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Biotech Stock Mailbag: Dismantling The Exact Sciences Short Thesis

BOSTON ( TheStreet) -- This week's Biotech Stock Mailbag fisks the recently published short thesis on Exact Sciences.

The backstory: On Wednesday, "Alpha Exposure" -- the pseudonym of a hedge fund -- published its short thesis of Exact Sciences on Seeking Alpha. The article -- Exact Sciences -- The Rotten Sniff Test -- is a very skeptical look at the company's Cologuard colon-cancer screening test. "Alpha Exposure" accuses Exact Sciences of hiding important data from Cologuard's pivotal phase III study and cherry-picking data that has been released in order to trick investors into believing the non-invasive colon cancer test is more accurate than it really is.

"Alpha Exposure" said it plans to publish four more articles about Exact Sciences on Seeking Alpha but as of Thursday mid-day, just the single article had been posted.

On June 14, I described the bull thesis on Exact Sciences, as explained to me by a different hedge fund investor who is long the stock. And yes, he also requested anonymity.

Here's what my hedge fund manager source had to say Thursday about the Exact Sciences' short thesis explained by "Alpha Exposure" in Wednesday's article:

"Well, it's just amazing that this guy is using the wrong numbers. His whole thesis is that Exact Sciences is cherry-picking data, but in fact, that's exactly what he did."

Two hedge funds battling over the future of Exact Sciences and its colon-cancer screening test! It's always good to know both sides of the story, but who's right? Based on what I've heard and read so far, I lean towards the bull thesis because I believe "Alpha Exposure" is actually being more manipulative with data than anything the fund accuses Exact Sciences of doing.

Let me explain. Two main points:

First, "Alpha Exposure" accuses Exact Sciences of misleading investors by setting up an easy and rigged comparison between Cologuard sensitivity and specificity and historical data on FIT sensitivity and specificity. The fund points to Exact Sciences' recent investor slides comparing Cologuard to older, previously published FIT data as proof the company is misrepresenting the accuracy of its screening test.

"Alpha Exposure" is wrong. In the pivotal "DEEP-C" study conducted by Exact Sciences, all patients underwent screening for colon cancer using Cologuard and FIT. Here's what Exact Sciences CEO Kevin Conroy said about the data comparing Cologuard to FIT. The quote comes from the company's May 1 conference call:
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