding and closing such acquisitions will continue with a robust pipeline of acquisition candidates under review. Our global HIV and HCV franchises and molecular solutions business will likely continue to be primary drivers of revenue growth in the near term, with risk assessment testing picking up again in the near future. Through our acquisitions and investments in our core businesses, we have established a company that drives access to multiple layers of information and data to understand health, wellness and disease states. We will build on that foundation as we continue to advance our innovation-driven strategy in 2020 and beyond.

And with that, we would now like to take your questions. Operator, please proceed.

Questions & Answers:


Thank you. [Operator instructions] And our first question comes from the line of John Hsu with Raymond James. Your line is open.

John Hsu -- Raymond James -- Analyst

Good afternoon. Maybe if we could start with the 2020 outlook. Just philosophically, given the choppiness that we saw quarter to quarter in 2019, did you approach the guidance process any differently? And then maybe just as a follow-up, can you just walk us through the high-level drivers, puts and takes on both the revenue line, as well as EPS?

Roberto Cuca -- Chief Financial Officer

Thanks for the question, John. So we did not approach, philosophically, any differently our buildup of our expectations for 2020. We did include into our guidance range our expectations around how end-of-quarter shipments might affect our total revenues. And for the full year, because we try to get many of our shipments done before the end-of-year holidays, the fourth quarter is somewhat less affected by that.

So although Steve pointed out that we do expect to see some variance in quarter-to-quarter shipments for the full year, we feel pretty comfortable about getting the orders in under the wire. With regard to our overall expectations for 2020, I'll start with revenues, so we're expecting high-teens growth for our global HIV franchise and strong growth from global HCV. We expect that risk assessment will be flat to potentially slightly up ahead of our seeking regulatory approval of the next-generation product in 2021. We're expecting triple-digit growth from microbiome services in 2020.

And then outside of the largest customer and of the third-party royalty payer, we expect double-digit growth from the remainder of our molecular collection products. We expect that in 2020, the largest customer will buy at their new annual minimum, as Steve described, that has been reset due to the extension of the contract and that new annual minimum will be about half of what they purchased in 2019, which in 2019, represented about 15% of total revenues. And then we've included the royalty payment only in the first quarter of 2020, although we have no precise insight into when the royalty payer might switch to the new product. So there is some upside potential in the remainder of the year from that product.

With regard to expenses, we do expect R&D to step up over 2019 as a result of the Thermo work that we're doing to develop the next-generation risk assessment testing product, as well as from the annualization and growth in R&D activity from our three acquisitions in 2019. We expect SG&A to increase more moderately there, driven primarily by the annualization of acquisitions and specifically of Diversigen. And then what we'd expect is that to the extent that revenues vary within the range that we've given, we would adjust our spending somewhat to preserve the bottom line.

John Hsu -- Raymond James -- Analyst

OK. Great. If I could just ask a quick follow-up on that large customer. Just to clarify, by my math, I think the amount remaining on the prior contract with something around, call it, $65 million, $66 million.

And so it sounds like that's been extended out by a couple of years, but did I hear you correctly that you expect them to return to growth from the new level in 2020 that's half of the 2019 level? And again, to be clear, whatever is remaining on that contract is the amount that's extended out through the end of 2023?

Roberto Cuca -- Chief Financial Officer

Correct. So under the current contract, the remainder of the amount that's pending under the contract is extended to the end of 2023, as you said. And we do expect -- so the annual minimum is structured such that there is a step-up from 2020 to 2021, so purchasing at those minimums, we should see growth.

John Hsu -- Raymond James -- Analyst

OK, great. Thank you very much.

Roberto Cuca -- Chief Financial Officer

Thanks, John.


Thank you. And our next question comes from the line of Brandon Couillard with Jefferies. Your line is open.

Brandon Couillard -- Jefferies -- Analyst

Thanks. Good afternoon. If I look at the '20 guidance, if I take the two pieces that you called out in terms of, number one, the contract negotiation and then the Ancestry royalty loss, seems to be a hole of about $15 million, you're basically guiding the full year to be about flat. So on an adjusted basis, kind of pointing to about 10% growth to get to the full-year number, can you just sort of speak to the level of conservatism that may be built into that assumption? And understanding that you're now sort of shifting to just an annual guidance view moving away from a quarterly approach, can you help us think about the phasing between the first half and second half, perhaps, as far as the full-year revenue goes?

Roberto Cuca -- Chief Financial Officer

Sure. So thanks for the question. So regarding conservatism, Steve did describe this as a rebuilding year. We are setting the base for what we do expect to be significant growth post this year, and we established our guidance as numbers that we expect to be able to hit.

We incorporated into our thinking all of the potential risks and expect that as we go into the year, we may be able to improve the range or tighten the range if we do see some favorability. And on your second question, if you can remind me.

Brandon Couillard -- Jefferies -- Analyst

Yes. Just anything in particular that can help us out with in terms of how we're thinking about the phasing of the annual revenues, if there's anything to be aware of sort of between first half and second half of the year?

Roberto Cuca -- Chief Financial Officer

Sure. So we expect to see phasing of the revenues in 2020 that's similar to what we experienced in 2019. One of the big drivers of that is that we expect the big customer with the annual minimum to do most of the purchasing of that annual minimum in the second half of the year, and so you can imagine that that would end up replicating the skew that we saw in 2019.

Brandon Couillard -- Jefferies -- Analyst

OK. And then just conceptually, in terms of...

Roberto Cuca -- Chief Financial Officer

Sorry, Brandon. Another contributor to the greater revenues in the second half than the first half would be growth from the higher-growing acquisitions and then, to a smaller extent, the introduction of new product offerings in molecular diagnostics, for example.

Brandon Couillard -- Jefferies -- Analyst

OK. And then just in terms of the contract negotiation itself, why you can go about that? Like what did you actually get out of it? It seems that the value is the same. You give them extra two years to buy. Are they on better terms at all? Do you get better margins? What do you actually get out of the renegotiation?

Roberto Cuca -- Chief Financial Officer

So there are two things that we got out of the contract renegotiation. The first is we extended the period of exclusivity during which the customer can only buy from us. And the contract terms also prevent the customer from developing or investigating a competing product so that exclusivity does have value. And we maintained relationships with a customer that we would expect to continue working with even close to the contract term.

During the final years of this contract, we'll look into negotiating either on extension or a new contract. And so maintaining a good relationship with that customer was a value to us.

Brandon Couillard -- Jefferies -- Analyst

I'll get back in the queue. Thanks.

Roberto Cuca -- Chief Financial Officer

Thanks, Brandon.


Thank you. And that brings an end to the Q&A session of today's call. We'd now like to turn the call over to Dr. Tang for closing remarks.

Stephen Tang -- President and Chief Executive Officer

Operator, can you check the queue again, please?


Sure. We do have a question. We do have two follow-ups from John Hsu with Raymond James. Your line is open.

John Hsu -- Raymond James -- Analyst

Yes. So just if we could quickly touch on HIV self-test. You talked about some upcoming registrations that give you confidence in the pipeline. Are there any specific countries to note that could have an outsized impact in that pipeline? And then just overall, is the business kind of trending in line with your expectations to scale longer term? I believe you're looking to reach a point where the margin profile can be supported without any benefit from Bill & Melinda Gates by 2022.

So kind of longer term, how are you tracking to that?

Stephen Tang -- President and Chief Executive Officer

Yes, John, we are tracking very closely on all aspects that you mentioned. I mentioned that we currently are registered to sell our product in 20 countries, and there are 15 countries in queue. I think the most significant thing about 2020 is that our projected sales for 2020 are based on countries for which we already have registration. In the prior years, we had to rely on registrations happening during that year and then building sales from there.

So I think we're in a much stronger position to scale in existing countries who have already begun, and we'll continue to pursue additional countries where we haven't begun. And I think you are absolutely correct that the margin profile was designed for the Gates subsidy to improve over time in anticipation of the Gates subsidy going away. And we are well on schedule to reducing the cost of goods sold for that product in order to compete on our own without the subsidy, so I think all elements are in place. We are seeing the ramp-up that we projected and that the World Health Organization has projected over time, and this will be an incredibly strong year for HIV self-test.

John Hsu -- Raymond James -- Analyst

Great. Thanks for taking the follow-up.

Stephen Tang -- President and Chief Executive Officer

Thank you.


And our next follow-up question comes from the line of Brandon Couillard with Jefferies. Your line is open.

Brandon Couillard -- Jefferies -- Analyst

Hey, thanks. Just sticking with HV self-test, kind of follow-up to that question. I mean, the 20 registrations that you have in place, understanding that there are some quarter-to-quarter variability with that business inherently, but do you have visibility in terms of the order volumes from all of those 20 countries? Just trying to figure out the degrees of potential risk that may be embedded in some of those existing terms or variability that could be [Inaudible] registrations [Inaudible] but thinking about the orders?

Roberto Cuca -- Chief Financial Officer

Certainly. We have learned a lot since we began the STAR pilots in 2017. The STAR pilots are now over, and so we've had effectively a year and a half or so of experience on our own in product to customer, the processes in those countries. So while I did say that quarter by quarter, sales could be choppy.

I think we know now better than we ever have on how countries are scaling their products. And so therefore, the risk mitigation that you're referring to, I think, is better for us than it ever has been. We now know which countries are likely to scale quicker, and we can address our sales and operation planning accordingly. So I think we believe we are in a very strong position, having learned what we've learned so far, and we'll continue to get better.

Brandon Couillard -- Jefferies -- Analyst

OK. And then as far as the fourth-quarter HIV self-test or OUS HIV revenue spike of about $9.5 million, did that include the $2 million of order delays from the third quarter? Is that the right way to think about it? Was that a positive contributor?

Roberto Cuca -- Chief Financial Officer

So those orders would have come in at some point. I don't know that it was those orders specifically, but we do expect that those orders will come in during 2020, at least during 2020.

Brandon Couillard -- Jefferies -- Analyst

OK. And then anything that you could share with us, the M&A revenue contribution in the fourth quarter? Just trying to think about the microbiome organic growth in the fourth quarter for the base business relative to the acquired assets.

Roberto Cuca -- Chief Financial Officer

Sure. For the two businesses that we acquired at the beginning of 2019, that would be CoreBiome and Novosanis. At the beginning of the year, we said that we expected them to contribute $4 million to $7 million over the course of the year. They, in fact, contributed $5.2 million for the full year.

We didn't break that out by quarters. And that doesn't include the contribution from Diversigen, which we acquired in November and so which we owned for only about six weeks.

Brandon Couillard -- Jefferies -- Analyst

OK. And then maybe one more for you, Roberto. As far as the fourth-quarter cash flow goes, it looks like it was slightly negative. Can you just speak to the spike in accounts receivable in the fourth quarter, whether that was timing or some specific factor behind that?

Roberto Cuca -- Chief Financial Officer

That was really end-of-quarter shipments that we -- because as you see, there's a large volume of them, but it was end-of-quarter shipments going out that just increased accounts receivable.

Brandon Couillard -- Jefferies -- Analyst

Good. Thank you.

Roberto Cuca -- Chief Financial Officer

Thanks, Brandon.


Thank you. And that brings an end to the Q&A session of today's call. I would now like to turn the call back to Dr. Tang for any closing remarks.

Stephen Tang -- President and Chief Executive Officer

Thank you for participating in today's call and for your continued interest in OraSure. Have a good evening or afternoon. Thank you.


[Operator signoff]

Duration: 48 minutes

Call participants:

Stephen Tang -- President and Chief Executive Officer

Roberto Cuca -- Chief Financial Officer

John Hsu -- Raymond James -- Analyst

Brandon Couillard -- Jefferies -- Analyst

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