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The following article will discuss colorectal cancer (CRC) screening, and three companies that investors can use to play this specific theme. Each of these companies are developing a special test that is designed to detect CRC (and pre-CRC).
Although these companies can be considered as comparables, they have drastically different valuations at this point.
|Exact Sci (NASDAQ:EXAS)||Epigenomics (OTCPK:EPGNF)||VolitionRx (OTCQB:VNRX)|
|Market Cap||$ 940 mil.||$112 mil.||$25 mil.|
The market expects Exact Sciences to do extremely well after potential regulatory approval due to the results of a 10,000 patient Phase III trial. The top-line data that was presented last year appears to put the company's CRC test ahead of the most popular and accurate FDA-approved test on the market now (FIT), although a number of people have questioned the way that the data was handled by the company.Last year, Seeking Alpha author Alpha Exposure published a 5-part series that highlights some of these concerns.
Investors should also consider the fact that any new CRC screening test will have to compete with existing tests, which are still doing quite well despite their simplicity. This is especially true for the fecal immunochemical test, which is only made to detect blood in the stool.Also note that existing tests are very cheap, which presents a problem for companies that are developing complicated tests that require more lab work. The only test that would seem capable of competing with existing tests in terms of price would be Volition's NuQ.
But before we discuss the data supporting each of these tests, we will take a look at colorectal cancer screening and why this industry is so important.
Colorectal Cancer & Precancer Screening
Routine colorectal cancer screening is something that tens of millions in the United States go through every few years. After the age of 50 patients are encouraged to have a colonoscopy every 5-10 years Between these colonoscopies, they can use non-invasive tests that can sometimes determine the presence of cancer or even precancers. Currently, there are three main types of tests that are used: Fecal occult blood tests (FOBT), Fecal immunochemical tests (FIT), and stool DNA tests (SDNA).
Of these three, fecal occult blood tests are used the most frequently - probably because they are quite cheap (<$25). The main problem with this test is the high false positive rate, and the low precancerous detection rate. Another big drawback is poor patient compliance due to the fact that FOBT requires patient stool samples and shipping to a laboratory.
But as inconvenient as it is, CRC screening saves lives. A little over 50,000 US patients die of this disease each year, making it the second deadliest cancer in the United States. About 20-40% of patients are diagnosed with the disease in the later stages, when surgical removal is not curative. However, the majority of screens that catch polyps will find them while they are still adenomas. Adenomas are typically asymptomatic, meaning that patients would not have been able to detect them without a colonoscopy.
CRC screening has also become a big business as a result of the emphasis on early detection. About 10 million patients are screened in the US every year, in one form or another. At an average of $100-200 per patient per year in product expense, this (conservatively) implies a 1-2 billion dollar market opportunity in the US alone. Taking the rest of the developed world into consideration adds significantly to that figure.
Let's talk about polyps. Colonic polyps, the most frequently seen type, are quite common (seen in about 2 out of every 5 adults). Although the majority of them are relatively harmless, some of them can result in colorectal cancer if they are left around for long periods of time (5-10 years). These types of polyps are adenomas, and are precursors to metastatic disease. Since doctors don't want to take the risk of leaving adenomatous polyps to grow into a spreading cancer, polyps are usually surgically removed after discovery even without a biopsy to prove whether or not the growths are benign or malignant. Surgical removal of one or more polyps is a simple procedure, and it can be done on an outpatient basis.
It's estimated that about half of the population will develop at least one polyp in their lifetime. They generally don't cause any pain or discomfort, and they usually don't leak blood due to the way that they grow. This basically makes them "invisible" until they are seen directly. The only 100% reliable way to find a polyp is through a colonoscope. While there are a number of other invasive procedures that can find polyps, medical committees can't seem to agree whether or not anything is quite as good as a direct visual of a patient's colon.
CRC is classified into various stages of progression. If an adenoma is not treated, it will eventually develop mutations that will allow it to grow bigger and spread to distant sites.
Roughly one out of every five patients is diagnosed with CRC after the cancer has already metastasized to a distant site. This means that the cancer has officially spread (usually via the lymphatic system) to a distant location, which means that treatment of the primary CRC tumor is effective at that point. CRC in particular has a tendency to spread to the liver or lungs, which are very difficult sites to treat. Metastasized CRC is often a death sentence.
Practicalities of CRC/Polyp Screening
With unlimited resources, it would be ideal to give every US adult a colonoscopy once every 3-4 years to detect polyps/CRC. It is clear that early detection is the best way to reduce US CRC incidence and deaths. However, biannual colonoscopy is not a practical solution for a heavily indebted, cost-conscious country with a very large population of uninsured people. Colonoscopies are expensive (~$1000-2000 without polyp removal cost), and it would be hard to convince the average person that CRC screening is worth it.
The only viable alternative to colonoscopy is in-vitro testing for CRC and precancer. Non-invasive tests don't require gastroenterologists or other expensive specialists, and they are very cheap to produce. It is clear that cheaper, scalable, and non-invasive tests are the future of CRC screening. The only remaining obstacle is the relatively poor accuracy of these tests.
The rest of this article will discuss existing tests that are used for CRC and precancer screening. We will also discuss two promising CRC tests in development with higher accuracy and precancer detection rates.
Fecal Occult Blood Test (FOBT)
The guaiac-based FOBT is a test that determines whether or not there is blood in a patient's stool sample. It operates off of the idea that cancerous growths in the colon will release trace amounts of blood, which can be detected in the stool with a type of tree sap known as guaiac. While it is one of the most popular diagnostic tests in the world, it is outdated and outclassed by other tests. The test also has a very high false positive rate, and requires preparation 3 days ahead of the actual tests. Patients can also get a false positive on the test if the eat red meat, or everyday fruits/vegetables prior to their bowel movement.
Colorectal cancer sensitivity and specificity for this test is only about 77% at 57%. Precancer detection is estimated at 28%. As mentioned earlier, these tests cost about $25 or less. Compliance rate for this test is estimated to be only 30%.
Fecal Immunochemical test (FIT)
The FIT also detects blood in the stool, but with much higher accuracy. It is an immunochromatography-based test that detects blood using the antibodies that are expressed on the surface of blood cells. Because of the way it works, it does not give a false positive when patients eats certain fruits or vegetables.
One of the most popular FITs - InSure® was developed and marketed by Quest Diagnostics (NYSE:DGX) via its colorectal cancer screening business - Enterix. However, this business was recently sold to a private Australian company called Clinical Genomics Technologies.
FIT has CRC sensitivity and specificity of about 88% at 91%, respectively. Its precancer detection rate is also impressive, at about 37%. The main drawback is the cost of this test. FIT costs at least $100 per test. Compliance is estimated to be higher with this test (compared to FOBT), but not by much. It's estimated that only about 36% of patients will actually go through with it.
Realizing that CRC tests could have increased patient compliance with a blood-based test, diagnostics companies scrambled to develop highly accurate blood-based tests that could take market share away from fecal tests. The result was the Septin 9 test, which detects a particular epigenetic change (methylated Septin 9) that has a very strong correlation with colorectal cancer.
There are a number of popular Septin 9 tests. ColoVantage, one of the CRC screening products developed by Quest Diagnostics, is one of them. Sensitivity and specificity in CRC patients is estimated at 90% at 89%, respectively.
A company called Epigenomics AG is developing another Septin 9 test called EpiProColon (EPC). This test seems to have significantly improved sensitivity and specificity for CRC. Sensitivity and specificity is for this product has varied, but the large prospective US screening trial performed by the company showed 68% sensitivity at 80% specificity, respectively. This isn't much of an upgrade over FOBT or FIT, although the product has done a lot better in other trials.
Septin 9 products also cost a lot - with comparable products costing around $300-400 in the United States. However, patient compliance for blood tests are usually very high (>90%). A blood test with comparable accuracy to FIT would be a much more effective screening tool due to patient compliance factors alone.
Another problem is that the company saw very different results in previous clinical trials, suggesting inconsistency with the use of methylated septin 9 as a biomarker. We will see how the FDA reacts to the data collected up to this point on March 25, 2014 - the adcom date that has been scheduled for EPC.
People who are following the space are watching a new, developmental CRC diagnostic called Cologuard very closely. Cologuard is a stool-based test that screens for DNA alterations in the few cells that are excreted into a stool sample. Cologuard tests require more sophisticated laboratory analysis to determine the presence or absence of particular mutations.
The company that developed the product, Exact Sciences Corp has a FDA advisory committee meeting scheduled on March 26, 2014. This is one of the biggest diagnostics-related events of the year, and it appears that a lot of speculators are interested in this upcoming binary event.
The product exhibited 92% sensitivity at 87% specificity in a recent pivotal Phase 3 trial that compared the test to FIT. The FIT results from that trial were not released yet. The estimated cost of the product is in the $300-400 range, which makes it much more expensive than FOBT and FIT with no advantage in terms of patient compliance. However, its 42% precancer detection rate might make it very competitive if the FDA approves the product later this year.
Another developmental, blood-based CRC diagnostic called NuQ is being developed by a European company called VolitionRx. This company is also looking to detect any traces of cancer (and precancer) by detecting epigenetic changes associated with CRC and other prominent types of cancer. In a small study of benign and healthy patients, NuQ was able to achieve 85% sensitivity at 85% specificity for CRC in a using two epigenetic biomarkers. NuQ also demonstrated a very high adenomatous polyp detection rate (>50%) in this trial. A newly initiated study of 4,800 patient samples will test the validity of these early results before this test is made available in Europe.
One of the biggest selling points of this particular product is its low manufacturing cost, which should allow the company to sell the product at $75 or so with a decent profit margin (>70%). The continued success of FOBT shows just how important pricing can be in the market for diagnostics. NuQ would also have very high patient compliance due to the fact that it is a blood-based test.
My conclusions on CRC Screening
1.) Periodic CRC screening for large populations is only feasible if cheap, disposable tests are used. Colonoscopies and other related procedures are not affordable for most people.
2.) Cost seems to have an enormous impact on commercial viability of these diagnostic products. This is why the FOBT is still sometimes used in place of FIT.
3.) Polyp/precancer detection rates are important to consider due to the potential danger of leaving polyps in patients
Here is some financial information for the publicly-traded companies mentioned in this article.
Quarterly Cash Burn
There are three different publicly traded companies here that can be considered direct and immediate plays on CRC screening products. Exact, Epigenomics, and VolitionRx are all looking for approval and successful commercialization of CRC diagnostics in the near future. This is important to the future of these three companies. Successful commercialization of any CRC product can generate hundreds of millions (if not billions) worth of sales for the parent company. Because of this, we see that there is substantial upside potential in EXAS, EPGNF, and VNRX if any of these companies are successful.
Each of these companies are exposed to regulatory risk (EXAS and EPGNF as early as March, 2014 due to the advisory committee dates), and each of these companies need to successfully commercialize their CRC products to generate income for shareholders. However, Epigenomics has a lung cancer diagnostic that might help the company sustain its valuation if EPC fails. VolitionRx is also studying the diagnostic capacity of its NuQ platform in other types of cancers, which limits its downside if the 4,800 patient trial doesn't go well. Exact Sciences does not have an alternative product to fall back on if Cologuard does not receive FDA approval.