PEB-Pacific Edge

[LoungeLizard]

Craig's latest

We still think PEB is likely to lose Medicare coverage in the next few months, which will reduce operating revenue by more than 50% to c.$10m in FY25. With coverage loss likely and recovery to take 4+ years, the stock is not currently investable.

Fbar Latest

Under any scenario the risk of an equity raise within the next two years is elevated.

In the 1/2 year report to 30 Sept 2023, PEB said this:

"Pacific Edge has maintained a strong balance sheet with cash and cash equivalents of $62.2 million. In the event of a Medicare non-coverage determination, the company expects the available cash to be sufficient to support the company through to regaining coverage, a process that may take up to four years, with interim coverage attempts with every piece of new clinical evidence. In the six-month period the company recorded a cash outflow of $15.6 million, reducing its reserves from the $77.8 million recorded at the end of March 2023."

Looking at their historical spend and allowing for their cost cuts, I think that sounds about right.

But it does look as though PEB have been - wisely -  preparing for an unfavourable decision. PEB is/was a speculative buy at best, and for holders like myself who will all be underwater to some degree, there's no real point in selling now and crystalising losses. I still believe that they have a great product that does a lot of good for cancer sufferers, and like a few here, PEB is part of my "fun" portfolio. Precious little fun to be had at the moment I'll admit, but one lives in hope   

[LoungeLizard]

Clinical Utility of Cxbladder to Headline at AUA 2024

Dear Shareholder,

A ground-breaking study demonstrating the clinical utility of Cxbladder is to be the centrepiece of Pacific Edge's activities at the 2024 American Urological Association (AUA) Annual Meeting to be held May 3 – 6 in San Antonio, Texas.

The AUA Annual Meeting represents a unique opportunity for Pacific Edge to highlight the findings of the new STRATA study and drive the adoption of Cxbladder tests. The conference, now in its 119th year, is the largest and most influential event in the US and global urological calendar, and is expected to attract over 10,000 urologists, urologic oncologists, researchers, educators, advanced practice providers, and other healthcare professionals from across North America and around the world.

STRATA, the first ever randomized controlled trial of a urine biomarker for hematuria evaluation, demonstrates Cxbladder Triage can help clinicians to safely and more effectively risk-stratify low risk hematuria patients when compared to AUA guidelines. It provides the strongest clinical utility evidence yet for inclusion of Cxbladder products in a future update to the hematuria guidelines.

The STRATA study will be presented on the podium by Dr Yair Lotan, Professor of Urology at UT Southwestern. The presentation is scheduled during a session covering advances in bladder cancer care on the morning of the first day of the conference (Friday May 3).

STRATA will also be published in the prestigious Journal of Urology on the same day and will be promoted as "practice changing research" by the AUA and the Journal of Urology in the lead up to, during, and after the event. A link to the paper is provided below (and will only become active at the commencement of the podium presentation at 10:40am Friday May 3 CDT). A selection of published comments by key reviewers of the paper will also be made available following the event.

Referencing the clinical utility of the test, authors of the paper led by Dr Lotan, said in an abstract to the study that Cxbladder Triage "can help reduce the burden of unnecessary cystoscopies... resulting in less patient morbidity and discomfort, improved access to care, and reduced environmental impact".

The study showed clinicians in the test arm of the STRATA study, who could use information generated by a Cxbladder Triage test to help them determine the intensity of a patient workup, undertook 59% fewer cystoscopies than those clinicians in the control arm of the study who could not use the information from the Cxbladder test.

With the STRATA podium presentation providing a focal point for discussion throughout the event, Pacific Edge will be hosting a booth in the main hall alongside a range of other targeted activities through which the team will engage with customers and other attendees.

This year Pacific Edge will sponsor a tabletop session during the Urological Society for American Veterans (USAV) sub-meeting. This meeting will be attended by urologists working within Veterans Affairs (VA) facilities and is of particular importance as the company progresses its DRIVE and microDRIVE studies, both focused on VA patient cohorts.

Further detail on scheduled sessions at AUA 2024:

10:40am - 10:50 AM, Friday May 3 (CDT): Podium presentation - A Multicentre Prospective Randomized Trial Comparing Cxbladder Triage to Cystoscopy in Patients with Microhematuria.
10:00am - 2:30 PM Sunday May 5 (CDT): USAV Tabletop Session (Grant Hyatt, Texas Ballroom C).
Pacific Edge's CEO, Dr. Peter Meintjes says: "The invitation to present the results of STRATA as practice changing research at AUA 2024, the world's most important meeting of urologists, reflects its first of a kind status and the potential for Cxbladder tests to redefine the standard of care. Going forward, patients presenting with microhematuria with a negative Cxbladder test, can be treated as AUA low risk, safely reducing the need for cystoscopy allowing urology teams to focus their time and clinical resources on those that need it the most, while reducing the burden of invasive testing on patients.

"STRATA provides the strongest case yet for AUA hematuria guidelines inclusion. Additionally, we will use the paper as the basis of a reconsideration request to Novitas2 regarding 'Genetic Testing for Oncology' local coverage determination (DL 39365)."

[Left Field]

"STRATA provides the strongest case yet for AUA hematuria guidelines inclusion. Additionally, we will use the paper as the basis of a reconsideration request to Novitas2 regarding 'Genetic Testing for Oncology' local coverage determination (DL 39365)."

Thanks LL, I particularly liked the above emphasis.  FWIW I think the chances of a favourable result of the Novitas review have increased considerably (60:40) (particularly given the US Health Departments previous admonishment of the Novitas process and strong support from the AUA.)

[LoungeLizard]

Yes, I'm also feeing a little more optimistic after todays announcement. All credit to PEB Management - they really have thrown the kitchen sink at this. The new trial evidence and endorsement from the AUA could maybe provide Novitas an "out" from what is increasingly looking like a bad decision to withdraw coverage. But who really knows, given the absurdities of the American health system. Still, it's a glimmer light at the end of what has been a very long, dark tunnel...

[850man]

Yeah, PEB have done a great job to get this AUA recognition but Novitas seems to be a law unto themselves regardless of what the AUA say. They also have the option to take cover behind the FDA and acquiesce to coverage only for FDA approved LDTs. I don't have an update on where PEB stand with FDA future approval 

[Pierre]

To save you doing the calculation the PEB research will be presented at the AUA conference at 3:40am NZST tomorrow, Saturday. May the fourth be with PEB!
I'm keen to know the results but don't think I'll be getting up that early to find out.

[Left Field]

Details of the latest PEB research as presented to the AUA conference 3 May.

https://www.auajournals.org/doi/10.1097/JU.0000000000003991#msdynmkt_trackingcontext=c18ad493-d72b-4e74-95ae-8130cf1ff664

Summary of conclusions (but best you read it yourself.)

"In this prospective randomized controlled trial, use of CxbT in patients with LR hematuria resulted in 59% reduction of cystoscopy use. This clinical utility of Cxbladder Triage can reduce the burden of unnecessary cystoscopies......."

"A urinary biomarker with high sensitivity/negative predictive value (NPV) could help to safely reduce the burden of unnecessary cystoscopies in this population and potentially enrich those evaluated with patients who have cancer.  Cxbladder Triage (CxbT) .... ...with a published sensitivity of 95.1% and NPV of 98.5%.6,7..........."

[LoungeLizard]

Pretty positive writeup. I don't think there's any doubt about the clinical utility of CXBladder. It all comes down to Novitas's interpretation of their own guidelines and whether PEB's products fit those guidelines.
The market does seem to be a bit more positive in the light of AUA's findings, but who knows what's going on behind the scenes.

[Left Field]

Still no decision re Novitas, but healthy progress and reduced cash burn...... I'm optimistic.

https://www.nzx.com/announcements/431369

FINANCIAL AND PERFORMANCE HIGHLIGHTS
 • Operating revenue increases 22% to $23.9 million; total revenue increases 12% to $29.3 million lifted by a 2% rise in commercial Cxbladder test volumes in the US market and increased collections.
• Average US Sales Price (ASP) per test increased 18% from US$519 in 2H 23 to US$613 in 2H 24 following improvements in cash collection and increased volumes from our major private payer Kaiser Permanente. 
• Total laboratory throughput (TLT) of Cxbladder tests increases 3% to 32,633 tests, commercial tests increased 2% to 27,347 with the rate of growth slowing in 2H 24 as the sales team was reduced and further attrition of the team was not backfilled to preserve capital.
• Cash burn reduced in 2H 24 to $11.9 million, down 24% on 1H 24 following reorganization; use of capital tightly focused on long-term strategic imperatives. Net loss after tax increases to $29.5 million from $27.0 million.
• End of period cash and cash equivalents of $50.3 million down from $62.2 million in September 2023; a runway expected to be sufficient to support the company through to regaining coverage in the event of a Medicare non-coverage determination.

OUTLOOK
Dr Meintjes said the finalization of the Medicare coverage determination remains the biggest determinant of the company's prospects for the immediate future, with a decision due by 26 July 2024 . 

 "A non-coverage determination is likely to impact US volumes, but we are well prepared with plans to regain coverage and, should coverage be affirmed, rebuild the momentum in the clinical adoption of Cxbladder in the US and around the world.  "In the event of a non-coverage determination, these strategies include a potential legal challenge to the determination; Medicare patients assuming responsibility for the payment of Cxbladder tests; and the continued advancement of our clinical evidence program, which will give us multiple opportunities to seek a Medicare coverage reconsideration," Dr Meintjes said.   

"Meanwhile, we see several catalysts to the company accelerating the adoption of Cxbladder and driving improvements in shareholder value. In addition to a positive Medicare determination, these include the favorable pricing of Detect+ and then the launch of the test, targeted for early 2025. The publication of new clinical evidence, meanwhile, offers new opportunities for the inclusion of our tests in clinical guidelines.


Still a risky share and not for everyone.

[winner (n)]

Accumulated Losses now $246m

One day they might return a profit

[Left Field]

Accumulated Losses now $246m

One day they might return a profit

In good company......check out XRO.

[LoungeLizard]

Still a high risk/ high return stock, but PEB have strong support from the medical boards and institutions and the clinical evidence supporting the benefits of the test is starting to look overwhelming.
 Doesn't mean of course that Novitas will reverse their decision, but PEB seem to have a good pathway to re-apply and in the meantime are still increasing revenue. Happy to hold and see how this plays out.

[Left Field]

Throughout the Novitas determination there has been some serious concerns, ie;

1.) The original decision contained lots of factual errors (eg claimed sample bias to males........ for what is primarily a male illness!? etc)
2.) The US authorities call for Novitas to restart the revue process  because of concerns about the process overreach and potential bias.
3.) Strong support for PEB from AUA and recent research, evidence of cost savings etc..
 
On the above alone it is encouraging to see PEB considering legal action should the determination go against them. "In the event of a non-coverage determination, these strategies include a potential legal challenge to the determination."

Let's hope it doesn't come to legal action....... but good on PEB for sending warning.

[Greekwatchdog]

For Bars Review of the result
NEUTRAL


Pacific Edge's (PEB) FY24 result had no material surprises. Net cash of ~NZ$50m was slightly ahead of our expectations. The continued improvement in revenue per billable test (helped by a solid Kaiser contribution) was a small positive which offset slightly higher opex. We retain our NEUTRAL rating given the LCD outcome is binary and therefore high-risk, lab throughput is subdued, and under any scenario the risk of an equity raise within the next two years is elevated.

What's changed?
Earnings: FY25/FY26/FY27 EBITDA +NZ$0.7m/+NZ$3.0m/+NZ$1.6m with lower revenue offset by lower costs.
Target price: Increased to NZ$0.12 from NZ$0.11 given the modest earnings upgrades.
Pricing growth a positive in 2H24
A positive surprise was the continued strength in revenue per billable test, up +18% in 2H24 versus 2H23 and +6% sequentially. The two drivers are: (1) improved Kaiser performance — we estimate FY24 Kaiser revenue more than doubled versus FY23 to ~NZ$3.5m, and (2) an increase in proportion of tests paid for outside of CMS and Kaiser. At FY24 we estimate PEB's Southern California Kaiser population penetration is 0.05% (Southern California is ~37% of Kaiser's population) versus NZ at 0.08%. PEB's commentary suggested all 15 Kaiser Southern California sites volumes are increasing steadily, albeit it was conservative on the roll-out speed into other jurisdictions near term. Northern California is the likely next step, where its share of Kaiser's population is only modestly below Southern California. We had been sceptical of the patient pay strategy but early signs are positive, and we take comfort that the pricing uptick provides some insulation against the possible loss of CMS revenue (CMS was ~NZ$17m of revenue in FY24).


Solid opex control in 2H24


2H24 opex declined -NZ$4.8m sequentially to NZ$27.0m, with sales & marketing declining -NZ$3.0m, and G&A -NZ$2.4m. While this was less than we expected, PEB continues to accelerate the clinical research development which is the right strategy. For the time being, we see the 2H24 opex run rate as an appropriate base, but note PEB has levers to pull should the LCD decision require it.


Asymmetric upsides in the event of a favourable LCD outcome, but the uncertainty is very high
There were no new updates on the LCD decision which is due before 26 July 2024. PEB currently trades on ~1x EV/12 month forward sales. On a EV/sales multiple basis broadly consistent with biotech peers (5–6x), should the LCD decision be favourable, we derive a ~NZ25-30cps price. More comparable genomic peers, which have meaningfully lower revenue growth trade on ~3.2x EV/sales. Our discounted cash flow valuation scenario that assumes CMS coverage continues is NZ$0.24. We acknowledge PEB was trading between NZ$0.40 and NZ$0.50 prior to the recent unfavourable decision, but given the net cash deterioration and soft lab throughput trends, the share price may not recover to these levels (at least in the near term).

Earnings changes
We make minor earnings changes across our forecast horizon. We again downgrade our revenue expectations with lower CMS and 'other US' volumes slightly offset by higher Kaiser volumes and stronger pricing (combination of stronger Kaiser volumes and a higher share of US volumes, ex CMS and Kaiser paid for).


Our presented forecasts use our scenario that CMS coverage remains.


Our target price increases to NZ$0.12 (from NZ$0.11) reflecting the modest earnings upgrades. Our target price methodology is a probability weighted DCF scenario of: (1) no change to CMS coverage (PEB continues to be covered), (2) coverage resumes in FY27, and (3) coverage resumes in FY29. We acknowledge a tail risk that coverage isn't achieved at all, but we see this as very unlikely. Our valuation scenario that assumes CMS coverage continues is NZ$0.24.

[Left Field]

Waiting..... waiting........ holding on....... holding on....

July newsletter in the meantime.

https://api.nzx.com/public/announcement/434271/attachment/422452/434271-422452.pdf