NEW YORK – With a legacy of supplying rapid diagnostic immunoassay tests to low- and middle-income countries, Chembio Diagnostics is now pivoting to focus on supplying point-of-care diagnostic testing to the more developed markets of the US, the European Union, and Brazil.
In a call with investors on Thursday to discuss its fourth quarter and full-year 2020 financial results, Chembio executives also outlined goals to enter the SARS-CoV-2 testing market first with an in-licensed viral antigen test that already has US Food and Drug Administration Emergency Use Authorization, and ultimately with the firm's own test.
Spearheading the strategic repositioning is Chembio CEO Richard Eberly, who took the helm of the Hauppauge, New York-based firm in March of last year. Eberly had previously spent 23 years at Meridian Bioscience, most recently as president and chief commercial officer directing that firm's multiple arms in emerging and developed markets.
Eberly outlined his plans for Chembio's US pivot in November of last year. On Thursday, he provided additional details and described the ongoing progress of his strategy.
"When I joined Chembio, it was focused on international tender-driven programs, funded by national health systems" and non-governmental organizations, Eberly told investors on the call, adding that many of these arrangements were for HIV testing in regions that could not afford premium technology.
"This situation created lower [average selling price] that pressured margins, and the inherent nature of these tenders reduce business performance visibility," he also said.
Furthermore, to expand its product portfolio beyond HIV, Eberly said the company had historically focused on diseases endemic to "underdeveloped markets," for example Zika, dengue, and chickungunya. While these new tests validated the firm's Dual Path Platform technology, they still constrained commercialization potential due to the inherent market dynamics of LMICs.
Now, "Our strategy is focused on building a US customer base with recurring revenue from high value diagnostic tests," Eberly said.
As part of the pivot, in May Chembio "retrenched" its manufacturing facility in Malaysia.
The facility had been prequalified by the World Health Organization in late 2019 as part of then-CEO John Sperzel's plans to make the site a key element of the firm's commercial and operational growth strategies. According to Chembio's financial statement filed with the US Securities and Exchange Commission, it has terminated its Malaysian workforce but will maintain its subsidiary and WHO prequalified facility in that country and sustain product registrations throughout southeast Asia.
Neil Goldman, Chembio's chief financial officer said on the call that the firm also transitioned some of its manufacturing lines in the US from manual to automated assembly, reducing headcount and saving a projected $2 million per year. He noted that the firm has also ordered additional automated lines.
Internationally, Chembio is focused in the EU as well as the UK, Ireland, South Africa, and Brazil.
In Brazil, Chembio is currently selling to state, local, and pharmacy markets in partnership with a distributor, and the firm is expanding its Brazil-based commercial organization to build infrastructure for distribution in Brazil and the neighboring region.
The firm's SARS-CoV-2 antigen test system obtained CE mark as well as regulatory authorization in Brazil, Eberly said, and the firm also has CE mark for its IgM/IgG antibody test and it recently inked a distribution deal in the UK for that test with Luas Diagnostics.
In the US, Chembio has added new commercial leadership, distribution management, sales, marketing, and customer service professionals, while also "building deeper and new relationships" with distributors like Thermo Fisher Scientific’s Fisher Healthcare business, McKesson, and Henry Schein, Eberly said.
One tool the company plans to leverage for its anticipated US market expansion is its new combination HIV and syphilis test, which was granted premarket approval by the FDA in October.
Syphilis lesions make a patient up to five times more likely to contract HIV if they are exposed. Eberly noted that congenital syphilis cases — in which the infection was passed from mother to newborn baby — nearly tripled in the US between 2014 and 2018, so the firm sees a likely market in the obstetrics and gynecology space for its 15-minute rapid test, which uses fingerstick blood samples.
The firm's initial target customers for the HIV/syphilis test are "15,000 moderately complex physician offices, hospitals, and clinical labs across the country," Eberly said. The firm has also filed for CLIA waiver for the test, which, if granted, "would expand the market meaningfully into traditional HIV testing locations and provide the opportunity to take meaningful share in the US HIV testing market."
The HIV/syphilis test might also be particularly attractive to customers because it "offers dual reimbursement under well-defined CPT codes with a single test," Eberly noted.
The next step in the US strategy involves expanding the menu for the firm's DPP system. Although the core technology is essentially a rapid immunoassay, the system also comes with a reader to enhance sensitivity.
"Our objective is to win customers by selling DPP micro readers used to analyze the results for a broad menu of current and future tests," Eberly said. "Establishing these accounts offers the potential to realize recurring revenue [and] facilitates increased visibility on future business performance," he said, adding, "This is where we see the greatest opportunity for the company."
Competing technologies, in the HIV space in particular but also other infectious disease testing, might include tests from OraSure — although that system is readerless — as well as the Quidel Sofia system, and certain assays from Meridian Bioscience.
But the DPP system has multiplexing capabilities for up to eight separate test results per patient sample that may set it apart from these others.
The firm will now be developing additional menu for the DPP system that includes tests and small panels for respiratory infectious diseases, sexually transmitted infections, gastrointestinal illness, and insect vector-borne infections, according to Eberly.
In general, players in the point-of-care, rapid diagnostics space are currently faced with a decision of whether or not to enter the potential new market of home-use and over-the-counter infectious disease testing that has been opened as a result of the SARS-CoV-2 pandemic.
"While others are pursuing local markets, including over-the-counter and at-home testing, Chembio is staying focused on the healthcare channels, where we can maximize our expanded US commercial organization and the proven differentiated capabilities of our DPP platform," Eberly said.
While "tangential markets" may develop, he said that respiratory, STI, and GI illnesses "will continue to be diagnosed and treated in traditional decentralized point-of-care clinical markets," and targeting these average to high selling-price markets could drive the firm toward sustained profitability with only "incremental market share gains."
COVID-19 Dx Update
Chembio has had a more dramatic pandemic year than most on its path to developing tests for SARS-CoV-2.
Eberly said on the call that in January the agency also declined to review the firm's viral antigen test based on updated prioritization guidance, which FDA has previously said includes point-of-care tests that can be manufactured at high volumes.
Eberly said the firm has subsequently gotten meaningful feedback from FDA on the steps it needs to take and has charted a path forward for the antigen assay, but did not specify what the feedback was. The firm is also still deciding whether to pursue an antibody test.
For the viral antigen test, though, "We are confident we have a plan, and the resources and technical capability required to resubmit the EUA," Eberly said.
However, Chembio will not offer any timeline or submission updates "based on the uncertainty of the changing regulatory process and priorities," he also said, but rather it will share regulatory decision news when it becomes available.
Nevertheless, Chembio's confidence in its antigen test was bolstered by $12.8 million in support from the US Department of Health and Human Services' Biomedical Advanced Research and Development Authority (BARDA), Eberly noted.
"BARDA recognizes the importance of point-of-care testing in Chembio's DPP platform," he said.
The grant consists of two parts. The first part totals approximately $630,000 and is for the development and issuance of an EUA for a COVID-19 antigen test.
The second award totals approximately $12.7 million and is for the development and potential issuance of an EUA for respiratory panel that includes COVID-19 as well as for the preparation and potential receipt of a 510(k) clearance for the rapid COVID-19 antigen test.
That said, the financial damage of 2020's regulatory drama was substantial. For example, the firm reported a $4.7 million decrease in gross product margins which CFO Goldman attributed in part to antibody tests returned by customers following FDA's revocation of the EUA, loss of planned antibody test sales in the US and abroad, and operational inefficiencies that included shifting production of COVID-19 products back to legacy products.
To enter the SARS-CoV-2 testing market immediately, Chembio inked a licensing deal with an undisclosed maker of an antigen test for SARS-CoV-2 and flu A/B that already has EUA, Eberly said. "It will complement our COVID-19 portfolio because it will be sold across the same overlapping decentralized markets as our currently available point-of-care HIV tests and other COVID-19 products in development," he said.
Chembio expects to launch this licensed EUA viral antigen test later this month.
Overall, "Our commitment to the decentralized COVID-19 testing market is strong, and we are excited to be able to offer customers this high-performing test as the first component of our planned future portfolio," Eberly said. "Chembio is committed to the broader point-of-care testing business for the long haul."