Pacific Edge has implemented an immediate hiring freeze and a halt on discretionary spending and new capital expenditure following confirmation of a major setback in its key United States market, affecting revenue by millions of dollars.
Shares at one stage slumped by 87% to just 6.4c a share after the company said health insurer Medicare’s coverage of its Cxbladder tests was expected to cease from July 17.
The shares had recovered to 10.9c a share at the close of trading yesterday. The fall wiped nearly $300 million from the company’s market capitalisation, taking it to just $88.33 million.
Before the company went into a trading halt pending yesterday morning’s announcement, shares last traded at 49.5c compared with their September 2021 peak of $1.56. The trading halt has been lifted. In an update to the market yesterday, the Dunedin-based cancer diagnostic company said it was exploring all legal options, including a potential appeal.
In the year to March 31 this year, tests for Medicare and Medicare Advantage were about 60% of US commercial tests or about 13,800 tests, and generated about $15.3 million or 77.3% of full-year 2023 total operating revenue. All those tests were expected to be affected by the determination after July 17.
The finalised local coverage determination (LCD) by Novitas, the Medicare administrative contractor with jurisdiction for Pacific Edge’s laboratory in Hershey, Pennsylvania, noted the Cxbladder tests Triage, Detect, Monitor, Resolve and Detect+ were "not considered medically reasonable and necessary", the threshold required for coverage under the US Social Security Act.
Pacific Edge chief executive Peter Meintjes said the company was surprised and disappointed with the finalised LCD. It appeared to materially misunderstand the important role biomarkers could play in "first line" diagnostics for risk stratifying patients with hematuria into those who would benefit from further potentially more invasive medical attention and those who would not.
Pacific Edge believed Novitas’ analysis had sought to predominantly emphasise negative comments in Cxbladder publications.
"We believe that focusing predominantly on only negative comments likely mischaracterises issues or confounding factors with our evidence that were addressed in subsequent publications and routine commercial testing, while also dismissing the support Cxbladder receives from key opinion-leading urologists and the US patient advocacy group BCAN [Bladder Cancer Advocacy Network]," Dr Meintjes said.
"Importantly, urologists have identified the value for themselves and their patients as demonstrated by the record number of urologists using the test, 1151 in FY23Q4 and the record grow in Cxbladder testing volume at 43% CAGR [compound annual growth rate] for the last two years."
Molecular diagnostics was a developing field and the LCD had made an "unprecedented move" to change the threshold regarding what was acceptable evidence and what was not, by relying on third-party databases that did not adequately cover the current standard of care in bladder cancer diagnosis, he said. Consequently, Novitas did not appear to acknowledge that Pacific Edge’s products improved the standard of care in bladder cancer diagnosis and did not appear to consider the benefits of non-invasive testing alternatives and might result in worse outcomes for patients, he said.
Pacific Edge’s largest US customer, Kaiser Permanente, was expected to continue payment for its Triage and Monitor products, irrespective of the Novitas determination.
Pacific Edge was unable at present to fully determine the impact of the new LCD on test volumes in the US market for the 2024 financial year.
For the immediate future, it would continue to promote Cxbladder and process all tests ordered by US clinicians while it further considered its strategy and future options.
Board and management were reviewing scenario planning which began last year to determine a strategic path forward that potentially included legal challenges or appeals; seeking to regain coverage through Novitas; seeking to be awarded coverage through an alternative MAC; alternative billing practices that would increase patient responsibility; and remaining open to other strategic alternatives.
Chairman Chris Gallaher said Pacific Edge was well funded with cash and cash equivalents and short-term deposits of $77.8 million at the end of March 2023.
Despite the setback, the company believed it could still deliver on the significant opportunities it saw for Cxbladder in the US and around the world.
- Additional reporting The New Zealand Herald.
