Get all your news in one place.
100’s of premium titles.
One app.
Start reading
The Street
The Street
Business
Maxx Chatsko

Did a Huge Government Program Just Boost One Major Biotech Stock?

A colonoscopy is the most accurate way to screen for colon cancer, which is recommended for all individuals once they reach age 45. But it certainly isn't the most convenient or private. It involves, well, you know, an invasive procedure to check for cancerous and precancerous lesions in your colon.

Those drawbacks for the standard of care have been a boon for Cologuard, which is a stool-based test administered by individuals in their own home. The convenience helped it become the first diagnostic test ever to reach $1 billion in annual revenue in 2021. That might only be a fraction of the product's true potential, especially considering Exact Sciences (EXAS) expects to capture 40% of the $18 billion cancer screening market across multiple products.

Of course, investors should acknowledge the nuance of real-world treatment settings. Both preventative screening tools are often used in conjunction. For example, individuals who receive a positive result with Cologuard often require a follow-up colonoscopy to confirm the diagnosis.

Here's the problem for Exact Sciences: A follow-up procedure isn't currently covered by Medicare. That leads some patients to skip Cologuard altogether to avoid being charged, or worse, charged twice for roughly equal tools. Luckily, a proposed rule change could turn this challenge into a big opportunity for the business in 2023.

Will Cologuard Become the Default Option?

The Centers for Medicare and Medicaid Services (CMS) is tasked with setting prices for medical devices, diagnostic tests, and other health procedures for individuals who receive Medicare and Medicaid. More precisely, CMS determines how much it's willing to pay for services and how services are defined. This is formally known as the Physician Fee Schedule, although it's more commonly referred to as reimbursement.

The sheer size of these socialized programs gives CMS considerable power in the market, which helps to keep health care costs lower for everyone. Although the private sector may disagree with how services are defined or levels of reimbursement, the Physician Fee Schedule is only updated once per year. If a company is caught on the "wrong side" of a pricing decision, then it must keep arguing for change and wait until next year.

CMS makes proposed rule changes each summer, then finalizes rules each November for the following calendar year. The recent batch of proposals could impact reimbursement for 2023. Among the possible rule changes is a slight tweak in the semantics of colon cancer screening. The government may now consider a follow-up colonoscopy after a positive result with Cologuard to be a preventative service, which means Medicare patients could receive one for no cost.

It may not seem significant. However, should the proposed rule change be accepted it would provide a significant boost for Cologuard. The at-home, stool-based test must be ordered by a doctor. If there's no potential for patients to be hit with additional costs, then more doctors might be willing to prescribe Cologuard as the first screening option. That could add up across the more than 200,000 primary care physicians who have ordered the test. It could mean even more for the next-generation test in development.

Rule Change Would Help Cologuard 2.0 Dominate the Market

Exact Sciences has done an excellent job navigating reimbursements for Cologuard to date. If CMS accepts follow-up colonoscopies as preventative screenings, then that should remove the last major economic barrier to prescribing the at-home test as the first treatment option. That's not the only headwind to growth though.

Doctors still favor colonoscopies over Cologuard due to the former's superior accuracy in detecting precancerous lesions. Whereas colonoscopies can detect roughly 60% of these worrisome clusters, Cologuard can only detect about 42%. That's created some hesitation in the minds of physicians.

Luckily, a next-generation diagnostic simply called Cologuard 2.0 appears to be even more accurate across all metrics, including a 57% detection rate for precancerous lesions. If those results hold up in a real-world study now underway, then Exact Sciences would be well on its way to capturing 40% of the $18 billion colon cancer screening market.

The proposed rule change from CMS greased the wheels. The rest is now up to execution and the science behind the company's technology platform.

Sign up to read this article
Read news from 100’s of titles, curated specifically for you.
Already a member? Sign in here
Related Stories
Top stories on inkl right now
One subscription that gives you access to news from hundreds of sites
Already a member? Sign in here
Our Picks
Fourteen days free
Download the app
One app. One membership.
100+ trusted global sources.