Another Speculative COVID-19 Stock Bites the Dust
Whenever there are new emerging trends, many companies try to get in on the action. It can create a flurry of interest from businesses and from investors alike, and to say that the coronavirus and COVID-19 became a major target would be an understatement of the tear. Many companies have announced efforts to form testing, cleaning, vaccines, treatments and cures targeting COVID-19. As any sane investor would guess, there are going to be many companies which fizzle out in their effort or entirely.
Chembio Diagnostics, Inc. (NASDAQ: CEMI) was probably not a household name nor was it the first big testing company that investors would have thought of prior to 2020. The company has other efforts in testing and did generate $34.4 million in 2019 sales (versus $33.4 million in 2018 and $24 million in 2017), but this stock dropped from $4.00 to under $3.00 during the market panic selling earlier this year.
When this became a company targeting the coronavirus, the Chembio stock price rose to $7 by April 7, then rose to over $10 by April 13, and eventually above $15 by April 24. And the company even closed on a public offering of 2,619,593 shares of common stock on May 11 at $11.75 per share that raised close to $30 million in new cash.
Thatw as then. After having been at $9.93 just a day earlier, Chembio Diagnostics saw its shares fall by 60% to under $4.00. An SEC filing by the company showed that it received a letter from the U.S. Food and Drug Administration (FDA)) on June 16 notifying Chembio that the FDA was revoking the Emergency Use Authorization (EUA) that had been granted in April 2020 for its DPP COVID-19 System. That system is said to consist of its serological test for COVID-19 and one of the company’s Micro Reader analyzers.
While Chembio’s SEC filing indicated that the company intends to continue working with the FDA regarding its modification of the DPP COVID-19 System and over the revocation of the EUA for our test system, the company did confirm that this FDA decision means that Chembio may no longer distribute its DPP COVID-19 System.
As for the overall picture here, Chembio’s DPP COVID-19 System was one of the first antibody tests that had been granted FDA authorization during the COVID-19 pandemic.
The company’s SEC filing also signaled that the information it submitted to the FDA at the time of the FDA authorization, met the applicable “may be effective” standard for an EUA. The FDA’s revokation was said to be “due to performance concerns regarding the sensitivity and specificity of our test system.”
The company further noted that independent evaluations of the test system showed that this test system generated a higher rate of false results than expected and that it is not reasonable to believe that the test system may be effective in detecting antibodies against SARS-CoV-2 or that the known and potential benefits of the test system outweigh its known and potential risks.
Even though Chembio has other tests and diagnostics generating revenues, the company has generated roughly $40 million in accumulated losses over the last 4 years in net income attributable to its common shareholders.
This effectively takes the stock right back to where it started before COVID, but with a secondary offering that raised close to $30 million close to the top it is going to leave many shareholders feeling burned.
And to memorialize the defeat here, both Benchmark and Canaccord Genuity downgraded their Buy ratings to Hold after the news.
At 2:00 p.m. Easter Time, Chembio shares were down almost 61% at $3.89 with close to 19 million shares trading hands. Its new market cap is back to just under $80 million at current prices.
Chembio’s product list includes assays for HIV, Syphilis, Zika, Ebola, and more. That said, the big driver here in 2020 was the prospects of capitalizing on COVID-19. With a higher rate of false results and perhaps not detecting antibodies, most investors have thrown in the towel on Chembio.