Pacific Edge contract with US vets positive, though value remains to be seen

Pacific Edge's [NZX: PEB] supply deal with the US Veterans Administration is positive news but it's still unclear how much benefit the bladder cancer test maker will get from the contract, brokerage First NZ Capital said.

The brokerage has an 'outperform' rating on Pacific Edge and a target price of 60c per share, above its current price of 47.5c.

Pacific Edge shares jumped after the Dunedin-based company announced in late February that it had signed a federal supply schedule agreement with the VA, meaning 8.8 million veterans enrolled in the system could access Pacific Edge's Cxbladder test. The deal will also see the test available at 150 Department of Defense facilities across the US.

First NZ Capital said in a research note that the deal was a key contract for Pacific Edge, which still has to execute a sales strategy and encourage veterans to use its products.

The brokerage estimated new cases of bladder cancer in the VA would be between 2000 and 7000 a year, and said an important factor in the potential value of this contract for Pacific Edge would be how much screening the VA does for bladder cancer and for symptoms such as the presence of blood in urine.

"We set our 60c target price as we wait to see more evidence of Pacific Edge's commercial success and key financial metrics," First NZ said. "We retain our target price until we can get greater clarity on the possible outcome from this announcement."

First NZ said Cxbladder could be sent to patients meaning an elderly or incapacitated patient would not have to travel to a clinic to access the product, and that the association of VA hospitals with teaching hospitals in the US could have a "network effect" for the adoption of the product within the US.

The brokerage predicted the company's annual loss would widen to $11.5 million for the year to March 31, 2016, from $11.2 million a year earlier.

In 2015, Pacific Edge hired First NZ to manage and fully underwrite a two-for-11 entitlement offer to raise $35.3 million to further its US ambitions, evaluate Asian markets and complete commercialisation of its third and fourth Cxbladder products, Cxbladder Monitor and Cxbladder Predict.

Pacific Edge is chasing US sales to tap the world's largest healthcare market where there are more than 10,000 urologists, and has signed up a series of health provider networks.

Last year it was forced to compensate shareholders after it was found to have probably breached continuous disclosure rules when announcing new US contracts in 2013.

When announcing the VA deal, the company said it had expanded its US sales team, and expects to release new developments on the bladder test in the that country later this year.

(BusinessDesk)

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