Epigenomics (ECX-DE): Strong tailwinds expected from Epi proLiver

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Published to the market and investors on 10^th October 2018 @ 10.19am (London time).

Epigenomics (ECX-DE): Strong tailwinds expected from Epi proLiver
Recommendation: OUTPERFORM
Target Price: EUR4.01 (reduced from EUR6.82)
Current Price: EUR2.24 (COB on 9^th October 2018)

KEY TAKEAWAY

Epigenomic's growing portfolio of liquid biopsy tests represents strong commercial potential. The company recently announced plans for a new test in their portfolio, to CE mark its mSEPT9 blood test for liver cancer. We expect this to happen by year-end 2018E, allowing for commercialisation in Europe. We are convinced about the positive commercial outlook of Epigenomic's liquid biopsy tests due to a differentiated profile, fast readouts, a large target markets and significant health-economic impact. We have built a proprietary costing and economic analysis to illustrate direct diagnostic cost savings with Epi proLiver and a health economic benefit of catching liver cancer patients earlier than with standard of care. We reiterate our OUTPERFORM recommendation and adjust our DCF-derived target price to EUR4.01 (from EUR6.82).

Liver cancer - a large commercial opportunity

A c.EUR3bn global market together with the growing trend towards minimally invasive liquid biomarkers, makes liver cirrhosis surveillance for HCC a promising market for Epigenomics. The company intends to initiate a prospective clinical trial in the U.S. for submission to the FDA, and potentially CFDA for approval in China. We forecast strong growth in the liquid biopsy market and see strong strategic and commercial potential for Epigenomics by capitalising on this opportunity.

Proprietary cost analysis indicates strong health-economic savings potential

We conducted a cost-analysis in order to estimate the direct and indirect savings associated with implementation of an effective blood-based screen such as Epi proLiver. Our analysis shows a significant reduction in the frequency of false positives due to inaccurate ultrasound testing, thus decreasing the number of redundant MRI/CT scans, the costs associated with avoidable complications, as well as premature mortality and morbidity.

U.S. Congress supports coverage of blood-based colorectal cancer screening tests

In early October, Epigenomics announced that the U.S. Congress urges the Centers of Medicare & Medicaid Services ("CMS") to provide coverage for blood-based screening tests for colorectal cancer. This positive step towards legislative approval generates a strong tailwind for Epi proColon, paving the way for widespread adoption and utilisation across the U.S., increasing screening participation rates and decreasing the frequency of late-stage colon cancer diagnoses.

Valuation suggests ample upside

In our view, the key uncertainty remains reimbursement and inclusion into medical guidelines for Epi proColon, and CE mark for Epi proLiver, but with the new product candidate de-risking the commercial outlook, Epigenomics offers a highly attractive investment opportunity. We reiterate our OUTPERFORM recommendation and adjust our target price to EUR4.01 (from EUR6.82) to reflect delays in the development of Epi proLung.

Kind regards,

Martin Brunninger | Analyst

goetzpartners Healthcare Research Team | Research Team

goetzpartners securities Limited

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