Chembio Diagnostics, Inc.
Q2 2017 Earnings Call Transcript

Published: 11 Aug 2017

[Operator:]

Good day, ladies and gentlemen, and welcome to your Chembio Diagnostics 2017 Second Quarter Financial Results Conference Call. [Operator Instructions] At this time, it is my pleasure to turn the floor over to your host, John Sperzel. Sir, the floor is yours.

[John Sperzel:]

Good afternoon, and thank you for participating in today's call. Joining me are Sharon Klugewicz, Chembio's acting CEO; and Rich Larkin, our Chief Financial Officer. Before we begin, I would like to caution that comments made during this conference call today August 9, 2017, will contain forward-looking statements within the meaning of the Securities Act of 1933 concerning the current beliefs of the Company which involve a number of assumptions, risks and uncertainties. Actual results could differ from these statements and the company undertakes no obligation to revise or update any statement made today. I encourage you to review all of the Company's filings with the Securities and Exchange Commission concerning these and other matters. On May 30, the Company issued an 8-K announcing my medical leave of absence. I would like to briefly comment on my status and to affirm my intent to return as Chembio's Chief Executive Officer. In May, I was diagnosed with a rare disorder, which affected my heart. After numerous heart surgeries, it was determined that I needed a heart transplant. On July 8, I received a donor heart, and successfully underwent heart transplant surgery at Massachusetts General Hospital. I've been released from the hospital and received a good prognosis from my cardiac surgeon. It's my intent to return as Chembio's Chief Executive Officer, following some required recovery and rehabilitation. In the meantime, Sharon Klugewicz will continue to lead the Company as acting CEO, and I will actively support her and the Chembio team. Lastly, I would like to personally thank everyone for their thoughts and well wishes during my medical leave. I'll now make some opening remarks related to the second quarter of 2017 before handing the call over to Rich and Sharon. During the second quarter of 2017, the company continued to execute the transition strategy with a focus in three key areas

[Rich Larkin:]

Thanks, John. Great to have you on the call. In juncture with my comments, I would like to recommend that participants review Chembio's 10-Q filing for additional details. First, I will review the financial information for the second quarter of 2017. Our total revenues for the second quarter of 2017 of $4.1 million increased 26% compared with $3.3 million in the prior-year period. Product sales in the 2017 second quarter of $2.9 million increased 42.2% compared with $2 million in the prior year period. R&D grant and royalty revenues in the 2017 second quarter of $1.2 million decreased 0.8% compared with $1.2 million in the prior-year period. Gross margin dollars for the second quarter of 2017 of $1.9 million increased 20.1% compared with $1.6 million in the prior-year period, due primarily to increased product revenues. Product gross margin dollars in the 2017 second quarter, up $0.7 million, increased 98% compared with $0.4 million in the prior-year period, which also was primarily due to the increased product revenues. Research and development expenses for the second quarter of 2017 of $2 million decreased 16.3% compared with $2.4 million in the prior-year period. Our selling, general and administrative expenses for the second quarter of 2017 of $2.1 million increased 31.9% compared with $1.6 million in the prior-year period, largely due to investments made to scale up our sales and marketing organization globally and professional payments. Operating loss for the second quarter was $2.2 million compared with an operating loss of $2.4 million in the prior-year period. Net loss for the second quarter of 2017 was $2.2 million or $0.18 per diluted share compared with net loss of $8.4 million or $0.86 per diluted share in the prior-year period. The net loss in the 2016 period includes a tax provision for the recording of valuation allowance of the company's deferred tax asset of $6 million. Now I will review the financial information for the first six months of 2017. Our total revenues for the first six months of $10.4 million increased 5.8% compared with $9.9 million in the prior-year period. Product sales in the 2017 first six months of $8.3 million increased 4.6% compared with $8 million in the prior-year period. R&D milestone grant and royalty revenues in the 2017 first six months of $2.1 million increased 10.6% compared with $1.9 million in the prior-year period. Our gross margin dollars for the first six months of $5 million increased 5.7% compared with $4.8 million in the prior-year period, due primarily to the increase in product sales. The amount of product gross margin in the 2017 first six months of $2.9 million increased 2.4% compared with $2.8 million in the prior-year period. Research and development expenses for the first six months of $4.2 million decreased 5.7% compared with $4 million in the prior-year period. Our selling, general and administrative expenses for the first six months of 2017 of $4.6 million increased 27.8% compared with $3.6 million in the prior-year period, largely due to investments made to scale up our sales and marketing organization globally and professional fees. Our operating loss for the first six months of 2017 was $3.8 million compared with an operating loss of $2.9 million in the prior-year period. Net loss for the first six months was $3.8 million or $0.31 per diluted share compared with a net loss of $8.7 million or $0.90 per diluted share in the prior-year period. Again, the net loss in the 2016 period includes a tax provision for the recording of a valuation allowance on the Company's deferred tax asset of $5.8 million. Lastly, the Company had cash and cash equivalents of $3.7 million as of June 30, 2017, compared with $10.6 million as of December 31, 2016. The decrease was primarily due to the cash used in operating activities of $5.5 million and funds used in the RVR acquisition earlier this year. Operating activities included an increase of accounts receivable of about $1.3 million and an increase in our inventories of about $1.7 million, which combined to account for $3 million of the cash decrease. Our working capital decreased by $4.4 million from $14.7 million as of December 31, 2016, to $10.3 million, largely due to the increased selling, general and administrative expenses primarily due to our global organizational scale up. The company had accounts receivable net of allowance for doubtful accounts of $4.7 million as of June 30, 2017, compared with $3.4 million as of December 31, 2016. Subsequent to the end of the quarter of 2017, we collected $2.4 million of the June 30, 2017, account receivable balance. That concludes my financial review. I will now turn the call over to Sharon. Sharon?

[Sharon Klugewicz:]

Thanks, Rich. Chembio has a clear strategy in place that leverages our DPP technology, which is superior in performance to other rapid test on the market and we continue to execute upon that. As John noted previously, we are focused in three key areas

[Operator:]

[Operator Instructions] Our first question comes from Brian.

[Brian Marckx:]

Hi, everybody. Congratulations on the quarter looks like it is actually a pretty good quarter, regardless of the miss to consensus. First of all John, great to hear that you are in the way to recovery.

[John Sperzel:]

Thank you Brian.

[Brian Marckx:]

We all wish you a full and quick recovery. So that is great to hear. Sharon, can you provide us with what your expectations are in terms of the $5.8 million tender, the remaining portion of that? How do you think that will be split between Q3 and Q4? Do you expect it to be relatively evenly split?

[Sharon Klugewicz:]

Yes. As you know, we received the order during the second quarter of 2017. As you heard during our discussion, we shipped about $900,000 in Q2, and our current plan is to ship the remaining balance of $4.9 million evenly in Q3 and Q4.

[Brian Marckx:]

Okay. That's great. And then, so the follow-up. It relates to the lateral flow sales in the U.S. Can you tell us how much of it was, I think, about a $2 million aggregate between two tenders that you received recently. How much of that was shipped in Q2?

[Sharon Klugewicz:]

Well, we actually procured a number of HIV procurement awards in the U.S. in the first and second quarter, and is one of the large procurement awards we were awarded. Because the public health departments dole out the funding throughout the year, we're expecting to see some additional – we expect to see additional revenue in the remainder of the year from some of these public health agencies.

[Brian Marckx:]

Okay great thank you.

[Sharon Klugewicz:]

Thank you.

[Operator:]

Our next question comes from Ross. Please state your question.

[Ross Taylor:]

First of all, John, I echo that, it's sounds great to hear your voice, hear you back in the call. Sharon, you've got the technology, you've got the team, you have a lot of opportunities in front of you. Have you guys given thought to the size of the opportunities that are facing you in each of these markets? And then also, will you comment on some specifics about the potential to generate revenues out of Brazil for Zika. And then also, where one stands, UNICEF supposedly was looking at a tender that would be announced, I think, at the end of June. We're now in August, and obviously, I understand bureaucracies tend to be slow, but can you tell us – give us any update on where that particular opportunity stands?

[John Sperzel:]

Hi Ross, this is John. Let me just comment on the market opportunities, and then we'll have Sharon comment on Brazil and UNICEF if that's okay.

[Ross Taylor:]

No. No problem at all, John.

[John Sperzel:]

And thanks for the well wishes, really appreciate that. So when we think about the markets that we can serve in our sexually transmitted infectious disease, core business, or the business that we're going after, which we consider kind of emerging and, in some cases, very mature, that is tropical and fever disease. We think about them in a few areas. One is the core HIV business for professional testing is well-established globally, and we continue to pursue that market. It's roughly $75 million in the U.S, outside the U.S, perhaps Bob would want to comment. But significant opportunities in Africa, significant opportunities in Latin America and Asia, which we had really never, in a meaningful way, participated in, because we never had a sales rep in any of those countries. And so, with the support of our investors, we've been able to make investments commercially, so that we can go after that business, whether it's tender, whether it's public, whether it's private. So we feel really good about the potential there. HIV self-test, as Sharon said, is an emerging opportunity in our core business, and one we intend to pursue. We're already doing it through two partners in Europe, and we're establishing a good sales growth record throughout Europe. And we intend to pursue a similar strategy in Africa as there is significant funding being deployed for HIV self-test in the region. As far as fever and tropical diseases our concerned, and we talked about this in the last call, there are two that are well established. The first is malaria where, according to the last report, there are 212 million cases of malaria in 2015. Rapid test, somewhere in the 200 million to 300 million range, and our competitive intel indicates that one competitor, the market leader, has approximately a $100 million malaria business. So for us to enter that market with a test that's more sensitive, more specific or perhaps uses oral fluid, if we can gain even single-digit market share, it becomes very meaningful for Chembio in terms of revenue and margin contribution. Dengue, on the other hand, is another well-established disease in that there are roughly 390 million cases of dengue globally on an annual basis. It's not that rapid tests are not used to the degree they are with malaria, and we believe that sentence ends in yet. We believe that as the pharmaceutical companies develop vaccines for dengue, it's going to necessitate more and more diagnostic testing. We believe that, that will be rapid diagnostic testing, we believe that it will increase the volume of rapid diagnostic test, and we think that we're well-positioned to capitalize on that opportunity given our DPP Assay. Whether it's for a standalone Dengue test or multiplex, that has Dengue, Zika and Chikungunya, to both discriminate among the viruses but also to identify co-infected patients. So those are kind of the core well-established markets. There are others that Sharon talked about a little bit about paradigm-changing opportunities. We think that in the United States, DPP HIV Syphilis Assay can really be a needle mover in terms of us capturing more meaningful HIV sales by differentiating the product, in adding a Syphilis Assay to our DPP Assay. Syphilis Screen and Confirm, we haven't talked about too much but there is significant opportunity outside the United States to commercialize our DPP Syphilis Screen and Confirm Assay and we are doing just that. And then the other paradigm-changing opportunity is in our fever panel assays. You know that under the Paul G. Allan Foundation grant, we have developed a fever panel, roughly speaking, for Africa, and through the new collaboration with FIND, we are developing a Fever Panel Assay for Asia-Pacific. Many of the assays that are on the fever panels that we developed under the Paul G. Allen Foundation are also on the Assay for Asia. That is malaria, dengue, Zika and Chikungunya. And then we have, what we would consider – and it's harder to quantify these at this moment, emerging or outbreak market opportunities. And I think there you could put Zika. Although it's in 100 countries, people might argue it's not emerging anymore, it's established, but the size of the market is not well-defined yet. Chikungunya, which tends to be sort of sporadic outbreak-type of disease. Ebola, of course, has been predominantly focused in West Africa, and seems to be reasonably under control for the moment. And then other assays like Chagas and Leishmaniasis, which, to some degree, are prevalent in Latin America. And we believe, with our new commercial team, we can expand the market opportunities and our sales for both of those assays as well. I hope that helps, Ross.

[Ross Taylor:]

Yes, it does. And John, with the malaria, you had a fairly high hurdle you had to achieve for the grant, correct? Versus the current test, the infield test now?

[John Sperzel:]

In terms of level of detection activity?

[Ross Taylor:]

The performance was a substantial improvement over the current test, wasn't it?

[John Sperzel:]

10 times in sensitivity.

[Ross Taylor:]

Yes. 10 times.

[John Sperzel:]

Correct.

[Ross Taylor:]

And so in your comments, you think you'd be at a $200 million to $300 million market. So if you can obviously capture 10% of that, you literally would double the company's sales on an annual basis.

[John Sperzel:]

That would be outstanding.

[Ross Taylor:]

Yes. Okay. And then Sharon, I guess, where do we stand with regard to being able to sell Brazil, Zika tests? And also where do we stand with regard to UNICEF that area?

[Sharon Klugewicz:]

Ross, with regards to Brazil, now that we have our Assay and our Micro Reader approved in Brazil, we are continuing to work with our partner Bio-Manguinhos regarding the commercialization activities. To date, we've compared the performance of our Zika system with other approved Zika tests in Brazil, and the data shows that we have significant performance advantages in both sensitivity and specificity. So we continue to work with Bio-Manguinhos and we're encouraged by the discussions we've been having with them. In regards to UNICEF, we have been informed that the award has been delayed now to August 2017. We can't comment on why UNICEF is delayed, other than we are in close contact with them. And again, we believe that this is not atypical of an NGO organization, where there is documentation that has to be reviewed and approved by their management before they can announce any sort of award.

[Ross Taylor:]

Okay. And can give you us a view – that award is for what, $40 million between what, here and 2020?

[Sharon Klugewicz:]

Well, they had the total size of the award that UNICEF has procured funds for was about $10 million. And the information that was shared with us is there's going to be two award phases. One, now, and the other one in the latter part of the year, which may or may not be delayed. And the first phase of that would be about 40% of that $10 million, and that could go to one vendor certainly or it could go to multiple vendors. But that's what we know based upon our discussions with them.

[Ross Taylor:]

And that $10 million is over what time horizon?

[Sharon Klugewicz:]

It was supposed to be over, they were supposed to award it, again, all this year. I don't recall what the specific time horizon was, but the plan was to award it this year and to start procuring tests and building up, so that they could do trials.

[Operator:]

Our next question comes from Kevin. Please state your question.

[Kevin Ellich:]

Just wanted to go back to actually some of your comments in your prepared remarks on the $900,000 that you shipped in Q2. I think you made a comment saying that you expected $1.9 million to be shipped, but it was due to lead times on raw materials. Are you guys still experiencing any of these issues or is that all been resolved?

[John Sperzel:]

It's been resolved.

[Sharon Klugewicz:]

Not at all. It's been resolved. And that's typical of what you would expect with lead time. We got the order in, we worked very, very closely with our vendors to get some of the raw materials in as quickly as possible. We are now manufacturing and, again, we do expect to ship the remainder of the order when we say we're going to.

[Kevin Ellich:]

Great. That's helpful, Sharon. And then, just following up on the UNICEF commentary and questioning. Do you still expect this to be a two award, two phases if you would? Or do you think they could combine it all into one, since the first phase has been delayed already?

[Sharon Klugewicz:]

No, we expect it to be two awards. UNICEF was very, very clear about that. And the reason they were very clear about that is because they are trying to accelerate innovation, and that's why they broke it out into two different awards, because they recognize that some companies, in the timeframe to develop both a Zika Assay as well as a Zika/Dengue/Chikungunya Assay, that some companies needed more time, and that's why they felt that they needed to open up a second award period.

[Kevin Ellich:]

Great. That's helpful. And then, can you characterize what the FDA is requiring of the DPP HIV Syphilis trial? Does a Q4 trial completion suggest early 2018 submission? I guess, any color you could provide would be helpful on that front.

[Sharon Klugewicz:]

Yes, sure. So as you know, FDA did request additional studies, and the reason for that is they wanted to make sure that our sample size captured key population. We had a clear understanding of what they've requested, and we anticipate completing the clinicals in Q4 FY 2017. And what FDA requested was not unreasonable, and we believe that we can have that done by the end of the year. Beyond commenting on clinicals completion after Q4 under submission, I don't think we can comment until we get those clinicals done. What we're very optimistic that we will have those clinicals completed by the end of this year.

[Kevin Ellich:]

Great. That's good. And then can you talk about the development of RVR in Southeast Asia? I think there is a big Dengue award in Q1. What are you selling through there? And how is your fiscal presence helping you develop in that region?

[Bob Passas:]

Kevin, this is Bob. In terms of RVR, you're right, we had the first tranche of the major tender for dengue shift in quarter 1. And in addition to that, we've won an award through the police authorities for drugs abuse for supply to them, and we do expect to have another order towards the end of this year for the dengue tender. The organization in RVR is shaping up very well. We have a Commercial Director, now based in Kuala Lumpur, for Asia-Pacific. And at this point in time, we're building the team, both from a commercial point of view and from an operations point of view, in Kuala Lumpur, so that we can really build those relationships that we need to across the different countries. And the whole objective is to build an organization that can generate sustainable sales throughout the region. And one of our key focuses at the moment is on the registrations that are required for all the different countries. There are several different countries that we already sell in from and through RVR, and we want to expand that with various mechanisms. So we've appointed, in addition to support the team, our regulatory affairs consultant who's very experienced in the region, and we're accelerating our registrations as we talk both for our RVR products and DPP, and indeed the HIV suite. In particular, STAT-PAK and SURE CHECK. We also have some technology transfer going on between Medford, here, and Kuala Lumpur to gear up our manufacturing capacity. Actually that program's going extremely well, and we'll be commissioning our STAT-PAK line in the very near future, which gives us a lot of opportunity for tenders, for HIV tenders, within the region. So that's where we are with RVR. In addition, it's worth pointing out that with our other Commercial Directors in the regions, for example, in Africa, we've discovered that there are opportunities, not just in our HIV franchise in the public-funded tenders, but also there is interest in other parts of our suites, such as drugs of abuse in certain African markets. And so we're going to leverage that as well. So, but the RVR situation is extremely encouraging. Just to give you another perspective on this, more recently you're probably aware that there's been a Chikungunya outbreak in northern Malaysia. And with our relationships that we've built through RVR and our presence in Kuala Lumpur, we've been asked to supply DPP Chikungunya so that they can actually study and examine this outbreak, which is actually pretty devastating in northern Malaysia. And similarly to that, we've been asked to supply DPP Dengue in Sri Lanka because there's been a large outbreak in Sri Lanka, which is, likewise, quite devastating. And so that's really good for us, because it's an accolade of our technology and its ability to be able to determine whether there's an acute infection or a past infection with the IgM, IgT systems that we have for that. So it's extremely encouraging.

[Kevin Ellich:]

Two last quick questions, one for Rich. Wondering what your cash burn was this quarter? And what are your capital needs going forward? And then, lastly, Sharon, I think in late July, Phase II of the HIV self-testing Africa Star Project launched. And I think another provider is doing most of the tests. I was wondering if you guys have any participation on that?

[Rich Larkin:]

All right, Kevin. The cash burn that I have is, that we, for the six months, we were roughly at around $470,000 a month. We do expect that to be much better as we start to see our sales picking up in the third and the fourth quarter. And we are trying, of course, to be very judicious in the manner, of course, how we are spending our money. And also to optimize the growth of our business into the future by investing in our global commercial team. As Bob mentioned it, they're out there laying those building blocks to strengthen our reach in the markets throughout the globe. So currently, we are optimistic that we should have sufficient resources to do what we need to do.

[Bob Passas:]

Kevin, this is Bob again, to give some insight on the HIV self-testing, in particular for Africa. We are progressing our own Chembio projects for HIV self-testing in South Sahara, Africa. And we currently are in final negotiations to carry out the various clinicals that we need to do for WHO prequalification of sure check for, in particular, public-funded self-testing, which is a project which is being organized and implemented through UNITAID and the WHO group. And so we are completely involved in that project. I can't say more at the moment, because we're finalizing negotiations with partners in South Africa and other sub-Sahara Africa countries for the final kind of details on the clinical trials that need to be done to support self-use testing. In addition to that, in April, we launched HIV self-testing over-the-counter in the private markets in South Africa. And that's beginning to take off through various pharmacy chains in South Africa. So that's where we are with the use at the moment. The Star Project, which currently has one product, which is a normal application, HIV self-test, is currently ongoing and Start two will expand that with additional testing from other candidates, manufacture it and we will be one of those as well. They're unlikely to be able to be involved in that as we go forward. But I don't want to say anymore just at the moment because we're finalizing the details.

[Kevin Ellich:]

Great, sounds good. Thank you.

[Operator:]

Our next question comes from Raymond. Please state your question.

[Raymond Myers:]

Actually my first question is for Sharon, because she was saying that in the call that you've been investing in manufacturing automation, which is intriguing. How much can that reduce your operating or improve your operating margin, increase your gross margin? And how soon?

[Rich Larkin:]

Well, Ray, that's a good question, this is Rich. I think I will take that one. How quick you're probably looking at, by the time you get a piece of equipment validated and ready to be used, you're probably talking about nine months away. The purpose of this automated equipment is mostly for our DPP products, I should say, and so, therefore, we do see that it should have a significant savings in labor. The downside, of course, is unfortunately your overhead doesn't go away but we should see some improvement. And I really can't get into what the numbers are, but we do feel it will be an improvement that will give us a very short payback.

[Sharon Klugewicz:]

Yes, not to mention the quality and the efficiency that automation brings. So it's a strategic investment that we're expecting to have long-term value.

[Raymond Myers:]

And kind of had a follow-up on a couple of things. You were working on an FDA and World Health Organization Zika emergency use authorization. What is the progress with that? And is there any estimate that when you might get approval?

[Sharon Klugewicz:]

So we submitted an application for FDA EUA, and we are actively engaged with the FDA in their review process. We can't comment on when they will provide approval, because that's up to the FDA. But as we mentioned during our remarks, we are very encouraged given the performance of our DPP Zika Assay, and those same comments would also apply to WHO.

[Raymond Myers:]

Okay. And I think someone asked earlier about the Brazil approval for the DPP Micro Reader. Can you give us any more color about the likelihood that Brazil might actually purchase some Zika tests that use the Micro Reader?

[Sharon Klugewicz:]

So we have the...

[John Sperzel:]

I could take that, Sharon, if you like?

[Sharon Klugewicz:]

Go ahead. Okay, go ahead, John.

[John Sperzel:]

So the Zika Assay is reader-dependent, right. Just to make that that's clear. So that any Zika test that are purchased through Manguinhos or Ministry of Health in Brazil will use the DPP Micro Reader. That was, obviously, part of what would be considered the delay in getting approval of the whole system. As Sharon said earlier, now that we have both the Assay and the Micro Reader approved by ANVISA, we are shifting our focus toward commercialization. Working with Bio-Manguinhos, working to ensure that we have evaluated our product in it's setting in Brazil, so that we can go out into the market with data to demonstrate the improved sensitivity, specificity of our Assay compared to the ones that's in the market today, and we feel really good about the data.

[Raymond Myers:]

Okay, very good. John, I don't know if you can help us to quantify this or not, but you mentioned in the call that the former distributor's inventory is getting close to expiration here. Do you have a sense of how much of their sales had cannibalized yours? And what benefit that might have to you going forward now?

[John Sperzel:]

So that particular company doesn't break out their sales by product, by region, certainly when you get down to HIV. We know that two of the other companies that market and sell HIV assays in the United States in the professional segment have reported a downturn in their HIV sales in recent quarters. You can see what we've done quarter-to-quarter over the last several quarters and, in particular, Q2 2017 versus Q2 2016, in the first half year. So I think what that says is, we're seeing progress in the transition from a company that sold exclusively through a partner to one where we market and sell the product ourselves and we have control, and a demonstration that we can actually be successful commercially competing against large companies and small companies. In fact, several of the procurement awards that Sharon referenced, that we won in the first quarter and the second quarter, which we believe we'll realize in the back half of 2017 and through 2018, we won head-to-head versus our prior U.S. partner. And I think that, that speaks volumes for the team that we have, and the focus that we have on going after that business. And to your last point, Ray, the fact that their inventory is now approximately six months, is going to make it extremely difficult for them to sell that in the public market or to sell that to a distributor, because distributors generally won't take the product unless it has 12 months shelf life, and they certainly won't take it less than 6 in almost any circumstance. So as Sharon said, we believe that we're almost out of the woods completely in the transition from that partner. It almost becomes irrelevant how much inventory that have, because it's going to be very, very difficult for them to put that in customer's or distributor's hands in the U.S.

[Raymond Myers:]

That's great, good. And one last question. I don't want to get ahead of ourselves here but if I do the math and work through the $5.8 million Brazil order and how much is left in the second half, I get to some much better performance in revenue in the second half this year. Is that the right way to think about it?

[John Sperzel:]

Well that must be the heart. we wouldn't guide on the second half performance, but you're right. I mean we have $4.9 million that we expect to ship in the second half of the year to one country, to one customer, and that's a great way to kind of start the second half of the year.

[Operator:]

And our final question comes from Ross. Please state your question.

[Ross Taylor:]

As a follow up. two questions, or two areas. One is, did you incur expenses on the unshipped portion of the Brazil order this quarter?

[Rich Larkin:]

Expenses. We certainly incurred additional inventory that we built up for the order, but not necessarily expenses.

[Ross Taylor:]

Okay. And second, this is for Sharon and John, you've talked about a lot of initiatives here, which have some pretty significant opportunity. I mean, the dengue alone seems to give you a fair number of shots on goal that could generate substantial revenues. A year from now, how many of these opportunities do you think will be producing repeat revenues on a quarter-to-quarter on an ongoing basis?

[John Sperzel:]

Well, I think, Ross, surely our Zika Assay, we expect to be commercializing a year from now in many more countries than we commercialize today. And you know, if you believe what CDC says, Zika's going to be here for a long time, regardless as to whether or not it makes the news. I think if you think about malaria and the hundreds and millions of cases that occur each year and, roughly 0.5 million deaths. It doesn't make the news at all, not on the radar screen. And we see Zika as becoming more and more entrenched. So we believe that those sales will continue to increase as we expand our geographic market penetration. We are hopeful to enter the market in malaria in one or a number of different vehicles, either a stand-alone Malaria Assay whether for blood or for oral fluid; Malaria combined with our Ebola assays, which has been deployed in West Africa along with CDC or malaria as part of one of our fever panels. Now, of course, the one that we developed under the Paul Allen foundation grant has been completed, and is now in the hands and being evaluated. We're just starting the project under the FIND collaboration. So I'm not sure it's fair to say that would be commercialized within a year. But I think if you think about potentially malaria, certainly Dengue, certainly Zika and potentially a combination Assay of Zika/Dengue/Chikungunya, following the CDC pilot program that we have. And that, as you said, that's a lot of shots on goal in some pretty significant markets.

[Ross Taylor:]

And so really what you're really we're sitting here at a point where you are beginning to get the scientific, the proof statements, that your technology and listening to the comment there, particularly with dengue, and the nation's coming to you looking for information, that's really starting to indicate that you have something that is very unique out there.

[John Sperzel:]

Well, that's the reason that Paul Allen came to us for the multiplex Assay for Africa, it's the reason that's FIND came to us for the multiplex Assay for Asia-Pacific, it's that reason that we have an option for funding from BARDA for a Zika/Dengue/Chikungunya Combination Assay. The ability to multiplex on a simple cost-effective platform is something that is absolutely unique and in fact patented within the company.

[Ross Taylor:]

So basically, our job as investors here is to be patient, and you guys will prove it out between here and basically between here and the end of the year, or the next year, we'll start to see the scientific proof in a fair number of these areas?

[John Sperzel:]

Yes. I mean, as we said in the beginning, we are going through a strategic transformation, and it's touching in our core STD business, it's evolving in the fever and tropical disease business, which, as you said, there are a lot of shots on goal. And, maybe, most importantly, we have been able to invest with your support, commercially, which we don't have to go back too far. Really, mid-2014, Chembio never had a single sales rep anywhere in the world, and that's changed quite dramatically under Sharon's leadership and under Bob's leadership. And we think that that's going to put us in a really good position to commercialize these assays as we come out of product development.

[Ross Taylor:]

Well the time is very exciting but you know me long enough, notations is not a virtue. Okay, thank you. Take care and John it is really great to hear your voice.

[John Sperzel:]

Thank you Ross.

[Sharon Klugewicz:]

Thank you, again, everybody for your participation and continued support of Chembio Diagnostics, and we look forward to updating you again next quarter.

[John Sperzel:]

Thanks, everyone.

[Rich Larkin:]

Thank you very much.

[Operator:]

Thank you. This concludes today's conference call. We thank you for your participation. You may disconnect your lines at this time, and have a great day.