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Exact, CMS to Discuss Coverage of Colon Cancer Test That FDA Deemed ‘Adulterated’

Three months after the US Food and Drug Administration said Exact Sciences’ genetic colorectal cancer screening test is “adulterated” and “misbranded,” the company will meet with the Centers for Medicare & Medicaid Services to discuss its request for the federal government to reimburse for the test.
Exact plans to meet with CMS later this week about the status of its application for a national coverage decision for the PreGen-Plus assay, a stool-based DNA colorectal cancer screening test.
CMS last August accepted Exact’s application for an NCD. A favorable decision would establish a national reimbursement protocol from the government. The FDA’s letter, which Exact received in October, will complicate things.
Acknowledging that “appropriate regulatory status is a key precondition for an NCD,” Exact this week said that in light of the FDA letter, the company “intends to further discuss with CMS the approaches CMS might take to the pending NCD.”
The FDA’s Oct. 11 warning letter called Exact’s PreGen-Plus assay “adulterated” because the company has failed to appropriately characterize the product. By the FDA’s determination, PreGen-Plus is a Class III medical device requiring premarket approval. Additionally, since Exact did not submit the test for PMA or 510(k) review, the FDA said the assay is “misbranded.”
Exact said it is currently discussing the regulatory status of the test with the agency.
The FDA’s action comes after a CMS inspection of Laboratory Corporation of America’s facilities. The inspection revealed that PreGen-Plus was “designed, developed, validated, and marketed by Exact rather than a test that was developed and validated by LabCorp.” As a result, the FDA found that Exact’s test is not a laboratory-developed test that traditionally falls under the regulatory purview of CMS, but a medical device under the FDA’s authority.
"We have advised CMS of the status of our discussions with the FDA and, in an effort to preserve our future opportunity for a positive coverage decision, we requested that it consider not proceeding with the NCD until the FDA has acted," Exact President Jeffrey Luber said in a statement.
Though Exact maintains it has enough cash to stay afloat through the end of the year, the company, which was banking on the PreGen-Plus test to provide revenue, may need to raise capital or shutter certain operations to remain solvent beyond this year.
Exact said that $14.8 million in unrestricted cash, cash equivalents, and marketable securities it held as of Sept. 30, 2007, will enable it to stay in business through the next 11 months. This projection is “based upon … current assumptions regarding the studies and other requirements that it believes may be necessary to obtain FDA regulatory clearance” for the PreGen-Plus test, the company said in a recent filing with the Securities and Exchange Commission.
Exact “has no current sources of material ongoing revenue and, accordingly, it will likely need to raise additional capital in the next 12 months or further reduce the scale of the company’s operations, or both,” the company concluded in the filing dated Nov. 6, 2007.
Exact did not respond to a request for additional comment.
FDA Drops PMA Bomb
The FDA’s warning letter notes that CMS’ review of LabCorp facilities in Research Triangle Park and Burlington, NC, “revealed serious regulatory problems involving” PreGen-Plus.
Further evidence uncovered by CMS that Exact actually developed the test included Exact’s instructions to LabCorp for how to use and validate the test. In addition, equipment and reagents associated with the test were specified and in some cases provided by Exact, “including the single and double Unit ‘exactors’ for sample preparation.”
Broadly, standard laboratory-developed tests are regulated by CMS’ CLIA guidelines. However, in its review of the two LabCorp facilities, CMS concluded that PreGen-Plus is not a laboratory-developed test but rather a medical device under Section 201(h) of the Food, Drug, and Cosmetic Act “intended for use in the diagnosis or the treatment of medical conditions.” As such, the test is a Class III device subject to FDA regulatory oversight.

“Based on the information collected, FDA has determined that the PreGen-Plus assay is a test that was designed, developed, validated, and marketed by Exact Sciences rather than a test that was developed and validated by LabCorp.”

Together, these discoveries enabled the FDA to call PreGen-Plus “adulterated.” In addition, the test is “misbranded” because Exact never fulfilled a 510(k) notification requirement. This notification requirement is usually deemed fulfilled if a PMA is pending with the agency for the product, but Exact did not file any such application.
The FDA gave Exact 15 days from the time the company received the warning letter to correct the violations it cited. “If corrective action cannot be completed” by then, the company may “state the reason for the delay and the time within which the correction will be completed.”
Failure to address these violations may invite greater penalties from the FDA, including seizure of products, injunction, and monetary fines. It is not clear to what extent Exact has corrected the violations cited in FDA’s letter.
Finally, the FDA noted that the violations with the PreGen-Plus assay may be “symptomatic of serious problems in [Exact’s] manufacturing and quality-assurance systems.”
The agency advised Exact to investigate the causes of these violations to ensure that all its products are in compliance with FDA regulations.
Adoption Impact
A refusal by CMS to cover PreGen-Plus has the potential to hurt Exact’s financials.
Exact and LabCorp have an ongoing licensing agreement for the test that has been recently amended. Under an earlier agreement with LabCorp, Exact could receive up to $45 million in payments for meeting sales targets, for garnering reimbursement approval from major payors and Medicare, and for getting inclusion for the test in clinical practice guidelines.
However, this agreement was amended last June, to extend LabCorp’s exclusivity period for the test from August 2008 to December 2010 in exchange for Exact’s right to other commercial service laboratories. In the new agreement, Exact is to receive $40 million in potential milestone payments upon achieving certain sales goals.
Exact is slated to receive royalty fees based on 15 percent of LabCorp’s net revenues from PreGen-Plus sales. This rate is subject to increase to 17 percent “in the event that LabCorp achieves a specified significant threshold of annual net revenues from the sales of PreGen-Plus.”
The ability to garner reimbursement for the test may impact royalty payments Exact receives under its deal with LabCorp. More importantly, Medicare coverage will be critical to driving adoption in the marketplace.
“Since 69 percent of newly diagnosed cases of [colorectal cancer, or CRC] occur in people aged 65 and older, Medicare assumes a significant portion of the costs associated with CRC treatment,” Exact said in its statement. “The cost-effectiveness report on stool-based DNA screening for CRC that was recently conducted on behalf of CMS stated that adherence to CRC screening is an important factor.”
Exact said it believes that PreGen-Plus deserves to be covered by CMS based on published studies showing the test can improve the 25 percent adherence rate sought for Medicare beneficiaries.
According to the Centers for Disease Control and Prevention, although colorectal cancer is one of the most commonly diagnosed cancers in the US, screening for the disease remains low when compared to screening rates for breast and ovarian cancer.
In 2004, 73,997 men and 71,086 women were diagnosed with colorectal cancer, and 26,881 men and 26,699 women died from the disease.
“As many as 60 percent of deaths from colorectal cancer could be prevented if everyone age 50 and older were screened regularly,” the CDC states.

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