New Zealand Professional Investment Services Firm

Forsyth Barr

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Forsyth Barr is a foundation New Zealand Exchange firm (NZX) and accredited market participant. We have been confirmed by the Financial Markets Authority as a Qualifying Financial Entity (QFE).

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New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

Pacific Edge Further Progress in Battle of David vs Goliath

OUTPERFORM
Pacific Edge (PEB) announced coverage from United Healthcare, the largest US private health insurer — another important external validation in the key US market for its bladder cancer tests. ​​​​​​​The market opportunity is extensive and we see PEB as well positioned to capitalise on this. There is no short-cut to changing clinical practice and the hard work is far from over, however, recent key milestones have helped to prove up the commercial model and lower the risk. With the range of justifiable long-term outcomes wide, we expect the share price to continue to be driven by newsflow — which is likely to be positively skewed as further commercial progress follows recent success. OUTPERFORM.


Recent commercial milestones in the key US market



Coverage from United&nbsp;Healthcare, the largest US private insurer (&gt;50m members): Coverage is for&nbsp;Cxbladder, albeit restricted to tests with CPT codes from public health insurer, CMS (currently Detect and Monitor).&nbsp;At this point coverage appears to be for those members with Medicare Advantage (5.7m), however, we expect broader progress to follow. Insurance coverage removes multiple friction&nbsp;points and&nbsp;will likely improve the number of claims approved and use by urologists. However, usage levels (and revenue) are driven by a different decision maker (i.e. the clinician not the payor). This&nbsp;is different to Kaiser (where both the clinician and the payor are within the same organisation, and the clinician is paid a salary) where the ramp path is likely to be faster.
Commercial agreement with&nbsp;Facey&nbsp;Medical Group:&nbsp;Covering&nbsp;Cxbladder&nbsp;Detect and Monitor. While small in the context of the US (180 physicians;&nbsp;170,000 patients) it is part of a wider group (one of six California physician groups affiliated with Providence Health &amp; Services). Most importantly, the group approached PEB,&nbsp;reinforcing growing awareness.

We have no visibility on price, however, expect both will be above that of public health insurer, CMS (price of US$760/test).


No change to forecasts, but helps to provide further confidence in medium-term outlook


We have not made any changes to our forecasts; our base case already incorporates progress with private insurers. However, as PEB continues to make further commercial progress this helps to increase our confidence in the revenue path, and lower the risk.&nbsp;Being ‘in network’ (or under coverage) with US&nbsp;payors&nbsp;will materially speed up the time to cash collection and reduce leakage (where cash is never collected). This should also see test numbers better match revenue in time.


Share price responsive to&nbsp;newsflow


PEB's share price is highly responsive to newsflow, with the strong spike post the United Healthcare announcement returning the stock to its recent high (late December 2020) after a period of steady decline. The path from here will unlikely be straight, however, we expect newsflow to be positively skewed. This includes: new commercial agreement(s), stronger mention/inclusion in clinical guidelines, back payment from US public health insurer CMS (for tests done ahead of securing reimbursement), additional clinical evidence and any indications of Kaiser take-up/use. The key risk is that revenue ramp expectations get ahead of themselves.




Chelsea Leadbetter CFA
chelsea.leadbetter@forsythbarr.co.nz
+64 4 495 5262




Pacific Edge: Further Progress in Battle of David Vs Goliath