EXACT Sciences Corporation: Train Wreck or About to Leave the Station?

In the spirit of election season, this article reflects my response and evidence to debate a Street.com article over the weekend on EXACT Sciences (EXAS) by Adam Feuerstein, which concluded that the stock is a train wreck and faces further delays for widespread adoption and guidelines inclusion of its stool DNA-based, non-invasive colorectal cancer screening test called PreGen-Plus. The basis for his cautious stance on shares of EXACT Sciences stems from a recent warning letter sent to the Company from the FDA stating the agency’s view that PreGen-Plus is a medical device requiring pre-market approval or clearance. Predictably, the warning letter sent shares of EXACT Sciences down from multi-year highs over $6 per share to their current trading range with a $4 handle. However, investors should note that LabCorp (LH), which markets the current version of PreGen-Plus, did not receive any notification from the FDA and the test is still available.

On its quarterly conference call last week, the Company provided several key updates, which include retaining several key advisors who are former senior employees at the FDA within the division of clinical laboratory devices, planning to file a 510(k) application in the coming weeks after meeting with the FDA to agree on a regulatory filing pathway, updating both Medicare & the American Cancer Society on the status of the Company’s regulatory filing status, and inclusion of the Company’s stool DNA-based screening test in the most recent World Gastroenterology Organisation colorectal cancer screening guidelines. The updated World Gastro guidelines now classify stool DNA-based screening as a new testing option instead of the previous classification as an emerging technology.

The Company’s stool DNA-based test is now listed as an alternative to standard colorectal cancer screening tests in high resource countries to increase screening rates. This classification is noteworthy because some of the advisors to the World Gastro guidelines are also members of the US Multi-Society Task Force, which is expected to update colorectal cancer screening guidelines in November based on statements by the American Gastroenterological Association [AGA] Institute in a recent review of virtual colonoscopy. The AGA Institute concluded its review by stating, “We look forward to the updated recommendations on screening for colorectal cancer from the US Multi-Society Task Force and the US Preventive Services Task Force in November.” Further evidence for inclusion of the Company’s stool DNA-based test in upcoming guidelines comes from a letter from the American Cancer Society Cancer Action Network in support of EXACT’s national coverage determination application to Medicare and the American Society for Gastrointestinal Endoscopy [ASGE] website which already includes testing for abnormal DNA in the stool as an alternative screening test for colorectal cancer if colonoscopy is not available.

Based on the 1997 guidelines document for considering new colorectal cancer screening tests, decisions are based on performance of the test, patient preference for the test, and the cost-effectiveness of the test. A 2004 New England Journal of Medicine study has previously demonstrated that EXACT’s Version 1 test was four times more effective than fecal occult blood testing, which is already included in the guidelines. (Note: A full list of references to journal publications referenced in my article is available at the following link). A study by Schroy & Heeren of over 4,000 patients to compare their attitudes about routine colorectal screening tests demonstrated that 45% of patients preferred stool-based DNA testing, 32% preferred fecal occult blood testing, and just 15% preferred colonoscopy. Also, another study by Schroy with 263 subjects demonstrated that colonoscopy (50.6%), stool DNA-based testing (28.1%), and fecal occult blood testing (18.3%) were preferred over other screening options. Noninvasive stool-based tests, particularly stool DNA-based testing, were identified by most individuals who preferred an alternative to colonoscopy, which supports the American Cancer Society’s goal of achieving a 75% compliance rate by 2015 for people over age 50 based on colorectal cancer screening guidelines.

Within the next month, EXACT Sciences is expected to receive clinical trial results for its Version 2 Technology from lead investigator Dr. Itzkowitz of The Mount Sinai Medical Center, achieve clarity with the FDA on the regulatory filing pathway for PreGen-Plus, and achieve inclusion in updated colorectal cancer screening guidelines by the American Cancer Society & the US Multi-Society Task Force. Together with the first phase of the Version 2 study reported in January 2007 which demonstrated 88% sensitivity in the detection of colorectal cancer, the combined results will offer a substantial data set from 82 patients with colorectal cancer and 363 individuals with normal colonoscopy results. The recent FDA warning letter can be viewed as simply accelerating the Company’s original strategy of receiving regulatory approval for its next generation stool DNA-based colorectal screening test rather than causing more delays in upcoming guidelines inclusion since LabCorp was not contacted by the FDA. PreGen-Plus is still being marketed and represents the best available option at this time, based on clinical evidence of effectiveness and patient preference, to support the American Cancer Society’s goal of increased colorectal cancer screening rates.

Disclosure: Author has a long position in EXAS

Comments

[AlanBrochstein]

Your assessment is probably more correct than Adam's. The stock is down because the catalyst is pushed out, but not the likelihood of it occurring. GPRO, though not as leveraged to the success of the product, experienced a very similar type of event on a new test when the FDA required that it pursue the 510k on its new automated machine. Notice that the stock hasn't even pulled all the way back to the top of the base it has formed (3). It shouldn't. I have no position, but I have seen this before.