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Report Link: Updated Research Report (Dated 08/24/2016)
Analyst: Juan Noble
Taglich Rating: Speculative Buy
Price Target: $7.00
Time Horizon: 12 Months
Rating Established: May 5, 2016
Price When Established: $4.03
Most Recent Report: August 24, 2016
Price When Issued: $3.91
MDx Health Reports 2016 Results
On February 23, 2017, MDx Health reported 2017 revenue of $30 million, a gain of 70%, on which the company incurred a loss of $13.2 million, or ($0.26) per share. In 2016, MDx incurred a loss of ($0.32) per share on revenue of $17.6 million. We projected 2016 revenue of $28.5 million and a loss of ($0.28) per share.
The loss per share for 2016 narrowed due partly to the issuance of 4.5 million shares in a private placement that raised $21.7 million, contributing to a cash+equivalents balance of $31 million in November 2016.
Product and service revenue increased 60% to $25 million. Royalty income was up almost threefold to $4.9 million. Product and service revenue growth was driven in part by uptake of Select MDx, which was launched in the US in March 2016.
Gross profit for the year was up 85% to $20 million due to revenue growth and a gross margin improvement to 66.3% from 60.9%. Gross margin gains were attributed to improvements in operating efficiency, volume gains and the increase in royalty income.
Operating expenses increased 30% to $32.7 million due mainly to the acquisition of NovoGendix in late 2015, and and an increase in support for the marketing of Select MDx. But on the whole, expenses were much better leveraged, enabling MDx to narrow the 2016 operating loss by 11% to $12.8 million.
For 2017, MDx aims to achieve product and service income (excludes royalties) growth by 55% to 75%, driven by sustained Select MDx growth in the US and early traction gained by Assure MDx, a bladder cancer test launched in the US in 4Q16.
MDxHealth Announces Department of Veterans Affairs Contract for ConfirmMDx Testing
On February 8, 2017, MDxHealth announced that it was awarded a US Government Services Administration (GSA) supply contract to use ConfirmMDx for Prostate Cancer within the Department of Veterans Affairs. The five-year contract, effective February 1, 2017, provides coverage of ConfirmMDx testing at the Medicare rate for veterans within the VA Health System. According to the VA, prostate cancer is the most frequently diagnosed cancer among veterans, with roughly 12,000 new cases annually. Over 600 urologists serve the 152 VA hospitals across the US and it is estimated that more than 200,000 prostate biopsies are performed within the VA healthcare system each year. The opportunity to displace conventional biopsies ordered for VA beneficiaries represents significant revenue potential for MDx.
MDxHealth Reports Third Quarter and Nine Months Results
On November 2, 2016, MDxHealth reported third quarter revenue of $9.1 million, up 122% from revenue for the year-earlier quarter. In 3Q16, the company’s net loss narrowed by 46% to. $2.7 million.
For the nine months ending September 30, 2016, MDxHealth’s revenue was up 84% to $22 million due mainly to an increase in ConfirmMDx test sales in the US. The nine-month net loss of $10.3 million was unchanged compared to the year-earlier period, as operating expenses increased 41% to $24.8 million due to higher investments in product development and selling and marketing expenses.
MDxHealth reiterated guidance for a 2016 revenue gain of more than 60%. We project a revenue gain of 61% to $28.5 million.
Unique Current Procedural Terminology (CPT) Code for ConfirmMDx Awarded by the American Medical Association
On October 31, 2016, MDxHealth announced that its ConfirmMDx® for Prostate Cancer test has been granted a Category I MAAA Current Procedural Terminology (CPT) code by the American Medical Association (AMA). This code is an important reimbursement milestone, as it signifies medical community support of ConfirmMDx based on evidence that the test improves patient outcomes. The CPT code not only facilitates reimbursement for ConfirmMDx but promotes wider acceptance of the test for the diagnosis of prostate cancer.
MDxHealth Announces Positive Coverage Policy for ConfirmMDx
On August 10, 2016, MDxHealth announced that CIGNA, one of the largest health insurers in the US, announced a positive medical policy decision for the company’s ConfirmMDx prostate cancer diagnostic. This policy decision by a major insurer should bode well for more rapid acceptance of ConfirmMDX, currently the company’s principal product.
MDxHealth, headquartered in Herstal, Belgium, was established in 2003. The company maintains a US headquarters in Irvine, CA, and operates a CLIA (Clinical Laboratory Improvement Act) diagnostic laboratory in Irvine, California, and a laboratory in Nijmegen, the Netherlands.
The company has developed noninvasive diagnostics based on epigenetics, which uses selected biomarkers to detect the presence of cancer and gauge the extent of its progress by analyzing a patients’ tissue, blood or urine samples. Biomarkers are measurable structures or processes in the body that indicate the presence of a disease and, potentially, the effects of treatments for that disease.
MDx’s lead product, ConfirmMDx, was launched in 2012. ConfirmMDx, analyzes a biopsy tissue sample from suspected prostate cancer cases who have tested negative. As initial biopsies (as well as follow-up ones) can be inconclusive, repeat biopsies are frequently performed to verify or rule out a diagnosis of prostate cancer. Confirm MDx can confirm a true negative biopsy, sparing the patient the ordeal and risks of unnecessary repeat biopsies. It can also identify cases of undetected cancer.
SelectMDx was launched in Europe in 2015 and in the US in March 2016. Select MDx, an initial diagnostic tool, analyzes a patient’s urine and identifies patients at low risk for prostate cancer, as well as patients at high risk for undetected aggressive prostate cancer that should be treated with greater urgency.
MDx is also developing AssureMDx, a bladder cancer test, and is exploring diagnostics for kidney cancer. The company has developed markers for non-urologic – colon, brain and cervical – cancers that have been licensed to other diagnostic companies, adding royalties and milestone payments to its potential revenue stream.
At current incidence rates, the number of US men diagnosed with prostate cancer could rise to 255,000 by 2050, up from an estimated 181,000 in 2016. Almost three million men in the US who have been diagnosed with prostate cancer at some point in their lives are alive today. Roughly 26,000 US patients will succumb to the disease in 2016 We believe that the statistics for Western Europe are comparable.
As non-invasive and inexpensive diagnostics, ConfirmMDx and SelectMDx could significantly reduce the cost of prostate cancer diagnosis by enabling patients to avoid biopsies − they cost the US healthcare system around $4 billion annually − and improve outcomes by identifying cases of potentially lethal fast growing disease more quickly.
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