Why did this ASX healthcare share just crash 70%?

This healthcare share has been dealt a major blow in the United States.

A worried man holds his head and look at his computer.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

It has been a day to forget for the Pacific Edge Ltd (ASX: PEB) shareholders on Wednesday.

At one stage today, this ASX healthcare share was down as much as 71% to 11 cents.

And while the Pacific Edge share price has recovered a touch since then, it still remains down by almost 65% to 13.5 cents.

Why is this ASX healthcare share crashing deep into the red?

Investors have been rushing to the exits today after the cancer diagnostics company was dealt a massive blow in the United States.

According to the release, the company's Cxbladder tests in the US market will no longer be covered by Medicare from 17 July 2023.

This follows the finalisation of a Local Coverage Determination (LCD) by Novitas, the Medicare Administrative Contractor (MAC) with jurisdiction for Pacific Edge's laboratory in Hershey Pennsylvania.

The release notes that the finalised LCD specifically notes the Cxbladder tests Triage, Detect, Monitor, Resolve and Detect+ as "not considered medically reasonable and necessary." This is the threshold required for coverage under the US Social Security Act.

What now?

While the company is exploring its legal options, as things stand, this LCD is expected to lead to a significant reduction in revenue.

Management points out that in the year ended March 2023, tests for Medicare and Medicare Advantage were ~60% of its US commercial tests. This generated ~$15.3 million of revenue or 77.3% of its total FY 2023 operating revenue. Post 17 July, all of these tests are expected to be impacted by this determination from Novitas.

The ASX healthcare share's CEO, Dr Peter Meintjes, wasn't happy with the decision. He said:

While Novitas appears to have reviewed all available evidence for Cxbladder, we believe that Novitas' analysis has sought to predominantly emphasize negative comments in Cxbladder publications.

We believe that focusing predominantly on only negative comments likely mischaracterizes issues or confounding factors with our evidence that were addressed in subsequent publications and routine commercial testing, while also dismissing the support Cxbladder receives from key opinion leading urologists, and the US patient advocacy group BCAN (Bladder Cancer Advocacy Network).

Importantly, urologists have identified the value for themselves and their patients as demonstrated by the record number of urologists using the test, 1,151 in FY23Q4, and the record growth in Cxbladder testing volume at 43% CAGR for the last two years.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Healthcare Shares

Three scientists wearing white coats and blue gloves dance together in a lab.
Share Market News

Is it too late to buy Pro Medicus shares?

Pro Medicus shares have risen 550% over 3 years. Have you missed the boat? Three experts weigh in.

Read more »

Researchers and doctors with futuristic 3d hologram overlay for body anatomy or dna in hospital clinic.
Healthcare Shares

These 5 ASX 200 healthcare shares gained the most weight in FY25

These stocks were in great health last financial year.

Read more »

Scientists working in the laboratory and examining results.
Healthcare Shares

Guess which ASX 300 healthcare stock is charging higher on product launch news

Investors have responded positively to this announcement.

Read more »

Three healthcare workers look and point at at medical image
Share Market News

Pro Medicus shares surge 10% to crack $300 as healthcare leads ASX 200 sectors

Pro Medicus shares just keep on going, rising 625% over the past three years.

Read more »

Shot of a mature scientists working on a laptop in a lab.
Healthcare Shares

Here are the latest growth forecasts for the CSL share price

Can this biotech giant deliver healthy returns?

Read more »

Three scientists wearing white coats and blue gloves dance together in a lab.
Healthcare Shares

UP 127% in a year, why is the Pro Medicus share price rocketing higher again today?

ASX investors are sending Pro Medicus shares flying higher on Thursday. But why?

Read more »

Broker looking at the share price on her laptop with green and red points in the background.
Healthcare Shares

These healthcare stocks could be set to double according to broker

Interested in gaining exposure to the healthcare sector? These options could be ones to watch. 

Read more »

Shot of two young scientists using a laptop in a laboratory.
Healthcare Shares

Up 250% in a year, how much higher can this ASX healthcare share climb?  

The future looks promising for this biotech firm after delivering a record-quarterly result.

Read more »