Raised $26 million in 1H16, thyroid assays now cover 275 million patients (U.S), launched new lung cancer test, revenue continues to ramp up, long-term debt free

Net Revenue increased to $3.9 million in 2Q17, up 11% from $3.6 million in 1Q17 and 7% YoY (2Q16). We are impressed by IDXG’s continued improvement in revenues and gross margins. 2Q17 gross margins were 51 %, up from 48% in 1Q17. We expect strong improvement in gross margins in 2017 as more revenue is recognized through reimbursement and expect it to reach high 50% to low 60% range by the end of 2018.

Figure 1:Revenue & Gross Margins

The Company raised over $26 million in capital in 1H17, eliminated all long-term debt and related royalties and milestones, and closed 2Q17 with more than $14 million in cash. In addition, IDXG’s stockholder equity increased by $30 million, while total assets grew by approximately $12 million and liabilities were reduced over $17 million, a 51% improvement YoY. Net loss from Continuing Operations in 2Q17 was $6.3 million or ($0.65) per diluted share, compared to a net loss of $3.5 million in 2Q16. Adjusted EBITDA was ($2.5 million) in 2Q17, compared to ($1.7 million) in 2Q16.

IDXG currently has four commercialized molecular tests and one in development:

  1. PancraGEN : A pancreatic cyst molecular test
  2. ThyGenX : Assesses thyroid nodules for risk of malignancy
  3. ThyraMIR : Assesses thyroid nodules for risk of malignancy utilizing proprietarymicroRNA expression classifier
  4. MVPdX : Differentiates the local recurrence of lung cancer versus new primarycancer formation
  5. Barrett's Esophagus Test (BarreGEN) : Esophageal cancer risk classifier(Development Stage)


IDXG’s thyroid molecular diagnostic tests (ThyGenX and ThyraMIR thyroid assays) are now covered for approximately 275 million patients in the US. The Company’s proprietary Thyroid Assays are accessible to more than 50 million Medicare patients nationwide and also covered by leading healthcare plans including, United Healthcare, Aetna, Cigna and other leading regional health plans. In addition, over 450 physicians and hospitals have adopted these assays and numerous Lab Services Agreements (LSA’s) have been executed with highly regarded institutions.

ThyGenX and ThyraMIR combine genetic alterations and micro RNA testing for thyroid cancer. This testing combination helps to better assess the risk of thyroid nodules being either benign or malignant. The results from the combined testing also provide an estimated accuracy of “Rule in” or “Rule out” for the risk of progression of indeterminate cysts to malignancy. Clinical evidence supports combined testing:

  • 85% reduction in unnecessary surgeries
  • 94% likelihood negative results are truly benign
  • 74% likelihood positive results are malignant

Also, the 74% likelihood of a positive result being malignant is a clinically significant improvement over the 50/50 likelihood of Afirma’s test results.

PancraGEN is the first and only U.S. commercially available molecular test for evaluation of pancreatic cysts and assessment of risk of concomitant (existing) or subsequent cancer. PancraGEN is a unique DNA-based molecular pathology test that that uses a small sample of pancreatic cyst fluid to assess the risk of cancer progressing in patients who have indeterminate biopsies. The Company also launched a new assay, PanDNA, to provide physicians a more detailed breakdown of the molecular characteristics of a patient’s cyst.

Pancreatic cancer is the now the third leading cause of cancer deaths in the U.S, with 49,000 new pancreatic cancer cases detected each year. Current testing methods are based on a cyst’s image using MRI and CT scans. Although these procedures provide some information and properties of the cyst, they fail to provide the necessary insight to properly stratify a patient’s cancer risk.

PancraGEN has been adopted by over 250 physicians and hospitals, and over 30,000 tests have been performed in the US since launch. A study conducted by the National Pancreatic Cyst Registry further demonstrates the clinical validity of PancraGEN, and its recommendation of surveillance was accurate in 97% of patients; PancraGEN diagnoses were more beneficial to overall patient outcomes than sole reliance on International Consensus Guidelines (ICG) criteria.

Figure 2: PancraGEN Report

The PancraGEN report provides doctors and physicians the information they need to make more informed decisions by categorizing cysts into four groups that will determine the nature of the progression of cancer or tumor. The cyst can be benign, statistically indolent, statistically higher risk, or aggressive. Identifying the specific status of the cancer can lead to better diagnosis and treatment options and may lead to avoiding the substantial co-morbidities and costs associated with unnecessary surgeries.

IDXG launched a new molecular lung cancer test, MVPdX in September 2017. Lung cancer is the leading cause of death among both men and women in the United States; 1 out 4 deaths are from lung cancer. IDXG's MVPdX test differentiates between the local recurrence of cancer versus new primary cancer formation. In addition, it helps to define the primary site of formation of lung cancer in relationship to multiple sites of metastatic spread and helps differentiate multi-centric carcinoma (type of cancer that starts in cell that make up the skin or the tissue lining organs, such as the liver or kidneys).

The MVPdX test is supported by various peer reviewed publications. According to Dr. Jan F. Silverman, System Chair, Department of Pathology and Laboratory Medicine at the Allegheny Health Network, “this testing will be invaluable since it can affect the staging of the patient and treatment decisions.” Importantly, the MVPdX test is covered by Medicare and numerous other commercial carriers.

Significant reimbursement coverage. IDXG’s molecular diagnostic tests are reimbursed by Medicare and most major, national commercial carriers using the applicable current procedural technology (CPT) codes. Currently, Medicare reimburses PancraGEN at $3,038 per test, ThyGenX at $1,054 per test, and ThyraMIR at $2,110 per test. In September 2017, American Medical Association (AMA) assigned a new, discreet CPT code to facilitate reimbursement of ThyraMIR; ThyGenX is billed using a standard code that AMA created in 2015 for tests that run on a Next Generation Sequencing platform. PancraGEN is billed using a molecular pathology code. Near-term, IDXG is confident of obtaining distinct CPT codes for its remaining products.

CPT codes are a standardized national system used by medical practitioners, including physicians, laboratories, and other healthcare providers to report their services to payers and seek reimbursement. This unique identification number expedites the process of securing reimbursement and increasing IDXG’s overall reported revenues.

Figure 3: Reimbursement

IDXG’s proprietary cancer tests should continue to grow and improve over time. IDXG’s thyroid and pancreatic diagnostic tests have been proven through clinical testing to be superior to the current standard of care. The molecular diagnostic testing market is projected to increase substantially over the next few years, reaching $10.12 billion by 2021 (MarketsAndMarkets). IDXG is poised to take advantage of this growth through its cutting-edge diagnostic tests and development and launch of new tests (Barrett's Esophagus Test, Lung, etc.).

In August 2017, the Company launched its newest version of ThyGenX which includes the TERT marker. Currently, the ThyGenX mutational panel includes the following markers: BRAF, HRAS, KRAS, NRAS, RET/PTC, PAX8/PPARy, and PIK3CA. By adding TERT, the panel will not only continue to be a strong positive predictor of thyroid cancer, but will also provide evidence that a positive result indicates the cancer is likely to be more aggressive in nature. Also, the Company initiated new PancraGEN studies (GI) in 1H17.

The Company expanded its molecular diagnostic testing profile with the introduction of MVPdX in September 2017. We believe with the introduction of a lung cancer test, IDXG has broadened its reach with various customers in the cancer market, including oncologists and thoracic surgeons.

The company’s products meet the definition of ADLT’s (Advanced Diagnostic Laboratory Tests) under the PAMA legislation, reducing the risk other laboratories face for price reductions for their products. The FDA has slowed their pursuit of regulation of Laboratory Developed Tests (LDT’s), further reducing regulatory risk.

While competition in the molecular diagnostic industry continues to increase, IDXG tests are the first of their kind in their respective fields of cancer. Also, IDXG operates in a de-risked business model; compared to drugs and biologics, the diagnostics market has lower development costs and risks, faster approval process, and lower regulatory hurdles.

We derived a target price of $5.54 by applying a 6.0x EV/S multiple to our FY17E revenue forecast of $16.3 million. We are projecting further improvement in revenue growth and operating loss. Our model assumes modest quarter-on-quarter growth through 2018, although our assumptions could change if we see a meaningful increase in the volume of thyroid tests as market penetration increases. Our model excludes any revenue generation from MVPdx and Barrett's Esophagus Test (development stage).

The strong M&A activity in the molecular diagnostic industry should elevate multiples across the market, and this should persist as big pharmaceutical and biotech companies look to acquire small, successful molecular diagnostic companies. In addition, IDXG’s diagnostic tests are accepted by leading healthcare plans across the country and this should support the Company in organic marketing, accelerating growth in sales, while new CPT codes should speed up reimbursement.

Given this backdrop, we believe the company is on a solid track to increase revenue growth and expand its business operations. We are not currently modeling any additional capital raises in FY17, but the Company could raise capital in FY18 to support its business operations

Table 1: Income Statement

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Company Overview

Interpace Diagnostics (NASDAQ: IDXG) is a fully integrated commercial organization that provides clinically useful molecular diagnostic tests and pathology services for evaluating the risk of cancer by leveraging the latest technology in personalized medicine for better patient diagnosis and management. With three commercial molecular tests currently on the market, IDXG’s goal is to provide personalized medicine though molecular diagnostics and innovation to advance patient care and reduce the cost of healthcare based on rigorous science

Risks

There are other molecular diagnostic tests in the molecular diagnostic market. Some of these companies may be better capitalized than IDXG and thus could spend more capital on improving diagnostic tests and sales and marketing.

Company’s molecular diagnostic business has limited revenue. IDXG may incur net losses in the foreseeable future and may never achieve or sustain profitability.

There are substantial doubts about IDXG’s ability to continue to run its business operations. Due to the Company’s operating history of net losses, negative working capital and insufficient cash flow from operations to pay its current obligations.


Management Team

Jack Stover, President and CEO

Mr. Stover has been Chief Executive Officer of Interpace Diagnostics since December 2015. From 2005 until 2015 Mr. Stover had been a Director and Chairman of the Audit Committee of PDI, Inc., a public company and the predecessor to Interpace. From April 2014 Mr. Stover was President of. A private company, Zebec Therapeutics LLC (“Zebec”) and its predecessor Quadrant Pharmaceuticals LLC, which Mr. Stover co-founded and was a Director of from September 2013. From 2009 to February 2012, Mr. Stover served as the executive chairman of Targeted Nano Therapeutics LLC, a privately held biotechnology company focused on targeted delivery of peptides and proteins. Mr. Stover was also chairman of the audit committee and a member of the board of directors of Arbios Systems Inc. from 2005 to 2008 and a member of the board of directors of Influmedix, Inc. from 2010 to 2011.

From 2004 to 2008, he served as chief executive officer, president and director of Antares Pharma, Inc., a publicly held specialty pharmaceutical company listed on the American Stock Exchange. Prior to that, Mr. Stover was executive vice president and chief financial officer of Sicor, Inc., a publicly held company which manufactured and marketed injectable pharmaceutical products, and which was acquired by Teva Pharmaceutical Industries. Prior to that, Mr. Stover was executive vice president and director of a proprietary women’s pharmaceutical company, Gynetics, Inc. (“Gynetics”), and before Gynetics, he was senior vice president and director of B. Braun Medical, Inc., a private global medical device and pharmaceutical company. For more than five years prior to that, Mr. Stover was a partner with PricewaterhouseCoopers (then Coopers and Lybrand), working in the life sciences industry division. Mr. Stover received his B.A. in Accounting from Lehigh University and is a Certified Public Accountant.


Greg Richard, SVP Commercial Services

Greg Richard, Sr. Vice President of Commercial Services at Interpace Diagnostics, has been in the healthcare business for over 25 years in various industries including managed care, biotech pharmaceuticals, CRO services, and diagnostics. He started his career in sales at Aetna and moved to Genentech as the Director of Managed Care. He transitioned in to the diagnostics industry as the Vice President of Managed Care for Quest Diagnostics and served in this role for 8 years. Greg also led the international clinical trials sales team while at Quest. Following his tenure at Quest, Greg worked for several privately held companies including CRO’s, molecular diagnostics, and anatomic pathology services providers. He also served as the Sr. Vice President of Sales for the Northeast Division of LabCorp. Greg is a certified Six Sigma Green Belt and frequent speaker at healthcare industry conferences such as the G2 Lab Institute and the NextGen Dx Summit.

Syd Finkelstein, Chief Scientific Officer

Dr. Finkelstein is a board-certified pathologist specializing in gastrointestinal pathology with extensive experience in molecular diagnostics. He is the Adjunct Professor of Pathology, Drexel University on the faculty of Allegheny General Hospital, Pittsburgh, PA. He is the founder of RedPath Integrated Pathology, which was acquired by Interpace Diagnostics in 2014

Sara A. Jackson, VP of Clinical Development

Dr. Jackson has 15 years of experience in biomedical research and development. She has been an integral part of both the research and development and medical affairs teams for a variety of pharmaceutical and diagnostics companies, translating biomedical research into viable commercial products. Under Dr. Jackson’s leadership, the clinical development team has conducted various clinical validity and utility studies to support the use of PathFinderTG assays in clinical practice. Their efforts continue to bring new assays to market. Dr. Jackson earned a PhD in biochemistry and molecular genetics from the University of Pittsburgh School of Medicine and completed her postdoctoral research fellowship with the Centers for Disease Control and Prevention. She has co-authored numerous publications and presented at various national and international scientific conferences.

Glenn Gershon, SVP of Operations

Glenn has nearly 30 years of biotechnology industry experience. He has worked for a wide range of companies in roles of increasing responsibility. These roles have included leadership and functional expertise in Quality Assurance, Regulatory Affairs, Customer Service, R&D, Product Development, and Laboratory Operations.

Christina M. Narick, MD, VP of Pathology

As the Vice President of Pathology for Interpace Diagnostics, Dr. Narick provides interpretation and diagnosis of both cytology and molecular cases in Interpace Diagnostics’ state-of-the-art, CLIA-certified, and CAP-accredited laboratory. Dr. Narick is a board-certified anatomic and clinical pathologist and completed her fellowship in cytopathology at Allegheny General Hospital under the direction of Dr. Jan Silverman, a leading authority in cytopathology. Dr. Narick earned her medical and undergraduate degrees from West Virginia University and an MBA from Portland State University. Prior to entering the medical field, Dr. Narick worked in process engineering, quality systems, and operations management in the manufacturing arena.

Jim Early, Chief Financial Officer

Jim serves as Chief Financial Officer and Corporate Secretary for the company and has over thirty years’ experience in finance and accounting with more than twenty years in pharmaceuticals/life science/healthcare. Prior to joining Interpace Jim served as CFO to AbGenomics International and Zebec Therapeutics and as SVP Finance and Administration for Synageva BioPharma, where he raised $34 million in two years through a series of debt, private equity, state land grant and construction financings. Earlier, Jim served on an acquisition team for several successful multi-million dollar acquisitions at Zila Pharmaceuticals and as VP Finance and CFO for Anesthesiologists Associated, Inc., a healthcare revenue cycle management firm. Most recently Jim has served as an interim CFO for his own consulting firm, providing strategic planning, business development and finance/accounting services to life science and healthcare companies. Jim holds an active CPA license from the state of California, has a BBA from the University of Notre Dame and an MBA from UCLA’s Anderson School of Management.

Alidad Mireskandari, PhD. MBA, Business Development

Alidad is trained as a molecular geneticist, with an MBA in Finance. After graduation form University of Michigan Business School, he spent three years as a consultant where he developed Expertise in product development, product life cycle management and project planning for drug and diagnostics products; and led cross-functional teams in designing complex R&D/Marketing/Supply Chain integration initiatives for pharmaceutical and medical device clients. From 2000-2009 Mireskandari was a Hedge Fund Manager trading life sciences portfolios for a number of multi-national banks and hedge funds. In 2009, Mireskandari became President & CEO of JS Genetics, a start-up company, overseeing the introduction of 4 genetic tests to market by licensing 2 platform technologies from Yale University. In his current capacity Dr. Mireskandari has led product development initiatives for Interpace’s Thyroid franchise. He led the validation work for of InterPace’s NGS Thyroid test (ThyGenX) and microRNA classifier (ThyramiR). He has also set up multicenter clinical validation studies and has recruited KOLs and experts speakers for Interpace’s Endocrine franchise. He is currently leading Interpace’s Business Development initiatives.

Interpace Diagnostics, Inc (NASDA: IDXG): Price History


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