EXACT Sciences: Pivotal Colon Cancer Screening Test Results Expected Later This Year

Jun.12.12 | About: EXACT Sciences (EXAS)

EXACT Sciences (NASDAQ:EXAS) is a molecular diagnostics company focused on the late-stage development of a new non-invasive, genetic (Private:DNA) based screening test (Cologuard) designed to improve the rate of early detection of colorectal cancer (CRC) and pre-cancerous polyps (which have an estimated prevalence of 6% within the average-risk population age 50 or older that undergoes a routine colonoscopy for CRC screening).

Below is a summary of the financial stats and ongoing pivotal study for the Company's lead product candidate for colon cancer screening.

- As of 3/31/12, EXAS reported cash / equivalents of $83.5 million (NYSE:M) as compared to $93.4M at year-end 2011.

- As of 5/2/12, EXAS reported 57.1M shares of common stock outstanding and negligible debt.

EXAS is evaluating Cologuard (stool DNA based non-invasive molecular diagnostic test) in an ongoing pivotal (DeeP-C) clinical trial for the early detection of colorectal cancer and pre-cancers in up to 10,000 subjects with ClinicalTrials.gov ID NCT01397747. EXAS expects to complete the study and submit manufacturing / analytical modules of a PMA to the FDA by year-end 2012 (late 3Q-early 4Q12 estimate).

The Company has a strong patent estate that is expected to last about 20 years in the field of stool-based DNA technology (including sample processing, genetic / bio-marker panels, and testing methods), which is currently included in the American Cancer Society colon cancer screening guidelines but has not yet received FDA marketing clearance.

Cologuard comprises the following: 1) two methylation markers, 2) seven mutation markers (Kras) and 3) a stool-based hemoglobin test (NYSE:FIT) (detects hidden blood in the stool), which results in a single test result that if positive would lead to a colonoscopy referral. Cologuard is undergoing a parallel review by FDA/Medicare, which is a pilot program to streamline and expedite the review of medical devices (initially includes up to five innovative devices selected annually for the pilot program) for both marketing clearance (FDA/PMA) and national coverage determination (Medicare/CMS).

The pivotal study will enroll subjects between 50-84 years of age who are candidates for CRC screening and will seek to establish the sensitivity (the ability to successfully detect disease when it is actually present, i.e. ability to detect CRC when it is actually present--a high sensitivity results in a low rate of false negative errors whereby a condition is not treated when it should be) and the specificity (the ability to successfully identify the lack of a disease or a condition when it is not present, i.e. ability to rule out CRC when it is not present--a high specificity results in a low rate of false positive errors whereby a condition is treated when it should not be) using colonoscopy as the reference or gold standard.

Cologuard is designed to be a patient-friendly, non-invasive mass screening test for the average risk population of people age 50 and older at a projected price of $300 and is not intended to replace the gold standard colonoscopy for CRC. In the pivotal study, EXAS is targeting a sensitivity of at least 85% at a specificity of 90%, which was achieved in the most recent validation study last year in addition to a high rate for the detection of pre-cancerous lesions as outlined below.

EXAS has improved the performance of Cologuard over the past year based on its validation study results, including the following highlights outlined below (2010 validation study data listed first followed by 2011 results).

  1. Sample size: 1178 vs. 355
  2. Cancer detection rates: 85% to 98%
  3. Pre-cancerous lesion detection: 54% to 59%
  4. Specificity: 88% to 91%

Currently, over 4M screening colonoscopies and 10M hidden / fecal occult blood tests (FOBT / FIT) are performed each year and the target market for Cologuard is the latter tests, which have a high specificity but are very poor for pre-cancer detection and have low-average cancer detection rates (i.e. 66% cancer detection and 27% pre-cancer detection rates for fecal blood testing), which typically are in later stages by the time blood is present. Blood bio-marker based tests for CRC (for example Septin9) have demonstrated cancer sensitivity rates of up to 68% sensitivity for detection of CRC across all stages at 80% sensitivity w/ low sensitivity for the detection of pre-cancer.

Early detection (ideally at pre-cancerous stages) of CRC is crucial to long-term survival since it takes approximately 10 years for pre-cancerous adenomas to develop into CRC and the five-year survival rates are highest when CRC is detected at the earliest stages (stage 1=94%, stage 2=82%) compared to the later stages of the disease (stage 3=62%, stage 4=8%).

Colon cancer is currently the second leading cause of cancer death in the US, behind lung cancer, despite being the most preventable given the long time (10+ years) for pre-cancerous adenomas to develop into CRC and the high five-year survival rates when the disease is detected in the early stages 1-2. An estimated 150,000 people in the US develop CRC each year with 50,000 deaths attributable to the disease each year in the US alone and 600,000 deaths due to CRC on a global basis each year.

Poor compliance with CRC screening (colonoscopies) and the inability for fecal occult blood tests to detect high rates of pre-cancerous adenomas or early-stage CRC are major factors in the disease being the second leading cause of cancer death in the US as 60% of new CRC cases (150,000 new cases of CRC in the US each year) are detected at the later stages 3-4 which have the lowest five-year survival rates.

In addition, $14 billion is spent treating CRC each year in the US alone so while projected pricing of Cologuard at $300 per test is much higher than fecal occult blood tests (which are very cheap at $5-23); the overall savings to the healthcare system would be substantial if the validation study results are replicated in the ongoing pivotal study resulting in a mass screening test for the population with high rates of pre-cancer and early-stage CRC detection.

EXAS estimates the market opportunity for Cologuard at $1.2 billion in the U.S. alone based on a 30% adoption rate for an estimated 80M insured Americans over the age of 50 eligible for CRC screening (this number is expected to grow to 100M people by year 2020) with an expected reimbursement rate of $300 per test and a three-year screening interval.

This estimate seems conservative given the unmet medical need for a better CRC screening test, low rates of compliance with current tests (primarily due to the inconvenience of a colonoscopy), and inadequate results for the most widely used (over 10M per year) fecal occult blood tests.

In early 2009, EXAS conducted a management overhaul (with the share price increasing 10X from $1 to $10 in the interim) that included Mr. Conroy and CFO Maneesh Arora, following their successful tenure at Third Wave Technologies, which was sold to Hologic (NASDAQ:HOLX) in 2008 for $582M following the successful clinical development and FDA clearance of screening tests for cervical cancer.

In mid-2009, EXAS entered into a collaboration and licensing agreement with the highly regarded medical institution Mayo Clinic and Dr. David Ahlquist for patents related to components of Cologuard and stool-based DNA screening for CRC.

I plan to buy shares of EXAS and hold through the pivotal study as I estimate a high probability of success (i.e. 80%) as the Company has a proven management team and the nature of developing a cancer diagnostic screening test is much different than the higher risk route of developing a new drug or treatment. As illustrated by the improved validation study results last year, EXAS has refined and improved upon Cologuard prior to beginning the pivotal study to ensure the highest probability of success.

My plan is to continue tracking shares of EXAS until closer to the time of expected results, and to watch for updates as to the timing of results, which are currently estimated to be out by late 3Q to early 4Q12. A more specific timeline would make the event much easier to trade and likely result in a strong run-up in share price, as occurred going into the initial validation study results in fall 2010.

Finally, I would not be surprised if EXAS raises additional capital prior to the pivotal study results to support planned marketing and manufacturing activities (as outlined in their most recent SEC 10-Q quarterly filing) so this is another reason to remain on the sidelines until closer to the expected pivotal study results; although thanks to a strong balance sheet the Company has the flexibility to wait until after the results to raise capital at presumably higher stock prices (i.e. mid-upper teens) if the pivotal study results are positive to support FDA approval and widespread use for colon cancer screening.

Last month, EXAS announced an extension and expansion of its ongoing research and licensing collaboration with Mayo Clinic to include all gastrointestinal cancers and disease (i.e. potential new cancer screening applications of the Company's stool and blood-based technology and intellectual property beyond colon cancer). The agreement includes up-front, milestone and royalty payments to Mayo Clinic and continued funding for Dr. David Ahlquist's lab and represents an extension to the original agreement announced shortly after the management overhaul in mid-2009.

The primary risk with EXAS is that Cologuard will determine the future prospects of the Company for better or worse so if the trial fails to demonstrate adequate rates of cancer and pre-cancer detection then shares will decline substantially; although the improvements in the test demonstrated by improved validation study results this year suggest a high likelihood of success.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.