Exact Sciences Corporation (EXAS)
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most people being inadequately tested or not tested at all Exact Sciences is going after
the colorectal cancer market with a non-invasive test for early detection
Mr. Hardison: I joined Exact about four years ago. I had been in healthcare for most of my business career with SmithKline Beecham Corporation and Quest Diagnostics Incorporated (NYSE: DGX), then moved to a consulting firm and finally I came to Exact Sciences in May of 2000. It has been an interesting four years.
CEOCFOinterviews: What attracted you and how has it changed under your leadership?
Mr. Hardison: What attracted me was the idea of doing something about a cancer that most people should die from. Unfortunately, 57,000 people die each year of colon cancer, which is the second largest cancer killer after lung cancer. It is one of those cancers that if you catch it early you live and if you catch it late, you have a bad prognosis. The opportunity to work with a company that had technology that could be developed into a test that could detect this cancer early was one of the big attractions of EXACT Sciences for me. The other thing I would say is that the technology and the patent estate this company had established led me to believe that we had a chance to continue to improve the colorectal cancer test, and maybe also have an impact on other cancers. As for how the company has changed, first, we became a public company. We signed a strategic partnership with Laboratory Corporation of America Holdings (LabCorp®), which we think is unprecedented in the molecular diagnostics space in terms of the scope of the agreement and financial arrangement. And finally, we launched our first test called PreGen-Plus, which has been on the market since August of last year. So there have been quite a few changes in that four years.
CEOCFOinterviews: Will you tell us about PreGen-Plus?
Mr. Hardison: PreGen-Plus is a test for the early detection of colon cancer and it uses a stool sample from a patient. We isolate human DNA from the stool sample and look for specific mutations and markers that have been associated with colon cancer; if the test is positive, the physician refers the patient to a colonoscopy. If the specimen is negative, the patient should be screened on a regular basis for the rest of his or her life; you usually start screening for colon cancer at age fifty and above. Because it is a DNA based test, it is much different than the other tests that have been historically used for colon cancer screening, which are normally blood tests that are indirect measures for cancer. We are looking for changes in the DNA that are indicative of cancer.
CEOCFOinterviews: How has it been received?
Mr. Hardison: The test has been received well to date, although nothing happens as fast as we would like. Our business model is somewhat unique: we are selling the product through LabCorp and our respective sales organizations are now calling on primary care physicians to educate them on PreGen-Plus. There are two challenges they have to overcome; the first is getting physicians to recognize that colorectal cancer is a serious concern. When you are over fifty years old, the doctor and patient have a number of things to talk about other than colorectal cancer, so making that top-of-mind for a physician is difficult to do. Making PreGen-Plus one of the options that the physician discusses in terms of colorectal cancer screening is the second part of the puzzle that the sales representative has to help solve. What we have seen is a steady uptake for the test over time. What we are looking for now are certain other things that we think could be catalysts to help the uptake even further. Those would include the publication of a major study that we completed in October of last year that we have submitted to a major journal, and we hope will be published sometime this year. The second thing would be inclusion into the screening guidelines of The American Cancer Society or the GI Consortia; we hope that happens sometime over the next year, although sometime in 2005 is probably a more realistic expectation. With Medicare, screening tests have to go through a national coverage decision process and that typically takes nine months to a year.
CEOCFOinterviews: Is this reimbursable under non-Medicare insurance?
Mr. Hardison: It has been for the most part so far. LabCorp has many contracts with payers, and when you bill for a screening test such as PreGen-Plus, it is an amalgamation of CPT codes (Current Procedure Terminology) and units of use and if those CPT codes and units match codes on a contract that LabCorp has with a payer, they are typically paid. Today, there have been more than ninety payors that have paid for the tests, of which we are aware. We think that is very good for a newly-introduced test.
CEOCFOinterviews: Are there other things that a colonoscopy could find, which would make that preferable?
Mr. Hardison: If you could only get one test and people could, and were willing to get a colonoscopy, we would have a difficult time being in business.. But the facts are that most people will not undergo an invasive screening test if they are asymptomatic and of average risk; colonoscopy has been around for years and most people have never gotten a colonoscopy. Most people probably dont even know what a colonoscopy is. You do see the entire colon with the colonoscopy, but it is an invasive procedure and it is not a pleasant experience.You typically miss a day of work, and many centers will require somebody to bring you to the center and bring you back home, so that person will miss part of the day of work too. It is a great test in its accuracy, but unfortunately, with all those things I mentioned, most people will not undergo a colonoscopy unless they are symptomatic and asked to by a physician. There is a big need for a non-invasive highly sensitive and specific test to get more people screened.
CEOCFOinterviews: Is there anything competing with PreGen-Plus?
Mr. Hardison: There are no other non-invasive, stool-based tests in development. The data suggests that of the eighty million people above the age of fifty, maybe half or more have never been screened at all. But the fact is that no one test can handle all the potential people that need to be screened, so we actually welcome the publicity that other technologies might bring to colorectal cancer screening. What we want to be is one of those options that are made available to a patient and we are hoping patients will go to a doctors office and ask about colorectal cancer screening, and PreGen-Plus will be one of those options. The so-called competition is helpful to us because we are going after a large, untapped market.
CEOCFOinterviews: In terms of educating the public directly, how do you fit in?
Mr. Hardison: We have spent a lot of time with advocacy groups, who focus on colorectal cancer or screening medicine. We have made some good contacts in that community and those folks are very much concerned about getting people screened. We think that we can play a big role in that. We are going to take an even more active role going forward and we will start to do some pilot direct-to-consumer advertising through television and print, to see how that might affect knowledge of colorectal screening and the PreGen-Plus test. We will start that sometime this year and we are very excited about trying some new things now that we are seeing some uptake on the tests; we want to try to do some things that will spur that growth even more.
CEOCFOinterviews: What does Exact Science have that enables you to do this test, and will allow you to use for other things going forward?
Mr. Hardison: We certainly have a broad patent estate that includes sample preparation. That is important as for years, scientists had speculated that if you could isolate human DNA from a stool sample and look for specific mutations, you could detect colorectal cancer. So, while the idea had been around for a while, we were the first to figure out a way to isolate the human DNA every time from the sample, which was a huge technical achievement. That same sample-prep technology might be applicable to other bodily fluids, which would allow you to look for mutations that are associated with other cancers. We have markers that we think have broader application than colorectal cancer; they may also detect other cancers, but it is still early to determine if that really is the case right now."
CEOCFOinterviews: Will you tell us about the financial condition of the company?
Mr. Hardison: At the end of the first quarter we had 65 million dollars in the bank. We have a very strong balance sheet and no debt. We will burn around 24 million dollars in cash this year. We have a very manageable cash burn rate. Almost all of our money is focused on two areas; one is the strategic marketing area and the other money goes to applied research as we try to develop better and better colorectal cancer tests. We are a very focused company and we try to stay away from things that are not our core competency. We have aligned ourselves with a strong partner in Laboratory Corporation of America. They have a different set of competencies than us and that allows us to concentrate on what we do best and vice versa. It has been a nice partnership and it has allowed us to maintain a relatively low burn rate.
CEOCFOinterviews: In which way would you like the colorectal tests to be better?
Mr. Hardison: To continue to improve the sensitivity of the test to pick up invasive cancers and advanced adenomas. By identifying the important adenomas and then having them removed before they transition to cancer would be huge. The primary way that you discover advanced adenomas today is through an invasive procedure. We believe through the use of additional or different markers or improved chemistries, we will be able to offer non-invasive tests that could not only save lives, but actually prevent the cancer. We are pursuing a number of different avenues to make that happen over time.
CEOCFOinterviews: Do you have any plans to go outside of the United States, or is it too early for that?
Mr. Hardison: We are certainly getting inquiries from outside the United States; we got one today from Spain and one from the Netherlands a couple of days ago. We were at the Digestive Disease Week conference in New Orleans last month and we were approached by people from other countries that would like to offer the test. We try to stay focused in the U.S. because the market is very large here and the reimbursement environment in the United States is better right now than it is in some of these other countries. The problem of colorectal cancer is pretty much the same all over the world. It is a huge public health issue worldwide, so eventually we will find ways to other countries but for now, we want to stay focused on the United States.
CEOCFOinterviews: Why should investors be interested?
Mr. Hardison: We are going after a large market and I dont know of very many markets where you have 80 million people who should be tested on a regular basis. Most of them are not being tested at all or are being tested inadequately; therefore, many people are dying needlessly. We are dealing with a cancer that, from a molecular standpoint, is the best understood of all cancers. We have a non-invasive test that is sensitive to many of the mutations associated with colorectal cancer; it is specific so it doesnt have very many false positives. It is a cost-effective test; we know from data so far that over half the people that have used our test have never been screened before. We have seen growth already but we think we will be able to grow this product to over a million tests a year in the next three to four years after inclusion into screening guidelines or being part of the Medicare program. A million tests may not seem like a lot out of 80 million people, but there arent many markets where you can have that small share, yet have such significant revenue potential. We are talking about a product that has huge possibilities.
CEOCFOinterviews: What should people know about Exact Sciences that they may not realize when they look at the company?
Mr. Hardison: We like to term ourselves as an applied genomics company. What we do is applied research; we are not doing discovery of new genes - we have plenty of people who come to us with those discoveries. We take their discoveries and put them into assays that we develop that can be brought to market. The other side of it is that I think we have a competency in strategic marketing. We approach marketing like a product company would; much like a pharmaceutical company would, which is very unique in the diagnostic world. Diagnostic companies are wonderful companies but they have not historically been known to be great marketing companies because the marketing is not what they have focused on. The fact that we focus on marketing like a biotech company does, combined with the applied research competence that we have, makes us relatively unique in this space. The other thing people should know is we are going after early detection of colorectal cancer; most people who are in biotech related companies are trying to find drugs that will cure later stage cancers. We are trying to keep people from ever having to get to those drugs. By screening patients and catching the cancer early, we greatly increase the chances of survival. Its also important to note that you wont have to go through the agony of surgery and chemotherapy if the cancer is caught early enough. Most of the companies working on cancer are working on therapeutics; we are on the other end of it. There are not many companies working in this area and that is one of the things that makes us unique.
CEOCFOinterviews: In closing, as CEO, what are your functions throughout the day?
Mr. Hardison: I spend a lot of time on people. I have found that over the years it all comes back to what kind of people you have. Simply stated, if you get the right people you can pick almost any strategy. With that in mind, I spend much of my time on people related issues. We also do quite a bit of work with investors. I never get tired of telling our story. And I spend a lot of time reviewing our strategy, making sure that we stay on course and execute properly.
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