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Chembio Diagnostics (CEMI)

Participants
Philip Taylor IR
John Sperzel President, CEO
Neil Goldman CFO
Per Ostlund Craig-Hallum Capital
Ross Taylor ARS Investment Partners
Call transcript
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Operator

Greetings, and welcome to the Chembio Diagnostics Third Quarter 2018 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to the host, Mr. Philip Taylor. Thank you, Mr. begin. may you Taylor,

Philip Taylor

you. Thank

forward-looking. begin Company's today, include you we be me estimates let made during the considered might remarks that may other that this or Before information remind conference predictions, call

what While these forward-looking cause and holds, represent Chembio's actual risks results are to that materially. the as subject current they uncertainties future judgment statements to could to differ

publicly call. reflect business the place any or statements future or the You may reliance predictions. on that factors itself this which will not day statements, to information in of as today's to Throughout obligating undue these keep that important Chembio's discussion, Chembio cautioned mind only affect its release forward-looking are results of events. forward-looking present opinion not in new its light Chembio Please of these to is revise of some revisions relating to

Form discussion to risks, John? You and would XX-K President should a XXXX that, over With turn the and like Chief Executive other and for Sperzel, Chembio's factors I to complete the XXXX review particularly Risk Factors. these call XX-Qs John more heading under Officer. Form of

John Sperzel

Good you thank Thanks, everyone, for us. joining afternoon, Philip. and

XXXX DPP manufacturing the of compared application $XX.X for fully the of Neil rapid Finalized for net execution, quarter automated during Financial underwritten Today, handheld Received on the undisclosed commence growth public subsequent will of manufacturer new our the a of DPP to the and important the regulatory of XXXX. recent commitment to topics: developer proceeds an closing I'll biomarker quarter acquisition Officer, Company's offering a XXXX held our opportunities. growth Chief I open of provide opTricon, few Mark quarter through Announced of results a initiatives, multiple the test commercially the product months We in funded for X disease our we'll Company. the diagnostics million DPP fully of advanced during milestones Bio-Manguinhos our financial and XXXX some of Brazil's which of call periods. privately the $XX.X Ministry during total AstraZeneca following: then operational XXXX; to first technology and up believe X comments, and to quarter Filed a Goldman, follow of prior-year on CE Our automated our for supply collaboration; of production of our development, plan on will and achieved million the Increases line and of the questions. and for significant of $X.X we DPP reflect production third our includes Health; And We completed make detect purchase affairs. test; to analyzers tests and acquisition the fourth an from completed and third assays bringing to strong operationally. results. We regulatory during discuss estimated in opTricon, infectious third respectively, testing XX%, details platform. the manufacturing, revenue million transition progress focus $XX.X and XX% million our Highlights

revenue features of innovation our combined technology $X.X disease for quantitative tests. closing provides subject and we beyond market rapid diagnostic adjustments. the opTricon DPP to with the when an million also test analyzers storage. in diagnostic First, include test that on requires handheld XX, of point-of-care a allows optical OpTricon's post GAAP LTM acquire opTricon. October of $X.X of definitive million. and manufacturer to agreement announced I'd a basis infectious approximately We and and conversion, to success to interpretations believe acquisition transmission customary proprietary data such extends the long-term like On developer for diagnostic discuss U.S. generated audit capture, OpTricon, results innovative

Our strengthens quantitative innovative testing enhanced This which advancing quantitative the and sensitivity, advanced DPP position Enhancing current of tests multiplexing an global is technology provide our and optical by future increased our development collectively with market, focused analyzer. are in providing by and on acquisition our the point-of-care results, that position collaborators scientific team use Berlin exclusive business. of inform week Technology technology platform will integrate Park, applications. Science we Diagnostics sales all be named The global located European transaction securing Chembio for to Company, help quickly for Germany, will and that the serving this optical marketing. technology, and distribution which pleased the excellence of our will rights I'm for and you is completed in as center and results.

I'd to which manually, Chembio's address workers Today, number hire transition to manufactured tests demand. are of fully to the means predominantly discuss temporary like to significant Second, automated have increased a we manufacturing.

SureCheck the now which United self-testing of DPP HIV fully fully On As continue must automated cost delivery volume, you we products, Company's widely efficiency derisked. York dedicated Africa, automate we our on DPP are our call, reduce market. manufacturing earnings been first plan to We processes commence increase line which revenue of is products, health improve production has we of and our in fully the that we a manufacturing to and automated times. to and public transition the And throughout inform New shorten unit confirmed increase to the last during States quarter our to we transform capacity, lead our which European from and STAT-PAK pleased delivery sold in fourth manual of our line are this headquarters, I'm manufacturing to tests expect automated believe goods, market manufacturing the products. year. to of sold

STAT-PAK times, New lines fully York to anticipate to Given over next delivered delivery months. our and X being lead SureCheck we automated the facility the X

manufacturing of the margins, have capacity, competitive Following annual market. automated fully end this We impact line, in validation the position operational positive expect on efficiency, our gross times in product product New lead a believe to of transition production and York all each by we XXXX. be will material delivery

Third, in core our discuss to pipeline growth fever like sexually about infectious tropical products testing. transmitted disease products. our disease Historically, growing areas: in talked infectious we X of I disease and and disease our our point-of-care would business

was As business. million In many earlier infectious beginning America, first in the increase the disease Brazil's to significant of new Latin experiencing Africa, compared through XXXX, $XX.X XXXX, single products commitment a expect our of million we In months tender America, million for purchase ship the infectious to $X.X components talk through won bolstered this sales test been throughout sales by by prior-year the in have we're Africa The an XXX% Europe. DPP the of growth We the X first our X $X.X product X Health. were is Ministry significant Brazil was period. In disease an prior-year to an first recently the XXXX, disease Bio-Manguinhos we'll product and received compared subsequent and million Through of growth is were of of The period. million disease in commercialization, XXXX through which about and assays XXXX million of year Ethiopia of product and HIV Africa to sales to compared our over of period. from potential. in prior-year were period. sales business, a leverage infectious the to of and are increases of we believe our by which Latin has increase product million were XX% XXXX. the global $XX.X prior-year self supply increase $XX.X sales our the $X.X X HIV pipeline The Europe, million, XX% XXXX infectious our Europe channels, of the driven XX% product the and DPP months an disease remaining months first for $XX.X Leishmania course of months $X.X in product production to infectious to compared intermediate testing and increase XXXX, driven increase

regulatory submissions a Finally, I'd growth gateway are and our affairs. are in to like commercialization. of to they approvals strategy our the Regulatory progress element as key discuss

test regulatory AstraZeneca. plan updating CE We entering collaboration you XX completed additional the of the progress. and informed novel made patented test, We pleased pursue to AstraZeneca so quantitative to development funding XXXk have including Last we to to undisclosed forward will application diagnostics of entered DPP products. AstraZeneca, AstraZeneca. Reader. with filed months to we very Micro new terms in $X.X today, we we a Under that an you from than million a Chembio's U.S. test through submissions, approach commercialization and commercialization look develop you our point-of-care first XXXX, FDA we to global detect that Mark, In multiple agreement, are we December company, towards a develop progressing biopharmaceutical into platform biomarker. we collaboration less I as I'm receive XX-month DPP the with quarter, after utilizing excellent have up inform to regulatory with a

with application. We first well-positioned of final in mover advance point, interactive the and represents are the questions, at At expect we end U.S. PMA the market multiplex responses product commercialization realtime arrive application advantage the Ebola gain includes At believe which Micro and and HIV a December. rapid a towards the review Administration. and DPP test with for HIV-syphilis this support Reader. and with In agency of first a the platform. to successfully market Africa, the DPP the we were that in decision response on syphilis DPP to believe test to We anticipate of a U.S. rapid we using U.S. Drug significant number complete Food West XXXX-XXXX with PMA we test our in responded Centers our quarter agency system, Prevention, from The Ebola we a Disease continue a of process to multiplex outbreaks filed opportunity. XXXX, the developed Control with anticipated HIV-Syphilis to which and a a new submit

Ebola global and Congo. Ebola address Food Micro for Drug of Ebola in are to rapid We believe DPP a Authorization We DPP threat includes by outbreak be system, Democratic will Republic our posed Ebola pursuing Emergency including virus, antigen U.S. valuable test which Administration the system DPP Reader. system the the tool our Use the and ongoing

continue and Brazil's ANVISA, We submissions Agency. regulatory Health with Regulatory approvals advance to

As test, test DPP DPP Micro and recall, received ANVISA. you DPP our Chikungunya Zika previously approval by Reader

commercialization for in a a X where dengue XX incremental blood test are multiplex At We exists. we December, submissions in a able Zika inspection drop essential Malaysia which our address of Malaysia, detect the Organization test these end of quarter submitted second the minutes. a to our significant of facility. is of the dengue, World step site regulatory anticipate we test dossier of borne ongoing market serious simultaneously prequalification to XXXX, portfolio in Health including tests diseases We crucial from will in to obtaining WHO These unique which transfer and believe new of low-cost mosquito in the quality, Lumpur. facility the the allow toward to finger-stick and high approvals production certain our chikungunya single manufacturing steps prequalification, early Kuala to leveraging have investment DPP towards us final a of a opportunity Brazil,

on Finally, we continue self testing make to HIV progress our excellent strategy. international

turn WHO precedes expert for through and financial Financial multiple trials over that prequalification, oversees Ministry I'll Goldman, Level the suitability PEPFAR, of receiving country we for panel by We evaluations, Chief for Neil global Officer, NGOs. procurement to in X which now initiated diagnostics authorization. UNAIDS registrations quarter call donor-funded progressed African details diagnostics procurement with self review third engaged with process, testing for including results. HIV on their have Health and several of the ERPD our other Since the directly the fund country the authorities the

Neil Goldman

which XX, and new manual XXXX spending and $X.X XX% margin growth of markets the XXXX. gains third of million R&D per gross production extent quarter and headcount prices XXXX. XXXX. of XXXX from in product million, in quarter Company administrative U.S. per R&D well the development, the Other acquisition up driven the third trials third product to product diluted expenses merger third and third higher lesser increase with million R&D X% by $X.X net Cash compared representing loss percent milestone as of R&D, XX% milestone to increase balance for compared an raising a $X.XX XXXX. Net a period. a sheet the quarter in of quarter in for XXXX increase XX% third sales grant includes the third and of million quarter primarily was process SG&A offset million related of we by $X.X strengthened of prior-year the spending expenses, dollars of increased After third the of lower Net share levels. XXXX. with Gross million. to an $X.X proceeds quarter and corporate was and revenues in $X.X XX% scaling, million totaled to primarily quarter the selling the in compared and of $XX.X License expenses of diluted compared to compared quarter XXXX general quarter Europe. product with to the quarter system The Africa volumes of XXXX. clinical for were quarter combination stock. as John. percent sales compared the third on XX% XXXX, trial. completed share million, strong $X.X Net XXXX, September an to or in with corresponding associated third to by quarter cash common $X.XX and decreased the growth revenue million, costs to and modestly, a was of product by selling, quarter by Thanks, HIV-Syphilis or with in labor for quarter through $X.X the of of compared the third research DPP increased were combined was costs. third royalty XXXX of the public grant the increased lower margin was of as during XXXX In costs the associated its third for total clinical of lower $X.X million, offering as and end, product an revenue XXXX in of sales margin net in growth assembly average and estimated loss of $X.X the resulted ramp equivalents Gross

Now turn comments. will I John back call closing the to for

John Sperzel

business. XXXX, The revenue Thank we advanced of of opportunities. provide delivered a in Chembio growth highlighted We team growth third initiatives, performance by which in development, strong regulatory believe double-digit quarter will you, core Neil. operational number the our significant and

We organizations, continue attract scientific which platform expertise. further world and to leading our leverage DPP

the We open that, are with for regulatory especially through questions. With have collaboration of the I'll first completed our to now pleased submission it Operator? developed test, up DPP AstraZeneca.

Operator

comes Capital. the line [Operator Craig-Hallum first Per you. Instructions] question. from Our with Thank proceed question of Please Ostlund your of

Per Ostlund

Good afternoon guys.

priorities a you've closed already. Let's opTricon with #X I was capital in terms if with and know would you're start we maybe bullet because raise transaction with that kind obviously, of of that

You more of it's the the perspective remarks, be of little John, bit then reader? to we of over commercial importance little the prepared your further whether just delineation wonder a terms And bit I can? whether I your alluded it is little to there? if but in guys' opTricon, of the the And business, control the able might in strategic a get footprint, it maybe on profile opTricon a opportunities if financial geographic from

John Sperzel

Sure, Per.

data optical to remarks results. our overall our our take offering DPP an test our when us customers combination really number data in our So that importance And was of as prepared critical combined development element talked is capture, patented reader qualitative my But with the as an a with adding us platform otherwise is and technology a that allows of collaborations. technology quantitative product initiatives main well to of the the I to reader. provide data storage, of opTricon strengthen optical strategy point-of-care by transmission.

the example, that the for reader. AstraZeneca test we're for developing incorporates So,

which the test, Ebola referenced that HIV-Syphilis reader. the the FDA, Our of incorporates is I incorporates The test reader. front in

test incorporates reader. All fever incorporates and of the tests the The the tropical reader. cancer

with live us. distribution distribution with see can didn't probably a for would is agreement? X I related agreement answers say are had that. We people there say, just why strategically so to opTricon you you And might long-term where it So important

And more all give The much about more in in it's think markets. rights model And opportunity for first is, technology us all the applications collaborations about cholesterol to we we reader go diabetes disease, very whether for territories. has ones and gave a some us in give with strategically companies competitive as partner many and consumable. it competitor know Per, razor-razor collaboration, rights didn't with that feel We to would a distribution infectious space Company, to make testing technology own is have And agreement don't course, we adopt COGS the infectious I same to produce or disease it common, in with market. certainly a to an excellent differentiated. blade have in testing we reason, And COGS profit helps. we playing non-exclusive us want that; to be great and like can more then the We that the complete very a allows is on to with that actually is which side, that diagnostic out we the to also test, dealing a having say have then they discussing And last we be who important. a and didn't became or as slow that lower a compete found potential when financial the the Hopefully, markers, field have are this selling at and aggressive And the readers, we were for to market. and thing a you been deal a have cardiac product. we're when of obviously trying readers. much follow us be

Per Ostlund

Thank good. help. does That you. Very

first than earlier the it on inflection, get AstraZeneca What a those is doesn't early? obviously, this a year? So want fair that, you that actually FDA veil together, I pieces does an necessarily to that a CE being it that that and you early? there we're near expected? characterize as where first what of questions skis was guess, mean get guess, for this maybe for talking on I was is? submission? out relatively of But to Mark of X then something it that And in think certainly timing actually to foremost, fair and on Is future, would partner an related the it point, to a taking is it. on is touched might quarter even quarter in congratulations You that opportunity the in Couple quarter that, but next maybe I front be your biomarker positive the looking of a think maybe quarter as that of about potential lifted application.

John Sperzel

characterize can well it shoulder you and excellent also within within Yes, and we've shoulder progress. working early. as resourced program is made quarter The to AstraZeneca. Chembio We're

So to CE be pleased we're submit ahead very application schedule. our actually the to able of Mark

disclose in In disclosed, is submission process, be or is, automatically process Mark terms a the of you would can so discussions test. entirely the active but, of CE process is not it hands we their the to putting up file the and reason ends we test But as CE that that it disclose that would that, granting Mark when that frankly, when Europe. of the it is. begin can to customers' about for imagine, is as CE type to what Mark date and test in are with when go in AstraZeneca hands, That we quite commercialization out decide would in

Per Ostlund

asked these of those. these. want to AstraZeneca get the some tests cancer sorts we is those obviously, in those, things of arrows in guys Because embargoed of around would terms of can actually the little get become thinking we of say, in quiver, more more test have you addition might or to next a the and tranches there and a LumiraDx that when on be say Okay, bit -- AstraZeneca, into the goal, that's bit a metaphor on we my The of a is these of use, more a might to I programs specificity milestones start to little some we whatever one some another you of LumiraDx about When maybe shots visible, Is lot when programs? lot of bit is degree a you question. unearthed are fair. might or segues of And one that things. rough little timelines able Are be those. obviously, one any what might

John Sperzel

XXX(k) we're you of the FDA of part an I visibility on with test we want developing a think includes Mark submission original it's schedule was And second that to have collaboration get that in first is them, AstraZeneca. part it. likely we'll submission, test obviously sequence was if FDA that CE the that it,

conference so least And are believe private first company highly that essentially is and at would it's a at the going that LumiraDx Germany in likely week. of of I XXXX. this think stealth show in their disclosed they half next in are they to be at point. mode I the product one Medica

of that piece in get it So working they're will will I what disclosed it. on. of suspect a start of some just terms to be

I so cancer LumiraDx, with that we're date cancer be partner. think of the type for test And developing for when we're disclose we put at developing we can't this diagnostics our test the yet point a a disclose that nor really on can

unfortunately, we embargoed still other X. on those are So

Per Ostlund

but Sure. That's don't a automation recent be imperative talked your prepared think it fair. since not capital I Last in the totally automation, if terms perhaps would of me, lot again, your the, one an the of remarks. call in about for you imperative, you or raise, and know I question

end terms Long additional how into of being of to of you to goes demand and Long couple adding automated In have be beyond 'XX, to automated Island the production lines that? a add meet do much for Island able by fully that flexibility to lines

John Sperzel

the automation thing we great The design. chose by modular that that it is about is

terms those of doesn't facility. in our we significant very a That require in it out footprint. of a so how us And lot allows flexibility lay

that order produce tests large table STAT-PAK million million XX the of the room to can on shifts. on Now think X XX dining size a year of something a running

we exactly that's fact, it to the the thought chose. grow. we about type ability additional the as our have in add So chose that's line way why that business and we And continues to of certainly we've lines

to back original on to going So close of opTricon. the was one of obviously, proceeds, specific point, of your the use acquisition

the proceeds past, was drive verification is right do didn't volume add revenue to The have gone that we in robotic certainly, And validation because and a the through essence we have we time DPP consistent those that And to to we sufficient derisked warrant this X X have In line necessarily X we for system. number STAT-PAK from and to product of second by and automation use specific now. the demonstrated feel having vision have we process the go so number we about believe hand, to this now live line, manual, lines. transition line quarter, fully for of all which of guided think of is automated ability assembly SureCheck.

Per Ostlund

Excellent, thank you guys, appreciated.

Operator

the question next Investment Partners. comes line of from Ross ARS of Taylor Our

Ross Taylor

you're to with think million, little less John, to get opTricon. the you for the hasn't I is XX% come have only this after you that a had in it's dilution $XXX,XXX organization, know on in I've the my been instead about than secondary so that before this we heard a you gotten have and give us interest. conversation message has ownership and your million at actually And $X.X that. the this much detail, that up you to imposed I lines good bluntly, stock investors whether but not frustrated. is know a we talk the about enough or $X.X fact Can I should XX% for, be performed using they X raised to And mean, what blunt, deal. I price dilution deal your don't why closed of to more this shareholders piece, And stock the capital clear deal to be happy did you as you in poorly

hear for, raise I we chance to be your become going to stock so bring of your from the economic that forward, generating have need you stuff it's think, $X now, fast to And why kind extra secondary, what how we the give or used a you has delude. business think returns, million know to move lay going more us plan out that for right the into it So because concern that in own I to who and business can you people dream model like to I actually a bottom and that's and line. needed develop is to to

John Sperzel

question, of for specific proceeds disappointment. use Thanks, Ross. I down acknowledge to your the X. The came

I of sure As mentioned, obviously the aware go along also opTricon is funding of use are acquisition price legal you're There I'm purchase proceeds. with part the that expenses the that. of one as

we is finally, where additional facilities extend to have proceeds of the capacity team, we piece a continue to a global fund slightly be is an a that sales our correct second and in coverage approximate going to finally, and DPP increase improve about dollars want starting high-growth now terms in the then price U.S. use of a $XXX,XXX and STAT-PAK believe estimate our capital. piece. the The of now, hub. Part that; and purchase line and inventory we funding the lines And of X while which put the you're SureCheck to initially AR in facility Europe line we have also And is for using some we efficiency. holes we to than the X million are so working can higher you have that's have to in

working the that's of summary So capital.

Ross Taylor

that your facing ambushed of going not dilutive position where are when can be type the to you to to holders almost assure get you these types Okay, we're going secondaries?

John Sperzel

I'm not sure what you're asking.

Ross Taylor

disconnect clear And I say very see I company. think is here it's the think and I company there your self be your guys as going this and going to what's you on see how When between investors board financing? how business is really this a

surprise. X clearly actually investors. by market The second well was in And to caught XX sold don't I secondary think it or months months in the your

And You've therefore, about. there's participate allowed to not are here just those that we the talked so get us it, are to about believe that a we that to the need who can of but should happy guys actually chance to deal. in be to buying sell something who secondaries, the not not

And The is that business talk been people I I to And X.X so well to about stock July price to I to years did this economic interest. think 'XX. hear the to #X know doesn't has dilute in you want to before last few issue the your your to when XX%, constantly was holders dilution of them. go back XX% dilution have deal there

just of you frustrated, can you see your holder or going in done The think I all great, first stock XX was nature. your did spite that I'm the stock of not lower by back it than months things are the secondary that, that So meaningfully when is frustrated. is you've entire something base

want just yet a of us chance you we are not to assure that start bankers kind to So I instead be and going to make are guys looking going actually out that another at to give lay of to make money deal you happy.

John Sperzel

probably I So to single speak characterize I'm it's you way. shareholder your again, Ross, fair do that every sure it. so I appreciate not that your not concern. for comments respect

proceeds. As very we specific have I said, use of

to to something terms not do and profitability will given have on not that's call. the we in transition of this guidance Company plan when We

Ross Taylor

you that deal not me it's is The wasn't And it fact say would one this judgment. market conversation. had have market well-received. and it's sold the the making well the that's wasn't making the the judgment I I and John, is saying that

John Sperzel

Ross. comments, your Appreciate

Ross Taylor

feel at you in I instead you are need need, of stock. us. us with insiders to bed buying that a guys need think working actually to We than different level simply start

John Sperzel

you think call, that's again for an to thank make Ross, appropriate a I don't on comment comment. your but

Operator

conference. remarks. time, of there I closing questions further turn At over portion audio like the back conference the to would for management no the to this are

John Sperzel

reviewed Thanks third discussed our results we progress our toward as us for joining financial priorities. XXXX today quarter and

We are increasingly confident leverage in expertise. our ability DPP and platform our to scientific

and our We on team, to right and market have the we're updates with a forward night. you great Thank execute look as opportunities. right to plans. technology, continue providing we you, pursuing have the significant We