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Why Exact Sciences Is A Great Short At $10


The U.S. Preventative Services Task Force’s Colorectal Cancer Screening Draft Recommendation issued yesterday is devastating for Exact Sciences' only product, Cologuard.

I think this is the beginning of the end for the company.

My price target for the stock a year from now is $3, so I shorted more yesterday.

The shares of one of my largest short positions (~3%), Exact Sciences, crashed by more than 46% yesterday to close at $9.98 after the U.S. Preventative Services Task Force's Colorectal Cancer Screening Draft Recommendation listed Exact's sole product, Cologuard, a poop-in-a-bucket screening test, as an "Alternative Test" rather than a recommended one, and said numerous damning things such as:

  • The USPSTF found no studies that assessed the impact of screening with FIT-DNA [Cologuard] on cancer incidence, morbidity, quality of life, or mortality.
  • Evidence on the optimal screening interval, if any, is lacking.
  • A theoretical concern about FIT-DNA is whether its use might lead to more frequent and invasive followup testing in persons who are not at increased risk of colorectal cancer because of patient or clinician concerns about abnormal DNA results.
  • There are no data that evaluate how to implement FIT-DNA into a longitudinal colorectal cancer screening program.
  • …empiric evidence is lacking on appropriate followup of abnormal results, making it difficult to accurately bound the potential net benefit of this screening test.

I haven't written about Exact Sciences prior to now because it isn't a fraud/scam or doing nefarious things like so many of the stocks I've written about on Seeking Alpha (see Chris DeMuth's summary of my calls on WRLD, LRN, LL, IOC, DDD and UNIS). Exact has a real product that addresses a very serious problem, the low screening rate for colorectal cancer, the second-leading U.S. cancer killer. Nevertheless, I felt (and still feel) that it's a great short because the test has significant drawbacks that will severely limit its adoption and, in light of this, the valuation is absurd.

While I've never published an article about it before now, I did pitch this stock as my favorite short at the Robin Hood Investors Conference a year ago when it was at $24.22 (click here to see my slide presentation). In light of the 59% drop in the stock since then, it might appear to have been an easy short, but it was anything but. I first shorted it at $14.22 in April 2014 and watched it soar over the subsequent 15 months to a peak in late June of $32.85...