BOSTON (TheStreet) -- Welcome back to the Biotech Stock Mailbag. Richard V. asks:
Adam, I follow you on Twitter and saw you comment on Exact Sciences ( EXAS) and the pricing of Cologuard. Can you elaborate more in a future Mailbag about what [Cologuard] price will be considered a positive or negative for Exact?
Great question, Richard. On Monday, the FDA approved Cologuard, the first non-invasive screening test for colon cancer which works, in part, by detecting the presence of mutated DNA in stool. Exact Science's Cologuard is superior to existing stool-based colon cancer screening tests, most notably for the detection of pre-cancerous lesions. Colon cancer is preventable and curable if pre-cancerous lesions are detected early and removed before they have a chance to progress into full-blown malignancies. Exact Sciences believes widespread adoption of Cologuard has the potential to put a dent in colon cancer rates.
With Cologuard's approval secured, Exact Sciences' next challenge is marketing the colon cancer screen and pushing adoption. Cologuard's list price is $599, much higher than the $30 cost of existing stool-based colon cancer screening tests. No one pays the list price for a car without negotiating for discounts, so likewise, insurance companies and Medicare will also negotiate with Exact Sciences to determine a Cologuard reimbursement rate. This is where the next battle between Exact Science bulls and bears will be fought.
Exact Sciences has submitted to Medicare analyses supporting a $502 reimbursement rate for Cologuard. Bulls believe an actual Medicare reimbursement rate in the range of $300 to $500 per test will be a win. (Private insurers will generally follow Medicare's pricing decision.) Bears counter with analyses suggesting Medicare's reimbursement rate for Cologuard will be in the $100 to $150 range. At this low price range, Exact Sciences would lose money on each Cologuard test sold, clearly a big problem.
Medicare officials are expected to announce a preliminary Cologuard pricing decision later this month or in early September. Obviously, this is a very important catalyst for Exact Sciences and its stock price.
Count me in the Exact Sciences' bull camp. I believe Medicare will grant a favorable reimbursement rate for Cologuard.
The technical arguments for and against premium pricing are complex, so I'm not going to get into the weeds describing them here. The big mistake Exact Sciences' shorts are making is believing past Medicare pricing decisions and cost-effectiveness analyses covering older colon cancer screening tests are the correct precedent by which to judge Cologuard.
In conjunction with the FDA approval Monday, the Center for Medicare and Medicaid Services (CMS) issued a proposed (and favorable) National Coverage Decision for Cologuard. Exact Sciences is the first company to submit a product for parallel review by the FDA and CMS under a pilot program aimed at reducing the time between FDA approval and Medicare coverage.
Here's what Patrick Conway, chief medical officer and deputy administrator for innovation and quality for CMS, said about Cologuard on Monday: