Chembio Diagnostics, Inc.

Good afternoon, ladies and gentlemen, and welcome to the KenBioDiagnostics third quarter 2022 earnings conference call and webcast. At this time, all participants have been placed on a listen-only mode, and the floor will be open for questions after the presentation. It is now my pleasure to turn the floor over to your host, Philip Taylor. Sir, the floor is yours.

Thank you, operator. Before we begin, let me remind you that the company's remarks made during this conference call today, November 3rd, 2022, may include predictions, estimates, or other information that might be considered forward-looking. These forward-looking statements represent ChemBio's current judgment for the future. They are, however, subject to numerous assumptions, risks, and uncertainties, many of which are beyond ChemBio's control, including risks and uncertainties described from time to time in ChemBio's SEC filings. including those under risk factors in its annual report on Form 10-K for the full year 2021, in its quarterly reports on Form 10-Q for the first quarter and second quarter of 2022, and in subsequent SEC filings. ChemBio's results may differ materially from those projected. ChemBio undertakes no obligation to publicly revise or update any forward-looking statement made today. I encourage you to review all the company's filings with the SEC concerning these and other matters. With that, I would like to turn the call over to Rick Eberle, President and Chief Executive Officer.

Good afternoon, and thank you all for joining us. On today's call, we will review our strategy and our progress scaling growth, improving operational efficiency, and further developing our test portfolio. Larry will then cover the third quarter financial results and provide a detailed update on our global competitiveness program. I will then conclude and open the call for questions. First, I want to provide a brief description on the current priorities that have guided ChemBio's strategic pivot over the year. Across the business, profitable growth remains the top objective. In prior quarters, we've announced several initiatives to pursue higher margin business and reduce operating expenses. Not all of these changes are reflected immediately in our financial results, but we expect their impact to be significant in the coming quarters and for the company long term. This year, we've renewed our focus on commercial efforts with our core business and higher value markets. We are now more focused on markets like the US and Europe with higher average selling prices for advanced technologies. These markets also represent healthcare systems that support recurring opportunities versus large, one-time government tenders. Additionally, we have expanded our attention toward OTC markets, which provide similar structural benefits. We believe winning business with a regular cadence of frequent, smaller orders should allow us to be more efficient with resource planning, supply chain management, and product manufacturing. To further improve our operating efficiency, we have advanced our manufacturing capabilities by leveraging both expanded automation and contract manufacturing in Malaysia. Both solutions combined with tighter cost controls are expected to improve our cost of product revenue. Over the medium term, we plan to develop products to broaden our portfolio with differentiated tests that command premium value. Now, I will outline our third quarter performance and growth drivers. In the third quarter, we generated total revenue $11.2 million, including product revenue of $10.8 million. Product revenue grew 16% compared to the prior year period. Product revenue in the third quarter was primarily driven by $4.8 million of sales in the United States. Growth here of 361% compared to the prior year period resulted mainly from increased COVID antigen detect rapid tests. The self-test version of this test was received in EUA, and we have initiated a direct-to-consumer launch to service the OTC market through an e-commerce platform. One of our featured core products, the DPP HIV syphilis system, also contributed to sales in the United States. We continue to believe this differentiated test will be a meaningful growth driver upon receipt of a CLIA waiver. Third quarter Latin America sales were $2.3 million. Sales in the region transitioned back to core product sales from COVID sales, as in the prior year period, sales in the region were predominantly for DPP SARS-CoV-2 tests under the large Biomaginous order. Approximately $2 million of DPP HIV tests were shipped to Biomaginous in the quarter. In Brazil, we are now focused on marketing our SureCheck and HIV self-testing. We continue to believe that is the most promising commercial opportunity supported by our current product portfolio in the region. The healthcare system in Brazil is currently promoting self-testing through the Ministry of Health and awareness campaigns. As a reminder, our product resides on the shelf in three out of the five largest pharmacy chains in Brazil, and we have just launched our e-commerce sales channel. In OMEGA and Asia, product revenues in the third quarter grew 43% compared to the prior year to $3.8 million. In Europe, like Brazil, we've heightened distribution efforts of the SureCheck HIV self-test. We continue to expand shipments to pharmacies across Europe and are now on the shelf in approximately 35,000 pharmacies through the excellent work of our distribution partner in France. Within the U.K., we have launched our direct-to-consumer channel through Amazon and are also in pharmacies in the region. We continue to seek opportunities for expansion of our HIV self-test across applicable markets in Europe. Turning to Africa, this quarter, Cambio completed its tender with Ethiopia for shipments of the HIV-1.2 stat pack assets. This tender had generated margins below our expectations, and now we are actively pursuing opportunities in markets seeking higher margin premium solutions. Shifting now to our product and regulatory development pipeline. On the DPP HIV syphilis test, we continue our work to address the FDA's request for additional data to achieve a CLIA waiver. Our EUA submission for the DPP SARS-CoV-2 antigen test continues to be under active review by the FDA, and we are encouraged by the progress made over the past quarters. Late in the third quarter, we announced the company was awarded a $3.2 million contract from the Centers for Disease Control for the development and clinical validation of a rapid point of care diagnostic test for syphilis. We are actively developing a syphilis treponemal, non-treponemal that we're branding TNT, leveraging our dual path platform or DPP technology and proprietary DPP microreader 2. We expect that the assay will be able to simultaneously and separately detect treponemal and non-treponemal IgM and IgG antibodies. We anticipate that grant revenue will begin in the fourth quarter and will be milestone-based through the regulatory submission. We are excited to expand our portfolio as we endeavor to develop a highly sensitive and specific test where we can anticipate a large need for physicians to quickly and accurately confirm active or prior syphilis infections. We also announced in the third quarter development of a rapid point-of-care diagnostic tests for Lyme disease. Lyme disease caused by the bacterium Borrelia burgdorferi is transmitted to humans via infected tick bites. Recently, the CDC has updated its guidelines for Lyme disease diagnosis with a new algorithm termed MTTT for modified two-tier testing. These two steps are methods that are labor-intensive, take a long time to run, and require trained professional laboratory personnel. The DPP Lyme IgM IgG test is designed to be a rapid, multiplex, 20-carat test and combine the two-tier testing algorithm into one DPP test cassette utilizing our DPP MicroReader2 for objective test results. We are currently collecting preclinical data for our DPP Lyme test in development. We are hopeful this data will underpin a productive pre-submission meeting with the FDA. Our intention is to complete the pre-submission meetings for both the DPP TNT and the Lyme test to discuss guidance on the structure and requirements for potential pivotal clinical trials. I will now hand the call over to Larry to detail the third quarter financials and provide more details on our operational improvements under the Global Competitiveness Program.