Citron is Very Wrong About Exact Sciences

Exact Sciences (EXAS) is under attack again by shorts. The arguments this time are similar to the arguments made in the past and just as likely to be wrong. That doesn’t mean, however, that investors and Exact Sciences itself can’t learn something from the rehashed criticisms.

The last big short attack on Exact was by Whitney Tilson who recently covered his losing position. This year’s attack is led by short seller Andrew Left of Citron Research whose track record is spotty at best. In Left’s case against Exact Sciences, he excretes a number of arguments that are rather easily disposed of. I will wipe those arguments away below.

Left’s arguments, which can be read here on Seeking Alpha, center around four key points:

  • That Cologuard, Exact Sciences’ colon cancer screening and currently only product, is an inferior screening methodology that surprised many when the FDA approved it and Medicare included it in payment guidelines.
  • That Exact Sciences is not profitable now and might never be due to being a non-scalable “poop-in-a-box” business.
  • That a periodic change in Medicare pricing for Cologuard due January 1st, 2018, will be dramatically lower, further damaging Exact’s drive towards profitability.
  • That a currently non-existent blood test for colon cancer will someday displace Cologuard and potentially drive Exact Sciences shares to zero.

For those unfamiliar with me, I have been invested in Exact Sciences since late 2007, expanded my holdings during the financial crisis, again when CEO Kevin Conroy was hired, have regularly sold cash-secured puts for years accumulating both income and more shares and, on several occasions, bought calls or LEAPs. I have written about Exact Sciences on MarketWatch of the Wall Street Journal network multiple times, including here and here. I have also been quoted and interviewed about the company.

What is Cologuard?

Cologuard is a non-invasive stool-based screening test that utilizes DNA to detect colon cancer and pre-cancers. It requires a patient to provide a sample into a container fitted to the toilet seat and then close the lid after adding a preservative. The sample is picked up by UPS afterward and delivered to the Exact Sciences lab.

After going through a rigorous peer-reviewed process, Cologuard was approved by the FDA for use and Medicare for payment through a parallel review process that was created to help save lives, time, and money. Cologuard was the very first product put through that process, which was an indication that it had a pretty good shot at getting the nod from the FDA and Medicare. In fact, the FDA gave Cologuard preliminary approval five months before final approval.

Cologuard’s technology is rated as a peer with other screening tests found in the USPSTF guidelines as an “A” rated test, just like colonoscopy and FIT. Further, it is now included in the quality measures that doctors and hospitals use in assigning care that they receive reimbursement from the government for.

Read the complete article, including investment rationale, on Seeking Alpha.


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