HOGAN MALALI (Encode): Jorge do you have anything to add maybe to that conversation?
JORGE GARCES (CSO Epigenomics): I think Greg covered a lot of it. But one really good way to think about it is the shots on gold, that you have to detect these cancers. So they're very slow progressing cancers and if you have a test like colonoscopy you in essence only have three colonoscopies over a lifetime to pick up that cancer, right. If it's every 10 years. With Cologuard you have eight shots on goal over a 25 year period. And with the blood test or even a FIT test you have really 25 chances to catch that cancer, because you're doing it more frequently. Then the question becomes, well, am I willing to do something 25 times versus three times? And clearly the data shows, that people are not willing to do a colonoscopy. There's very low compliance with a stool test. People don't want to do something out of the everyday and play with their stool. And so blood tests fits very well with the standard of care for these patients. They go see their doctor every year. They get annual exams. It's just another blood tube from the same blood draw, that they have to provide in order to get screened. So it takes very little effort from the patient to participate in screening by incorporating a blood test. And so, really ease of use way, way outbenefits all the other factors, that that are often mentioned in in these type of screening programs. HOGAN MALALI (Encode): And really the sensitivity for Epi ProColon is quite similar to FIT.
JORGE GARCES (CSO Epigenomics): Absolutely.
HOGAN MALALI (Encode): And FIT is really a gold standard test after colonoscopy. FIT is the next sort of the gold standard. And your label indicates that, correct?
JORGE GARCES (CSO Epigenomics): Across all stages of cancer and across advanced adenomas which is a pre-cancer state we have the same sensitivity as FIT. We've done head-to-head comparisons to show that.
And really going back to the cervical cancer example that Greg laid out there. You know HPV screening came along many, many years later with a sensitivity of - funny enough - about 92 to 93 %. And what is recommended for cervical cancer today is: Either you do a pap smear test, which is only about 55 sensitive. And you do a pap every three years. Or you do an HPV test every five years. So again, you're spacing out the frequency of the tests based on the sensitivity. But they're both equally effective.
So, I think it's to just highlight specificity and sensitivity only tells a part of the story. The entire story is: How willing are people to do the test? How frequently can you do the test? And in the end can you reduce the mortality and the incidence of the cancer implementing any strategy?
HOGAN MALALI (Encode): Okay, well thank you. That's great. So, I guess if there's the sort of topic du jour as you're a month away from a huge CMS reimbursement decision. You already have an FDA PMA approval. How is the CMS process different than what FDA looked at, when they approved Epi ProColon back in 2016?
GREG Hamilton (CEO Epigenomics): Can go to the slide for “CMS Decision Criteria”. So when FDA looks at a test, then FDA is looking at the safety and efficacy [Wirksamkeit] of the test. So the big difference in FDA versus CMS is: CMS's criteria is defined as what's called reasonable and necessary. So reasonable is, that they need to check the boxes that it is safe and effective. So there are some tests that are presented to CMS that are not FDA cleared and they have to determine is it reasonable that it's safe and effective. Once it's FDA cleared, that's a box that the FDA checks and CMS just needs to make sure, that it's there.
The big thing that CMS looks at is what's called clinical utility. What are the long-term benefits and harms of the test in the patient population that the test is designed for? And so for Medicare specifically is it is it going to provide a benefit to Medicare patients. Is there a long-term benefit to doing the test? So ultimately in this space, that is proven by the data we just showed you, which is from a micro simulation model, that shows: Does the test reduce the incidence and the mortality of the cancer? That is the goal and that's the definition of clinical utility.
So the other main part of the decision from CMS is, is it necessary? And so there they look at wether there is a problem in Medicare patients, that they’re trying to solve. And this one's very easy. We know that there is over 9 million unscreened Medicare patients. So clearly a significant issue in Medicare. And a blood-based test has the opportunity to save over 225.000 lives and detect over four hundred thousand cancers just in the Medicare population. So ultimately that'll be their decision criteria.
I think, if you go to the next slide, ultimately we believe that you know the decision outcome will be positive because:
1.) It's an FDA PMA approved tes. So we check the box that it's safe and effective.
2.) We have peer-reviewed published data showing the long-term benefits and harm so documenting the clinical utility of the test.
3.) During the NCD review process, which has been ongoing in the first 30 days, was a public comment period and about 95 of the comments have been supportive of coverage of blood tests and specifically Epi ProColon
4.) And then in addition in April of this year the National Comprehensive Cancer Network or NCCN also included Epi ProColon in their CRC guidelines,
5.) And lastly, it is cost effective. That's technically not a criteria for CMS, but the reality is, that CMS has to look at cost because they have a certain amount of money. And this one is a no-brainer for CMS, because right now the big issue CMS has with colon cancer screening is, that they carry an undue burden of the treatment costs for colon cancer and that is because it's a slow progressing cancer the average onset for colon cancer is at age 67. So in essence the majority of the treatment of colon cancer falls on Medicare. And as we know 70 % of those people, that die from colon cancer, die because they didn't get screened. So what's happening is, people not getting screened in their 50s and early 60s are resulting in Medicare pain for expensive colon cancer treatments at 67 and beyond. So Medicare has published a paper saying that, if they can increase the screening rates by 10 percent, Medicare can save anywhere between 18 and 32 billion dollars by avoiding the cancers at a later stage in life at which time they cover. So for them it really is a very cost effective solution because a blood test is really a disruptive technology, that truly has the opportunity to increase the screening rates, which haven't changed in decades. And now we have the opportunity to go out there and get this 10 incremental screening benefit in the United States.
HOGAN MALALI (Encode): You brought up the public commentary period the first 30 days of the NCD. When I went through the various comments I found it interesting that competitors or should I say maybe future competitors like Freenom and Garden who have liquid biopsies in development were commenting in favor of Epi ProColon's reimbursement or at least the reimbursement of liquid biopsies for colorectal cancer screening. Why would your competitors or future competitors, because they still got a clinical hurdle to overcome and a regulatory hurdle to overcome, be commenting in favor of reimbursement Epi ProColon?
GREG Hamilton (CEO Epigenomics): The number one reason is the actual NCD is not specific to Epi ProColon. The NCD is for blood-based tests for CRC screening. So this is going to be the standard for all blood-based tests in the future for Medicare to provide coverage. So the reality is, as the first entrance into this base, we are in essence laying the groundwork for others behind us. That's just the reality of being the first. Now that said, so obviously it's in Gardens and Freenoms and all of their company's best interest that this NCD is issued and issued at such that the standards for coverage are achievable by them. So ultimately this is the direction CMS has been going. If you look back at the NCD they did for advance cancer therapeutic selection from next-gen sequencing - it's known as the foundation one next-gen sequencing NCD - they did something very similar. They made it generic not to the foundation one test, but basically any test, that used ngs to identify therapeutic selections for late stage cancer, would get coverage if it got FDA approval and was utilized in the therapeutic selection for that disease state. So that is the criteria by which then any new FDA approved product would get coverage.
Now for us, we believe, that this NCD will come out in 30 days. We know, that we are probably going to have at minimum a five year window, where we are the only blood test that is available in the market.
So if you can go forward a couple slides to slide 20. What you'll see is, that the reality is, that Garden, Freenom and even Exact Science is doing a blood trial right now. They have all just started their trials. With Covid19 most of those trials are on hold, because they're not doing screening colonoscopies at this time. Each of those trials is going to have to enroll somewhere between 10.000 and 14.000 patients, because that's the standard now to get a PMA approval in CRC screening. So those trials are more than likely going to take them three years to complete. Once they complete them, then they got to go through the FDA review process. It is a PMA. Average PMA time can be anywhere from 18 to 30 months. So we believe, if everything goes perfect for each of those players, they're still five years away. Now what is interesting is, each of those players is talking about sensitivity and specificity. And as we've just discussed that's only part of the story. Ultimately the story is how effective are they at reducing the incidence and the mortality of the cancer. So what you can see here on slide 20 is, even if we give each of these companies credit, that they're going to develop a test that has 90 sensitivity and 90 specificity out of blood, what does that mean for the reduction of the incidence and mortality of the cancer? Well again it depends on what the interval is. So here if you look at a 90/90 test with a three-year interval, it actually is less effective, than all the other available methods to date. So that test is actually inferior.
JORGE GARCES (CSO Epigenomics): It's the last three bars.
GREG Hamilton (CEO Epigenomics): Yeah, the last three bars of each graph. They show a 90/90 test of three years, a 90/90 test at 2 years and 90/90 at one year. So what you see is, that test would have to in essence achieve an interval of every two years or every one year to ultimately be a competitive test. However that is going to be a significant challenge for those players, because ultimately price plays a big factor. Most of those tests, that they're talking about developing, are next expensive next-gen sequencing tests. They're going to need to - in essence - get reimbursement similar to Cologuard, which is about five hundred dollars. All right, the challenge with that is, that Medicare has clearly priced the value of colon cancer screening across multiple different tests. So if you look at Cologuard over a 10-year period it's about 1.700 Dollars. Our test done every year over 10-year period is 1.900 Dollars. A colonoscopy done once every 10 years is about 2.000 Dollars. So the range is somewhere between 1.700 and 2.000 dollars. And it's a very tight range. If I have to do the 90/90 test every year to achieve the clinical benefit necessary, well now you're talking about five thousand dollars over a ten year period, because they need five hundred dollars for that test. It won't work! They will never get that pricing from CMS.
So ultimately, not only do we believe we clearly have a five-year runway, even if all of the other tests are successful and can get to market five years from now, they have an economic problem of how do they become competitive at an interval that makes sense to them. So ultimately, we believe the ability for Epi ProColon to be successful is not only the next five years, but in the long term as well. Because Epi ProColon is a PCR test, very simple to run and ultimately will be very cost competitive in the future as well.
HOGAN MALALI (Encode): Gotcha. So not only do they have a challenge as far as needing to complete their clinical studies and have successful clinical studies and get through FDA, but they'll also have to either figure out some sort of cost effective way to market these things - either by driving their cogs down or something along those lines to be competitive.
GREG Hamilton (CEO Epigenomics): Yeah and the reality is that their hope is, that they somehow can get the cogs down to a hundred dollars, right. But that's still significantly higher than a PCR test. And so ultimately even at a cogs of 100 Dollar - if they can achieve that - they still need to charge about 500 Dollars for that test, because in their model not only do you have to account for the cost of running the test, but they're independent clia labs. So they need sales force, they need a compliance department, they need to find out how they're going to get their hands on the blood. So in essence, are they going to go build 3.000 phlebotomy centers across the United States to collect blood? I mean you have to be able to get your hands on the sample. So their sample acquisition costs will probably be significant as well. So there are some significant economic barriers to that model.
JORGE GARCES (CSO Epigenomics): Hogan, and going back to the NCD, I think it's in their interest to support our NCDs, because in essence they piggyback off the three-year effort, that we've been putting into getting this NCD issued. And it's to medicare's benefit as well, because it's really not very pragmatic for them to issue an NCD that is product specific every time right. Just think about how many products are out there, they would have to issue numerous NCDs. So the strategy is to generalize the NCDs based on intended use or application and then be able to set general criteria, that you know many different products can fit into.
HOGAN MALALI (Encode): Okay, that makes sense.
Maybe I'm going to jump ahead a few questions, that I had to prepare. You brought up the commercialization strategies, that these new technologies may face. And one of the objections we do get when we talk to investors about Epigenomics is this sort of visceral response which is: How are they going to compete against Exact Sciences. You know Exact Sciences has got this incredible sales organization, which has been out there. And they're tenacious in tracking people down when they get their prescription for a Cologuard. But you guys are going about commercializing this very different than Exact Sciences went about commercializing their technology Cologuard. So can you walk us through how you envision commercializing Epi ProColon?
GREG Hamilton (CEO Epigenomics): Yeah, if you can go to the reimbursement slide 18, where we have the rates for the various tests. So the way the market works and what you got to understand is what Exact Sciences did was not the norm in this industry. If you look at screening tests today - let's take HPV for cervical cancer, which is a huge screening market in the United States - the way the HPV screening market works is, IVD kit manufacturers sell a test to labs in the United States. So that is both large reference labs like Quest and Lab Corp but also hospital labs. And by doing that, what happens is, in essence the hospital lab or the hospital system share in the revenue stream. So the way it works here is, that the doing of a HPV test is reimbursed at 35 dollars. So what will happen is, if a health system has their own clio lab, which many, many of them do, they collect the sample, they send it to their own lab and their lab gets 35 dollars for running the HPV sample. So the big players in this space like Hologic, Roche, Siemens, Abbott they make these kits - whether it's HIV, HCV - and they sell them the hospital system. And they will - in essence - price them as such, that the labs of the hospital systems have the opportunity to make a profit on getting reimbursed at 35 dollars or for HIV 85 dollars. So we - in essence - are tapping into an already existing and well established process on how lab testing works in the United States.
Exact Sciences went the very opposite way, because they are their own clia lab. So what happens is, if a doctor writes a prescription for Cologuard, that sample never goes through the local hospital system. It only goes to Cologuard's lab. Cologuard runs it and Cologuard gets 510 dollars in reimbursement.
Our process will work very differently. So what will happen is, if you take for example in New York, if you're a Mount Sinai patient, you go see a Mount Sinai doctor. What would happen is, we would sell this Epi ProColon test to the Mount Sinai lab. You would then get an Epi ProColon test prescribed. After seeing your doctor in the Mount Sinai office, you'd go down to the mount sinai phlebotomy station, where they draw your blood and in essence Mount Sinai would receive 192 dollars for screening you for colon cancer. As an example, if we charged Mount Sinai 100 dollars to buy our kit to run that test, Mount Sinai would make 92 dollars of profit. So now the Mount Sinai health system is sharing in the revenue stream for screening you for colon cancer. So ultimately, we believe that - in essence - the health system will do what is in their benefit, which is screening patients, who ultimately have the appropriate reduction of the incidence and mortality of cancer. But it also is economically viable for them to now collect 192 dollars for collecting one incremental tube of blood. It will be a highly valuable molecular diagnostic test in the space.
So if you imagine a Quest and Lab Corp. for instance, each of them has over 2.000 phlebotomy centers across the United States. They process more blood than anybody. We're already tapping into that network, the people who are already handling the blood samples. And Lab Corp. is already ordering the test. Quest already uses the test as an LVT. We believe they'll switch over once the NCD comes out, because you need an FDA approved test for reimbursement. So ultimately, we believe that this distribution model is the appropriate one, because it has been tested and it has stood the test of time. And if you look at all of the other large molecular diagnostic tests in the United States, that is the method for delivery.
HOGAN MALALI (Encode): Is it safe to say, that Exact Sciences has basically owned the branded colorectal cancer screening market for the past six years? I mean, there are FIT tests out there, but they're not truly marketed and branded. So I mean, really there's 30 plus million patients that are unscreened. Exact Sciences sold a million Cologuard tests a year. That's a massive market, that has not been tapped into by any other branded product out there. Is that a safe assumption?
GREG Hamilton (CEO Epigenomics): That is correct. So now to be fair, Exact Sciences has done everyone a huge favor, because they've increased awareness. And at the end of the day, that benefits us as much as anyone else. But yes, we will be the only other truly branded non-invasive product out there. FIT as a commodity product. FIT is very cheap. There's no branding on FIT or FOBT, that's really material in the market. So at the end of the day Cologuard has been very successful. They've done a lot of very brilliant things with their direct consumer campaign and we're very supportive of it. At the end of the day the market is so big, that there are going to be multiple players that are successful. We don't have to take share from Exact Sciences. The reality is Exact Sciences has - now that you include patients from 40 to 50 in the screening category - there's now over 100 million patients that are supposed to be screened. Exact Sciences did 1.7 million tests last year. They're less than two percent of the market. So the ultimate reality is, the market's so big, that they're going to be many players that are successful. And if Exact Sciences increases awareness and more people get screened, that's great. Ultimately as a company our belief is, if a patient wants to get a colonoscopy, great, go get a colonoscopy. They want to do a Cologuard test, great, go do a Cologuard test. The fact the matter is, that there's a huge problem in the market - 35 percent of the market don't get screened - and there is a significant opportunity for the blood test for Epi ProColon to drive screening compliance.
JORGE GARCES (CSO Epigenomics): The other thing, I think it's important to add, is, that I think our path to profitability is a lot simpler than Exact Sciences, because Exact Sciences operates a clia lab. There's two components to their test: There's a FIT component and then there's a DNA component that they have to do. And so their cost of goods is not as attractive.
So as Greg said, not only can we leverage the distribution channels of existing players like Lab Corp. and Quest to get the product out there. We only have to sell to about 200 high complexity labs in the United States rather than having to go and drive volume from the end users, which is over 200.000 primary care physicians. So I think the distribution effort is much lower. And then from a cogs perspective - you know this is a PCR test. So it's very easy to reach 80 plus margins on a PCR test in this market. I think that that's another important feature to think about.