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Why Exact Sciences Stock Sank Today

By Keith Speights – Updated Apr 16, 2019 at 9:37AM

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Worries about Obamacare have taken a toll on shares of the diagnostics test company.

What happened

Shares of Exact Sciences Corporation (EXAS 7.40%) were sinking by 10.2% as of 3:02 p.m. EDT on Wednesday. The stock appeared to be hit hard by news that the Trump administration is attempting to have the Affordable Care Act (ACA), also known as Obamacare, struck down in its entirety by a federal court.

So what

Healthcare stocks, in general, dropped on the news that the White House is now seeking to completely invalidate the ACA. The concern for investors is that if the ACA were struck down, millions of Americans would no longer have health insurance. If these individuals no longer were covered by insurers, they'd be less likely to obtain healthcare services and use products such as Exact Sciences' Cologuard DNA test for colorectal cancer screening.

Check out the latest earnings call transcript for Exact Sciences Corporation.

A Cologuard DNA test from Exact Sciences, spread out next to its packaging

Image source: Exact Sciences.

Exact Sciences was probably impacted more than many healthcare stocks because of its steep valuation. The company's market cap tops $10 billion although it remains unprofitable.

However, it's way too early for investors to be overly worried. The U.S. Supreme Court has upheld key provisions of the ACA before. Nothing in today's news will impact Exact Sciences' business for now, and perhaps nothing will.

Now what

The next step in the battle over Obamacare is for a federal appeals court to decide whether to uphold a ruling by a Texas district court judge to invalidate the ACA. Regardless of the decision, though, it seems likely that the U.S. Supreme Court could again become involved in determining what happens to the healthcare law.

Meanwhile, Exact Sciences' revenue continues to soar and should keep doing so. The company's partnership with Pfizer is likely to create more opportunities for Cologuard. Exact Sciences also hopes to win an expanded label for the DNA test, to lower the minimum age for which it can be used from 50 to 45. Despite concerns about uncertainty over Obamacare, Exact Sciences' long-term prospects still appear bright.

Keith Speights owns shares of Pfizer. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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