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Exact Sciences Shares Plunge, Questions Arise for Insurers, Doctors

Xconomy Wisconsin — 

Wall Street punished Exact Sciences on Tuesday for an unexpected federal guideline that proposes to identify its colorectal cancer diagnostic product as an “alternative” screening method, leaving it out of a group of recommended tests.

Exact (NASDAQ: EXAS) stock closed Tuesday at $9.98 per share, down a whopping 46 percent from the previous day’s close of $18.53.

The big question now is how insurance companies and doctors react. If the momentum Madison, WI-based Exact has been building for Cologuard—its stool-based DNA test for detecting colorectal cancer—reverses, then the fast-growing company could be in trouble. (Disclosure: Exact Sciences is an Xconomy underwriter, but our coverage is determined independently by our editors.)

Cologuard earned FDA approval and Medicare coverage last year. Exact has also convinced a number of private insurers to cover the test, including Anthem Blue Cross and Blue Shield and several regional insurers. More than 30 healthcare systems offer the test, and more than 20,000 doctors have ordered it for patients, Exact said.

The company, which has been rapidly hiring, achieved those numbers despite its test not being among those recommended for colon cancer screening by the U.S. Preventive Services Task Force.

On Monday, the task force issued draft guidelines that recommend four other screening methods, but create a new “alternative” screening category that includes Cologuard and computed tomography colonography. The final guidelines will likely be issued next year.

There’s “no doubt” that inclusion in the task force’s guidelines affects insurers’ coverage decisions, Exact CEO Kevin Conroy said in a Tuesday morning conference call with financial analysts.

“What we don’t know now is what does it mean to be included in the guideline document as an alternative test, and whether that will give the payers the same level of comfort” as being among the recommended tests, he said.

As for the impact on doctors’ treatment practices, Exact is betting that as long as Cologuard performs well in separate quality measures from Medicare and the National Committee for Quality Assurance, that doctors will continue prescribing the test, Conroy said. He said he’s not sure the task force guidelines will impact those ratings.

Even though being labeled an “alternative” test was unexpected and disappointing to the company, being included in the guidelines at all is still an improvement, Conroy said. “Physicians who have been ordering Cologuard have been ordering Cologuard despite the fact that it’s not in” the task force’s guidelines, he said.

The task force said that computed tomography colonography and Cologuard might be useful in “select clinical circumstances.” “However, there is less mature evidence to support these methods, resulting in greater uncertainty about their net benefits and the most appropriate situations in which to use them,” the task force wrote.

Financial analysts’ reactions to the news were mixed. Benchmark cuts its rating on Exact stock from buy to hold, suggesting that the company might struggle to persuade regulators that Cologuard’s benefits outweigh the potential harms of increased invasive follow-up testing in patients who ultimately aren’t at risk of cancer, according to an article on TheStreet.

Robert W. Baird & Co. analysts rate Exact’s stock “outperform,” although they lowered the projected stock price target to $25 per share from $33.

Baird analysts predict that Cologuard will still be prescribed in some situations; for example, if a patient refuses to undergo a colonoscopy. Overall, they think the task force decision “would either not limit the market opportunity or limit it modestly,” they wrote in a Tuesday research report. “We’ve reduced our estimates and price target assuming slower commercial coverage; however, regardless of [the task force’s guidelines], we believe commercial payers will seek to cover the test.”

The task force’s proposed guidelines don’t change Exact’s commercialization strategy for Cologuard, Conroy said.

“We believe that we will be able to continue to make really impactful arguments to payers, providers, and patients that this is a unique test that avoids some of the shortcomings of current colon cancer screening tests,” Conroy said.

Conroy was adamant that Exact won’t lower the price for Cologuard in light of the task force’s proposed guidelines. The maximum out-of-pocket cost of the test, if not covered by insurance, is $649. Medicare’s reimbursement rate is $492.72. “We think that Cologuard is very fairly priced as a highly advanced screening test,” Conroy said.

During the impending 30-day public comment period, Exact will try to lobby the task force to reconsider Cologuard for the group of recommended tests. “There is precedent, although it’s rare, for the task force changing its perspective from the time it issues draft guidance” to the time it finalizes the recommendations, Conroy said.