Exact Sciences interior (copy)

Exact Sciences Corp. employees, including Jeannie Halvorsen, center, work in the company’s lab in the town of Madison. 

Shares of Exact Sciences stock plummeted nearly 50 percent Tuesday after a draft report, with updated guidelines for colorectal cancer screening, did not include the company’s Cologuard test among the top options.

The U.S. Preventive Services Task Force (USPSTF) named Exact’s non-invasive, DNA-based stool test, Cologuard, as an alternative test, useful in “select clinical circumstances,” rather than one of the main screening tests suggested.

Exact CEO and chairman Kevin Conroy held a conference call with analysts Tuesday morning and said the draft report was “different than what we and most people expected” and conceded he was “not pleased.”

The news came barely one week after the Madison City Council agreed, after long and contentious debate, to a critical step toward a costly redevelopment plan that includes moving Exact Sciences’ headquarters Downtown in mid-2017 and providing at least 400 jobs there by 2019.

A development agreement on the $200 million Judge Doyle Square project, approved 12-6, calls for $46.7 million in public investment, including a $12 million grant to Exact Sciences guaranteed by delivery of the Downtown jobs.

The company currently has its headquarters and offices in University Research Park, and labs in the town of Madison. Exact had, as of last week, nearly 700 employees nationwide, including 438 in the Madison area.

Ald. David Ahrens, 15th District, the project’s most vocal foe, said the stock price plunge underscores his concerns.

“The city’s contribution of tens of millions of dollars to the company may well evaporate before demolition of the (Madison Municipal Building) annex. What will we tell our constituents? No one could have known? We thought it was a risk worth taking? Our staff assured us this was a good idea? With the collapse of the stock price, these will no longer be credible explanations,” Ahrens said in an email to reporters.

Mayor Paul Soglin, a champion of the Downtown project, said it is premature to come to conclusions about Exact Sciences in light of the stock downturn. The stock price was not a factor in the city’s position on the project, he said.

“We will proceed with the development with confidence and in the next month, get better information on the long-term consequences on today’s announcement — a decision that may be reversed, a decision that may have no significant impact on the performance of the company,” Soglin said.

Exact spokesman J.P. Fielder said the company will fulfill its promise.

“We remain committed to the 400 jobs by 2019. As Kevin outlined on today’s (conference) call, we continue to recognize that Cologuard is a great colon cancer test. Its early adoption is strong because physicians and patients want it. So we see a continued, strong growth trajectory for the company,” Fielder said.

Seeking changes


Conroy, who is out of the country and was unavailable for further comment, said he will try to convince the panel to modify its final recommendations, saying he thinks the task force did not consider some of the most important evidence in Cologuard’s favor.

In the meantime, Conroy said Exact will continue its aggressive roll-out of Cologuard. “Our plan remains the same,” he said. “There is no change to the strong value proposition of Cologuard ... We have no reason to believe the U.S. Preventive Services Task Force decision will impact our strong launch.”

More than 100,000 of the tests have been ordered, and more than 20 commercial health insurers cover it, he said.

Stockholders, though, seemed to disagree. Disappointed by the draft report, they sold off shares rapidly. The stock closed at $9.98 a share, down $8.55, or 46 percent, from Monday’s closing price of $18.53. More than 32 million shares traded hands, compared with the average daily volume of 1.4 million trades of the stock.

Research analysts for several of the big investment banks quickly lowered their price targets — their projection of where the stock will be trading in the future.

One of the sharpest cuts came from Goldman Sachs analyst Isaac Ro, who now expects Exact stock to sell at $11 a share six months from now, down from his previous price target of $24.

Ro also cut his revenue projections for Exact by about one-third, and anticipates $113.6 million in revenue for 2016, down from earlier estimates of $167.6 million.

If Cologuard had been included among the main colorectal cancer screening options, along with colonoscopy, it “would have paved a clear path for full reimbursement coverage from private insurance companies,” Ro wrote in a research note Tuesday.

But instead, as one of two alternative options, Ro said he expects “a much shallower revenue ramp given this unfavorable outcome.”

Other analysts were more upbeat.

Brandon Couillard, of Jefferies & Co., said the draft report’s impact is “unclear,” especially since the task force changed its ratings system.

Couillard, in a research note Tuesday, said insurance reimbursement for Cologuard “may be lower and slower,” but the stock market’s initial reaction “appears overdone.”

“We continue to view Cologuard as a potentially game-changing test, given its superior sensitivity for cancer detection, utility in detecting pre-cancerous polyps and appeal as a non-invasive screening alternative to colonoscopy,” Couillard wrote.

A study of 10,000 people, published in the New England Journal of Medicine in March 2014, showed the Cologuard test correctly found colorectal cancer in 92 percent of the cases and identified 69 percent of large polyps most likely to turn cancerous. But it also had about a 10 percent rate of false positives, later found negative in a colonoscopy.

CEO Conroy told analysts the task force seemed to criticize Cologuard because if patients used it every year, it would require more follow-up colonoscopies over the patient’s lifetime than, for example, a blood screening test.

“It’s not clear that (the task force) reviewed powerful evidence that Cologuard, used every three years, yields about the same life-years gained and mortality benefit at a lower burden of colonoscopy utilization” than other screening tests, Conroy said.

“We don’t fully know how this will impact the business, but it’s not a doom-and-gloom scenario,” he said.

Jeffrey Elliott, an analyst with Robert W. Baird & Co., said he doesn’t see the draft report as a blow to Exact.

“If you look at where Exact was yesterday versus today, it’s taken a nice step forward. They are in the USPSTF guidelines after the committee went through an exhaustive review of the data. It gives them another stamp of approval,” Elliott said, adding that it was not as clear a step as he had hoped.

Elliott lowered his one-year price target to $25 a share from $33. The task force report is “one thing to look at,” he said. “This was never a requirement for success. It was only a sweetener.”

Analyst Brian Weinstein, of William Blair & Co., continued rating the stock at “outperform.”

“The stock market does not like uncertainty,” Weinstein said. “Nothing has fundamentally changed. Patients are still getting Cologuard tests ... (Exact is) growing their business; all that’s the exact same,” he said.

Weinstein said markets “tend to overreact in these types of situations and people default to a worst-case scenario. The reality is ... This is not going to destroy or come close to destroying Exact Sciences.”

State Journal reporter Dean Mosiman contributed to this story.

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