Initial Agreement With Renaissance Health - Analyst Blog

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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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: ILIU , RHSC

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