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We believe the decrease in sales is attributable to negative publicity regarding the usefulness of the BED Incidence Test. 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, suggests expanding current protocols, and indicates that data derived from its use in certain international settings may not be appropriate. During the second quarter of 2006, the CDC and UNAIDS agreed on a set of “Recommendations for Use” to address certain conditions that may have resulted in over-estimation of incidence. We believe that the test’s design and use and the interpretation of its results will continue to evolve as public health agencies and the CDC gain 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 plan to develop 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 expect the completion of the March 2007 PIPE will permit us to increase our development resources and expand our product offerings. We continue to view our collaborative relationship with the CDC as very significant and we view the CDC as an important partner in our planned efforts to jointly introduce additional products. We expect that much of our new-product development will center on our Aware II platform as a result of its OTC-suitable design and the licenses which permit sale of those products in all of our target markets, particularly in the U.S.
Rapid Tests We expect that our near- and medium-term 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 or synergistic tests, such as tuberculosis or malaria, in the longer term.
Our focus for 2007 continues to be 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, Middle East and Southeast Asian markets. The testing protocol in many countries includes HIV and one or more of the following tests: tuberculosis, hepatitis B or C, and malaria.
We plan to utilize regional manufacturing to take advantage of local market opportunities. These sites could also be used to manufacture product for export to other markets. Our first such site is in China, with our joint venture, Beijing Marr. We also envision manufacturing operations in India and in the Middle East and intend to use a portion of the proceeds from the March 2007 PIPE to accelerate this effort. The objectives are better customer service and stronger margins for all parties concerned. These sites are also logical bases for research and development centers to take advantage of local talent and to accelerate our ability to bring new products, technologies and platforms to market.
We submitted our AwareTM HIV-1/2 oral fluid (OMT) rapid test for approval to the Chinese State Food and Drug Administration (“SFDA”) in January 2006 and during 2006 the test passed a number of critical milestones essential to its ultimate approval. We were in routine contact with the SFDA during the second half of 2006 and provided additional or clarifying information as requested during their general review process. Our test was reviewed by an SFDA expert panel in December 2006 and subsequent to the meeting, in January 2007, we received a formal request from the SFDA for additional information. Some of the information requested was informally presented to the SFDA in the December 2006 technical review, and is readily available. In response to the request, we are conducting an additional clinical trial of approximately 1,000 subjects randomly collected from the general (low-risk) population. We expect to complete this trial and assemble the other required information on or before May 10, 2007, the date by which the SFDA requires our response.
Beijing Marr, our joint venture with an affiliate of Marr Technologies BV, our largest stockholder, will manage the Chinese oral fluid test product launch. There are several large markets in China, such as those created by laws requiring HIV 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 has recently completed upgrading and renovating its manufacturing operations to facilitate the production of our AwareTM HIV-1/2 rapid oral fluid (OMT) test. We are undergoing evaluation of our procedures to renew our Chinese GMP certificate and to ensure our compliance with ISO 9001 and ISO 13485 standards. Compliance with these standards will enable us to manufacture for both the Chinese market and for export from China to our other international markets. We have manufacturing equipment and personnel in place and expect to have GMP approval and/or ISO certification in sufficient time to produce inventory for commercial sales upon the expected third quarter 2007 SFDA approval of our OMT rapid test.
We expect China to be one of our three largest markets, along with India and Russia. These focus areas mirror the areas predicted to have the greatest increase in HIV infections over the next few years. We believe that a simple, non-invasive test will have significant demand as it can be used as an integral part of a real-time treatment program. We have received approval to sell our tests in Russia and we are completing our clinical and product evaluations in India. We believe that our tests continue to perform well and consistently in all trials to-date.
We have completed the regulatory approval process for our Aware TM HIV-1/2 BSP test in South Africa, Uganda, Zimbabwe and Kenya and for our Aware TM HIV-1/2 OMT test in South Africa, Uganda and Kenya, providing opportunities for humanitarian organizations to sponsor our product in their testing programs. We believe that cooperating with humanitarian organizations to help fight the HIV/AIDS pandemic in critical areas where we are obtaining regulatory approval, particularly in South Africa, will be an important trend in 2007 as we seek to achieve significant sales growth of our Aware™ HIV-1/2 rapid OMT test.
We plan to release a second OMT test later this year using a recombinant antigen. This will provide us with a full non-invasive testing algorithm in accordance with WHO rapid-testing guidelines. Not only will this benefit current diagnostic and treatment efforts, we believe it will help us to increase our sales in regions that adhere to the WHO testing algorithm. We expect to be able to produce this test from all sites that manufacture our current Aware TM products.
We continue to pursue business opportunities in the Middle East, targeting the UAE as our first market. We shipped 100,000 Aware TM HIV-1/2 OMT rapid tests to our distributor in the UAE during the fourth quarter of 2006 and anticipate additional orders. A local manufacturing site, when and if completed, will further enhance our strength, not only in the UAE, but in Saudi Arabia, Kuwait, and throughout the GCC. Our distributor has informed us that regulatory approvals are progressing in several additional countries within the region.
During the third quarter of 2006, we received approval for our Aware™ HIV-1/2 OMT rapid test for both the professional and OTC markets in the Russian Federation. We expect to utilize Marr’s expertise and contacts in the Russian Federation as we establish our distribution system and our sales and marketing activities in that region. Additionally, one of the investors in the March 2007 PIPE has extensive relationships in both Russia and in the Middle East that we expect will be of value in expanding our sales reach. We have initiated contacts in the private sector, where a number of large corporations are focusing a portion of their social budgets on the HIV/AIDS problem in their communities. Russia currently has the fastest growing rate of increase in HIV/AIDS infection worldwide. We expect significant sales in this market in 2007.
In India, we have conducted product evaluations for the military and private sectors and are awaiting the results of those evaluations. The culmination of this process is expected to result in sales in this important region during 2007. By the end of 2007, we expect to have achieved our initial sales and marketing milestone - regulatory approvals and distribution networks consummating sales in the four parts of the world having the greatest HIV/AIDS prevalence, namely Sub-Saharan Africa, China, India and Russia.
We are in the process of developing additional distribution channels and plan to conduct additional trials in several African and Asian countries. The clinical trial and regulatory approval process will be on-going through 2007 and beyond. We are primarily targeting countries which have been selected for funding by PEPFAR, the recently expanded President’s Emergency Plan for AIDS Relief, and currently have representation in more than half of them. 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. We have compiled the required data in terms of “manufacturer’s claims” and independent trials for both our OMT and blood, serum and plasma HIV-1/2 rapid tests. We have recently been notified that our blood, serum and plasma product has been evaluated and is approved for addition to the USAID waiver list. We are actively pursuing a USAID waiver for our OMT product as well. As a result of its uniqueness compared to a blood rapid test, it is necessary for us to conduct a clinical trial of our OMT test as a part of its USAID evaluation. That trial is currently in progress. We believe that obtaining a USAID waiver is another important milestone in facilitating international sales of our rapid tests.
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