First Berlin – Epigenomics AG Research Update (19/12/2017)

First Berlin Equity Research has published a research update on Epigenomics AG (ISIN: DE000A11QW50). Analyst Simon Scholes reiterated his BUY rating and maintained his EUR 7.30 price target.

Epigenomics' share price has been under pressure in recent weeks due to worries as to whether Epi proColon will receive reimbursement coverage and at what price. No FDA-approved diagnostic product has ever failed to achieve reimbursement coverage and so we think fears in this regard are largely unwarranted. Concerns over price have been sparked by the retreat in November by Centers of Medicare & Medicaid Services (CMS) from their preliminary price determination for the product of USD125. CMS' final determination transferred part of the responsibility for price determination to regional administrative bodies thereby prolonging the process by a year. The rationale for this move was that Epi proColon has no direct comparator test. It is true that no diagnostic test is wholly comparable with Epi proColon. But the pricing of the components of Exact Sciences' competing colorectal cancer diagnostic product, Cologuard, may give some indication as to the eventual price of Epi proColon. Cologuard includes two quantitative molecular assays to detect aberrantly methylated DNA (NDRG4 and BMP3). Epi proColon also detects aberrantly methylated DNA using its SEPT-9 biomarker. Cologuard's NDRG4 and BMP3 biomarkers are together reimbursed at USD282 under code 81315. This suggests that Epi proColon's biomarker should be reimbursed at half this figure or USD141. This would be 13% above the figure the market expected before CMS' announcement of 17 November. The renewed and prolonged uncertainty as to the pricing of Epi proColon is exasperating given that clarity had already apparently been achieved. However, we think that investors can be sanguine about both reimbursement coverage and eventual pricing. We maintain our Buy recommendation and price target of €7.30.