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.
