Trends, Events and Uncertainties
Legacy Business During 2005, we recorded an aggregate of $2,532,000 in revenue,
of which $2,105,000 or 83% was attributable to sales of our Legacy Business
products that we have now classified as a discontinued operation. Effective with
the sale of the Legacy Business to Maxim on November 15, 2005, we have phased
out sales of these products for our own account, eliminating both the revenue
stream from and the costs associated with the manufacturing facilities
supporting those products.
BED Incidence Test In April 2004, the United States Centers for Disease Control
and Prevention ("CDC") granted us a worldwide, non-exclusive license to use
technologies it had developed to manufacture and commercialize a serum enzyme
immunoassay (HIV 1-EIA) that can be used to estimate the proportion of HIV
infections that have occurred within approximately the last 6 months in a
subject population. Sales of the Incidence Test began in the fourth quarter of
2004. Demand for and sales of this product had been increasing, through the
third quarter of 2005, both domestically from the CDC, and internationally,
primarily from countries where the CDC has conducted "train the trainer"
workshops in the applications for this unique epidemiological surveillance
product. In the fourth quarter of 2005, we introduced a new version of the BED
incidence test that permits the use of dried blood spot samples, an alternative
to the whole blood samples initially required for the test. Dried blood spot
sampling has a long history in HIV testing and has advantages over whole blood
samples, including ease of collection through fingersticks, no requirement for
refrigerated sample shipping, and the ability to archive the sample on filter
paper. We believe that this alternative sample will further increase the market
for our BED incidence test.
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Third quarter 2005 revenue from the sale of this test grew by 86% compared to
sales in the second quarter, but sales decreased by 30% in the fourth quarter of
2005 compared with the third quarter. In February 2006, the CDC issued an
Information Sheet: Using the BED HIV-1 Capture EIA Assay to Estimate Incidence
Using STARHS in the Context of Surveillance in the U.S. addressing a December
2005 UNAIDS report regarding studies in Africa and Thailand indicating that the
Incidence Test apparently over-estimated the incidence rate. The Information
Sheet acknowledges that the assay may cause over-estimation under certain
conditions and suggests expanding current protocols. We see the test's design
and use and the interpretation of its results evolving as public health agencies
and the CDC gains experience with it. We continue to believe that the Incidence
Test is a valuable technology in the fight against the spread of HIV/AIDS and
that it will remain a viable epidemiological surveillance test. We expect that
the process of refining its applications will continue as its use expands.
Further, we have begun the research on a blood-based rapid HIV incidence test
for diagnostic and surveillance purposes under the terms of a Cooperative
Research and Development Agreement (CRADA) with the CDC. We plan to file the
appropriate IDE applications with the US FDA for diagnostic versions of the
incidence test.
Rapid Tests We expect that our future revenues will be derived primarily from
the sale of our HIV-1/2 rapid diagnostic tests both to the professional and
over-the-counter (OTC) markets, and potentially from the sales of diagnostic
tests for other STDs. Our focus for 2006 is concentrated on commercializing the
HIV-1/2 rapid tests, initially in a dipstick-format and produced in Thailand,
from which we believe we can source certain African and southeast Asian markets.
We plan to supply the Chinese market with product manufactured locally, through
our Chinese subsidiary, Beijing Marr. In all markets, commencement of rapid test
sales is contingent upon the successful completion of clinical trials followed
by the required regulatory approvals, coupled with successful technology
transfer and scale-up of manufacturing operations. We do not expect significant
revenues from the sale of our rapid tests in 2006 as we are in the early stages
of the regulatory process with many of our initial target markets in Africa and
Asia.
In China, we have completed the clinical trials on our HIV rapid tests that were
conducted by the National Center for AIDS/STD Control and Prevention of the
Chinese CDC. The trials involved approximately 1,500 subjects. Based on the
results of the trials, we believe that the performance of both our blood and
oral fluid rapid tests was sufficient to make them approvable.
Since the SFDA expressed an interest in alternative fluid testing, we decided to
initially submit only our oral fluid HIV-1/2 test for approval. We submitted our
application for approval in late 2005 and were informed that it had been
formally accepted for evaluation in early 2006. Like the U.S. Food and Drug
Administration, the SFDA has a statutory limitation on responding to our
submission. We do not know at this time whether the initial response will be an
approval or a request for more information. In the United States, this is
usually an iterative process.
Beijing Marr will manage the Chinese oral fluid test product launch. There are
several large markets in China, such as those created by new laws requiring the
testing of military recruits and university students as part of their admissions
process, as well as a publicly-announced commitment by the Chinese government to
offer voluntary HIV testing to its entire 1.36 billion person population. With
trained non-professionals and a safe, non-invasive oral fluid test, we expect
strong demand for our initial test.
Beijing Marr's acquisition of the Yaohua Assets provides us not only with
manufacturing facilities to produce our rapid tests in China, but also with
certain rights to technology and governmental approvals and certifications that
we expect will significantly reduce our projected time to market. Our
manufacturing equipment and personnel are on-site and we are in the process of
transferring our technology, renovating and preparing the facilities for
production and completing the transfer of the Yaohua Assets in anticipation of
the approval of our AwareTM HIV-1/2 rapid oral fluid (OMT) diagnostic test by
the SFDA. The renovations we are making to the facilities are required for us to
renew our GMP certification, which will otherwise expire in June 2006. We
anticipate completion of these renovations in sufficient time to meet the June
renewal date of our GMP certificate.
Because of the long and uncertain process of SFDA evaluation of our products,
and because the Yaohua Assets include a blood rapid HIV-1/2 test that is already
approved by the SFDA, we elected not to proceed with a submission of our Aware
BSP HIV-1/2 test at this time. If we determine to manufacture a blood rapid
HIV-1/2 test, we will consider manufacturing the blood rapid HIV-1/2 test
acquired as part of the Yaohua Assets.
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We also developed a urine rapid test that was designed to provide the same
functionality as the oral fluid test and that was subjected to the clinical
trial evaluation. Although the results of the Chinese trial on that test may
have been sufficient to make it approvable, it did not demonstrate the same
level of accuracy as either the blood/serum/plasma (BSP) or oral fluid (OMT)
tests in that or other recent evaluations. Accordingly, we have decided to place
the urine test back into development to further optimize its performance. As a
result of current resource constraints, the optimization of the urine test is
not an active project.
We have completed the regulatory approval process for our Aware HIV-1/2 BSP test
in South Africa and Kenya, as well as other clinical trials and product
registrations. We are in the process of evaluating registration requirements for
our rapid tests in India with the objective of commencing product evaluations
for certain markets there. We have begun to develop distribution channels and
plan to conduct additional trials in several African countries. The clinical
trial and regulatory approval process will be on-going as we attempt to
introduce the Aware HIV-1/2 tests internationally. We are primarily targeting
countries which have been selected for funding by PEPFAR, the $15 billion
President's Emergency Plan for AIDS Relief, and currently have representation in
more than half of them. While there are different regulations and customs in
each foreign country, we believe that the regulatory process in the PEPFAR
countries can generally be completed within a few months.
Many HIV intervention programs in developing countries are supported by foreign
funding. In the case of funding from the United States, typically through PEPFAR
or USAID, products that are not approved locally or by the USFDA may be used
provided they have a waiver issued by the USAID and CDC. It is our intention to
pursue a USAID waiver shortly, initially for our Aware HIV-1/2 OMT test. We are
compiling the required data in terms of "manufacturer's claims" and independent
trials for the blood, serum and plasma tests. We believe that obtaining a USAID
waiver is an important milestone in facilitating international sales of our
rapid tests.
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