Epitope, Inc. CEO details rapid growth of oral fluid HIV test
Full article published: 09/27/1999
JOHN W. MORGAN is President and Chief Executive Officer of Epitope, Inc. (Nasdaq:EPTO).

TWST: Could you give us a quick overview and a little history of Epitope, just to set the stage for the readers.

Mr. Morgan: Epitope is a medical diagnostic company. We're a developer and marketer of oral fluid diagnostic tests, used to detect HIV-1 and other medical conditions. Our principal product is the OraSure oral fluid collection device. We also manufacture two HIV-1 confirmatory tests: one serum-based Western blot; the other an oral fluid Western blot. We primarily serve the U.S. life insurance and public health sectors in the U.S. and mainly serve the public health sectors internationally.

We're also expanding this platform technology in areas such as drugs-of-abuse detection, H-Pylori, hepatitis and syphilis testing.

TWST: Who are your customers? Are they the physicians?

Mr. Morgan: In the life insurance industry it's primarily the reference labs and secondarily the U.S. life insurance companies who provide life insurance to clients around the world. They use our product to test applicants for life insurance policies. The advantage that our product provides these companies is the ability for them to provide a diagnostic testing regimen to their clients in a very safe, noninvasive and cost-effective way and to give them the type of diagnostic information they need to make good decisions as it relates to the risk profile of those clients.

TWST: Is it the same thing in public health?

Mr. Morgan: The public health market is different. We serve the classic areas in public health that one would expect when you're talking about HIV detection. Which are the state and county health departments, AIDS service organizations like the Whitman-Walker Clinic in Washington, D.C., colleges and universities, corrections and community-based outreach organizations. Anyone who is doing testing, particularly for HIV in those markets, would be a potential client of ours.

TWST: How big are these markets at this point?

Mr. Morgan: You have to really define the markets individually. If you look at the life insurance market, in the U.S. alone there are approximately 12-13 million life insurance policies issued annually in this country. Of those, about 80 percent of those policies are issued at a fairly low face value amount, $100,000 or less. That's really the market where our product is most effective because when someone is coming in for a life insurance policy, let's say, below $500,000, the cost of providing information back to the insurance companies can become prohibitive if not done through some alternative method. We allow the life insurance companies to use our product with their agents to actually collect samples from those individuals at the time the policies are applied for.

TWST: Is that market growing?

Mr. Morgan: Absolutely. We just put out a press release - yesterday, as a matter of fact - indicating that the use of our product in life insurance companies year over year has grown nearly 50 percent from 102 life insurance companies using the product last year to over 150 today. So the market is growing. And when you look at test volume, we've seen the growth over the past couple of years exceed 25 percent.

TWST: Is your product replacing the prior physi-cian-administered tests?

Mr. Morgan: Our product is the alternative to a blood draw. The life insurance industry will test for three substances - one, for HIV, the second for cotinine, which is a derivative of nicotine, and the third being cocaine. Those three analytes are the ones that are most popular on the part of the insurance companies to test for during the application process. They are able to collect a specimen on those three analytes in a way that does not require a health professional to become involved. The cost of having a paramed come to someone's office or home to take a blood or urine sample is significant, anywhere between $35 in rural areas to upwards of $125 in Manhattan. And those are costs that the life insurance companies themselves bear.

TWST: What's your potential in this area? Is there further room to grow?

Mr. Morgan: Oh, no question about it. If you look at just the U.S. alone, there are 1500 companies that are available to sell life insurance. As I mentioned to you, we deal with approximately 150 or so today. The good news for us is that we have focused our efforts in those companies where the largest potential for our product exists. We have seven of the top 10 life insurance companies in the U.S. using our product in one form or another. And when you break it down, it's very simply the 80/20 rule. The top 200 life insurance companies make up in excess of 80% of the total life insurance policies issued. So we've focused our efforts at going after that population. We still have significant room to grow, not only with bringing new customers on, but in penetrating the current customers that we have.

TWST: Now is there a competing product?

Mr. Morgan: There is no competing product today in oral fluids. Our biggest competition in those areas comes from blood testing. There has been, over the past year or so, the approval a urine HIV product that is being sold in the life insurance area, but at this point our biggest competition is blood draws.

This interview is a small excerpt from a comprehensive interview published in The Wall Street Transcript on9/20/99. For more information call (212) 952 7400. The Wall Street Transcript does not endorse any of the comments made by interviewees, and does not make stock recommendations.

Copyright 1999, Wall Street Transcript Corp. and reprinted here for educational and historical information.

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