Four years ago, Exact Sciences was roadkill. The company, based in greater Boston at the time, had been experimenting with molecular diagnostic technologies for more than a dozen years. It had a stellar scientific pedigree from founder Stanley Lapidus. But it had burned through more than $170 million of investor cash, and still had no convincing clinical trial data to support a market-ready diagnostic test.
The company was down to its last $30 million of cash. For a while, it had to fend off a low-ball takeover bid for some of its assets. The stock fell as low as 80 cents. At that valuation, investors were basically saying Exact was worthless.
The story at Exact (NASDAQ: [[ticker:EXAS]]) is completely different today. The company, now based in Madison, WI, has put itself in position to start marketing its first diagnostic test in 2014. It’s a new genetic-based screening tool for colorectal cancer that has potential to be used by millions of people in the U.S. over the age of 50, who are currently unlikely to get screened via the more invasive colonoscopy. Exact’s Cologuard test, which analysts expect will be priced at between $300 and $500 a patient, was able to detect colorectal cancer 92 percent of the time in stool samples provided in a 10,000-patient clinical trial.
That data is currently under review by the FDA, and by folks at Medicare who are considering how much to pay for such a test. Investors are expecting both agencies to sign off on Exact’s test. That means the big question in the year ahead is whether Exact can make millions of people comfortable with the idea of shipping stool samples via FedEx to get screened for colon cancer. The other, related challenge, will be to prove its sales and marketing people can convince physicians to start recommending a test that’s unlike anything they’ve used before.
Wall Street investors, who are often skeptical of new molecular diagnostic rollouts, have bid Exact’s shares up to more than $11. Exact had more than $145 million of cash in the bank at the end of its most recent quarter, and the company’s market valuation has soared to $835 million.
People across the molecular diagnostics industry are watching closely to see how Exact will perform during this pivotal year ahead. Public health recommendations say more than 80 million people in the U.S. should be routinely screened for colorectal cancer, but fewer than half get tested. If Exact Sciences can capture 30 percent of the available market, and people get screened every three years, it could tap a $2 billion market in the U.S., according to forecasts it has provided investors.
“It is a big story. They’ve done an excellent job developing this test,” says Mark Capone, president of Salt Lake City-based Myriad Genetics (NASDAQ: [[ticker:MYGN]]), which markets a different genetic test for colon cancer that isn’t directly competitive. “They’ve put many years into their R&D, and all of it has been done with excellent guidance from opinion leaders in the field. The studies are well done. They went through the FDA process, which is rigorous. They’ve done everything you’d hope to do for a test of this significance.”
CEO Kevin Conroy and Maneesh Arora, the chief operating officer, had success working together once before at Madison, WI-based Third Wave Technologies, which they sold to Bedford, MA-based Hologic (NASDAQ: [[ticker:HOLX]]) for $580 million in 2008. Chief science officer Graham Lidgard, a former Gen-Probe executive, joined Conroy and Arora shortly into their turnaround venture at Exact in the summer of 2009.
Getting Exact into this position meant betting almost everything on the one massive clinical trial of 10,000 patients that it felt it would need to win over skeptical patients, physicians, and payers. This will be the year Exact finds out how well the market truly responds that gamble, and its investment of $150 million in R&D of its Cologuard test.
“We chose to do it because we thought it was the right thing to do,” Conroy said. “We have a philosophy of doing it once, doing it right, and investing what you have to do to do it right. Don’t do things incrementally. Make it big, and make it stick.”
Although Exact Sciences has not released full details from its 10,000 patient study in a peer-reviewed scientific journal or presented the results at a medical meeting, the data are being scrutinized now by the FDA. Conroy isn’t a blustery type, but he’s also not afraid to publicly predict big things for this test. “We are confident that Cologuard will change the colon cancer screening paradigm,” he says.
Lloyd Smith, a chemistry professor at the University of Wisconsin and a founder of Third Wave, said he likes and respects Conroy from his experience at the prior company. He’s just not sure yet whether Exact will be the next big success story for Wisconsin biotech, or whether it will be acquired and sliced up like other companies from the past. “Kevin is a good guy, and a good manager,” Smith said. “He puts the whole company on one thing and doesn’t get distracted. He’s careful how he places his bets.” Plus, Conroy has a strong working relationship with Arora, the No. 2 exec, Smith adds.
The story of the turnaround at Exact Sciences goes back to January 2009. That was when the board approached Conroy about his interest in joining as CEO, fresh off his success at Third Wave. Conroy and Arora took a close look. They saw technology that they liked. Lapidus, Conroy felt, was “ahead of his time” in envisioning possibilities for DNA-based noninvasive colorectal cancer screening. Conroy and Arora studied
