EXACT Sciences (EXAS) is developing technologies that help to eradicate mortality from common cancers by applying advances in the field of genomics to facilitate the early detection of disease. The Company's first target is colorectal cancer, which is the second leading cause of cancer deaths and the most deadly cancer among non-smoking men and women in the US. Annually, there are nearly 154,000 colorectal cancer cases diagnosed and 52,000 deaths due to this disease. It is estimated that roughly one-third of colorectal cancer-related deaths could be saved if more people underwent regular screening. Of those diagnosed, nearly half are expected to die within five years, since most cancers are detected when the cancer is less treatable. For those whose cancer is detected at an earlier stage, the five-year survival rate can be greater than 90%. The American Cancer Society recommends that all Americans age 50 and older be screened regularly for colorectal cancer. Unfortunately, only a fraction of this population is screened for the disease, as currently available screening technologies are considered to be either too invasive or inaccurate.
The Company's stool DNA-based, non-invasive colorectal screening test, currently being marketed by LabCorp [LH] as PreGen-Plus, is likely to be included in revised Multi-Society Task Force guidelines for colorectal screening some time in November. PreGen-Plus is likely to be recommended for screening asymptomatic individuals over age 50 with normal risk factors for colorectal cancer at an interval of every three or five years. The Company also recently announced the acceptance of its National Coverage Determination application for Medicare reimbursement of the same test on 8/1/07, with a preliminary decision date of 2/1/08 and a final determination deadline of 5/1/08. However, a decision on Medicare reimbursement for the Company's stool DNA-based screening test could occur at any time after the Multi-Society Task Force on releases its updated colorectal screening guidelines, which were last revised in January 2003.
The colorectal screening population includes 87 million Americans now over the age of 50, with favorable demographic trends (aging of Baby Boomers) that promise near-term growth in this population to over 100 million. The American Cancer Society has set a goal of 75% compliance rate by 2015 for people over the age of 50 based on CRC screening guidelines. As part of a revised agreement with LabCorp, EXACT receives a 15% to 17% royalty rate on net revenues from LabCorp with up to $40 million in additional sales milestones.
The Company currently has adequate liquidity of just under $17 million in cash and zero debt to fund operations through mid-2009 with a cash burn rate of about $10M per year thanks to the revised marketing deal with LabCorp which transfers all the costs of commercializing PreGen-Plus and a restructuring to make the Company more focused and streamlined. No future equity or debt offerings should be required to reach sustainable profitability, and the Company reported a net operating loss carryover of $126.7 million and a net tax credit carryover of $3.2 million at the end of 2006.
PreGen-Plus does not require FDA approval for reimbursement or guidelines inclusion as LabCorp is certified under the CLIA waiver of 1988 and is qualified to perform high complexity lab testing procedures. Therefore, PreGen-Plus can be sold as a "homebrew" test while EXACT develops a FDA approved kit in time for the next guidelines to be issued. FDA approval provides for the following: any lab can process tests, less restrictive labeling is required, more aggressive marketing is possible, and the Company could license a FDA-approved kit on similar terms to the current deal with LabCorp (which included $30 million in upfront cash). All colorectal cancer screening tests which are currently in the guidelines receive reimbursement from Medicare and mandatory insurance coverage in over 20 states, meaning that PreGen-Plus is virtually guaranteed to experience an exponential increase in sales if it is included in the guidelines next month. Beyond an FDA approved kit, EXACT is also looking to expand its stool DNA-based colorectal screening test beyond the US, with global partners that include NorDiag (in Europe, Japan & Australia) and OncoMethylome Sciences (in Europe).
Shares of EXACT Sciences are on the verge of an exponential increase in value as likely guidelines inclusion for the Company's stool DNA-based, non-invasive colorectal cancer screening test will generate enormous revenues and profits as the test experiences both commercial success and, more importantly, makes a difference by saving lives through the earlier detection of colon cancer when the disease has a much higher likelihood of successful treatment. Given the Company's capital structure with 27 million shares outstanding, zero debt, and just under $17 million in cash; EXACT could experience an exponential increase in market cap in the next two to three years considering a screening population that includes 87 million Americans over the age of 50.
Disclosure: Author has a long position in EXAS