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All New Biotech Specs: Part 3

Wednesday brought the third installment of Cramer’s weeklong series on the top speculative picks in the biotechnology sector, this time with a focus on cancer. But not the companies fighting the disease, but rather those that help detect it. Because the earlier you do, the more likely you survive.

That’s why Cramer likes Exact Sciences, developer of non-invasive ways of detecting colorectal cancer. See, it’s typically found through a colonoscopy, which is a procedure—to put it politely—that no one wants to undergo. Hence the reason people push it off, preventing doctors from catching the second most deadly form of cancer early enough to treat it.

It’s a shame that happens, though, because it can take 10 to 15 years for colorectal cancer to metastasize. So there’s no reason why it shouldn’t be caught early. And doing so guarantees a 91-percent chance of survival. But because of those colonoscopies, only 40 percent of the roughly 148,000 new cases diagnosed in 2008 were caught early.

Enter Exact Sciences, which offers an alternative: a “collection pouch,” as Cramer called it. Patients then take an 8-gram sample of stool, put it in a tube with a solution that extracts DNA from the same and mail that tube to the lab. If the test finds a pre-cancerous polyp that a doctor can remove with a follow-up colonoscopy, “It’s a homerun for the patient.”

“The test is not a replacement for a colonoscopy,” Cramer said, “but given how many people don’t get colonoscopies when they’re supposed to, it could make a big difference in catching the disease sooner.”

This could be a big money-saver for insurance companies, as early detection would mean no need for the expensive drugs used to fight later-stage cancer. And this kind of cost reduction is right up the alley of Obamacare.

About 5 million colonoscopies will be performed in the US this year. If Exact Sciences captured just 30 percent of that market, the company thinks potential sales could reach $1.2 billion and take the stock up to $20 from its $8 and change closing price on Wednesday.

Don’t go all in at once, though. Cramer offered a specific way to play EXAS.

Buy a small position ahead of the company’s presentation at the American Association for Cancer Research Colorectal Cancer Conference on Oct. 29, where he thinks Exact Sciences will announce positive results of a validation study of its colon-cancer test. Then wait as the company carries out its expected issuance of 5 million shares over the next six months. That will pull the stock lower and give you a better entry point.

The stock may have rallied nearly 83 percent since late August, jumping to $8.39 from $4.59, but Cramer thinks there’s “still an enormous amount of potential upside ahead.” Just remember to take your time with it. Exact Sciences’ test still needs Food & Drug Administration approval, for which the company won’t file until 2012. So there’s no rush here.

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