CEMI: DPP Products Driving Revenue - Analyst Blog
November 08 2011 - 9:10AM
Zacks
Q3 2011 Financial Results:
DPP Products Driving Revenue
Brian Marckx, CFA
Chembio Diagnostics (CEMI)
reported financial results for the third quarter ending September
30, 2011 on November 3rd. Revenue of $5.92 million crushed
our $4.61 million estimate, the ~ $1.3 million difference split
fairly equally between better than anticipated international sales
of the lateral flow products and much stronger than estimated DPP
product sales to FIOCRUZ. Q3 revenue was a record high for
Chembio, surpassing their previous best quarterly sales of $5.67
million which came in Q4 2010.
Total product sales were $5.53 million, up 46% y-o-y and well ahead
of our $4.14 million estimate. Product sales were highlighted
by $1.71 million in revenue from DPP products sold to FIOCRUZ -
this is an increase from about $50k in Q1 and $850k in Q2.
DPP FIOCRUZ related revenue is expected to be a significant
contributor to the top-line over the next few years and the big
jump in DPP FIOCRUZ sales during Q3 provides evidence that this
could ramp very quickly. It is also noteworthy that
DPP-related sales were the major impetus for the all-time high
quarterly revenue, marking a symbolic inflection point where DPP
product sales (i.e. - Chembio's long-term future) are now beginning
to drive top-line growth much more so than are their legacy lateral
flow products.
Q3 product sales also benefitted from an almost 200% sequential
increase in international HIV lateral flow sales, reflecting the
reversal of an inventory backlog that stunted international HIV
lateral flow sales in Q2.
Q3 EPS was $0.01 on net income of $476k, compared to our $0.00 and
$277k estimates. All of the beat on revenue did not flow
through to the bottom line as a result of slightly narrower gross
margin compared to our estimate and higher SG&A expense,
reflecting sales commissions paid on the higher-than-modeled DPP
FIOCRUZ revenue number.
Cash
Cash from operations was an inflow of $633k in Q3 and $1,559k for
the first three quarters of 2011. Excluding changes in
working capital, operating cash flow was $660k and $971k through
the three and nine months ending 9/30/2011. Investing
activities used $282k through the first nine months of 2011.
Chembio exited Q3 with $3.0 million in cash and equivalents, up
from $2.1 million at the end of Q2. Along with cash generated
from operations, cash balance was bolstered by a draw on one of the
company's loan facilities during the quarter. Total debt was
about $487k at Q3 quarter-end, all of which represents bank
loans. Chembio has significant liquidity and we continue to
expect the company will be able to manage to fund all operations
(including clinical trials, regulatory filings, SG&A, etc.)
through cash on hand and funds from operations.
Business / Pipeline
Update
DPP HIV, U.S.
The first FDA PMA module filing was made in April 2011.
Second module was filed in early October. Clinical trials are
about 90% done (~75% done at end of Q2). CEMI expects trials
to complete during Q4. Notable is that management now
believes that both the blood and oral fluid sample data may be
robust enough to meet FDA requirements. As a reminder, on the
Q2 call management mentioned that the trial data up to that period
indicated the oral fluid data may not meet FDA requirements - but
that they hoped to gain more insight as the data analysis
progressed. The most recent news, that the oral fluid data
may indeed get through the FDA and afford regulatory approval for
both blood and saliva, is very positive. We have again
adjusted our model - which now reflects an increased chance that
the test receives FDA approval for all sample types. We again
reiterate, however, that a worse-case scenario, where the claim for
oral fluid fails to get through FDA, would be far from a crushing
blow for Chembio as we expect there to be considerable demand for
the product with blood sampling alone.
DPP Syphilis (FIOCRUZ)
On May 3, 2011 Chembio announced that FIOCRUZ had received approval
of its DPP Syphilis Treponemal test from Brazilian regulatory
authorities. The Treponemal test is a single-parameter test
for the detection of antibodies specific to Syphilis. Chembio
and FIOCRUZ expect to submit a second Syphilis test for approval in
Brazil either later this year or early in 2012. This second
test is a multiplex screen and confirm assay that incorporates the
Treponemal as well as non-Treponemal parameters. Launch of
the multiplex test, which enables the detection and differentiation
of past versus active infections, will likely significantly broaden
the market for the DPP Syhpilis tests.
The agreement calls for minimum purchases of $5.7 million of these
two tests over three years.
Chembio began evaluating this multiplex Syphilis product in China
with a collaboration partner during Q1 2011 and noted on the Q2
call that results have looked encouraging.
DPP Syphilis Screen and Confirmation (U.S. /
Europe)
Clinical trials in support of 510(k) had been expected to start
during Q2 2011. This was slightly delayed but trials
commenced during Q3. Testing is expected to be completed and
a 510(k) application made in Q1 2012. This screen and
confirmation (Treponemal / Non-treoponemal) test will be the first
of its kind when approved. We expect the test to be a big
driver of Chembio's revenue over the next several years.
The test received CE Marking in early October and Chembio is
currently working to finalize distribution of the test in Europe -
launch is slated for early 2012.
HIV Lateral Flow Tests CE Mark
Study data to support CE Mark of Chembio's HIV 1/2 Stat Pak and
Sure Check HIV 1/2 lateral flow tests were filed in October.
HIV Lateral Flow Home Use Test
In June Chembio announced that it may pursue FDA approval of its
Sure Check HIV 1/2 test for home use (i.e. - OTC). In
September the FDA provided guidance that Chembio will need to
perform additional studies in order to submit for an
Investigational Device Exemption (IDE). Chembio noted on the
Q3 call that they believe they can have these studies completed by
the end of Q1 2012 and submit for an IDE at that time. If the
FDA grants an IDE, Chembio would then need to conduct more clinical
trials. Eventual approval is highly uncertain at this point
and not a near-term event. As such we do not yet model a
contribution from an OTC HIV test.
DPP Flu A/B Antigen
Chembio recently noted due to recent FDA updates to gaining
clearance for this type of test, that the company was evaluating
whether to continue to pursue development. At this point, we
do not expect that the company will continue pursue this test and
have removed all related revenue contribution from our model - this
is a very minor setback as we had only modeled a small contribution
from this test beginning in 2012.
DPP HCV Antibody
Chembio's Q2 10-Q notes that they are putting development of this
on hold. As management had previously indicated that demand
for such a test may not justify further development, the recent
news is not overly surprising. We had been modeling a
relatively insignificant revenue contribution from this product and
removed this from our model prior to Q3 2011 financial results.
DPP Leptospirosis (FIOCRUZ)
Approved in July 2011. Triggered a $100k milestone which was
recognized in Q3.
Battelle / CDC DPP Flu Test
In December 2009, Chembio entered into a $900k milestone-based
development agreement for the development and initial supply of a
multiplex, rapid POC influenza immunity test using the DPP
technology with Battelle Memorial Institute which has a contract
with the United States CDC. Chembio received the final
milestone payment for this agreement in late 2010. In October
2011 Chembio entered a subsequent, related development agreement
with Battelle/CDC to continue work on this project. This
supplemental agreement commences in November 2011 and is expected
to end in Q1 2012 - Chembio expects to receive approximately $250k
over that period related to this agreement. Our model
reflects a small portion of this total received in Q4, with the
remainder in Q1 2012.
OUR 2011
OUTLOOK
Revenue
We now look for 2011 revenue of $ 18.6 million - this is up from
$16.9 million prior to Q3 results and mostly reflects the revenue
beat in Q3. Our current 2011 revenue estimate implies growth
of 11% from 2010 and, more importantly, implies product sales (i.e.
- Chembio's fundamental business) growth of 23% - largely driven by
contribution from DPP products (to FIOCRUZ). Meanwhile, we
model revenue from licenses, grants and milestones (an ancillary
part of the company's operations) to fall 39%. The expected
drop in revenue from these ancillary sources is relatively
meaningless from a longer-term perspective, however, as product
sales (especially DPP) will be the ongoing driver of Chembio's
revenue.
Net Income / EPS
We model Chembio to post net income of $904k and EPS of $0.01 in
2011, up slightly from the $727k and $0.01 that we modeled prior to
Q3 results.
RECOMMENDATION /
VALUATION
Competitors (OSUR and TRIB) trade at an average of 4.0x and 3.5x
estimated 2011 and 2012 sales, respectively. We look for CEMI
to post 2011 and 2012 sales of $18.6 million and $23.6 million
which, based on competitor price/sales ratios, values CEMI at
between $1.09/share and $1.21/share - averaging the two results in
a value of $1.10/share. As a result, we are maintaining both
our Outperform rating $1.10 per share price
target.
Please email scr@zacks.com with CEMI as the subject to
request a free copy of the full research
report. To view our most recent research reports and
subscribe to our daily morning email alert, visit
http://scr.zacks.com/.
Follow Zacks Small Cap Research on Twitter at
Twitter.com/ZacksSmallCap
CHEMBIO DIAGNOS (CEMI): Free Stock Analysis Report
ORASURE TECH (OSUR): Free Stock Analysis Report
TRINITY BIOTECH (TRIB): Free Stock Analysis Report
Zacks Investment Research
Trinity Biotech (NASDAQ:TRIB)
Historical Stock Chart
From Aug 2024 to Sep 2024
Trinity Biotech (NASDAQ:TRIB)
Historical Stock Chart
From Sep 2023 to Sep 2024