Analysts re-rate Pacific Edge as US risks emerge

Analysts have re-rated Pacific Edge on concerns about its US revenue base. Photo / Supplied

Analysts have re-rated Pacific Edge based on the likely impact that potential changes to the way its cancer diagnostic tests are treated by US health insurer Novitas may have.

Pacific Edge said it had received notification of the inclusion of its "Cxbladder" Current Procedural Terminology (CPT) codes in a draft proposal for a different approach to determine which cancer biomarker tests are eligible for reimbursement by Novitas.

Novitas is the Centers for Medicare and Medicaid Services (CMS) contractor for Pacific Edge's US commercial reimbursement for CMS patient volumes.

NZX-listed Pacific Edge went into a trading halt on Friday and said it had become aware that its Cxbladder codes were in the draft proposal.

When trading resumed on Monday, Pacific Edge shares slumped by almost 50 per cent.

The stock made up some ground today, gaining 5.5c or 11.3 per cent at 54 cents.

Australian brokers Bell Potter changed their recommendation to "speculative" from "hold", with a target price of 61c in reaction to the announcement.

Stephen Ridgewell, head of research, institutional equities, at Craigs Investment Partners said there was now a 15 per cent "uncertainty discount" surrounding Pacific Edge.

Craigs has reduced its target price from $0.66 to $0.56.

Forsyth Barr said the "materiality" of Monday's announcement was high and that it had its Pacific Edge recommendation under review.

Pacific Edge chief executive Peter Meintjes said the company had been "swept up" in a problem that had nothing to do with its CXbladder test.

"We think that they have proposed this to solve a problem that has nothing to do with CXbladder and as a consequence we have become swept up in all of that," he told the Herald.

"When I think about our US team and the partners that we have, we have all the right players on the field to make all the right game-time decisions as we move through the next step of that process," he said.

"We are confident that this will not survive in its current form because there are some oversights that it has and we challenge those, and those challenges will be understood," he said.

Under the worst-case scenario, Meintjes reiterated the sentiment communicated by chairman Chris Gallaher in Monday's release that the company remained well capitalised and was positioned to execute on its long-term objectives.

Craigs' Ridgewell said that the "best case scenario" for Pacific Edge would involve the proposed draft being rescinded following a period of public comment, or the draft being published but with all mention of Cxbladder removed.

He saw this outcome as being more likely.

Ridgewell's worst-case scenario was that the proposed changes were finalised in their current form, the percentage of billable test revenue collected from Medicare and Medicare Advantage, for the detect and monitor tests, would decrease from about 99 per cent and 80 per cent respectively at present to around zero per cent.

Under that scenario, Pacific Edge would likely revert back to a "bare bones" focus - one of cash conservation and pushing back its commercialisation strategy, he said.