Monday, March 7, 2016

Seeking Alpha: Exact Sciences Traveling A Familiar, Tough Road

As I've written in reference to med-tech in the past, sometimes FDA approval is the relatively easy part of the process. Almost every company can talk up the prospects for an experimental drug, device, or diagnostic test (with sell-side analysts dutifully parroting them), but products don't sell themselves and navigating the correct path through patient/doctor education, pricing, reimbursement, and so on is trickier than many investors realize or expect.

When last I wrote about Exact Sciences (NASDAQ:EXAS) I mentioned the risk that the company could get an adverse ruling from the United States Preventive Services Task Force (USPSTF), and that happened. While the initial ruling wasn't a clear-cut "don't use" for the company's Cologuard test, it wasn't the unambiguous positive decision that investors were hoping for and that would have spurred widespread commercial reimbursement in 2016.

Absent a final ruling from the USPSTF, Exact Sciences is in a tough spot. A negative USPSTF determination doesn't prevent private insurers from covering Cologuard, but it gives them an excuse not to and/or to push hard for pricing concessions. While I've remodeled for a slower uptake of the test, a lower ASP, and higher spending, I still arrive at a fair value that suggests meaningful undervaluation. If the company can deliver the expected volumes this year investors may reconsider the name, but if the uncertainty about reimbursement starts impacting that ramp, all bets will be off.

Read the full article here:
Exact Sciences Traveling A Familiar, Tough Road

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