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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark one)

for the fiscal year ended December 31, 2002.

OR

for the transition period from              to             .

Commission File No. 001-16537

ORASURE TECHNOLOGIES, INC.

(Exact Name of Registrant as Specified in Its Charter)

(610) 882-1820

(Registrant’s Telephone Number, Including Area Code)

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

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

Common Stock, $.000001 par value per share

(Title of Class)

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 x    No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes x    No ¨

State the aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, 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 28, 2002): $200,531,507

Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of March 26, 2003: 38,363,618 shares.

Documents Incorporated by Reference:

Portions of the Registrant’s Definitive Proxy Statement for the 2003 Annual Meeting of Stockholders are incorporated by reference into Part III of this Report.

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Statements contained in this Report regarding future events or performance are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Our actual results could be quite different from those expressed or implied by the forward-looking statements. Factors that could affect our results are discussed more fully under the Sections entitled, “Forward-Looking Statements” and “Risk Factors,” in Item 1 and elsewhere in this Report. Although forward-looking statements help to provide complete information about us, 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.

PART I

ITEM 1.     Business.

Our Company was formed in May 2000 under Delaware law solely for the purposes of combining two companies, STC Technologies, Inc. (“STC” or “STC Technologies”) and Epitope, Inc. (“Epitope”), and changing the state of incorporation of Epitope from Oregon to Delaware. STC Technologies and Epitope were merged into our Company on September 29, 2000 (the “Merger”). Our principal offices are located at 220 East First Street, Bethlehem, Pennsylvania 18015, and our telephone number is (610) 882-1820.

General

We develop, manufacture and market oral fluid specimen collection devices using proprietary oral fluid technologies, diagnostic products including immunoassays and other in vitro diagnostic tests, and other medical devices. These products are sold in the United States and certain foreign countries to various distributors, government agencies, clinical laboratories, physicians’ offices, hospitals, and commercial and industrial entities.

In vitro diagnostic testing is the process of analyzing oral fluid, blood, urine and other bodily fluids or tissue for the presence of specific substances or markers for drugs of abuse, infectious diseases or other conditions. In vitro diagnostic tests are performed outside the body, in contrast to in vivo tests, which are performed directly on or within the body. The substance or marker that a diagnostic test is intended to detect is generally referred to as an analyte.

Immunodiagnostic testing is the leading method of in vitro testing for antigens and antibodies. When an infectious disease caused by pathogens, such as bacteria, viruses and fungi, or other substances are present, the body responds by producing an antibody. Substances that stimulate production of antibodies are generally referred to as antigens. An antibody binds specifically with an antigen in a lock-and-key fashion that initiates a biochemical reaction to attempt to neutralize and, ultimately, eliminate the antigen. The ability of an antibody to bind with a specific antigen provides the basis for immunodiagnostic testing.

Additional information about the Company can be found on our website. Our website address is www.orasure.com. We make available free of charge through a link provided at such website our Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q and our Current Reports on Form 8-K, as well as any amendments to those Reports. Such reports are made available as soon as reasonably practicable after they are filed or furnished to the Securities and Exchange Commission. Our Internet website and the information contained in or connected to that website are not intended to be incorporated by reference into this Report.

Products

Our principal products currently include the following:

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OraSure^®/Intercept^® Collection Devices

Our OraSure^® oral fluid collection device is used in conjunction with screening and confirmatory tests for HIV-1 antibodies and other analytes. This device consists of a small, treated cotton-fiber pad on a nylon 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.

We believe that oral fluid testing has several significant advantages over blood or urine-based testing systems, for both health care professionals and the individuals being tested. These advantages include eliminating the risk of needle-stick accidents, providing a noninvasive collection technique, requiring minimal training to administer, providing rapid and efficient collection in almost any setting, and reducing the cost of administration by a trained health care professional.

We have received premarket approval from the U.S. Food and Drug Administration (the “FDA”) to sell the OraSure^® collection device for use with a laboratory-based enzyme immunoassay (“EIA”) screening test for HIV-1 antibody detection. This EIA screening test has been approved by the FDA for use with our OraSure^® device and is manufactured and sold by another party.

HIV-1 antibody detection using the OraSure^® collection device involves three steps:

A trained health care professional then conveys test results and provides appropriate counseling to the individual who was tested. We have also received FDA 510(k) clearance for use of the OraSure^® collection device with EIAs to test for cocaine and cotinine (a metabolite of nicotine) in oral fluid specimens.

A collection device that is substantially similar to the OraSure^® device is sold under the name, Intercept^®, and is used to collect 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., cannabinoids (marijuana), cocaine, opiates, amphetamines/methamphetamines, and phencyclidine (“PCP”)), and for barbiturates, methadone and benzodiazepines.

We believe that the Intercept^® device has several advantages over certain competing drug testing products, including its lower total cost, its non-invasive nature, safety, 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 on demand, eliminate scheduling costs and inconvenience, and streamline the testing process.

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OraQuick^® Rapid Test

OraQuick^® is our rapid test platform designed to test an oral fluid, whole blood or serum/plasma sample 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 whole blood is to be tested, a loop collection device is used to collect less than a drop of blood and mix it in the developer solution, after which the collection pad is inserted into the solution. The specimen and solution then flow through the testing device where test results are observable in approximately 20 minutes. The OraQuick^® device is a screening test and requires a confirmation test where an initial positive result is obtained.

Our first product utilizing this technology is the OraQuick^® rapid HIV-1 antibody test, a rapid test for the presence of antibodies against HIV-1. On November 7, 2002, we received premarket approval of this test from the FDA for detecting HIV-1 in finger-stick whole blood samples. This FDA approval is based on data indicating that the OraQuick^® test has sensitivity of 99.6% and specificity of 100%, based on clinical studies we performed using finger-stick whole blood specimens. Sensitivity is a measure of the accuracy for detecting positive specimens, and specificity is a measure of the accuracy for identifying negative specimens.

As a result of this FDA approval, the OraQuick^® test is available for use by the nearly 40,000 locations in the United States certified under the Clinical Laboratory Improvements Amendments of 1988 (“CLIA”), to perform moderately complex diagnostic tests. Additionally, in January 2003, we received a waiver under CLIA for the OraQuick^® rapid HIV-1 antibody test. This waiver will also permit the use of the OraQuick^® test by approximately 140,000 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.

During 2003, we expect to submit an application to the FDA for approval of an OraQuick^® test for use in detecting antibodies for HIV in oral fluid samples. We are also likely to pursue FDA approval of the use of the OraQuick^® test for detecting HIV in venous whole blood and serum/plasma samples.

The Centers for Disease Control and Prevention (“CDC”) has identified several key areas for use of our OraQuick^® device in the United States, including certain public hospitals in U.S. metropolitan areas with a relatively high incidence of HIV infection in pregnant women, AIDS service organizations, community-based organizations, outreach programs, and selected hospital emergency departments and outpatient clinics. Under a treatment Investigational Device Exemption granted by the FDA, the OraQuick^® device is being used in the CDC’s Mother-Infant Rapid Intervention at Delivery Project (MIRIAD) to test pregnant women in five U.S. metropolitan areas. The goal of this project is to identify those individuals who would benefit from the administration of nevirapine, a drug used to reduce mother-to-child HIV-1 transmission. The OraQuick^® device was also selected for use in the CDC’s LIFE Initiative, an international effort to address the AIDS epidemic in certain African countries, focusing on areas such as preventing mother-to-child transmission, secondary transmitted disease prevention, HIV prevention for youth, and blood safety systems.

Histofreezer^®

In 1991, we became the exclusive United States distributor of the Histofreezer^® wart removal system, a low-cost alternative to liquid nitrogen and other methods for removal of warts and other benign skin lesions by physicians. In June 1998, we acquired the Histofreezer^® product from Koninklijke, Utermöhlen, N.V., The Netherlands. As part of the acquisition, we established a sales office in Reeuwijk, The Netherlands, and we are selling the Histofreezer^® product through a dealer network in more than 20 countries worldwide. Most of our Histofreezer^® sales occur in the United States to family doctors, pediatricians and podiatrists.

The Histofreezer^® product mixes two environmentally friendly cryogenic gases in a small aerosol canister. When released, these gases are delivered to a specially designed foam bud, cooling the bud to –50°C. The frozen bud is then applied to the wart or lesion for 15 to 40 seconds (depending on the type of lesion) creating localized destruction of the target area.

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Immunoassay Tests and Reagents

We develop and sell immunoassay tests in two formats, known as MICRO-PLATE and AUTO-LYTE^®, to meet the specific needs of our customers.

AUTO-LYTE^® tests are sold in the form of bottles of liquid reagents. These reagents are run on commercially available laboratory-based automated analytical instruments, which are manufactured by a variety of third parties. AUTO-LYTE^® is typically used in high volume, automated, commercial reference insurance laboratories to detect certain drugs or chemicals in urine. Test results are produced quickly, allowing for high throughput.

In the MICRO-PLATE kit, the sample to be tested is placed into a small plastic receptacle, called a microwell, along with the reagents. The result of the test is determined by the color of the microwell upon completion of the reaction. Controlling the reaction involves the use of a variety of reagents by laboratory personnel. Test results are analyzed by any of a variety of commercially available laboratory instruments, which we may also provide to our laboratory customers. 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.

Whenever possible, we enter into multi-year sales agreements with our customers. These agreements generally are entered into with a laboratory that has agreed to purchase a minimum number of tests over a two-to-five-year period. We also offer these customers the option of a reagent rental agreement under which we sell the tests at an increased price over a fixed period of time, which includes an additional equipment charge in exchange for providing the customer with the required analytical laboratory equipment. We obtain this equipment from third party vendors.

Western Blot HIV-1 Confirmatory Test

We market an oral fluid Western Blot HIV-1 confirmatory test that received premarket approval from the FDA in 1996. This test uses the original specimen collected with the OraSure^® oral fluid collection device to confirm positive results of initial oral fluid HIV-1 EIA screening tests. The oral fluid Western Blot HIV-1 confirmatory test is marketed under an exclusive arrangement with bioMerieux Inc. (formerly Organon Teknika Corporation) (“BMX”).

In January 2001, we suspended the production of EPIblot^®, a serum-based Western Blot HIV-1 confirmatory test. The serum Western Blot product accounted for approximately 5% of the Company’s 2000 revenues, but had been consistently unprofitable because of low production yields and the high cost of quality control. The discontinuation of this product had no effect on the manufacturing or sale of our oral fluid Western Blot HIV-1 confirmatory test.

Q.E.D.^® Saliva Alcohol Test

Our Q.E.D.^® saliva alcohol test is an on-site, cost-effective test device that is an alternative to breath or blood alcohol testing. The test is a quantitative, saliva-based method for the detection of ethanol, and has been cleared for sale by the FDA and the U.S. Department of Transportation (“DOT”). In 1997, the product also received a CLIA waiver.

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.

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Products Under Development

UPT^™ and UPlink^™ Development

During 2002 and prior years, much of our research and development efforts were focused on our Up-Converting Phosphor Technology (“UPT^™”) and the first UPT^™ application expected to be commercialized, our UPlink^™ rapid, point-of-care system for detecting drugs of abuse in oral fluid.

Up-Converting Phosphor Technology.    UPT^™ is a proprietary label detection platform that uses phosphor particles to detect minute quantities of various substances. UPT^™ utilizes the same particle shell that is coated onto a television screen, but the internal chemistry of the particle has been changed. These changes result in a particle that is excited by infrared light as compared to an ultraviolet light source for television screens. With assistance from our research partners, we have developed phosphorescent particles that up-convert infrared light to visible light, which we believe is a platform technology with broad applications.

Phosphor particles have been used for decades in television screens and in fluorescent light bulbs. When high energy ultraviolet light strikes the phosphor-coated area in a screen or bulb, it excites the particles and low energy visible colored light is produced. Our patented improvements on this base technology employ chemical changes inside the phosphor particles so that low energy infrared light can be used to produce a high energy visible colored signal and is the basis for UPT^™. This use of infrared light to create a colored signal is called up-conversion as opposed to down-conversion, which occurs in phosphors designed to be used with ultraviolet light.

The use of infrared light to excite the phosphor particles and produce a visible light signal creates what we believe is an important competitive advantage for the technology in biological systems, especially human clinical diagnostics. Existing enzyme or fluorescent-based assays employ visible or ultraviolet light to generate the signals from the enzyme substrate or fluorescent molecules used as reporter signals in these systems. The disadvantage of using light in the visible or ultraviolet portion of the spectrum is that often molecules in the cells or samples for analysis can also produce background interference from these excitation sources. When this occurs, a non-specific signal is generated which dilutes or obscures the signal of interest for the diagnostic test being administered. Because up-conversion does not occur in nature, biological samples and specimens will not produce light and, therefore, will not cause background interference when excited by infrared light.

We believe that UPT^™ overcomes some of the limitations of other diagnostic detection methods and offers features not commercially available today. The fact that UPT^™ testing produces zero background interference dramatically increases the potential sensitivity of any test system. In addition, UPT^™ offers the following other key competitive features:

We have reached certain important milestones in the development of UPT^™, including improving the manufacturing process to produce UPT^™ particles, working to optimize UPT^™ particle coating techniques, producing four distinct colors of UPT^™ particles to permit multiplexing, demonstrating initial feasibility for the use of UPT^™ particles in infectious disease, cancer, and limited DNA detection applications, and developing a UPT^™ collector, test cassette, and analyzer for use in testing oral fluid for drugs of abuse.

We believe UPT^™ may have several potential applications for in vitro diagnostics, including human clinical testing for cancer, allergies, and thyroid and cardiac conditions, and for therapeutic drug monitoring, biological

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warfare testing, food and environmental testing, pharmaceutical research, genomics and pharmacogenomics, veterinary testing, and surgical imaging. We also believe that UPT^™ labels may be used for the detection of infectious diseases with DNA probes. However, we have not yet fully explored these potential UPT^™ applications and have not determined which applications to pursue or the manner in which these opportunities will be pursued, if at all. We believe we will need to enter into partnering arrangements with other entities to exploit fully the potential of UPT^™.

UPlink^™.    UPlink^™ is our first product UPT^™-based application under development. UPlink^™ is designed to be a rapid, point-of-care system utilizing a collector, lateral flow test cassette, and analyzer (including software), that can quickly provide instrument-read results on a variety of samples, including oral fluid, blood, serum, urine and stool samples.

In April 2002, we received 510(k) clearance from the FDA for the UPlink^™ system to detect opiates in oral fluid. This is the only point-of-care oral fluid drug test system to receive FDA clearance. The UPlink^™ analyzer has also been certified as meeting certain standards required for the sale of electrical and light-emitting equipment internationally. Although our opiates-only UPlink^™ detection system has no commercial potential, we are developing an UPlink^™ detection system for the full NIDA-5 panel of tests – cocaine, methamphetamines/amphetamines, PCP, opiates and marijuana – which we believe can be commercialized. We intend to apply for FDA 510(k) clearance of an UPlink^™ system for the full NIDA-5 panel of tests in mid-summer of 2003. Subject to receipt of this FDA clearance, we plan to market this system directly in the workplace and criminal justice markets in the United States.

Although we have made significant progress with respect to the development of the UPlink^™ rapid point-of-care drugs of abuse detection system, there can be no assurance that we will be successful in completing this development or in commercializing this potential new product. Assuming FDA 510(k) clearance is obtained, we do not expect to receive significant amounts of revenues from this product until at least 2004 or later.

In March 2000, we signed a research and development agreement with Dräger Safety AG & Co. KGaA (formerly Dräger Sicherheitstechnik GmbH) (“Dräger Safety”), a European manufacturer and supplier of medical and safety technology products for health care and industrial applications. This agreement provided for the development of the UPlink^™ system for rapid detection of drugs of abuse in oral fluid. After research and development activities are completed, Dräger Safety has the option to become our exclusive distributor of this product in Europe and certain other countries to law enforcement officials for rapidly assessing whether an operator or passenger in a motor vehicle is under the influence of one or more drugs of abuse (the “roadside market”) and ultimately to certain military, criminal justice, and workplace testing markets. We received a non-refundable fee from Dräger Safety under the agreement and will receive additional fees upon achievement of certain technical milestones.

In September 2000, we signed a research and development agreement with Meridian Bioscience, Inc. (formerly Meridian Diagnostics, Inc.) (“Meridian”), a medical diagnostics company. Under this agreement, we intended to develop a range of UPlink^™ point-of-care tests for the rapid detection of parasites, and gastrointestinal and upper respiratory diseases. Development of one test, for the respiratory syncytial virus (“RSV”), has been substantially completed and this product is currently undergoing field trials. However, due to development delays and certain other events, we have agreed in principle with Meridian to terminate this agreement. Despite the expected termination of our agreement, we intend to complete development and pursue FDA 510(k) clearance and commercialization of the RSV test. In addition, we intend to seek other potential parties to help fund the development of other infectious disease applications for UPlink^™ that we had previously intended to develop with Meridian.

We are participating in a $4.2 million, four-year grant for research and development of saliva/oral fluid-based diagnostic technologies, awarded by the National Institutes of Health (the “NIH”) to the University of Pennsylvania. The grant will cover basic research in the following three main areas:

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The research plan under the grant contemplates achieving these goals through the use of our UPlink^™ rapid detection system.

Our portion of funding under the grant is expected to be made available over a four-year period, with approximately $400,000 available in the first year and each year thereafter. Payments under the grant in the second, third and fourth years, will be subject to availability of funds from the NIH and satisfactory progress of the research and development project.

OraSure^®/Intercept^® Applications

Oral mucosal transudate contains many constituents found in blood and serum, although in lower concentrations. We believe the OraSure^® and Intercept^® devices are a platform technology with a wide variety of potential applications, where laboratory testing is available. For example, the OraSure^® device may be useful for the diagnosis of a variety of infectious diseases or conditions in addition to HIV-1, such as viral hepatitis.

OraQuick^® Platform

We believe that OraQuick^® has significant potential as a point-of-care test platform for physicians’ offices, hospitals, and other markets. Like the OraSure^® device, we believe that OraQuick^® provides a platform technology that can be modified for detection of a variety of infectious diseases in addition to HIV, such as viral hepatitis and other diseases.

We have received FDA premarket approval for the OraQuick^® test for detecting HIV-1 in finger-stick whole blood samples. We are developing additional applications and will likely seek FDA approval for OraQuick^® for use in testing oral fluid, venous whole blood and serum/plasma samples.

Research and Development

In 2002, our research and development activities focused on the continued development of the UPlink^™ analyzer, test cassette and collector, the development of the UPlink^™ drugs of abuse and RSV assays, DNA feasibility studies, clinical trials for the OraQuick^® rapid HIV-1 antibody test, and improvements to certain of our existing products.

We supplement our own research and development activities by funding external research. We have funded research at Leiden University and certain other entities, and intend to continue funding external research.

Research and development expenses totaled approximately $8.3 million in 2002, $9.4 million in 2001, and $10.4 million in 2000.

Sales and Marketing

Our strategy is to reach our major target markets through a combination of direct sales, strategic partnerships, and independent distributors. Our marketing strategy is to raise awareness of our products through a mix of trade shows, print advertising, and distributor promotions to support sales in each target market.

We market our products in the United States and internationally. Revenues attributable to customers in the United States amounted to $28.1 million, $27.3 million and $24.8 million in 2002, 2001 and 2000, respectively. Revenues attributable to international customers amounted to $3.9 million, $5.3 million and $4.0 million, or 12%, 16% and 14% of our total revenues, in 2002, 2001 and 2000, respectively.

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Insurance Risk Assessment

We currently market the OraSure^® oral fluid collection device for use in screening life insurance applicants in the United States and internationally to test for three of the most important underwriting risk factors: HIV-1, cocaine, and cotinine (a metabolite of nicotine). Devices are sold to insurance testing laboratories, including LabOne, Heritage Labs and Clinical Reference Laboratories. These laboratories in turn provide the devices to insurance companies, usually in combination with testing services.

We also maintain a direct sales force that promotes use of the OraSure^® device directly to insurance companies. Insurance companies then make their own decision regarding which laboratory to use to supply their collection devices and testing services. Our OraSure^® Western Blot confirmatory test is distributed through BMX to laboratories and is used to confirm oral fluid specimens that initially test positive for HIV-1.

Because insurance companies are in various stages of their adoption of the OraSure^® device, there exists a wide range of policy limits where the product is being applied. Some insurance companies have chosen to extend their testing to lower policy limits where they did not test at all before, while others have used OraSure^® to replace some of their blood and urine-based testing. In general, most of our insurance company customers use the OraSure^® device in connection with life insurance policies having face amounts of up to $250,000, with some customers using the device for policies of up to $500,000 in amount.

Our sales force continues to encourage additional insurance companies to use OraSure^® and to extend the use of the product by existing customers. A small number of companies have expanded use of OraSure^® to the $1 million and higher dollar policy amounts. This expansion is attributable to several factors, including increasing acceptance of the reliability of oral fluid testing, the high quality of test results, the low cost of oral fluid testing relative to blood tests, and the ease of use of the OraSure^® device.

We also sell our AUTO-LYTE^® and MICRO-PLATE assays and reagents in the insurance testing market directly to laboratories, including LabOne, Heritage Labs, Clinical Reference Laboratory, and the laboratory testing division of the Metropolitan Life Insurance Company. AUTO-LYTE^® assays are used principally to test urine samples for cotinine and other metabolites and to perform urine chemistries for risk assessment purposes. MICRO-PLATE assays are used principally to test oral fluid specimens collected with the OraSure^® device for cocaine and cotinine.

Infectious Disease Testing

Our sales personnel market the OraSure^® oral fluid collection device, separately and as a kit in combination with laboratory testing services (as described below), and the OraQuick^® rapid HIV-1 antibody test directly to customers in the public health market for HIV-1 testing. This market consists of a broad range of clinics and laboratories and includes states, counties, and other governmental agencies, 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 set up primarily for the purpose of encouraging and enabling HIV-1 testing.

To better serve our public health customers, we have entered into agreements with LabOne and Heritage Labs to provide prepackaged OraSure^® test kits, with prepaid laboratory testing and specimen shipping costs included. We also sell the OraSure^® and OraQuick^® devices in the international public health markets.

In June 2002, we entered into an agreement under which Abbott Laboratories was appointed as the co-exclusive distributor of the OraQuick^® rapid HIV-1 antibody test in the United States. We expect Abbott ultimately to focus primarily on the hospital and physician office market, while we intend to primarily target our direct sales to the public health and criminal justice markets, the military, the CDC and other agencies.

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Substance Abuse Testing

Our substance abuse products are marketed into the workplace testing, forensic toxicology, criminal justice, and drug rehabilitation markets, through direct sales and distributors. The forensic toxicology market consists of 250 – 300 laboratories including federal, state and county crime laboratories, medical examiner laboratories, and reference laboratories. The criminal justice market consists of a wide variety of entities in the criminal justice system that require drug screening, such as pre-trial services, parole and probation officials, police forces, drug courts, prisons, drug treatment programs and community/family service programs.

We have entered into agreements for the distribution of Intercept^® collection kits and associated reagents for drugs-of-abuse testing in the workplace testing market in the United States and Canada through several laboratory distributors, including LabOne, Quest Diagnostics, Clinical Reference Laboratory and NWT, Inc., and internationally for workplace and forensic toxicology testing through Bio-Rad Laboratories, Altrix HealthCare, plc, and other distributors. We assist our laboratory customers in customizing their testing services by selling them equipment required to test oral fluid specimens collected with the Intercept^® device.

We also distribute our Q.E.D.^® saliva alcohol test primarily through various distributors. 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. The Q.E.D.^® test has been successfully adopted by end users in the petroleum, heavy construction, trucking, and retail industries because it is a cost-effective, portable, easy-to-administer, quantitative testing method. Typical usage situations include pre-employment, random, post-accident, reasonable-cause, and return-to-duty testing.

Physicians’ Offices

We sell the Histofreezer^® product line to distributors that market to more than 150,000 primary care physicians and podiatrists in the United States. Major U.S. distributors include Cardinal Healthcare, McKesson HBOC, Physicians Sales & Service, AmerisourceBergen Corporation, and Henry Schein. Internationally, we market Histofreezer^® in a number of countries through a network of distributors. We are presently exploring ways to further penetrate the physicians’ office market and we are considering expanding into potential new markets for Histofreezer^®.

International Markets

We sell a number of our products into international markets primarily through distributors with knowledge of their local markets. Principal markets include physicians’ offices, insurance risk assessment, public health, and laboratory testing.

We assist our international distributors in registering the products and obtaining required regulatory approvals in each country, and we provide training and support materials. Our international marketing program includes direct assistance to distributors in arranging for laboratory services, cooperation from screening test manufacturers, and performance of Western Blot confirmatory tests when necessary.

Significant Products and Customers

Several different products have contributed significantly to our financial performance, accounting for 15% or more of total revenues during the past three years. The OraSure^® and Intercept^® oral fluid collection devices, Histofreezer^® product, and immunoassay tests and reagents accounted for total revenues of approximately $14.3 million, $7.2 million and $7.6 million in 2002, $13.0 million, $6.7 million and $7.4 million in 2001, and $11.2 million, $6.8 million and $6.7 million in 2000, respectively. As new products are developed and commercialized, we expect to reduce our dependence on these products.

We currently have one customer, LabOne, that accounted for 26% of our total revenues during 2002.

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In August 2001, LabOne acquired Osborne Group, Inc., our second largest laboratory customer in the insurance risk assessment market. As a result of this acquisition and other operating improvements, LabOne has achieved certain efficiencies and reduced its overall inventory levels, which in turn lowered their purchases of our insurance testing assays during 2002. We believe this is an indication that the market for our insurance testing assays will continue to come under pressure as LabOne and our other laboratory customers are expected to try to reduce their costs by improving their efficiencies or possibly using competing products. There can be no assurance that sales to LabOne will not decrease further or that this customer will not choose to replace our assays or other products with internally-developed products or products manufactured by our competitors. The loss of LabOne or a significant decrease in the volume of products purchased by it would have a material adverse effect on our results of operations.

Supply and Manufacturing

We have entered into an agreement with a contractor in the United States for the assembly and supply of our OraSure^® and Intercept^® oral fluid collection devices. This agreement has a current term through December 31, 2003 and automatically renews for additional annual periods, unless either party provides timely notice of termination prior to the end of an annual period. A change in the manufacturer of the OraSure^® device would require FDA review and approval, which could require significant time to complete and disrupt our ability to manufacture this product. Subject to receipt of the applicable FDA approval, we intend to terminate the agreement with this contractor and transfer manufacturing of both the OraSure^® and Intercept^® collection devices to our Bethlehem, Pennsylvania facility beginning later in 2003.

We manufacture the OraQuick^® test in our Bethlehem, Pennsylvania facilities. In addition, we have entered into a supply agreement for the assembly of the OraQuick^® device in Thailand, in order to supply certain international markets. This agreement has an initial term of one year, and will automatically renew for additional annual periods unless either party provides a timely notice of termination prior to the end of an annual period. We believe that other firms would be able to manufacture the OraQuick^® test on terms no less favorable than those set forth in the agreement if the Thailand contractor would be unable or unwilling to continue manufacturing this product.

We can purchase the HIV antigen and the nitrocellulose strips required for the OraQuick^® test only from a limited number of sources. The antigen is currently purchased from a single contract supplier under a long-term agreement with an initial term ending in January 2010 and one-year automatic renewal terms thereafter. The nitrocellulose used in the test is also provided by a single contract supplier, and we are presently negotiating a long-term supply agreement with this party. If for any reason these suppliers are 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 the antigen or nitrocellulose would require FDA approval and some additional development work, which would require significant time to complete and could disrupt our ability to manufacture and sell the OraQuick^® device.

The oral fluid Western Blot HIV-1 confirmatory test is manufactured in our Beaverton, Oregon facility. Subject to receipt of FDA approval, we expect to transfer the manufacturing of this product to our Bethlehem, Pennsylvania facility. The HIV antigen needed to manufacture the Western Blot test is available from only a limited number of sources. For many years, we have purchased the antigen for this product from BMX on an exclusive basis. BMX is also the exclusive distributor of the Western Blot test kits.

In October 2002, we entered into new agreements with BMX, which replaced existing agreements between the companies. These new agreements provide for the continued supply by BMX of the HIV-1 antigen and distribution of the oral fluid Western Blot product by BMX on an exclusive worldwide basis. If for any reason BMX is no longer able to supply our antigen needs, we would be able to obtain alternate supplies at a competitive cost. However, a change in the antigen would require FDA approval and some additional development work, which would require significant time to complete and could disrupt our ability to manufacture and sell the Western Blot HIV-1 confirmatory test.

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We expect to assemble analyzers, test cassettes and collectors used in our UPlink^™ drugs of abuse rapid detection system and to package this product for shipment at our Bethlehem, Pennsylvania facilities.

Histofreezer^® is manufactured in The Netherlands by Koninklijke, Utermöhlen, N.V. (“Utermöhlen”), the company from which we acquired the product in 1998. We purchase the product pursuant to an exclusive production agreement. This agreement provides that Utermöhlen will be the exclusive supplier of the Histofreezer^® product until at least December 31, 2006. We believe that additional manufacturers of the Histofreezer^® product are available on terms no less favorable than the terms of the production agreement with Utermöhlen, in the event that Utermöhlen would be unable or unwilling to continue manufacturing the Histofreezer^® product.

Our AUTO-LYTE^® and MICRO-PLATE assays are manufactured in our Bethlehem, Pennsylvania facility. These tests 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 Q.E.D.^® saliva alcohol test is manufactured and packaged for shipment in our Bethlehem, Pennsylvania facility.

Employees

As of December 31, 2002, we had 187 full-time employees, including 38 in sales, marketing, and client services; 44 in research and development; 87 in operations, manufacturing, quality control, purchasing and shipping; and 18 in administration and finance. Seventeen of our employees hold Ph.D. degrees. This compares to 225 employees as of December 31, 2001. Our employees are not currently represented by a collective bargaining agreement.

During 2002, we implemented a 17% headcount reduction primarily as a result of lower than anticipated sales levels during 2001 and t