Source: Exact Sciences
What
After the company rallied ahead of its second-quarter earnings report in June, shares of Exact Sciences (EXAS +0.00%) fell by 19.1% in July, according to data from S&P Capital IQ. The drop in shares followed the company's release of Q2 results and news of a dilutive secondary offering.
So what
Exact Sciences shares soared 10% higher in June on news that the company expected to report it had completed 21,000 Cologuard colorectal cancer tests in the second quarter -- up from 11,000 in the first quarter -- and that it had inked a deal with the MD Anderson Cancer Center to develop a new lung cancer test.
However, June's gains proved to be short-lived, as shares tumbled in July following Q2 results showing that the 21,000 completed Cologuard tests translated into sales of just $8.1 million.
Granted, Exact Sciences' Q2 sales significantly improved from the first quarter -- but it appears that it will be a long time before the company turns a profit. The company's net loss totaled $39.1 million in the second quarter, up significantly from the $19.4 million loss reported the year before.
Investors are also likely disappointed by a 7 million share stock offering to raise another $180 million for funding Cologuard's marketing efforts and other spending plans. Although the offering allows Exact Sciences to remain essentially debt-free, the stock offering reinforces the fact that Exact Sciences remains far from self-supporting.
Now what
Exact Sciences' lackluster sales and ongoing losses suggest it still has a long way to go before achieving market penetration sufficient to justify its current $2.3 billion market cap -- and as a result, Exact Sciences investors have seen a number of dramatic share-price pops and drops in the wake of Cologuard's launch last year.
That volatility means Exact Sciences is best suited for only the most risk-tolerant investors, but that doesn't necessarily mean this is a company worth ignoring. There's a significant need for simple, less intrusive tests that can accurately screen patients for cancers that are more easily treated when they're discovered early, and that suggests an opportunity exists for Exact Sciences to continue growing its sales.
However, whether or not that unmet need translates into sales and profits big enough to warrant Exact Sciences' multibillion-dollar market cap remains to be seen, and for that reason I'm content to watch, rather than own, shares of this company.
