EXACT Sciences (NASDAQ: EXAS): Patience Required for Long-Term Upside Print E-mail
Tuesday, 03 November 2009 16:02
On 11/3/09, EXACT Sciences (NASDAQ: EXAS) reported its 3Q09 results and held a conference call to outline the Company’s progress and timeline for the development of a stool DNA based test kit for the early diagnosis and prevention of colorectal cancer (CRC).
EXAS reported total revenue of $1.3 million (which primarily reflects non-cash recognition of Genzyme deal earlier this year), a net loss of $1 million, operating expenses of $2.3 million, and ended the quarter with cash / equivalents of $26.9 million.
Last week, EXAS made a SEC 8-K filing regarding its President / CEO, Kevin T. Conroy, who is considering a run for Governor of Wisconsin in 2010. Mr. Conroy stated on the call today that a succession plan is premature at this point, and he plans to make a decision in the very near future on whether to make the run for governor (this would be communicated in the form of another SEC 8-K filing) – indicating that he is only considering such a move because of confidence in the strong team that is already in place at EXAS.
In March, EXAS conducted a management overhaul that included Mr. Conroy and CFO Maneesh Arora, following their successful tenure at Third Wave Technologies. In early August, EXAS announced the appointment of Graham P. Lidgard, Ph.D., as Chief Scientific Officer, who has over three decades of clinical / molecular diagnostics experience and a successful track record of preparing and obtaining FDA marketing clearance for 510(k) and PMA submissions that includes leading the R&D organization at Gen-Probe (NASDAQ: GPRO). Other key collaborations include the Mayo Clinic (Dr. David Ahlquist), Johns Hopkins (Dr. Bert Vogelstein), Genzyme (NASDAQ: GENZ), Case Western Reserve (Dr. Sandy Markowitz).
A summary of the conference call and upcoming milestones for EXAS includes the following:
1.) Data is expected by 3Q10 to provide external validation of the Company’s stool DNA based CRC test kit.
2.) A clinical trial to support marketing clearance of the CRC test kit from the FDA is expected to begin during 2-3Q11. EXAS expects total costs of approximately $15-20 million for the FDA study, which will involve 20-30 sites.
3.) A submission to the FDA for marketing clearance is expected during 2012 via the 510(k) de novo route (since no predicate device exists with FDA marketing clearance). EXAS has received extensive input from the FDA for the design of this clinical trial and will remain in close contact with the Agency, following the same model of success applied at Third Wave for that Company’s HPV test.
4.) EXAS provided guidance for an average cash burn rate of about $1 million per month during 2010, which is expected to increase slightly as the Company continues to expand and adds additional personnel.
5.) EXAS expects a reimbursement rate of $300 for its next-generation (V3) stool DNA based test kit for CRC while the Company would likely receive approximately $150 per kit with gross margins in excess of 65% (roughly $100 per test kit in gross profit).
6.) The Senior Research Analyst for Life Sciences / Diagnostics, Quintin J. Lai, Ph.D., CFA, of Robert W. Baird was also on the call asking questions and previously followed Third Wave from its early stages of development. Analyst coverage for EXAS is likely to occur well ahead of its planned FDA clinical trial and 510(k) de novo filing given the huge unmet medical need for an effective mass screening tool for CRC and the large commercial opportunity – including a market of about 90 million people in the U.S. alone that would represent over $1 billion with a 30% penetration rate according to the Company’s estimates.
7.)EXAS has thoroughly examined blood-based detection tests for CRC and concluded the technology is not commercially or clinically feasible at this time given very low detection of pre-cancer (18%) and early-stage (Stage I) CRC (36%) along with a 10% false positive rate.
In late September, results were presented in Europe by OncoMethylome Sciences (OTC: ONCMF.PK) for a blood-based diagnostic test for CRC. The researchers collected blood before surgery from 193 patients known to have CRC, as well as from 688 controls undergoing colonoscopy for cancer screening. DNA was extracted from the blood plasma and tested for the presence of DNA methylation of specific genes. The sensitivity for early-stage CRC (I and II) was 41% and 80%, respectively. The scientists are currently enrolling people into a prospective colorectal screening study in several German colonoscopy facilities and expect to complete enrollment of 7,000 people by the end of 2009 in conjunction with discussions to several partners about distribution rights.
The stool DNA screening technology being developed by EXAS outperforms blood-based tests, especially for earlier stage disease / pre-cancer detection, which is critical for improved treatment and survival outcomes. In August 2008, research was published in which a total of 25 sDNA samples from CRC patients were analyzed and a next generation stool DNA technology (V3) correctly identified 23 (92%) of the cancers. In the 16 of 25 cases where there were paired stool and plasma DNA samples, the sDNA technology detected mutated DNA in stool in 14 cases (88%) while only 8 (50%) corresponding plasma DNA samples had detectable levels of mutated DNA.
 In addition, improvements to stool DNA screening technology to-date include ability to detect over 85% of CRCs and 50% of pre-cancers (higher than the 41% sensitivity for Phase I CRC reported by OncoMethylome) versus rates of about 50% and 20%, respectively, for blood-based screening with potential to expand sDNA screening technology for other GI-related cancers such as gastric, pancreatic, etc. after commercializing the V3 test for CRC.
Disclosure: Long EXAS

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