Sales drop, tax bite sting Chembio Diagnostics

Changing of the border guard: Medford-based Chembio Diagnostics has made some moves with its roster of international executives.

Medford biotech Chembio Diagnostic Systems Inc. took it on the chin in the second quarter, with steep losses attributed to declining sales for its infectious-disease detectors and a one-time, multimillion-dollar tax provision.

According to quarterly financials released Thursday, the company – dba Chembio Diagnostics – reported total revenues of $3.27 million in the quarter ended June 30, a 51 percent drop from the $6.72 million reported for 2Q 2015.

CHEMBIO 2Quarterly product sales plunged nearly 68 percent year-over-year, from $6.32 million in 2Q 2015 to $2.03 million this year.

The hampered revenues and hamstrung sales led to an operating loss of $2.38 million in 2Q 2016, more than two-and-a-half times the operating loss of $898,000 reported over the same three months last year.

Throw in a standalone tax provision covering a valuation allowance on a deferred tax asset of $5.96 million, and Chembio Diagnostics recorded a second-quarter net loss of $8.34 million – a dramatic departure from the $664,000 net loss recorded in 2Q 2015.

Second-quarter net loss per diluted share also nosedived year-over-year, from 7 cents to 86 cents per share.

Other quarterly financial measures were also grim. Chembio Diagnostics’ second-quarter R&D expenses increased sharply year-over-over – from $1.76 million to $2.37 million, a nearly 35 percent spike – as the company incurred expenses while working toward milestone-triggered grant payments.

And while the company’s general and administrative expenses were down 26 percent – from $2.16 million in 2Q 2015 to $1.6 million this year – Chembio Diagnostics attributed that to decreased sales activity in Brazil, as well as “decreases in wages and related costs, stock-based compensation, travel, entertainment and trade shows, consulting, and professional fees.”

Widening the view to the first six months of Chembio’s fiscal year, the numbers show more of the same. Over the year’s first two quarters, the company reported revenues of $9.87 million, down 24 percent from the $12.95 million reported over the first six months of 2015, and sales of $7.95 million, down 33 percent from the $11.94 million reported last year.

Including the bruising second-quarter hit, Chembio Diagnostics recorded a net loss of $8.65 million over the first six months of 2016 (90 cents per diluted share), about six-and-a-half times the $1.31 million net loss (14 cents per share) recorded over quarters one and two last year.

Chembio Diagnostics CEO John Sperzel III said sales of the company’s sexually transmitted disease tests dropped precipitously in the second quarter due to the expiration of a distribution agreement with a major U.S. distributor.

Chembio Diagnostic also recorded lower sales of its point-of-contact HIV- and syphilis-detectors in Brazil – the company noted “a previously disclosed tender offer … having been awarded to a competitor at an extremely low price point” – and its HIV products in Africa.

Troubles in the Latin American market were also the culprit in December, when Chembio Diagnostics reported total 2015 revenues that were down more than 12 percent from total 2014 revenues.

Sperzel and his management team are still confident, however, in Chembio Diagnostics’ patented Dual Path Platform technology, which the CEO said is “unique due to its inherent characteristics,” including the ability to detect multiple diseases in a single patient sample and its functionality with both saliva and blood samples.

“Considering the progress made in each of Chembio’s three business areas during the quarter, the versatility and utility of this technology has never been more evident,” Sperzel said Thursday.

Among the highlighted progress: clinical trials for a DPP HIV-Syphilis Assay for the U.S. market are “advancing well,” according to Sperzel, while the company has also advanced its fever-disease business – initiating development of the world’s first saliva-based malaria test – and made “significant progress” toward development of an assay focused on Zika virus.

And Chembio Diagnostics management is still confident in the Latin American market, with the company continuing to supply other DPP products to Bio-Manguinhos/Fiocruz – the Oswaldo Cruz Foundation’s Rio de Janeiro-based Institute of Technology in Immunobiologicals – and Brazil’s Ministry of Health, as well as other organizations in Latin America.

“We believe this region will continue to be a strong market for Chembio,” Sperzel said. “In particular, we believe the anticipated launch of the DPP Zika IgM/IgG Assay and DPP Micro Reader, as well as related fever-disease assays currently in development, will be important new products in this region.”

That Zika detector could prove to be a game-changer, the CEO added, not only for Chembio Diagnostics’ bottom line but for global healthcare initiatives.

“We are hopeful that this product will receive U.S. government funding, as well as approval following submissions to numerous regulatory agencies,” Sperzel said, noting the company’s goal of “providing health organizations around the world with an important tool to combat the further spread of the Zika virus.”