New Zealand Professional Investment Services Firm

Forsyth Barr

We are proud to be a New Zealand owned firm, with 21 offices throughout the country and over 300 employees. We assist personal, institutional and corporate clients providing a full range of investment services.

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).

Research is the cornerstone of our advice. We have one of New Zealand's leading teams of analysts. Our global affiliations ensure comprehensive research coverage of all major investment markets.

New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2>Pacific Edge</h2>
<p><strong>FY20&nbsp;Result&nbsp;— No Change in the Script</strong></p>
<p><strong>RESEARCH&nbsp;INSIGHTS</strong></p>
<p>Pacific Edge's (PEB) FY20 result provided little in the way of new information, with the company largely in a holding pattern until key reimbursement milestones in the US are achieved, which would support a well overdue step-change for the business. Progress continues to be frustratingly slow, despite a growing body of supportive clinical evidence and rationale for use. Our view remains that these milestones remain a question of 'when' rather than 'if', although patience continues to be tested.</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/137/608/original/image_43417990441591058005816.png?1591058007" class="editor-image img-responsive" data-smartkarma-image-id="137608"></figure>
<p><strong>FY20 result&nbsp;— patience still required; underlying costs controlled</strong></p>
<div id="m_5216660522403673048ihk6p">
<p>PEB reported FY20 product sales of NZ$4.4m, up +14.5%, albeit below our forecasts. Total revenue of NZ$5.0m was only modestly higher than FY19, given a material step-down in grant income. Reimbursement complexity, mix of customers and variability in cash collection timing makes underlying progress difficult to monitor. Taking this aside, progress was seen in both NZ and the US, albeit slower than we would like. Costs were well controlled, with constant currency growth ~+2%, slightly higher than our estimates.</p>
<p>COVID-19 saw material disruption to test volumes in April, although recovery in May, helped by growing demand for its in-home sample collection service. The latter is another advantage of Cxbladder over other tests, particularly given bladder cancer patients are also in the high risk category for COVID-19. Wage subsidies (in the US &amp; NZ) will also help offset any short-term impact.</p>
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<p><strong>Near-term milestones</strong></p>
<div id="m_5216660522403673048iez63">
<ul>
<li><strong>Coverage decision from public health insurer, CMS</strong>: PEB submitted a dossier of evidence in August 2019 which is still under review. It is an iterative process, reliant on judgement of the available clinical evidence and whether it is sufficient for CMS to fund Cxbladder. As an outsider it is near impossible to pick timing or likelihood of success, however, recent evidence additions from PEB have been particularly compelling. A positive coverage decision would see a step-change in revenue and cashflow for PEB.
<ul>
<li>~43% of&nbsp;PEB's&nbsp;FY20 US commercial tests were for&nbsp;CMS&nbsp;patients. We estimate if&nbsp;PEB&nbsp;had a positive coverage decision in FY20 then its revenue would have been c. NZ$10.6m, rather than NZ$5.0m, yet costs unchanged (as they are already being incurred).</li>
</ul>
</li>
<li><strong>Any further progress with guidelines</strong>: Cxbladder was recently mentioned in the NCCN guidelines under a category 2B recommendation (July 2019). There is potential for other guidelines and/or a stronger mention, particularly given stronger evidence since then. Timeframes are unpredictable but we understand there is an AUA guidelines meeting in late June 2020.</li>
</ul>
</div>
<p><strong>Cash watch</strong></p>
<div id="m_5216660522403673048ixbrj">
<p>PEB reported net cash of NZ$14.8m at FY20, reflecting ~12 months at current burn rates. There is upside risk to PEB's cash position given it excludes: (1) private insurance receivables (conservative estimate of NZ$3.2m included in PEB's financial statement notes), where payment is being sought (average payment timing 7–12 months), and (2) tests for CMS — if a coverage decision is achieved, tests to date may be partially reimbursed; given 21,789 CMS tests have been performed to date this could provide up to c.US$16.6m in cash (using US$760/test). Nonetheless, the cash balance is once again tight.</p>
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<div>Chelsea Leadbetter CFA</div>
<div><a href="mailto:chelsea.leadbetter@forsythbarr.co.nz" target="_blank" rel="noopener">chelsea.leadbetter@<wbr>forsythbarr.co.nz</a></div>
<div>+64 4 495 5262</div>
</div>
</div>
</div>


Pacific Edge
FY20&nbsp;Result&nbsp;— No Change in the Script
RESEARCH&nbsp;INSIGHTS
Pacific Edge's (PEB) FY20 result provided little in the way of new information, with the company largely in a holding pattern until key reimbursement milestones in the US are achieved, which would support a well overdue step-change for the business. Progress continues to be frustratingly slow, despite a growing body of supportive clinical evidence and rationale for use. Our view remains that these milestones remain a question of 'when' rather than 'if', although patience continues to be tested.

FY20 result&nbsp;— patience still required; underlying costs controlled

PEB reported FY20 product sales of NZ$4.4m, up +14.5%, albeit below our forecasts. Total revenue of NZ$5.0m was only modestly higher than FY19, given a material step-down in grant income. Reimbursement complexity, mix of customers and variability in cash collection timing makes underlying progress difficult to monitor. Taking this aside, progress was seen in both NZ and the US, albeit slower than we would like. Costs were well controlled, with constant currency growth ~+2%, slightly higher than our estimates.
COVID-19 saw material disruption to test volumes in April, although recovery in May, helped by growing demand for its in-home sample collection service. The latter is another advantage of Cxbladder over other tests, particularly given bladder cancer patients are also in the high risk category for COVID-19. Wage subsidies (in the US &amp; NZ) will also help offset any short-term impact.

Near-term milestones


Coverage decision from public health insurer, CMS: PEB submitted a dossier of evidence in August 2019 which is still under review. It is an iterative process, reliant on judgement of the available clinical evidence and whether it is sufficient for CMS to fund Cxbladder. As an outsider it is near impossible to pick timing or likelihood of success, however, recent evidence additions from PEB have been particularly compelling. A positive coverage decision would see a step-change in revenue and cashflow for PEB.

~43% of&nbsp;PEB's&nbsp;FY20 US commercial tests were for&nbsp;CMS&nbsp;patients. We estimate if&nbsp;PEB&nbsp;had a positive coverage decision in FY20 then its revenue would have been c. NZ$10.6m, rather than NZ$5.0m, yet costs unchanged (as they are already being incurred).


Any further progress with guidelines: Cxbladder was recently mentioned in the NCCN guidelines under a category 2B recommendation (July 2019). There is potential for other guidelines and/or a stronger mention, particularly given stronger evidence since then. Timeframes are unpredictable but we understand there is an AUA guidelines meeting in late June 2020.


Cash watch

PEB reported net cash of NZ$14.8m at FY20, reflecting ~12 months at current burn rates. There is upside risk to PEB's cash position given it excludes: (1) private insurance receivables (conservative estimate of NZ$3.2m included in PEB's financial statement notes), where payment is being sought (average payment timing 7–12 months), and (2) tests for CMS — if a coverage decision is achieved, tests to date may be partially reimbursed; given 21,789 CMS tests have been performed to date this could provide up to c.US$16.6m in cash (using US$760/test). Nonetheless, the cash balance is once again tight.




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





 Pacific Edge: FY20 Result — No Change in the Script