Chembio Diagnostics (CEMI) 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.
Chembio has established collaborations with larger diagnostic test companies such as Inverness Medical Innovations (IMA), Biorad (BIO), and government agencies such as the National Institute of Health NIH), the US Center for Disease Control (CDC), Brazilian Ministry of Health (FIOCRUZ), the World Health Organization (WHO) and the Foundation for Innovative and Novel Diagnostics (FIND).
This small company has some partners with deep pockets, who are helping to line CEMI’s pockets with revenue! Why? The demand for POCTs is increasing dramatically, as POCTs offer use and costs advantages that are proposed to be a part of healthcare cost reductions. Because of the expected changes to healthcare in the US, this industry is expected to grow to $9 billion by 2012.
CEMI has developed a revolutionary test called Dual Path Platfrom (DPP) that is currently in human testing. Chembio has stated that the approval process for three of these tests is scheduled to be completed in late 2009/early 2010, so we expect to hear these announcements any day.
CEMI is already a profitable company, and CEMI has proprietary technology that will change the future of POCT. Chembio Diagnostics’ novel and patented DPP technology (US patent 7189522, foreign patents pending) 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. This technology stands to revolutionize the POCT market by allowing confirmatory results, not just screening results, for up to 3 diseases with one on-site test! No other company is developing this technology, and CEMI is expected to gain marketing approval for its first DPP test this quarter!
What is the value of a company with a proprietary, revolutionary test platform for a $7 billion market? Compare the current $15 million market cap of CEMI to Vermillion (VMRL-$160 million) or Health Discovery (HDVY- $60 million), who do not have test on the market yet and are not yet profitable. AS you can see, CEMI is way undervalued. Chembio Diagnostics is currently trading at a forward P/E of less than 7. This is a ridiculously low valuation, as the typical P/E in this industry ranges closer to 35. This would place a value of CEMI at closer to $1 per share on revenue alone! CEMI is NOT a struggling biotech company with bankruptcy hinging on FDA approval, it is a profitable, growing company with several US, European, and world approvals coming for its revolutionary DPP technology!
See the investors presentationfor Chembio Diagnostics (CEMI)Click Here
Several catalysts should drive interest in CEMI in the next few weeks:
1. CEMI is expected to gain CE Mark (European) approval for the already FDA approved HIV test in early 2010. This will potentially double their sales and revenue for this test.
2. CEMI is expected to gain regulatory approvals in Brazil for two tests using their proprietary DPP technology in early 2010. This will trigger milestone payments and generate revenue, as well as validate their new technology. CEMI’s collaboration with the Brazilian agencies ensure that has no competition for this market.
3. CEMI is expected to gain approval to market a third DPP test in the Developing World in early 2010. CEMI’s collaboration with the Brazilian agencies ensure that has no competition for this market.
4. CEMI will release their quarterly/year end results. Chembio’s last quarterly results are showed an increase in net income of 279%! Another stellar quarter and profitability in year end 2009 results are expected.
Several other catalysts should continue to drive interest in CEMI all this year:
1. News on their partnership with the US Center for Disease Control. CEMI is expected to deliver a prototype for their DPP influenza test, which detects all 3 strains of influenza, (A,B, and H1N1) by the end of 2010 in time for the next flu season.
2. News on development and milestone payments for their collaboration with BioRad for test utilizing DPP technology.
3. News on trials sponsored by the World Health Organization for DPP tests.
4. CEMI is seeking approval for all its DPP tests in the US and Europe as well and will begin clinical trials for these soon.
5. Rumors about a buyout from Inverness Medical, driven by beneficial ownership of CEMI stock by several hedge funds including Platinum Partners, Millenium Partners, Vicis Capital, Crestview Capital, and also Inverness Medical Innovations (IMA).
We think CEMI may be one of the most overlooked companies of 2010, poised for tremendous growth, or possibly a buyout at a large premium to its current share price.
Disclosure: Long CEMI
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