Can Exact Sciences turn Fecal DNA into Gold?

The Food and Drug Administration’s (FDA) Office of In Vitro Diagnostic Device Evaluation and Safety issued a Warning Letter to cancer test developer Exact Sciences (EXAS-$4.70) on Wednesday regarding regulatory matters related to its stool-based DNA test for colorectal cancer screening. According to the letter, the FDA believes that the commercial PreGen-Plus assay is a medical device requiring premarket approval or clearance.

In a conference call with investors, Chief Financial Officer Charles R. Carelli Jr. said the company had been planning to apply for FDA approval, but was waiting for guidelines from the American Cancer Society as part of the process. He said the letter was a "surprise" in light of the numerous discussions the company previously had with the FDA over the device.

Why did the FDA step in now?

Although the FDA regulates diagnostic tests sold to laboratories, hospitals and physicians, it uses discretion when regulating tests developed and performed by single laboratories, a group of tests known as “home brew” assays.

Careilli said the Company believed that the Centers for Medicare & Medicaid Services —once it accepted Exact Science’s application requesting a national coverage determination for the Company's DNA-based colorectal cancer (CRC) screening technologies—reached out to the FDA (back in August) for help in reviewing the clinical evidence supporting reimbursement for stool-based DNA screening technology.

After reviewing previously filed company documents with the SEC and recent regulatory developments at the FDA, the 10Q Detective believes that management at the cancer test developer mislead investors—or was grossly negligent in preparing the Company—to the likelihood that previously unregulated diagnostics could soon require FDA approval or clearance prior to marketing as well as being subject to other medical device requirements.

Timeline

Although the scientific studies that are the basis of the PreGen-Plus test were conducted or funded by Exact Sciences, the Company sells the product in collaboration with Laboratory Corp. of America Holdings (LabCorp), collecting up-front technology license fees (and, to a lesser extent, royalties on LabCorp’s sales of PreGen-Plus).

LapCorp is regulated under the Clinical laboratory Improvement Amendment of 1988 (CLIA) and is certified as qualified to perform high-complexity testing. As a result, LabCorp may develop tests in-house and offer them as laboratory services (so-called “home-brew” tests). As mentioned, the FDA has not historically regulated home-brew tests.

On January 13, 2006, the FDA sent correspondence to LabCorp indicating that PreGen-Plus may be subject to FDA regulation as a medical device. The FDA expressed particular concern that Effipure, supplied by Exact Sciences to LabCorp and used to enhance purification of DNA from stool samples, may be viewed as a device in of itself, potentially requiring FDA approval.

LabCorp informed the FDA during 2006 that they were developing an alternative in-house DNA purification procedure that could eliminate the use of Effipure in PreGen-Plus.

Nonetheless, on September 7, 2006, additional alarm bells sounded when the FDA issued a Draft Guidance Document, which indicated the FDA was readying policies to include “homebrew” tests as medical devices, subject to FDA regulation—and that the FDA would require pre-market clearance for certain types of homebrew tests involving the use of algorithms and scoring of results (in high-risk applications and strong clinical claims).

Scientific Background

Colorectal cancer is the third most frequently diagnosed cancer in the United States in both men and women. It is also the second leading cause of cancer death after lung cancer. CRC is thought to develop as a result of genes inactivated by mutation or other chemical modifications. Chromosomal instability is the most common CRC pathway and involves point mutations that occur in CRC-related tumor suppressor genes.

Clinical data on Exact Sciences fecal DNA assay reports a sensitivity of approximately 65% for CRC, 30% to 40% for advanced adenomas, and a specificity (calculated in patients with no presence of neoplastic lesions in the colon) of approximately 95 percent.

Principal investigator Thomas F. Imperiale, MD, from Indiana University, reported in this comparative trial that Exact Science’s DNA capture technology was four times more sensitive than fecal occult blood testing (FOBT).

As false positives are reported with DNA capture technology and FOBT, procedure-based detection technologies such as flexible sigmoidoscopy or colonoscopy are still recommended first-line.

Management at Exact Sciences previously insisted that the PreGen-Plus test did not represent the type of “algorithm-based” or “scoring” test to which the FDA Draft Guidance Document referred.

Screening for CRC lowers both the mortality and the incidence of CRC disease. Ergo, contrary to the claims of Exact Sciences, the “high-risk” application” criteria does apply to the PreGen-Plus test.

Managed-Care Policies

1. In 2006, the American Society for Gastrointestinal Endoscopy (ASGE), in their guidelines for CRC screening and surveillance, stated “there are currently no studies demonstrating a reduction in CRC-related mortality from fecal DNA testing, and the technique for the test has not been standardized.” As such, the ASGE did not recommend the PreGen assay for CRC screening.
2. In 2007, the American Cancer Society (ACS), while recognizing the potential promise in DNA testing, said, nonetheless, “more research is needed to confirm the accuracy of [these] tests before widespread use [can be] recommended.”
3. And, the National Cancer Institute said that although “the approach (e.g. detection of DNA mutations in the stool) looks promising, but…would be improved, if possible, by increasing sensitivity (perhaps by increasing the number of DNA markers.” (2007)
4. Cigna Healthcare’s current coverage position states that the “stool-based test is not intended to replace the colonoscopy in those patients who are willing to undergo the procedure” and “is not intended as a primary tool for individuals at increased risk.”5 Studies conclude that there may be a role for SB-DNA testing for individuals who may not be willing to undergo colonoscopy, which remains the “gold-standard” screening test. One-time testing is not reliable, and further studies are needed.

In our view, this reluctance or refusal on the part of guidelines writers to include stool-based DNA testing within screening guidelines as well as a reluctance or refusal on the part of physicians to order, and third-party payors to pay for tests based on PreGen-Plus, is material to the viability of the company as a going-concern. As such, contrary to the company’s position, strong clinical claims are necessary to convince third parties, physicians, thought leaders, and colorectal cancer screening guideline writers of the clinical value of PreGen-Plus or other stool-based DNA testing services utilizing Exact Science’s technologies. [Ed. note. Sufficient to ensuring FDA regulation!]

When a 510(k) is Not Required

In our view, more damning evidence of Exact Science’s culpability—or negligence—is found on the FDA’s home page, which lists exemptions/examples of when a 510(k) is not required.

As PreGen-plus “has a new intended use or operates using a different fundamental scientific technology (DNA capture technology/stool samples) than a legally marketed device then a 510(k) must be submitted to market the new device.”

Premarket 510 (k) Notification

A 510 (k) is a premarketing submission made to the FDA to demonstrate that the device to be marketed is safe and effective by proving substantial equivalence (SE) to a legally marketed device (predicate device). Substantial equivalence means that the new device is at least as safe and effective as the predicate.

Once Exact Sciences submits the 510(k), the FDA legally has 90 days to review it. During that process, the FDA may ask Exact Sciences for additional information at which time the "clock" is stopped and then resumed upon the FDA's receipt of the answer to their questions. If approved, the FDA will mail you a letter, with an assigned 510(k) number, that says they “have determined that [the] device is substantially equivalent to legally marketed predicate devices...and [company] may therefore market the device subject to general controls provisions of the (Food, Drug and Cosmetics) Act”

[Ed. note. The letter does not necessarily mean that the FDA is “approving” the device, only that the device is sufficient to—much the same as other devices (predicates) already approved by the FDA.]

Investment Risks & Considerations

Exact Sciences said it does not yet know the costs or timing of the approval process, or how the Warning Letter will effect Medicare's decision, leading to a $1.30, or 21.6%, drop in the price of its common stock.

Only an alchemist can turn sh-t into gold! ~ Unknown

In our view, visibility is lacking as to whether the Company has the expertise (e.g. regulatory/clinical affairs) necessary to shepherd its in vitro diagnostic kit through FDA regulatory approval.

In addition, while the stool-based DNA testing appears to offer promise as a noninvasive diagnostic tool in identifying the presence of genetic mutations known to be associated with CRC, the accuracy of the test in asymptomatic persons is unclear.

We believe that important concerns remain to be addressed before the FDA will recommend Exact Sciences stool-based DNA assay [for anyone but the most fragile patients—who have difficulty tolerating the currently available invasive CRC tests]:

• The Imperiale study was not an intent-to-treat analysis. Approximately 20% of subjects were not evaluated (12% did not provide an adequate stool sample for DNA testing; 8% did not complete FOBT cards; 14% did not complete colonoscopy). Missing data were not imputed.
• Does fecal DNA assay offer improved sensitivity against the “gold-standard” colonoscopy in a cross-over trial?
• Can false positive rates be maintained appropriately low for a screening program?
• What is the optimal screening interval?
• Which patients should not be screened with fecal DNA testing?
• Does the test improve compliance with colorectal cancer screening?

As previously mentioned, too, investors—or those looking to purchase shares—ought note that the American Cancer Society and the American Gastroenterological Association do not recommend analysis of human DNA in stool samples for colorectal screening.

In fact, no other medical specialty society or other related health organization has issued a policy statement, practice guideline, or position statement that endorses the use of the analysis of fecal DNA as a screening test for colorectal cancer including the American College of Physicians, the American College of Colorectal Surgeons, and the National Cancer Institute.

Editor David J. Phillips does not own a financial interest in Exact Sciences. The 10Q Detective has a Full Disclosure Policy.