Alliance Global Partners launched coverage of Precipio (NASDAQ:PRPO) with a “buy” rating and price target of $6.30. The stock closed at $3.12 on June 19.
Precipio has staked out a unique position within blood-related cancer diagnostics and is heavily focused on preventing misdiagnosis.
Analyst Ben Haynor writes that the company has developed a pathology services business where its laboratory performs the technical component, representing about 80% of reimbursement, while expert academic pathologists perform the professional component, representing about 20% of reimbursement.
“To this end, the company has developed relationships with thought-leading institutions, including an exclusive agreement with the Department of Pathology at Yale University, which was recently renewed for five additional years,” he added.
Mr. Haynor said genomic characterization and improved diagnostic imaging have benefited solid-tumor cancer misdiagnosis rates over the past several decades, with some improvements in blood cancer diagnostics.
However, older studies in blood cancers have found discordance rates north of 40% in autopsy studies and over 50% in comparing primary pathologist diagnosis with centralized pathology review.
Studies from the UK, MD Anderson Cancer Center, and Precipio have shown discordance rates ranging from 17% to 27.3% comparing primary pathology to centralized review.
“We believe the true discordance rate in blood cancer falls in the low-20% range based on multiple studies,” Mr. Haynor said. “Further, we estimate a proper initial diagnosis would change treatment decisions in about 45% to 75% of discordant cases.”
“These data support centralized pathology review in clinical practice, which is “effectively Precipio’s model in their pathology services business,” he added.
In addition, he said Precipio is conducting a 1,000-plus patient trial, which should complete enrollment later this year. Initial data should be available shortly afterwards and publication in a peer-reviewed journal to follow several months later. “We would view positive results as a significant catalyst for the company and further validate their model,” he added.
In addition to its pathology services business, Mr. Haynor said Precipio has developed two proprietary products addressing their own pain points, each of which represents annual markets in the $50-million to $100-million range.
HemeScreen allows for cost-effective and rapid screening of the four genes recommended in the guidelines by the National Comprehensive Cancer Network for patients with myeloproliferative neoplasms and myelodysplastic syndromes.
Most labs batch these tests for cost reasons, leading to two-to-four week turnaround times, while HemeScreen can provide the same information in two-to-four days or less and is profitable at Medicare reimbursement rates of about $600 per panel.
The company has also developed IV-Cell, a culturing media for all four hematopoietic cell lineages at once, compared with the existing dominant culture media, MarrowMAX from Thermo Fisher, which allows for culturing of only one cell lineage at a time.
According to Precipio, a large laboratory is evaluating IV-Cell and it expects to have multiple clients by the end of the year following a third quarter launch, which “we believe could offer upside to our estimates,” Mr. Haynor added.
