FEATURE | SATURDAY, OCTOBER 6, 2012
A Better Test for Colon Cancer?
By ANDREW BARY
A key study of the effectiveness of an Exact Sciences test aimed at early detection of the disease nears completion. If it works, the company's shares should get healthier.
Colon cancer has been called the most preventable, but least prevented, form of cancer. There are more than 143,000 new cases and about 50,000 deaths from the disease in the U.S. each year, making it second only to lung cancer in annual cancer mortality.
If people over 50 adhere to medical-screening guidelines and get colonoscopies every 10 years, the odds of dying from colon cancer are very low because doctors can see and remove precancerous growths during the exam. It can take a decade or more for these precancerous polyps to turn into cancer. However, half of all Americans over 50 don't follow screening recommendations. Many never get colon exams because of cost, inconvenience, fear, or dislike of the unpleasant bowel-cleansing substances they must consume before the examination. So, more than half of colon cancers are diagnosed at a late stage, when death rates can be high, in part because the most common screening test—a check for blood in stool—isn't good at detecting precancerous growths.
THIS HAS CREATED AN OPPORTUNITY for little-known Exact Sciences of Madison, Wis., which has developed a sophisticated colon-cancer screening test based on DNA markers. The test is undergoing a large clinical trial involving 10,000 people that will compare its accuracy with the current stool-based test and the "gold standard"—the colonoscopy. The new test showed favorable results in two studies involving frozen stool samples, in 2010 and 2011.
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a "Feature" article from Barron's dated 10-12-2012
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Exact Sciences (ticker: EXAS) hopes that its self-administered stool test can detect 85% of cancers and more than half of pre-cancerous growths, with a false-positive rate of only 10%. That's considerably better than the best existing test, which detects an estimated 65% of cancers and fewer than 25% of precancerous growths.
If the Exact Sciences test becomes widespread, it might detect most precancers if administered every few years. Those who get positive readings would have a strong incentive to get colonoscopies, during which doctors can remove precancerous polyps before they become problematic or identify cancer at an early, curable stage.
If the trial results, expected in early 2013, are favorable, the test, known as Cologuard, could be approved by the Food and Drug Administration within a year and hit the market in 2014. It isn't easy to peg the potential size of the market because that depends on acceptance from doctors and patients, as well as the test's cost. But Exact Sciences' annual revenue could top $500 million or even $1 billion by the end of this decade if Cologuard gains wide acceptance.
Exact Sciences isn't totally undiscovered. Its shares have moved up 70% in the past year to about $11, producing a stock-market value of $700 million, as investors anticipate favorable trial results and commercialization.
There could be more appreciation potential, however, into the high teens or $20s, if the test clears key hurdles. Some investors are betting that FDA approval could prompt a takeover of Exact Sciences at a nice premium to the current share price by a larger health-care outfit.
However, Exact Sciences is risky. It has minimal revenue and is betting its future on the colon-cancer test. If trial results are disappointing and the test doesn't clear the FDA, the shares might collapse.
"While we acknowledge the risks inherent with a single-product company in the midst of their pivotal trial, we see this as a must-own name in the sector, given the multi-hundred-million-dollar annual market opportunity, the lack of competition, the cost savings this product can bring to the system, and the tremendous public health benefit that could emerge," wrote William Blair analyst Brian Weinstein in a report this summer. He rates the stock Outperform.
Weinstein is a fan of Kevin Conroy, who became Exact Sciences CEO in 2009 and is leading its charge on multiple fronts. Besides seeking FDA approval for the test, the company is trying to arrange for Medicare and private insurers to pay for it. It's also laying the groundwork to market Cologuard to large health-care groups that employ about 40% of the country's 300,000 primary-care doctors, who would prescribe the test.
Last month, Conroy told an investor group: "We've developed a test that is very, very powerful, sensitive for cancer and precancer. We have exclusive intellectual property around it. It's a test that's easy to use. I suspect it's a test that everybody in this room is going to want to use when it becomes available." Last week, sounding like a missionary, he commented: "We're totally focused on securing FDA approval and Medicare coverage for this innovative, noninvasive test and launching it broadly, first in the U.S. and then globally. This test could have a major impact on colon cancer incidence and mortality."