The Sole Reason Exact Sciences Corporation Skyrocketed 42% in January

Despite better-than-expected Cologuard test completions, there's a big red flag in Exact Sciences' bottom line for investors.

Sean Williams
Sean Williams
Feb 2, 2017 at 7:52AM
Health Care
Cologuard test collection kit.

Image source: Exact Sciences.

What happened

Shares of Exact Sciences (NASDAQ:EXAS), a molecular diagnostics company focused on developing tests to detect and help prevent various types of cancer, skyrocketed 42% in January, according to data from S&P Global Market Intelligence. The reason for Exact Sciences' spike higher can be traced to the release of its preliminary fourth-quarter sales results on Jan. 8. Exact Sciences will release its official Q4 and full-year results later this month.

So what

For the quarter, Exact Sciences announced that it had completed roughly 82,000 Cologuard tests (Cologuard is the company's noninvasive colon cancer and advanced adenoma screening test), a 114% increase from the prior-year period. More than an estimated 9,500 physicians ordered Cologuard for the first time during Q4 2016, pushing up the number of physicians who've ordered the product to nearly 60,000 since 2016. That's a 122% increase from the previous year.

In terms of sales, Exact Sciences guided to between $99 million and $99.5 million for fiscal 2016, which represents a 150% increase from the prior year, with test volume coming in at 244,000, a 134% increase from last year. Following the release of its third-quarter results, Exact Sciences expected only $93 million to $95 million in sales and 240,000 total tests for the year.

The company also pointed out in its preliminary release that insurance coverage of Cologuard improved by 67% during 2016. As of Jan. 6, 2017, more than 163 million had access to Cologuard. Considering that this is a numbers game for Exact Sciences, and that its main facility could handle around 1 million tests annually, there's plenty of room for expansion.

Street sign implying risk lies ahead.

Image source: Getty Images.

Now what

On one hand, the company beat its own guidance, and it's clearly gaining some steam with physicians and the public. However, it's very difficult for fundamentals-oriented investors to overlook the fact that Exact Sciences is losing a lot of money each and every quarter.

Through the first nine months of the year, Exact Sciences lost $130 million, or $1.30 per share. That's more than $12 million higher than what it lost through the first nine months of 2015, although it matched the $1.30 per share lost by having more shares outstanding in 2016. Sales and marketing, as well as general and administrative expenses, have soared, which means there's a strong likelihood that Exact Sciences will continue to lose money in the near future, even if its sales grow rapidly on a year-over-year basis.

This is the dilemma: Cologuard is a great product with huge potential for a disease (colon cancer) that's arguably the most preventable. But it's also losing money hand-over-fist, and with no clear signs that the trend will ebb, or that Medicare will increase its reimbursements for Cologuard, Exact Sciences probably remains a stock worth avoiding for the time being.