TheStreet) -- Welcome to this week's Biotech Stock Mailbag.
The results from the phase III study of
(EXAS - Get Report) non-invasive colon cancer screening test were labeled disappointing by a lot of investors, analysts and
biotech stock commentators (ahem) when released on April 17.
Here's a chart of Exact Sciences since the Cologuard data were announced:
EXAS data by
So much for conventional wisdom.
For an explanation, I sought out a hedge fund manager source who's been a stalwart Exact Sciences bull. He still owns the stock today.
His fund's rules prohibit speaking on the record to the media.
The Cologuard study results -- 92% sensitivity to colon cancer, 42% sensitivity to pre-cancerous lesions and specificity of 87% -- fell below expectations set by the company, my investor source agrees. But that's an artificial perception issue important only to Wall Street and had nothing to do with how well Cologuard actually works or whether it will be used by doctors and patients to screen for colon cancer.
"The fact is Cologuard is an approvable colon cancer screening test that is superior to FIT," says my investor source. FIT is a currently approved stool-based screening test, which is less accurate than Cologuard.
"There are about 3 million FIT tests performed each year in the U.S. Conservatively, I believe Cologuard could take two-thirds of FIT's market share, or 2 million tests. At $500 per Cologuard test, that's $1 billion in revenue for Exact Sciences," he says.
Moreover, there's upside to these numbers if Exact Sciences can improve upon the historically low compliance rate of the FIT test, which my source believes the company can achieve.
Alan P. writes:
"With biotech companies doing so well and the stocks surging, I'm surprised that we're not seeing more acquisitions being announced. Is there a reason for this? The rumors about takeovers don't seem to come true very much and I wonder why. Thanks for your help."
Alan is correct about the relative dearth of healthcare mergers-and-acquisitions activity this year. Through the end of May, U.S.-based M&A healthcare deals totaled $34.1 billion, down 12% compared to the same time period last year, according to healthcare merchant bank Burrill & Co.