16 April 2021

Commissioned research: SciBase

Unlocking US reimbursement – the share price catalyst during 2021

SciBase is delivering as we expected, and the share price is closing in on our target price. Recent news flow confirms the Nevisense EIS-technology’s potential for skin barrier assessment applications – an upside to both our and the market’s valuation of the company. The apparent tangible driver of the share price for the coming 12 months, however, is unlocking US reimbursement (Medicare) where the US company DermTech offers a clear blueprint.

DermTech (DMTK: Nasdaq US) is a close peer to SciBase, commercializing a molecular assay for melanoma detection in the US. DermTech generated merely USD 5.9m in sales 2020 but enjoys a market cap of USD 1.2bn, contrasting with SciBase’s USD 1m in sales 2020 and market cap of USD 46m. DermTech’s share price has developed in a steep trajectory over the past 1.5 year, from USD 0.2bn, driven primarily by reimbursement unlocking in the US (Medicare and private insurance coverage). Unlocking broad reimbursement is a license for medtechs to print money – reimbursement is a prerequisite that precedes wider market adoption and sales growth. We believe qualified investors are confidently betting on DermTech to show significant market penetration and sales growth and in anticipation of this coming true they are investing heavily in the company. The same investment idea can be applied to SciBase’s case, where the current valuation of the company offers the investor very limited downside and substantial upside potential as the company unlocks US reimbursement (Medicare) during 2021.

By studying DermTech’s commercial journey to date, we see several rationales positioning SciBase’s solution for a more rapid and greater commercial uptake upon Medicare coverage in selected states from 2021 onwards. First, DermTech has primarily progressed reimbursement for the laboratory side doing the test analyses, with very limited coverage so far to dermatologists and clinics meaning that they lose revenue on using DermTech’s test instead of performing biopsies. In contrast, SciBase secures coverage for clinicians and add as such a revenue stream, stimulating uptake. Second, DermTech’s price is about USD 700/ test whereas SciBase can be estimated at USD 50-70/ test. The 10x price difference is a significant argument for payers in the US to grant Nevisense broad coverage. Combined with coverage for clinics using the device, it is positioned for a more rapid uptake compared to DermTech’s solution. As such, we can assume that the volume DermTech is recording (approx. 24,000 tests) is the minimum volume to achieve post Medicare coverage in selected states. This would at price level of USD 50/test add another USD 1.2m to SciBase’s revenues shortly post reimbursement unlocking in selected states, in line with our forecast. SciBase already produces these volumes, primarily derived from the German market. The total US market, estimated at USD 200m/year, is the potential.

We maintain the Outperform rating and target price of SEK 7.5 per share, referring to our initiation report (Nov 2020) for further financial details. On the back of Medicare coverage in selected states, expected from 2021 onwards, we see a solid rational to adjust the risk factors in our DCF model, which would result in a WACC of 11.2% (12.3%) and target price of SEK 10 per share, equal to an equity value of approx. SEK 550m non diluted.

Download report here

Marketing material commissioned by SciBase