Interpace Diagnostics (IDXG): New Management, Cleaner Balance Sheet and Growth in Q1

According to the American Cancer Society, nearly 57,000 people will be diagnosed with thyroid cancer this year, leading to over 2,000 deaths. While the mortality rate is low relative to most other cancers, thyroid cancer does not always cause obvious symptoms and nearly 75% of cases are found in women. We’ve been following a company called Interpace Diagnostics (NASDAQ: IDXG) that has two commercial diagnostic tests to detect thyroid cancer.

The company reported its Q1 results yesterday, highlighted by 11% sequential and 14% year-over-year revenue growth and significant progress in cleaning up the balance sheet. CEO Jack Stover, who has been in the chair since December 2015, and CFO Jim Early, hired in October 2016, have demonstrated an ability to clean up the balance sheet while maintaining top line growth.

Thyroid Cancer Detection

Interpace’s thyroid cancer diagnostics include ThyGenX, which diagnoses thyroid cancer from thyroid nodules utilizing a next generation sequencing assay, and ThyraMIR, for the diagnosis of thyroid cancer from thyroid nodules utilizing a proprietary gene expression assay.

Source: Interpace Diagnostics

Among the key Q1 highlights for the thyroid diagnostic business were:

• UnitedHealthcare (NYSE: UNH), the largest health plan in the US, agreed to cover ThyraMIR for all of United’s members nationwide. ThyGenX and ThyraMIR are now covered for approximately 250 million patients nationwide.
• Interpace entered into an agreement with a major Healthcare system in Philadelphia for both ThyGenX and ThyraMIR.
• The European Patent Office granted a Patent for use of microRNAs for distinguishing benign from malignant thyroid neoplasms. A microRNA is a small non-coding ribonucleic acid molecule that functions in RNA silencing and post-transcriptional regulation of gene expression, and is the underlying technology of ThyraMIR.

Pancreatic Cancer Detection and Prognosis

Interpace also has a third product on the market called PancraGen for the diagnosis and prognosis of pancreatic cancer from pancreatic cysts. Pancreatic cancer has a similar incidence rate as thyroid cancer, with nearly 54,000 diagnoses estimated this year by the American Cancer Society, but it is far more deadly. The ACS estimates that 43,000 will die this year of pancreatic cancer.

Even when diagnosed early, pancreatic cancer has a poor prognosis. Surgery is commonly performed as a cautious approach to treat a suspicious cyst. However surgery comes with risks, including life-long patient morbidities and even death. Recent research has shown that the risk of malignancy in cysts is lower than previously thought. Treatment plans are evolving from surgery to watchful surveillance in recognition that many cysts are benign and will remain benign, and recent studies have shown that up to 80% of surgeries reveal indolent cysts that didn’t necessarily require surgery.

Long-term follow-up outcomes data of patients (up to 8 years) from the National Pancreatic Cyst Registry supports PancraGEN’s ability to help accurately inform surgery and surveillance decisions of patients. PancraGEN’s recommendation of surveillance was correct in 97% of patients. In fact, PancraGEN diagnoses were more beneficial to overall patient outcomes than sole reliance on International Consensus Guidelines criteria. PancraGEN has been performed on over 25,000 patients with pancreatic cysts, representing a full spectrum of pancreatic cyst patients with diverse clinical and molecular findings.

Cleaner Balance Sheet

Regular readers will know that we frown on reverse stock splits in a vaccum, and Interpace did execute a 1-for-10 reverse in December 2016. But we see that the split in this case was part of a larger strategy of restructuring and recapitalization and not just a desperate, isolated attempt to stay NASDAQ-listed. The company has raised over $14 million in new capital since December 2016, completely eliminating over $9.3 million of secured debt, reducing total liabilities by over $12 million since year end and adding in excess of $24 million to stockholders’ equity as of the end of Q1. Additionally, the company terminated significant future potential royalties and milestones related to assets acquired in 2014.

The stock feels undervalued here given the three commercial products and management’s demonstrated ability to clean up the balance sheet while maintaining growth in the business.

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