3 Diagnostics Stocks With Oomph

Biotechs get all of the attention with their high-profile drug trials and excitement they bring to the table but diagnostic stocks aren’t far behind. Biotech stocks typically are in the business of finding a cure or controlling a disease or certain symptoms. Indeed, companies in the diagnostics business look for ways to develop tests to help diagnose diseases. The benefits can be twofold, either from diagnosing something that hasn’t been diagnosed before or making a diagnosis cheaper and/or more effective than currently on the market.

Exact Sciences (EXAS) is a molecular diagnostics company focused on the early detection of colorectal cancer. The company has exclusive intellectual property rights protecting its convenient, non-invasive stool-based DNA technology for the detection of colorectal cancer. Stool-based DNA technology is included in the colorectal cancer screening guidelines of the American Cancer Society and the U.S. Multi-Society Task Force on Colorectal Cancer.

EXAS’s shares have seen volatility over the past month after the company released disappointing results for the Cologuard colorectal cancer screening DeeP-C trial. The preliminary analysis shows that the company’s Cologuard colorectal cancer screening test met or exceeded all primary and secondary endpoints of its recently completed DeeP-C pivotal clinical trial. The clinical trial evaluated the test’s use for the detection of colorectal cancer and pre-cancerous polyps.

Preliminary, top-line data show that Cologuard demonstrated 92 percent sensitivity for the detection of colorectal cancer and 42 percent sensitivity for the detection of pre-cancerous polyps, including 66 percent sensitivity for polyps equal to or greater than 2 centimeters. The test achieved a specificity of 87 percent during the trial.

The key datapoint is the 42 percent that the market was disappointed in. "Pre-cancerous sensitivity, which was the key metric investors were looking at, was well below expectations," Wedbush Securities analyst Zarak Khurshid said, adding that "lower pre-cancer sensitivity may limit the eventual addressable opportunity for the test." Khurshid was expecting a 55 percent detection rate for pre-cancerous polyps.

Exact Sciences Chief Executive Kevin Conroy, speaking to investors on a conference call, acknowledged that the test's detection rates in the study were not as high as expected, even though they met the trial's main goals. The company had expected the test to detect 50 percent of pre-cancerous polyps. But he said the data confirm the value of the test in detecting cancer and pre-cancerous conditions. The shares initially fell after the results but the CEO’s comments seemed to have soothed fears around the test and the shares gained back all of their losses and then some since then.

Some are calling the test a “game-changing cancer screen” with it being noninvasive, much cheaper, and will reduce the need for colonoscopies, the current way colorectal cancers are diagnosed. The potential market size for the test is large with colorectal cancer being the third most-commonly diagnosed cancer in the United States, responsible for about 50,000 deaths each year.

Pressure BioSciences (PBIO) is focused on the development, marketing, and sale of proprietary laboratory instrumentation and associated consumables based on Pressure Cycling Technology ("PCT"). PCT is a patented, enabling technology platform with multiple applications in the estimated $6 billion life sciences sample preparation market. PCT uses cycles of hydrostatic pressure between ambient and ultra-high levels to control bio-molecular interactions. PBI currently focuses its efforts on the development and sale of PCT-enhanced sample preparation systems (instruments and consumables) for mass spectrometry, biomarker discovery, bio-therapeutics characterization, vaccine development, soil and plant biology, forensics, histology, and counter-bioterror applications.

The company may be somewhat of an Exact Sciences lookalike with its May 16 announcement of a study reporting that the combination of PBIO's PCT platform and certain chemicals improved the extraction of lipids from fecal material. From these lipids, one may be able to understand more of the GI system or the gut. This has the potential of opening up this process to diagnose a wide range of gut conditions and provide valuable information to doctor’s about a patient’s condition. On the back of one test, EXAS has been able to garner a $700 million market cap on the open market so there is some potential here for PBIO if it is able to build upon its recent study results.

In other news, last week, PBIO reported a 21% year over year increase in revenue with PCT products productions showing sequential revenue gains of 81%. The company expects to release several new and important products to the market in 2013 that should help create a buzz surrounding the company.

Sequenom (SQNM) is a life sciences company committed to improving healthcare through revolutionary genetic analysis solutions. Sequenom develops innovative technology, products and diagnostic tests that target and serve discovery and clinical research, and molecular diagnostics markets. The company’s lead product is the MaterniT21 PLUS test. The MaterniT21 Plus is a blood test intended for women who are at high risk for a Down's syndrome pregnancy.

The company’s financial results have been improving led by increased sales of the MaterniT21 PLUS test. In Q1, there were 35,000 MaterniT21 PLUS tests accessioned compared to 25,000 in the fourth quarter of last year, for 40% sequential growth. The company is now focusing on making progress in negotiations within the payor community and there are more than 70 million patients under coverage who have access to the MaterniT21 PLUS test. The jump in revenues was tremendous as they came in at $38.5 million for the first quarter of 2013, an increase of 158% compared to revenue of $14.9 million for the first quarter of 2012. Gross margin also ticked up for the quarter, coming in at 36% as compared to gross margin of 31% for the first quarter of 2012

The Street is positive on the shares with a price target of 7 bucks. Furthermore, the shares were just upgraded by a big bank, Credit Suisse, earlier this month. The formerly bearish analyst said testing volumes for MaterniT21 are strong and improving, and the company's new agreement with insurer Blue Cross and Blue Shield expands access to the test and reduces the risks to Sequenom's stock. The news of Credit Suisse upgrading the shares sent the stock up 13% on the day.