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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

(Mark One)

Annual report pursuant to Section 13 or 15(d) of the Securities Exchange ACT OF 1934

For the fiscal year ended December 31, 2021

or

Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File No. 001-16537

 

ORASURE TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

 

36-4370966

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

220 East First Street

Bethlehem, Pennsylvania

 

18015

(Address of principal executive offices)

 

(Zip Code)

 

(Registrant’s telephone number, including area code): (610) 882-1820

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class

Trading Symbol

Name of Each Exchange on Which Registered

Common Stock, $0.000001 par value per share

OSUR

The Nasdaq Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None

 

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐ No

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

 

 

 

Emerging Growth Company

 

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.7262(b)) by the registered public accounting firm that prepared or issued its audit report.

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

State the aggregate market value of the voting and non-voting common equity held by nonaffiliates, computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the Registrant’s most recently completed second fiscal quarter (June 30, 2021): $727,984,802

Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of February 25, 2022: 72,304,792 shares.

Documents Incorporated by Reference:

Part III of this Annual Report on Form 10-K will be incorporated by reference from certain portions of the Registrant's definitive Proxy Statement for its 2022 Annual Meeting of Shareholders, or will be included in an amendment hereto, to be filed not later than 120 days after the close of the fiscal year ended December 31, 2021. Except with respect to information specifically incorporated by reference in the Annual Report on From 10-K, the Proxy Statement is not deemed to be filed as part hereof.

 

 

 


Table of Contents

 

PART I

 

 

Page

 

ITEM 1.

Business

1

 

 

 

ITEM 1A.

Risk Factors

19

 

 

 

ITEM 1B.

Unresolved Staff Comments

48

 

 

 

ITEM 2.

Properties

48

 

 

 

ITEM 3.

Legal Proceedings

48

 

 

 

ITEM 4.

Mine Safety Disclosures

48

 

PART II

 

ITEM 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

49

 

 

 

ITEM 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

51

 

 

 

ITEM 7A.

Quantitative and Qualitative Disclosures About Market Risk

60

 

 

 

ITEM 8.

Financial Statements and Supplementary Data

60

 

 

 

ITEM 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

60

 

 

 

ITEM 9A.

Controls and Procedures

61

 

 

 

ITEM 9B.

Other Information

62

 

PART III

 

ITEM 10.

Directors, Executive Officers and Corporate Governance

63

 

 

 

ITEM 11.

Executive Compensation

63

 

 

 

ITEM 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

63

 

 

 

ITEM 13.

Certain Relationships and Related Transactions, and Director Independence

63

 

 

 

ITEM 14.

Principal Accountant Fees and Services

63

 

PART IV

 

ITEM 15.

Exhibits and Consolidated Financial Statement Schedules

64

 

 

 

ITEM 16.

Form 10-K Summary

66

 

Signatures

67

 

Use of Names

References in this Annual Report to "OraSure" mean OraSure Technologies, Inc. References in this Annual Report to "we," "us," "our," or the "Company" mean OraSure and its consolidated subsidiaries, unless otherwise indicated.

Disclosure Regarding Forward Looking Statements

This Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the "Annual Report") contains certain “forward-looking statements,” within the meaning of the Federal securities laws. These may include statements about our expected revenues, earnings/losses per share, net income (loss), expenses, cash flow or other financial performance, or developments, clinical trial or development activities, expected regulatory filings and approvals, planned business transactions, views of future industry, competitive or market conditions, and other factors that could affect our future operations, results of operations or financial position. These statements often include words, such as “believes,” “expects,” “anticipates,” “intends,” “plans,” “estimates,” “may,” “will,” “should,” “could,” or similar expressions.

Forward-looking statements are not guarantees of future performance or results. Known and unknown factors that could cause actual performance or results to be materially different from those expressed or implied in these statements include, but are not limited to:

 


risk that our exploration of strategic alternatives may not result in any definitive transaction or enhance stockholder value and may create a distraction or uncertainty that may adversely affect operating results, business or investor perceptions.
the diversion of management’s attention from our ongoing business and regular business responsibilities and due to our exploration of strategic alternatives;
our ability to resolve our InteliSwab® COVID-19 Rapid Tests manufacturing challenges and satisfy customer demand;
our ability to market and sell products, whether through our internal, direct sales force or third parties;
Our ability to fulfill our commitments under our contracts with the U.S. government for InteliSwab® COVID-19 Rapid Tests;
impact of significant customer concentration in the genomics business;
our ability to successfully scale-up our manufacturing for InteliSwab® COVID-19 Rapid Tests;
failure of distributors or other customers to meet purchase forecasts, historic purchase levels or minimum purchase requirements for our products;
our ability to manufacture products in accordance with applicable specifications, performance standards and quality requirements;
our ability to obtain, and timing and cost of obtaining, necessary regulatory approvals for new products or new indications or applications for existing products; ability to comply with applicable regulatory requirements;
our ability to effectively resolve warning letters, audit observations and other findings or comments from the U.S. Food and Drug Administration (or “FDA”), or other regulators;
the impact of the COVID-19 pandemic on our business;
the impact of COVID-19 on our supply chain;
our ability to successfully develop new products, validate the expanded use of existing collector products, receive necessary regulatory approvals and authorizations, transport work-in-process goods and finished products and commercialize such products for COVID-19 testing;
changes in relationships, including disputes or disagreements, with strategic partners or other parties and reliance on strategic partners for the performance of critical activities under collaborative arrangements;
our ability to meet increased demand for our products;
the impact of replacing distributors on our business;
inventory levels at distributors and other customers;
our ability to achieve our financial and strategic objectives and continue to increase our revenues, including the ability to expand international sales;
the impact of competitors, competing products and technology changes on our business;
reduction or deferral of public funding available to customers;
competition from new or better technology or lower cost products;
our ability to develop, commercialize and market new products;
market acceptance of oral fluid or urine testing, collection or other products;
market acceptance and uptake of microbiome informatics, microbial genetics technology and related analytics services;
changes in market acceptance of products based on product performance or other factors, including changes in testing guidelines, algorithms or other recommendations by the Centers for Disease Control and Prevention, or “CDC” or other agencies; ability to fund research and development and other products and operations;
our ability to obtain and maintain new or existing product distribution channels;
reliance on sole supply sources for critical products and components;
availability of related products produced by third parties or products required for use of our products;
the impact of contracting with the U.S. government on our business;

 


the impact of negative economic conditions on our business;
our ability to maintain sustained profitability;
our ability to increase our gross margins;
the ability to utilize net operating loss carry forwards or other deferred tax assets;
volatility of our stock price;
uncertainty relating to patent protection and potential patent infringement claims;
uncertainty and costs of litigation relating to patents and other intellectual property;
availability of licenses to patents or other technology;
ability to enter into international manufacturing agreements;
obstacles to international marketing and manufacturing of products;
our ability to sell products internationally, including the impact of changes in international funding sources and testing algorithms;
adverse movements in foreign currency exchange rates;
loss or impairment of sources of capital;
our ability to attract and retain qualified personnel;
our exposure to product liability and other types of litigation;
changes in international, federal or state laws and regulations;
customer consolidations and inventory practices;
equipment failures and ability to obtain needed raw materials and components;
the impact of terrorist attacks and civil unrest; and
general political, business and economic conditions.

 

These and other factors that could affect our results are discussed more fully under Item 1A, entitled “Risk Factors,” and elsewhere in this Annual Report. Although forward-looking statements help to provide information about future prospects, readers should keep in mind that forward-looking statements may not be reliable. Readers are cautioned not to place undue reliance on the forward-looking statements. The forward-looking statements and Risk Factors are made as of the date of this Annual Report and we undertake no duty to update these statements, unless we are required to do so by law. If we do update one or more forward-looking statements, no inference should be drawn that we will make updates with respect to other forward-looking statements or that we will make any further updates to those forward-looking statements at any future time.

Investors should also be aware that while we do, from time to time, communicate with securities analysts, it is against our policy to disclose any material non-public information or other confidential commercial information. Accordingly, stockholders should not assume that we agree with any statement or report issued by any analyst irrespective of the content of the statement or report. Furthermore, we have a policy against issuing or confirming financial forecasts or projections issued by others. Thus, to the extent that reports issued by securities analysts contain any projections, forecasts or opinions, such reports are not the responsibility of OraSure.

Trademarks, Trade Names and Service Marks

This Annual Report contains certain trademarks, which are protected under applicable intellectual property laws and are the Company's property. Solely for convenience, the Company's trademarks and trade names referred to in this Annual Report may appear without the ® or TM symbol, but such references are not intended to indicate, in any way, that the Company will not assert, to the fullest extent under applicable law, its rights to these trademarks and trade names. We own rights to trademarks and service marks that we believe are necessary to conduct our business as currently operated. In the United States, we own a number of trademarks, including the OraSure®, Intercept®, Intercept i2® he, OraQuick®, OraQuick ADVANCE®, OraSure Quick Flu®, Q.E.D.®, InteliSwab®, Oragene®, DNA Genotek®, OMNImetTM, ORAcollect®, OMNIgene®, goDNATM, Diversigen®, CoreBiome®, Boostershot®, MetaGeneTM, BenchmarkTM, Novosanis®, Colli-Pee®, UCM®, UASTM, AUTO-LYTE®, prepIT® and Hemagene® trademarks. We also own many of these marks and others in several foreign countries and we are pursuing registration of several other trademarks.

 

 


 

PART I

ITEM 1. Business.

 

The overall goal of OraSure Technologies, Inc. (“OraSure” or “the Company”) is to empower the global community to improve health and wellness by providing access to accurate essential information through effortless tests, collection kits and services. Our business consists of two segments: our “Diagnostics” segment, and our “Molecular Solutions” segment.

 

Diagnostics

 

Our Diagnostics business primarily consists of the development, manufacture, marketing and sale of simple, easy to use diagnostic products and specimen collection devices using our proprietary technologies, as well as other diagnostic products including immunoassays and other in vitro diagnostic tests that are used on other specimen types. The Diagnostics business includes tests for diseases including COVID-19, HIV and Hepatitis C that are performed on a rapid basis at the point of care, and tests for drugs of abuse that are processed in a laboratory. These products are sold in the United States and internationally to various clinical laboratories, hospitals, clinics, community-based organizations, and other public health organizations, distributors, government agencies, physicians’ offices, and commercial and industrial entities. Our COVID-19 and HIV products are also sold in a consumer-friendly format in the over-the-counter (“OTC”) market in the U.S. and, in the case of the HIV product, as a self-test to individuals in a number of other countries. Through our Diagnostics business we are also developing and commercializing products that measure adherence to HIV medications including pre-exposure prophylaxis or PrEP, the daily medication to prevent HIV, and anti-retroviral medications to suppress HIV. These products include laboratory-based tests that can measure levels of the medications in a patient’s urine or blood, as well as point-of-care products currently in development.

 

Molecular Solutions

 

Our Molecular Solutions business is operated by our wholly-owned subsidiaries, DNA Genotek, Inc. ("DNAG"), Diversigen, Inc. ('Diversigen"), and Novosanis NV ("Novosanis"). Our Molecular Solutions business sells its products and services directly to its customers, primarily through its internal sales force in the U.S. domestic market, and in many international markets, also through distributors. Our products primarily consist of collection kits and services used by clinical laboratories, direct-to-consumer laboratories, researchers, pharmaceutical companies, and animal health service and product providers. Most of our Molecular Solutions revenues are derived from product sales to commercial customers and sales into the academic and research markets. A significant portion of our total sales is from repeat customers in both markets. Molecular Solutions customers span the disease risk management, diagnostics, pharmaceutical, biotech, companion animal and environmental markets.

 

We have expanded the market focus of our Molecular Solutions business by selling existing collection products for use with COVID-19 tests. We have also developed new collection devices for the emerging microbiome market, which focuses on studying microbes and their effect on human health. Our primary product offering in the microbiome market, OMNIgene® • GUT, is focused on the human gut microbiome (microbes living in human stool). In 2021, the OMNIgene® • GUT collection device (OMD-200) was granted “FDA De Novo classification for the preservation and stabilization of the relative abundance of microbial nucleic acids in clinical samples.” We leverage our existing sales force and global research connections to engage microbiome customers worldwide to establish ourselves among the leaders in ease-of-collection, stabilization, and transport of this challenging sample type.

 

Our Molecular Solutions segment includes the Colli-Pee® device, developed and sold by our Novosanis subsidiary, for the volumetric collection of first void urine. This product is in its early stages, and initial sales are occurring primarily through distributors and collaborations in the liquid biopsy and sexually transmitted disease markets. Our Molecular Solutions business also offers laboratory and analytical services for both genomics and microbiome customers to more fully meet their needs. These services are primarily provided to pharmaceutical, biotech companies, and research institutions.

 

Business Update Related to InteliSwab® Covid-19 Rapid Tests

 

In June 2021, we received three Emergency Use Authorizations ("EUA") from the U.S. Food and Drug Administration ("FDA") for our InteliSwab® COVID-19 Rapid Tests (“InteliSwab®”) for non-prescription OTC, professional point-of-care use and prescription home use. We began recording revenues on the sales of our InteliSwab® tests during the third quarter of 2021. In September 2021, the Defense Logistics Agency awarded the Company a procurement contract for the InteliSwab® for OTC use, which the Defense Logistics Agency estimated to have a value of $205 million and which will provide InteliSwab® tests to up to 20,000 sites throughout the United States from October 2021 through September 2022. Also in September 2021, we entered into an agreement with the Biomedical Advanced Research Development Authority (“BARDA”), which is part of the office of the Assistant Secretary for Preparedness and Response at the U.S. Department of Health and Human Services (“HHS”), pursuant to which BARDA would provide the Company with up to $13.6

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million in funding to obtain 510(k) clearance and Clinical Laboratory Improvement Amendments (“CLIA”) waiver of the InteliSwab® tests.

 

In the latter part of 2021, we have focused our efforts on scaling up our operations to meet the increasing demand for the InteliSwab® tests. In September 2021, we receive $109 million in funding from the U.S. Department of Defense (the “DOD”), in coordination with the HHS, to build additional manufacturing capacity in the United States for our InteliSwab® test as part of the nation’s pandemic preparedness plan. This funding will be used to expand the Company’s production capacity by 100 million tests annually and will be paid based on achievement of milestones through March 2024 for the design, acquisition, installation, qualification and acceptance of the manufacturing equipment.

 

We have obtained WHO pre-qualification for our OraQuick® HIV-1/Antibody Test, OraQuick® HIV Self-Test and OraQuick® HCV Test.

 

Exploration of Strategic Alternatives

 

The COVID-19 pandemic has provided us an opportunity to fundamentally transform into a higher growth, more innovative and efficient organization with broader customer reach, both within and outside the United States. We believe we are well positioned to address current public health challenges and capitalize on diagnostic trends in the market and enhance its operational and competitive profile. Against this backdrop, our Board of Directors is exploring and evaluating a broad range of strategic alternatives with the goal of maximizing value for stockholders There can be no assurance that the exploration of strategic alternatives will result in any agreements or transactions, or that, if completed, any agreements or transactions will be successful or on attractive terms.

 

Diagnostics Segment Products

 

The following is a summary of our principal products for the infectious disease and risk management markets, which comprise the Diagnostics segment of our business:

 

InteliSwab®COVID-19 Rapid Test

 

InteliSwab® is our rapid immunoassay platform designed to test nasal samples for the presence of antigen from SARS-CoV-2. The device uses an integrated swab to collect a specimen from the lower nostril. After collection, the integrated swab is inserted into a vial containing a pre-measured amount of developer solution and allowed to develop. The specimen and developer solution flow through the test device and test results are observable in 30 minutes. The InteliSwab® test has received emergency use authorization (“EUA”) from the U.S. Food and Drug Administration (“FDA”) for non-prescription, over-the-counter home use in individuals aged 2 years or older, with and without symptoms of COVID-19.

 

InteliSwab®COVID-19 Rapid Test Pro

 

The InteliSwab® COVID-19 Rapid Test Pro is a version of InteliSwab® intended for use by healthcare providers at the point of care. The test is performed in the same manner as the over-the-counter version, except that the test is run and interpreted by a healthcare provider. This test has received EUA from the U.S. FDA for use by laboratories located in the United States certified under CLIA. We have also received a CLIA waiver for use of the test enabling the test to be used by numerous additional sites in the United States not certified under CLIA to perform high and moderately complex tests, such as outreach clinics, community-based organizations and physicians’ offices. This test is also indicated for individuals aged two years and older, with and without symptoms of COVID-19.

 

InteliSwab®COVID-19 Rapid Test Rx

 

The InteliSwab® COVID-19 Rapid Test Rx is the version of InteliSwab® that has received EUA from the U.S. FDA for prescription home use with individuals aged 2 years or older who are suspected of COVID-19 infection by their healthcare provider within the first seven days of symptom onset.

 

OraQuick® Rapid HIV Test

 

OraQuick® is our rapid point-of-care test platform designed to test oral fluid, whole blood (i.e., both finger-stick and venous), plasma and serum samples for the presence of various antibodies or analytes. The device uses a porous flat pad to collect an oral fluid specimen. After collection, the pad is inserted into a vial containing a pre-measured amount of developer solution and allowed to develop. When blood, plasma or serum is to be tested, a loop collection device is used to collect a drop of the specimen and mix it in the developer solution, after which the collection pad is inserted into the solution and allowed to develop. In all cases, the specimen and developer solution then flow through the testing device where test results are observable in approximately 20 minutes. The OraQuick® device is a

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screening test and requires a confirmation test where an initial positive result is obtained. This product is sold under the OraQuick ADVANCE® name in North America, Europe and certain other countries and under the OraQuick® name in other developing countries. The test has received pre-market approval (“PMA”) from the U.S. Food and Drug Administration (“FDA”) for the detection of antibodies to both HIV-1 and HIV-2 in oral fluid, finger-stick whole blood, venous whole blood and plasma. This test is available for use by laboratories located in the United States certified under the Clinical Laboratory Improvements Amendment of 1988 (“CLIA”), to perform moderately complex tests. We have also received a CLIA waiver for use of the test with oral fluid and finger-stick and venous whole blood. As a result, the test can be used by numerous additional sites in the United States not certified under CLIA to perform moderately complex tests, such as outreach clinics, community-based organizations and physicians’ offices.

 

On the international front, we have obtained a CE mark for our OraQuick ADVANCE® test so that we can sell this product in Europe and other countries accepting the CE mark for commercialization and this product is registered for sale in other countries. We have distributors in place for several countries and are seeking to increase awareness and expand our distribution network for this product throughout the world. We have also received World Health Organization (“WHO”) pre-qualification for our export-only version of this product.

 

OraQuick® In-Home HIV Test

 

The OraQuick® In-Home HIV test is an OTC oral-fluid only version of our OraQuick ADVANCE®HIV 1/2 Antibody Test. We received PMA approval to sell this test in the U.S. OTC market. The In-Home test is performed in the same manner as the OraQuick ADVANCE® test, except that it has product labeling and instructions designed for consumers. In addition, we have established toll-free, 24/7, 365-day per year customer telephone support to provide additional information and referral services for consumers that use this product.

 

OraQuick® HIV Self-Test

 

The OraQuick® HIV Self-Test is sold for use by individuals in certain foreign countries to meet the needs of those markets. This product has received WHO pre-qualification and is eligible for procurement by purchasing entities entitled to access funding and other resources from the Global Fund, UNITAID and other agencies. The OraQuick® HIV Self-Test received CE Mark in 2021 and is being sold in certain European Countries.

 

OraQuick® HCV Rapid Antibody Test

 

Another test available on the OraQuick® platform is the OraQuick® HCV rapid antibody test. This product is a qualitative test that can detect antibodies to the hepatitis C virus (“HCV”), in a variety of sample types. The OraQuick® HCV test operates in substantially the same manner as the OraQuick ADVANCE® HIV test.

 

We have received FDA pre-market approval and CLIA waiver for use of the test in detecting HCV antibodies in venous whole blood and finger-stick whole blood specimens, making it the first and only rapid HCV test approved by the FDA for use in the United States. The OraQuick® HCV test has received a CE mark for use with oral fluid, venous whole blood, finger-stick whole blood, plasma and serum and is sold in Europe. This CE-marked product is also registered and sold in other foreign countries and has received WHO pre-qualification.

 

OraQuick® Ebola Rapid Antigen Test

 

We have received 510(k) clearance from the FDA for our rapid Ebola test, making it the first and only rapid Ebola test cleared for sale in the U.S. This product utilizes the OraQuick® technology platform for the detection of Ebola antigen and can be used with finger-stick and whole blood samples from live patients and oral fluid samples from recently deceased individuals. The uses for this test are limited to individuals that meet certain criteria indicating they may be infected with the Ebola virus, so the test is not available for general screening of individuals that do not meet this criteria.

 

OraSure® Collection Device

 

Our OraSure® oral fluid collection device is used in conjunction with screening and confirmatory tests for HIV-1 antibodies. The generic version of this product can be used for other analytes. This device consists of a small, treated cotton-fiber pad on a handle that is placed in a person’s mouth for two to five minutes. The device collects oral mucosal transudate (“OMT”), a serum-derived fluid that contains higher concentrations of certain antibodies and analytes than saliva. As a result, OMT testing is a highly accurate method for detecting HIV-1 infection and other analytes.

 

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The OraSure® collection device is FDA approved for use in the detection of HIV-1 antibodies. The generic version is a Class I medical device for the detection of cocaine and cotinine in oral fluid specimens for risk assessment testing. HIV-1 antibody detection using the OraSure® collection device involves three steps:

Collection of an oral fluid specimen using the OraSure® device;
Screening of the specimen for HIV-1 antibodies at a laboratory with an enzyme immunoassay (“EIA”) screening test approved by the FDA for use with the OraSure® device; and
Laboratory confirmation of any positive screening test results with a blood-based nucleic acid test.

 

A trained health care professional then conveys test results and provides appropriate counseling to the individual who was tested.

 

Intercept® Drug Testing System

 

A collection device that is substantially similar to the OraSure® collection device is sold under the name Intercept®, and is used to collect oral mucosal transudate "OMT" for oral fluid drug testing. We have received FDA 510(k) clearance to use the Intercept® collection device with laboratory-based EIAs to test for drugs-of-abuse commonly identified by the National Institute for Drug Abuse (“NIDA”) as the NIDA-5 (i.e., tetrahydrocannabinol (“THC” or marijuana), cocaine, opiates, amphetamines/methamphetamines and phencyclidine (“PCP”)), and for barbiturates, methadone and benzodiazepines. Each of these EIAs is also FDA 510(k) cleared for use with the Intercept® device. Our Intercept® device and oral fluid assays are sold in the U.S. primarily through laboratory distributors.

We believe that the Intercept® device has several advantages over competing urine and other drugs-of-abuse testing products, including its lower total testing cost, its non-invasive nature, mobility and accuracy, the ease of maintaining a chain-of-custody, the treatment of test subjects with greater dignity, no requirement for specially-prepared collection facilities and difficulty of sample adulteration. The availability of an oral fluid test is intended to allow our customers to test for drug impairment and eliminate scheduling costs and inconvenience, thereby streamlining the testing process.

 

We have also developed a next-generation collection device, which we are marketing under the tradename “Intercept i2® he”. This device offers several important advantages over our original Intercept® device, including a sample adequacy indicator that provides a visual prompt when the appropriate volume of oral fluid has been collected, the ability to collect a larger sample required by current laboratory testing protocols and a more optimized chemistry that results in improved recovery of the targeted drug analytes. The Intercept i2®he device is currently being sold as a forensic use only device within the criminal justice and drug treatment markets along with a NIDA-5 panel of fully-automated high-throughput oral fluid drug assays that we distribute under an agreement with Thermo Fisher Scientific.

 

Immunoassay Tests and Reagents

 

We develop and sell immunoassay tests in formats, known as MICRO-PLATE and AUTO-LYTE®, to meet the specific needs of our customers. We also sell fully-automated high-throughput oral fluid drug assays developed under our agreement with Thermo Fisher. Our MICRO-PLATE tests can be performed on commonly used instruments and can detect drugs in urine, serum and sweat specimens. MICRO-PLATE tests are also used as part of the Intercept® product line to detect drugs-of-abuse in oral fluid specimens and we are selling a NIDA-5 panel of microplate assays supplied by Thermo Fisher to the U.S. forensic market under the agreement described above. AUTO-LYTE® tests are sold in the form of bottles of liquid reagents, are run on commercially available laboratory-based automated analytical instruments, and are typically used in high volume, automated, commercial reference insurance laboratories to detect certain drugs or chemicals in urine.

 

Q.E.D.® Saliva Alcohol Test

 

Our Q.E.D.® saliva alcohol test is a point-of-care test device that is a cost-effective alternative to breath or blood alcohol testing. The test is a quantitative, saliva-based method for the detection of ethanol, has been cleared for sale by the FDA and has received a CLIA waiver. The U.S. Department of Transportation (“DOT”) has also approved the test.

 

Each Q.E.D.® test kit contains a collection stick that is used to collect a sample of saliva and a disposable detection device that displays results in a format similar to a thermometer. The Q.E.D.® device is easy to operate and instrumentation is not required to read the result. The product has a testing range of 0 to 0.145% blood alcohol and produces results in approximately two minutes.

 

Molecular Solutions Segment

 

Genomic Products

 

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We sell many genomic products that provide all-in-one systems for the collection, stabilization, transportation, and storage of DNA, RNA, as well as both DNA and RNA together from human and animal biological samples. Our lead products are sold under the Oragene® and ORAcollect® brands and are used to collect genetic material from human saliva. These products are currently sold to thousands of academic research and commercial customers in many countries worldwide.

 

Our genomic products are available in several configurations and contain proprietary chemical solutions optimized for the specific application for which each product is designed. Product physical design is focused on ease-of-use and reliability for self or assisted collection of samples. For example, several of the Oragene® products require users to hold the product close to their mouth and spit into the collection device. When the container is closed, the reagents stored in the container’s lid are mixed with the captured saliva and immediately protect the nucleic acids in the sample. This non-invasive collection method yields nucleic acid that remains stable at ambient temperature for extended periods. The stabilizing technology ensures the preservation of high quality and high quantity nucleic acids that are required for most genetic testing and analysis methods.

 

We believe these products provide significant advantages over competing DNA and RNA collection methods such as blood collection or buccal swabs, particularly in human genetic applications.

 

Benefits include:

The reliable collection of high-quality and stable genetic samples.
The use of simple, non-invasive collection methods.
The ability to store and transport collected samples for extended periods at ambient temperatures.
Compatibility with fully automated laboratory testing systems.

 

We also sell the Colli-Pee® collection device for the volumetric collection of first void urine samples. This product is used in liquid biopsy applications for the prostate and bladder cancer markets and in the sexually transmitted infection screening market.

 

COVID Collection Products

 

Since 2020, we have actively engaged with several laboratories and researchers to demonstrate the effectiveness of our existing collection products for use with COVID-19 molecular testing. The stabilization solution in our molecular collection products can accommodate a vast spectrum of microbiome activity, spanning bacteria to viruses. We have collected data on the usability of our kits for this purpose. We believe that oral samples collected using devices from our product lines for liquid saliva or oral swab samples are a suitable alternative to more commonly used samples collected with a nasopharyngeal or oropharyngeal swab. Our products are optimized for self-collection, unlike nasopharyngeal and oropharyngeal swabs, which cannot be self-administered easily. That means healthcare providers, retailers, and online vendors can ship our kits directly to an individual’s home, eliminating unnecessary trips to hospitals, doctors’ offices, and testing facilities. Self-collection also supports the social distancing guidelines in many communities, reduces the burden on testing sites and healthcare facilities, and provides wider access to testing. Moreover, the chemistry in our products stabilizes nucleic acids, including RNA, which is the nucleic acid used by most labs for COVID-19 testing. The chemistry is bacteriostatic and inactivates viral activity in the sample. These products' usability and form factors are conducive to use at home or in clinic settings. As a result, since 2020, we have sold our ORAcollect® • RNA and OMNIgene® • ORAL collection devices for use in connection with COVID-19 molecular testing. These products have become an increasingly important part of our business and accounted for 47% of 2020 revenue generated by our Molecular Solutions segment and 40% in 2021.

 

Microbiome Products

 

We also market several microbiome collection products designed to collect, stabilize, and transport the microbial profile from multiple sample types. Unlike genomic DNA, the microbiome of a sample can change over time, especially when exposed to temperature and environmental fluctuations. A reliable method captures and preserves ("snapshots") the microbiome after collection until an analysis is required to optimize and standardize sample results. We believe our products provide such a reliable method.

 

Our OMNIgene® • GUT product is an all-in-one system designed to enable an individual to easily self-collect high-quality microbial DNA from feces or stool samples for gut microbiome profiling for use in the clinical laboratory and research settings. Most current methodologies for gut microbiome profiling have distinct shortcomings due to the introduction of bias, leading to a lack of reproducibility in the field. We believe our product ensures that the microbial DNA in the fecal sample is fully stabilized immediately upon collection and maintains an accurate and reliable bacterial profile for weeks at room temperature. Recently, we have applied these principles of sample stabilization to other sample types, including oral, skin, and vaginal samples. In 2021, the Microbiome portfolio grew to support collecting and stabilizing metabolites found in fecal samples.

 

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Laboratory and Data Analytical Services

 

Our Molecular Solutions business also offers our customers microbiome laboratory testing and analytical services. These services reflect the collective benefits of our Diversigen subsidiaries, which were combined under the Diversigen name during 2020. Our services focus on accelerating microbiome discovery for customers in the pharmaceutical, agriculture, and research communities. Our goal is to help customers unleash the translational potential of the microbiome and providing fast and information-rich characterizations of microbial diversity and function paired with expert analytics. We also offer comprehensive microbiome and metagenomics services to improve human, animal, and environmental health. Diversigen has extensive experience with highly diverse microbiome sample types and provides complete project life cycle consulting services, including pre-project consulting, study design, extraction, and sequencing to complete bioinformatics analysis. Diversigen is at the forefront of setting quality standards for this industry and has obtained the College of American Pathologists (“CAP”) accreditation at its laboratory facilities. We are also in the process of integrating the services offered through GenoFINDTM, under the Diversigen brand.

 

Products Under Development

 

Diagnostic Products

 

Our research and development efforts include programs targeted at expanding and enhancing our diagnostics business. These programs typically focus on products related to drug adherence and rapid tests for various diseases. In 2021, significant time and resources were dedicated to the development of our COVID-19 Rapid Antigen Self-Test (InteliSwab®). We introduced our antigen test to the market in 2021 for three different uses:

 

Professional Test (CLIA Waived) for use at drive-through sites, physician offices, public health testing sites, and employer/university health centers. In this instance, a physician would prescribe the test and the patient would conduct a self-swab in the presence of a healthcare provider who would then interpret the result.
Prescription Self-Test for use by individual consumers (with prescription) at home or in any location, by employers/universities on- or off-site, or by physicians or public health via remote testing. In this instance, a physician would prescribe the test and the patient would conduct a self-swab at home, or in any location, where they would then interpret their own result.
OTC Self-Test for use by consumers who would purchase online or at retail without prescription, and conduct the test and receive the result themselves anytime, anywhere.

 

We completed the InteliSwab® product development and clinical studies in 2021 and received three EUA authorizations for this test in June 2021.

 

In the first and second quarter of 2021, the clinical studies were completed and the EUAs were submitted to the FDA. Throughout 2021, limit of detection studies were completed with live coronavirus in certified third party analytical laboratories, confirming that InteliSwab® is able to detect all the variants of concern thus far including Omicron. The company has transferred the technology for the making of the devices to manufacturing which is ramping up and optimizing operations.

 

In 2021, we also received a $13.6 million grant from BARDA, which provides the funding necessary to obtain a 510(k) for InteliSwab® for both professional use (CLIA waived) and OTC use.

 

Molecular Solutions

 

In order to intersect evolving customer needs within the academic and commercial markets, our molecular business product development pipeline is focused on extending offerings across different sample types and analytes within both the genomics and microbiome areas. Genomic customers are demonstrating an increasing demand for collection and stabilization of cell-free nucleic acids, exosomes, DNA and RNA. On the microbiome front, we continue to focus research and development work on collecting and stabilizing microbial DNA, RNA and metabolites from multiple sample types including gut, skin, vagina and saliva.

 

The field of microbiome services is fast paced with evolving biological understanding and development of new methodologies. Our development efforts are focused on remaining at the forefront of laboratory and informatics technologies, as well as providing new and relevant services to our customers. These include a focus on laboratory and informatics methods to integrate DNA, RNA and metabolites from microbial communities across different sample types.

 

Sales and Marketing

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We attempt to reach our major target markets through a combination of direct sales, strategic arrangements and independent distributors. Our marketing strategy is to create or raise awareness through a full array of marketing activities, which include trade shows, print advertising, special programs, distributor promotions, telemarketing and the use of digital and social media in order to stimulate sales in each target market.

 

We market our products in the United States and internationally. Consolidated net revenues attributable to customers in the United States were $188.4 million, $130.8 million, and $107.3 million in 2021, 2020, and 2019, respectively. Consolidated net revenues attributable to international customers amounted to $45.3 million, $40.9 million, and $47.3 million or 19%, 24%, and 31% of our total revenues in 2021, 2020, and 2019 respectively. For more information about our revenues and long-lived assets attributable to U.S. and international customers, please see Notes 2 and 14 to our consolidated financial statements included elsewhere in this Annual Report.

 

Diagnostics - Professional

 

Our InteliSwab® COVID-19 Rapid Test Pro and Rx products are primarily sold through distributors to U.S. hospitals, physician offices and clinics. It is also marketed directly to customers in the public health market including clinics and laboratories of state, county and other governmental agencies.

 

We market the OraQuick ADVANCE®HIV-1/2 antibody test directly to customers in the public health market for HIV testing. This market consists of a broad range of clinics and laboratories and includes states, counties, and other governmental agencies, family planning clinics, colleges and universities, correctional facilities and the military. There are also a number of organizations in the public health market, such as AIDS service organizations and various community-based organizations, that are set up primarily for the purpose of encouraging and enabling HIV testing. We sell our OraQuick ADVANCE® test to hospitals and physician offices in the U.S. primarily through distributors. In addition, we distribute our OraQuick® HIV test in certain foreign countries through distributors.

Our OraQuick® HCV test is sold primarily to the same markets where our OraQuick® ADVANCE HIV test is sold, including public health organizations, hospitals, physicians and retail clinics. We also sell this test in other countries through distributors.

 

Diagnostics - OTC and Self-Test

 

We sell our InteliSwab® COVID-19 Rapid Test product in the U.S. retail and consumer markets. The OTC InteliSwab® test is also sold directly and through distributors into a broad range of business-to-business (B2B) markets including employer testing, colleges and universities, local, state and federal governmental agencies and the US military.

 

We sell our OraQuick® In-Home test in the U.S. retail or consumer market. The product is also available for purchase on-line through certain retailers and from our website, www.oraquick.com. The primary target population for our HIV-OTC test comprises young, sexually active adults, with greater purchase intent found in high-risk sub-groups, such as men who have sex with men, African Americans and Latino Americans. We also sell our OraQuick® HIV Self-Test in certain international markets. Under a Charitable Support Agreement with the Bill & Melinda Gates Foundation (“Gates Foundation”) we are able to offer our OraQuick® HIV Self-Test at an affordable price in 50 developing countries in Africa and Asia with funding from the Gates Foundation. The funding consists of support payments tied to the volume of product we sell and reimbursement of certain related costs. The agreement was entered into in 2017 and has a four-year term and enables non-governmental organizations in the eligible countries that receive funding from government or public sector agencies and donors to access our HIV Self-Test at reduced pricing. The agreement with the Gates Foundation provides for an aggregate funding amount not to exceed $20.0 million over the four-year term or $6.0 million each year of the agreement. The term of this agreement expired in June 2021.

 

Our OraQuick® HIV Self-Test is the only oral fluid HIV test prequalified by the WHO. WHO prequalification helps ensure that diagnostic tests for high burden diseases meet global standards of quality, safety, and efficacy in order to optimize use of health resources and improve health outcomes. WHO prequalification enables governmental organizations implementing HIV Self-Test pilots and programs to access international funding to purchase our test.

 

Substance Abuse Testing

 

Our substance abuse testing products are marketed to laboratories serving the workplace testing, forensic toxicology, criminal justice and drug rehabilitation markets in the U.S. and certain international markets.

 

We have entered into agreements for the distribution of our Intercept® collection device and associated MICRO-PLATE assays for drugs-of-abuse testing in the workplace testing market in the United States and Canada through several laboratory distributors and internationally for workplace, criminal justice and forensic toxicology testing through other distributors. We also market the Intercept® collection device on its own and as a kit in combination with laboratory testing services. To better serve our workplace customers, we

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have contracted with commercial laboratories to provide prepackaged Intercept® test kits, with prepaid laboratory testing and specimen shipping costs included.

 

The criminal justice market in the United States for our substance abuse testing products consists of a wide variety of entities in the criminal justice system that require drug screening, such as pre-trial services, parole and probation offices, police forces, drug courts, prisons, drug treatment programs and community/family service programs. The forensic toxicology market consists of several hundred laboratories including federal, state and county crime laboratories, medical examiner laboratories and reference laboratories.

 

As discussed above, we also sell our next generation Intercept i2® he collection device with a NIDA-5 panel of fully-automated high-throughput oral fluid assays developed with Thermo Fisher for the detection of PCP, THC, opiates, cocaine, methamphetamines and amphetamines. These products are currently sold into the criminal justice and drug treatment markets.

 

We distribute our Q.E.D.® saliva alcohol test primarily through various distributors in the United States and internationally. The markets for alcohol testing are relatively small and fragmented with a broad range of legal and procedural barriers to entry. Markets range from law enforcement testing to workplace testing of employees in safety sensitive occupations. Typical usage situations include pre-employment, random, post-accident, reasonable-cause and return-to-duty testing.

 

Molecular Solutions

 

Our Molecular Solutions business sells its products directly to its customers, primarily through its own internal sales force in U.S. domestic markets. However, in many international markets, distributors are used.

 

Most of our Molecular Solutions revenues are derived from product sales to commercial customers and sales into the academic and research markets. Sales to commercial customers providing consumer genetics and clinical diagnostic services have been increasing and account for a majority these revenues. A significant portion of total sales are derived from repeat customers in both markets. Molecular Solutions also has customers in the livestock and companion animal markets.

 

We have expanded the market focus of our Molecular Solutions business by selling certain existing collection products for use in COVID-19 tests and by developing new collection devices for the emerging microbiome market, which is focused on the study of microbes and their effect on human health. Our primary product offering in the microbiome market, OMNIgene® GUT, is focused on the human gut microbiome (microbes living in human stool). We are leveraging our existing sales force and global research connections to engage microbiome customers around the world and establish ourselves as among the leaders in ease-of-collection, stabilization and transport of this challenging sample type.

 

Our Molecular Solutions segment includes the Colli-Pee® device, a product developed and sold by our Novosanis subsidiary, for the volumetric collection of first void urine. This product is in its early stages and initial sales are occurring primarily through distributors and collaborations for use in the liquid biopsy and sexually transmitted disease markets.

 

This segment is offering laboratory and analytical services for both genomics and microbiome customers in order to more fully meet the needs of its customers. These services are primarily provided to pharmaceutical and biotech companies and research institutions. During 2019, we substantially expanded our ability to offer microbiome laboratory and bioinformatics services with the acquisition of CoreBiome and Diversigen. The laboratory operations of CoreBiome and Diversigen were combined during 2020 under the Diversigen brand.

Significant Products and Customers

Several different product lines have contributed significantly to our financial performance, accounting for 10% or more of our total revenues during the past three years. The table below shows a breakdown of those product lines (dollars in thousands).

 

 

For the years ended December 31,

 

 

 

2021

 

 

2020

 

 

2019

 

Genomics

 

$

63,350

 

 

$

36,878

 

 

$

56,200

 

OraQuick® HIV

 

 

42,373

 

 

 

44,224

 

 

 

43,092

 

COVID-19 collection kits

 

 

54,167

 

 

 

50,927

 

 

 

 

Inteliswab®

 

 

22,405

 

 

 

 

 

 

 

 

One of our customers accounted for approximately 15% of our net consolidated revenues in 2019. We had no customers that accounted for more than 10% of our net consolidated revenues for the years ended December 31, 2021 and 2020.

 

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Supply and Manufacturing

 

We manufacture all of our OraQuick ADVANCE® Rapid HIV test, OraQuick® In-Home HIV test, OraQuick® HCV test, OraQuick® Ebola test, OraSure®, Intercept® and Intercept i2® he collection devices, AUTOLYTE and MICRO-PLATE assays and Q.E.D.® saliva alcohol test in our Bethlehem, Pennsylvania facilities. We expect to continue to manufacture these products at this location for the foreseeable future.

 

We have contracted with a third party in Thailand for the assembly of the OraQuick® Rapid HIV test and the OraQuick® HIV In-Home Test in order to supply certain international markets. We believe that other firms would be able to assemble these OraQuick® tests on terms no less favorable than those set forth in the agreement if the Thailand contractor would be unable or unwilling to continue assembling this product. We have long-term agreements in place for the contract manufacturing in Thailand and one of our suppliers has been manufacturing for us for the past 20 years.

 

We can purchase the HIV antigens, the nitrocellulose and certain other critical components, and the HCV and Ebola antigens used in our OraQuick® product lines only from a limited number of sources. If for any reason these suppliers are unwilling or no longer able to supply our antigen or nitrocellulose needs, we believe that alternative supplies could be obtained at a competitive cost. However, a change in any of the antigens, the nitrocellulose or other critical components used in our products would require FDA approval and some additional development work. This in turn could require significant time to complete, increase our costs and disrupt our ability to manufacture and sell the affected products.

 

We manufacture all of the proprietary chemistry and assay cards for our InteliSwab® COVID-19 Rapid Tests in our Bethlehem, Pennsylvania facilities. We made significant capital investments during 2021 in order to scale this manufacturing. On September 30, 2021, we entered into an agreement for $109 million in capital funding from the US Department of Defense, in coordination with the Department of Health and Human Services, to build additional manufacturing capacity in the United States for our InteliSwab® COVID-19 Rapid Tests as part of the nation’s pandemic preparedness plan. Under the Agreement, the funding will be used to expand our production capacity by 100 million tests annually. Funding will be paid to us based on achievement of milestones through March 2024 for the design, acquisition, installation, qualification and acceptance of the manufacturing equipment. An existing Company location in Bethlehem, PA is being retrofitted to accommodate increased manufacturing and an additional new facility will be added in another U.S. location to be determined.

 

Our MICROPLATE and AUTO-LYTE assays require the production of highly specific and sensitive antibodies corresponding to the antigen of interest. Substantially all our antibody requirements are provided by contract suppliers. We believe that we have adequate reserves of antibody supplies and that we have access to sufficient raw materials for these products.

 

The fully-automated high-throughput oral fluid drug assays sold with our new Intercept i2® he collection device are manufactured and supplied under a long-term agreement with Thermo Fisher. There is no other supply source for these products.

 

Our wholly-owned subsidiary, DNA Genotek, Inc. ("DNAG") has three long-term contract manufacturing relationships to supply virtually all of its products, including the Oragene® product line. Many of the raw materials and components used in these products are also purchased from third parties, some of which are purchased from a single source supplier. We are actively seeking to qualify other suppliers that can manufacture and supply the raw materials and components for the DNAG products. All DNAG products in our Molecular Solutions segment are produced in Canada. We have increased the capacity for our molecular collection kits to meet demand for COVID molecular testing to 60 million kits per year (including non-COVID kits) with another 20 million kits per year to be qualified by end of 2022.

 

Our Colli-Pee® device is currently manufactured at our Belgian assembly facility with components supplied by third party vendors.

 

Our GenoFINDTM genomics laboratory services are provided to our customers by a third party laboratory. We believe there are other laboratories that can also provide these services. Our microbiome laboratory testing and analytical services are provided by our subsidiary, Diversigen.

 

Human Capital Resources

 

In order to achieve the goals and expectations of our Company, it is crucial that we continue to attract and retain top talent. To facilitate talent attraction and retention, we strive to make OraSure a safe and rewarding workplace with opportunities for our employees to grow and develop in their careers.

 

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As of December 31, 2021, we had 785 full-time employees, which compares to 570 employees as of December 31, 2020. The increase in employees during 2021 was primarily the result of the need to add manufacturing capacity for our InteliSwab® COVID-19 Rapid Test and molecular collection devices used in COVID-19 molecular testing. Our employees are not currently represented by a U.S. collective bargaining agreement.

 

We believe our employees are among our most important resources and are critical to our continued success. We focus significant attention to attracting and retaining talented and experienced individuals to manage and support our operations, and our management team routinely reviews employee turnover rates at various levels of the organization. Management also reviews employee engagement and satisfaction surveys to monitor employee morale and receive feedback on a variety of issues.

 

The health and safety of our workforce is fundamental to the success of our business. We safeguard our people, projects and reputation by striving for zero employee injuries and illnesses, while operating and delivering our work responsibly and sustainably. We provide our employees upfront and ongoing safety training to ensure that safety policies and procedures are effectively communicated and implemented. Personal protective equipment is provided to those employees where needed for the employee to safely perform their job function.

 

During 2021, in response to the changing impact of the COVID-19 pandemic, we continued to implement safety protocols and new procedures to protect our employees, our subcontractors and our customers. These protocols include complying with social distancing and other health and safety standards as required by federal, state and local government agencies, taking into consideration guidelines of the Centers for Disease Control and Prevention and other public health authorities. In addition, we continued to modify the way we conduct many aspects of our business to reduce the number of in-person interactions.

 

As part of our compensation philosophy, we believe that we must offer and maintain market competitive compensation and benefits programs for our employees in order to attract and retain superior talent. In addition to healthy base wages, additional programs include annual bonus opportunities, a Company matched 401(k) Plan or other savings plan, healthcare and insurance benefits, health savings and flexible spending accounts, paid time off, family leave, flexible work schedules, and employee assistance programs.

 

The OraSure family of companies is committed to creating and fostering a diverse, equitable, and inclusive workplace that reflects and contributes to the global communities in which we do business and the customers and partners we serve. This includes all communities impacted by our corporate presence. Our management teams and all of our employees are expected to exhibit and promote honest, ethical and respectful conduct in the workplace. All of our employees must adhere to a Code of Conduct that sets standards for appropriate behavior and includes required annual training on preventing, identifying, reporting and stopping any type of unlawful discrimination. We strive to recruit the best people for the job regardless of gender, ethnicity or other protected trait and it is our policy to fully comply with all laws (domestic and foreign) applicable to discrimination in the workplace. We have an active Diversity, Equity and Inclusion Council that strives to drive diversity, equity and inclusion within the workplace. At OraSure, we believe a variety of perspectives are critical to achieving success, and that diversity, equity and inclusion are key drivers to growth-based innovation and profitability. We aim to create a culture where all people feel valued, supported, and inspired to be themselves fearlessly, without judgement. We believe that when all voices are heard, we honor and exemplify our core values and best serve our communities.

 

Competition

 

Diagnostics Segment

 

The diagnostic industry is a multi-billion dollar international industry and is intensely competitive. Many of our competitors are substantially larger than we are, and have greater financial, research, manufacturing and marketing resources than we do. We have many rapid tests with proprietary features enabling them to compete effectively in select market segments. Broadly, we differentiate based on our tests’ ease of use, which has enabled us to expand our self-testing offering.

 

The primary competitive factors for our products include price, quality, performance, ease of use, customer service and reputation. Industry competition is based on these and the following additional factors:

Scientific and technological capability;
Proprietary know-how;
The ability to develop and market products and processes;
The ability to obtain FDA or other regulatory approvals;
The ability to manufacture products that meet applicable FDA or other applicable regulatory requirements;

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Commercial execution and strength of distribution;
Access to adequate capital;
The ability to attract and retain qualified personnel; and
The availability of patent protection.

 

A few large corporations produce a wide variety of diagnostic tests and other medical devices and equipment. A larger number of mid-size companies generally compete only in the diagnostic industry and a significant number of small companies produce only a few diagnostic products. As a result, the diagnostic test industry is highly fragmented and segmented. This enables us to serve specific segments where the products provide a unique benefit.

 

The future market for diagnostic products is expected to be characterized by greater cost consciousness, the development of new technologies, tighter reimbursement policies and consolidation. The purchasers of diagnostic products are expected to place increased emphasis on lowering costs, reducing inventory levels, obtaining better performing products, automation, service and volume discounts.

 

We expect competition to intensify as technological advances are made and become more widely known, and as new products reach the market. Furthermore, new testing methodologies could be developed in the future that render our products impractical, uneconomical or obsolete. There can be no assurance that our competitors will not succeed in developing or marketing technologies and products that are more effective than those we develop or that would render our technologies and products obsolete or otherwise commercially unattractive. In addition, there can be no assurance that our competitors will not succeed in obtaining regulatory approval for these products, or introduce or commercialize them, before we can do so. These developments could have a material adverse effect on our business, financial condition and results of operations.

 

Competition in the U.S. market for infectious disease testing in medical settings is intense and is expected to increase. Our principal competition for HIV testing in the professional market comes from existing and new professional point-of-care rapid blood tests and automated laboratory-based blood tests. Our OraQuick ADVANCE HIV rapid test is the only oral fluid test for HIV in the United States, and as such, enables outreach testing outside of clinics. Our OraQuick® rapid HCV test competes against laboratory-based blood tests in the U.S., as there currently are no other rapid HCV testing products approved by the FDA.

 

Our OraQuick® In-Home HIV oral fluid test is the only rapid HIV test approved by the FDA for sale in the US OTC market.

 

Outside the U.S., our rapid HIV and HCV tests compete against other rapid and laboratory-based tests, which require blood as a sample. The majority of these blood-based tests are priced at or below our HIV and HCV rapid oral fluid tests. There are no other oral fluid tests for HCV outside the US with WHO Prequalification status and the CE mark. The majority of our sales outside the US are in Africa due to the greater incidence of HIV in that region. In 2021, we obtained the CE mark for our OraQuick® HIV Self-Test which will enable us to enter the European over-the-counter market for HIV. In addition, in 2021, we received registration of our OraQuick® HIV Self-Test, and the Thai Free Sales Certificate which enables us to obtain registrations in Asia and Latin America.

 

The United States COVID-19 rapid testing market consists of tests used by medical professionals at the point-of-care as well as over-the-counter tests purchased and used by consumers. Currently, there are 45 professional point-of-care EUA authorizations by the US FDA. There are also 13 OTC Antigen rapid tests and 3 OTC rapid molecular tests authorized under EUA by the FDA. Our InteliSwab® test competes in both the professional point-of-care and OTC segments with these products.

 

In the substance abuse testing market, our Intercept® drug testing system competes with laboratory-based drug testing products using sample matrices such as urine, hair, sweat and oral fluid. We expect competition for our products to intensify, particularly from other domestic and international companies that have developed, or may develop, competing oral fluid drug testing products.

 

Our MICRO-PLATE oral fluid drug assays, which are sold for use with the original Intercept® collector and our OraSure® collection device, also continue to come under increasing competitive pressure from “home-brew” assays developed internally by our laboratory customers. Our oral fluid MICRO-PLATE assays also compete with urine-based homogeneous assays that are run on fully-automated, random access analyzers.

 

Our MICRO-PLATE drugs-of-abuse reagents sold in the forensic toxicology market are targeted to forensic testing laboratories where sensitivity, automation and “system solutions” are important. We compete with both homogeneous and heterogeneous tests manufactured by many companies.

 

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Q.E.D.® competes against other semi-quantitative saliva-based alcohol tests that have received U.S. Department of Transportation approval as well as breath alcohol tests. Although there are lower priced tests on the market that use oral fluid or breath as a test medium, we believe that these tests are qualitative tests that we believe are lower in quality and provide fewer benefits than our Q.E.D.® test.

 

Molecular Solutions Segment

 

Our Oragene® and ORAcollect® collection systems compete against other types of collection devices used for molecular testing, such as blood collection devices and buccal swabs, which often are sold for prices lower than the prices charged for the Oragene® and ORAcollect® products. Although we believe the Oragene® and ORAcollect® devices offer a number of advantages over these other products, the availability of lower price competitive devices can result in lost sales and degradation in pricing and profit margin. Our Oragene® and ORAcollect® products are also facing increasing competition from similarly designed collection systems which are beginning to enter the market. With the receipt of authorizations for use in connection with COVID-19 molecular tests, our Oragene® and ORAcollect® products now compete against COVID-19 testing systems and the collection methods used in those systems.

 

OMNIgene® GUT is being sold in the emerging microbiome market and competes with a variety of non-standard in-house solutions developed by various researchers, including simply freezing the sample after collection. The microbiome market is expected to require standardization in the methods used for collection and stabilization in order to derive more accurate and repeatable results. To date, we are one of the few vendors to offer a solution that fully meets these requirements.

 

Our genomic and microbiome laboratory service offerings primarily compete against a number of commercial reference laboratories, specialty laboratories and hospital laboratories in the U.S.

 

Patents and Proprietary Information

 

We seek patents and other intellectual property rights to protect and preserve our proprietary technology and our right to capitalize on the results of our research and development activities. We also rely on trade secrets, know-how, continuing technological innovations and licensing opportunities to provide competitive advantages for our products in our markets and to accelerate new product introductions. We regularly search for third-party patents in fields related to our business to shape our own patent and product commercialization strategies as effectively as possible and to identify licensing opportunities. United States patents generally have a maximum term of 20 years from the date an application is filed.

 

We have two United States patents and numerous foreign patents for the OraSure® and Intercept® collection devices and technology relating to oral fluid collection, containers for oral fluids, methods to test oral fluid, formulations for the manufacture of synthetic oral fluid, and methods to control the volume of oral fluid collected and dispersed. The U.S. patents expire from June 2022 to December 2026. We have also applied for additional patents, in both the United States and certain foreign countries, on such products and technology.

 

We have one United States patent for our OraQuick® platform expiring in 2028, as well as corresponding related international patents. We also have patent applications pending internationally. We have five pending patent applications in the United States for our InteliSwab® COVID-19 Rapid Test, and we have filed and expect to file additional patent applications for this product in certain international markets.

 

We hold, through our subsidiary, DNAG, twenty-four granted United States patents and numerous foreign patents issued for compositions, methods and apparatuses for the collection, stabilization, transportation and storage of nucleic acids (DNA and RNA) from oral fluid and other bodily fluids and tissues. These patents expire from February 2022 through April 2035.

 

We hold through our subsidiary, Novosanis, one granted United States patent and numerous foreign patents covering a medical device for capturing a predetermined volume of first void urine. This patent expires in September 2033.

 

Our subsidiary, Diversigen, has licensed one United States patent and several foreign patent applications from the University of Minnesota for analytical standards to detect and/or measure sampling, processing, and/or amplification errors in a biological samples containing polynucleotide molecules. This license also covers certain software and know-how related to laboratory and bioinformatics procedures and processes. Diversigen has also licensed certain know-how and database assets from the Baylor College of Medicine related to laboratory processes for microbiome and metagenomics services.

 

We require our employees, consultants, outside collaborators and other advisors to execute confidentiality agreements upon the commencement of employment or consulting relationships with us. These agreements provide that all confidential information developed by or made known to the individual during the course of the individual’s relationship with us is to be kept confidential and not disclosed to third parties except in specific circumstances. In the case of employees and certain consultants, the agreements also

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provide that all inventions conceived by the individual during his or her tenure with us or the performance by the consultant of services for us will be our exclusive property.

 

We own rights to trademarks and service marks that we believe are necessary to conduct our business as currently operated. In the United States, we own a number of trademarks, including the OraSure®, Intercept®, Intercept i2®he, OraQuick®, OraQuick ADVANCE®, OraSure QuickFlu®, Q.E.D.®, Inteliswab®, Oragene®, DNA Genotek®, OMNImetTM, ORAcollect®, OMNIgene®, goDNATM, Diversigen®, CoreBiome®, Boostershot®, MetaGeneTM, BenchmarkTM, Novosanis®, Colli-Pee®, UCM®, UASTM, AUTO-LYTE®, prepIT® and Hemagene® trademarks. We also own many of these marks and others in several foreign countries and we are pursuing registration of several other trademarks.

 

Although important, the issuance of a patent or existence of trademark or trade secret protection does not in itself ensure the success of our business. Competitors may be able to produce products competing with our patented products without infringing our patent rights. Issuance of a patent in one country generally does not prevent manufacture or sale of the patented product in other countries. The issuance of a patent is not conclusive as to validity or as to the enforceable scope of the patent. The validity or enforceability of a patent or trademark can be challenged by litigation after its issuance or registration. If the outcome of such litigation is adverse to the owner of the patent, the owner’s rights could be diminished or withdrawn. Trade secret protection does not prevent independent discovery and exploitation of the secret product or technique.

 

Government Regulation

 

General

 

Most of our products are regulated by the FDA, along with other federal, state and local agencies and comparable regulatory bodies in other countries. This regulated environment governs almost all aspects of development, production and marketing, including product design and testing, authorizations to market, labeling, advertising and promotion, manufacturing, distribution, post-market surveillance and reporting, and recordkeeping. We believe that our products and procedures are in material compliance with all applicable regulations, but the regulations regarding the manufacture and sale of our products may be unclear and are subject to change. We cannot predict the effect, if any, that these changes might have on our business, financial condition or results of operations.

 

Many of our FDA-regulated products require some form of review and action by the FDA before they can be marketed in the United States. After approval or clearance by the FDA, we must continue to comply with other FDA requirements applicable to marketed products and are subject to periodic inspections by the FDA and other regulatory bodies. Both before and after approval or clearance, failure to comply with the FDA’s requirements can lead to significant penalties or could disrupt our ability to manufacture and sell these products. In addition, the FDA could refuse permission to obtain certificates needed to export our products if the agency determines that we are not in compliance.

 

Domestic Regulation

 

Most of our products are regulated in the United States as in vitro diagnostic and medical devices. In the United States, devices are classified into three groups based on risk: class I (lowest risk), class II (moderate risk), and class III (highest risk). The classification of a device determines the level of regulation applicable to the device: class I devices are subject only to the general controls that are applicable to all regulated devices; class II devices are subject to both general controls and special controls, which are specific to the type of device; and class III devices are subject to general controls and any other controls that are needed to provide reasonable assurance of the safety and effectiveness of the specific device.

 

The classification of the device also influences the type of premarket submission that is required before the device can be marketed. Some low risk devices (including many class I and some class II devices) may be placed on the market without any premarket submission. Such devices often are referred to as “exempt” or “510(k)-exempt.” Most devices, however, require some form of premarket submission prior to marketing. There are several mechanisms by which such devices can be placed on the market in the United States, including 510(k)-clearance, de novo classification, premarket approval, or emergency use authorization.

 

Many class II devices and some class I devices may qualify for clearance under Section 510(k) of the Federal Food, Drug and Cosmetic Act. To obtain this clearance from the FDA, the manufacturer must submit to the FDA a premarket notification that it intends to begin marketing the product, and show that the product is substantially equivalent to another legally marketed predicate device (i.e., a device that has been cleared through the 510(k) process; a device that was legally marketed prior to May 28, 1976; a device that has been reclassified by the FDA; or a device that the FDA previously has determined to be exempt from the 510(k) process). To be substantially equivalent, an applicant must show that when compared to a predicate, the new device has the same intended use and same technology, or if different technology, that the new device is as safe and effective as the predicate and does not raise different questions of safety

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and effectiveness. In all cases, data from some form of performance testing is required and in some cases, the submission must include data from human clinical studies. An applicant must submit a 510(k) notification at least 90 days before commercial distribution of the product commences. Marketing may only commence when the FDA issues a clearance letter finding that the new device is substantially equivalent to the predicate device. The standards and data requirements necessary for the clearance of a new device may be unclear or may be subject to change. Although FDA clearance usually takes from four to twelve months, in some cases more than a year may be required before clearance is obtained, if at all.

 

If the device does not qualify for the 510(k) procedure, either because there is no existing predicate device, it is not substantially equivalent to a legally marketed predicate device or because it is classified by the FDA as a class III device, the FDA must approve either a request for de novo classification or a premarket approval application (“PMA”) before marketing can begin. A de novo classification is an alternate pathway to classify novel devices of low to moderate risk for which no substantially equivalent predicate device exists into class I or class II. The FDA’s goal is to decide a de novo request in 150 days from the time the request is received, although it can take longer.

 

PMAs generally are required for class III devices, i.e., high risk devices, and must demonstrate, among other matters, that the medical device provides a reasonable assurance of safety and effectiveness for the intended use(s) of the device. A PMA is typically a complex submission, supported by valid scientific evidence, including the results of preclinical and clinical studies, usability data, detailed information about the manufacturing process for the device, and other data and information. Preparing a PMA is a resource-intensive and time-consuming process. Once a PMA has been submitted, the FDA is required to review the submission within 180 days. However, the FDA’s review may be, and often is, much longer, in many cases requiring one to three years or more, and may include requests for additional data, review by an independent panel of experts, and facility inspections before approval is granted, if at all.

 

If the FDA approves the PMA, it may place restrictions on the device. If the FDA’s evaluation of the PMA or the manufacturing facility is not favorable, the FDA may deny approval of the PMA application or issue a “not approvable” letter. The FDA may also require additional clinical trials, which can delay the PMA approval process by several years or prevent a PMA approval from being obtained.

 

If the FDA discovers that an applicant has submitted false or misleading information in any application or notification, the FDA may take action against the applicant and its employees or refuse to review submissions until certain requirements are met pursuant to its Application Integrity Policy. Delays in receipt of or failure to receive such clearances or approvals, the loss of previously received clearances or approvals, or the failure to comply with existing or future regulatory requirements could have a material adverse effect on our business, financial condition and results of operations.

 

Another option for marketing a product in the U.S. is through an Emergency Use Authorization (“EUA”). FDA may grant an EUA for a product if the Secretary of Health and Human Services declares that circumstances exist justifying the authorization of emergency use of certain products. Such declaration may be made following a determination by the Secretary of Health and Human Services that there is a public health emergency, by the Secretary of Homeland Security that there is a domestic emergency, or by the Secretary of Defense that there is a military emergency, or the declaration may be made if a material threat is identified under a particular provision of the Public Health Service Act. Typically, a diagnostic device may receive EUA-authorization on the basis of analytical and clinical studies that do not satisfy the requirements for full clearance or approval. Devices also may be exempt from design controls and other quality requirements. An EUA for a device remains in effect until the Secretary of Health and Human Services, in consultation with the Secretary of Defense, determines that the circumstances justifying emergency use of the device no longer exist, or until the authorized device is approved or cleared.

 

If there are any modifications made to our marketed devices, a new premarket notification, PMA supplement, or request to change an EUA may be required to be submitted to, and cleared, approved, or authorized by, the FDA, before the modified device may be marketed. A new PMA or a PMA supplement is required for modifications that affect the safety or effectiveness of the device, including, for example, certain types of modifications to the device’s intended use(s), manufacturing process, manufacturing facility, critical components, labeling and design. Likewise, a new 510(k) clearance is required for any modification that could significantly affect the safety or effectiveness of the device, e.g. a significant change or modification in design, material, chemical composition, energy source, or manufacturing process or a major change or modification in the intended use(s) of the device.

 

A clinical trial may be required in support of a 510(k) submission and generally is required for a de novo or PMA application. These trials generally require an approved application for an Investigational Device Exemption (“IDE”) and compliance with other IDE requirements, unless the proposed study is deemed to be exempt from the IDE requirements. An IDE application must be supported by appropriate data, such as laboratory testing results, protocols for the proposed investigation, and other information demonstrating that the device is appropriate for use with humans in a clinical study. Clinical trials may begin if the IDE application is approved by the FDA and the appropriate institutional review boards at the clinical trial sites. Submission of an IDE application does not give assurance that the FDA will issue the IDE. If the IDE application is approved, there can be no assurance the FDA will determine that the data derived from the trial(s) support the ultimate approval or clearance of the device or warrant the continuation of clinical trials. An IDE supplement

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must be submitted to and approved by the FDA before a sponsor or investigator may make a change to the investigational plan in such a way that may affect its scientific soundness, study indication or the rights, safety or welfare of human subjects. The trial must also comply with the FDA’s regulations, including the requirement that informed consent be obtained from each subject, and with clinical trial reporting regulations that require submission of information on certain clinical trials to a database maintained by the National Institutes of Health. Even if a trial is completed, the results of clinical testing may not adequately demonstrate the safety and efficacy of the device or may otherwise not be sufficient to obtain FDA clearance to market the product in the United States. If a study meets the requirements for a non-significant risk study, however, it may be eligible for compliance with “abbreviated” IDE requirements, which include a subset of the requirements applicable to significant risk medical device studies. A non-significant risk study also will be considered to have an approved IDE application without such application actually being submitted to FDA.

 

Some of our products are used for research only or other nonclinical or non-diagnostic purposes. Our molecular collection products are sold to many academic and research institutions for research purposes and our drugs-of-abuse products are sold to laboratories and clinics for forensic or other non-medical uses. The FDA does not currently regulate products used for these purposes, although other state and federal regulatory requirements may apply.

 

Most devices distributed in the United States must comply with the FDA’s Quality System Regulations (“QSRs”), including current good manufacturing practices. These regulations govern the entire lifecycle of a medical device, including design, manufacture, testing, release, packaging, distribution, documentation and purchasing as well as complaint handling, corrective and preventative actions, and internal auditing. In complying with the QSRs, manufacturers must continue to expend time, money and effort in the area of production, quality, and post-market surveillance to ensure full compliance.

 

Companies that market devices are also subject to other post-market and general requirements, including product listing and establishment regulations, which help facilitate FDA inspections and other regulatory action, post-market surveillance requests, restrictions imposed on marketed products, promotional standards and requirements for recordkeeping and reporting of certain adverse reactions and device malfunctions. Device reporting regulations require that manufacturers report if their device may have caused or contributed to a death or serious injury, or has malfunctioned in a way that would likely cause or contribute to a death or serious injury if the malfunction of the device or a similar device were to recur.

 

The FDA regularly inspects companies to determine compliance with the QSRs and other post-market requirements. Failure to comply with statutory requirements and the FDA’s regulations can result in an FDA Form 483 (which is issued by the FDA at the conclusion of an inspection when an investigator has observed any conditions that may constitute violations), public warning letters, monetary penalties against a company or its officers and employees, suspension or withdrawal of regulatory approvals, operating restrictions, total or partial suspension of production, injunctions, product recalls, product detentions, refusal to provide export certificates, seizure of products and criminal prosecution. We believe that our facilities and procedures are in material compliance with the FDA’s OSR regulations and other post-market requirements, but the regulations are subject to change or may be unclear, and we cannot be sure that FDA investigators will agree with our compliance with the FDA’s post-market requirements.

 

The Clinical Laboratory Improvement Amendments of 1988 (“CLIA”) prohibit any facility that conducts laboratory testing on specimens derived from humans from providing information for the diagnosis, prevention or treatment of any disease or impairment of, or the assessment of, the health of human beings, unless there is in effect for such facility a certificate issued by the U.S. Department of Health and Human Services or an accredited organization, and such certificate is applicable to the category of examination or procedure performed. Tests may be categorized as “waived,” enabling them to be used by laboratories with the lowest level of CLIA oversight if the tests meet certain requirements established under CLIA. We consider the applicability of CLIA requirements in the design and development of our products. We have obtained a waiver of the CLIA requirements for our OraQuick ADVANCE® rapid HIV-1/2 antibody test, our OraQuick® HCV rapid antibody test and our Q.E.D.® alcohol saliva test and may seek similar waivers for certain other products. In addition, the supplier of the OraSure Quick-Flu® test has obtained a CLIA waiver for that product. The InteliSwab® COVID-19 Rapid Test Pro is authorized for use in patient care settings operating under CLIA Certificate, Certificate of Compliance and Certificate of Accreditation.

 

The laboratory services provided by our subsidiary, Diversigen, are subject to CLIA and consist of microbiome and metagenomics sequencing, bioinformatics and analysis. Diversigen has recently received a CLIA certificate of registration in Minnesota, and is pursuing accreditation from the College of American Pathologists (CAP). A CLIA certificate of compliance is issued once a state regulator or the Center for Medicare and Medicaid Services determines that the laboratory is compliant with the applicable CLIA requirements. Under CLIA, certain organizations—including CAP—can accredit laboratories performing testing on specimens from human beings or animals, using methodologies and clinical applications within the expertise of the laboratory accreditation program.

 

Certain of our products may also be affected by state regulations in the United States, which can restrict the use and sale of certain diagnostic products. We are presently working with legislators or regulators in certain of these states in an effort to modify or remove any restrictions affecting our ability to sell products.

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Advertising and Promotion

 

Advertising and promotion of medical devices, in addition to being regulated by the FDA, are also regulated by the Federal Trade Commission (“FTC”) and by other federal and state regulatory and enforcement authorities, including the Department of Justice (“DOJ”), the Office of Inspector General of the Department of Health and Human Services, and various state attorneys general. Although physicians are permitted to exercise medical judgment to use medical devices for indications other than those cleared or approved by the FDA, we may not promote our products for such “off-label” uses and can only market our products for cleared or approved uses. Promotional activities for FDA-regulated products of other companies have also been the subject of enforcement actions brought under healthcare reimbursement laws and consumer protection statutes. In addition, under the federal Lanham Act and similar state laws, competitors and others can initiate litigation relating to advertising claims. If the FDA determines that our promotional materials or training constitute promotion of an uncleared or unapproved use, it could request that we modify our training or promotional materials or subject us to regulatory or enforcement actions, including the issuance of an untitled letter, a notice of violation, a warning letter, injunction, seizure, civil fine or criminal penalties. FTC enforcement actions often result in consent decrees that constrain future actions. DOJ prosecutions can result in significant criminal and civil penalties, including exclusion from the Medicare and Medicaid programs. If an enforcement action is brought by the FDA or FTC, our reputation could be damaged and sales of our products could be impaired.

 

Import and Export Requirements

 

Products for export from the United States are subject to foreign countries’ import requirements and the exporting requirements of the FDA, as applicable. In particular, international sales of medical devices manufactured in the United States that are not approved or cleared by the FDA for use in the United States, or are banned or deviate from lawful performance standards, are subject to FDA export requirements.

 

Foreign countries often require, among other things, an FDA certificate for products for export, also called a Certificate for Foreign Government (“CFG”). To obtain this certificate from the FDA, the device manufacturer must apply to the FDA. The FDA certifies that the product has been granted clearance or approval in the United States and that the manufacturing facilities were in compliance with QSR regulations at the time of the last FDA inspection. If the FDA determines that our facilities or procedures do not comply with the QSR regulations, it may refuse to provide such certificates until we resolve the issues to the FDA’s satisfaction. Failure to obtain a CFG could inhibit our ability to export our products to countries that require such certificates.

 

International

 

We are also subject to regulations in foreign countries governing products, human clinical trials and marketing, and may need to obtain approval (or pre-qualification or endorsement) from local regulators in such countries or international public health agencies, such as the World Health Organization, in order to sell products in certain countries. Approval processes vary from country to country, and the length of time required for approval or to obtain other clearances may in some cases be longer than that required for U.S. governmental approvals. We generally pursue approval only in those countries that we believe have a significant market opportunity.

 

The International Organization for Standardization (“ISO”) is a worldwide federation of national standards bodies from some 130 countries, established in 1947. The mission of the ISO is to promote the development of standardization and related activities in the world with a view to facilitating the international exchange of goods and services. ISO 13485 certification indicates that our quality system complies with standards applicable to activities ranging from initial product design and development through production and distribution.

 

In the European Union (“EU”), products that fall under the scope of the Medical Devices Directive (“MDD”) and the In Vitro Diagnostic Medical Devices Directive (“IVDD”) are not subject to the prior approval of a regulatory authority, but, depending on the class of product, may require prior review by a notified body. Notified bodies are accredited and supervised by national regulatory authorities to conduct conformity assessment procedures of medical devices or other products. Such products must comply with certain essential requirements listed in those directives. ISO certification creates a rebuttable presumption that the product satisfies the applicable requirements. Compliance with these requirements allows us to complete the applicable conformity assessment procedure, involving a notified body where necessary, and to affix the CE mark to our products, without which they may not be placed on the market in the EU.

 

In addition, the EU has adopted the EU Medical Devices Regulation (the “EU MDR”) and the In Vitro Diagnostic Medical Devices Regulation (the “EU IVDR”), which will repeal and replace the MDD and IVDD. The EU MDR and EU IVDR impose stricter requirements for the marketing and sale of medical devices, including in the area of clinical evaluation requirements, quality systems and post-market surveillance. The EU MDR requirements are in effect as of May 2021 and manufacturers of currently approved medical devices have until May 2022 to meet the EU IVDR requirements. Compliance with these regulations may be expensive and

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time-consuming. Failure to meet these requirements could adversely impact our business in the EU and other regions that tie their product registrations to the EU requirements. We also note that from January 1, 2021, the United Kingdom (“UK”) has introduced a UK-specific route to market for medical devices. Compliance with these requirements may add further complexities to our international strategy.

 

We must also comply with certain registration and licensing requirements as dictated by Health Canada, prior to commencing sales in Canada. We have completed this process for several of our current products and may do so with respect to other products in the future. In addition, Canadian law requires manufacturers of medical devices to have a quality management system that meets various ISO requirements in order to obtain a license to sell their devices in Canada. Health Canada also requires all companies that market Class II, Class III and Class IV products in Canada to be certified as part of the Medical Device Single Audit Program ("MDSAP"). We received this certification for our Diagnostics segment (previously named "OSUR") in January 2019 as well as for our Molecular Business Unit in February 2020.

 

We have obtained WHO pre-qualification for our OraQuick® HIV-1/Antibody Test, OraQuick® HIV Self-Test and OraQuick® HCV.

 

Anti-Kickback and Other Fraud and Abuse Laws

 

The Federal Anti-Kickback Statute prohibits the knowing and willful offer, payment, solicitation, or receipt of any form of remuneration in return for, or to induce:

The referral of an individual to a person for the furnishing or arranging for the furnishing of items or services reimbursable under Medicare, Medicaid or other governmental healthcare programs; or
The purchase, lease, or order of, or the arrangement or recommendation of the purchasing, leasing, or ordering of any item or service reimbursable under Medicare, Medicaid, or other governmental healthcare programs.

 

Our products are or may be purchased by customers that will seek or receive reimbursement under Medicare, Medicaid or other governmental healthcare programs. Noncompliance with the Federal Anti-Kickback Statute can result in exclusion from Medicare, Medicaid or other governmental healthcare programs, and/or restrictions on our ability to operate in certain jurisdictions, as well as civil and criminal penalties, any of which could have an adverse effect on our business and results of operations.

 

The False Claims Act (“FCA”) imposes liability on any person or entity who, among other things, knowingly and willfully presents, or causes to be presented, a false or fraudulent claim for payment by a federal health care program, including Medicaid and Medicare. A violation of the Federal Anti-Kickback Statute is considered a violation of the FCA. Some suits filed under the FCA, known as “qui tam” actions, can be brought by a “whistleblower” or “relator” on behalf of the government, and such individuals may share in any amounts paid by the entity to the government in fines or settlement. Manufacturers can be held liable under false claims laws, even if they do not submit.

 

The Federal Civil Monetary Penalties Law prohibits the offering or transferring of remuneration to a Medicare or Medicaid beneficiary that the person knows or should know is likely to influence the beneficiary’s selection of a particular provider, practitioner or supplier of Medicare or Medicaid payable items or services. Noncompliance can result in civil monetary penalties for each wrongful act, assessment of three times the amount claimed for each item or service and exclusion from the Federal healthcare programs.

 

Many states have also adopted some form of anti-kickback laws and false claims laws. A determination of liability under such laws could result in fines and penalties, restrictions on our ability to operate in these jurisdictions and significant damage to our reputation.

 

We are also subject to other federal and state laws targeting fraud and abuse in the healthcare industry, including marketing conduct laws, transparency laws, and laws that require us to adopt a compliance program. Taken together, these fraud and abuse laws constrain the sales, marketing and other promotional activities of manufacturers of medical devices by limiting the kinds of financial arrangements, including sales programs, such manufacturers can enter into with physicians, hospitals, laboratories and other potential purchasers of medical devices. Violations of these laws may be punishable by criminal or civil sanctions, including substantial fines, imprisonment and exclusion from participation in government healthcare programs such as Medicare and Medicaid. These laws and regulations are wide ranging and subject to changing interpretation and application. In recent years, there has been greater scrutiny of marketing practices in the medical device industry which has resulted in several government investigations by various government authorities and the introduction and/or passage of federal and state legislation regulating interactions between medical device manufacturers and healthcare professionals and providers and requiring the disclosure by medical device manufacturers of payments to certain healthcare providers. For example, under the Sunshine Act provisions of the Affordable Care Act, device manufacturers are subject to federal reporting and disclosure requirements with regard to payments or other transfers of value made to health care providers. Reports submitted under the Sunshine Act are placed in a public database. Device manufacturers are required to submit annual reports by March 31 which cover the prior calendar year. To be in compliance with such disclosure laws, we have implemented necessary systems to accurately track gifts and other payments.

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We have implemented a written Policy on Interactions with Health Care Professionals, which is based on the Code of Conduct for Interactions with Health Care Professionals promulgated by the Advanced Medical Technology Association, or AdvaMed, a leading trade association representing medical device manufacturers. The Policy applies to all employees and is intended to comply with applicable state and federal laws, regulations and government guidance. The Policy addresses interactions related to sales and marketing practices, research and development, product training and education, grants and charitable contributions, support of third-party educational conferences, and consulting arrangements. While we believe that our practices are in compliance with the Anti-Kickback and other fraud and abuse laws, the standards for compliance with such statutes can be unclear and subject to change.

 

Foreign Corrupt Practices Act and Other Anti-Corruption Laws

 

The U.S. Foreign Corrupt Practices Act (“FCPA”), to which we are subject, prohibits corporations and individuals from engaging in bribery and corruption when dealing with foreign government officials and foreign political parties. It is illegal to corruptly offer, pay, promise, or authorize the giving of anything of value to any officer or employee of a foreign government or public international organization, political party, political party official, or political candidate, in an attempt to obtain or retain business or to otherwise improperly influence a person working in an official capacity on behalf of a foreign government or public international organization. Our present and future business has and will continue to be subject to the FCPA and various other laws, rules and/or regulations applicable to us as a result of our international sales. We also are subject to the FCPA’s accounting provisions, which require us to keep accurate books and records and to maintain a system of internal accounting controls sufficient to assure management’s control, authority, and responsibility over the company's assets. The failure to comply with the FCPA and similar laws could result in civil or criminal sanctions or other adverse consequences.

 

The laws to which we are subject as a result of our international sales also include the U.K. Bribery Act (the “Bribery Act”), which proscribes giving and receiving bribes in the public and private sectors, bribing a foreign public official, and failing to have adequate procedures to prevent employees and other agents from giving bribes. U.S. companies that conduct business in the United Kingdom generally will be subject to the Bribery Act. Penalties under the Bribery Act include potentially unlimited fines for companies and criminal sanctions for corporate officers under certain circumstances.

 

Environmental Regulation

 

Because of the nature of our current and proposed research, development, and manufacturing processes, we are subject to stringent federal, state and local laws, rules, regulations and policies governing the use, generation, manufacture, storage, air emission, effluent discharge and handling and disposal of solid wastes, hazardous materials and hazardous wastes. Products that we sell in Europe are subject to regulation in European Union, or EU, markets under the Directive on the Restriction of the Use of Certain Hazardous Substances (“RoHS”). RoHS prohibits companies from selling electrical and electronic equipment, such as electronic medical devices, that contain certain hazardous materials, including lead, mercury, cadmium, chromium, polybrominated biphenyls and polybrominated diphenyl ethers, in the EU Member States. In addition, the EU’s Regulation on the Registration, Evaluation, Authorization, and Restriction of Chemicals (“REACH”) imposes severe restrictions and requirements on companies marketing devices in the EU. Among other things, REACH requires companies to obtain prior authorization to use substances of very high concern that are listed for authorization, and imposes bans on the marketing of products that contain specifically listed hazardous substances. Companies marketing medical devices in the EU may also be subject to expensive waste take back obligations under the EU Directive on Waste Electrical and Electronic Directive, the Packaging and Packaging Waste Directive, and the Batteries Directive.

 

Future environmental laws, rules, regulations or policies may require us to alter our manufacturing processes, thereby increasing our manufacturing costs, or may impose other additional obligations on us or our products. We believe that our products and manufacturing processes at our facilities comply in all material respects with applicable environmental laws and worker health and safety laws; however, the risk of environmental liabilities cannot be completely eliminated.

 

The foregoing discussion of our business should be read in conjunction with the consolidated financial statements and accompanying notes included in Item 15 of this Annual Report.

 

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ITEM 1A. Risk Factors

Summary of Risk Factors

 

Investing in our Common Stock involves risk. Below is a summary of the principal factors that could adversely affect our business, operations and financial results. You should carefully consider the following risks and uncertainties, together with all other information in this Annual Report, including our consolidated financial statements and related notes and the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section, before investing in our Company. This summary does not address all of the risks that we face. Additional discussion of the summarized risks can be found below following this summary.

 

Risks Relating to Products, Marketing and Sales

Changes in the genomics market may adversely affect our business.
Our future success depends upon market acceptance of our existing and future products and service offerings.
We may not realize anticipated revenue from our COVID-19 diagnostic assays.
The COVID-19 pandemic continues to cast uncertainty over our consolidated results of operations, financial position and cash flows, while the consequences of COVID-19 and the governmental response to the pandemic and pandemic-related macroeconomic impacts could negatively affect our operations and share price;
Marketing of our COVID-19 tests and collection kits under EUAs from FDA is subject to certain limitations and we are required to maintain compliance with the terms of the EUA, among other things, and the continuance of the EUAs is subject to government discretion.
If acceptance and adoption of oral fluid testing and collection products does not continue, our future results may suffer.
We expect to face increasing competition from other providers of diagnostic tests, sample collection products and molecular laboratory services.
Our product sales cycles can be lengthy and may depend on public funding, which can cause variability and unpredictability in our operating results.
Our inability to expand international sales could adversely affect our business and results of operations.
Our international presence may increase our risks and expose our business to regulatory, cultural or other restraints.
Our U.S. government contracts require compliance with numerous laws and increases our risk and liability.
Our inability to manufacture products in accordance with applicable specifications, performance standards or quality requirements could adversely affect our business.
Our business will suffer if we do not effectively manage challenges to our manufacturing processes and we may be unable to successfully scale-up manufacturing of our products in sufficient quality and quantity to meet demand, which would negatively impact revenue expectations.
Our business results depend on our ability to manage disruptions in our domestic and global supply Chains and distribution channels.
Our U.S. government contracts may affect our intellectual property rights.
Certain of or products depend on components form a sole-source supplier, the loss of which would cause us to be unable to deliver such products.
Our U.S. government contracts and related administrative processes are subject to audits and cost adjustments by the federal government.
We may not be able to fulfill our obligations under government contracts, which could result in reduced sales and profits, contract penalties or terminations and damages to customer relationships.

 

Risks Relating to Our Industry, Business and Strategy

Consolidation in the healthcare industry could adversely affect our future revenues and operating results.
Our research, development and commercialization efforts may not succeed and our competitors may develop and commercialize more effective or successful offerings.

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Acquisitions or investments may not generate the expected benefits and could disrupt our ongoing business, distract our management, increase our expenses and adversely affect our business.
There are risks relating to our acquisitions of Diversigen, Novosanis and UrSure.
The future results of acquired companies may be adversely impacted if we do not effectively manage our expanded operations.
Our revenues could be affected by third-party reimbursement policies and potential cost constraints.
Changes in healthcare regulation could affect our revenues, costs and financial condition.
New or changed testing guidelines could affect sales of our diagnostic products.
Reductions in government funding and research budgets could adversely affect our business and financial results.

 

Risks Relating to Our Dependence on Third Parties

The use of third party supply sources for critical components of our products could adversely affect our business.
Our failure to maintain existing distribution channels, or develop new distribution channels, may result in lower revenues.
We may need strategic partners to assist in developing and commercializing some of our products.

 

Risks Relating to Intellectual Property

Our success depends on our ability to protect our proprietary technology.
We may become involved in intellectual property disputes, which could increase our costs and limit or eliminate our ability to sell products, provide services or use certain technologies.

 

Regulatory Risks

The need to obtain regulatory approvals could increase our costs and adversely affect our financial performance.
Failure to comply with FDA, EMA or other regulatory requirements may require us to suspend production or sale of our products or institute a recall which could result in higher costs and loss of revenues.
Our inability to respond to changes in regulatory requirements could adversely affect our business.
Our inability to manufacture products in accordance with applicable specifications, performance standards or quality requirements could adversely affect our business.
We are subject to numerous government regulations in addition to FDA requirements, which could increase our costs and affect our operations.
Failure to comply with privacy, security and breach notification regulations may increase our costs.
Failure to comply with data protection requirements or privacy laws could increase our costs.
FDA regulation of laboratory-develop tests and genetic testing could affect demand for our products.
Our international sales create potential exposure under anti-corruption laws.

 

Risks Relating to the Economy, Our Financial Results, Investments, Credit Facilities and Need for Financing

Economic volatility and disruption, including those related to the COVID-19 pandemic could adversely affect our business, financial performance, results of operations, cash flow and financial condition or those of our customers and suppliers.
An impairment of goodwill and intangible assets could reduce our earnings.
We have experienced losses in the past and may not be able to maintain profitable operations.
Changes in foreign currency exchange rates could negatively affect our operating results.

 

Risks Relating to Our Common Stock

Our stock price could continue to be volatile.

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Future sales of our Common Stock by existing stockholders, executive officers or directors could depress the market price of our Common Stock and make it more difficult for us to sell stock in the future.
Because we do not intend to pay cash dividends on our Common Stock, an investor in our Common Stock will benefit only if our Common Stock appreciates in value.
Certain provisions in our Certificate of Incorporation and Bylaws and under Delaware law could make a third-party acquisition of us difficult.

 

General Risk Factors

We may face product liability claims for injuries resulting from the use of our products.
Performance of our products may affect our revenues, stock price and reputation.
Our ability to sell products could be adversely affected by competition from new and existing products and services.
Failure to achieve our financial and strategic objectives could have a material adverse impact on our business prospects.
If we lose our key personnel or are unable to attract and retain qualified personnel as necessary, our business could be harmed.
If our essential employees who are unable to telework become ill or otherwise incapacitated our operations may be adversely impacted.
Increases in demand for our products and services could require use to expend considerable resources or harm our customer relationships if we are unable to meet that demand.
We rely on information technology in our operations and any material failure, inadequacy, interruption or security breach of that technology could harm our ability to efficiently operate our business.
Security breaches and other disruptions could compromise our information, expose us to liability and harm our reputation and business.
Federal and state laws pertaining to healthcare fraud and abuse could adversely affect our business, financial condition and results of operations.
We may experience fluctuations in our financial results or fail to meet our financial projections.
We may require future additional capital.
Terrorist attacks, natural disasters, public health crises or other catastrophic events outside of our control may adversely affect our business.
Future sales of shares of our common stock could adversely affect the trading price of our common stock and our ability to raise funds in new equity offerings.

 

 

Risk Factors

 

You should carefully consider the risks and uncertainties described below. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties not disclosed or not presently known to us or that we currently deem immaterial also may impair our business operations. The occurrence of any of the following risks could harm our business, financial condition or results of operations.

 

Risks Relating to Products, Marketing and Sales

 

Changes in the Genomics Market May Adversely Affect our Business.

 

The genomics market has been the largest component of our overall molecular business segment for some time and the major driver of this market has been consumer genomics, which offers products and services to consumers to provide them with personalized health and genealogical information. The ancestry portion of this market may be maturing and our sales to customers with offerings in this market have been volatile. Our genomics revenues have been volatile due to changes in promotional strategies and purchasing patterns by one of our largest customers which serves the consumer ancestry and genetic testing market. This trend in the ancestry testing market may continue and revenues in this segment may continue to be volatile.

 

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In an effort to increase our molecular revenues, we have devoted increasing time and attention to expanding sales of our genomics products both domestically and internationally, including in the Asia-Pacific and other markets. While we believe these new markets represent large growth opportunities, there is no assurance that we will be successful in capitalizing on these opportunities or that we will be able to increase our international product sales consistent with our expectations. Factors that include, but are not limited to, the market acceptance of our products, available funding, cost containment strategies implemented by customers, increasing competition and regulatory constraints could limit sales of our genomics products into these international markets. To the extent that we are unsuccessful or limited in expanding our business in the Asia-Pacific or other new markets, our revenues and results of operations could be negatively affected.

 

Despite the challenges that we face in the ancestry segment of the consumer genomics market, we believe there is significant growth opportunity for our genomics products in the area of disease risk management (“DRM”), which includes genetic risk testing, prenatal testing, carrier screening, pharmacogenomics testing and population heath studies.

 

Our Future Success Depends Upon Market Acceptance of Our Existing and Future Products and Service Offerings.

 

Our future success will depend, in part, on the market acceptance, and the timing of such acceptance, of new products such as InteliSwab®, OraQuick® HIV Self-Test, OraQuick® Ebola test and OMNIgene® • GUT product offerings, and other new products or technologies that may be developed or acquired. In addition, our future revenues will depend on market acceptance of new uses for our saliva collection products, including for COVID-19 testing, and our new service offerings, such as the microbiome laboratory testing and analytical services we provide through Diversigen. To commercially market new uses of our products and to achieve market acceptance, we will likely be required to undertake clinical studies to validate the new uses for our products and spend significant funds to complete product development and clinical studies and then undertake substantial marketing efforts to inform potential customers and the public of the existence and perceived benefits of these products and services. In addition, governmental funding may be needed to help complete development, obtain required regulatory approvals, clearances or EUAs and create market acceptance and expand the use of these products and services.

 

There may be limited evidence on which to evaluate the market reaction to products and services that may be developed and our marketing efforts for new products and services or products with new uses may not be successful. The market for microbiome products and services is in its early stages and its future development and acceptance by our customers is uncertain. Also, we have started the process of developing and seeking 510(k) regulatory clearance for the InteliSwab® tests, and it is uncertain whether we will be successful in our development and validation efforts or whether these products will prove effective, receive applicable regulatory approvals and gain widespread acceptance in the marketplace. As such, there can be no assurance that any products or services will obtain significant market acceptance and fill the market need that is perceived to exist on a timely basis, or at all. It is possible that our expenses to develop and market any such products, including, without limitation our InteliSwab® tests, will exceed any benefit in revenues, which may be short-lived. In addition, other products that compete with ours may achieve 510(k) clearance earlier than we do, providing market advantages.

 

We May Not Realize Anticipated Revenue From Our InteliSwab® COVID-19 Rapid Test.

 

While we expect to continue to see significant demand for our InteliSwab® COVID-19 Rapid Test, other companies are working to produce or have produced rapid tests for COVID-19 which may lead to the diversion of customers, including governmental and quasi-governmental entities, away from us and toward other companies. Moreover, the dangers posed by COVID-19 may subside over time. A number of preventative vaccines have recently been approved for use in human populations by regulatory agencies in the U.S. and around the world. The uptake of these vaccines will likely limit the spread of COVID-19 and potentially reduce the market size for COVID-19 testing.

 

We expect that, if and when the current COVID-19 pandemic subsides, there could be significantly reduced demand for testing, and thus, for our InteliSwab® COVID-19 Rapid Tests. There is no guarantee that current or anticipated demand will continue, or if demand does continue, that we will be able to produce our InteliSwab® COVID-19 Rapid Test in quantities to meet the demand. A significant decline in demand for our InteliSwab® COVID-19 Rapid Test without a corresponding increase in our other businesses could have a material, adverse effect on our results of operations, cash flow and financial position.

 

The COVID-19 Pandemic Continues to Cast Uncertainty Over Our Consolidated Results of Operations, Financial Position and Cash Flows, While the Consequences of COVID-19 and the Governmental Response to Contain the Pandemic and Pandemic Related Macroeconomic Impacts Could Negatively Affect Our Operations and Share Price.

 

Although we have experienced heavy demand for our InteliSwab® tests and certain specimen collection devices for use in COVID-19 molecular testing as a result of the COVID-19 pandemic, which has had a positive impact on our performance, the duration and level of the demand for COVID-19 testing is highly uncertain. in addition, the COVID-19 pandemic has negatively impacted our ability to

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provide our HIV self-tests in Southern and Eastern African countries due to logistics challenges and, in our Molecular Solutions segment, COVID-related disruptions in clinical and research work, particularly in the academic market, had reduced demand for our products. We believe the COVID-19 pandemic's continued impact on our consolidated results of operations, financial position and cash flows will be primarily driven by; (i) the severity and duration of the COVID-19 pandemic; (ii) the CCOVID-19 pandemic's impact on the U.S. healthcare system and the U.S. economy; (iii) the timing, scope and effectiveness of federal, state and local governmental responses to the COVID-19 pandemic, including the development and deployment of vaccine, and (iv) the COVID-19 pandemic's impact on global clinics, research markets and global logistics. Each of these factors are difficult to predict and the nature, length and severity of any adverse consequences as a result of any given factor are uncertain.

 

Management has closely monitored the impact of the COVID-19 pandemic, with a focus on the health and safety of the Company’s employees and business continuity.

 

In response to, or as a result of, the current COVID-19 pandemic and emergence of variants, we may experience, among other things, voluntary or mandated temporary closures of one or more of our facilities; temporary or long-term labor shortages; temporary or long-term adverse impacts on our supply ‎chain and distribution channels; the potential of increased network vulnerability and risk of data loss resulting from ‎increased use of remote access and removal of data from our facilities; and required reallocation or adjustment of resources, which may ‎impact our business plans and product offerings. In addition, the direct or indirect impacts of ‎COVID-19 may extend to disrupt our suppliers, partners, manufacturers, customers and other ‎stakeholders, which in turn could materially adversely affect our business, results of operations or financial condition. Any change or disruption in operations could impact and have a material adverse effect on our operations and/or results from operations. In addition, the re-introduction of voluntary or mandated efforts ‎to slow the spread of COVID-19 could impact the Company’s operations and sales. If portions or all of our, our partners’, or our customer’s operations are disrupted or suspended as a result of preventative or reactionary ‎measures in response to the ongoing spread of COVID-19, it could have a material adverse impact on our ‎profitability, results of operations, financial condition and share price. Further, there continue to be significant economic and social impacts of the COVID-19 pandemic, including rising inflation rates, continued levels of higher unemployment, and market volatility, among other impacts; any of which may have an impact on consumer behavior, including use of our products.‎

 

Given the uncertainties associated with the ongoing COVID-19 pandemic, including ‎the uncertainty surrounding the remaining duration and outcome, COVID-19 variants and vaccine efficacy, we are unable to estimate the full impact of the COVID-19 pandemic on its business, financial condition, results of operations, and/or cash flows; however, the impact could be material.

 

Marketing of Our COVID-19 Tests and Collection Kits Under EUAs From FDA Is Subject To Certain Limitations and We Are Required To Maintain Compliance With The Terms of The EUA, Among Other Things, And The Continuance of The EUAs Is Subject To Government Discretion.

 

On February 4, 2020, the U.S. Department of Health and Human Services (“HHS”) issued a declaration that the threat to public health posed by COVID-19 justifies the emergency use of unapproved in vitro diagnostics for the detection or diagnosis of SARS-CoV-2. Under Section 564 of the Food, Drug, and Cosmetic Act (“FDCA”), because HHS has issued this declaration, the FDA Commissioner is authorized to issue EUAs to permit certain developers of SARS-CoV-2 diagnostics to begin offering the tests for detection and diagnosis of COVID-19 without having completed the normally applicable FDA review and clearance or approval process for marketing authorization (with the related standards that would apply to demonstrate safety and effectiveness). The issuance of an EUA reflects an FDA conclusion that based on the totality of scientific evidence available to the FDA, it is reasonable to believe that the product may be effective in diagnosing COVID-19, the known potential benefits of the product outweigh the known and potential risks, and there is no adequate, approved, and available alternative to the emergency use of the product.

 

During 2020, our ORAcollect®·RNA and OMNIgene®·ORAL collection devices were included in EUAs granted by the FDA to certain third parties for use in the detection of SARS-CoV-2 and we have separately obtained EUAs for these products. Several other laboratories are pursuing the inclusion of our specimen collection devices for use with their SARS-CoV-2 assays. In addition, we obtained three EUAs for our new COVID-19 Rapid Tests. Although there are certain regulatory requirements the FDA has waived for the duration of the EUAs, we remain subject to specific conditions of the authorization, including ensuring appropriate labeling as approved by FDA specifically for purposes of the EUA, maintaining records of distribution to authorized laboratories, collecting data on occurrences of any false positives or false negatives, and tracking any adverse events. As part of the conditions of authorization, OraSure was required to conduct a clinical study in a pediatric population ages 2-14 and an asymptomatic population in addition to launching an app for consumers to report their test results to public health jurisdictions. OraSure has initiated the clinical studies as required by the condition of authorization. OraSure has successfully completed the clinical study in the pediatric population and the development of the InteliSwab® Connect app.

 

As with other FDA-regulated products, issues could emerge during the course of the marketing and use of our products under an EUA that could impact our ability to continue the sale and distribution of these products (for example, compliance or product performance

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issues). The applicable EUAs remain effective only until the HHS declaration is terminated or revoked, and the FDA may also revoke an EUA if it determines the criteria for issuance are no longer met or other circumstances make such revocation appropriate to protect the public health or safety. If that were to occur then in order market our diagnostic products or collection kits for the purpose of detecting COVID-19, we would be required to obtain the necessary regulatory clearances or approvals and be subject to the full and usual regulatory obligations for device manufacturers, including the Quality System Regulation under 21 CFR Part 820. It is possible that we may not be able to obtain those clearances or approvals in a timely manner, or at all, and that one or more of our competitors may obtain the necessary clearances or approvals for their products before we do.

 

If Acceptance and Adoption of Oral Fluid Testing and Collection Products Does Not Continue, Our Future Results May Suffer.

 

We have made significant progress in gaining acceptance of oral fluid testing products, particularly for (i) HIV testing in the public health, hospital, insurance and other markets, and (ii) drugs-of-abuse testing in the workplace and criminal justice markets. Our subsidiary, DNAG, has also made significant progress in gaining acceptance of oral fluid collection products that are used with molecular testing applications including testing for SARS-CoV-2. However, the degree of acceptance for these products is uncertain, and one or more markets may resist the adoption of oral fluid products as a replacement for other testing or collection methods in use today. As a result, there can be no assurance that we will be able to expand the use of our oral fluid testing products in these or other markets.

 

However, clinical reference laboratories and hospital-based laboratories currently provide the majority of diagnostic tests used by physicians and other healthcare providers in the U.S. In certain international markets such as Europe, diagnostic testing is performed primarily by centralized laboratories. Our future sales will depend, in part, on our ability to expand market acceptance of rapid point-of-care testing by physicians, other healthcare providers and consumers and successfully compete against laboratory testing methods and products. Even if we can demonstrate that our products are more cost effective, save time, or have better performance or other benefits, physicians, other healthcare providers and consumers may resist changing to rapid point-of-care tests and instead may choose to obtain diagnostic results through laboratory tests. In addition, demand for our new rapid tests for SARS-CoV-2 or PrEP adherence may not develop consistent with our expectations. Our failure to achieve and expand market acceptance of our rapid point-of-care diagnostic tests with customers would have a negative effect on our future sales growth.

 

We Expect to Face Increasing Competition From Other Providers of Diagnostic Tests, Sample Collection Products and Molecular Laboratory Services.

 

Our rapid point-of-care tests compete with other point-of-care products made by our competitors. This competition is particularly evident with respect to our OraQuick ADVANCE® HIV-1/2 test and our HIV Self-Test outside of the US. The Oragene® product line sold by our subsidiary, DNAG, competes against other molecular collection products, such as blood collection kits and buccal swabs and will likely face additional competition from collection devices similar in design and operation to our Oragene® and ORACollect® products. There are a number of products currently in or expected to enter the market for the detection of antigen to SARS-CoV-2 that will compete with our InteliSwab® COVID -19 diagnostic test.

 

Our genetic and microbiome laboratory services business is expected to face increasing competition, primarily from large commercial reference laboratories, hospital-based laboratories and specialty laboratories. We believe there is significant opportunity in the markets for these services, particularly the microbiome market which is still in the early stages. As these markets evolve and expand, we expect competition for genomic and microbiome laboratory services to intensify.

 

There is significant competition, including from other companies and governmental organizations, who make and distribute rapid tests for COVID-19. Many of these entities have substantially greater resources (including capital and personnel) than we do. Even if we are successful in marketing our InteliSwab® tests, there is no guarantee that competitors will not take market share from our offerings through more effective marketing or competitive pricing, higher quality or technological superiority.

 

A number of our competitors are making investments in competing technologies, products and services, and several may have a competitive advantage because of their greater financial, technical, research and other resources. Some competitors offer broader product lines and service offerings, aggressively discount prices for their products and services and may have greater name recognition than we have. We also face competition from certain of our distributors or former customers that have created, or may decide to create, their own products to compete with ours. If our competitors take market share from our offerings through more effective marketing or competitive pricing, higher quality or technological superiority, our revenues, margins and operating results could be adversely affected. In addition, our revenues and operating results could be negatively impacted if some of our customers use internally developed or acquired sample collection devices or services in order to reduce costs.

 

Our Product Sales Cycles Can be Lengthy, and May Depend on Public Funding, Which Can Cause Variability and Unpredictability in Our Operating Results.

 

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The sales cycles for certain of our products can be lengthy and unpredictable, which makes it more difficult to accurately forecast revenues in a given period and may cause revenues and operating results to vary from period to period. Sales of our products often involve purchasing decisions by large public and private institutions, may require many levels of approval and may be dependent on economic or political conditions and the availability of grants or funding from governmental or public health agencies which can vary from period to period in both amount and timing. For example, in past years our OraQuick ADVANCE® HIV-1/2 test has been purchased through bulk procurement or other funding provided by governmental agencies. Our OraQuick® HCV test has been purchased by customers who receive government funding, and we believe increased funding from the CDC and other agencies will be required to substantially increase the volume of HCV testing, especially in the public health market. There can be no assurance that purchases or funding from these agencies will occur or continue. As a result, we may expend considerable resources on unsuccessful sales efforts or we may not be able to complete transactions at all or on a schedule and in an amount consistent with our objectives.

 

Our Inability To Expand International Sales Could Adversely Affect Our Business and Results of Operations.

 

One of our strategic priorities is to substantially expand our product sales internationally. An opportunity to accomplish this objective is with the sale of our OraQuick® HIV Self-Test in support of large self-testing programs in certain African countries and elsewhere. We are also working to expand international sales of our professional HIV and HCV products and our molecular collection kits. We also believe there is a significant opportunity for international sales of our InteliSwab® COVID-19 Rapid Test once the necessary studies and registrations are complete.

 

While we believe international sales of these and other products represent attractive long-term opportunities with significant growth potential, there is no guarantee that these opportunities will materialize, continue or increase. Among other factors, competition from competitive lower priced products and the uncertainties of available funding could negatively impact the success of these opportunities. If international sales of these products do not occur or increase or if we are otherwise unable to expand international sales of our products, our revenues and results of operations could be negatively impacted.

 

In addition, market conditions in many countries often require that we sell our products at a price below our typical U.S. or European pricing in order to participate in these markets. As a result, sales in certain countries may contribute lower profit margins to our business. To the extent these international sales comprise a large or increasing part of our business, our gross margins will be negatively affected. In addition, we may have difficulty selling our products at a sufficiently low price to maintain or increase this business over the long term without funding support from public health entities, government agencies or other sources. If we are unable to obtain or continue this funding support at sufficient levels, or at all, our revenues and results of operations could be negatively affected.

 

Our International Presence May Increase Our Risks and Expose Our Business to Regulatory, Cultural or Other Restraints.

 

We seek to increase revenue derived from international sales of our products. Our international sales accounted for $45.3 million, or 24%, of consolidated net revenues in 2021, $40.9 million, or 24%, of consolidated net revenues in 2020 and $47.3 million, or 31%, of consolidated net revenues in 2019. In addition, our subsidiary DNAG, which accounted for $130.3 million or 56% of consolidated net revenues in 2021, is operated in Canada. In 2019 we also acquired Novosanis, a company based in Belgium, and we may acquire other foreign companies as part of our business development efforts.

 

A number of factors could adversely affect the performance of our business and/or cause us to incur substantially increased costs because of our international presence and sales, including those set forth below:

Uncertainty in the application of foreign laws and the interpretation of contracts with foreign parties;
The potential for inconsistent imposition of legal and regulatory requirements;
Cultural and political differences that favor local competitors or make it difficult to effectively market, sell and gain acceptance of our products;
Cultural and language differences that make international operations and business management more difficult;
Inexperience in international markets and territories and difficulties in staffing and managing foreign operations;
Exchange rates, currency fluctuations, tariffs and other barriers, extended payment terms and dependence on international distributors or representatives;
Regulatory requirements, including compliance with applicable customs regulations and the need to obtain or maintain regulatory approvals, registrations or reimbursement approvals for our products;
Trade protection measures, additional trade sanctions and import/export licensing requirements;
The inability to obtain or maintain ISO certification for our or our suppliers’ manufacturing facilities;

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Our inability to identify international distributors and negotiate acceptable terms for distribution agreements;
Diversion to the U.S. of our products that are sold at lower prices into international markets;
The loss of one or more distributors and difficulties or delays in obtaining new or transferred product registrations or approvals for use by a replacement distributor;
Differing tax laws across jurisdictions, as well as changes in those laws;
An increase of withholding and other taxes on remittances and other payments by a foreign subsidiary;
The creditworthiness of foreign distributors and customers and difficulty in collecting foreign accounts receivable;
Difficulty of enforcing contractual obligations or recovering damages under foreign legal systems;
Difficulty collecting amounts owed by foreign governments or other customers;
Economic conditions, political instability, the absence of available funding sources, terrorism, civil unrest, war and natural disasters in foreign countries;
Exposure to infectious disease and epidemics, including the effects of the coronavirus outbreak on our business operations in geographic locations impacted by the outbreak and on the business operations of our customers and suppliers;
Long sales cycles in international markets, especially for sales to foreign governments, quasi-governmental agencies and international public health agencies;
The sale of competing products by foreign competitors at prices at or below the prices we offer for our products;
Restrictions on our ability to repatriate investments and earnings from foreign operations;
Changes in shipping costs;
The unavailability of licenses to certain patents in force in a foreign country which cover our products; and
Reduced protection for, or enforcement of, our patents and other intellectual property rights in foreign countries.

 

In addition, we have contracted with a third party in Thailand for the manufacture of a portion of our OraQuick® HIV tests and a portion of the assembly of our InteliSwab® COVID-19 Rapid Tests, and all of DNAG’s products are produced in Canada. We may enter into agreements to manufacture these or other products in additional foreign countries as well. However, economic, cultural and political conditions and foreign regulatory requirements may slow or prevent the manufacture of our products in countries other than the United States. Interruption of the supply of our products could reduce revenues or cause us to incur significant additional expenses in finding an alternative source of supply. Foreign currency fluctuations and economic conditions in foreign countries could also increase the costs of manufacturing our products in foreign countries. In addition, the ongoing coronavirus pandemic has resulted in increased government-imposed travel restrictions and extended shutdowns of certain businesses in the affected locations as well as logistics delays due to the global logistical crisis from the pandemic. These or any further political or governmental responses to pandemic diseases could result in social, economic and labor instability of foreign countries, which could have a material adverse effect on our business, results of operations and financial condition.

 

Our U.S. Government Contracts Require Compliance With Numerous Laws and Increases Our Risk and Liability.

 

From time to time, we receive funding from the U.S. government and we sell some of our products to the federal government. Historically, we have sold a number of our products to the government under contracts with the General Services Administration and the Veterans Administration.

 

During the third quarter of 2021, we entered into a contract with the Defense Logistics Agency ("DLA") for the procurement of our InteliSwab® COVID-19 Rapid Test for over-the-counter use, with an estimated value of $205 million. During the same quarter, we entered into a contract with the BARDA to provide us with up to $13.6 million in funding to obtain FDA 510(k) clearance and CLIA waiver for our InteliSwab® test. In September 2021, we entered into a contract with the U.S. Department of Defense, in coordination with the HHS for $109 million in funding to build additional manufacturing capacity in the United States for our InteliSwab® test.

 

As a result of our U.S. government funding and product sales to the U.S. government, we must comply with laws and regulations relating to the award, administration and performance of U.S. government contracts. U.S. government contracts typically contain a number of extraordinary provisions that would not typically be found in commercial contracts and which may create a disadvantage and additional risks to us as compared to competitors that do not rely on government contracts. For example, the government has the right to terminate one or more of these contracts at its convenience even if we have not defaulted in any of our obligations.

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As a U.S. government contractor, we are subject to increased risks of investigation, criminal prosecution and other legal actions and liabilities to which purely private sector companies are not. The results of any such actions could adversely impact our business and have an adverse effect on our consolidated financial performance.

 

A violation of specific laws and regulations could result in the imposition of fines and penalties or the termination of our contracts, as well as suspension or debarment. The suspension or debarment in any particular case may be limited to the facility, contract or subsidiary involved in the violation or could be applied to our entire enterprise in certain severe circumstances. Even a narrow scope suspension or debarment could result in negative publicity that could adversely affect our ability to renew contracts and to secure new contracts, both with the U.S. government and private customers, which could materially and adversely affect our business and results of operations. Fines and penalties could be imposed for failing to follow procurement integrity and bidding rules, employing improper billing practices or otherwise failing to follow rules relating to billing on cost-plus contracts, receiving or paying kickbacks, or filing false claims, among other potential violations. In addition, we could suffer serious reputational harm and the value of our common stock could be negatively affected if allegations of impropriety related to such contracts are made against us.

 

Our Inability to Manufacture Products in Accordance with Applicable Specifications, Performance Standards or Quality Requirements Could Adversely Affect Our Business.

 

The materials and processes used to manufacture our products must meet detailed specifications, performance standards and quality requirements to ensure our products will perform in accordance with their label claims, our customers’ expectations and applicable regulatory requirements. As a result, our products and the materials used in their manufacture or assembly undergo regular inspections and quality testing. Factors such as defective materials or processes, mechanical failures, human errors, environmental conditions, changes in materials or production methods, and other events or conditions could cause our products or the materials used to produce or assemble our products to fail inspections and quality testing or otherwise not perform in accordance with our label claims or the expectations of our customers.

 

Any failure or delay in our ability to meet the applicable specifications, performance standards, quality requirements or customer expectations could adversely affect our ability to manufacture and sell our products or comply with regulatory requirements. These events could, in turn, adversely affect our revenues and results of operations.

 

In June 2021, we received three FDA EUAs for our InteliSwab® COVID-19 Rapid Tests. Although there has been significant demand for this product in 2021, we have experienced some challenges in the technology transfer of our test in accordance with applicable specifications. As a result, we have not been able to meet the demand for our product. While we have now implemented key process automation steps which have resolved prior issues, we are currently manufacturing InteliSwab® at rates well below our installed capacity as we are scaling up production. Therefore, significant variability in our output can be expected As a result, our future revenues with this test may not meet expectations and could be adversely affected.

 

Our Business Will Suffer if We Do Not Effectively Manage Challenges to Our Manufacturing Processes and We May be Unable to Successfully Scale-Up Manufacturing of Our Products in Sufficient Quality and Quantity to Meet Demand, Which Would Negatively Impact Revenue Expectations.

 

Challenges in the manufacture of our products in the face of significant demand for our InteliSwab® COVID-19 Rapid Tests have adversely affected, and could in the future adversely affect, our operating efficiency and results of operations. We have contracted with the U.S. Department of Defense to add additional manufacturing capacity of our InteliSwab® COVID-19 Rapid Tests, however, we face risks in scaling up and building new manufacturing facilities, including with respect to expanding our overall production capacity as well as moving production to new facilities, that could increase costs, divert management attention and reduce our operating results, with no guarantee of success. The expansion of our manufacturing and scale-up of additional commercial production and capacity involves significant risks and challenges, including, but not limited to, design and construction delays, implementation of new systems and expertise and cost overruns. There can be no assurance that our scale-up and manufacturing expansion will be operational, on time, or contribute the production capacity that we anticipate, and we cannot guarantee that any such scale-up will operate at costs acceptable to us or that demand for our products will remain at levels high enough to meet the return on investment necessary to justify our investment in these projects.

 

As we increase our manufacturing capacity to meet market demand or begin to manufacture new products at scale, we may face unanticipated manufacturing challenges as production volumes increase, new processes are implemented and new supplies of raw materials used in these products are secured. In addition, we could experience delays in production as we increase our manufacturing capacity or begin to manufacture new products that may result in our inability to meet product demand as the products ordered by our customers being on back-order as initial production issues are addressed. If we experience production delays or inefficiencies, a deterioration in the quality of our products or other complications in managing changes to our manufacturing processes, including those

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that are designed to increase capacity, enhance efficiencies and reduce costs or that relate to new products or technologies, we may not achieve the benefits that we anticipate from these actions when expected, or at all, and our operations could experience disruptions, our manufacturing efficiency could suffer and our business, financial condition and results of operations could be materially and adversely affected. Any such delays could allow our competitors to seize market advantage. In addition, global supply chain and workforce challenges related to the COVID-19 pandemic increase the risks in scaling-up manufacturing as global supply challenges may increase the difficulty in obtaining necessary materials and a dynamic and unpredictable labor market may make the necessary labor and staffing challenges more difficult. If we are unable to successfully meet our manufacturing challenges, we may be unable to meet the demand for our InteliSwab® COVID-19 Rapid Tests, which could have a material, adverse effect on our reputation, revenues, results of operations, cash flow and financial position.

 

Our Business Results Depend on our Ability to Manage Disruptions in our Domestic and Global Supply Chains and Distribution Channels.

 

Our ability to meet our customers needs and achieve our financial objectives depends on our ability to maintain key manufacturing, supply and distribution arrangements. The loss or disruption of such manufacturing and supply arrangements could, in the future, interrupt our ability to obtain necessary raw materials and manufacture our products. Such disruptions could result from labor disputes, financial liquidity, natural disasters, extreme weather conditions, public health emergencies and pandemics, supply constraints and general economic and political conditions that could limit the ability of our suppliers to timely provide us with raw materials and components and distribute our products in a timely manner in accordance with applicable quality requirements. Disruptions in the global supply chain could also delay or preclude the ability of our distributors to sell and deliver our products to customers. Recently, the global supply chain has experienced significant disruptions caused by the COVID-19 pandemic, resulting in shortages of labor and equipment. These conditions, if not mitigated or remedied in a timely manner, could delay or preclude delivery of raw materials needed to manufacture our products or delivery of our products to customers, particularly in international markets. This in turn could have an adverse impact on our business, financial condition, results of operations or cash flows.

 

Certain of Our Products Depend on Components From a Sole-Source Supplier, the Loss of Which Would Cause Us to be Unable to Deliver Such Products.

 

Our Intercept i2®he collection device is manufactured and supplied under a long-term agreement with Thermo Fisher, the sole-source supplier for these products. If Thermo Fisher were unable or unwilling to supply the necessary components for the manufacture of the Intercept i2® he collection devices, we would be unable to produce this product or offer it to our customers. Any interruption in, or change in the cost or quality of, the supply of the necessary raw materials, manufacturing services, product and process development, or other materials necessary to manufacture the product could adversely impact the efficacy of the product and negatively affect our reputation with our customers. If our sole source supplier were to be acquired by a competitor, it may elect not to provide us with the product. If the sole source supplier were to otherwise cease supplying us, go out of business, or were unable to meet its obligations in a timely fashion or at an acceptable price, or at all, we may be forced to incur higher costs to obtain the necessary raw materials elsewhere, if we could even source such materials at all.

 

Our U.S. Government Contracts May Affect our Intellectual Property Rights.

 

Provisions in our U.S. government contracts may affect our intellectual property rights. Certain of our activities have been funded, and may in the future be funded, by the U.S. government, including our contracts with BARDA. When new technologies are developed with U.S. government funding, the government obtains certain rights in any resulting patents, including the right to a nonexclusive license authorizing the government to use the invention. These rights may permit the government to disclose our confidential information to third parties and to exercise “march-in” rights to use and allow third parties to use our patented technology. The government can exercise its march-in rights if it determines that action is necessary because we fail to achieve practical application of the U.S. government-funded technology, because action is necessary to alleviate health or safety needs, to meet requirements of federal regulations, or to give preference to U.S. industry. In addition, government-funded inventions must be reported to the government, government funding must be disclosed in any resulting patent applications, and our rights in such inventions may be subject to certain requirements to manufacture products in the United States.

 

Our U.S. Government Contracts and Related Administrative Processes Are Subject to Audits and Cost Adjustments by the Federal Government.

 

Federal government agencies can audit and investigate government contracts and the administrative processes and systems of government contractors. These agencies can review our performance on government contracts, pricing practices, cost structure, and compliance with applicable laws, regulations and standards. They can also review our compliance with government regulations and policies and the adequacy of our internal control systems and policies, including our purchasing, accounting, estimating, compensation and management information processes and systems. Any costs found to be improperly allocated to a specific government contract,

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unallowable or unreasonable will not be reimbursed, and any such costs already reimbursed may be required to be refunded and certain penalties may be imposed. Adjustments arising from government audits and reviews could have a material adverse effect on our business, financial condition, results of operations and prospects.

 

Moreover, if any administrative process or system related to such contracts is found not to comply with governmental requirements, we may be subjected to government scrutiny that could delay or otherwise adversely affect our ability to compete for or perform government contracts or collect our revenue in a timely manner. An unfavorable outcome of an audit of our government contracts could adversely affect our results of operations.

 

We May Not be Able to Fulfill Our Obligations Under Government Contracts, Which Could Result in Reduced Sales and Profits, Contract Penalties or Terminations, and Damages to Customer Relationships.

 

If we are unable to successfully scale-up our manufacturing of our InteliSwab® COVID-19 Rapid Tests, we may be unable to meet our obligations under our government contracts. Our inability to fulfill our obligations government contracts could result in reduced sales and profits, contract penalties or terminations, and damage to customer relationships, leading the government to turn to other companies to fulfill the contract.

 

Risks Relating to Our Industry, Business and Strategy

 

Our operations are subject to the general risks associated with acquisitions, divestitures, and other strategic transactions, including our ongoing, Board-led strategic review.

 

We have made several acquisitions and divestitures in recent years. We regularly review strategic opportunities to grow through acquisitions and to divest non-strategic assets. In January 2022, we announced that our Board of Directors intends to explore and evaluate a broad range of strategic alternatives with the goal of maximizing value for stockholders. This exploration of strategic alternatives may not result in any definitive transaction or enhance stockholder value. This process may also create a distraction and diversion of management’s attention from other business concerns, or result in the loss of key employees, which could lead to uncertainty that may adversely affect our operating results, business or investor perceptions. Any or all of these risks could impact our financial results and business reputation.

 

Consolidation in the Healthcare Industry Could Adversely Affect Our Future Revenues and Operating Results.

 

The healthcare industry has experienced a significant amount of consolidation. As a result of this consolidation, competition to provide goods and services to customers has increased. In addition, group purchasing organizations and integrated health delivery networks have served to concentrate purchasing decisions for some customers, which has also placed pricing pressure on medical device suppliers. We may not be able to compete successfully in such a consolidated industry. We believe industry consolidation may continue as companies attempt to strengthen or hold their market positions and as more companies are acquired or cease operating. Further consolidation in the industry could exert additional pressure on the prices of our products.

 

Our Research, Development and Commercialization Efforts May Not Succeed and Our Competitors May Develop and Commercialize More Effective or Successful Offerings.

 

In order to remain competitive, we must regularly commit substantial resources to research and development and the commercialization of new or enhanced products and services. The research and development process generally takes a significant amount of time from inception to commercial launch. This process is conducted in various stages. During each stage there is a substantial risk that we will not achieve our goals on a timely basis, or at all, and we may have to abandon a new or enhanced product or service in which we have invested substantial time and money.

 

Successful products and services can require significant development and investment, including testing to demonstrate their performance capabilities, cost-effectiveness or other benefits prior to commercialization. Regulatory approval must be obtained before most products may be sold and additional development efforts on these products may be required before any regulatory authority will review them. Similarly, regulatory clearances or registrations, such as a CLIA certification, and compliance with industry guidelines, may be required in order to provide competitive laboratory services. As noted above, regulatory authorities may not issue such approvals, clearances or certifications or may substantially delay or condition such action. Even if a product or service is developed and all applicable regulatory approvals, clearance or certifications are obtained, there may be little or no market for the product or service and entry into or development of new markets for our products and services may require an investment of substantial resources, such as new employees, offices and manufacturing facilities. Moreover, we may spend a significant amount of money on manufacturing facilities, advertising or other activities and fail to develop a market for the product or service. Other factors that could affect the success of our efforts include

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our ability to manufacture products or provide laboratory services in a cost-effective manner and whether we can obtain necessary intellectual property rights and protection in the markets where the product or service is sold.

If we fail to develop and gain commercial acceptance for our products and services, or if competitors develop more effective products and services or a greater number of successful new products and services, customers may decide not to purchase our products and services or may purchase and use products and services developed by our competitors. This would result in a loss of revenues and adversely affect our results of operations, cash flow and business.

 

Acquisitions or Investments May Not Generate the Expected Benefits and Could Disrupt Our Ongoing Business, Distract Our Management, Increase Our Expenses and Adversely Affect Our Business.

 

Since the beginning of 2019, we have acquired several companies through which we have gained access to new technologies, products and services which are complementary to our existing business and aligned with our long-term business strategy. We will likely continue to pursue strategic acquisitions or investments as a way to expand our business. These activities, and their impact on our business, are subject to many risks, including the following:

Suitable acquisitions or investments may not be found or consummated on terms or schedules that are satisfactory to us or consistent with our objectives;
We may be unsuccessful in competing for acquisitions with other entities, some of which have greater financial resources or may be better able to realize synergies with a potential target;
The benefits expected to be derived from an acquisition or investment may not materialize and could be affected by numerous factors, such as regulatory developments, insurance reimbursement, our inexperience with new businesses or markets, general economic conditions and increased competition;
We may be unable to successfully integrate an acquired company’s personnel, assets, management, information technology systems, accounting policies and practices, products, services and/or technology into our business;
Worse than expected performance of an acquired business may result in the impairment of intangible assets;
Acquisitions may require substantial expense and management time and could disrupt our business;
We may not be able to accurately forecast the performance or ultimate impact of an acquired business;
We may have difficulties in coordinating geographically separate organizations;
We may fail to successfully manage relationships with customers, distributors and suppliers of an acquired business;
An acquisition may result in a diversion of resources from our existing products, business and technologies;
An acquisition and subsequent integration activities may require greater capital and other resources than originally anticipated at the time of acquisition;
To the extent we agree to pay contingent consideration for an acquisition, if and how much of such consideration we are required to pay may be subject to dispute, resulting in the distraction of our management team and the incurrence of legal costs;
An acquisition may result in employee anxiety, morale and/or engagement issues;
An acquisition may result in disparate information technology, internal control, financial reporting and record-keeping systems;
An acquisition may result in new partners or customers who may operate on terms and programs different than ours;
An acquisition may result in employees not familiar with our operations;
An acquisition may result in new products and services, including the risk that any underlying intellectual property associated with such products and services may not have been adequately protected or that such products and services may infringe on the proprietary rights of others;
An acquisition may result in the incurrence of unexpected expenses, stockholder lawsuits, the dilution of our earnings or our existing stockholders’ percentage ownership, or potential losses from undiscovered liabilities not covered by an indemnification from the seller(s) of the acquired business;
An acquisition may result in the loss of our or the acquired company’s key personnel, customers, distributors or suppliers; and

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An acquisition of a foreign business may involve additional risks, including, but not limited to, foreign currency exposure, liability or restrictions under foreign laws or regulations, and our inability to successfully assimilate differences in foreign business practices or overcome language or cultural barriers and other inherent risks of operating in unfamiliar legal and regulatory environments.

 

The occurrence of one or more of the above or other factors may prevent us from achieving all or a significant part of the benefits expected from an acquisition or investment. This may adversely affect our financial condition, results of operations and ability to grow our business or otherwise achieve our financial and strategic objectives.

 

There Are Risks Relating To Our Acquisitions of Diversigen, Novosanis and UrSure.

 

The success of the acquisitions will depend, in part, on our ability to successfully combine and integrate our legacy business with those businesses acquired. The integration of the businesses with our existing business can be complex, costly and time-consuming processes. It is possible that a number of factors, including, without limitation, the loss of key employees, higher than expected costs, diversion of management attention and resources, the disruptions of ongoing businesses or inconsistencies in standards, controls, procedures and policies, could adversely affect our ability to maintain relationships with customers, vendors and employees or to achieve the anticipated benefits and cost savings of the acquisitions. If we experience difficulties with the integration process, the anticipated benefits of the acquisitions may not be realized fully or at all, or may take longer to realize than expected. These integration matters could have an adverse effect on the Company for an undetermined period following the acquisitions.

 

As a general matter, the market for microbiome laboratory testing and analytical services provided by Diversigen is at an early stage and is still developing. In addition, the Colli-Pee® urine collection devices manufactured and sold by Novosanis are relatively new products that are not yet widely accepted by customers. There is no assurance that we will be successful in creating or expanding demand for these services and products. To the extent that the markets for these services and products fail to develop or increase, our revenues and results of operations could be adversely affected and we may not meet our growth objectives.

 

Our Revenues Could be Affected by Third-Party Reimbursement Policies and Potential Cost Constraints.

 

The end-users of certain of our products include hospitals, physicians and other healthcare providers. Use of our products could be adversely impacted if these end-users do not receive adequate reimbursement for the cost of our products from their patients’ healthcare insurers or payors. Our net sales could also be adversely affected by changes in reimbursement policies of governmental or private healthcare payors, including in particular the level of reimbursement for our products.

 

In the United States, hospitals, physicians and other healthcare providers who purchase diagnostic products generally rely on third-party payors, such as private health insurance plans, Medicare and Medicaid, to reimburse all or part of the cost of the product and procedure. The overall escalating cost of medical products and services has led to, and will continue to lead to, increased pressures on the healthcare industry, both foreign and domestic, to reduce the cost of products and services. Given the efforts to control and reduce healthcare costs in the United States in recent years, currently available levels of reimbursement may not continue to be available in the future for our existing products or products under development. Third-party reimbursement and coverage may not be available or adequate in either the United States or international markets, current reimbursement amounts may be decreased in the future and future legislation, and regulation or reimbursement policies of third-party payors, may reduce the demand for our products or our ability to sell our products on a profitable basis. In addition, the reimbursement approval process may delay the market introduction of our products.

 

Changes in Healthcare Regulation Could Affect Our Revenues, Costs and Financial Condition.

 

In recent years, there have been numerous initiatives at the federal and state level for comprehensive reforms affecting the payment for, the availability of and reimbursement for healthcare services in the United States. These initiatives have ranged from proposals to fundamentally change federal and state healthcare reimbursement programs, including providing comprehensive healthcare coverage to the public under government-funded programs, to minor modifications to existing programs. One example is the Patient Protection and Affordable Care Act, the Federal healthcare reform law enacted in 2010 (the “Affordable Care Act”). Similar reforms may occur internationally.

 

Legislative and regulatory bodies are likely to continue to pursue healthcare reform initiatives in many forms and may continue to reduce funding in an effort to lower overall federal healthcare spending. The U.S. government recently enacted legislation that eliminated what is known as the “individual mandate” under the Affordable Care Act and may enact other changes in the future. The ultimate content and timing of any of these types of changes in other healthcare reform legislation and the resulting impact on us are impossible to predict. If significant reforms are made to the healthcare system in the United States, or in other jurisdictions, those reforms may increase our costs or otherwise have an adverse effect on our financial condition and results of operations.

 

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New or Changed Testing Guidelines Could Affect Sales of Our Diagnostic Products.

 

From time to time, governmental agencies such as the Centers for Disease Control and Prevention, or CDC, issue diagnostic testing guidelines or recommendations, which can affect the usage of our HIV and HCV tests or other diagnostic products. For example, past sales of domestic professional OraQuick® HIV tests have decreased in part due to customer migration to automated fourth generation HIV immunoassays performed in a laboratory, as recommended under testing guidelines issued by the CDC. In addition, some states have promulgated, or may in the future promulgate, laws and regulations that affect HIV or HCV testing. The issuance of new laws or guidelines, or changes in existing laws or guidelines, and the manner in which these new or changed laws and guidelines are interpreted and applied by healthcare practitioners, could impact the degree to which our OraQuick® rapid HIV and HCV testing products or other products are used. New or changed laws or guidelines could affect the number of people tested, the frequency of testing and whether testing products such as our OraQuick® HIV and HCV tests are used broadly for screening large populations or in a more limited capacity as a confirmatory test or otherwise. These factors could in turn affect the level of sales of our products and our results of operations.

 

Reductions in Government Funding and Research Budgets Could Adversely Affect Our Business and Financial Results.

 

We sell our OraQuick ADVANCE® HIV-1/2 and OraQuick® HCV tests into the US public health market which consists of state, county and other governmental public health agencies, community based organizations, service organizations and similar entities. We also sell these products into the hospital market. Many of these customers depend to a significant degree on grants or funding provided by governmental agencies to run their operations including programs that use our products. In international markets, we often sell products such as our OraQuick® HIV Self-Test to or through foreign governmental agencies or parties funded by such agencies.

 

Many of our molecular collection products are sold to researchers at academic institutions, pharmaceutical and biotechnology companies, government laboratories and private foundations. Many research customers are dependent for their funding on grants from U.S. governmental agencies such as the U.S. National Institutes of Health and agencies in other countries to pay for the products and services they purchase. These research customers also purchase our genomic and microbiome laboratory tests and analytical services.

 

The level of available government grants or funding in the U.S. and elsewhere is unpredictable and may be affected by various factors including economic conditions, legislative and regulatory developments, political changes, civil unrest and changing priorities for research and development activities. Further, government proposals to reduce or eliminate budgetary deficits have sometimes included reduced allocations to government agencies in the U.S. and other countries that fund life sciences research and development activities. Any reduction or delay in government or other funding as a result of legislative or regulatory changes or other factors, could cause our customers to delay, reduce or forego purchases of our products and services.

 

Risks Relating to Our Reliance on Third Parties

 

The Use of Third Party Supply Sources For Critical Components of Our Products Could Adversely Affect Our Business.

 

We currently purchase certain critical components of our products from sole supply sources or other third-party suppliers. For example, the biological antigens and antibodies, nitrocellulose and certain other components required to make our OraQuick® HIV, HCV and Ebola products are currently purchased from sole source suppliers. Our OraSure QuickFlu® test and the fully automated high-throughput drug assays sold with our Intercept i2® device are manufactured and supplied by sole source suppliers and the conjugates used in our MICROPLATE oral fluid drugs-of-abuse assays are obtained from third-party suppliers. We have contracted with third parties in Thailand for parts of the assembly of OraQuick® HIV device and the OraQuick® HIV Self-Test in order to supply certain international markets. In addition, our subsidiary, DNAG, uses three third-party manufacturers to supply virtually all of its products, including its Oragene® and ORAcollect® lines of collection kits. Many of the raw materials and components used in its products are also purchased from third parties, a critical one of which is obtained from a sole source supplier.

 

The COVID-19 pandemic and the measures taken to contain the spread of the virus, have disrupted, and could continue to disrupt, the normal operations of our third-party suppliers. Our third-party suppliers may not have the personnel, raw materials, capacity or capability to manufacture our products according to our schedule and specifications. To the extent any such production and distribution interruption or closures occur and continue for an extended period of time, the impact on our supply chain could have a material adverse effect on our results of operations. If our third-party suppliers are unable or unwilling to supply or manufacture a required component or product or if they make changes to a component, product or manufacturing process or do not supply materials meeting our specifications, we may need to find another source and/or manufacturer. This could require that we perform additional development work and it may be difficult to find such an alternate supply source in a reasonable time period or on commercially reasonable terms, if at all. We may also need to obtain FDA or other regulatory approvals for the use of an alternative component or for changes to our products or manufacturing process. Completing that development and obtaining such approvals could require significant time and expense and such approvals may not occur at all. The availability of critical components and products from sole supply sources or other third parties could also reduce our control over pricing, quality and timely delivery. These events could either disrupt our ability to manufacture and sell certain of our

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products into one or more markets or completely prevent us from doing so, and could increase our costs. Any such event could have a material adverse effect on our results of operations, cash flow and business.

 

Our Failure to Maintain Existing Distribution Channels, or Develop New Distribution Channels, May Result in Lower Revenues.

 

We have marketed many of our products by collaborating with laboratories, diagnostic companies and distributors. Our sales depend to a substantial degree on our ability to sell products to these customers and on the marketing and distribution abilities of the companies with which we collaborate.

 

Relying on distributors or others to market and sell our products could harm our business for various reasons, including:

We may not be able to find suitable distributors to distribute our products on satisfactory terms, or at all;
Our distributors or other customers may not fulfill their contractual obligations to us or otherwise market and distribute our products in the manner or at the levels we expect;
We do not control the incentives provided by our distributors to their sales personnel and the effectiveness of these incentives could affect sales of our products;
Agreements with distributors may terminate prematurely due to disagreements or may result in litigation between the parties;
We may not be able to renew existing distribution agreements on acceptable terms, or at all;
Our distributors may not devote sufficient resources or priority to the sale of our products;
Our distributors may prioritize their own private label products that compete with our products;
Our existing distributor relationships or contracts may preclude or limit us from entering into arrangements with other distributors; and
We may not be able to negotiate future distribution agreements on acceptable terms, or at all.

 

Although we will try to maintain and expand our business with distributors and customers and require that they fulfill their contractual obligations, there can be no assurance that such companies will do so or that new distribution channels will be available on satisfactory terms. As a result, our revenues and business could be adversely affected.

 

We May Need Strategic Partners to Assist in Developing and Commercializing Some of Our Products.

 

Although we may elect to pursue some product opportunities independently, opportunities that require a technology controlled by a third party, a significant level of investment for development and commercialization or a distribution network beyond our existing sales force may necessitate involving one or more strategic partners. Further, our ability to enter into agreements with additional strategic partners depends in part on convincing them that our products can help achieve and accelerate their goals and efforts. Our strategy for development and commercialization of products may entail entering into arrangements with distributors or other corporate parties, universities, research laboratories, government agencies, licensees and others. Relying on collaborative relationships could be risky to our business for a number of reasons, including:

We may be required to transfer material rights to such strategic collaborators, government agencies, licensees and others;
Our collaborators may not devote sufficient resources or attach a sufficiently high priority to the success of our collaboration;
Our collaborators may not obtain regulatory approvals necessary to continue the collaborations in a timely manner;
We have limited access to our collaborator’s confidential corporate information and sudden unexpected changes in ownership or strategy or other material events affecting a collaborator of which we are not made aware of in a timely manner, or at all, could adversely impact our relationship;
Our collaborators may be acquired by another company, sell the part of their business related to our collaboration, decide to terminate our collaborative arrangement or become insolvent;
Our collaborators may develop technologies or components competitive with our products;
Our collaborators may fail to deliver technologies or components that satisfy market requirements or such products may fail to perform properly;
Disagreements with collaborators could result in the termination of the relationship or litigation;

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Collaborators may not have sufficient capital resources; and
We may not be able to negotiate future collaborative arrangements, or renewals of existing collaborative agreements, on acceptable terms or at all.

 

While we generally expect that our collaborative partners will have an economic motivation to succeed in performing their contractual responsibilities, there is no assurance that they will do so, either at the level required or at all, and the amount and timing of resources to be devoted to these activities will be controlled by others. Reliance on strategic agreements can also make it difficult to accurately forecast our future revenues or operating results. There can be no assurance that the expected revenues or profits will be fully derived from such arrangements.

 

Risks Relating to Intellectual Property

 

Our Success Depends on Our Ability to Protect Our Proprietary Technology.

 

Our industry places considerable importance on obtaining patent, trademark and trade secret protection, as well as other intellectual property rights, for new technologies, products and processes. Our success depends, in part, on our ability to develop and maintain a strong intellectual property portfolio or obtain licenses to patents and technologies, both in the United States and in other countries. If we cannot continue to develop, obtain and protect intellectual property rights, our revenues and profits could be adversely affected. Moreover, our current and future licenses or other rights to patents and other technologies may not be adequate for the operation of our business.

 

As appropriate, we intend to file patent applications and obtain patent protection for our proprietary technology. These patent applications and patents will cover, as applicable, compositions of matter for our products, methods of making those products, methods of using those products and apparatuses relating to the use or manufacture of those products.

 

We also rely on trade secrets, know-how and continuing technological advancements to protect our proprietary technology. We have entered, and will continue to enter, into confidentiality agreements with our employees, consultants, advisors and collaborators. Our employees and third-party consultants also sign agreements requiring that they assign to us interests in inventions and original expressions and any patents or copyrights arising from their work. However, these parties may not honor these agreements.

 

We cannot guarantee that the process of filing patents, the laws governing trade secrets and proprietary information, or any agreements we enter into with employees, consultants, advisors or collaborators will provide adequate protection of our intellectual property rights. For example, our competitors may develop similar products without infringing on any of our intellectual property rights or design around our proprietary technologies. Employees, consultants and others who participate in the development of our products may breach their agreements with us regarding our intellectual property, and we may not have adequate remedies for the breach. We also may not be able to effectively protect our intellectual property rights in some foreign countries, as many countries do not offer the same level of legal protection for intellectual property as the United States.

 

For a variety of reasons, we may decide not to file for patent, copyright or trademark protection outside of the U.S. Our trade secrets could become known through other unforeseen means. Although we have licensed certain technology for use in our microbiome laboratory services offerings and we have developed proprietary know-how that we use in this business, we do not currently hold any patents covering the laboratory processes and analytical methods offered to our customers. The absence of patent protection in this or other parts of our business may make it more difficult to protect our intellectual property. In addition, our competitors may independently develop similar or alternative technologies or products that are equal or superior to our technology.

 

Moreover, issued patents remain in effect for a fixed period and after expiration will not provide protection of the inventions they cover. Once our patents expire, we may be faced with increased competition, which could reduce our revenues. We may also not be able to successfully protect our rights to unpatented trade secrets and know-how.

 

Some of our employees, including scientific and management personnel, were previously employed by competing companies. Although we encourage and expect all of our employees to abide by any confidentiality agreement with a prior employer, competing companies may allege trade secret violations and similar claims against us. In addition, some of these agreements may conflict with, or be subject to, the rights of third parties with whom our employees, consultants or advisers have prior employment or consulting relationships. An adverse determination may limit or restrict the type of work that certain employees involved with such products may perform.

 

We may collaborate with universities and governmental research organizations or receive funding for our products from government agencies. As a result, one or more of these entities may acquire part of the rights to any inventions or technical information derived from our collaboration or funding relationship with them.

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To facilitate development and commercialization of a proprietary technology base, we may need to obtain licenses to patents or other proprietary rights from other parties. Obtaining and maintaining such licenses may require the payment of substantial amounts. In addition, if we are unable to obtain these types of licenses, our product development and commercialization efforts may be delayed or precluded. Moreover, some licenses may be nonexclusive, and therefore our competitors may have access to the same technology licensed to us.

 

We May Become Involved in Intellectual Property Disputes, Which Could Increase our Costs and Limit or Eliminate Our Ability to Sell Products, Provide Services or Use Certain Technologies.

 

From time to time, we may seek to enforce our patents or other intellectual property rights through litigation. In addition, there are a large number of patents and patent applications in our product and service areas, and additional patents may be issued to third parties relating to our product and service areas. We, our customers or our suppliers may be sued for infringement of patents or misappropriation of other intellectual property rights with respect to one or more of our products or services. Litigation in our industry regarding patent and other intellectual property rights is prevalent and is expected to continue. We may also have disputes with parties that license patents to us if we believe the license is no longer needed for our products or services or the licensed patents are no longer valid or enforceable.

 

Our industry is characterized by a large number of patents, and the claims of these patents appear to overlap in many cases. As a result, there is a significant amount of uncertainty regarding the extent of patent protection and infringement. Companies may have pending patent applications, which are typically confidential for the first eighteen months following filing, that cover technologies we incorporate in our products or services. Accordingly, we may be subjected to substantial damages for past infringement or be required to modify our products or services or stop selling them if it is ultimately determined that our products or services infringe a third party’s proprietary rights. In addition, governmental agencies could commence investigations or criminal proceedings against our employees or us relating to claims of misuse or misappropriation of another party’s proprietary rights.

 

Intellectual property litigation is costly. As such, our involvement in litigation or other legal proceedings with respect to patents or other intellectual property and proprietary technology, either as a plaintiff or defendant, could adversely affect our revenues, market share, results of operations and business because:

It could consume a substantial portion of managerial and financial resources;
Its outcome would be uncertain and a court may find that our patents are invalid or unenforceable in response to claims by another party or that the third-party patent claims are valid and infringed by our products or services;
An adverse outcome could subject us to the loss of the protection of our patents or to liability in the form of past royalty payments, penalties, reimbursement of litigation costs and legal fees, special and punitive damages, or future royalty payments, any of which could significantly affect our future earnings;
Governmental agencies may commence investigations or criminal proceedings against our employees, former employees and us relating to claims of misappropriation or misuse of another party’s proprietary rights;
Failure to obtain a necessary license upon an adverse outcome could prevent us from selling our current products or services or other products or services we may develop or acquire;
We may be required to alter our product or services, given the proprietary rights of others;
The pendency of any litigation may in and of itself cause our distributors and customers to reduce or terminate purchases of our products or services; and
A court could award a preliminary and/or permanent injunction, which would prevent us from selling our current or future products or services.

 

We may indemnify some customers and strategic partners under our agreements with such parties if our products, services or activities have actually or allegedly infringed upon, misappropriated or misused another party’s proprietary rights. Further, our products or services may contain technology provided to us by other parties, such as universities, contractors, suppliers, customers or collaborators, and we may have little or no ability to determine in advance whether such technology infringes the intellectual property rights of a third party. These other parties may also not be required or financially able to indemnify us in the event that an infringement or misappropriation claim is asserted against us.

 

We may also become involved in other types of disputes regarding intellectual property rights, including state, federal or foreign court litigation, and patent interference, patent reexamination, patent reissue, or trademark opposition proceedings in the United States Patent and Trademark Office. Opposition or revocation proceedings could be instituted in a foreign patent office as well. Under Federal law,

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various forms of post issuance patent review proceedings have been authorized, including an inter-parties review process. These proceedings permit certain persons to challenge the validity of a patent on the grounds that it was known from the prior art. The filing of such proceedings, or the issuance of an adverse decision in such proceedings, could result in the loss of valuable patent rights that could have a material adverse effect on our business, financial condition, results of operations and growth prospects.

 

Regulatory Risks

 

The Need to Obtain Regulatory Approvals Could Increase Our Costs and Adversely Affect Our Financial Performance.

 

Many of our proposed and existing products and services are subject to regulation by the FDA and other governmental or public health agencies. In particular, we are subject to strict governmental controls on the development, manufacture, labeling, distribution and marketing of our products and the processes and procedure for our laboratory services. Our practice is to train our employees on the legal requirements applicable to our business, including the requirements of the FDA and other relevant agencies.

 

The process of obtaining required approvals, clearances, premarket authorizations can involve lengthy and detailed laboratory testing, human clinical trials, sampling activities and other costly, time-consuming procedures. These approvals, clearances, other premarket authorizations or certifications can require the submission of a large amount of clinical data which can be expensive and may require significant time to obtain. It is also possible that a product will not perform at a level needed to generate the clinical data required to obtain such premarket authorizations. The submission of an application to the FDA or other regulatory authority does not guarantee that an authorization to market or import the product or a laboratory certification will be received. A regulatory authority may impose requirements as a condition to granting an approval, clearance, premarket authorization or certification that may include significant restrictions or limitations. The regulatory authority may delay or refuse to grant premarket authorization, even though a product has been approved or registered without restrictions or limitations in another country or by another agency. Delays in receipt or failure to receive such approvals, clearances, premarket authorization or certification could have a material adverse effect on our business, financial condition and results of operations.

 

All in vitro diagnostic products that are to be sold in the EU must bear the CE mark indicating conformance with the essential requirements of the IVDD through May 25th 2022. Beginning May 26th 2022, manufacturers will be required to comply with the in vitro diagnostic regulations (IVDR). Notified Bodies need to be designated to review and certify products based on codes. If a Notified Body is not designated to review a certain code, they will not be able to certify those products. Currently there are extensions published for certain product that have a declaration of conformity prior to May 26, 2022; however, class A non-sterile products are not included in the extension. We have obtained the CE mark for several of our existing products. We also intend to apply for CE marks for certain of our future products and are not aware of any material reason why we would be unable to obtain those marks. However, there can be no assurance that compliance with all provisions of the IVDD will be demonstrated and the CE mark will be obtained or maintained for all products that we desire to sell in the EU. The failure to obtain or maintain the CE mark for one or more of our products could lead to the termination of strategic alliances and agreements for sales of those products in the EU.

 

In addition, we or our distributors are often required to obtain premarket authorization or product registration with foreign governments or regulatory bodies before we can import and sell our products in foreign countries. We may also be required to obtain WHO pre-qualification or endorsement in order to sell certain products in international markets or enable our customers to access interested funding sources for our products. We may have difficulty obtaining such authorizations, registrations, pre-qualifications or endorsements and, if obtained, such authorizations, registrations, pre-qualifications or endorsements may contain restrictions that limit our ability to market and sell our products in the relevant country. In addition, any change in our arrangement with a foreign distributor could result in the loss of or delay in transfer of any applicable product registrations, thereby interrupting our ability to sell those products in the affected markets.

 

Failure to Comply With FDA or Other Regulatory Requirements May Require Us to Suspend Production or Sale of Our Products or Institute a Recall Which Could Result in Higher Costs and a Loss of Revenues.

 

Regulation by the FDA and other federal, state and foreign regulatory agencies impacts many aspects of our operations, and the operations of our suppliers and distributors, including manufacturing, labeling, packaging, adverse event reporting, recalls, distribution, storage, advertising, promotion and record keeping. We are subject to routine inspection by the FDA and other agencies to determine compliance with QSR and FDA regulatory requirements in the United States and other applicable regulations worldwide, including but not limited to ISO standards. We believe that our facilities and procedures are in material compliance with the FDA requirements and ISO standards, but the regulations may be unclear and are subject to change, and we cannot be sure that the FDA or other regulators will agree with our compliance with these requirements. The FDA and foreign regulatory agencies may require post-marketing testing and surveillance to monitor the performance of approved or cleared products or impose conditions on any product clearances or approvals that could restrict the distribution or commercial applications of those products. Regulatory agencies may impose restrictions on our or our distributors’ advertising and promotional activities or preclude these activities altogether if a noncompliance is believed to exist. In

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addition, the subsequent discovery of previously unknown problems with a product may result in restrictions on the product or additional regulatory actions, including withdrawal of the product from the market.

 

Failure to comply with the applicable requirements of the FDA can result in, among other things, 483 notices, warning letters, administrative or judicially imposed sanctions such as injunctions, civil penalties, recall or seizure of products, total or partial suspension of production, refusal to grant premarket clearance or PMA approval for devices, withdrawal of product registrations, marketing clearances or approvals, or criminal prosecution. The ability of our suppliers to supply critical components or materials and of our distributors to sell our products could also be adversely affected if their operations are determined to be out of compliance. Such actions by the FDA and other regulatory bodies could adversely affect our revenues, costs and results of operations.

 

Some of our products, particularly those sold by DNAG, are sold for research purposes in the U.S. We do not promote these products for clinical diagnostic use and they are labeled “For Research Use Only”, or RUO. If the FDA were to disagree with our RUO designation of a product, we could be forced to stop selling the product until appropriate regulatory clearance or approval has been obtained.

 

In the ordinary course of business, we must frequently make subjective judgments with respect to compliance with applicable laws and regulations. If regulators subsequently disagree with the manner in which we have sought to comply with these regulations, we could be subjected to substantial civil and criminal penalties, as well as product recall, seizure or injunction with respect to the sale of our products. The assessment of any civil and criminal penalties against us could severely impair our reputation within the industry and any limitation on our ability to manufacture and market our products could have a material adverse effect on our business.

 

Our Inability to Respond to Changes in Regulatory Requirements Could Adversely Affect Our Business.

 

We believe that our products and procedures are in material compliance with all applicable FDA regulations, ISO requirements, and other applicable regulatory requirements, but the regulations regarding the manufacture and sale of our products, the QSR and ISO requirements, and other requirements may be unclear and are subject to change. Newly promulgated regulations could require changes to our products, necessitate additional clinical trials or procedures, or make it impractical or impossible for us to market our products for certain uses, in certain markets, or at all. The FDA and other regulatory authorities also have the ability to change the requirements for obtaining product approval and/or impose new or additional requirements as part of the approval process. These changes or new or additional requirements may occur after the completion of substantial clinical work and other costly development activities. The implementation of such changes or new or additional requirements may result in additional clinical trials and substantial additional costs and could delay or make it more difficult or complicated to obtain approvals and sell our products. We cannot predict the effect, if any, that these changes might have on our business, financial condition or results of operations.

 

Our Inability to Manufacture Products in Accordance With Applicable Specifications, Performance Standards or Quality Requirements Could Adversely Affect Our Business.

 

The materials and processes used to manufacture our products must meet detailed specifications, performance standards and quality requirements to ensure our products will perform in accordance with their label claims, our customers’ expectations and applicable regulatory requirements. As a result, our products and the materials used in their manufacture or assembly undergo regular inspections and quality testing. Factors such as defective materials or processes, mechanical failures, human errors, environmental conditions, changes in materials or production methods, and other events or conditions could cause our products or the materials used to produce or assemble our products to fail inspections and quality testing or otherwise not perform in accordance with our label claims or the expectations of our customers.

 

Any failure or delay in our ability to meet the applicable specifications, performance standards, quality requirements or customer expectations could adversely affect our ability to manufacture and sell our products or comply with regulatory requirements. These events could, in turn, adversely affect our revenues and results of operations.

 

We Are Subject to Numerous Government Regulations in Addition to FDA Requirements, Which Could Increase Our Costs and Affect Our Operations.

 

In addition to the FDA and other regulations described previously, laws and regulations in some states may restrict our ability to sell products in those states. While we intend to work with state legislators and regulators to remove or modify any applicable restrictions, there is no guarantee we will be successful in these efforts.

 

We must also comply with numerous laws relating to such matters as safe working conditions, manufacturing practices, environmental protection, fire hazard control, disposal of hazardous substances, labor or employment practices and the configuration and operation of the websites through which we advertise our products. As a device manufacturer, we are required to report annually to the Centers for Medicare & Medicaid Services (“CMS”) any payments or transfers of value we have made to physicians and teaching hospitals and any

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physician ownership or investment interest in the Company. Compliance with these laws or any new or changed laws regulating our business could result in substantial costs. Because of the number and extent of the laws and regulations affecting our industry, and the number of governmental agencies whose actions could affect our operations, it is impossible to reliably predict the full nature and impact of these requirements. To the extent the costs and procedures associated with complying with these laws and requirements are substantial or it is determined that we do not comply, our business and results of operations could be adversely affected.

 

Failure to Comply With Privacy, Security and Breach Notification Regulations May Increase Our Costs.

 

In the past, the Health Insurance Portability and Accountability Act of 1996, as amended (“HIPAA”) has generally affected us indirectly, as the Company is generally neither a Covered Entity nor a Business Associate, as further defined under HIPAA, to Covered Entities. We have in place certain administrative, technical and physical safeguards to protect the privacy and security of consumers’ personal information and endeavors to comply with all applicable state and federal laws with respect to the protection of consumers’ personal information. The Company is required to comply with varying state privacy, security and breach reporting laws. If we do not comply with existing or new laws and regulations related to properly transferring data containing consumers’ personal information, we could be subject to monetary fines, civil penalties or criminal sanctions. In addition to other federal and state laws that protect the privacy and security of consumers’ personal information, we may be subject to enforcement and interpretations by various governmental authorities and courts resulting in complex compliance issues. Moreover, the potential for enforcement action against us is now greater, as the U.S. Department of Health and Human Services (HHS) can take action directly against Business Associates. Thus, while we believe we are and will be in compliance with all required HIPAA standards, there is no guarantee that the government will agree. Enforcement actions can be costly and interrupt regular operations of our business. For example, we could incur damages under state laws pursuant to an action brought by a private party for the wrongful use or disclosure of consumers’ personal information.

 

Failure to Comply With Data Protection Requirements or Privacy Laws Could Increase Our Costs.

 

The European Union (“EU”) has adopted a comprehensive overhaul of its data protection regime from the prior national legislative approach to a single European Economic Area Privacy Regulation called the General Data Protection Regulation (“GDPR”), which came into effect on May 25, 2018. The new EU data protection regime extends the scope of the EU data protection law to all foreign companies processing data of EU residents. It provides for a harmonization of the data protection regulations throughout the EU, thereby making it easier for non-European companies to comply with these regulations. It imposes a strict data protection compliance regime with severe penalties of up to the greater of 4% of worldwide turnover and €20 million and includes new rights such as the “portability” of personal data. Although the GDPR will apply across the EU without a need for local implementing legislation, as had been the case under the prior data protection regime, local data protection authorities will still have the ability to interpret the GDPR, which has the potential to create inconsistencies on a country-by-country basis. We are implementing a plan to ensure compliance with these new requirements. [AG4] Complying with the enhanced obligations imposed by the GDPR may result in significant costs to our business and require us to amend certain of our business practices. Further, we have no assurances that violations will not occur, particularly given the complexity of the GDPR, as well as the uncertainties that accompany new, comprehensive legislation.

 

We are also subject to the California Consumer Privacy Act of 2018 (“CCPA”), which took effect on January 1, 2020. The CCPA imposes extensive new requirements and protections on the processing of personal data, aimed at giving California consumers more visibility and control over their personal information. Failure to comply with the CCPA or other data processing or security laws, or any changes in these laws, could adversely impact our business and our business plans.

 

FDA Regulation of Laboratory-Developed Tests and Genetic Testing Could Affect Demand For Our Products.

 

The FDA has regulatory responsibility over instruments, test kits, reagents and other devices used to perform diagnostic testing by clinical laboratories. In the past, the FDA has taken the position that it has regulatory authority over laboratory-developed tests, or LDTs, but has exercised enforcement discretion in not regulating most LDTs performed by high complexity CLIA-certified laboratories. LDTs are tests designed, developed, and performed in-house by a laboratory. Such laboratories are subject to regulation under CLIA but have not been subject to regulation by the FDA under the agency’s medical device requirements. A significant portion of the total volume of genetic or molecular testing is performed with LDTs.

 

In mid-2010, the FDA announced that it would begin regulating LDTs, including laboratory developed molecular tests, and in October 2014 issued proposed guidance on the regulation of LDTs for public comment. On January 13, 2017, the FDA released a discussion paper synthesizing public comments on the 2014 draft guidance documents and outlining a possible approach to regulation of LDTs. The discussion paper has no legal status and does not represent a final version of the LDT draft guidance documents. We cannot predict what policies will be adopted with respect to regulating LDTs. FDA has been working with regulatory advocacy groups (AdvaMed) to bring forward regulations specifically for in vitro diagnostic tests including LDTs called the VALID Act. In 2021, the VALID Act was introduced to Congress and will change IVDs and LDTs to in vitro clinical tests (IVCT). The proposed regulation will give FDA oversight of LDTs once it becomes law.

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Our subsidiary, DNAG, sells its DNA collection systems to certain laboratories and other customers for use with LDTs. The FDA’s increased regulation of LDTs could make it more difficult for laboratories and other customers to continue offering LDTs that involve genetic or molecular testing. This, in turn, could increase costs, delay the introduction of new LDTs and reduce demand for DNAG’s products and adversely impact our revenues.

 

In 2019, the Department of Justice (“DOJ”) indicted a number of telemedicine companies and cancer genetic testing laboratories for allegedly submitting fraudulent insurance claims to Medicare. A number of these companies were customers of DNAG. As a result of these activities, the FDA has issued letters to genetic testing laboratories indicating that it plans to increase oversight of this market which has caused some of these companies to stop providing testing options or to change how they are reporting the information provided by the testing. The activities have negatively affected this market and there is a risk that these enforcement actions will continue to negatively affect this market by forcing laboratories to either stop offering such services or restricting the use of such services. Such a reduction in testing could result in decreased sales of our DNA collection devices.

 

Our International Sales Create Potential Exposure Under Anti-Corruption Laws.

 

We have a policy in place prohibiting our employees, distributors and agents from engaging in corrupt business practices, including activities prohibited by the United States Foreign Corrupt Practices Act (the “FCPA”) and similar foreign laws. In 2021, approximately $45.3 million of our consolidated net revenues were generated from sales in a variety of foreign countries. These international activities subject us to the FCPA, the U.K. Bribery Act and other laws that prohibit improper payments or offers of payments to foreign governments and their officials and political parties by business entities for the purpose of obtaining or retaining business. We have operations, enter into agreements with third parties, and make sales in countries known to experience corruption. Further international expansion, including the acquisition of foreign entities, may create increased exposure to such practices. Our activities in these countries create the risk of unauthorized payments or offers of payments by one of our employees, consultants, sales agents or distributors that could be in violation of various laws, including the FCPA, even though these parties are not always subject to our control. It is our policy to implement safeguards to discourage these practices by our employees and distributors, including employee training, contracts requiring compliance with the FCPA and similar rules, and standard reviews of our distributors. However, our existing safeguards and any future improvements may not prove to be effective, and our employees, consultants, sales agents or distributors may engage in conduct for which we might be held responsible. Violations of the FCPA and other laws may result in criminal or civil sanctions, which could be severe and we may be subject to other liabilities, which could negatively affect our reputation, business, results of operations and financial condition.

 

Risks Relating to the Economy, Our Financial Results, Investments, Credit Facilities and Need for Financing

 

Economic Volatility and Disruption, Including Those Related To The COVID-19 Pandemic, Could Adversely Affect Our Business, Financial Performance, Results of Operations, Cash Flow and Financial Condition or Those of Our Customers and Suppliers.

 

Global and U.S. markets and economies have experienced extreme volatility and disruption following the global outbreak of COVID-19 that has continued throughout 2021. Many economists and major investment banks have expressed concern that the continued spread of the virus globally has led to a world-wide economic downturn. Volatile economic conditions may occur again or continue in the future.

 

Although the severity and duration of the COVID-19 pandemic cannot be reasonably estimated at this time, impacts that we may experience include, but are not limited to:

a slowdown or stoppage in the supply chain of the raw materials and components used to manufacture our products;
interruptions or delays in domestic and/or international shipment of our products to our distributors and customers;
interruptions in normal operations of certain end-use customers that could result in reductions in demand for our products;
disruptions to our operations, including a shutdown of our facilities or product lines; restrictions on our operations and sales, marketing and distribution efforts; and interruptions to our research and development, manufacturing, clinical/regulatory and other important business activities;
shutdown or interruption of our manufacturing facilities due to contamination and costs incurred to clean and disinfect a facility following contamination;
inefficiencies and increased costs in our production and shipping processes due to premium pay for manufacturing and certain other employees as well as social distancing and personal protective equipment requirements;

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limitations on employee resources and availability, including due to sickness, government restrictions, the desire of employees to avoid contact with large groups of people or mass transit disruptions;
a fluctuation in foreign currency exchange rates or interest rates could result from market uncertainties;
an increase in exposure to credit losses for customers adversely affected by the COVID-19 pandemic; and
an increase in regulatory restrictions or continued market volatility could hinder our ability to execute strategic business activities, including acquisitions.

 

These conditions could adversely affect our financial performance and condition or those of our customers and suppliers. These circumstances could also adversely affect our access to liquidity needed to conduct or expand our business or conduct future acquisitions or make other discretionary investments. Many of our customers rely on public funding provided by federal, state and local governments, and this funding has been and may continue to be reduced or deferred as a result of economic conditions or other factors. These circumstances may adversely impact our customers and suppliers, which, in turn, could adversely affect their ability to purchase and/or distribute our products or supply us with necessary equipment, raw materials or components. Any or all of these effects would have an adverse effect on our operations, business, financial condition and results of operations.

 

Although there are positive signs, the duration of the COVID-19 pandemic is still unknown, and it is difficult to predict the full extent of potential impacts the pandemic will have in the future on our business, operations, and financial results, or on our customers, suppliers or logistics providers, or on the global economy as a whole. It is uncertain how materially the COVID-19 pandemic will affect our global operations, particularly if the effects continue or get worse over an extended period of time. Even with the improvement of economic conditions, it may take time for our customers and suppliers to establish new budgets and return to normal purchasing and shipping patterns. We cannot predict the reoccurrence of any economic slowdown or the strength or sustainability of an economic recovery.

 

An Impairment of Goodwill and Intangible Assets Could Reduce our Earnings.

 

At December 31, 2021, our consolidated balance sheet reflected approximately $40.3 million of goodwill and approximately $14.3 million of intangible assets. Goodwill is recorded when the purchase price of a business exceeds the fair value of the tangible and separately measurable intangible net assets. U.S. generally accepted accounting principles (“U.S. GAAP”) require us to test goodwill for impairment on an annual basis or when events or circumstances occur indicating that goodwill might be impaired. Long-lived assets, such as intangible assets with finite useful lives, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The impairment review often cannot be done at the level of the individual asset and it must instead be applied to a group of assets. For the purpose of our annual goodwill impairment testing based on the current circumstances of how we manage or business, this group of assets is the Company as a whole. If we determine that any of our goodwill or intangible assets were impaired, we will be required to take an immediate charge to earnings and our results of operations could be adversely affected.

 

We Have Experienced Losses in the Past and May Not Be Able To Maintain Profitable Operations.

 

We experienced annual net losses during the five years prior to 2015 and again in 2020 and 2021. In addition, as of December 31, 2021, the Company had an accumulated deficit of $120.5 million. Even though we achieved profitability in 2015 through 2019, there can be no assurance that we will be able to sustain his profitability in the future.

 

Our ability to continue profitable operations in the future will be dependent upon a number of factors including, without limitation, the following:

Our ability to continue growing sales of our molecular collection products and related genomic and microbiome laboratory services;
Our ability to produce and successfully commercialize our InteliSwab® COVID-19 Rapid Tests;
Our ability to grow our OraQuick ADVANCE® HIV 1/2 test in the United States and expand sales of our OraQuick® HIV Self-Test internationally;
Changes in customer buying patterns or a buildup of significant quantities in our distributors’ inventories or distribution channels;
The level of expenditures we are required to make in order to develop, obtain regulatory approvals for and successfully commercialize our new products;
Our ability to expand our business through the acquisition of other companies or technologies or through internal development of new or improved products;

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Our ability to improve manufacturing efficiencies and reduce cost of goods sold;
Our ability to successfully launch new products after receipt of required regulatory approvals or the acquisition of rights to those products;
The degree to which our major distributors and customers comply with their contractual obligations, including minimum purchase commitments;
Whether we are successful in obtaining and maintaining required regulatory approvals and registrations for our new products;
The level of competition, including the degree to which competitors sell lower priced products or more attractive offerings to compete with our products;
Changes in economic conditions in domestic or international markets, such as economic downturns, reduced demand, inflation and currency fluctuations;
Failure to achieve our revenue growth targets; and
The costs and results of patent infringement, product liability and other litigation or claims asserted by or against us.

 

Changes in Foreign Currency Exchange Rates Could Negatively Affect Our Operating Results.

 

Our financial statements are stated in U.S. Dollars and, historically, most of our international sales have also been denominated in U.S. Dollars. As a result, in the past our exposure to foreign currency exchange rate risk has not been material. Nonetheless, these sales are subject to currency risks since changes in the values of foreign currencies relative to the value of the U.S. dollar can render our products comparatively more expensive. These exchange rate fluctuations could negatively impact international sales of our products, as could changes in the general economic conditions in those markets.

 

In addition, the revenues and expenses of our subsidiary, DNAG, are recorded in Canadian Dollars and the revenues and expenses of our subsidiary Novosanis are recorded in Euros. Revenues and expenses denominated in foreign currencies are translated into U.S. dollars for purposes of reporting our consolidated financial results. Our expectation is that the businesses of our foreign subsidiaries will continue to grow and our exposure to foreign currency exchange rates may be more significant than in past years.

 

Exchange rate fluctuations may affect the revenues and expenses of our foreign subsidiaries and the translation of those financial results into U.S. dollars. Favorable movement in exchange rates have benefited us in prior periods. However, where there are unfavorable currency exchange rate fluctuations, our consolidated financial statements including our balance sheet, revenues and results of operations, could be negatively affected. In addition, fluctuations in exchange rates could affect year-to-year comparability of operating results. In the past, we have not generally entered into hedging instruments to manage our currency exchange rate risk, but we may need to do so in the future. However, our attempts to hedge against these risks may not be successful. If we are unable to successfully hedge against unfavorable foreign currency exchange rate movements, our consolidated financial results may be adversely impacted.

 

Risks Relating to Our Common Stock

 

Our Stock Price Could Continue to be Volatile.

 

Our stock price has been volatile, has fluctuated substantially in the past, may be volatile in the future and could experience substantial declines. The following factors, among others, could have a significant impact on the market for our Common Stock:

The performance of our business, including our efforts to increase sales of our OraQuick® HIV, HCV and Molecular Solutions products and our OraQuick® In-Home HIV test and HIV Self-Test;
Our efforts to expand sales of our genomic and microbiome laboratory service offerings;
Our efforts to produce and commercialize our InteliSwab Covid-19 Rapid Tests;
Future announcements concerning us and our products or services, including with respect to significant acquisitions, strategic collaborations and joint ventures;
Ability to achieve the expected benefits, enhanced revenue growth and synergies from strategic acquisitions;
Clinical results with respect to our products or services or those of our competitors;
The status of clinical studies and pending submissions for required regulatory approvals;

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The announcement of regulatory or enforcement actions by the FDA or other agencies against us, our products or services, or one or more of our customers;
The gain or loss of significant contracts and availability of funding for the purchase of our products and services;
Delays in the development, regulatory approval or commercialization of new or enhanced products or services;
Legislative developments and industry or competitive trends;
Biological or medical discoveries;
Disputes or developments with key customers, distributors or suppliers;
Developments in patent or other proprietary rights;
Litigation or threatened litigation;
Complaints or concerns about the performance or safety of our products and publicity about those issues, including publicity expressed through social media or otherwise over the internet;
Failure to achieve, or changes in, financial estimates by securities analysts and comments or opinions about us by securities analysts or major stockholders;
Governmental regulation;
Changes in the level of competition;
Loss of or declines in sales to major distributors or customers or changes in the mix of products sold;
Period-to-period fluctuations in our operating results;
Additions or departures of key personnel;
General market and economic conditions; and
Terrorist attacks, civil unrest, war and national disasters, including pandemics.

 

In addition, the stock market in general has experienced extreme price and volume fluctuations that have affected the market price of our Common Stock, as well as the stock of many companies in the diagnostics and life sciences industries. Often, price fluctuations are unrelated to the operating performance of the specific companies whose stock is affected.

 

In the past, following periods of volatility in the market price of a company’s stock, securities class action litigation has occurred against the issuing company. If we were subject to this type of litigation in the future, we could incur substantial costs and experience a subsequent diversion of our management’s attention and resources, each of which could have a material adverse effect on our revenue and earnings. Any adverse determination in this type of litigation could also subject us to significant liabilities.

 

Future Sales of Our Common Stock by Existing Stockholders, Executive Officers or Directors Could Depress the Market Price of Our Common Stock and Make It More Difficult For Us to Sell Stock in the Future.

 

Sales of our Common Stock in the public market, or the perception that such sales may occur, could negatively impact the market price of our Common Stock. We are unable to estimate the number of shares of our Common Stock that may actually be resold in the public market since this will depend on the market price for our Common Stock, the individual circumstances of the sellers and other factors.

 

We have a number of institutional stockholders that own significant blocks of our Common Stock. If one or more of these stockholders sell large portions of their holdings in a relatively short time, for liquidity or other reasons, the prevailing market price of our Common Stock could be negatively affected. In addition, it is possible that one or more of our executive officers or non-employee members of our Board of Directors could sell shares of our Common Stock during an open trading window or pursuant to a 10b5-1 sales plan under our Insider Trading Policy. These transactions and the perceived reasons for these transactions could have a negative effect on the prevailing market price of our Common Stock.

 

Because We Do Not Intend to Pay Cash Dividends on Our Common Stock, an Investor in Our Common Stock Will Benefit Only if Our Stock Appreciates in Value.

 

We currently intend to retain our current earnings and future earnings, if any, to finance the expansion of our business and do not expect to pay any cash dividends on our Common Stock in the foreseeable future. As a result, the success of an investment in our Common

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Stock will depend entirely upon any future appreciation. There is no guarantee that our Common Stock will appreciate in value or even maintain the price at which investors purchased their shares.

 

Certain Provisions in Our Certificate of Incorporation and Bylaws and Under Delaware Law Could Make a Third-Party Acquisition of Us Difficult.

 

Our Certificate of Incorporation and Bylaws contain provisions that could make it more difficult for a third party to acquire us, even if doing so would be beneficial to our stockholders. We are also subject to certain provisions of Delaware law that could delay, deter or prevent a change in control of us. These provisions could limit the price investors might be willing to pay in the future for shares of our Common Stock.

 

General Risk Factors

 

We May Face Product Liability Claims for Injuries Resulting From the Use of Our Products.

 

We may be held liable if any of our products, or any product which is made with the use or incorporation of any of our technologies, causes injury of any type or is found otherwise unsuitable during product testing, manufacturing, marketing, sale or usage. There is no assurance that we would be successful in defending any product liability lawsuits brought against us. Moreover, there is no assurance that our products will not be included in unethical, illegal or inappropriate research or applications, which may in turn put us at risk of litigation. Regardless of merit or eventual outcome, product liability claims could result in:

Decreased demand for our products;
Lost revenues;
Damage to our image or reputation;
Costs related to litigation;
Increased product liability insurance costs;
Diversion of management time and attention; and
Incurrence of damages payable to plaintiffs.

 

We are selling the InteliSwab® Covid-19 Rapid Test and the OraQuick® In-Home HIV test in the United States OTC market, and we offer HIV Self-Tests to consumers internationally. We believe the sale of products for use by consumers increases our potential exposure to product liability and other claims.

 

Performance of Our Products May Affect Our Revenues, Stock Price and Reputation.

 

Our products are generally sold with labeling that contains performance claims approved or cleared by the FDA or other regulators. However, our products may not perform as expected. For example, a defect in one of our diagnostic or specimen collection products or a failure by a customer to follow proper testing procedures, may cause the product to report inaccurate information such as a false positive result or a false negative result. A false positive or negative result can also occur even when there is no apparent product defect and the customer has apparently used our product properly. Identifying the root cause of a product performance or quality issue can be difficult and time consuming.

 

If our products fail to perform in accordance with the applicable label claims or otherwise in accordance with the expectations or needs of our customers, customers may switch to a competing product or otherwise stop using our products, and our revenues could be adversely affected. Under such circumstances, we may be required to implement shipment holds or product recalls and incur warranty obligations, which would increase our costs. In addition, poor performance by one or more of our products and publicity surrounding such performance could have an adverse effect on our reputation, our continuing ability to sell products and the prevailing market price of our Common Stock.

 

Our Ability to Sell Products Could be Adversely Affected by Competition From New and Existing Products and Services.

 

The markets we serve are highly competitive and rapidly changing and we expect competition to intensify as technological advances are made and become more widely known, and as new products and services reach the market. Many of our principal competitors have considerably greater financial, technical and marketing resources than we do. As new products and services enter the market, our products and services may become obsolete or a competitor’s products and services may be more effective or attractive or more effectively marketed and sold than ours. In addition, there can be no assurance that our competitors will not succeed in obtaining

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regulatory approval for new products and services that would render our technologies, products and services obsolete or otherwise commercially unattractive, or introduce or commercialize such products and services before we can do so. If we fail to convince our customers of the advantages and economic value of our products and services or otherwise maintain and enhance our competitive position, our customers may decide to use products and services developed by competitors which could result in a loss of revenues. These developments could have a material adverse effect on our business, financial condition and results of operations.

 

We also face competition from products that are sold at a lower price. Where this occurs, customers may choose to buy lower cost products from third parties or we may be forced to sell our products at a lower price, both of which could result in a loss of revenues or a lower gross margin contribution from the sale of our products. We may also be required to increase our marketing efforts in order to compete effectively, which would increase our costs.

 

Failure to Achieve Our Financial and Strategic Objectives Could Have a Material Adverse Impact on Our Business Prospects.