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Update - SNJ-Biostoxx Confirms Fair Value Of MDXHealth At Multiple Of Current Share Price

|Includes: MDXHealth SA (MXDHF)

Since SNJ-Biostoxx article on MDXHealth, the share price has risen from EUR 3.60 to EUR 3.90. We still consider the risk/return outlook to be exceptional with scope for very large alpha.

This blog highlights the main new information distilled from a webcast of the Canaccord Genuity 2014 Medical Technology & Diagnostics Forum on 20 October, where Jan Groen presented MDXHealth (link to presentation, webcast).

Key novelties:

  • Jan Groen confirmed that MDXHealth (OTCPK:MXDHF) will get mid-single digits royalties from Exact Sciences (NASDAQ:EXAS) on Cologuard sales. That is very positive. The 3% used in the SNJ-Biostoxx valuations can be considered conservative in this context.
  • Cologuard milestones of up to $ 3-4 million (rather than $ 2 million that appeared in the Exact SEC 10-K filing)
  • Jan Groen states that the commercial price of ConfirmMDX is $ 3300. The Medicare price agreed with CMS is more than $ 2000 per test. This is higher than SNJ-Biostoxx used in its valuation. And it implies very low current revenue recognition and cash collection rates.
  • Jan Groen suggested 12.000 to 13.000 ConfirmMDX tests for the whole of 2014. That would imply a rather weak Q4, with no or limited sales growth compared to Q3 (3500 tests), as the cumulative number of test over the first 9 months amounted to 9000. According to SNJ-Biostoxx the weak growth has to do with focus on increasing the revenue recognition and cash collection rates to sales, thus working towards cash break-even. Sales growth is held back by MDXHealth until coverage is secured. This is partly a strategic decision to reduce cash burn, holding back sales.
  • If sales ramp up faster, cash-burn might increase as costs substantially proceed cash revenues, and part of the test can only be reimbursed after unconditional Medicare coverage is awarded. So any such MDXHealth strategic decision would be in the medium-term interest of the share holder. It may be perceived as a negative by the market though if sales growth stalls.
  • Jan Groen sees no competitors for ConfirmMDX in its $ 1.5 billion market. For MDXHealth (own-products) he sees a total market opportunity of $ 3 billion, with some competition on its other products.
  • 1700 urologists have ordered ConfirmMDX. That is a very large number and reflects broad market penetration. It bodes well for future sales growth.
  • SNJ-Biostoxx considers that, to attract more investor interest, Jan Groen could have stressed more the important revenues that may come from Cologuard. On this topic, he started by mentioning the annual Exact Sciences licensing fee of $ 100.000, which is irrelevant from an investor perspective in view of the 40-80 million annual revenues that can be expected as Cologuard hits consensus peak sales.

In all, the medium-term outlook is very strong. We expect weak Q4 sales growth for ConfirmMDX but sizeable reduction in the cash-burn going forward. And we think the share price will be driven by positive news on the roll-out of Cologuard over the next few months. Recent developments on the roll-out of Cologuard by Exact Sciences appear to point to higher peak sales scenarios than assumed in SNJ-Biostoxx MDXHealth main valuations. See article and comments.

We maintain our view that the share price of MDXHealth should at least double or triple in the next 12 months. See SNJ-Biostoxx article: MDXHealth - Piggybacking on Exact Sciences' Cologuard Success

Disclosure: The author is long MXDHF.