Investor dreams of Given Imaging dominating a $2.3 billion market were dashed Wednesday morning after the company admitted that its PillCam Colon 2 for diagnosing colon cancer, extolled as a potential substitute for colonoscopies, hasn't measured up to expectations.
The company's share price plummeted nearly 17% on the Tel Aviv Stock Exchange on Wednesday, on turnover of NIS 13 million - 11 times its daily average. It fell by a less precipitous 10% on Nasdaq - but on similarly heavy trading of 734,700 shares, a 1,180% increase over its 65-day average volume.
Yesterday, Given's Tel Aviv shares closed the arbitrage gap between the two markets, ending up 5.3% at NIS 52.97. In late morning trading yesterday on the Nasadaq, the shares were trading little changed at $13.46.
High hopes led to hgih valuation
The main reason Given Imaging had been trading at a market valuation of $460 million and price-to-earnings ratio of 27 before it crashed was the hope, nurtured by the company, that its video camera pill would become the world's leading method of diagnosing colon cancer, displacing the colonoscopy - an invasive procedure in which a plastic tube with a tiny closed-circuit or fiber-optic camera is inserted into the patient's anus and passed up through the colon.
Fully 50% of Americans age 50 and older choose to forgo the uncomfortable test, despite the fact that 60% of colon cancers are diagnosed in the later stages of the disease; only around 5% of people whose cancers are diagnosed in the later stages survive more than five years.
Given's breakthrough endoscopic technology failed to pass muster with the U.S. Food and Drug Administration in February 2008, when its rate of falsely ruling out the existence of tumors ("false negative" ) was measured at 25%, far above the benchmark 5%. At that point the company moved on to develop and test the more advanced PillCam Colon 2 video capsule, which has now apparently proved to be not much better than the previous version.
On Wednesday Given reported that it had completed an analysis of the initial results for clinical trials involving 885 participants, but provided no details of the results. CEO Nachum Shamir said FDA rules prevent the company from disclosing detailed results at this stage.
But it appears, based on what Given did report, that the accuracy of its PillCam Colon 2 in detecting colon cancer is no better than earlier versions of the device and that it cannot serve as an alternative to colonoscopy.
It now seems that at best the video pill may at best serve as a secondary tool for diagnosis in patients who cannot undergo colonoscopy or in cases where the results of the colonoscopy are incomplete. On this basis the company said Wednesday it intends to submit its request for FDA approval in the final quarter of this year.
Yuval Yanai, Given's chief financial officer, said that about 7.5 million colonoscopies were performed each year in Japan, Europe and the United States combined.
The potential market for the PillCam is where colonoscopy has failed or cannot be performed, such as for patients using blood-thinning drugs or for whom sedation is a risk, which amounts to about 3.3 million cases a year. There is another market for cases where the inside of the colon is partially obscured, which occurs in about 5% of the procedures.These two market segments present significant business opportunities to expand and increase shareholder value, according to Yanai.
Shamir and Yanai pointed out that the United States and Germany are the only countries in the world where colonoscopies are the leading diagnostic tool for people aged 50 and over.
The procedure is only used in Japan after a positive test for blood in the stool, they said, adding that the PillCam could also be used by anyone refusing to undergo a colonoscopy in these circumstances.
2016 revenue target is still in place
Despite the partial failure of the PillCam Colon 2 trials, Shamir and Yanai said they still believe the company remains on target to reach its $450 million sales forecast for 2016, which Given reiterated on Wednesday.
The forecast had not in any case assumed any revenues from the pill being used as a diagnostic tool among people past 50 years of age for identifying polyps that could develop into colon cancer, according to Shamir.
He explained that even had the company received the green light for the pill being used as the primary diagnostic means, it would have taken years to educate the market of gastroenterologists and establish its use.
Nevertheless, Steven Tepper, an analyst at Harel Finance, said his estimate for the market for PillCam Colon 2 is 65% less than he previously estimated. He cut Given's Nasdaq share price target to $16 from $24.
