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William Blair Initiates Coverage of MDxHealth With Outperform Rating

NEW YORK – William Blair said Friday that it has initiated coverage of MDxHealth with an Outperform rating on the company's stock.

In a note to investors, analyst Andrew Brackmann said the decision was made based on the investment bank's belief that MDxHealth has a tangible growth outlook in prostate cancer diagnostics and a path to profitability.

He cited the company's sole focus on the urology space, with tests targeted at multiple aspects of the diagnostic process. "Currently targeting a cancer-specific market opportunity valued at $2.3 billion and a total longer-term opportunity valued at $4.8 billion, MDxHealth can offer solutions to be a standardized partner for practices, unlocking cross-selling synergies and accelerating growth," Brackmann wrote.

He also noted the company's recent acquisition of Exact Sciences' Genomic Prostate Score and said he believes MDxHealth will receive a positive coverage determination from Medicare for its Select MDx test in the near term.

"Near- and intermediate-term growth should be driven by its expanded commercial efforts, reimbursement for Select, and what is still a vastly underpenetrated market opportunity," Brackmann said. "This is a straightforward financial model, given that investors are not waiting on payer catalysts or events outside the company’s control."

While he is optimistic about coverage for Select MDx, Brackmann cited reimbursement as a risk factor for investors.

"Historically, MDxHealth has seen strong payor wins in its portfolio. Both Confirm and GPS already have Medicare coverage, and these CMS volumes are being paid at about $2,000 and $3,800, respectively. Similarly, these two tests also have shown good progress with commercial payer adoption, and we expect to see covered lives figures expand modestly in the future," he said.

Although the "outlook is bright" for the Select test, Brackmann said there are more risks, as the test still needs to pass a technical assessment by the MolDx program. If it does and obtains coverage, he estimated reimbursement at $760 per test.

Among other risks to consider, Brackmann noted that the urology market is competitive, hosting larger companies that MDxHealth must compete with. The company will also have to appropriately manage its operating expenses to reach profitability, he said.

In early morning trading on Friday on the Nasdaq, MDxHealth's shares were down 2 percent to $2.80.