Chembio Diagnostics' CEO Discusses Q4 2012 Results - Earnings Call Transcript

Mar. 7.13 | About: Chembio Diagnostics, (CEMI)

Chembio Diagnostics (NASDAQ:CEMI)

2012 Earnings Call

March 07, 2013 5:00 pm ET

Executives

Bobbi Coco

Lawrence A. Siebert - Executive Chairman, Chief Executive Officer, President, Chairman of Chembio Diagnostic Systems Inc, Chief Executive Officer of Chembio Diagnostics Inc and President of Chembio Diagnostic Systems Inc

Richard J. Larkin - Chief Financial Officer, Principal Accounting Officer and Chief Financial Officer of Chembio Diagnostic Systems Inc

Analysts

Raymond A. Myers - The Benchmark Company, LLC, Research Division

William B. Bonello - Craig-Hallum Capital Group LLC, Research Division

Paul Nouri - Noble Equity Funds

Joseph P. Munda - Sidoti & Company, LLC

Casey J. Alexander - Gilford Securities Inc., Research Division

Brian Marckx - Zacks Investment Research Inc.

Operator

Greetings, and welcome to the Chembio Fourth Quarter 2012 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ms. Bobbi Coco. Thank you. You may begin.

Bobbi Coco

Good afternoon. This is Bobbi Coco with Chembio Diagnostics Inc. Thank you all for participating in today's call. Joining me are Larry Siebert, Chief Executive Officer; and Richard Larkin, Chief Financial Officer.

This afternoon, Chembio Diagnostics announced financial results for the fourth quarter and full-year 2012, and filed its annual report on Form 10-K with the SEC. These documents, as well as an updated investor presentation and fact sheet, may now all be viewed and downloaded by going to www.chembio.com and selecting Investors. If you would like to be added to the company's distribution list, please call Chembio Diagnostics at (631) 924-1135 extension 125, and ask for Susan Norcott, or e-mail her at snorcott@chembio.com.

Before we begin, I would like to caution that comments made during this conference call by management will contain forward-looking statements that involve risks and uncertainties regarding the operations and future results of Chembio Diagnostics. I encourage you to review the company's past and future filings with the Securities and Exchange Commission, including, without limitation, the company's forms 10-K and 10-Q, which identify specific factors that may cause actual results or events to differ materially from those described in the forward-looking statements. Furthermore, the content of this conference call contains time-sensitive information that is accurate only as of the date of this live broadcast, March 7, 2013. Chembio Diagnostics undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call.

With that said, I would like to turn the call over to Larry Siebert. Larry?

Lawrence A. Siebert

Thanks, Bobbi. Good afternoon, everyone, and thanks for joining us. Chembio had an outstanding year in 2012. We made considerable progress on our strategic plan with success marked by strong revenue growth and profitability, advances with key development programs and the uplifting of our common shares to the NASDAQ capital market. Also, at year end, we were delighted to receive U.S. FDA approval for our DPP oral fluid HIV test, which we plan to launch at the end of 2013, following receipt of clear waiver. We're pleased to see our rapid HIV test products, that are marketed by Alere continue to gain market share in the United States, and we expect to gain additional market share when we launch our DPP oral fluid HIV test, as mentioned.

We've grown product revenues every year since 2004, the year we became public and recorded a nearly sevenfold increase in sales over that 8-year period, in part due to the validation of our DPP technology to a number of product approvals and collaborations globally. I'll provide a more detailed review our Q4 activities and recent developments, and we'll then open up the call to some questions. But before I do that, I'll turn the call over to our Chief Financial Officer, Rich Larkin, to discuss the Q4 and 2012 full-year financial results in some greater detail. Rich?

Richard J. Larkin

Thanks, Larry. First, I'll go over the fourth quarter results, and then I'll touch briefly on our 2012 results.

Our total revenues for the fourth quarter of 2012 were $7.87 million, an increase of 27% compared with the fourth quarter of 2011. Product sales increased 25% to $7.41 million, primarily as a result of increased DPP sales to FIOCRUZ and international HIV sales.

Our research and development milestone granted royalty revenues for the fourth quarter of 2012 increased to $458,000 from $295,000 in the same period of 2011. Gross profit dollars for the fourth quarter of 2012 increased 15% to $3.16 million, due to higher product sales and R&D and licensing and royalty revenues. Our product gross profit dollars for the fourth quarter of 2012 increased 11% to $2.7 million, and product gross margin percentage declined primarily due to scrap, product mix and other factors.

Our R&D expenses in the fourth quarter of 2012 were $1.12 million, down about $60,000 from the prior year. The 2012 fourth quarter included $157,000 of clinical trial expenses compared with $190,000 in the 2011 period.

For the 3 months ended December 31, 2012, selling, general and administrative expenses increased to $1.33 million from $1.01 million in the prior year, largely due to higher commissions on DPP product sales to Brazil and higher wages and other expenses.

Our operating income for the fourth quarter of 2012 was $705,000 compared with the operating income of $551,000 for the fourth quarter of 2011.

Our net income for the fourth quarter of 2012 was $492,000 or $0.06 per diluted share, and that is compared with the net income of $5.68 million or $0.60 -- $0.66 per diluted share for the comparable period in 2011.

The 2012 fourth quarter included a charge for income tax provision of $214,000 or roughly $0.02 per diluted share, which approximates the amount of income taxes that would be attributable to Chembio if we did not have net operating loss carryforwards to offset these income tax payables.

The 2011 fourth quarter net income included a benefit of $5.13 million in income tax provision or roughly $0.60 per diluted share, as the company booked a deferred tax asset for its net operating loss carryforwards.

Turning to our 2012 results, our total revenues for 2012 increased 32% to $25.61 million, and product sales increased 40% to $24.33 million, both of those compared with 2011. And our operating income for 2012 was $1.45 million, up from $1.09 million in 2011. And the net income for 2012 was $941,000 or roughly $0.11 per diluted share, compared with net income of $6.21 million or $0.73 per diluted share in 2011, and then 2011 included that tax benefit of $5.13 million or $0.60 per diluted share.

The company had cash and cash equivalents of $2.95 million as of December 31, 2012, and this compares with $3.01 million as of December 31, 2011. Our accounts receivable increased by $1.85 million to $4.82 million, which was a primary driver of a $2.02 million increase in current assets over to 2011.

Our accounts payable including liabilities increased by $514,000, and our overall working capital increased by $1.5 million over 2011 to $7.63 million.

I'd like to thank you for your time, and now I turn the call back over to Larry.

Lawrence A. Siebert

Thanks, Rich. As reflected in our product revenues, 2012 was an excellent year for Chembio, both in the U.S. and internationally. In the U.S., Alere has gained market share, and we believe they will continue to do so as the year started out on a strong footing with both of our products, with Alere markets under the Clearview brand of theirs.

Global opportunities for our HIV products have also been strong. We entered 2013 confident in our ability to add significant new accounts this year as we did last year, despite challenges in some of the donor-funded programs. For the last several months in particular, we've been investing a substantial effort in establishing new distribution channels for our products internationally. This has been enhanced as we, and the market, increasingly appreciate the consistent performance of our products, compared with other products in the market. In addition, our products are known for their FDA approvals, while still being sufficiently cost-competitive to participate in the global health arena. For example, during fourth quarter and continuing now into the first quarter of this year, Chembio has delivered $3 million of product to a UN agency in connection with the national testing program in just one country that has a population of less than 50 million people, and where we have replaced the competitor's product. With our continued record of product quality, delivery and performance, we believe that we can replicate this success in other countries, and we hope to be able to announce those results in the periods to come.

With the FDA approving our Pre-Market Approval application for our DPP HIV 1/2 Assay for use of oral fluid or blood samples, we're now focused on completing the requirements for a clear waiver for this product, which is required in order for it to be sold in the point-of-care market segments, where these tests are primarily used in the United States. We anticipate this process will be completed in 2013.

We are confident that we can successfully address the public health market for our DPP HIV product through a small direct-sales organization, and address the hospital and physician office market through distribution relationships. We believe the ability of an alternative oral fluid HIV rapid test, that also performs exceedingly well on blood samples, will enable Chembio to gain share in market segments not currently addressed by the blood-only point-of-care products that are sold of ours to Alere.

In the only head-to-head study done for our oral fluid HIV test sponsored by the CDC Global AIDS Program, our product outperformed our competitor's product, and we also know that on well-characterized patient samples that are at the earliest stage of antibody detection, our test has superior performance.

Moving forward, our plan is to have this focused sales organization market several of our pipeline products, which are currently in various stages of development.

I'd like to just take a moment to now review our rich and growing product pipeline. First, let's look at the DPP Syphilis Screen & Confirm test. This test is the only point-of-care test for Syphilis that differentiates between active and previously treated cases, and there is strong interest in this test by public health groups in the U.S., let alone internationally. We are confident that our DPP Syphilis Screen & Confirm test detects primary infections more accurately than the legacy laboratory test known as Rapid Plasma Reagin or RPR.

During the fourth quarter of last year, we received data that we believe now supports -- will support the De Novo FDA 510(k) clearance for this point-of-care test for syphilis that differentiates as stated between the active and previously treated cases. As a result, we submitted these data, along with supplemental information for the FDA, so that we can reinitiate clinical trials. Our submission included an article published in the scientific journal in December that reports the results of a large study that was conducted with this product in 2010 and '11 in China. And just very recently, in late February, we received the FDA's response that we believe now will enable us to pursue the regulatory pathway that we outlined in our submission.

We do still have some questions concerning their response, and we have a meeting scheduled this month to hopefully address them.

While we're confirming this, what our intended study is with FDA, we are completing our protocol and have identified 3 clinical sites and drafted their contracts in order to be ready to be commence these studies as soon as April or May of this year. Once completed, we expect to submit the 510(k) application to the FDA by the end of the third quarter and have an FDA clearance by mid-2014.

Now, turning to our DPP combination HIV syphilis test. We've submitted this multiflex combination test for evaluation for the U.S. CDC. In addition, the World Health Organization has accepted this product for evaluation in their prequalification program as part of their global procurement scheme, and other international registrations are also pending. We expect soon to submit a guidance request to the FDA for determining the pathway for getting this product cleared.

You should know that the HIV component of this test is already the test that we just got approved pursuant to the PMA approval we received in December. And we still -- and therefore, we have plans to initiate the syphilis component studies -- the syphilis component of this test studied in May. That would put us on track to submit the 510(k) application to the FDA by the end of the third quarter and to have an FDA clearance also by mid-2014.

Next, regarding our Sure Check HIV OTC study for self-testing or home use. We've completed the self testing study to meet the requirements for submitting an IDE or Investigational Device Exemption application in order to commence clinical trials for this product in 2013. The IDE application can be filed, and we plan to do this shortly. Thereafter, assuming IDE approval, the Phase II observed user clinical trials could start during 2013, and the pivotal trial could be completed in 2014 and '15. This would enable a PMA approval by late 2015.

In the meantime, we're closely monitoring our competitor's launch of the first OTC-at-home HIV test, and are evaluating the market for this opportunity.

And then lastly, I'll just review our DPP Hepatitis C test. Development work on this point-of-care rapid test continues. We've already completed, last year, a feasibility study that shows that we can develop a HCV rapid or Hepatitis C rapid test that is equivalent to the directly competitive product. However, we were waiting to receive some additional materials that we believe, could enable us to improve performance with enhanced features of this test as compared to our competitor's. We've now received those materials and we're able to continue our development activities with respect to these additional materials. We expect pending a successful outcome of that study, those studies we could complete development this year and commence clinical trials for this product in early 2014.

We have a broad range of business development activities underway led by Mike Steele, our VP of Sales and Marketing Commercial Development -- Business Development, which include potential new distribution and or strategic partnerships in a number of markets and collaborations on the development of new single-parameter and multiplex tests to utilize their patented DPP technology, some of which include proprietary biomarkers that could create interesting new diagnostic markets. In addition, we're making investments in and working toward collaboration involving product features and performance enhancements that could complement our current capabilities, and that will ensure our pipeline continues to be filled with high-quality opportunities for the long term.

So in closing, we're very pleased with our achievements for 2012, especially having posted another record year of strong revenue growth and profitability. Moving forward, we remain confident that we have the people, the products and the pipeline to achieve sustainable growth in the years to come. So thank you for listening.

And operator, we're now ready to take some questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Raymond Myers with Benchmark.

Raymond A. Myers - The Benchmark Company, LLC, Research Division

Maybe you could start with talking about one of the potential concerns is, is there any change in demand for HIV testing by the U.S. public agencies due to the economy sequestration, changes in budgets or other factors?

Lawrence A. Siebert

Well, as you know, so far, we've been selling our product through Alere. And so, we, to date, as mentioned, year-to-date, we're starting off the year very strong with Alere. We have not gotten any information from them that there is a significant pullback from where they were, but we have not spoken to them since midnight on Friday of last week. So we have not heard any changes as it relates to the budget situation in the U.S. And they -- when we did meet with them earlier this year to go through the plan for this year, they were very bullish and optimistic as to the kind of progress that they could make with our products that have performed so well and they've been so effective selling for so long now. So we haven't seen any indication of a slowdown at least as with respect -- as it relates to our products.

Raymond A. Myers - The Benchmark Company, LLC, Research Division

That's great. And for the gross margin in the fourth quarter, is it correct to assume that the reason the gross margin was a little lower in the fourth quarter was a very high rate of sales to Brazil? I'm sorry, to international markets other than Brazil?

Lawrence A. Siebert

No. I would say that there was a combination of factors. We had a very aggressive schedule of commitments to get product out. And in retrospect, we probably shouldn't have been as aggressive as we were. It cost us in terms of overtime and some additional costs that we incurred in temporary labor and so forth. So that was a factor. There was some additional scraps, still a problem that we've had. That's the bad news. The good news is that we're addressing it. I'm optimistic that we will become a much more efficient operation over the course of 2013. In terms of the mix, we had a very strong quarter with Alere, which is our most profitable of the products that we sell. But I guess, given that there was a such a large sales number that, I guess, the mix would have had some impact on the gross margin. So I'd say it's a combination of factors.

Raymond A. Myers - The Benchmark Company, LLC, Research Division

You mentioned in the prepared remarks that $3 million was for a large international tender in 2012. How much of that was in Q4?

Lawrence A. Siebert

I think it was about -- I'd say about 40% of it. 35% to 40%.

Raymond A. Myers - The Benchmark Company, LLC, Research Division

Right. And then finally, before I get back into the queue, could you touch upon what the clinical trial expense you -- what clinical trial expense do we expect in 2013, including the -- also the cost to secure the CLIA waiver in 2013 gives a sense of projected expense?

Lawrence A. Siebert

Yes. I would say that our clinical trial expense will be somewhat comparable to what our expenses have been over the last couple of years on average. Maybe a little bit more than 2012, and maybe closer to the 2011 number. In that range. For the CLIA waiver, because of the new guidance has become more expensive than the CLIA waiver that we -- back in 2006 for our flow test. So it could be in the million-dollar range for clinical trial expense, including the CLIA waiver.

Raymond A. Myers - The Benchmark Company, LLC, Research Division

You mean in incremental expense over 2012?

Lawrence A. Siebert

No, no, no. Total.

Operator

Our next question comes from the line of Bill Bonello with Craig-Hallum.

William B. Bonello - Craig-Hallum Capital Group LLC, Research Division

Great. So a few questions here. In the quarter, Larry, were sales to Alere still down year-over-year in the quarter? Or did you actually see an increase in Q4?

Lawrence A. Siebert

What was the sales to Alere in Q4 of last year?

Richard J. Larkin

Just a moment.

Lawrence A. Siebert

I think it was a little down. My recollection is, I think, we did a little over $2 million in 2011 versus a number that we had in the fourth quarter of 2012. So it was -- last year, we started out the year with Alere at a very strong pace and it leveled off. It was -- it fell precipitously in the third quarter, if you may recall. And -- but it regained strength in the fourth quarter and we -- as I've mentioned, we're starting off the year very strong with Alere. But I think it was down, for your question in the fourth quarter, as compared with the fourth quarter 2011, but still well up from where we were in the third quarter of 2012.

William B. Bonello - Craig-Hallum Capital Group LLC, Research Division

Okay. And then, the -- and if you have any more precise numbers on that you can share, if you're digging them, it would be awesome. But...

Richard J. Larkin

For the fourth quarter with Alere of 2012, we did approximately $1.9 million versus $1.8 million in 2011. So it was pretty much the same.

William B. Bonello - Craig-Hallum Capital Group LLC, Research Division

Or even up.

Richard J. Larkin

Obviously, yes.

William B. Bonello - Craig-Hallum Capital Group LLC, Research Division

Okay, how about that. And then just curious, and it's a little difficult for me to do the math on the fly, but if I were to strip out the sort of international tender and, not to take away the credit for that, but what does that sort of do to international sales on a year-over-year basis? Would everything else still have been up or...

Lawrence A. Siebert

Well, the international tender business is the business that we're in, internationally. So it's a lumpy business. It's hard to predict. But that's the nature of the business that we're in. And so...

William B. Bonello - Craig-Hallum Capital Group LLC, Research Division

So it's always going to be sort of one country or another, not sort of consistent buying by the same countries.

Lawrence A. Siebert

We hope that it's many countries. And we're -- we have a number of new opportunities that we're working on that we hope will -- that will manifest itself in that way. But it's a very difficult business to predict, although sometimes, when you get into a particular country's algorithm, you do get some sustainability. But even then, it's hard to predict because other things can change. For example, in a particular testing algorithm, one of the other products that are used in that algorithm, for whatever reason, becomes a problem. So then the whole algorithm then has to be reevaluated or maybe replaced. So it's hard to predict, but that is the business that we're in, internationally. It's not as if we're in a predictable business. But it's, which is not to say that it's not a good business, it's a very good business. And we continue to see new opportunities for us. But it does -- it is subject to large swings from quarter-to-quarter as we saw just in the third and fourth quarter of last year, for example.

William B. Bonello - Craig-Hallum Capital Group LLC, Research Division

Make sense. And the remainder of that tender, I mean, is that sort of the over the course of the year? Or does that all fall into the very first quarter of this year?

Lawrence A. Siebert

That will -- I think, we've completed -- have we completed the delivery? I think we just made the last...

Richard J. Larkin

I think we may have made the last shipment.

Lawrence A. Siebert

Yes, yes. So it's yes, all this quarter.

William B. Bonello - Craig-Hallum Capital Group LLC, Research Division

Okay. And then, sorry. So just back to follow up again on the question of the sequester. And I appreciate that so far, it's early days and you haven't had a conversation with Alere. But it seems to me like I could think of the impact as sort of going 1 of 2 ways. On one hand, I could say, CDC funds the public health and maybe the demand drops a little bit. On the other hand, I could say, gosh, maybe, it's great opportunity for you to take share with -- or Alere to take share with a lower-priced product. I mean, just as you kind of think out just logically what the sequester might do, if anything, how do you kind of handicap things?

Lawrence A. Siebert

I think that there are 50,000 new infections of HIV every year, and that there's a huge need for more and more people to be identified. And the other -- and so, that's really not answering your question, but I think that it's somewhat responsive in that we think the need is still there. I think, as I think we've discussed, there's an increasing -- there's going to be an increasing shift, and maybe this will accelerate it toward reimbursement through the Preventive Services Task Force recommendation which maybe get to get implemented more, more quickly. So...

William B. Bonello - Craig-Hallum Capital Group LLC, Research Division

Okay. And then just the last one, and I apologize if you explained this and I missed it somehow. But the uptick in AR/DSO, what contributed to that?

Lawrence A. Siebert

We -- these large shipments tend to all go out at once. And if they -- so they go -- went out toward the end of the year. So then as of the end of the year, you have a large receivable balance.

William B. Bonello - Craig-Hallum Capital Group LLC, Research Division

Yes, perfect.

Lawrence A. Siebert

Yes, it's that simple.

Operator

Our next question comes from the line of Paul Nouri with Noble Equity Funds.

Paul Nouri - Noble Equity Funds

The milestone and grant revenue was up pretty considerably from prior quarters. Is that something that's sustainable or kind of a onetime event?

Lawrence A. Siebert

That relates to the contract we had with Battelle, which was -- we entered toward the end of the third quarter of last year, and then a good chunk of the work was done in the fourth quarter. That wasn't the only thing in the fourth quarter, but that was -- we had some -- an NIH grant in there as well. We will have more of that contract this quarter, as well as a continuation of the NIH grants. And we are working out some additional development contracts so -- which we expect to be in place during the course of this year, probably not this quarter. So I would say that we have a shot at the nonproduct revenues for this year being greater than last year, for the whole year, not really looking at it on a quarter-by-quarter basis.

Paul Nouri - Noble Equity Funds

Okay. And some companies are benefiting in the first quarter from the R&D tax credits taking place. Are you going to see that kind of effect at all?

Richard J. Larkin

All right. Well, from a tax point of view, unfortunately. And fortunately, we have a large net operating loss carryforward, and we need to exhaust that first before we can start using our R&D credits. And so we mentioned when we made the adjustment last year, and of course, it's also on our K, we still have a full valuation allowance on the R&D credits, because there's some doubt as to whether we will get to use those before they expire.

Paul Nouri - Noble Equity Funds

Okay. And then I guess, hitting on the medical device tax a bit, how much of your sales do you expect this year to come from the United States? 4%?

Richard J. Larkin

The medical device tax is based on human tests, so it would not apply to any of our veterinary tests. And it only applies to tests that are sold in the U.S. So basically, it's basically going to be on our sales to Alere.

Lawrence A. Siebert

So last year, we did about $7.7 million to Alere. And so that would -- the worst case scenario is that if the medical tax were in place last year, that would've impacted those sales by the [indiscernible], yes.

Richard J. Larkin

Yes, I mean, we would probably have in the ballpark $160,000 in expense. But we are negotiating with Alere to share in some of that with us, so we would end up with probably a little higher sale price.

Paul Nouri - Noble Equity Funds

Okay. And then a last question. This quarter was obviously great in terms of sales, maybe your highest. Some of it looks from the international trend there. Can you give us a little more clarity on how much it was, so we can think about a run rate for next year? Because, I guess just in terms of for the first quarter, is there going to be like -- is it going to be equal to the fourth quarter? Is there going to be like a $1 million drop off in revenue?

Richard J. Larkin

So we almost did -- it's [indiscernible].

Lawrence A. Siebert

Yes, okay. So I misspoke before. We did about 60 -- we did $1.8 million of that $3 million in the fourth quarter, sorry about that. So the balance of that $3 million or $1.2 million would be shipped this quarter.

Operator

Our next question comes from the line of Joe Munda with Sidoti & Company.

Joseph P. Munda - Sidoti & Company, LLC

For you, Larry. Real quick. Larry, I'm trying to wrap my head around all these moving parts with syphilis and the Hep C and the Sure Check. What would -- and as far as Sure Check, let me digress a little bit. As far as Sure Check is concerned, the player in the market right now only booked about $0.5 million in revenue in the quarter. I mean, is that enough for you to really take a hard look at entering that market?

Lawrence A. Siebert

If it stays at $0.5 million, absolutely not. We understand that their sales increased nicely during January and February, or at least January. That -- they reported in -- I believe we had heard that they were increasing as well in February. They have to show continued increases to get to 50 -- at least to a $50 million to a $100 million market opportunity that we see in order for us to justify spending a significant amount of money in bringing this product through regulatory approval. So the expenditures that we're making are really just to get ourselves ready for that. We are -- and part of what we're doing also is that there's some potential international opportunities for that same product for self testing. And we've been invited to participate in some international evaluations that are at no cost to us. And so, we're providing the ergonomically improved but the same underlying chemistry test to those collaborators that are offering to do those studies. And -- but you're absolutely right. It's got to show -- we've got to show. And the implication of your question is, right, that we've got to show -- we've got to see our way, even though our expectation is much less than what some of the expectations that were created by that competitor in order to make it justifiable. We need to -- we still need to see at least that.

Joseph P. Munda - Sidoti & Company, LLC

Okay, that helps. In terms of the syphilis test, I'm just trying to get a market number, global market. I mean, does $30 million sound right to you as far as an opportunity?

Lawrence A. Siebert

Dollars?

Joseph P. Munda - Sidoti & Company, LLC

Yes.

Lawrence A. Siebert

$30 million, in the U.S.?

Joseph P. Munda - Sidoti & Company, LLC

No, global.

Lawrence A. Siebert

No. The need for syphilis testing globally is significantly larger than that. The -- I mean, there are -- just to give you one statistic, there are 400,000 infants born just on mother-to-child transmission per year because of inadequate testing. And anybody, just talking about the international market, anybody -- the guidelines in the U.S. are that anybody who's HIV-positive should be tested for syphilis. There are 2.5 million new cases of HIV identified in the last year. Those numbers were generated which was for the calendar year 2011. So theoretically, I'm not saying that there are -- that many -- that sort of market. But the potential market is significantly larger than $30 million X U.S., let alone what think of market opportunity is here. So there are...

Joseph P. Munda - Sidoti & Company, LLC

Larry, I'm just saying, because I was looking at a competitor's marketing materials. Maybe it was $3 billion, but here, they show 30 -- I don't know, maybe -- is $3 billion more of a realistic number?

Lawrence A. Siebert

$3 billion?

Joseph P. Munda - Sidoti & Company, LLC

Yes.

Lawrence A. Siebert

I think we could discuss that offline. I think the issue internationally is not what is the need, similar to HIV testing, is what is the funding available in order to address that need. And that's why we think that there's such an opportunity for the HIV syphilis product is because the -- there is a -- as we know, and many of -- and you may know this that there's been a -- the HIV advocacy community has been so successful over many years in developing those sources of funding for HIV testing. That has not been the case for syphilis. So for the HIV syphilis test, we believe that, that is a natural for us to be able to tap into the funding for HIV testing with a combination test when the same people that are actually doing the testing, the public health people, in these NGOs and the programs and ministries of health and so forth, realize that they really need to have a syphilis test as well, but they don't have the funding for it. We have an answer for them by giving them a combination test for not much more than the price of an HIV alone test.

Joseph P. Munda - Sidoti & Company, LLC

So basically, again, 2 for 1.

Lawrence A. Siebert

That's correct.

Joseph P. Munda - Sidoti & Company, LLC

Okay. And then on your other comment regarding a focused sales organization, can you give us a little bit more color on that? I mean, are you planning, I guess, your own direct sales force? Can I take the comments that way?

Lawrence A. Siebert

I didn't hear the last part of your comment.

Joseph P. Munda - Sidoti & Company, LLC

Can I assume that's what you meant by that, as far as a focused sales organization? A direct sales force.

Lawrence A. Siebert

Yes, direct for the public health market, which is -- a rough number's, I don't know, a 50-customer market, by meaning the 50 states. And really, on the one hand, there are many states that are very, very small users of rapid HIV tests. On the other hand, there are some states that have multiple customers within the public health space. So you really only need a very, very, like kind of one less-than-one-hand sales organization. We would start even smaller than that. And also then, support distribution partners for the physician's office and hospital market with a manufacturer's rep.

Joseph P. Munda - Sidoti & Company, LLC

Okay. And then -- give me one second here -- with the -- I think that's it. You covered pretty much everything I was looking at. Oh, I'm sorry, and one other thing. Now I remember. In regards to the prior caller's question, how much can we get a sense of the revenue to be recurring? I guess, as far as modeling for our benefit would you say is in your revenue stream, how much of it is recurring?

Lawrence A. Siebert

Well, the -- what I can say to you is, without meaning to be evasive, but you may take it that way, is that there continues to be large funding internationally for HIV testing. We are one of the premium products that has been available in the market. We've expanded our efforts to participate in those markets, but it is hard to predict. But our track record over the last many years is that we've had good results from even much less -- much lesser efforts. We've -- because of some of the success that we had last year, we believe that with additional investment of time and effort, we can get additional results. But it's hard for us to model, and therefore hard for you to model, to be honest with you.

Joseph P. Munda - Sidoti & Company, LLC

Okay. And then -- and then I remember, one other, regarding other point-of-care test -- I'm not sure, I thought you said something about it, about using the platform and the biomarkers to expand the use of DPP. Any plans to get into, let's say, the cardiac market with like troponin detection?

Lawrence A. Siebert

Well, we certainly realize that large market opportunity. We want -- we're working on developing some additional capabilities for our platform that, if successful, would enable us to develop products that would compete very well in that marketplace. But it's not part of our focus right now.

Operator

Our next question comes from the line of Casey Alexander with Gilford Securities.

Casey J. Alexander - Gilford Securities Inc., Research Division

Perhaps I don't quite -- am not quite familiar enough with all this terminology surrounding the company thus far. Can you tell me what percentage of product sales in the fourth quarter and for the full year came from the contract in Brazil?

Lawrence A. Siebert

Last year, we had tech contracts with Brazil. Just. So you know, it's not one contract. And approximately a little over $10 million of our revenues were from Brazil last year. So that's roughly 40%.

Casey J. Alexander - Gilford Securities Inc., Research Division

Okay. And how much of that is expected to deliver in 2013? I mean, I think, aren't you coming up on the end of some of those?

Lawrence A. Siebert

Yes. So we don't have a full year outlook for both, versus significant amount of product to Brazil, but I don't have an exact number. Just the -- so you know the numbers, the contracts that we have provide for potential purchases of up to $23 million, although those numbers can be exceeded. And so far, they've purchased $14.5 million out of that $23 million. So the confusing part is that $14.5 million is not spread ratably across the 5 contracts. In some cases, they've purchased much less than what is required under the contracts and in other cases much more. So that, combined with just having a limited visibility as to what the outlook for the full year is, does -- prevents me from giving you what the number will be here. But under the contract, they have no requirement to purchase any product from us if they decide that they don't want to. But if they want the technology, then they have to, in the aggregate, under the 5 contracts, purchase at least $23 million. Have I confused you sufficiently?

Casey J. Alexander - Gilford Securities Inc., Research Division

But of which, they've purchased $13.5 million so far?

Lawrence A. Siebert

$14.5 million, yes.

Casey J. Alexander - Gilford Securities Inc., Research Division

$14.5 million then, I'm sorry. You were breaking up a little bit. It was hard to get that exact number.

Operator

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

Brian Marckx - Zacks Investment Research Inc.

On the FIOCRUZ subject, are you guys willing to talk about the breakdown by product for revenue?

Lawrence A. Siebert

No. It gets into too much detail. I don't have it in front of me, anyway. It's -- I think that we certainly have -- had a very strong year with them last year. It's been a great collaboration. We expect to deliver a significant amount of product to them this year. We don't know what the total number is going to be. We are producing product for them now. And it's -- and there's a possibility that we could develop new agreements during the course of this year. But I -- it gets into too much detail and granularity. I couldn't do that for you right now.

Brian Marckx - Zacks Investment Research Inc.

No, I understand and didn't expect that you would. But I thought I'd ask that question anyway. On the international lateral flow sales, based on your prepared comments, it sounds like that business has real potential to grow, and I understand that, that -- the sales are somewhat volatile quarter-to-quarter and even year-to-year. But is it fair to assume that you think that, that business has potential to continue to grow?

Lawrence A. Siebert

I think it is fair to assume that I think that, that business has potential to grow. Absolutely.

Brian Marckx - Zacks Investment Research Inc.

Okay. And then on the CLIA waiver. Is there any real risk that, that doesn't -- that the submission doesn't happen by mid-year?

Lawrence A. Siebert

I mean, there's always risk. This is the FDA and we have -- we can manage what we manage. The FDA could be subject to budget cuts impacting their turnaround time for reviewing things. So we've gotten 2 CLIA waivers in the past. We have a very firm schedule. We all know how important this is. We have the sites lined up, ready to go. We have other aspects of the CLIA waiver program underway. So I'm confident that we will achieve it. But to say that there's no risk, it would be unfair.

Brian Marckx - Zacks Investment Research Inc.

Yes, okay. And then the last one, when the DPP HIV test rolls out in the U.S., so the initial sales. What is your expectation as far as kind of where the market share comes from? Does it come from the rapid blood test? Does it come from taking share from Orasure's saliva test? Or is it the expansion of the overall market? Is it a combination of a few things?

Lawrence A. Siebert

Well, I think that the likeliest way we're going to generate revenues from that product is by the oral fluid feature, but I -- certainly, there are customers that are looking for earlier detection, and this product has shown in studies the capability of earlier detection than the other rapid blood tests that are -- that have been on the market so -- including ours. So that's a possible source of revenues as well. I don't believe that we should be thinking in terms of our taking a large share of the market. But to get the typical market share over some period of time that a company coming in as a fourth player or fourth product is -- that's what we would expect to get over time, which is in the 10% to 20% range over a period of time.

Operator

[Operator Instructions] Our next question comes from the line of Randy Schaffer [ph], a private investor.

Unknown Attendee

Congratulations. You guys continue to vindicate the wisdom of my investment and I appreciate it greatly. My question is in regards to the bovine TB test. When research and things that I have read before, challenges with antigens and the antibodies to identify this. Is it safe to assume that by getting the approval for this bovine TB test that, perhaps, you're on the right track towards getting to a human test that would -- you'd be happy with the results and meet the requirements?

Lawrence A. Siebert

Yes, I think that's dangerous to make that jump. The issue in the developing world or even in the United States for detecting active pulmonary TB, not to mention detecting some of the most -- the drug-resistant forms, which is, maybe, something you've read about -- certainly, we've read about. Certainly, some of the reagents that we use can be used in both applications, but we would need to get to a different level of -- and we'd make progress on this. I don't want to tell you that we haven't made progress, but we still have more work to do than where we are with the veterinary tests in order to have a product that would meet the needs of the market.

Unknown Attendee

And that on the veterinary tests, are there, what I want to say, the thresholds for performance, lesser than human requirements? Or does it go about the same, they expect a certain level of performance there?

Lawrence A. Siebert

Well, it really depends on the market and the prevalence. And when you're talking about a veterinary product that is being used for what they -- for livestock or production animals, and when there's an economic argument then, specificity is so important. Meaning, that the cost to a slaughterhouse or to production farm, whatever, of having false positive can be quite high. So the specificity is very, very important. In a high-prevalence developing world country where you're trying to identify TB in the human population, you can be willing to compromise some specificity defined, those active pulmonary cases, that would otherwise not be detected with a less sensitive test. So there is some difference in that way.

Operator

Our next question is from the line of Casey Miller with Berry's [ph] Capital.

Unknown Analyst

My guess, my question's around, I believe, Orasure is set to make some payments to Alere starting this year around licensing some technology. And I was wondering if you guys are going to receive any piece of those payments?

Lawrence A. Siebert

No. We don't have any kind of arrangement with Alere as it relates to that. The technology that Alere owns -- the IP4 is their lateral-flow technology. And I believe that is the technology that Orasure is using and settled with Alere in a lawsuit -- they set a lawsuit and they agreed to pay them a license fee, a royalty -- a license fee and a royalty for that technology. That's Alere's technology which we also have a license to ourselves, but we don't share in the revenues that Alere gets from any of its other licensees.

Brian Marckx - Zacks Investment Research Inc.

Okay, great. I just wanted to double check and makes sure it wasn't your guy's technology.

Operator

Ladies and gentlemen, at this time, there are no further questions. I'd like to turn the floor back to management for any closing comments.

Lawrence A. Siebert

Thank you, operator. Thank you, all, for listening about our great 2012 year. We look forward to reporting our first quarter results in early May. Thank you so much. Have a great evening.

Operator

Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

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