Why EXACT Sciences Corporation Shares Briefly Tumbled

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of EXACT Sciences (NASDAQ: EXAS  ) , a molecular diagnostics company focused on developing products designed for early detection of colorectal cancer and pre-cancer, dropped as much as 10% this morning after the company reported its first-quarter results. Shares have since rebounded in a big way, and are now up 3%.

So what: For the quarter, EXACT reported total revenue of $0.3 million, down 70% from the $1 million reported in the year-ago quarter. This revenue consists of a non-cash upfront license fee paid by Genzyme, which the company has been amortizing over a five-year period that ended in Jan. 2014. Net loss increased to $16.1 million, or $0.23 per share, from $10.9 million, or $0.17 per share in the year-prior period. By comparison, Wall Street had been expecting a narrower loss of just $0.19 per share.

Now what: Clinical-stage companies rarely get beat up too badly come earnings time because Wall Street and investors have tied most of their valuation to a company's pipeline. In EXACT Sciences' case, its future lies with its Cologuard colon cancer screening diagnostic. While some investors were a bit disappointed with Cologuard's discovery of pre-cancerous lesions (just 42% sensitivity), it appears to be a far and away better option that the most commonly used fecal immunochemical screening test in use now. Keep in mind, if approved, this wouldn't replace a traditional colonoscopy by any means, but would be an adjuvant diagnostic tool to a colonoscopy if the results came back with a positive indication. Overall, I believe EXACT's product could have a bright future, and I would certainly suggest getting this stock on your watchlist.

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