Exact Sciences stock may be on the rise after a federal panel upgraded the status of its colon cancer screening test, but some say it may be premature to bet the farm on the company.
This week the U.S. Prevention Services Task Force put the Madison-based tech company's colon cancer screening test, Cologuard, on par with other tests, and the company enjoyed a surge as investors bet that more doctors will recommend the test in the future, and that more insurers will reimburse for it.
"We expect this will have material impact on reimbursement discussions as the Affordable Care Act requires all 'A' rated screening tests to be covered without co-pay," noted Brian Weinstein, an analyst at investment bank William Blair, according to the science news site Genomeweb.
The stock leaped nearly 60 percent in three days of trading this week, closing at $11.24 a share on Thursday.
It was only eight months ago that Exact Sciences saw its fortunes, and stock value, plunge on news that the Prevention Services Task Force omitted the test from its list of recommended screening methods. That cut the company’s stock price nearly in half the day the report was issued.
So does the task force's new assessment mean a change in Exact Science's fortunes?
Some suggest that investors have reason to pause.
“Overall, new guidelines offer investors a reason why they can consider owning Exact Sciences, but before investors hit the buy button, they should remember that the company is losing a lot of money,” Todd Campbell, owner of E.B. Capital Markets,writes in The Motley Fool. “Exiting the first quarter, expenses were running at an annualized $216 million pace, so even with sales more than doubling this year, there's still no telling when Exact Sciences will turn a profit.”
Jan Walk and Erica Layon of Benchmark write that the task force may have removed language referring to Cologuard as an “alternative” to more established screening methods, but they don’t think the change is meaningful.
“To us, the recommendation has not changed, though the way it is formatted in the report has,” they write.
They add, “As we have said in the past if the current recommendation stands (and it seems to us that it has more than it has changed), we do not expect to see an uptick in adoption that might be expected if it had.”
Campbell does note, however, that demand for colon cancer screening is increasing, and that bodes well for the market for the test.
“Since baby boomers are turning 65 at a pace of 10,000 people per day, there's clearly a significant addressable market opportunity for Cologuard.”
Exact Sciences was slated last fall to anchor the Judge Doyle Square project, an endeavor that involved substantial public money. After the nosedive, which came only a week after the deal was announced, the company pulled out, leaving the massive long-awaited downtown development project once again in limbo.
But even at $18.35 — the price of Exact Science stock before October’s meltdown — the stock was already in decline. Three months earlier it had been at $32.85.
But in February, when Exact Sciences was seeing its stock prices hit bottom, financial planner Kirk Spano sung its praises in Market Watch.
Cologuard, Spano wrote, is poised capture the market from its main competitor, the fecal immunochemical test, which has to be administered every year, as opposed to every three years for Cologuard.
"The test will also be available in Europe later this year or next, as well as in Canada," Spano wrote. "Ultimately, a next-generation test will be available for Asia with a genetic detection marker for stomach cancer due to that disease being a problem there. The company also has multiple other products in development which could be brought to market by Exact, sold, licensed for royalties or partnered on."