MYO - Myomo: Market Severely Undervaluing Opportunity
2023-12-01 13:32:58 ET
Summary
- Market undervalues MYO stock due to poor understanding of CMS process.
- MYO is able to generate revenues in excess of $100mm/yr.
- MYO valuation gap will close before February 2024, when the final CMS price is published.
Myomo ( MYO ) shares have started to rise as some investors began digesting the news of CMS adopting broad national coverage of the MyoPro. However, I believe the market is severely undervaluing MYO stock due to a poor understanding of the CMS process and a lack of familiarity with MYO's current business.
Background
In my write-up posted on September 5 on Seeking Alpha, I wrote that the ~$43,000 MyoPro price would be " extremely cheap " to Medicare, and the stock should trade around $3/shr at that reimbursement level. However, subsequently, CMS proposed a national price of ~$62,000, in line with MYO's original request. I believe the market has not digested the implications of this development, because of a poor understanding of the CMS process and a lack of familiarity w/ MYO's business.
Poor Understanding Of The CMS Process
I believe the financial markets are waiting for CMS to publish a "final price determination" in February 2024, before valuing MYO stock based on the proposed CMS price for the MyoPro. That's a mistake . A number of sell-side analysts explicitly stated that they are waiting for a "final" price to be published, before changing their valuation:
This misunderstanding stems from the fact that CMS published its proposed price in the context of their agenda for the November 29, 2023 bi-annual HCPCS Coding meeting , where proposed prices for a number of devices were expected to be discussed. MyoPro was the first item on the agenda. I believe the financial markets believed that the purpose of the coding meeting was to review proposed prices and to adjust them based on public comments.
In reality , the Coding meeting is a forum for manufacturers to present data to CMS when a manufacturer believes the proposed price IS NOT FAIR. The meeting is NOT a negotiation or an attempt to change prices based on public comments.
For example, ReWalk ( RWLK ) requested a price of $170,000+ from CMS, but CMS proposed a price of $94,616.95. Therefore, RWLK had a chance to submit additional data, as they stated on their recent earnings call , in order to increase the final price.
The data we will present at this meeting on the 29th is based on the submitted claims to Medicare since April 2023. These claims reflect the accurate list price of the device to be taken in consideration by CMS in their pricing formula.
In the case of RWLK, in my opinion, CMS will not increase the proposed price. At the meeting RWLK argued that the specific device CMS used as the basis for their fee determination has been discontinued, therefore, CMS should use the price of the current ReWalk device to set a fee. However, the current device is not substantially different from the prior device, and the only widespread price RWLK could point to is the price they have tried claiming from Medicare itself. With that logic, RWLK could have billed CMS any price and argued that CMS was legally bound to set the fee at RWLK's chosen price. I believe RWLK will need to get a new code for a new, and sufficiently unique, device and get a new price for that new code, in order to increase reimbursement.
In reality , the proposed prices CMS published are a result of the legally defined formula CMS needs to use to establish pricing for a product. This formula is part of the process called: "gap filling. " Therefore, the proposed price is the final price, unless a manufacturer can convince CMS to use other data in their formula - just like RWLK tried doing at the meeting. According to my consultants, it's unheard of for CMS to change the proposed price without any input from the manufacturer.
In reality , there was not any discussion of the MyoPro at the November 29, 2023 HCPCS meeting! The recording of the meeting will be posted here . Since CMS agreed with MYO's price request, unlike RWLK, MYO didn't make a presentation and the committee skipped their agenda item. There was a single comment about the MyoPro at the meeting, with one of the DME MACs informing the committee that they shared pricing data from the 1-2 claims they processed.
I don't know whether the market will actually wait for the final MyoPro price actually to be published before valuing MYO stock properly. I think, in the meantime, MYO stock is extremely undervalued.
Lack Of Familiarity With Myomo's Business
Since MYO has been a battered stock for years without much institutional ownership or sell-side coverage to speak of, I believe investors haven't started fully appreciating the potential in MYO's business.
Myomo has been able to create their $20mm/yr run-rate business with almost zero reimbursement. A single Medicare HMO comprises 30% of MYO's product sales!
MYO has artificially restricted its pipeline to patients only from HMOs that have paid for a MyoPro in the past. Using the Q3:23 pipeline add of 380 patients, just rough math would imply a $95mm annual revenue number at the $62k price point.
Once the new price becomes effective, MYO will HAVE to raise prices on their third-party business, since those providers will be able to bill Medicare at the new national price. Every Medicare HMO will be legally obligated to pay for the MyoPro, all of the Fee For Service Medicare patients (about 50% of the population) will be covered for the MyoPro and the majority of Commercial Insurers mirror the Medicare formulary.
MYO should easily generate over $100mm in revenue/yr, which makes its current ~$100mm market cap extremely modest.
I believe MYO stock should be trading closer to $6/shr or ~$200mm mkt cap to better reflect the potential of its business.
Risks
Just like I noted in my prior write-up, when it comes to the government, anything is possible. With any microcap stock, the downside is to $0/shr. In this case a lot of the risks have been mitigated, since CMS has finalized national reimbursement for the MyoPro, the DME MACs have been paying claims already and a price has been proposed by CMS. Therefore, MYO's commercial business is more valuable than it was at the time of my prior write-up.
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Myomo: Market Severely Undervaluing Opportunity