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Exact Sciences: FDA/CMS Joint Announcement Shows That From Small Things, Big Things One Day Come

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Monday afternoon, August 11, the FDA approved Exact Sciences’ Cologuard test and in the same press release, CMS issued a proposed national coverage determination for the product (a final determination is expected within 90 days). As was noted in the press release, the use of the parallel path (which allowed simultaneous review and represents an unprecedented collaboration between the two agencies) marked the first time in history that the FDA has approved a technology and CMS has proposed national coverage on the same day.

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While both of these events were fully expected given the very favorable panel meeting earlier this year and Exact Sciences’ participation in the CMS Annual Clinical Laboratory Public Meeting, the fact that there was a joint announcement is a modest positive that eliminates any question about the support of this product by these agencies. We expect the product will formally be launched following a final CLIA inspection of the lab in Madison over the next couple of weeks, but believe this launch will be very soft in nature. The full launch is expected to begin once the CMS decision is finalized toward the end of the year, with meaningful revenues coming in 2015.

Still, we believe the company will immediately begin its multifaceted sales and marketing campaign aimed at informing physicians and patients alike of this new option for colorectal cancer screening. We highlight three things that we saw in the FDA press release that stood out and which help validate the market size. First, the approval encompasses patients up to 85 years old, which is older than the current 75-year-old age maximum recommended by the U.S. Preventive Services Task Force (USPSTF). Of course, physicians will likely continue to use published guidelines to help prescribe therapy, but this could help influence USPSTF as it reviews colon cancer screening guidelines once again this year (USPSTF currently does not recommend stool DNA testing). Second, CMS is proposing to cover the Cologuard test with a three-year interval, which is what we had already modeled.

We suspect there are people using an interval of four or even five years, which would have reduced the annual opportunity for the product. Finally, though the press release from the FDA does not contain all of the details on the label, the language may be indicative of a broad screening claim as opposed to a claim that is adjunctive to colonoscopy, which would be a bit more positive than we had originally expected. Of course, we are still awaiting a decision from the HAPG division of CMS as to the amount of the reimbursement (which is the major near-term question on the stock).

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We do not believe there is any kind of a read-through from today’s announcements that opens a window into the thought process on this topic. We expect to have clarity on the pricing in the form of a preliminary pricing decision by the end of the month. Our model continues to use what we believe is a very conservative $300 blended pricing level, though we suspect that something north of $350 would not be much of a surprise to many (and anything less would be seen as a clear disappointment).

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