Free to access research in a post-MiFID2 world

MDxHealth (MDXH-BR): Growth in prospect a compelling opportunity

Recommendation: OUTPERFORM (from Under Review)
Target Price EUR9.00 (from Under Review)
Current Price (as at cob 26^th February 2018): EUR3.43

KEY TAKEAWAY

Disappointment especially in H2/2017 hit the shares. MDxHealth's potential in prostate cancer diagnosis remains intact; creating a significant opportunity for investors. Test volumes of marketed diagnostics are growing and should accelerate with a fully installed US salesforce and expanding European distribution network. Broadening US reimbursement and product coding should see ConfirmMDx volumes translate into revenues as payment collection accelerates. Data expected during 2018 supporting the use SelectMDx in both primary diagnosis and patient monitoring should highlight the potential of this powerful prostate diagnostic and drive adoption in key clinical guidelines. With this growth and catalysts in prospect, we reinstate our OUTPERFORM recommendation (from Under Review) with a new target price of EUR9.

ConfirmMDx turning volume into revenue - Although disappointing on the topline, ConfirmMDx test volumes picked up in Q4 suggesting the expanded tasked and targeted salesforce is now having an impact. We anticipate increased adoption by physicians as private health providers such as Kaiser and other health groups implement the test into their clinical protocols. Only a little more than 50% of tests billed are currently booked. This should increase substantially as the CPT (Current Procedural Terminology) code applied in January begins to facilitate and speed test reimbursement. This will significantly improve test margins with a positive impact both on revenues and net cash flows. The company also expects to add significantly to the 67 signed up payers further extending access to the 1m men that are referred for biopsy every year.

SelectMDx a major opportunity - A lower price more convenient urine test, SelectMDx is showing growing potential early prostate cancer diagnosis of the around 10m men with elevated PSA. Data from studies currently under analysis is expected to highlight the utility of the test in disease monitoring and support the adoption of the tests into the key US and European clinical guidelines. Use in monitoring of men with slow growing or potentially indolent disease could at least double the addressable market.

MRI not fit for purpose - While a valuable and important tool for tumour visualisation, its inherent variability makes much hyped MRI unsuited to much needed large scale accurate prostate cancer diagnosis and stratification. Scalable and reproducible Confirm- and SelectMDx promise an accurate and cost-effective solution to fill this need.

A substantial opportunity at current levels - Despite uncertainty over exact timing, we are confident that accelerating volume growth will translate into substantial revenue growth in 2018 and 2019. With data supporting the increasing opportunity for the SelectMDx liquid biopsy, this should drive the share price over the next 12 months and longer term. Our estimates suggest a fair value of EUR6.50 rising towards EUR12 with data supporting wider use of SelectMDx. A fund-raising, in our view, is an outstanding opportunity for investors.

Kind regards,

goetzpartners Corporate Research | Research Team

Dr. Chris Redhead | Analyst

goetzpartners Corporate Research
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