USPSTF Decision Could Benefit CEMI

USPSTF Decision Could Benefit CEMI

A Reuters article yesterday (8/19/2012) notes that health officials with apparent inside knowledge and speaking on condition of anonymity expect that the U.S. Preventative Services Task Force (USPSTF) will issue a draft recommendation by year-end in favor of widespread HIV screening for all adolescents and adults. Assuming that happens and the recommendation is finalized (the final decision would follow a public comment period), it could directly benefit demand for Chembio's (CEMI) rapid HIV tests as a USPSTF "A" rating means insurers would be required to reimburse for the recommended preventative service (in this case HIV testing for all adolescents and adults).

The current USPSTF recommendations relative to HIV screening have an "A" rating for all adolescents and adults at increased risk of HIV infection but a "C" rating for those not at increased risk. A "C" rating is tantamount to leaving the decision up to the physician but also likely means that insurers will not pay for the cost of the test. The supposed upcoming decision to recommending HIV screening to all individuals would essentially change the "C" rating to an "A" rating, requiring insurers to reimburse and likely increase demand for HIV tests.

The CDC had already voiced its opinion in favor of widespread HIV screening, although their recommendations carry significantly less weight, especially in regards to reimbursement.

Demand for CEMI's already FDA-approved lateral flow rapid HIV tests, which has been very strong through the first half of 2012 (+39% revenue), could be an initial beneficiary of a USPSTF action which would also likely catalyze the launch of the company's DPP HIV test, which could happen by mid-2013.

Is HCV Screening Next?....

USPSTF currently has a "D" rating on routine screening for hepatitis C (HCV) in asymptomatic adults not at increased risk. "D" rating means USPSTF recommends against it and has found evidence that it may be ineffective or that harms outweigh the benefits.

By contrast the CDC last week finalized an earlier draft recommendation recommending that all Americans ages 45 - 65 be tested for the virus. The CDC recommends that all baby boomers get a one-time HCV test which "will help avert a major increase in liver disease and deaths in the U.S."

If USPSTF eventually follows CDC's lead on HCV screening (which they seem to have done on HIV), that could also benefit CEMI, which has an HCV test using its proprietary DPP platform currently under development.

We cover Chembio with an Outperform rating and a $10.40 price target.

Please visit scr.zacks.com to access a free copy of the full research report.