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Proteomics International Laboratories (ASX: PIQ)

Update – 18 March 2024

Proteomics International Laboratories (ASX: PIQ) updated the market on the progress of its PromarkerD commercial launch in the USA.

The news was disappointing.

PIQ was previously targeting a launch by the end of FY24. As happens with these things, the kick-off date has been pushed back.

The announcement is scarce on detail, but the company has identified the technical and commercial complexities of bringing a new test to broad clinical use as the source of delays.

We’ll dive into our thoughts on the announcement and our recommended action for investors.

But first, let’s address the market reaction.

After the announcement, the stock hit an intra-day low of 93 cents in early trading. Since then, it has come back to touch $1 and seems to have stabilised.

Source: TradingView / Shares in Value

The previous intra-day level of 95 cents has put a floor under price in this move.

We don’t anticipate sustained selling based on this announcement alone.

Getting sales in the door before the end of FY24 would have been a big deal. Seeing those revenues in the annual report would be a massive boost for shareholders.

That’s why we are getting this update to say it’s unlikely to occur now. But the annual report date is just an arbitrary cut-off. If sales come in a few weeks or months later, it doesn’t change the overall story of what’s going on with PIQ.

The disappointing aspect of the announcement was the lack of guidance about when the launch would occur. It’s left open-ended. This is potentially just caution from PIQ since Sonic Healthcare (ASX: SHL) has real control over the launch.

They are the commercialisation partner in the USA. So, PIQ may have limited ability to influence the actual launch timing. Sonic is a large organisation that may be better at business as usual tasks than rolling out new products.

Commercialisation of PromarkerD

The story in 2024 is the first sales of PromarkerD in the USA. PIQ’s first diagnostic test is used to predict the onset of Diabetic Kidney Disease(DKD) in diabetic patients.

Current tests can only detect DKD once it has already begun to inflict irreversible damage. PromarkerD can predict the onset of the disease up to four years before it occurs. This allows doctors to launch early treatments to halt or slow the onset. The test can also then be used to monitor the impact of any treatments on these biomarkers.

The test has also been given a Medicare and Medicaid rebate, which means the government will subsidise the cost up to US $390.75 for people over 65, low-income earners, and people with disabilities. These two programs cover over 100 million people or 42% of the US population.

Over 32 million adults in the US live with diabetes. At US $390.75 per test, the total addressable market size in the US is US $12.5 billion. PIQ has given guidance on licensing fees of approximately 10%, equating to a potential US $1.25 billion market for them in licensing fees. That’s about AU $1.9 billion.

These licensing fees should flow straight to profit as they don’t need to provide any ongoing products or services to get paid.

The market uptake of PromarkerD is a big unknown, but there are many reasons it could be a cracking success.

There is currently no competing test. So, for patients and clinicians who want to understand a patient’s probability of developing DKD, this is the only testing option.

The ramifications of developing DKD are severe. It can lead to dialysis and the need for a kidney transplant. The damage done to the kidneys once the condition starts is irreversible. So avoiding it is the best option.

The test could be free or low-cost for patients. Medicare and Medicaid have designated a healthy rebate level for the test at US $390.75. If SHL prices the test in line with this rebate level, patients would have no out-of-pocket expense.

PromarkerD could save medical insurance companies a lot of money. In the US, 11.6% of the population has diabetes. About 1 in 3 of those have DKD. The treatments are intense and expensive. Dialysis and a kidney transplant both run into the hundreds of thousands of US dollars in cost. It’s in the interest of insurers to see the prevention of DKD, and that’s where there’s no choice for testing but PromarkerD. The substantial Medicare rebate of US $390.75 reflects the high value the test can save insurance companies.

In 2021, an estimated 537 million people in the world had diabetes. That number is expected to climb to 784 million by 2045. The percentage of the population living with diabetes is increasing at a fast pace. In less than 40 years, it’s doubled to about 10% globally. At the same time, the world’s population is growing.

An estimated 40% of people with diabetes will go on to develop DKD.

In 2004, the estimated cost of treating DKD in the US was US $16.8 billion. It’s now estimated closer to US $130 billion. The national healthcare cost of diabetes in the US was US$307 billion in 2023, and it increased 35% over 10 years.

DKD contributes a good chunk of the total cost of diabetes.

It’s important to note that PromarkerD is being rolled out globally, not just in the USA. There are plenty of markets with attractive profit potential.

From the announcement:

The Company remains focussed on executing further licensing and distribution deals in new jurisdictions for its PromarkerD test and is currently in discussions with a number of parties.

So, we may see further announcements soon on new commercialisation deals.

In the Pipeline

As we’ve covered previously, several further tests are in the pipeline after PromarkerD.

In the most recent announcement, we saw some hints from the company regarding these future tests.

…the necessary technical work has already commenced to prepare for the commercialisation of PromarkerEndo, the Company’s test for endometriosis, and PromarkerEso, the Company’s test for oesophageal cancer.

They are doing the legwork now for the next two tests so that the launch phase will be quicker when they get to that point. They already have a commercial partner in the US. They will hopefully iron out some of the kinks in their processes and communications around new product launches.

Let’s look at those two tests again and what they are about.

Endometriosis

PromarkerEndo aims to detect Endometriosis, where uterus-like tissue grows outside the uterus. This is an often painful condition afflicting 1 in 9 women. It can go undiagnosed for a long time, as the current method of diagnosis is surgery. Doctors generally put off surgery to diagnose non-life threatening conditions when the risks of surgery are deemed significant enough. Additionally, Endometriosis is often misdiagnosed with other conditions, such as period pain.

On top of often being painful, it can also decrease the chances of pregnancy. So there’s an immediate case for using a quick and easy Endometriosis test for women who are planning a pregnancy or having trouble conceiving. In particular, it could become a logical first step in IVF treatment to determine the chances of success.

It’s estimated that Endometriosis affects about 190 million people.

The PromarkerEndo test correctly identified up to 90% of patients with the condition. A larger clinical trial is currently underway to validate the test’s accuracy. The study is expected to finish before the end of 2024, at which point we’ll have a better idea of the test’s suitability for commercialisation.

Oesophageal Cancer

PromarkerEso is a test for Oesophageal Cancer and Barrett’s oesophagus. Just like Endometriosis, the current diagnosis method for Oesophageal Cancer is surgery, which costs about US $2,750 for US patients. So, with a rate of 1% of the US population, it’s a US $9 billion diagnosis market.

A simple blood test to confirm the need for diagnostic surgery has a lot of value for patients and doctors. Oesophageal cancer is serious, causing 5% of all cancer deaths worldwide. The five-year survival rate is less than 20%.

PromarkerEso has identified 90% of people with the condition. As with PromarkerEndo, we await the completion of an ongoing study later this year.

Recommendation

PIQ is a biotech at a very derisked stage of development. They have a unique predictive diagnostic test that has no competitors. It’s proven through clinical trials and approved for sale in the US. A healthy Medicare rebate is attached, making for a very lucrative opportunity.

Overall, the update on the launch of PromarkerD seems to be the PIQ board trying to temper investor expectations of quick cash flow. Of course, product launches take time.

The market reaction is overdone. We don’t see anything remotely alarming in this announcement. The company is close to launch, and they have ample cash reserves to keep going.

We recommend a ‘Buy’ for Proteomics International Laboratories (ASX: PIQ) up to $1.40 and sell above $8.

The stock will likely stay volatile for the next twelve months, with initial emphasis on quarterly cash flow reports and any ad-hoc announcements regarding revenue. Any PromarkerD revenue that hits the books could lead to a re-rating in the share price.

Positioning early, before revenue hits the books, is the best bet, as the stock price is not priced for growth. In the second half of 2024, potential catalysts could come from any pattern of revenue growth from PromarkerD and commercialisation decisions on the current pipeline.

If PromarkerD revenue doesn’t materialise by the end of the year, we can expect the stock to fall back into the 20-30 cent range. If revenue looks set to exceed $20 million for the year, we could expect a break of all-time highs with a strong ability to run multiples of the $1 recent midpoint.

The orange line in the chart below shows downward-sloping resistance. Before the most recent announcement, it looked like the stock was breaking through that resistance, which could have led to further upside.

As it stands now, there is still a good chance that the price will reclaim the level and that we will see strength flow back into the stock.

Source: TradingView / Shares in Value

1H24 Earnings Analysis – 27th February 2024

Proteomics International Laboratories (ASX: PIQ) is a Perth based biotechnology company. They’ve developed a new technology framework for identifying diseases called Promarker.

The new technology is used to identify how specific combinations of proteins in the blood can identify specific diseases. The company calls these specific protein markets ‘fingerprints’ to highlight their uniqueness.

PIQ has a pipeline of diagnostic tests in development based on the Promarker system, from early research to early commercialisation.

1H24 Results

PIQ’s 1H24 results release doesn’t give us many hints for the coming year. Sales of PromarkerD were not expected to come into effect until the Medicare rebate takes effect on 1 January 2024.

The only revenue we get a look at so far is for contract laboratory work and government research grants. These small revenues help keep the lights on and fund the research, development and commercialisation of the diagnostic tests that the company is developing.

Revenue from operations fell 3.5% to $0.75 million. The net loss decreased by 5% to $3.82 million.

Operating cash outflow decreased by 27% to $1.34 million. A government tax incentive rebate of $1.85 million was received during the half for activities in the prior half.

Cash at the end of the half stood at $4.97 million. Cash and cash equivalents were $6.03 million. Subsequent to the half end, the company raised $6.5 million from institutional investors.

With roughly $11 million in cash and equivalents and an average quarterly cash burn of $1.6 million, the company has about 6 quarters of funding available.

It’s a healthy buffer given the imminent commercialisation of PromarkerD, which we’ll discuss below. This allows for a modest increase in R&D and commercialisation-related expenses without putting the business under cash flow pressure during 2024.

And this year, 2024, is when we expect to see initial sales of PromarkerD.

Commercialisation of PromarkerD

The exciting news for PIQ in 2024 is that their first diagnostic test will see initial sales in the USA under a licensing deal with Sonic Healthcare (ASX: SHL). PromarkerD is a blood test used to predict patients developing diabetic kidney disease for diabetic patients.

Current tests can only detect Diabetic Kidney Disease(DKD) once it has already begun to inflict irreversible damage. PromarkerD can predict the onset of the disease up to four years before it occurs. Allowing doctors to launch early treatments to halt or slow the onset. The test can also then be used to monitor the impact of any treatments on these biomarkers.

PromarkerD has cleared all regulatory hurdles in the US, meaning it can already be sold. It has also been given a Medicare and Medicaid rebate, which means the government will subsidise the test cost up to US $390.75 for anyone over 65, low-income earners and people with disabilities. These two programs cover over 100 million people or 42% of the US population.

Private health insurers are expected to follow with a similar rebate level, although the time frame for their decisions is unknown.

There are over 32 million adults in the US living with diabetes. At US $390.75 per test, the total addressable market size in the US comes to US $12.5 billion. PIQ has given guidance on licensing fees of approximately 10%, equating to a potential US $1.25 billion market for them in licensing fees. That’s about AU $1.9 billion.

These licensing fees should flow straight to profit as they don’t need to provide any ongoing products or services to get paid.

The market uptake of PromarkerD is the big unknown. But there are many reasons it could be a cracking success.

There are currently no competing test. This is the only testing option to understand the probability of developing DKD.

The ramifications of developing DKD are severe. The damage done to the kidneys after onset is irreversible. It can lead to dialysis and the need for a kidney transplant. So avoiding it is the best option.

The test could be free or low-cost to patients. Medicare and Medicaid have designated a healthy rebate level for the test. We don’t know exactly how Sonic intends to charge for the test. However, it could make sense to simply charge in line with the rebate of US $390.75, given this is already a very healthy price for a diagnostic test.

However, Sonic may aim to price higher than the rebate amount, requiring patients to pay a gap fee for the test. We expect this amount to be small if it happens. During the rollout of a new test like this, getting it into the market and gaining acceptance as quickly as possible makes sense. The best way to do this is to make the test free or effectively free to end users. Given the seriousness of DKD, a gap fee of US $50 may not greatly impact adoption.

PromarkerD could save medical insurance companies a lot of money. In the US, 11.6% of the population has diabetes. About 1 in 3 of those have DKD. The treatments are intense and expensive. Dialysis and a kidney transplant both run into the hundreds of thousands of US dollars in cost. It’s in the interest of insurers to see the prevention of DKD, and that’s where there’s no choice for testing but PromarkerD. The substantial Medicare rebate of US $390.75 reflects the high value the test can save insurance companies.

In 2021, there were an estimated 537 million people in the world living with diabetes. That number is expected to climb to 784 million by 2045. The percentage of the population living with diabetes is increasing at a fast pace. In less than 40 years, it’s doubled to about 10% globally. At the same time, the world’s population is growing.

An estimated 40% of people with diabetes will go on to develop DKD.

In 2004, the estimated cost of treating DKD in the US was US $16.8 billion. It’s now estimated closer to US $130 billion. The national healthcare cost of diabetes in the US was US$307 billion in 2023, which increased by 35% over 10 years.

So, DKD makes up a good chunk of the total cost of diabetes.

One of the big unknowns with the rollout of PromarkerD is Sonic’s commitment to seeing it succeed. They have an exclusive agreement for supply to the US, and we don’t know the intricacies of that agreement. However, Sonic has not made any upfront payment to secure this exclusivity.

Their sunk costs are likely quite low, and it may not be an issue for them not to push the test very hard. We want to think they see the massive potential of PromarkerD as we do. And that PIQ were clever enough to insist on robust performance conditions to keep exclusivity.

We don’t see a big risk here, but we want to point out that there are some unknowns. SHL didn’t mention PromarkerD in their recent 1H24 results release. That doesn’t necessarily mean much, given they are a much bigger company. PromarkerD represents a much smaller percentage opportunity for them compared to PIQ.

Still, the full market capture of this test at the medicare rebate represents more than SHL’s total current revenue. So we would expect some enthusiasm. The Sonic Healthcare USA website has a brief one-page writeup on PIQ and PromarkerD, but it’s buried deep in the news section, and the easiest way to find it is to search the site.

Still, it’s important to note that PromarkerD is being rolled out globally, not just in the USA. There are plenty of markets with attractive profit potentials.

There are also several more tests nearing the commercialisation phase.

In the Pipeline

There are two other tests in late-stage development with milestones due this year. One of the things to love about PIQ’s approach is that they’ve directed their initial efforts towards applications with a current need.

They haven’t focused on displacing incumbent tests. They’ve instead looked for gaps in the market. In other words, they’re going for the low-hanging fruit first.

Source: Proteomics International Laboratories Euroz Hartleys 2024 Healthcare Forum Investor Presentation

Endometriosis

PromarkerEndo detects for Endometriosis, where uterus-like tissue grows outside the uterus. This is an often painful condition afflicting 1 in 9 women. It can go undiagnosed for a long time, as the current method of diagnosis is surgery. Doctors generally put off surgery to diagnose non-life-threatening conditions when the risks are deemed significant enough. Additionally, Endometriosis is often misdiagnosed with other conditions such as period pain.

On top of often being painful, it can also decrease the chances of pregnancy. So there’s an immediate case for using a quick and easy Endometriosis test for women who are planning a pregnancy or having trouble conceiving. In particular, it could become a logical first step in IVF treatment to help determine the chances of success.

It’s estimated that Endometriosis affects about 190 million people.

The PromarkerEndo test has correctly identified up to 90% of patients with the condition. A larger clinical trial aimed at validating the test’s accuracy is currently underway. The study is expected to finish before the end of 2024, at which point we’ll have a better idea of the suitability of the test for commercialisation.

Oesophageal Cancer

PromarkerEso is a test for Oesophageal Cancer and Barrett’s oesophagus. Just like Endometriosis, the current diagnosis method for Oesophageal Cancer is surgery, which costs about US2,750 for US patients. It occurs in about 1% of the US population.

A simple blood test to confirm the need for diagnostic surgery has a lot of value for patients and doctors. Oesophageal cancer is serious, causing 5% of all cancer deaths worldwide. The five-year survival rate is less than 20%.

PromarkerEso has identified 90% of people with the condition. As with PromarkerEndo, we await the completion of an ongoing study later this year.

Recommendation

PIQ is not the safest play on our books. There are no dividends, and the market cap sits at about $124 million at the time of writing. The company is still in cash-burning mode. There are reasons to be wary.

But at the same time, this is a biotech at a very derisked stage of development. They have a unique predictive diagnostic test that has no competitors. It’s proven through clinical trials and approved for sale in the US. A healthy Medicare rebate is attached, making it a very lucrative opportunity.

Based on PIQ’s current market cap of ~$124 million, the total addressable market in the US alone is 15X the market cap in rough annual revenue. This also assumes just one test per patient per year. Where as the test is recommended to be administered 1-4 times per year based on the degree of risk.

So, capturing just 10% of the market would still yield a gross profit of 1.5X their current market cap. There’s no competing predictive test. So why not a 42% share? That’s the total amount covered by the Medicare and Medicaid rebate. That would be a gross profit 6X their current market cap.

PIQ could pay a dividend of 2-3X their current market cap in 4-5 years. That could happen by gaining a 50% share in the US market for PromarkerD alone. Let alone other tests and other jurisdictions.

PIQ is priced as an early-stage biotech, not for the impending positive cashflows expected this year.

This is a high-risk, high-reward play, so use appropriate position sizing.

We recommend a ‘Buy’ for Proteomics International Laboratories (ASX: PIQ) up to $1.40 and sell above $8.

The stock will likely stay volatile for the next twelve months, with initial emphasis on quarterly cash flow reports and any ad-hoc announcements regarding revenue. Any PromarkerD revenue that hits the books could lead to a re-rating in the share price.

Positioning early, before revenue hits the books, is the best bet, as the stock price is not priced for growth. In the second half of 2024, potential catalysts could come from any pattern of revenue growth from PromarkerD and commercialisation decisions on the current pipeline.

If PromarkerD revenue doesn’t materialise by the end of the year, we can expect the stock to fall back into the 20-30 cent range. If revenue exceeds $20 million for the year, we could expect a break of all-time highs with a strong ability to run multiples of the $1 recent midpoint.

A downward-sloping resistance is shown by the orange line in the chart below. A break above that line could lead to follow-through buying and potentially the start of a larger move.

Source: TradingView / Shares in Value

 

 

Proteomics International Laboratories (ASX: PIQ) – Initiation – High Conviction Buys – 21st January 2024

 

Who is Proteomics International Laboratories?

Proteomics International Laboratories (ASX: PIQ) is a Perth based biotechnology company. They’ve developed a new technology framework for identifying diseases called Promarker.

The new technology is used to identify how specific combinations of proteins in the blood can identify specific diseases. The company calls these specific protein markets ‘fingerprints’ to highlight their uniqueness.

PIQ has a pipeline of diagnostic tests in development based on the Promarker system, from early research to early commercialisation.

Commercialisation of PromarkerD

The exciting news for PIQ in 2024 is that their first diagnostic test will see initial sales in the USA under a licensing deal with Sonic Healthcare (ASX: SHL). PromarkerD is a blood test used to predict patients developing diabetic kidney disease for diabetic patients.

Current tests can only detect diabetic kidney disease once it has already begun to inflict irreversible damage. PromarkerD can predict the onset of the disease up to four years before it occurs. This allows doctors to launch early treatments to halt or slow the onset. The test can also then be used to monitor the impact of any treatments on these biomarkers.

PromarkerD can already be sold in the US. It has also been given a Medicare and Medicaid rebate, which means the government will subsidise the test cost up to US $390.75 for anyone over 65, low-income earners and people with disabilities. These two programs cover over 100 million people, or 42% of the US population.

Private health insurers are expected to follow with a similar rebate level, although the timeframe for their decisions is unknown.

There are 32 million adults in the US living with diabetes. At US $390.75 per test, the total addressable market size in the US comes to US $12.5 billion. PIQ has given guidance on licensing fees of approximately 10%, equating to a potential US $1.25 billion market for them in licensing fees. That’s about AU $1.9 billion.

These licensing fees should flow straight to profit as they don’t need to provide any ongoing products or services to get paid.

PIQ expects to receive clinical trial updates on Endometrioses and Oesophageal Cancer diagnostic tests in late 2024.

How to play Proteomics’ stock?

The market has adopted a ‘we’ll believe it when we see it’ attitude to PIQ hitting revenues this year. The stock is currently priced as an early-stage biotech, not for the impending positive cashflows expected this year.

The stock will likely stay volatile for the next twelve months, with initial emphasis on quarterly cash flow reports and any ad-hoc announcements regarding revenue. Any PromarkerD revenue that hits the books could lead to a re-rating in the share price.

Positioning early, before revenue hits the books, is the best bet, as the stock price is not priced for growth. In the second half of 2024, potential catalysts could come from any pattern of revenue growth and clinical trial outcomes on the current pipeline.

If PromarkerD revenue doesn’t materialise by the end of the year, we can expect the stock to fall back into the 20-30 cent range. If revenue looks set to exceed $20 million for the year, we could expect a break of all-time highs with a strong ability to run multiples of the $1 recent midpoint.

This is a high-risk, high-reward play, so use appropriate position sizing. Buy up to $1.40 and sell above $8.

Source: TradingView / Shares in Value

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