Chembio Diagnostics Inc (CEMI) 2018 Q1 法說會逐字稿

Greetings, and welcome to the Chembio Diagnostics First Quarter 2018 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, [Philip Taylor], Director of Investor Relations for Chembio Diagnostics. Thank you, Mr. Taylor, you may begin.

Thank you. Before we begin today, let me remind you that the company's remarks made during this conference call today May 9, 2018, include forward-looking statements within the meaning of the Securities Act of of 1933, concerning the beliefs of the company. Forward-looking statements are subject to numerous assumptions, risks and uncertainties, many of which are beyond Chembio's control, including risk and uncertainties described from time to time in Chembio's SEC filings.

Chembio's results may differ materially from those projected. Chembio undertakes no obligation to publicly revise or update any forward-looking statements made today. I encourage you to review all of the company's filings with the SEC concerning these and other matters.

With that, I would like to turn the call over to John Sperzel, President and Chief Executive Officer. John?

Thanks, Philip. Good afternoon, everyone, and thank you for joining us. We're off to a strong start in 2018 and demonstrated meaningful progress during the first quarter. Increasing sales of our sexually transmitted disease products, advancing our new product development and commercialization initiatives and leveraging our novel technology and scientific expertise via collaborations.

We are increasingly confident in our ability to leverage our patent to DPP platform, the cornerstone of our point-of-care product portfolio to derive significant value. First quarter revenues were $7.7 million, an increase of 22% compared to the prior year period, and higher than any single quarter in 2017, a year in which we increased total revenue by 34%.

Our DPP platform continues to gain momentum and commercial traction, as the capabilities of this technology become more broadly understood. This platform provides several advantages in comparison to traditional lateral flow technology, which include enhanced sensitivity and specificity, multiplexing, that is testing for multiple infections with the single patient sample and the ability to provide quantitative results. We continue to focus our efforts on the following product initiatives. One, to expand our core sexually transmitted disease business; two, to build a broad tropical and fever disease portfolio; and three, to leverage our DPP technology and our scientific expertise via collaborations.

Today, I will provide an update on each of these initiatives as well as a number of commercial and operational achievements. Before turning the call over to Neil for further details on our financials, I will then wrap up with closing comments and open the call for questions.

Beginning with our first initiative, to expand our core sexually transmitted disease business, net product sales increased by 18% during the first quarter of 2018 compared to the prior year period, fueled by earlier investments in our global sales and marketing infrastructure, which resulted in increased HIV product sales. Net product sales in Latin America increased 27%, and net product sales in Africa increased 344% compared to the prior year period. Our outstanding sales growth in Africa during the first quarter, did not include any sales related to the recently awarded Ethiopia tender.

As previously announced, we won the largest tender in our company's history in Ethiopia during the first quarter of 2018, which was a total contract value of $15.8 million over the span of 3 years. Under this tender, we will supply our HIV STAT-PAK Assays to the Ethiopian pharmaceuticals fund and supply agency through 2020. We are on track to begin shipments during the second quarter of this year and recognize approximately $4 million of revenue in 2018, with the remaining $11.8 million to be shipped during 2019 and 2020.

During the first quarter of 2018, we shipped $2.5 million of the $8.5 million annual commitment from Bio-Manguinhos, which includes both DPP HIV products and test components, and we're on track to supply the remaining $6 billion, between Q2 and Q4 of 2018.

Bio-Manguinhos is a subsidiary of the Oswaldo Cruz Foundation, a government agency working primarily to meet the needs of Brazil's public health system. We have a long-standing relationship with Bio-Manguinhos, supplying multiple products for the point-of-care detection of HIV and other infectious diseases.

During the first quarter of 2018, we filed the premarket approval application to the Food and Drug Administration for our novel DPP HIV-Syphilis multiplex assay, and we look forward to a response from the FDA within 180 days of our submission. We believe we are on track to be the first company to market a point-of-care HIV-Syphilis multiplex assay in the United States.

The World Health Organization estimates that 2 million pregnancies are affected by HIV and Syphilis each year, resulting in tragically high rates of stillbirth or neonatal death. Accordingly, the global health community has made it a priority to eliminate mother-to-child transmission of HIV and Syphilis. Helped identification and treatment of HIV and Syphilis in pregnant women could have a large impact in reducing these dire outcomes.

We believe our DPP HIV-Syphilis Assay uniquely positions the company to address the global concerns related to mother-to-child transmission, as well as the growing focus on the rate of HIV and Syphilis coinfection in certain populations. We look forward to providing updates as we progress towards the U.S. commercial launch of this novel product.

Finally, in HIV self-testing, we've been focused on the European market. Our HIV self-test products are available to consumers in more than 10,000 pharmacies throughout Europe, a number that continues to expand as more European countries adopt HIV self-testing.

In France, for example, more than 100,000 of our HIV self-tests have been sold through our local partner. Our HIV products, particularly, our SURE CHECK HIV test are well suited for the international HIV self-test markets. We believe this offers meaningful growth potential in several regions of the world, which we are actively exploring.

Turning to our second initiative, to build a broad tropical and fever disease portfolio. The inherent capabilities of our DPP technology platform, which include enhanced sensitivity and specificity, as well as multiplexing, make it particularly valuable in the area of tropical and fever disease. We believe these platform capabilities provide significantly differentiated value and will drive a favorable position in the market.

We are developing a portfolio of point-of-care DPP assays to address the global threat, posed by fever and tropical diseases. These include malaria, dengue Zika, chikungunya, Ebola, Lassa, Marburg Leishmaniasis, (inaudible) and Rickettsia as individual and/or as part of multiplex assays. A significant portion of these investments to develop these tests were funded by government and philanthropic organizations, including the U.S. government that is BARDA and CDC, the Bill & Melinda Gates Foundation, the Paul G. Allen Family Foundation and FIND. We believe these world-leading organizations chose to support Chembio due to our proprietary DPP technology platform and our scientific expertise.

Two of the largest market opportunities in tropical and fever disease, include malaria and dengue, which together account for approximately 600 million annual infections. As we mentioned last quarter, we completed the feasibility for our DPP malaria assay, which showed superior sensitivity compared to current market-leading rapid malaria test. We continue to advance our malaria product development, with a target completion date of December 2018, which will be followed by certain regulatory submissions. The development of our DPP Dengue Assay has been completed, and we have shifted our focus for this product to regulatory filings and commercialization. Due to the high incidence of dengue in Latin America and Southeast Asia, our strong distribution channels and regulatory track record in Brazil and our physical presence in Malaysia, we are initially targeting these regions. We have a number of dengue product registrations in process, and we believe they will pave the way for future sales.

During the fourth quarter of 2017, we received a $1.5 million to $4.9 million conditional award from UNICEF to supply our DPP Zika system during 2018 and 2019. One of the conditions being an evaluation by the World Health Organization. We were recently notified that UNICEF has decided to evaluate the awarded Zika diagnostics through an independent reference laboratory, rather than through the World Health Organization. We view this as a positive development, given the WHO's other important global priorities. Our DPP Zika assay is the only rapid Zika test with Emergency Use Authorization from the United States Food and Drug Administration, allowing us to market and sell in the United States. Since receiving FDA Emergency Use Authorization, we initiated a number of evaluations at U.S. state and local health departments. While we normally don't disclose and use our customers for competitive reasons, due to the fact that we have no competitors in rapid Zika testing, I am happy to share that both the California Department of Health and the Texas Department of Health, recently began purchasing our DPP Zika assay. With continued funding and support from BARDA, which is part of the Department of Health and Human Services, we are pursuing the 510(k) and CLIA Waiver for our DPP Zika system, which will allow us to more broadly sell in the United States market.

We recently completed the presubmission to the Food and Drug Administration, which is a key step in advance of our 510(k) submission, and we look forward to updating you as we advance with the FDA.

Turning to our third initiative, to leverage our DPP technology and scientific expertise via collaborations. We have several active programs, funded of by our collaborators to develop a diverse range of point-of-care DPP assays, that address a number of affected populations. These programs include assays that detect a specific form of cancer, Bovine Tuberculosis, concussion and an undisclosed biomarker for AstraZeneca. Most recently, we launched a program with LumiraDx to develop new point-of-care infectious disease assays. We remain on track to complete development of the cancer assay during 2018, and we continue to advance the development of the concussion assay.

In December 2017, to leverage our DPP platform, we entered a collaboration with AstraZeneca, a leading global biopharmaceutical company. Under terms of the agreement, AstraZeneca is funding the development of a quantitative point-of-care test using a finger-stick drop of blood to detect an undisclosed biomarker in less than 15 minutes. We're pleased to report that we successfully completed the Phase I milestone on schedule. Project is now in Phase II, and we are on track to complete the assay development and submit the FDA 510(k) and see mark applications during the first half of 2019.

We look forward to sharing additional details about the AstraZeneca collaboration as we drive toward commercial launch.

In April 2018, to leverage our scientific expertise, we entered a collaboration with LumiraDx, a private U.K.-based company. Under terms of the agreement, we will receive funding to develop a portfolio of new point-of-care diagnostic test for infectious diseases, subject to satisfying certain milestones.

Following regulatory approvals and commercialization of these test, Chembio will both sell reagents to and receive royalty payments from Lumira Diagnostics on sales of all products developed through this collaboration. We anticipate these tests will provide access to a broader customer base and will complement our current products.

In addition, biomarkers funded through this collaboration can be applied to our DPP platform and expand our own product portfolio.

As we reflect on all of our collaborations, a common theme has emerged. World-leading organizations choose Chembio. Why? We believe their decisions are fueled by 3 things: First, our deep scientific expertise with our proven DPP technology platform, which can detect and quantitatively measure individual or multiplex biomarkers against demanding performance targets in areas that go well beyond infectious disease; second, our successful track record developing DPP tests with a diverse range of large, complex collaboration partners, including global commercial companies, governments and nongovernmental organizations; and third, our extensive experience achieving regulatory approvals with DPP tests in heavily regulated environments around the world.

Our team is grateful for the trusting relationships we have with our partners and how those partnerships are aligned with Chembio's corporate vision, to reduce the incidence of diseases globally.

Next, I'd like to talk about our commercial and operational advances. To strengthen and expand our commercial depth and breadth and in anticipation of the future launch of our HIV-Syphilis Assay in the United States, we recently partnered with MTMC, a nationally recognized U.S. sales organization with over 100 sales executives in the United States. The MTMC team will serve as an extension of Chembio, enabling our sales team to focus on the public health market, while the MTMC sales force focuses on the larger and more geographically diverse physician office, hospital and urgent care markets.

The MTMC team has excellent relationships with our U.S. distribution partners, such as McKesson, Fisher and Henry Schein, which is important toward reaching their target markets. They also had experience selling point-of-care test, having recently represented one of our major HIV competitors in the United States. Our commercial leadership is driving success, and we plan to further strengthen our sales and marketing team, as we scale the business in a systematic and thoughtful manner.

We're confident that the double-digit product sales growth we achieved this quarter, compared to the prior-year period, is a direct result of our recent commercial investments.

To support future growth, we've made investments in our operations to scale systems, processes and manufacturing volume with the end goal of increasing efficiencies. In New York, we've ordered the first automated manufacturing line to produce DPP Assays. This manufacturing line is capable of increasing our manufacturing capacity by approximately 5 million tests per year at the high quality level Chembio customers expect. We expect the new automated line to be delivered in the second quarter and operational in the third quarter of this year.

In our Malaysia facility, we've completed the technical transfer of the STAT-PAK HIV Assay production. We've also renewed the facilities ISO 1345 certification, and we are preparing to submit the dossier for WHO prequalification.

We believe the facility in Malaysia will allow us to manufacture our high-quality STAT-PAK HIV Assays and certain DPP assays at a lower cost, creating additional competitive advantage and the potential to increase margins.

I'll now turn the call over to Neil Goldman, our Chief Financial Officer, and then I'll wrap up with some closing remarks.

Thanks, John. In the first quarter of 2018, total revenue was $7.7 million, an increase of 22% compared to the first quarter of 2017.

Net product sales for the first quarter of 2018 was $6.4 million, an increase of 18% compared to the first quarter of 2017. License and royalty and R&D milestone and grant revenues combined in the first quarter of 2018 were $1.3 million, an increase of 47% compared to the first quarter of 2017. Top line growth was driven by strong gains in Africa, in particular, as well as Latin America, and partially offset by Asia and Europe. As John said earlier, our performance in Africa did not include any shipments for Ethiopia.

Gross product margins for the first quarter of 2018 was 36% compared to 41% for the first quarter of 2017, with reduction primarily related to the sales growth in markets with lower average selling prices. Other expenses, which includes research and development and selling, general and administrative expenses were $4.3 million for the first quarter of 2018 compared to the $4.7 million in the first quarter of 2017. The decrease is primarily associated with lower spending and clinical trials during 2018, as the company completed its DPP HIV-Syphilis system U.S. clinical trials during 2017.

Net loss in the first quarter 2018 was $0.7 million or $0.05 per diluted share compared with a net loss of $1.6 million or $0.13 per diluted share in the prior year period.

Cash and cash equivalents as of March 31, 2018, totaled $12.5 million. This balance includes the completed underwritten public offering in February, that resulted in net proceeds for the company of $10.9 million after deducting underwriting fees and other costs. During the first quarter of 2018, we funded increases in accounts receivable and inventory. The increase in accounts receivable compared to the December 31, 2017 balance reflects our 29% sequential growth in total revenue compared to the fourth quarter of 2017.

In addition, we built inventory to support both our 31% sequential growth in net product sales compared to the fourth quarter of 2017, and in preparation for shipments against the Ethiopian tender, that are on track to begin during the second quarter of 2018.

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

Thank you, Neil. We completed the first quarter of 2018, posting double-digit revenue growth, building on the 34% growth, we achieved for the full year in 2017. We filed the premarket approval application to the Food and Drug Administration on time for our novel DPP HIV-Syphilis multiplex assay, which we believe has significant potential in the U.S., market. We advanced the product development of the DPP assay to identify an undisclosed biomarker under our collaboration with AstraZeneca, and we established a collaboration with the LumiraDx to develop a portfolio of new point-of-care infectious disease assays.

We are increasingly confident in our ability to leverage our DPP platform technology and scientific expertise through continued success penetrating our existing markets, expanding in the new territories and customer segments and additional collaborations.

In summary, we have a patented technology platform, numerous high-quality products in the market, a robust product development pipeline, supported by world-leading collaborators, significant global market opportunities an experienced leadership team and the capital to execute on our current plans.

With that, we'll now open it up to questions. Operator?

(Operator Instructions) Our first question comes from the line of Per Ostlund with Craig-Hallum Capital.

I want to start with product sales because they were significantly better than we had modeled. We had, kind of, been looking flat year-to-year and like you said, you did 18% growth. Wondered, if we can flesh that out a little further, still. I know you commented a little bit geographically. As I look at last year, there was a $1 million plus, I think, order that came out of Malaysia on the dengue side, so actually isolating that, that was 50%, maybe 60% growth. I wondered, if you can, kind of, flesh out a little bit more where those contributions came from? Because again, it wasn't Ethiopia. So there was a lot else that seemed to be clicking for you guys. Was there anything particularly, lumpy or bulk in nature that contributed to that strong growth?

Great. Thanks for the question Per. So just to tackle Asia first. You're absolutely right, in the first quarter of 2017, we had a full year tender that we shipped for dengue in Southeast Asia, in fact, in particular, in Malaysia. And this year, we received a partial year tender at the beginning of the year. So if you look at our sales in Asia, we were down from the prior year period about $450,000, and it's related to just receiving a partial tender award this year.

The strong sales came from Latin America as well as Africa, and if I just take them one at a time, in Latin America, of course, we had previously announced that we had a commitment from Bio-Manguinhos of $8.5 million for 2018, which compared to a similar commitment of $5.8 million for 2017. So that explains some of the uptick in Latin America. In Africa, we really just continue to execute throughout the continent. We have a really strong person there, and what you see is just great sales execution.

Okay, that's excellent. I guess, it maybe dovetailing off of that. Are there -- since the Ethiopia tender was the biggest or is the biggest in Chembio's history. And I think you previously stated that, that was, I think, a direct result of people directly on the ground in the market. Are there other large tenders in -- on the continent that are in play this year that you can be going after?

We wouldn't discuss specifics for obvious reasons, but there are numerous tenders throughout Africa, and frankly, throughout the world, that we continue to pursue. We may not win all of them, but we are hoping to win more than our fair share.

That sounds good. One more, then I'll cede the floor for a moment. Regarding AstraZeneca, so you said you completed Phase I with them, and you articulated some of the upcoming timelines as far as submission completion in the first half of next year. Was there any milestone attached to Phase I completion that you would have generated revenue from?

So the basic concept of the collaboration with AstraZeneca is based on a phased approach. So we follow a pretty standard stage gate product development process, which includes a Phase 0, which we would define as feasibility. If you may recall, we completed that during the latter part of 2017 and that was done before we signed the contract with AstraZeneca. There are 4 phases remaining before we get to commercialization. Phase I, which is product development and design optimization. We completed that during the first quarter of 2018, that's a really important milestone as you can imagine. The remaining phases are Phase II, design verification and nonclinical studies, that's the phase that we're presently engaged in and then subsequent to that, we're going to Phase III, which is design and process validation, and then Phase IV, pivotal studies and regulatory submissions. It's a pretty standard stage gate process. And I would say, we're essentially in the middle of it.

Okay. That make sense. Actually, let me ask you one more question. Since you did -- you mentioned the HIV-Syphilis test in your prepared remarks, and we're in that 180-day window, while you're awaiting the feedback from FDA. Is there a fair amount of, sort of, groundwork that you can be laying with the states and the public health agencies at this point? Or does more of it happen closer to the expected approval of the test?

In terms of actually marketing the test, we obviously, have to wait until we get approval from the agency, but there's a lot of internal work that we can do in anticipation of a successful review and commercial launch, and we are doing that internally.

Our next question comes from the line of Raymond Myers with The Benchmark Company.

Congratulations on so much progress. Let me start with the announcement you made about MTMC, sales-partnership. Can you flesh that out a little bit, explaining, when does that start to contribute potentially the revenue? And how does that work?

So MTMC, as I said in the prepared remarks, is a nationally recognized outsourced sales organization. They have more than a 100 sales executives in the United States market, and they cover all segments. So they provide nationwide support to a number of leading health care manufacturers, none of which complete with our products. They provide support from a sales perspective today for companies like Medtronic and Welch Allyn, well-known in our space. The objective of the partnership is to create a much stronger sales presence in the U.S. market. Frankly, to just play offense. They're going to sell all of our U.S. products, including the 3 FDA-approved CLIA-Waived HIV tests, and we anticipate them taking on the HIV-Syphilis product in the U.S. market as well.

That sounds fantastic. Are you able to disclose, which competitor did they recently represent in the U.S.?

OraSure.

Excellent. Thank you.

Our number one target.

You are launching, I believe a dengue fever test later this year. Can you describe the opportunity that you see there? And when might we be seeing meaningful revenue from that?

So as we've discussed in the past and according to WHO, there are approximately 390 million annual infections related to dengue. The market today, we believe, is about $100 million annually. One competitor has about 50% market share, the remaining 50% is fragmented among 20 or so competitors. We believe the performance of our dengue test will outperform other tests in the market, and as I said in the prepared remarks, we are pursuing certain regulatory approvals. As you can imagine, given the incidence and regional focus on dengue, our primary targets are going to be Africa, which means World Health Organization prequalification, Southeast Asia, which means on a country-by-country basis, we have to pursue product registrations, and Latin America, starting with Brazil, where we have a really strong channel, Mexico with (inaudible), and then we have to go country by country thereafter. So those are all priorities. In terms of predicting when we'll have success on the regulatory front, and when we'll have meaningful sales, it's a little early to start to predict that right.

Okay. Thanks, we'll wait. The partnerships you have with AstraZeneca, now with the LumiraDx, it sounds very intriguing. Can you give us any sense for the milestones or development revenue that we might expect, as you proceed through these stage gates before launch? And any sense also of the magnitude of the addressable markets that these partnerships target?

Hey, Ray, it's Neil, I'll take that one. We aren't able to disclose the terms -- the specific terms of the LumiraDx agreement. But what I'll point out to you is that, as John discussed, the LumiraDx program is primarily focused on leveraging our scientific expertise. So that's a bit different than the focus of our other current partnerships. That said, the stage gates that he described just a few minutes ago, are pretty common to any product development, and those -- the process we'll be going through with LumiraDx is not much different in that regard from a process standpoint.

And in terms -- so this is John, Ray. In terms of the market potential for these collaborations, as with several of our other collaborations, we are somewhat restricted in what we can say at this time. Both LumiraDx and AstraZeneca have asked us not to disclose certain information, and quite frankly, it's a fair request. What I can say is, and we've talked about this in the past, AstraZeneca's focused in 3 areas. Cardiovascular, oncology and respiratory. They're all very large markets. LumiraDx, while we're not discussing what infectious disease assays they are pursuing, you can simply look at the LumiraDx leadership team, which includes a large number of folks who were previously with and in fact, built Alere, which was the worldwide leader in infectious disease testing. They tend not to think small, and I think another noteworthy thing is that, while they have a lot of experience from their prior companies, they chose Chembio. And this is part of what I was saying as a recurring theme in the prepared remarks, we have these world-leading organizations that continue to choose Chembio, because of our platform, because of our experience with it, our regulatory, technical, et cetera.

Excellent. Congratulations on that. Let me ask you about World Health Organization prequalification for Malaysia. I believe you said you were preparing a filing. Can you give us a little more detail around the milestones and timing? And also strategic value of such a filing?

So we intend to submit the dossier to WHO before the midyear point. Our understanding is that it takes approximately 6 months for review, which would likely include a site inspection. So that's what we know at this point. Obviously, there's some iteration as you go along. In terms of the value of having WHO prequalification, that would allow us to produce product in the Malaysia facility and sell into the African market and again, as I said, in the prepared remarks, we believe that will put us in more competitive situation from cost of goods standpoint, which will allow us to compete for tenders that we've never been able to compete for or allow us to improve the margin on the business that we already have.

Well, excellent. That does tells us one of my next questions, which was about the large Africa self-testing opportunity, which some of your competitors are enjoying. I'm wondering when does that contribute to your revenue?

So our competitors are enjoying some success in Africa with HIV self-test, largely subsidized by the Bill and Melinda Gates Foundation. We can't comment on that. We're not going to comment on our strategy for Africa. What we can say is that we're enjoying pretty good success with HIV self-test in Europe, and our competitor is not there.

Very good. One other side is, news this week that, there was a fortunately small Ebola outbreak again in Africa, just recently detected. Can you remind us what that does for your sales of Ebola test?

So too early to tell on that Ray, because the news just came out this week, well, obviously, we're going to try and see if he can help that situation. We were able to get our products very quickly into West Africa, helped by CDC, and we're hopeful that we can do the same here. It really goes back to the strength of our platform. We have been able to develop test in a very short period of time to address some of these global threats. We believe the multiplexing capability of our platform can be very useful in these environments, where you have outbreaks or you have co-circulating viruses. As is the case, in certain markets, where Zika, dengue and chikungunya all circulate and present with very similar symptoms. Unfortunately, Ebola and malaria also present with very similar symptoms and with the quarantining strategy of Ebola, we certainly want to help -- prevent a scenario where folks that have Ebola and folks that might be suspected of having Ebola but rather have malaria are not quarantined together. So we're hopeful that we can help in the most recent outbreak. But we don't know yet.

Our next question comes from the line of Brian Marckx with Zacks Investment Research.

John, on the MTMC relationship, I'm curious, if you had detail to the private health care side with your own sales people before? Or is this essentially an incremental market for you, once MTMC comes on?

So we had a geographical sales model, but it was with a small sales team. As you can imagine, with roughly 3,000 public health sites in the United States, roughly 5,000 hospitals, more than 100,000 doctor office sites and then, an equally large number of urgent care type clinics, it's very difficult to reach that with a small sales team. So what we decided to do was establish this partnership with MTMC, who has a lot of experience representing lots of different diagnostic and device companies. And essentially, divide and conquer. So we're going to stay very focused on public health, where we've had a lot of success with our direct sales team, and we are asking MTMC to cover the position office, hospital and urgent care markets, that as I said before, they've covered for one of our competitors. They know the market, they know the products, and we think that they can get up to speed very quickly. And what this allows us to do is gain further traction with our current HIV tests, of which we have 3 CLIA Waived, then FDA, PMA-approved and be prepared for the launch of our HIV-Syphilis Assay, which we think, has meaningful upside potential.

So MTMC is not contingent on FDA clearance of DPP HIV-Syphilis, even though, that's -- I think it's probably pretty likely. It is not contingent on that?

Absolutely not, they are selling our HIV test today.

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

I think in further justification that the science works in the marketing and market is starting to accept that.

Thank you, Ross.

Thanks, Ross.

John, I've known you for a very long time, and I've never considered you to be someone who gets overly enthusiastic about things. Yet, I pick up in your comments and your choice of words, a tone and a bias that seems to be as enthusiastic as I've ever heard you be. Is that correct, are you really thinking that we're pretty much at, kind of a cusp for some major transitions in here? And that, within the next year or 2, this is going to be a radically transformed company to the upside?

I feel very confident in our execution. For the first time in a very long time, we have experienced sales folks in the United States, in Latin America, in Africa, in Southeast Asia, and it's giving us much more, I use the word control, of our customers and frankly, of our destiny. So I feel really good about that. I feel really good about the fact that we're attracting world-leading organizations. I mean, it's obvious to say that if AstraZeneca wanted a point-of-care test to identify a certain biomarker, they could go to any diagnostic company in the world, including the largest and they would get the red carpet treatment, yet, they came to Chembio. So I feel great about that.

And it seems market opportunities, obviously, are significant. With regard to Lumira, I know you're not able to talk about the size of the business but I also notice how incredibly sparse the detail was in the press release. And my experience is usually the sparser the detail in the press release likely the more -- given the nature of a nonpromotional management, that more likely it is that there's a lot behind that. So I'm going to ask you a question that I'm not sure, whether you're going to answer, but I find to me, I'd love to hear your comment on. When we look back in 2 years, are we going to look at that April 26 press release and realize that, that was a very important bridge that we crossed to making this company a lot more than people think it's currently going to be?

Great question, Ross. We are making a number of strategic decisions, which we believe have the potential to transform the company. We believe LumiraDx is one. We believe AstraZeneca is one. And we continue to pursue others in an effort to leverage or if you want great value using our DPP platform and/or our scientific expertise. So that's the kind of comment that I can make about that.

Okay. Do you see Lumira as a potential strategic partner? This -- I mean, the prior -- the management team that's prior existence quite honestly was exceptionally acquisitive, then I think that talking to a number of people involved with the stock, one of the big concerns is does someone walk in one day before all this has proven out, and they really just gobble up Chembio with the price that might be a nice premium to the current price, but would be well short of what you could become. So how do you see, and how do you manage that relationship with them?

Yes, I can't comment on their nature or any kind of acquisition activity, but I can say that the LumiraDx leadership team has a really strong track record in building companies and to be able to collaborate with them to help develop their point-of-care infectious disease portfolio, we believe, is a tremendous opportunity.

Okay. And trying to get a handle on the size and potential that U.S. Syphilis market. A number of years ago, one of your competitors launched a quick test. At the time they were talking about the fact that they could see effectively a Syphilis test go out with every AIDS test that was done. Your product makes that a reality. Is the market of comparable size? Do you think that down the road, you have the ability to literally sell a Syphilis test with every AIDS test, HIV test rather?

So we mentioned a little bit about this in the prepared remarks, the global concerns about mother-to-child transmission of both HIV and Syphilis, the growing concerns about HIV and Syphilis coinfection in certain subgroups, which by the way, according to CDC is as high as 70%, and we saw that in some of the subgroups, in the clinical trial that we held. So that's really the reason that we made HIV-Syphilis multiplex assay a huge priority a couple of years ago. In the United States, we're not trying to build a point-of-care Syphilis market as was one of our competitors, because we think that there would be tremendous budget headwinds against that kind of a strategy. What we're trying to do is very different. We're trying to own the point-of-care HIV market with a highly differentiated multiplex test to address coinfection. So that's very different than trying to create a Syphilis market, frankly with an average test. We think the product that we have can be a needle mover in terms of our ability to capture meaningful HIV market share in the United States, and again, address the concerns about coinfection in mother-to-child transmission. That's why we're doing it.

Our next question comes from the line of Larry Haimovitch with HMTC.

Lots of good questions have been asked. It's kind of tough when you're the last one in line. Well, one of last one in line. But I did have one question to clarify the HIV-Syphilis. I know you said, you filed for FDA approval. It seems to recall that the first step of 2-step process. Do you need to also get a CLIA Waiver before you can go commercial, John?

We don't need a CLIA Waiver before we can sell. Generally, when a diagnostic product, even a PMA, like an HIV-Syphilis Assay is approved, it will be approved as a moderately complex test, which means we can sell to moderately complex sites. That would include hospitals and many large group, physician office or clinics that have a moderately complex license. So in those cases, we will immediately begin commercializing the product to those sites when we get the FDA's blessing. In a sequential basis, you have to then apply for a CLIA Waiver application, which we will do. Once we get the CLIA Waiver assuming we're successful, that will open up a much broader market for us. But that's again...

So in terms of the available market with just FDA as opposed to FDA post-CLIA. Is that 50% of the market -- what percent of the market is that John, that you then have available immediately?

Well, I think, we've talked about this in the past the -- again, we're going after the HIV market as it exists today during a different (inaudible). So generally, speaking and I'm generalizing here, we can think about 1/3 physician office marketing clinic, 1/3 public health and 1/3 hospital. So answer your question, around a third of the market.

So you have initially a 1/3 in the market at your disposal, and then with CLIA you would have the remaining 2/3?

Correct.

And John, do you have to wait for FDA approval before you can apply for CLIA. I think you did say that, right?

Yes, we do.

Yes. So what's the timing, I mean, obviously, you don’t know with FDA and none of us never know with FDA. But assuming you go -- you're fairly smooth with FDA, would seem like you have reasonable shot at getting approval later this year or early next year. So let's say, it's Q1 of '19 that you get the FDA approval. What would be the timing of CLIA? Is that another 6 or 9 months or year?

With FDA, either 510(k) or PMA, there are pretty specific rules in terms of timing for the process. With CLIA, there are no such rules, so I can't really answer that.

What's been your experience on CLIA post-FDA from all the years you've been doing this?

It's all over the board, and it probably wouldn't be helpful in this context.

Okay.

Our experience with HIV assay is, we have a great track record. They're 7 FDA-approved CLIA-Waived HIV test in the United States, we have 3 of them. So we are very good at this.

Yes. So in your mind, the FDA approval when it comes is, is a nice first step but it's not the be all and end all to what ultimately builds the business.

For point-of-care, absolutely right.

There are no further questions in the queue. I'd like to hand the call back to management for closing comments.

Thank you all for participating in today's call. We look forward to updating you the next quarter. Have a great day.

Ladies and gentleman, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.