Brian Marckx, CFA
CEMI Hitting Milestones
Chembio Diagnostics, Inc (CEMI) continues to make progress in commercializing its Dual Path Platform (DPP) rapid diagnostic tests in both the U.S. and overseas. A couple of key milestones were recently hit, which included gaining regulatory approval for its DPP rapid test for canine leishmania in Brazil and submitting the first of three PMA modules for FDA approval of their DPP oral fluid HIV test.
Per a technology transfer agreement with Brazil-based FIOCRUZ, the approval of the leishmania (announced April 5, 2011) test triggers a $305k milestone payment to Chembio. FIOCRUZ is also obligated to make minimum purchases of $2.4 million of this test.
In March 2011 Chembio submitted a request to the FDA seeking approval to file for PMA regulatory approval through three separate modules. In a press release this morning (April 19, 2011) Chembio announced the FDA approved its modular filing request and also that the company submitted the first of three modules. Module filings are becoming more commonplace as they allow regulators to look over each filing when submitted, therefore potentially significantly reducing the time it takes to gain FDA approval. Chembio noted in their press release that they hope to have the second and third modules filed in the third and fourth quarters of 2011.
Chembio’s DPP platform aims to combine the convenience of oral fluid testing with advantages over legacy lateral flow technology including greater accuracy. We model the DPP HIV oral fluid test to launch in the U.S. in late 2012 (if all goes smoothly, this could be conservative). The benefits afforded by DPP’s next-generation technology, along with further implementation of (and compliance with) CDC HIV testing recommendations means Chembio’s revenue could ramp very rapidly upon launch of the test in the U.S.
In the meantime, we expect Chembio’s lateral flow products to continue to post strong growth in the U.S. and, combined with sales of the DPP tests in Brazil, help push Chembio’s revenue up 24% in 2011. This follows record revenues in 2010. With a healthy balance sheet, positive operating cash flow, growing revenues and a future getting brighter with every press release, we think Chembio continues to trade much cheaper than is warranted and represents a classic “under-the-radar” stock.
We cover Chembio and have a $1.10 price target and Outperform rating on the stock. See below for access to a free copy of our latest updated report on Chembio.
For a free copy of the research report, please email scr@zacks.com with CEMI as the subject.
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