An FDA warning letter, a notice of potential delisting of its shares from Nasdaq and a serious shortage of cash in a down market are enough to send any med-tech company into emergency mode.
Executives at troubled Exact Sciences (Marlborough, Massachusetts) have taken major steps to preserve existing cash while pursuing a strategic alternative for the business — specifically, a merger or acquisition.
Exact has been working to bring its promising non-invasive DNA-based colon cancer test technology to market but has encountered numerous hurdles. As a result, president/CEO Jeffrey Luber in a conference call last Friday said he has dismissed most of the R&D staff (eight employees), suspended the clinical validation study of its Version 2 technology of a colon cancer diagnostic known as PreGen and is seeking the re-negotiation of certain fixed commitments.
"These moves are designed to preserve our capital resources and extend our operating runway as we continue to pursue a strategic partner, which is a priority," Luber said "We made the difficult, but necessary, decision to suspend the clinical study of our Version 2 technology and eliminate eight positions. With this week's cost-cutting measures implemented, we will have greater flexibility to execute on a strategic transaction. We currently expect that, with these measures, it will extend our existing cash through the second quarter of 2009. We are also in discussions with others regarding certain fixed commitments which may extend this time period longer."
The difficulties started last October when Exact received an FDA warning that data the agency obtained from the Centers for Medicare & Medicaid Services (CMS) regarding Exact's PreGen indicated it was used by commercialization partner LabCorp (Burlington, North Carolina) in both its main facility and in its plant in Burlington.
Exact's efforts to commercialize the test are an illustration of the changing tide at FDA for tests that previously have fallen under "home brew" rules.
Use of the assay outside of Exact's plant evidently prompted a red flag that sparked FDA's interest. Because the test was designed, developed, validated and marketed by Exact rather than LabCorp, the assay was outside the scope of lab-developed tests over which the agency has traditionally applied enforcement discretion.
And, because it is not PMA- or 510(k)-cleared, the FDA cited Exact for misbranding and adulteration.
In June, LabCorp informed Exact that it plans to launch a single-marker, laboratory-developed, stool-based DNA test, known as ColoSure, for colorectal cancer screening, which is also based on Exact's IP. LabCorp stopped offering PreGen at the same time. ColoSure is different from Exact's PreGen - which is based on 23 genetic markers - because it is based solely on the Vimentin gene, a methylated DNA marker that in published studies was shown to be associated with colorectal cancer.
Exact subsequently expanded its agreement with LabCorp, allowing for broader distribution of Exact's DNA technology.
Luber said Exact has recently met with the FDA regarding pending submission of a 510(k) for Version 2 of PreGen, and the FDA told the company that regulatory path, rather than a PMA, is feasible.
On July 10, the agency further defined required clinical performance characteristics and the minimum number of average-risk cancer samples that will be required for validation of its Version 2 test. The prospective, multi-center study, which is expected to include about 30 sites participating across the U.S. and Canada, is designed to screen up to 5,000 asymptomatic individuals aged 50 or older who are at average risk for developing colorectal cancer (CRC). This study population would be expected to yield a minimum of 25 acceptable CRC cases. The clinical study is powered to exceed the FDA's minimum sensitivity performance threshold of a 95% confidence interval.
The day after clarifying FDA requirements, on July 11, Exact received notice from the Nasdaq Stock Market that it is not in compliance with Nasdaq Marketplace Rule 4450(b)(1)(A), which requires a listed security to maintain a minimum $50 million market capitalization.
The company reported a net loss for the quarter ended March 31, 2008 of $2.5 million, or 9 cents per share, compared to $1.9 million, or 7 cents per share for the quarter ended March 31, 2007.
"About four months ago, we began the search for a strategic partner with help from our investment partners, Leerink Swann. We reached out to 40 companies, received interest from many and met with several. Our discussions were varied. One company was highly enthusiastic, but wanted to wait until we received FDA clearance," Luber said. "We also considered a potential capital raise to extend our operating resource. But based on capital markets and a delisting notice we recently received from Nasdaq, funding our FDA clinical study became a very expensive prospect and we didn't believe raising capital was in the best interest of shareholders.
"Instead, we've reduced expenses, put our FDA study on hold and will be pursuing a strategic transaction aggressively over the next several months," he said.
On the bright side, Luber said LabCorp has now launched ColoSure, which will provide a much needed revenue stream.
"ColoSure is based on single genetic marker. It's easier to run than PreGen and offers opportunities for greater lab efficiency," he said. "More than half of 90 million Americans [who need the testing] are never screened for colon cancer because they are unwilling or unable to do a colonoscopy and this taps that significant market. We'll receive a 15% royalty from LabCorp associated with sales of ColoSure. With a double-digit royalty stemming from this opportunity, I believe there is much to be enthusiastic about."