Citron Research published a report critical of Exact Sciences and its flagship screening test for colorectal cancer Monday, prompting a testy exchange on television later in the day between Exact CEO and chairman Kevin Conroy and Andrew Left, founder of Citron and a well-known short-seller.
In the 13-page report, Left writes that the rate at which doctors order the test, known as Cologuard, has not accelerated over the past two years. He predicts that Madison, WI-based Exact (NASDAQ: EXAS) will face financial headwinds starting next year when the government reduces the amount it reimburses healthcare providers who order Cologuard tests for Medicare patients. Left also writes that Cologuard is less effective than a colonoscopy, which he calls the “gold standard” for colorectal cancer screening, at detecting pre-cancerous polyps.
Shares in Exact closed the trading day at $32.43 a share, down nearly 4 percent from Friday’s closing price of $33.77 a share. The company’s stock price fell as low as $31.25 a share in the morning before rallying in the afternoon.
Around lunchtime, Conroy called into the CNBC show “Halftime Report” and fired back at Left, who was also on the line. Conroy said parts of the Citron report were “dead wrong,” and called the analysis done by Left and his team “superficial.”
Left, who is perhaps best known for his 2015 report on Valeant Pharmaceuticals (NYSE: VRX) published shortly before the company’s stock price plunged, writes in Monday’s report that Cologuard is an “inferior” test.
The only reason Exact exists is because “some men think they are ‘too cool’ (or too scared) to get a colonoscopy,” Left says in the report. Conroy did not address this point directly during the CNBC segment, but did say that nearly half of the patients who have gotten a Cologuard test had never been screened for colorectal cancer previously. One of the test’s selling points is that unlike a colonoscopy, it does not involve an invasive procedure. Patients are provided with test kits for their stool samples, which they then ship to one of Exact’s laboratories for analysis.
“Approximately 30 million Americans in the screening population have never been screened,” Conroy said. “[Cologuard] addresses a really important need.”
Asked by “Halftime Report” anchor Scott Wapner whether Cologuard can detect pre-cancerous polyps, Conroy replied that “studies show that our test does detect polyps, [but] not at the same rate as colonoscopy.” In the Citron report, Left writes that colonoscopy procedures “routinely remove pre-cancerous polyps,” which makes a colonoscopy “both diagnostic and preventative.”
Left uses comments Exact chief financial officer Jeff Elliott made to analysts during a conference call last month suggesting the amount hospitals and clinics are reimbursed after ordering Cologuard for a Medicare patient, currently $512, is likely to come down over time. Part of the reason for the change relates to the Protecting Access to Medicare Act (PAMA), which says payment rates for certain laboratory tests will be set based on the median reimbursement level of commercial insurers starting next January.
Conroy said during the CNBC segment that he feels Left made errors in his projections of the amounts insurers will reimburse for Cologuard in 2018 and beyond.
“Your analysis is wrong about the PAMA calculation of median price,” Conroy said to Left.
Another critique of Exact Sciences in the Citron report is that Cologuard’s “prescriptions per physician” ratio—number of completed tests in a three-month period divided by total number of clinicians who have ordered the test—“has been [a] flat line the last two years.”
Technically, this is not correct; the ratio has increased each of the last four quarters. But the growth has been modest, which suggests that getting clinicians to not only order Cologuard for the first time, but re-order the test for more patients afterward, will likely remain a focus area for Exact.