Not Exact, but Close Enough

Exact Sciences (Nasdaq: EXAS  ) Cologuard isn't as precise as the developer's name would imply, but it looks to be good enough to get the job done.

The non-invasive colorectal cancer test detected 64% of samples from patients with pre-cancer polyps, and 85% of cancers in stool samples. The test looks for altered DNA from cancer cells that get shed into the stool.

That's probably not as good as a colonoscopy, but it provides a good alternative for the 40% of people over the age of 50 who should get a colonoscopy, but don't because ... well ... let's just say I hear they aren't much fun.

The test had a specificity of 88%; in short, 12% of the samples it called positive didn't actually have a sign of cancer. Again, that's not 100% exact, but since the patients with false positives would just go on to get an uncomfortable-but-generally-safe colonoscopy to confirm the test, a false positive rate in that range is more than acceptable.

How well could Cologuard sell? There's no real competition, and insurance companies UnitedHealth Group (NYSE: UNH  ) , Humana (NYSE: HUM  ) , and Aetna (NYSE: AET  ) would gladly pay for the test rather than have to pay for costly treatments if the colorectal cancer goes undetected. The limiting factor is probably getting people to take a stool test. While not many people over the age of two like playing with poop, patients may be willing to do it if they can avoid a colonoscopy.

But we're getting a little ahead of ourselves. Exact Sciences still has to run a clinical trial to confirm the results. These results came from frozen samples of well-characterized patients.

Exact Sciences opened down 14% today, but that may be mostly profit taking after a substantial run-up going into the data release. There's still some risk here -- witness Sequenom (Nasdaq: SQNM  ) for an extreme blowup of a test-maker -- but Exact Sciences isn't particularly expensive. If you're willing to wait for the test launch, the risk-reward looks good from here.

Motley Fool Options has recommended a diagonal call position on UnitedHealth Group, which is a recommendation of the Motley Fool Inside Value and Motley Fool Stock Advisor newsletters. The Fool owns shares of UnitedHealth. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. The Fool has a disclosure policy.


Read/Post Comments (7) | Recommend This Article (7)

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  • Report this Comment On October 29, 2010, at 11:35 AM, portefeuille wrote:

    The test had a specificity of 88%, or said a different way, 12% of the samples it called positive didn't actually have a sign of cancer.

    ----------

    not quite.

    specificity = TN/(TN+FP) = 0.88 = 88/(88+12), where

    TN = number of true negatives

    FP = number of false positives.

    -> 12% of those that are not positive (as determined by the "gold standard") are told they are positive, i.e. FP/(TN+FP) = 12/(88+12) = 12%.

    see for example here.

    http://en.wikipedia.org/wiki/Sensitivity_and_specificity#Spe...

  • Report this Comment On October 29, 2010, at 1:28 PM, Kleeno65 wrote:

    You state that this test, "That's probably not at good as a colonoscopy." You should probably post some numbers before stating that point. Last I checked colonoscopies still have a hard time detecting the flat lesions that tend to be more troublesome on the right side of the colon, where this test has a better ability to detect such developing cancers. Also, one can say that colonoscopies prevent around 90% of cancers, but in reality only prevent 60-70% of cancers, as discussed in an article from Annals of Internal Medicine in late 2008. There are many limitations to colonoscopy also, you are dependent upon the operator, as there are different skill sets amongst gastros & surgeons, & as stated before, flat or lesions indented within the colon wall are much harder to detect with colo. Remember when the PAP Smear test came out in the 1940's, it was only capturing slightly above 50% of the cancers, but by repeated testing, the disease has been nearly eradicated. This product is capturing 64% of the cancers and the product is still improving. You don't have to be "Exact" to be a difference maker when it comes to saving lives.

  • Report this Comment On October 29, 2010, at 1:30 PM, Kleeno65 wrote:

    Want to make this clear, Capturing 64% of the Pre-Cancers. Rather catch it sooner that later.

  • Report this Comment On October 29, 2010, at 5:13 PM, Troy2008 wrote:

    I will take the Exact DNA test over Colo ANY day.

    Grape sized piece into a container from my own home and throw it in the mail... as apposed to a 3 day ordeal?

    No brainer. Take it every 2 years and effectively boost the detection rate way up above any claim from colonoscopies!

  • Report this Comment On October 29, 2010, at 6:34 PM, kirkydu wrote:

    Cologuard in it's pre-market form catches about twice the percentage of cancers as the current non-colonoscopy screening test FOBT/FIT. Exact will get virtually all of that market, or about 6 million tests per year if the guideline has the test done every other year. (Troy, am I right on this, I had a beer with lunch?).

    Also to consider is that Europe also has this testing standard in its guidelines. So, the market is substantial, EXAS could be a $2-4B market cap stock by the end of the decade. A good comparison is to Cytyc which had the pap smear before they were bought out by Hologic.

    Start up and early history:

    http://www.fundinguniverse.com/company-histories/Cytyc-Corpo...

    Describing their market penetration:

    http://www.ftc.gov/opa/2002/06/cytyc_digene.shtm

    The Buy-out:

    http://www.marketwatch.com/story/hologic-to-buy-cytyc-in-62-...

    Interestingly, the founder of Cytyc is also the founder of Exact.

  • Report this Comment On October 29, 2010, at 9:14 PM, Troy2008 wrote:

    Interestingly Kirky, Europe doesn't reimburse for Colo until age 60! So 80% of the screening is...you guessed it, FOBT! Hurray for the Americans and ColoGuard!!!

    They should have called it ColoGold!

  • Report this Comment On October 29, 2010, at 11:33 PM, rads2005 wrote:

    Kleeno65: "Last I checked colonoscopies still have a hard time detecting the flat lesions that tend to be more troublesome on the right side of the colon"

    this is incorrect, and when IS the last time you checked? Additionally, last time *I* checked, flat lesions are uncommon.

    you are absolutely smoking crack if you think we're only preventing 60-70% of cancers. the Annals article you cite is already outdated for one, and for two was a CASE CONTROL STUDY.

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