Exact Sciences’ Cancer Test Won’t be a Commercial Success

Exact Sciences (EXAS) on Thursday released the long-awaited results of its DeeP-C trial examining the use of its Cologuard test in the detection of CRC and precancerous polyps.  The release initially caused a sharp sell-off in shares of Exact Sciences as the results weren’t as good as investors expected, but the stock rebounded significantly by the close and is up in early trading on Friday. We believe the late-breaking positive reaction is a head fake, and that Cologuard won’t become a robust commercial success in the long-haul. While the product certainly works, the results of the study suggest to us that Cologuard does not have enough of a benefit over existing products, like fecal immunochemical testing, to warrant what most believe will be a 10-12x price premium. And colonoscopy, the Gold Standard in colon cancer detection, still offers by far the best screening method available. Cologuard demonstrated a 92% sensitivity (true positive rate) for the detection of colorectal cancer and 42% for the detection of pre-cancerous polyps of >1cm (66% for polyps 2cm or larger). The test demonstrated a specificity (true negative rate) of 87% in the 10,000-patient trial. The specificity of Cologuard in the trial (and the reason for EXAS’ immediate sell-off) came up short of the 90% seen in earlier trials. In addition, the detection of pre-cancerous polyps was below the company’s 50% goal and short of the 59% that Cologuard produced in a previous, smaller trial. Consider that Cologuard’s 42% sensitivity in detecting pre-cancerous polyps is worse than flipping a coin, and that for every ten patients screened with Cologuard, 1 will receive inaccurate news that they have cancer.

While Cologuard may become one option in the arsenal of screening tests, we think that its pricing will be prohibitive of adoption by providers when considering its marginal benefits over existing tests. Dr. Deborah Fisher of Duke University commented in a New York Times article on Thursday that existing tests for blood in the stool detect about 80% of CRC’s and 20-40% of polyps and cost about $25. Additionally, FIT in the DeeP-C trial was about the same as Cologuard at detecting CRC (and had a lower yield at detecting polyps). What this means to us is that most of the CRC’s detected in this trial were bleeding (common), and would have been detected by FIT without Cologuard. It then appears that Cologuard provides no benefit over FIT in detecting CRC (and is projected to cost 12x more). In our opinion, the FDA won’t approve this test as anything more than another screening tool for CRC/polyps (much like FIT approval) and certainly not as an alternative to colonoscopy. And as the detection rate for CRC is about the same as FIT, we believe insurers will have a real issue with the significant additional expense of Cologuard that provides little or no improved diagnostic yield. In addition, patients have little desire to catch feces in a jar before storing it in their refrigerator overnight. Thus, we continue to believe that few physicians/patients will opt for this diagnostic alternative. There will be four more key binary events for the company: an FDA panel, a coverage decision from the Centers for Medicare and Medicaid Service (CMS), an FDA decision, and market release of Cologuard. Nothing that has been presented to date has altered our opinion about Cologuard, and we believe that reality about the utility/cost-benefit of this test will eventually set in.