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Explaining Exact Sciences Corporation's 36% Surge in March

By Sean Williams - Apr 6, 2016 at 11:02AM

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These two catalysts lifted Exact Sciences in March, but investors should be eyeing something much bigger.

Image source: Exact Sciences. 

What: Shares of Exact Sciences Corporation (EXAS -1.54%), a molecular diagnostics company focused on the development of products designed for the early detection and prevention of cancer, surged 36% in March based on data from S&P Global Market Intelligence. There appear to be two reasons behind the company's rapidly rising stock price last month.

So what: First, Exact Sciences CEO Kevin Conroy was a busy bee in March, making numerous presentations at various conferences in order to drum up support for and increase knowledge of the company's lead product, Cologuard, a noninvasive colon cancer detection device.

Image source: Exact Sciences.

In addition to ringing the Nasdaq closing bell, Conroy presented at the Cowen & Co. Healthcare Conference and the Roth Capital Partners' annual Roth Conference, and he joined a panel discussion at SXSW 2016 regarding new cancer technology. One of Cologuard's biggest issues is getting the word out about its existence, so the more cheerleading Conroy does, presumably the better Cologuard will perform.

The second catalyst was simply the strong rebound in the growth-weighted Nasdaq Composite. In March, the Nasdaq advanced by nearly 7% -- and the Nasdaq tends to be representative of higher-growth technology and biotechnology companies. Exact Sciences very well could have risen in sympathy with the Nasdaq in March.

Now what: Although Exact Sciences has been volatile of late, what shareholders should really be monitoring is whether or not the company can make good on its fiscal 2016 forecast of $90 million to $100 million in sales and more than 240,000 Cologuard tests processed.

On one hand, Exact Sciences has the tools to succeed. Medicare has approved reimbursements for Cologuard, meaning the company has a veritable sea of potential customers aged 65 and up that it can market to. Additionally, colon cancer is arguably one of the most preventable forms of cancer since adenomas can take up to 15 years to develop into cancer. This adds one extra incentive for consumers to use this noninvasive test.

On the flipside, Exact Sciences hasn't shown yet that it can monetize this opportunity and turn a profit. If I had to take a shot at estimating, I'd bet the company would need a recurring 750,000-plus processed tests just to have a shot at a full-year profit. This means losses for Exact Sciences could extend for another three, four, or even five years from now.

Weighing its positives and negatives, I like Exact Sciences' chances of improving patients' odds of detecting colon cancer early. But as a realist, I'd also caution investors not to overpay for this unique, but thus far money-losing, technology. Perhaps the safest place for investors in the meantime is on the sidelines.

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