On June 3, the negotiating team that was hashing out the Judge Doyle Square project with a private developer asked for some advice from Brian Weinstein.
Weinstein is a stock analyst for the Chicago-based William Blair & Company, and the city’s negotiators wanted his opinion on Exact Sciences, which was vying to have its headquarters be the cornerstone of the Judge Doyle Square project. It was also asking for a $12 million subsidy from the city, to bring jobs downtown.
City negotiators wanted Weinstein “to assess the company risk and the related project risk.”
Weinstein painted an optimistic picture of the company, saying it wasn’t a candidate for acquisition for several years and the potential market for its product — Cologuard, a home colon cancer screening test — was enormous, with as many as 75 million people who might benefit from taking it.
The city’s negotiating team reported all of this to the Board of Estimates at its June 29 meeting.
What isn’t mentioned in the report, however, is that Weinstein’s firm is the third-largest holder of Exact Sciences stock. It currently holds more than 5.4 million shares. On Tuesday, that stock was worth more than $41 million. In June, when Weinstein was advising the city about the project, his company’s holding in Exact Sciences was worth around $168 million.
The Common Council approved the Judge Doyle Square project last month, along with a $47 million subsidy. A week later, Exact Sciences stock took a hit, plunging more than 50%. The drop came after the U.S. Preventive Services Task Force, in its draft of recommended treatments, did not list Cologuard as a primary screening test.
The stock plunge has renewed scrutiny of the city’s investment in the company.
“Madison and other governmental units normally invest in the most conservative and risk-free of securities — US Treasury Notes,” Ald. David Ahrens wrote to his colleagues in an email Tuesday. “For some reason, Madison officials believed that the normal processes of due diligence in the $47 million investment of the city, county and school district...did not apply.”
It’s relatively easy to find both stock analysts who are enthusiastic about Exact Sciences and those who are pessimistic. But the city’s negotiating team — led by consultant George Austin — spoke to only one analyst.
Austin says he selected Weinstein by contacting “people who I trust in the industry and who could give me a good recommendation.”
He did not solicit names from Exact Sciences, saying “that wouldn’t have been appropriate.”
But why did the team only speak to one analyst, when opinions on the company vary so widely? “We weren’t trying to do an exhaustive research project,” Austin says. “We were trying to understand information on the company, its analytics, how they are viewed in the industry. The interviews with Mr. Weinstein filled that purpose.”
Austin says Weinstein provided the city with information that was helpful in the negotiations with the development team, led by Bob Dunn of Hammes Company.
The city representatives got “a more thorough understanding of the context of the business and how the biotext sector operates, so it helps us frame negotiating terms,” Austin says.
John Jacobs, a resident who has been loudly critical of the project, counters that Weinstein has a bad record of predicting Exact Sciences stock performance, with a 25% success rate for an average return of negative 27%, according to Tipranks.com.
Ahrens can’t understand why the negotiating team didn’t get a second opinion. Earlier this year, he provided the city with reports from analysts who were pessimistic on the stock and expected it to drop.
“If you have something important to decide about anything, you ask for more than one opinion,” Ahrens says.
Ald. Denise DeMarb, the council’s president, says she hopes the team read more than one report about the company, but downplays the advice stock analysts typically provide.
“It’s always easy to find people gung-ho on a project and those who are more hesitant, no matter what the project is,” she says.
DeMarb says that sometimes analysts were sour on her former company, Trek Bicycles, where she worked for 20 years.
“There were people who discounted that business too, and we just worked harder to prove them wrong,” she says.
In response to Ahrens’ email to the council, Mayor Paul Soglin asked city attorney Mike May for guidance on what due diligence means for the city.
May responded, in part, “When the City puts [tax incremental financing] into a project, the project yields a physical object, such as a building, that increases the tax base to contribute to the repayment of the City’s investment. The key is to be certain the building is constructed and makes that contribution to taxes. The City is not a shareholder either in the developer of the project or any of the tenants of the project.”
