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goetzpartners securities Limited
Epigenomics (ECX-DE): Liver boost - less dependency on epiColon
10-Aug-2018 / 11:08 GMT/BST
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*Epigenomics (ECX-DE): Liver boost - less dependency on epiColon*
*Recommendation: OUTPERFORM*
*Target Price: EUR6.82*
*Current Price: EUR2.36 (cob on 9th August 2018)*
*KEY TAKEAWAY*
The financial results were slightly better than we expected with disciplined
cost management in R&D and SG&A. The main value of Epigenomics lies within the
health economic value of its two main tests. We feel that investors are under
appreciating the significant value to healthcare systems world-wide. The
reimbursement is hinging on robust data and the demonstration of real cost
savings. While the concept of avoiding metastatic liver and colon cancer by
testing is clear, we believe. Thus, current trading levels represent an
attractive value proposition over a two to three-year period.
*Results and Guidance* - Epigenomics has maintained its guidance for the full
year with revenues to come in between EUR2.0m and EUR4m. Management expects
EBITDA before share-based payment expenses to be in a range EUR-11.5m and
EUR-14.0m in 2018
*Pricing of the test* - Price increase in the US remains a positive - CMS
published preliminary rate for Epi proColon screening test. The proposed
reimbursement rate is $192 per Epi proColon test. Based on the proposed
preliminary rate, CMS will determine the final rate. The publication of the
final rate is expected in November 2018 - As a reminder, on 22nd September
2017 the US CMS published their decision on test code and reimbursement price
for Epi proColon, which was cross walked to a different test code. The newly
determined payments rates according to PAMA see the price increasing to $124
(from $83), a 50% upside.
*Liver - the new kid on the block -* We are excited by the company's new liver
test. we see a double benefit coming from this test. Firstly, the most obvious
upside on population health by catching a significant number of cancer risk
patients early. Secondly, we believe that reimbursement could be supported by
a significant decrease of redundant MRI/CT scan following an inaccurate
ultrasound ("US") test, which leads to many false positives. The significant
higher specificity and sensitivity of US combined with EpiLiver will reduce
diagnostic tests for liver cancer significantly. We have seen plenty of
examples in Europe, where new test has arrived to national guidelines after
showing cost benefits on the diagnostics level.
*Commercialisation of EpiLiver* - Epigenomics, will aim to obtain the CE mark
for its liver cancer detection by year-end 2018 for detecting liver cancer of
cirrhosis patients. There will be a prospective clinical trial in the U.S.
commencing in early 2019 to support its submission to the FDA. Epigenomics is
evaluating a go to market strategy in China. The liver cirrhosis cancer
testing market could yield up to ten million tests per annum. This would
result in a multibillion market potential.
*Decreased dependency on epiColon* - The test still needs to progress through
the US national coverage determination following inclusion into medical
guidelines. Epi proColon is the first blood-based biomarker test approved by
the US FDA for CRC screening. It improves on convenience, acceptance, is less
embarrassing and avoids the need for multiple tests. Epi proColon is in the
process of being incorporated into US medical guidelines and now the price for
reimbursement is set.
*Valuation* - ECX share price became undemanding, in our view. Guidance was
maintained and diversification if its tests is the right strategy. However,
the variables of national coverage determination and medical guideline
incorporation still need to be met. The commercial potential of Epi proColon
and proLiver is highly attractive. Despite the near-term revenue visibility is
not clear over the next 12 months, we believe that the value of such a test
for a third party is significantly above the current trading price. Although,
shares will come under pressure if there is a negative reimbursement decision,
the potential takeout scenario provides a valuation floor and future upside to
today's trading levels. We maintain and reiterate both our OUTPERFORM
recommendation and DCF-derived target price of EUR6.82.
Kind regards,
Martin Brunninger | Analyst
goetzpartners Healthcare Research Team | Research Team
goetzpartners securities Limited
The Stanley Building, 7 Pancras Square, London, N1C 4AG, England, UK.
T +44 (0) 203 859 7725 | healthcareresearch@goetzpartners.com /
martin.brunninger@goetzpartners.com
www.goetzpartnerssecurities.com
Registered in England No. 04684144.
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August 10, 2018 06:08 ET (10:08 GMT)
