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Here's Why Exact Sciences Corp. Jumped Today

By Brian Feroldi – May 31, 2017 at 11:48AM

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Investors cheered the news that yet another major insurer has decided to cover the Cologuard test.

What happened

After news broke that a major health insurance company will start covering Cologuard, shares of Exact Sciences (EXAS -4.69%), a company focused on non-invasive cancer testing, surged 10% higher as of 11:15 a.m. EDT on Wednesday.

So what

UnitedHealth Group (UNH 0.25%) announced that it will cover Exact Sciences' Cologuard colon cancer test starting in July of this year. UnitedHealth stated that it will cover the test once every three years for patients between ages 50 and 75.

Business people giving the thumbs-up

Image source: Getty Images.

This is big news for Exact Sciences' investors as UnitedHealth was the last major insurer that was holding out on coverage. In fact, UnitedHealth had previously said that it would not be offering coverage of the Cologuard test, which it believed was not accurate enough to make a clinical decision. This about-face is expected to add about 30 million covered lives to Exact Sciences' addressable market.

Now what

2017 is shaping up to be a banner year for Exact Sciences. Last quarter, its testing volume grew 150% as more patients and providers are warming up to the company's minimally invasive screening option. The jump caused management to raise its full-year testing volume forecast from 415,000 tests to 470,000 tests, and that was before today's news that UnitedHealth is also jumping on board. It is possible that this updated number could still be too low, which, if true, bodes well for the company's near-term growth trajectory. 

On the flip side, Exact Sciences is still showing substantial losses as it ramps up spending in an effort to get the word out. That makes the company quite risky, even when factoring in today's news. Bulls and bears alike should proceed with caution.

Brian Feroldi has no position in any stocks mentioned. The Motley Fool recommends UnitedHealth Group. The Motley Fool has a disclosure policy.

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