Chembio Diagnostics is a small player in the currently $7 billion point-of-care test (POCT) market, but they are showing double digit quarter-over-quarter growth and profitability. Why? The demand for POCTs is increasing dramatically, as POCTs offer significant advantages over the traditional centralized lab tests. They reduce costs by simplifying the test procedure and by offering early and prompt diagnosis on site, and they eliminate return visits and expedite necessary intervention. This industry is expected to grow to $9 billion by 2012, and CEMI has been showing sales increases of OVER 100% year-over-year for their tests thanks to their collaborations with larger diagnostic test companies such as Inverness Medical Innovations (IMA), Biorad (NYSE:BIO), and grants from the National Institute of Health (NIH), the US Center for Disease Control (NASDAQ:CDC), Brazilian Miinistry of Health (FIOCRUZ), the World Health Organization (WHO), and the Foundation for Innovative and Novel Diagnostics (OTCPK:FIND).
Needless to say, this small company has some partners with deep pockets, who are helping to line CEMI’s pockets with revenue! Chembio’s most recent quarterly results are something to get excited about: Chembio showed an increase in net income of 279% over their last quarter, driven by a 29% increase in revenues. In the first nine months of 2009 product sales increased 14%, from $8.11 million to $9.25 million. At current the current income and revenue levels shown this quarter, this represents a forward looking annualized $17 million in revenue and $0.04 per share in forward net earnings. From this, it is clear that Chembio Diagnostics has left the development stage, generating staggering increases in revenues, and is currently trading at a forward P/E of less than 8. This is a ridiculously low valuation, as the typical P/E in this industry ranges closer to 35. As you can see, this is NOT a struggling biotech company waiting for FDA approval, it is a healthy company coming out of obscurity- be the first to find CEMI before other investors do, and you are strapped in for one wild ride.
Why do I do we think CEMI will be a success? Three very important reasons:
1) CEMI is already profitable, with double-digit gains in revenue every year
2) CEMI has proprietary technology that will change the future of POCT
3) CEMI has virtually no competition!
CEMI is already profitable, with more to come!
Chembio Diagnostics main products are three rapid tests for the detection of HIV. Chembio's two FDA PMA-approved, CLIA-waived, rapid HIV tests are marketed in the U.S. by Inverness Medical Innovations, Inc under the Clearview name. The Clearview product made for Inverness already has FDA approval, and is seeking CE Mark approval as well. Nationally, the sales of HIV test kits have been a boom for the diagnostic test kit business because of the President's Emergency Plan for AIDS Relief program, a multi-billion U.S. taxpayer funded program established in 2003. This benefits Chembio Diagnostics because under this program, non-FDA approved HIV tests used offshore are requisitioned by the US government. In addition, Congress is currently drafting a federal proposal to have Medicare cover HIV testing, which would further stimulate the sales of rapid HIV test kits (Medicare covers 45 million people).
CEMI has proprietary technology that will change the future of POCT!
Chembio Diagnostics’ novel and patented DPP technology (US patent 7189522) is being used to develop several new kinds of test kits that promise better sensitivity (10-50 times over existing lateral flow kits) and faster results: www.chembio.com/newtechnologies.html.
Also, please view information about DPP from Chembio Diagnostics investor presentation:
Chembio has already developed the HIV DPP test and is performing the trials necessary to gain approval in the Developing World by the end 2009-start 2010;
CE Mark: 1st Half 2011; and US FDA: 1st Half 2011.
In addition to HIV tests, Chembio has already developed a Syphilis test and is performing the trials necessary to gain approval in the Developing World by the end 2009-start 2010; CE Mark: 1st Half 2011; and US FDA: 1st Half 2011.
Chembio is also developing a Hepatitus C Test- the only one of its kind!
Chembio is also developing a revolutionary flu test for the CDC!
This test will detect and differentiate between all 3 types of flu: A,B, and H1N1! The objective of the project is to develop a product that can determine an individual's immunity to seasonal and novel influenza viruses, including novel swine H1N1, either in the field or in an outpatient setting. The test will have six different parameters (representing different influenza strains) plus a control line on a single POC DPP® device. The test will allow visual interpretation of results and/or will be used with a portable digital reader that will be customized for this application.
EXPECT TO SEE BIG NEWS ABOUT THIS THE NEXT FLU SEASON!!!!!
CEMI has virtually no competition for these tests!
Look at the revenue potential these tests kits for just the US alone!
Note the lack of competition!
Chembio has found a niche market developing tests for less common diseases. By teaming up with global health organizations, it has secured a monopoly for these tests in third world countries!
Why will the next 3-4 months be so exciting for CEMI? Because they are completing several significant steps towards finishing these goals and will begin generating even more revenue!
Chembio expects to complete by the end of 2009/early 2010:
1. CE Mark for the FDA approved STAT PAK HIV tests under the Clearview Complete name in early 2010.
2. Completion of a portion of the clinical trials in support of a Pre-Marketing Approval (NYSEARCA:PMA) application for the DPP HIV 1/2 test during the fourth quarter of 2009. They also anticipate the remainder of the testing to be completed during the first half of 2010, and a PMA approval during early 2011.
3. Regulatory Approvals in Brazil through the Oswaldo Cruz Foundation (FIOCRUZ) –for the DPP Leishmaniasis, HIV Confirmatory, and the DPP HIV screening tests. They anticipate that regulatory approval of these tests, registered under the label of their Brazilian partner, Oswaldo Cruz Foundation, will be obtained before the end of 2009.
4. The first phase of a multi-center evaluation sponsored by the World Health Organization for DPP Syphilis Screen & Confirm is commencing during the current quarter, and they expect to have the first phase results during the fourth quarter of 2009.
5. Approval to market the DPP Syphilis Screen & Confirm in the Developing World in the last half of 2009/ early 2010.
6. A prototype for their DPP influenza test kit by the end of 2009.
7. Evaluation of the DPP Hepatitis C and DPP Hepatitis C/HIV Oral Fluid Antibody Tests by the end of the year (2009).
As you can see, the next several months are going to be exciting for CEMI and its investors. Expect another brilliant quarterly result to be released early next year!
Right now CEMI is only trading in the 30 cent range and it is horribly undervalued as it is yet to be recognized by investors. How much is CEMI worth? With 62 million outstanding shares, and a current price of about 30 cents per share, its current market capitalization is only $20 million. With continued profitability as expected due to milestone payments, grant income, and increased sales due to CE Mark approval for sales in EU and approval for sales in developing countries, it is reasonable to anticipate earnings of about 5-6 cents per share for 2010.
Compare this to the average price to earnings ratio of around 35 for the diagnostic companies mentioned earlier, and it is easy to see a value of over $1.50 per share based solely on these fundamentals.
However there is added value in CEMI beyond this- add in the anticipated market expansion for their numerous DPP platform assays and US FDA approval for several of these tests as outlined earlier, and you should expect the share price to reflect that.
Hopefully you can see all the potential in CEMI as a legacy stock- one that you bought at a very low price and held on to through the growth of the company, rewarding you with amazing exponential returns as the company grows. Hold CEMI for the anticipated announcements of CE Mark approval for the Clearmark HIV test and Brazilian approval for DPP Leishmaniasis, HIV Confirmatory, and the DPP HIV screening tests in late 2009/early 2010. This would dramatically improve revenue for the already profitable CEMI. After this, continue to hold CEMI for US FDA approval for these numerous tests, which will generate even more revenue and a higher price per share for CEMI. At worst, this is an opportunity to get in on the ground floor pricing for a solid company who has earned market share, developed novel technologies for the fraction of cost you would expect- the proverbial “hidden gem”. Right now you can buy CEMI for literally pennies on the dollar before investors flock to this great company or it is bought out for a premium. Although it is trading for pennies right now, it is truly not your typical penny stock: There are very few downsides and many upsides for high reward potential.
Disclosure: Long on CEMI
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Disclosure: I am long on CEMI. I do not have positions in any of the other stocks mentioned.