Last week, Alliqua announced that the company had received the first Medicare Administrative Contractor (MAC) coverage for outpatient Biovance coverage. This was significant news that went unnoticed as ALQA stock was unaffected. Nonetheless, events overlooked by the markets are a blessing in disguise for diligent investors. As we will outline below, Alliqua’s intrinsic value was boosted, but its market value remained the same. Such discrepancies are when investors should take advantage.
The Details of MAC Coverage
Novitas, one of eight MACs that are responsible for processing Medicare claims in one or more of twelve geographic areas, or “jurisdictions,” in the United States, granted Alliqua’s Biovance coverage. As a result, wound care physicians and practitioners can now offer Biovance to approximately 11.3M beneficiaries within Novitas’ jurisdictions.
To better understand Novitas’ jurisdiction and where Biovance can receive outpatient reimbursement, look HERE.
The Impact of MAC Coverage
Alliqua announced preliminary Q1 results that were accompanied with upgraded 2015 guidance. 2015 revenue is expected to be between $16.3M – $18.8M, greater than the original projection of $15.5M – $18M. This increase is due to the company closing the Celleration deal a month earlier (May 29th rather than June 30th). Due to this, Celleration will add anywhere from $5.3M – $5.8M to Alliqua’s 2015 top line. Celleration’s initial contribution was going to be $4.5M – $5M. The additional $0.8M is the extra month’s sales.
The best part about the increased 2015 guidance is that 2015 projections do not include the additional benefits of receiving ANY MAC coverage. From preliminary results, Alliqua guided up $0.8M, which is from Celleration. These figures do not include Novitas’ approval or any additional MAC approvals to come in the remainder of 2015.
Approximately half of the wound care market is in the outpatient market, which includes Medicare clinics and physician offices. Alliqua will be pursuing coverage from the 8 MAC payers during the next ~2 years by demonstrating the real world clinical evidence of Biovance on indications such as diabetic foot ulcers. Having received its first MAC approval before mid-year 2015 is a great start for Alliqua. I would expect the company to land coverage from at least one more MAC before year end.
To see the uptick in revenues that MAC coverage brings, look at competitor MiMedx which has sales increase three fold.
The YoY revenue growth from 2014-2015 will be driven primarily by proprietary products Sorbion, TheraBond and Biovance. These have a margin profile around 70%, so 2015 margins should be around that same range. This is a large increase over the 32% gross margin of 2014, since a high proportion of revenues were being generated from the low margined contract manufacturing business.
For 2015, I would expect revenues to be $20M+ due to the organic product growth and benefits from Novitas reimbursement. Keep in mind; this does not include additional benefits from any additional MAC coverage in 2015.
Although the MAC coverage was disregarded by the market, Alliqua management has delivered on everything that the company has promised. Given the management team’s prior successes and execution thus far with Alliqua, I am confident that the company’s future remains bright as ever.