CEMI Stock Price Falls Over 10% Pre-Market: Why It Happened

By Amit Chowdhry ● Aug 6, 2021
  • The stock price of Chembio Diagnostics Inc (NASDAQ: CEMI) fell over 10% pre-market. This is why it happened.

The stock price of Chembio Diagnostics Inc (NASDAQ: CEMI) – a leading point-of-care diagnostics company focused on infectious diseases – fell over 10% pre-market. Investors are responding negatively to Chembio Diagnostics reporting financial results for the quarter ended June 30, 2021.

Q2 2021 Financial Results

— Total revenue for the second quarter of 2021 was $6.5 million, an increase of 26% compared to the prior-year period. Net product sales for the second quarter of 2021 were $3.9 million, an increase of 4% compared to the prior-year period. The government grant, license and royalty, and R&D revenue for the second quarter of 2021 totaled $2.5 million, an increase of 92% compared to the prior-year period.

— Gross product margin for the second quarter of 2021 was negative $0.1 million, compared to a negative $1.9 million for the prior-year period. And gross product margin percentage for the second quarter of 2021 was negative 3%, compared to negative 50% for the prior-year period. Gross product margin in the second quarter of 2021 was negatively impacted by a write-down of inventory. Gross product margins in the prior year period was impacted by several factors, including the cost of returned product and the recognition of cost of sales for product produced and shipped outside the U.S., but for which revenue was not recognized in that quarter.

— R&D expenses increased by $0.9 million, or 46%, in the second quarter of 2021 compared to the prior year period. The increase in research and development expense was primarily associated with clinical and regulatory work related to pursuing an EUA and 510(k) from the U.S. Food and Drug Administration for the DPP SARS-CoV-2 Antigen test system and an EUA for the DPP Respiratory Panel. The DPP Respiratiory Panel is a multiplex test being designed to provide simultaneous, discrete, and differential detection of Influenza A, Influenza B, and SARS-CoV-2 antigens from a single patient respiratory specimen, such as a nasal or nasopharyngeal swab, in approximately 20 minutes. Selling, general and administrative expenses increased by $1.6 million, or 36%, in the second quarter of 2021 compared to the prior year period, primarily due to increased costs associated with professional fees and the expanded headcount of Chembio’s U.S. commercial team.

— During the second quarter of 2021, Chembio recognized $1.3 million of non-cash impairment loss from the write-off of the intangible assets, net, leasehold improvements, net and right-of-use assets for leases, net associated with Malaysian operations. Chembio also recognized $0.7 million of restructuring costs related to professional fees.

— The net loss for the second quarter of 2021 was $9.1 million, or $0.45 per diluted share, compared to a net loss of $7.8 million, or $0.42 per diluted share, for the prior year period. And the net losses reflected asset impairment, restructuring, severance, and related costs of $2.0 million, or $0.10 per share, for the second quarter of 2021, compared to $0.3 million, or $0.02 per diluted share, for the prior year period.

— Cash and cash equivalents as of June 30, 2021, totaled $5.6 million. Subsequent to the quarter-end, $36.9 million of gross proceeds were raised through the ATM offering.

Going Concern Considerations:

The revenues during the 3 months ended June 30, 2021, did not meet the company’s expectations, and the shortfall in revenues was a principal cause of the company’s limited cash and cash-equivalents position as of June 30, 2021. And the decrease in cash and cash equivalents over the first two quarters of 2021 reflected market, clinical trial, and regulatory complications the company faced in seeking to develop and commercialize a portfolio of COVID-19 test systems during the continuing uncertainty of the COVID-19 pandemic. The decrease in cash and cash equivalents also resulted in part from significant continuing expenses incurred in connection with pending legal matters and delayed achievement of milestones associated with government grant income, investments in inventory, and the continuing automation of U.S. manufacturing.

Chembio performed an assessment to determine whether there were conditions or events that, considered in the aggregate, raised substantial doubt about the company’s ability to continue as a going concern within one year after the date the accompanying unaudited condensed consolidated financial statements are issued. Initially, this assessment did not consider the potential mitigating effect of management’s plans that had not been fully implemented. 

After June 30, 2021, the company undertook and achieved measures to increase its total revenues and improve its liquidity position:

The company received significant purchase orders (the “Significant POs”) from two customers. And the company had pursued the Significant POs for an extended period of time, but did not receive them until July 2021 as follows:

— On July 20, 2021, the company had received a $28.3 million purchase order from Bio-Manguinhos for the purchase of DPP SARS-CoV-2 Antigen tests for delivery during 2021 to support the urgent needs of Brazil’s Ministry of Health in addressing the COVID-19 pandemic. Bio-Manguinhos, a subsidiary of the Oswaldo Cruz Foundation, is responsible for the development and production of vaccines, diagnostics, and biopharmaceuticals, primarily to meet the demands of Brazil’s national public health system.

— On July 22, 2021, the company received a $4 million purchase order from the Partnership for Supply Chain Management, supported by The Global Fund, for the purchase of HIV 1/2 STAT-PAK Assays for shipment to Ethiopia into early 2022.

— The company raised gross proceeds of approximately $36.9 million from the issuance of 8,323,242 shares of common stock pursuant to an At the Market Offering Agreement with Craig Hallum Capital Group LLC, pursuant to which Chembio may sell from time to time, at its option, up to an aggregate of $60 million of shares of common stock through Craig Hallum Capital Group LLC, as sales agent. And net of the placement fee and other transaction costs, the company realized estimated net proceeds of approximately $34.7 million.

Recent Company Highlights

— Achieved second quarter 2021 total revenue of $6.5 million and product revenue of $3.9 million, representing growth of 26% and 4%, respectively, compared to the prior-year period

— Initiated shipments under a $28.3 million purchase order for DPP SARS-CoV-2 Antigen Tests received from Bio-Manguinhos to support the urgent needs of Brazil’s Ministry of Health for delivery during 2021

— Received a $4 Million HIV Test purchase order supported by The Global Fund for shipment to Ethiopia into early 2022

— Continued clinical trials for the DPP SARS-CoV-2 Antigen Test System, intended for use in applications for a new EUA and a 510(k)

— Launched an at the market (“ATM”) offering of common stock and raised $36.9 million of gross proceeds in July

KEY QUOTE:

“In the second quarter, we focused on international commercial opportunities where our DPP COVID test has been approved. These efforts were successful, resulting in the largest order in company history for DPP SARS-CoV-2 Antigen tests from our longstanding customer Bio-Manguinhos. We also made progress on our clinical activity to support U.S. regulatory submissions for our DPP COVID-19 tests. Looking forward, we believe the investments we have made in product development, expanding our commercial infrastructure and our automated manufacturing operations position us for future success. The recently raised capital has strengthened the balance sheet and will support execution of our strategic initiatives.”

— Richard Eberly, Chembio’s President and Chief Executive Officer

Disclaimer: This content is intended for informational purposes. Before making any investment, you should do your own analysis.