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Short Seller Who Unraveled Valeant (VRX) Zeroes in On This Massachusetts Biotech

5/16/2017 6:28:57 AM

Short Seller Who Unraveled Valeant Zeroes in on This Massachusetts Biotech May 16, 2017
MARLBOROUGH, Mass. – Shares of Exact Sciences (EXAS) plunged in trading Monday after Andrew Left, a short-seller known for raising a red flag over Valeant Pharmaceuticals, criticized cancer tests provided by Exact Sciences – tests he called “poop in a box.”

In a note published May 15 by Citron Research, Left said Exact’s Cologuard product that scans DNA in stool samples to determine colorectal cancer “is not the standard of care for colon cancer screening.” Left said Exact is pushing its Cologuard test, which he said is “inferior by its own admission” and said Exact is losing money while promoting the product. Cologuard was approved by the U.S. Food and Drug Administration in 2014 as a “non-invasive” screening test that can be performed at home. Left was also critical of the FDA approval of Cologuard. Although he claimed the product is inferior, the FDA approved it to encourage colorectal cancer screenings.

On the company’s website, Exact said in clinical trials that Cologuard “found 92% of cancers, 42% of pre-cancers and had a specificity of 87%.”

Following the publishing of Citron’s note, shares of Exact fell from $33.96 to a low of $31.27, before closing on Monday at $32.43.

Left’s note was highly critical of the product and said Exact is making money only because it is taking advantage of a “broken healthcare system” and offering what he called an inferior product that was developed for people who are “too cool” to have a colonoscopy.

“The strategy of direct-to-public advertising places Exact Sciences in the role of endangering potential colonoscopy patients, by encouraging them to not accept their own doctors’ guidance,” Left wrote.

In the note, Left pointed to key metrics he said show how the Cologuard test is losing money for Exact Sciences, which is valued at about $4 billion. He said there are 1.4 orders from physicians per quarter, which has “been in flat line for the past two years.” Doctors are not ordering more tests, he said, despite the amount of money the company is spending on marketing.
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“Despite over $223 million in operating expenses to generate $99 million in revenues, these results show no sign of generating increasing recurring revenues to propel the business toward break even,” Left said. “Not only is Cologuard failing to gain any leverage with doctors, consumer awareness is not on the rise either.”

During an interview on CNBC Kevin Conroy, chief executive officer of Exact, said Left’s report is “dead wrong.” Conroy criticized the research done by Left and disputed his analysis.

"Blood-based tests is very unlikely to ever displace any other tests. You want to detect stage one cancers and you just can't do that reliably from blood,” Conroy told CNBC.

Left is no stranger to taking on biotech companies. Not only did he set his sights on Valeant and its “unsavory business practices of massive price raises on pharmaceuticals acquired in a rapid succession of acquisitions, while slashing research and development,” Left also was critical of Mallinckrodt PLC, which he said was an abuser of the reimbursement system.

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