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Sunday, Jun 23, 2024

MDxHealth CEO Bullish After Q2 Revenue Boost

After reporting a nearly 150% jump in quarterly revenue, Michael McGarrity says his precision diagnostics company MDxHealth SA is ready to achieve annual sales growth of 20%.

“That’s the goal,” Chief Executive McGarrity told the Business Journal. “That’s the culture that we’re building here. We’ve put together a valuable channel in urology.”

The company (Nasdaq: MDXH), which says its diagnostics products can improve early detection of prostate cancer in a noninvasive manner, on Aug. 23 revealed second-quarter revenue boomed 143% to $16.7 million. While much of that growth was because of an acquisition a year ago, its organic growth alone jumped 29%.

MDxHealth’s headquarters are registered in Brussels and it has its U.S. operations based in Irvine.

Most of its 252 employees are in Irvine, with a handful at a research lab in the Netherlands.

“All the pieces are coming together,” McGarrity said.

The company’s market cap was about $92 million as of last week.

The Cancer

Urology is becoming a dynamic industry in Orange County, with MDxHealth one of several notable public and private firms addressing different segments of the market.

Device maker Axonics Inc.’s implant to treat overactive bladders was one of the three most successful debuts in American medical device history, based on sales.

Sales at the Irvine-based company (Nasdaq: AXNX), which now has a $2.8 billion market cap, are expected to climb 31% this year to $358.7 million.

Irvine drugmaker Urovant Sciences Ltd., which has developed medication for overactive bladders, is being folded into the U.S. operations of giant Japanese pharmaceutical firm Sumitomo Pharma Co.

Irvine-based device maker Pathnostics has a Guidance UTI test that simultaneously diagnoses and guides antibiotic treatment for complex, recurring urinary tract infections.

Lumitron Technologies, also based in Irvine, is developing a new generation of X-rays to treat cancers, including prostate.

Prostate cancer is the second deadliest form of cancer in men. Approximately 25 million prostate specific antigen (PSA) tests are performed each year, for which 3 million men, or 15%, are informed of their heightened risk for prostate cancer.

The Treatment

The typical way to diagnose prostate cancer is a procedure that uses a biopsy needle, which can have side effects like bleeding, infection, sepsis and urinary retention.

“Once you have one, you don’t want another one,” McGarrity said.

By contrast, MDxHealth offers a noninvasive test that uses a urine sample to measure the mRNA levels of two biomarker genes and combines that information with data such as age and prostate size to give each patient with a personalized cancer risk profile, which the company says provides more accurate information than the typical exams.

The company says the total addressable market is $4.8 billion in the U.S.

2021 IPO

McGarrity arrived as CEO at MDxHealth in 2019 when it had one product and about $11.8 million in annual sales.

McGarrity has more than 30 years of experience in the healthcare industry, including 13 years at medtech giant Stryker Corp. (NYSE: SYK). He was CEO of Nanosphere, a publicly traded molecular diagnostics company, where he engineered a turnaround that resulted in its sale to Luminex in 2016.

In late 2021, MDxHealth raised around $45 million in an initial public offering that priced each share at $12. In February, the company’s stock dropped 35% in one day, after the company revealed a $40 million offering of American Depositary Shares at $4 each.

By March, the stock hit its lowest price ever of $2.47 a share.

Gross Margin Improvement

MDxHealth’s second-quarter results were aided by the acquisition last August from Madison, Wis.-based Exact Sciences Corp. of a cancer unit that has a test called the Oncotype DX Genomic Prostate Score.

The acquisition helped expand the company’s gross margin by 1,723 basis points to 59.7% versus a year ago of 42.4%.

“Our goal is to go from 40% to 65%,” McGarrity said. “You’re seeing the progress.”

MDxHealth and Exact Sciences last month also amended the purchase agreement, deferring MDxHealth’s initial earnout payment by a year to 2025, in consideration for benefits like a five-year subscription warrant to acquire up to 1 million ADS at an exercise price of about $5.26 each, a 50% premium to the market price.

McGarrity said the new agreement is a validation of MDxHealth’s future.

“They understand our business and believe in our strategy,” he said.

The company predicts it will reach profitability on an adjusted EBITDA basis in the first half of 2025. It currently has cash and cash equivalents of $39.5 million as of June 30.

“We’re confident we have a real clear path to profitability. We think we’re very de-risked.”

Forecast Reaffirmed

For the second time this year, it reaffirmed its annual revenue guidance of $65 million to $70 million. McGarrity said even though the company’s revenue in the past two quarters has topped analysts’ expectations, the company didn’t raise the forecast because the third quarter could be unpredictable.

After the results, investors sent the shares down 6%.

McGarrity attributed the share decline to concerns about the industry.

“It takes a little time to connect all the dots for investors and the market to understand that this is a really cool story,” he said.

He noted that the company is covered by six analysts on Wall Street, a relatively large number for a company with a market cap under $100 million.

“We do believe the valuation discount at which shares trade will be erased,” Piper Sandler analyst Jason Bednar wrote in a report to investors after the second quarter results.
Bednar maintained the overweight rating with a $10 price target; at press time, the shares were around $3 each.

In Position

Screening for prostate cancer could rebound after a 50% decline caused by COVID-19, McGarrity said.

The importance of screenings is becoming as widespread as was breast cancer testing 15 years ago, he said.

The company is working on a new product for patients in active surveillance with prostate cancer, a market with 1.5 million people.

MDxHealth now has four products, all of which have qualified for reimbursement from Medicare.

“We’ve got the full menu. We’re in a position to be the leader in this space,” the CEO said.

“Over the last four years, we’ve restructured and reset the company to be a growth company. We think we have a sustainable growth company.”

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Sonia Chung
Sonia Chung
Sonia Chung joined the Orange County Business Journal in 2021 as their Marketing Creative Director. In her role she creates all visual content as it relates to the marketing needs for the sales and events teams. Her responsibilities include the creation of marketing materials for six annual corporate events, weekly print advertisements, sales flyers in correspondence to the editorial calendar, social media graphics, PowerPoint presentation decks, e-blasts, and maintains the online presence for Orange County Business Journal’s corporate events.

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