Initial Agreement With Renaissance Health
By Brian Marckx, CFA
Interleukin Genetics (OTC Markets:ILIU) penned an initial agreement with Renaissance
Health Service Corp (RHSC) relative to reimbursement of the
company's PST test. The publicly released portions of the
agreement, filed in an 8K on Friday (3/1/13), outlines in somewhat
general terms the nature of the guaranteed pricing provisions that
ILIU will provide for processing of the tests, which are dependent
on RHSC hitting certain milestones relative to rolling out
appropriate dental plans covering the test.
In particular, ILIU will process the PST tests at a fixed price
(not disclosed) for RHSC's affiliates and in the event that ILIU
offers the test to other parties for a lower price, this lower
price will also be applicable to processing of RHSC affiliates'
tests for the 3-year term (through 2/25/2013) of the
agreement. Milestones that RHSC must meet for this pricing
arrangement to remain in place are that 1) their affiliates must
develop and offer dental plans that reimburses for the PST test and
which a "significant portion" of the affiliate's customers are
eligible for and 2) prior to a specified date (not disclosed),
RHSC's affiliates must have sold policies for these dental plans
for the year beginning 1/1/2014.
ILIU notes in the filing that since timing of the launch of
these dental plans is highly uncertain, that they do not
expect any significant revenues from this agreement until at least
Q1 2014 and potentially substantially later. This is largely
in-line with our prior and current expectations and reflected in
our assumptions in our financial model for ILIU. And while
the agreement probably provides somewhat substantial wiggle-room as
far as timing of the launch of the dental plans (notwithstanding
the milestones), we view consummation of this agreement as clear
positive as it marks the most tangible step towards tying the PST
to dental insurance reimbursement. Given that the PST test is
what we expect to be a major catalyst to ILIU's long-term revenue
growth (assuming reimbursed by insurance), this is a meaningful
event.
We cover ILIU with an Outperform rating. See here for our most
recent report on ILIU.
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