DCF: Market Potential PCA3 In the last post, I layed out how many PSA tests are being sold annually. Now I will try to answer what is the maximum number of PCA3 tests they can sell.
Table: PCA3 Maximum Market Potential
Segment A: Biopsy Negative:
- US = 0.882m biopsies x 1 test = 0.882m PCA3 tests
- ROW = 0.918m biopsies x 1 test = 0.918m PCA3 tests
Segment B: Biopsy Positive
- US = 0.218m biopsies x 2 followup tests = 0.436m PCA3 tests
- ROW = 0.682m biopsies x 2 followup tests = 1.364m PCA3 tests
Segment C: Elevated PSA but did not do biopsy (Gamblers)
- US = 3.3m people x 1 PCA3 test = 3.3m PCA3 tests
- ROW = 5.7m people x 1 PCA3 test = 5.7m PCA3 tests
Segment D: PSA Screening Test not Elevated
Segment E: Does not Use PSA Test for Screening (Sceptics)
Grand Total Maximum Potential = 12.6m PCA3 tests annually
Rationale for the above numbers:
- Segment A (Negative Biopsy): This is on-label for US and Europe. This is the only segment that GPRO asked the FDA for permission for. To get other segments on-label in the US, presumably GPRO would have to run another clinical test and do another FDA submission (takes 3-4 years). I assume 1 PCA3 test for every negative biopsy as another indicator of whether the cancer is there but they missed it. Cancers tend to be on the surface but its easy to miss the ones that are in the interior, particularly around the stem, or if they are widely dispersed. Current practice is to do a second biopsy automatically if the pathology report shows "suspicious but non-cancerous cells". Since the PSA test gives false positives a very high percent of the time, you need to keep looking. In a study in 2005 of 1051 men, 22% of first biopsies found cancer, 10% of second biopsies, 5% of third biopsies and 4% of fourth biopsies.
- Segment B (Cancer Found): This segment is off-label in the US but appears to be on-label in Europe (see the sales brochure in Europe in my first post). I assume that 2 of the follow-up PSA tests after treatment are replaced by PCA3 tests. This is during the watchful waiting period and is to make sure the cancer has not returned. PCA3 can detect smaller cancers, so I assume it is an attractive replacement for PSA here.
- Segment C (Elevated PSA but No Biopsy - Gamblers): I assume PCA3 will be attractive because it means you don't have to gamble with your life. Anxiety will be reduced. This is off-label in the US but on-label in Europe.
- Segment D (PSA Screening is Negative): Assume zero PCA3 tests because $350/test retail is not competitive with $40/test retail for PSA. If GPRO drops the price, it destroys the profitability in the other segments. One posibility is to do the PCA3 test every 5-10 years like Canada does for colonoscopies, then more frequently if something is found. Every 10 years would mean an average of $35/year. Since PCA3 is much more accurate than PSA, that might be attractive. This segment is off-label in the US and on-label in Europe.
- Segment E (No PSA Test - Sceptics): Assume zero PCA3 sales here. My friend who had cancer treatment said the PSA test is not very good but its the best we've got. Maybe some sceptics will be won over by greater accuracy. But it will probably take many years.
Adoption/Penetration Rate (Ramp-Up Period)
The only data I could find for PSA adoption rate over time is for Scotland (info.cancerresearchuk.org/cancerstats/types/prostate/incidence). See figure 1-7. US-FDA approved PSA for clinical use (biopsy) in 1986. Scotland started using PSA tests in 1989. FDA approved PSA for screening in 1994. The Scotland chart ends in 1996, still growing. I don't know what Scotland approved or when. However, the chart shows 5% pts growth in each of years 1-2, 22% pts growth in each of years 3/4/5 and 12% pts growth in each of years 6 and 7. I'll buy a beer for the person who can find similar data for the US.
Europe Ramp-Up Rate
Everyone seems to agree that Europe PCA3 is slow to ramp up. See the interview with Jack Schalken (Marion Bussemaker's supervisor on PCA3 project). He says the test is sophisticated, so they want to start with it in the hands of experts. They also have to train the lab technicians. Latest info I could find is Europe has 40 labs qualified to do the PCA3 test. My math on the July 2011 quarterly CUR revenue says they are selling PCA3 at the rate of 80,000 tests annually in mid-2011. I also suspect GPRO is running a very quiet promotion campaign in Europe, to avoid upsetting the FDA in any way. Notice that GPRO did not even announce the approval request to Health Canada in Dec/2010.
How Many Years can PCA3 run before a better test comes along?
I will assume 7 years, but I also note that PSA has been around since 1986 with the comments "not very good but it's the best we have". That's 26 years. So maybe 10 years of PCA steady-state is possible. Most likely replacement (per Jack Schalken interview) is a panel of gene markers. University of Michigan has now patented one that uses 4 markers, one of which is PCA3. GPRO licensed it from the University of Michigan, but is continuing to complete the PCA3 application.
Whew, time to stop typing. Next post, I will do the math to say what $/share those volumes are worth to CUR by segment. Then we will debate how penetrated we can get to the maximum potential listed above. The sum of the segments will equal the stock price.