Monthly Archives: October 2015


Final Public Comment on Cologuard 1

Disclosure: No position in EXAS.

This month’s draft recommendation by the United States Preventative Services Task Force on colorectal cancer screening was deeply validating. The task force highlighted the specificity reduction introduced by combining FIT with a diagnostic DNA assay, a point emphasized by many market participants and independent observers over the years. Cable Car submitted comments supporting the task force’s recommendation.

I will have more to say about the impact on Exact Sciences and Cable Car’s positioning in the forthcoming third quarter investor letter.

In the meantime, I had one more public comment to research and submit first. Cable Car’s final public comment on the reconsideration request, which was preliminarily denied in August, is now available. The comment is styled as a compromise and follows an enlightening conversation with the staff at CMS regarding their constraints.

Cable Car has advanced a new crosswalk proposal: 82274 (FIT) + 81275 (KRAS) + 81288 (MLH1 methylation). As a diagnostic assay that is explicitly excluded from reimbursement for screening purposes, KRAS still has no business in the crosswalk, in my opinion. However, it appears Exact Sciences is going to get away with its clever exploitation of policy, which makes it virtually impossible to argue on methodological grounds that a KRAS assay is not a KRAS assay. This is no different from the old abuses of “code stacking” and is one of the many shortcomings of the current process the new PAMA procedure will seek to address. 81288 is a far better comparator for the methylation assay than any previous proposal, but it was only recently priced through the gapfill process.

I am hopeful that at this point in the process CMS will still be able to give the compromise crosswalk its full consideration.

PDF iconRead the comment letter.


Fun with FOIA 1

Disclosure: Short WRLD.

I don’t often write about World Acceptance Corporation, a position that was the subject of a detailed report last year but has since become relatively difficult to borrow. With potential CFPB enforcement action expected within the next few months, the stock is discounting uncertainty around the scope, severity, and consequences of the Bureau’s oversight. It remains a modest position, and I anticipate that an eventual wind-down/dissolution of the business remains probable, with varying potential equity recovery depending on the nature of the enforcement action.

I have little to add on the exact nature of the CFPB’s theories of legal liability, although I have previously speculated that credit insurance, repeated refinancing, fee disclosures, and collection practices represent potential sources of concern. However, as an illustration of what is becoming an increasingly popular step in the investment process, I thought I would share a recent response from the CFPB regarding inquiries into that very question.

Under the Freedom of Information Act (FOIA), government agencies are required to provide a wide variety of information generated by their operations, subject to several limitations. In particular, there is an exemption allowing agencies to withhold records compiled for law enforcement purposes. Investors and analysts have cleverly used this exemption as a way to confirm the existence of undisclosed SEC investigations.

Cable Car submitted a FOIA request to the CFPB requesting copies of the NORA letter and response from WRLD. Under the law enforcement exemption, the agency must demonstrate that disclosing material would reasonably be expected to impair the enforcement process. Cable Car argued unsuccessfully that disclosing the CFPB’s theories of legal liability would not negatively impact an enforcement proceeding and sought redacted copies of the documents in the alternative. The latter request was unfortunately denied on the amusing basis that “release of any non-exempt information would produce only incomplete, fragmented, unintelligible sentences composed of isolated, meaningless words.” The semiotics of such a document might still be interesting, but I digress.

PDF iconRead the CFPB response to Cable Car’s FOIA request.

Even when a FOIA request is denied, the response can be illuminating. Over the past few weeks, there have been unfounded rumors floated in the marketplace that World’s CFPB review was nearing an imminent resolution without material consequences to the company. On the contrary, the CFPB’s response indicates that an enforcement action remains reasonably anticipated. The FOIA response stated:

“Premature disclosure of the Bureau’s theories of liability, as well as the recipient’s responses to those theories, could reasonably be expected to interfere with reasonably anticipated enforcement proceeding.”

Precedent enforcement proceedings have been initiated several months after a NORA response, so the rumor never made much sense to begin with. I believe a reasonably negative outcome for World Acceptance remains reasonably likely.