The MX Q&A: Larry Siebert, Chembio Diagnostic Systems

Larry Siebert says he was simply trying to protect his investment in the company when, as a consultant and business broker, he became chairman of Chembio Diagnostic Systems back in 1992. Since then, the business adage “doing well by doing good” may well apply to both Siebert and the company, which was founded in 1985. After Siebert came on board as CEO of the Medford, NY–based company in mid-2002, the manufacturer of POC diagnostic devices began making and selling rapid HIV tests. In 2009 Chembio reported revenues of nearly $14 million, a 25% increase over the previous year. More than $5 million in revenues that year came from the sale of the assays to Inverness Medical Innovations, Chembio’s exclusive marketing partner in the United States for the FDA-approved tests. That figure is an increase over revenues of around $3 million for sales of the tests in 2008.

After entering the POC testing device segment in the late 1990s, Chembio seized the market opening for rapid HIV test kits in 2002. The device company received a patent in 2007 for the kits’ Dual Path Platform (DPP) POC technology, which offers features such as multiplexing and control over oral fluids and other difficult types of samples. Chembio is using the technology to develop other assays, including rapid STD tests. The company’s R&D expenses grew in the first quarter of 2010 over the same period in 2009.

According to the National Association of People with AIDS, the Centers for Disease Control estimates that 25% of the 1 million persons with HIV/AIDS in the United States don’t realize their status. With a statistic like that in mind, the organization established National HIV Testing Day in 1995. The event is scheduled for June 27 this year.

With Siebert at the helm, Chembio has been active in expanding its business and has become a visible presence in the world of AIDS-related public events. Siebert has taken part in news programs on Fox and Sirius XM Radio. In December 2009 the company donated more than 4500 HIV test kits to the Los Angeles–based AIDS Healthcare Foundation’s Testing Millions Global Campaign to commemorate World AIDS Day 2009. And in May 2010 the company was a sponsor for the 25th anniversary of AIDS Walk New York. In March 2010 the U.S. Agency for International Development approved Chembio’s DPP Oral HIV 1&2 Screen Assay for use with oral fluid or blood samples on the list of rapid HIV tests. The assay performed well in evaluations conducted recently by the U.S. Centers for Disease Control Global AIDS Program in Mozambique. In addition, three devices are awaiting regulatory approval in Brazil, and Chembio expects to meet CE mark requirements for the two FDA-approved tests based on information from the Notified Body.

A lawyer by training, Siebert graduated from Case Western Reserve University School of Law with a JD in 1981. He received a BA with Distinction in Economics from the University of Connecticut in 1978. In this interview with MX, Siebert takes up a variety of topics, including the role of the CEO as the public face of a company, changes in the industry affecting POC devices, and the regulatory environment surrounding the assays.

MX: Given the nature of AIDS as a modern scourge, as CEO are you concerned that expectations are too high for your product?
Larry Siebert: No. Our product performance in the market has well exceeded our performance claims. We pay a lot of attention, of course, to the quality of our product in our manufacturing process. Also, anyone that is tested with these products is given the appropriate information concerning the meaning of a reactive result and that the result is not necessarily conclusive.

Do you consider your product a breakthrough or an advance in AIDS detection?
We consider our DPP technology a breakthrough and an advance in the detection of many conditions, including, but not limited to, HIV/AIDS. Standard lateral-flow technology has some limitations when it comes to the use of oral fluid samples, or in multiplexing, to features that we believe our DPP technology enables more effectively.

What main technological or scientific aspects needed to go right in order for your assay to work?
Of course, there are many aspects that go into the development of a robust assay with strong sensitivity, specificity, ease of use, and convenience. These aspects include selection of reagents, conjugation, buffers, membrane, sample delivery, and flow rate, which is one aspect that can be better controlled in DPP. Reaction time and shelf life [are important as well], just to name just a few.

Chembio sponsored the AIDS Walk’s 25th anniversary on May 16 this year.
Yes. We are a New York company and felt it was important to begin to develop awareness of Chembio in New York.

How important is it for a CEO to be the face of the company? Last December you appeared on Fox News and Sirius XM Radio. What advice do you have for other chief executives on media appearances, especially dealing with a public health issue such as AIDS?
As we begin to develop our own branded line of products in the coming years, it is essential to create more awareness of the individuals that are responsible for executing the business plan

What are some of the pitfalls and benefits of being the public face of the company?
If you are forthcoming and balanced in what you say, then it should be beneficial. Having technologies that can provide enormous benefits to an individual’s well-being and toward bringing down healthcare costs is, of course, a pleasure to be able to talk about.

Chembio’s most recent financial results are somewhat better than the previous period last year.
We have continued a good trend is our product volume, and the [product] mix has been positive.

You’ve increased R&D investment slightly as well.
We have been able to obtain development contracts and grants that have enabled us to increase our investment in our technology platform, and this is very beneficial. Our R&D and grants income nearly doubled in 2009 versus 2008 and is on pace in 2010 to substantially exceed the 2009 results.

What do you expect for the market in 2011 after receiving PMA approval?
We will most likely bring this and our other public health-related products for syphilis, for example, into the market with our own marketing staff under Chembio’s DPP brand.

Chembio’s stock price spiked in October/November 2009 and has held its own pretty well since then. To what do you attribute that financial performance?
I believe our stock is significantly undervalued, though I also believe that the recent fall-off is based on delays we have had in our initial DPP product approvals in Brazil. I am confident that our investors and other stakeholders will be rewarded for their patience.

Since you joined the company and particularly since becoming chief executive officer and president in 2002 what changes have you seen in the device industry and your market segment that have stood out either positively or negatively?
In our market segment of point-of-care simple tests there of course has been a lot of consolidation, particularly in the lateral flow area where Inverness Medical has acquired a global footprint. Yet, pricing in the global market has continued to erode.

Our decision to focus on value-added products that incorporate proprietary features and allow us to leverage our regulatory organization and patented technology is being validated. We could not compete against Asian producers that do not have to worry about intellectual property and FDA.

How will the passage of U.S. healthcare reform affect Chembio Diagnostics?
To the extent POC tests can demonstrate—and I believe many do or will—a significant impact in reducing healthcare costs to individuals or the public, then we will be positively impacted. Shorter term, we hope to benefit from grants for small businesses that have qualifying projects that we’re eligible to apply for.

Your background is in private equity and investment. How did you decide to focus your career in the medical device industry and then arrive at your position with Chembio Diagnostics?
I didn’t exactly wake up one day and decide that this would be my dream industry to be in. I was already an outside investor in Chembio, and the business had been going sideways for some time, and I needed to protect the investment that I and other investors that I brought in had made. We have made good progress toward that objective, finally. Pre-2002 we were not even in the rapid HIV test business, or hardly. I was simply trying to recover my investment. What has turned out is that I am both recovering my investment and I am involved in a business that is providing essential tools to better the health of individuals around the world, especially those who are most at risk.

Does a chief executive benefit from having a background in the science of the company’s he or she is running?
That can work both ways, and certainly I have invested time to learn some of the basics to be conversant and have a basic understanding of immunodiagnostics. However, it is well established that there are many non-scientists running biotech companies, many of who are lawyers by training, as I am.

How would you describe the regulatory environment in the U.S. and other countries?
My knowledge is much greater in the U.S., because this is where we are focused with our existing and planned products. It is increasingly complex and expensive, and you need to have a strong regulatory affairs team in house in order to properly comply and sleep at night.

In 2002 when I became CEO, we had nobody except a QC person and an outside regulatory consultant. This has been one of the biggest changes in the company over the last number of years as we decided to focus on HIV, which is a Class III product and for which we needed to obtain premarket approvals from FDA. Now we have a good size staff that handles our regulatory affairs, quality assurance, and quality control.