Investing Deep Dive: Why EXAS Stock Should be on Your Radar
Deep Dive Focus: EXACT SCIENCES (NASDAQ: EXAS)
Stock Price: EXAS 0.00%↑
In our first distributed deep dive, we share our research into a leading healthcare stock at the cutting edge of early cancer screening. With an exciting pipeline of products and a strong track record of growth, we believe Exact Sciences presents a fascinating investment opportunity for retail investors looking to capitalize on the healthcare industry’s potential.
Deep Dive: Exact Sciences (EXAS)
A cancer cure is the holy grail of healthcare. While it remains elusive, oncology breakthroughs are increasingly impressive. Particularly in early detection, which plays a crucial role in reducing cancer deaths and improving patient outcomes. One company leading the charge is Exact Sciences (NASDAQ: EXAS), an American success story with a bright future.
Advancing technologies and the genomics revolution are helping oncologists understand cancer, allowing for earlier detection and the development of more personalized treatments.
Nowadays, many people feel empowered to do what they can to live their best life. To value relationships, take care of their bodies, and work hard at investing in both their physical and financial future. With a zest for life, young people strive to live long and prosper.
But when cancer comes along and wreaks havoc on that dream, it is devastating and puts priorities into perspective. That’s why so many people are attempting to take control of their health through lifestyle and preventative changes.
Two of the most common cancers affecting young people are colon cancer and breast cancer. Thankfully, early screening is providing a lifeline to survival.
Despite the doom and gloom in the world, seeds of hope are springing up, thanks to advances in genetic sequencing, immunotherapy, and artificial intelligence.
So, if you’re an investor looking for a great growth story to invest in, one that is at the cutting edge of genomics and fighting back against cancer, read on for extensive insight into Exact Sciences’ business model.
The Power of Early Diagnosis in the Fight Against Cancer
The more advanced cancer gets, the harder it is to deal with, so until cures are found, early detection remains the ultimate strategy.
In 1995, Stanley Lapidus, an inventor, and Anthony Shuber, a scientist, were working together in Massachusetts when they stumbled upon a promising opportunity. They saw the potential in using DNA analysis to detect cancer in its earliest stages.
In 1998 they filed a patent application1 for methods to test for diseases, such as cancer, from a stool sample.
Fast forward 28 years, and the result of this early idea is, Cologuard. With over 10 million tests sold, it’s now the standard of care in the early detection of colorectal cancer (CRC). Cologuard has been ordered by more than 300,000 unique healthcare providers in the US alone, saving countless lives.
The company behind this successful product is Exact Sciences (NASDAQ: EXAS). We’ll explore its origins, the challenges it has overcome, and its exciting potential for further success.
What Does Exact Sciences Do?
Exact Sciences is pursuing multiple revenue streams in the cancer detection space. The genomics company develops molecular pre-cancer screening tests and has some incredibly innovative products in development.
Exact Sciences’ flagship product is Cologuard, but that’s not all it’s got going on. The company also sells tests that help tailor cancer treatments. Exact Sciences is constantly innovating, and its pipeline includes existing product upgrades plus colorectal cancer screening via blood, minimum residual disease (MRD) testing, and multi-cancer screening, which probably has the biggest potential for impact on human health of any diagnostic ever developed.
This has been enough to impress asset management giant ARK Investment Management LLC (ARK Invest). ARK first added EXAS stock to its portfolio in October 2020, at purchase prices ranging between $72.92 and $102.01, with an estimated average price of $86.19. Today it remains the fund’s highest-weighted asset.
Mergers & Acquisitions (M&A)
After Exact Sciences avoided a hostile takeover by Sequenom Inc. in 2009, the company began its aggressive bid at restructuring and repositioning for the future.
All-in-all, the company has completed 14 deals, with 13 acquisitions and one sale. There was also a rumored acquisition of Invitae (NYSE: NVTA) NVTA 0.00%↑ in August 2021.
This chart shows Exact Sciences’ M&A activity since 2009.
Exact Sciences is clearly a fan of M&A.
The company will consider an M&A target if it meets three conditions:
contributes to Exact Sciences' long-term strategy.
has a good culture fit.
creates shareholder value.
Following this ethos, in 2019, Exact Sciences bought Genomic Health, acquiring a platform of disease-testing potential powered by DNA sequencing. This includes the Oncotype franchise, which comprises a test that tells breast cancer patients whether they’re likely to benefit from chemotherapy or not. Since its inception, Oncotype DX (a specific version of the Oncotype test) has supported over 800 clinical trials2.
Exact uses DNA sequencing to develop its tests which also include Oncoguard Liver and Riskguard, a hereditary cancer test (HCT).
In October 2020, Exact Sciences acquired Thrive Earlier Detection. Thrive develops CancerSEEK, a liquid biopsy test that is designed to detect many cancers at earlier stages of the disease. CancerSEEK will serve as the core of Thrive’s integrated cancer information offering.
in January 2022, Exact acquired PreventionGenetics, complete with a talented team. This acquisition has proved a great success, generating over $40m in profitable revenue and creating a new product line called Riskguard.
ARK Invest believes that companies involved in molecular oncology testing will consolidate over the next decade and that Exact Sciences will be one to come out on top.
Exact Sciences: Current Products
Cologuard
As discussed, the company is best known for its Cologuard Colorectal Cancer (CRC) screening test. Cologuard detects 42% of all pre-cancers, 69% of advanced pre-cancers, and 94% of Stage 1 and 2 cancers. The company estimates it has helped find nearly 315,000 people with pre-cancer and 46,000 with early-stage cancer.
The Cologuard product is now becoming synonymous with colorectal cancer screening and is a ‘standard of care’ because it is accurate and convenient to use. Patients can even carry out the test at home to ensure privacy and save time.
Cologuard is included in all major guidelines and quality measures and is nearly universally covered by insurance at no cost to the patient.
The fact that 10 million people have completed the Cologuard test is proof it is becoming a preferred screening standard. In Q3 2022, more than 150k healthcare providers ordered the test, marking a new record.
At the Piper Sandler Healthcare conference in December 2022, Conroy said:
"over the last six quarters, our Net Promoter Score, a direct measure of how much people who use your product like it and recommend it to others has gone from 20 to 40. So, it’s world class."
This is a hugely successful proprietary product continuing to enjoy sales growth. But it’s not all the company has in its portfolio.
Oncotype
The Oncotype franchise includes three tests, its primary being Oncotype DX Breast Recurrence Score, followed by Oncotype DX Breast DCIS Score and Oncotype DX Colon Recurrence Score.
The primary Oncotype DX Breast Recurrence Score test is a well-established product that assesses whether breast cancer patients will respond to chemotherapy.
Exact Sciences acquired the Oncotype DX cancer tests through its Genomic Health acquisition. The Oncotype franchise began as a tool to determine the likelihood of breast cancer returning after chemotherapy and extended into prostate and colon cancer. Despite being around for more than a decade, Oncotype sales continue to grow as Exact Sciences penetrates overseas markets.
In August 2022, Exact Sciences sold its prostate cancer business to Mdxhealth for $30m in cash and shares with an earn-out agreement for Exact Sciences to earn up to an additional $70m between 2023 and 2025. The precise amount Exact Sciences will receive from this deal depends on Mdxhealth meeting certain milestones.
Meanwhile, the Oncotype breast cancer test remains popular as patients with cancer that has spread to the lymph nodes (node-positive) are finding it beneficial to take.
Both The American Society of Clinical Oncology (ASCO) and the European Society for Medical Oncology (ESMO) have given the strongest overall recommendation for Oncotype DX to guide treatment for both node-positive and node-negative early-stage breast cancer.
Leading on from this, Exact has expanded Oncotype DX to include ductal carcinoma in situ (DCIS), which represents about 20% of new breast cancer diagnoses. This is a gene expression-based test used to determine the risk of recurrence and guide treatment decisions for patients with this non-invasive form of breast cancer.
Plus, the Oncotype DX Colon Recurrence Score test has received approval for various stages and subtypes of colorectal cancer.
“We expect that the Precision Oncology team to grow Oncotype from $600 million to about $1 billion.”
Kevin T. Conroy Chairman, President & CEO, EXACT Sciences Corp.
Despite the challenges posed by the pandemic, Exact's international revenue from Oncotype DX increased from $11 million in 2019 to $110 million in 2021. With a lower market penetration and minimal competition in international markets, ARK Invest expects that international revenue from Oncotype DX will grow by over 20% annually in the next five years.
Oncoguard Liver
Oncoguard Liver is a blood-based test for the early detection of liver cancer, which is the fastest-growing3 cause of cancer-related death in the US. Oncoguard Liver is currently only available if the patient can pay for it. However, ARK Invest believes that payors will reimburse for this test by the end of 2023. If so, we should expect a rise in adoption.
OncoExTra
Released in February 2023, the OncoExTra genomic test profiles advanced solid tumors to give doctors a clearer picture of the patient’s cancer. The test analyses the tumor at the molecular level with reference to nearly 20,000 genes. It uses a "matched tumor-normal sequencing" method, comparing the genetic information from the patient's tumor to a normal, healthy sample from the same patient. This reduces false positives and helps doctors prescribe the most effective treatment.
OncoExtra is a therapy selection test. This is an area of oncology seeing rising demand from health professionals assessing how patients will respond to drugs before therapy begins. The untapped market is potentially huge.
Riskguard Hereditary Cancer Test (HCT)
This is a genetic test used to assess the risk of developing certain types of hereditary cancers, such as breast, ovarian, and colon cancer. The main benefit is that it provides early detection and allows for preventive measures to be taken, reducing the risk of developing cancer and improving patient outcomes.
Pipeline
While the leadership team and sales force are focused on executing sales of Cologuard and Oncotype, innovation is helping to advance the company’s pipeline and protect its future. Therefore, clinical trials are routine.
The company is now amid an intense period of clinical results. Its products Cologuard 2.0, Minimal residual disease (MRD) and Multi-Cancer Early Detection (MCED) have all returned encouraging data and positive sentiment in the past year. In 2023 the team expects results from its BLUE-C data on its colon cancer blood program.
Read on for an overview of its pipeline.
Cologuard 2.0
Cologuard is undergoing a stealthy upgrade. The company does not want to compromise on the quality or convenience of its original Cologuard test. Instead, it wants to upgrade its performance to improve the patient experience.
Indeed, the company pulled forward a major benefit of this version by launching an enhanced collection kit last September.
The team developed a new protein preservative to extend sample stability by 33%. This gives patients more time to complete and return the test, increasing the number of tests completed, thus improving revenue and margins.
In early trials, Cologuard 2.0 sees sensitivity improve from 92% to 95% and specificity improve from 87% to 92%. It also improved its ability to detect advanced adenoma (a pre-cancerous lesion) from 42% to 57%.
Next Steps: The company’s BLUE-C clinical trial will put Cologuard 2.0 through its paces and establish its performance levels, with the aim of supporting an FDA approval submission.
Growth Opportunities: Rescreening and expanding screening age range to include 45 to 49-year-olds. The company sales team is incentivized with targets.
In the United States alone, there are 60 million individuals not up to date with their screening. If the company extends its targeted age range from 45 to 85, this number rises to 110 million.
Cologuard adoption has risen at 66% CAGR since 2015, despite a blip during COVID-19.
Cologuard 2.0 is likely to see this trajectory continue, and its potential for recurring revenue adds value to this product.
Colorectal Cancer (CRC) Blood Testing
While stool sample testing is more accurate than blood testing for colorectal cancer, not everyone is keen to try it. That’s why Exact Sciences believes a blood test will still be a worthy addition to its portfolio, and development is underway.
The team is using samples from its BLUE-C clinical trial, which has 24,000 participants. The government agency Centers for Medicare & Medicaid Services (CMS) looks for a minimum of 74% accuracy and 90% specificity to qualify for test reimbursement.
Exact Sciences is confident its test will beat these minimum requirements and be as good as other tests. It also believes its leadership position and strength in marketing will be more important than small differences in test accuracy. Furthermore, Exact Sciences will have an advantage over other companies because it can process both blood and stool samples, all under the Cologuard brand.
Next Steps: The team will collect samples from its BLUE-C clinical trial to establish the blood test performance characteristics.
The FDA wants to see three things:
Pre-cancer detection sensitivity
Cancer detection sensitivity
Specificity and false positive rate (correctly identifying individuals who do not have the condition)
These three metrics will be ascertained from its colorectal cancer blood study.
Growth Opportunities: By covering all bases, the company hopes to reach a broader section of the 44 million Americans needing to be screened for colorectal cancer. The US government and private companies are trying to improve this by making the testing process easier.
Minimal residual disease (MRD)
Sometimes when cancer treatment is finished, there are still fragments of tumor-specific DNA left in the body. This is called minimal residual disease (MRD), and it’s worrying as its presence suggests cancer could reignite at a later date or that a tumor exists.
Traditionally, solid tumors are undetected until seen on a scan, physician examination, or there’s an obvious lump. Pinpointing circulating tumor DNA (ctDNA) is game-changing as it could lead to much earlier cancer detection and help monitor disease progression and treatment response.
The Exact Sciences’ MRD solution is in its early stages and is meant for patients diagnosed with solid tumor malignancies. The company is taking a bespoke approach to genome sequencing to detect ctDNA before, during, and after cancer treatment. The information gathered can then help guide the best treatment options.
Competition in this space is hotting up. Natera (NASDAQ: NTRA) was the first to clinical market in solid tumor MRD testing with its Signatera test in 2019. Guardant Health (NASDAQ: GH) followed in 2021, and Invitae brought Personalized Cancer Monitoring (PCM) to market in 2022. Finally, Personalis (NASDAQ: PSNL) plans to launch NeXT Personal in 2023.
Haystack Oncology, a private company, uses its next-generation Duo™ technology with ctDNA detection to uncover residual, recurrent, and resistant disease. It claims to detect earlier than any other MRD test.
Additionally, innovations in DNA sequencing technology are ensuring lower cost but accurate sequencers, which are being deployed by companies such as Element, Pacific Biosciences, and Ultima4.
Growth Opportunities: The company estimates that more than 2 million patients5 in the United States alone could benefit from this type of MRD testing.
Timeline: ARK Invest expects Exact Sciences will release its first MRD test by the end of 2023 as a laboratory-developed test (LDT).
Multi-Cancer Early Detection (MCED)
Early detection saves lives, as the earlier a cancer is found, the more treatable it is. Tests do exist for some specific cancers, including breast, colon, cervical and lung, but Exact Sciences intends to expand beyond this.
MCED can detect many more cancers than existing solutions, and the company is designing its MCED blood test to fit into routine medical care in conjunction with current screening tools.
“You can detect most cancers through a blood draw. Now, not all cancers, but most types of cancers and maybe ultimately half of all cancers through a blood draw.”
- Kevin Conroy, Chairman, President & CEO, EXACT Sciences Corp.
Better still, Exact Sciences intends to provide vital patient services, including result interpretation, follow-up testing, and care coordination.
Exact Sciences will be a partner for healthy patients, cancer patients, and doctors along the testing journey.
An early version of Exact Sciences’ MCED blood test already showed great results in a study.
DETECT-A2, studied its MCED test among 10,000 women with no prior cancer history. The results showed Exact’s blood test more than doubled the number of cancers first found through screening, with 65% of cancers found at earlier stages
Next Steps: The company continues to validate its test in new studies, including those aimed at FDA approval.
Timeline: This is going to take several years to develop as the company must conduct studies, attain FDA approval, persuade Congress to allow Medicare to cover testing, and get guideline approval for something that’s never been done before. ARK Invest believes adoption may begin to accelerate in 2028/2029.
Breast Radiation Score
The company is developing a genomic test that will identify whether early-stage breast cancer patients need radiotherapy.
The gene expression signature, which scientists use to predict the likelihood of a patient responding to a particular treatment, was developed by PFS Genomics. Exact Sciences acquired PFS Genomics in 2021, obtaining the foundation of this product in the process.
Determining how beneficial radiation therapy will be should help minimize unnecessary treatments and empower women to personalize their breast cancer treatment plans.
“we can continue delivering on the core on-market programs” and “we have a really robust growth in store throughout the pipeline”.
- Jeffrey Thomas Elliott Executive VP, CFO & COO, EXACT Sciences Corp.
Company History
Striving for Profitability through Cost Cutting
Exact is laser-focused on streamlining costs and achieving profitability.
Recent results show it’s on track to cut costs in sales and marketing, general and administrative, research and development (R&D), amortization and capital expenditure, and it is confident this won’t impact sales. Cologuard continues to see sales growth and improved efficiencies thanks to its tech advances, including electronic ordering.
To maximize profits, Exact needs to control spending, particularly general and administrative expenses, which are larger than R&D costs and make up a higher portion of revenue.
The company’s investments in automated billing and multiple product ordering will also help reduce spending in 2023 and 2024. Exact has predicted a 4% decrease in general and administrative expenses for 2022. The company’s biggest operating expense is sales and marketing, stemming from its push into advertising colorectal cancer screening to the younger 45-49 age group. The company has projected a 6% decrease in sales and marketing spend for 2022. Meanwhile, ARK Invest's model assumes general and administrative spend grows by 7% on average per year and sales and marketing increases by 8%.
In 2021, Exact hired 400 sales reps from Pfizer (NYSE: PFE) to boost its sales to primary care doctors, doubling its sales force. Exact has also grown its workforce due to the acquisition of Thrive. However, it does plan to slow hiring in 2023, which will also help save money.
EXAS Highs and Lows: Historic Price Action
Every stock chart tells a story, and Exact Sciences is no exception. The road to success hasn’t been plain sailing.
Exact Sciences went public on the NASDAQ in 2001 at around $14, but the share price suffered, and rumors circulated that a bigger entity would acquire the company.
From 2001 to 2009, EXAS was a tough stock to own, falling below $2 in 2005 and below $1 in 2008.
By 2009 it was make-or-break time, and Exact Sciences undertook a reset and overhaul.
Despite a decade of work, and a mission to create a non-invasive colon cancer screening test, the company was directionless. Its original team had folded, and there was no clear product concept.
In fact, it was almost bought out in a hostile takeover by Sequenom Inc. (NASDAQ: SQNM) in January 2009 for $41m, but thankfully managed to avoid this.
The company hired Kevin Conroy as its new President and CEO in April 2009. Under Conroy's leadership, Exact Sciences made key appointments and acquisitions, including legendary molecular scientist Graham Lidgard, Ph.D. as Chief Science Officer in August, and the concept of Cologuard took root.
At this point, the share price began to enjoy upward momentum, which continued until mid-2015. From here, it took a ten-month tumble, but by July 2016, something had changed. In fact, US experts began recommending colorectal cancer screening for all Americans aged 50 to 75, and the share price began to take off.
Positive momentum continued for three years until the summer of 2019, when Exact Sciences opted to acquire Genomic Health for $2.8bn. This news didn’t go down well with investors who were skeptical of the growth opportunity being reported.
Volatility, market sentiment and COVID-19 pressured the stock for eight long months until it returned with a vengeance to rally through February 2021. From there, the stock endured a crushing assault, losing more than 80% of its value over a 20-month slump. But this long drought broke in October 2022, and EXAS price action has improved once again.
A Story of Resilience and Triumph
Cologuard’s success is phenomenal, but the development process was far from easy. When deciding whether to take the job of CEO, Conroy spent a day with Dr. David Ahlquist, a renowned gastroenterologist, researcher and scientist at the Mayo Clinic.
Ahlquist was focused on early detection and prevention of colorectal cancer. The meeting went well, and Conroy left feeling confident he could take the job, partner with Ahlquist and the prestigious Mayo Clinic, and go on to develop a successful non-invasive colorectal cancer screening test.
It took five years from Conroy’s meeting with Ahlquist to get FDA approval, a further two years to be included in the main guidelines, and nine years to get full commercial insurance coverage.
This perseverance is now paying off. The company’s Genomic Health acquisition created a strong foundation. It now has its own platform that can be utilized to develop a full range of early-detection tests for a range of aggressive cancers.
Exact Sciences – Financials & Profitability
During the past five years, Exact generated $6 in revenue for every $1 spent on R&D. While this ratio declined to 2.4x during COVID-19, it has since risen to 5.8x, which is a strong recovery, given that about 70% of R&D is invested in pipeline tests that don't generate revenue.
Diving into Exact Sciences financials, we begin by looking at the income statement, balance sheet and cash flow. Followed by a look at its financial metrics.
Income Statement
Examining Exact Sciences’ income statement shows consistent growth in sales. In 2016, the company recorded sales of $99.4m, and as of the latest available figures, the total sales have risen to just over $2.08bn. That’s a staggering 1,996% sales growth in just six years.
To assess the profitability of a business, one metric to consider is EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization). This metric evaluates the operating profits of a company, exclusive of any impact from debt, taxes, and asset maintenance expenses. If the EBITDA result is negative, it implies that operating costs exceed the business's earnings.
It could be concerning to see negative EBITDA increasing, which went from -$157.6m in 2016 to -$523m in 2021, but this improved in 2022, indicating the company is becoming more operationally efficient.
Indeed, Exact Sciences hit EBITDA profitability at the end of 2022 and is guiding flat to $25m adjusted EBITDA for 2023.
Given the timeline, it seems the COVID-19-induced supply chain disruption influenced this negative EBITDA surge. In 2020, EBITDA was positive at $21.7m, suggesting that the company was heading toward operational profitability prior to the disruption.
Rising sales concurrent with rising expenses is a trend many businesses experienced during the pandemic.
Balance Sheet
Looking at the balance sheet, we see that the company is well capitalized, with over $632m in cash and short-term investments. However, this figure has dropped significantly since 2020, when it was at $1.8bn. Over a longer time frame, we see that the company has managed to grow its cash position from $311m in 2016.
Total Assets grew from $377m in 2016 to $7.1bn in 2021 but fell to $6.6bn in 2022. The 1,756.76% increase between 2016 and 2021 appears to have been achieved via long-term debt and shareholder equity, while the recent drop is likely due to the sale of its prostate business, forex headwinds and an 87% decrease in COVID testing revenue.
Long-term debt has risen astronomically from $4.6m to £2.4bn, a 52,465.2% increase. Shareholder equity has also grown from $335.3m to $3.04bn, an 808% increase. Rising shareholder equity usually indicates the company has issued additional shares to raise finances.
The increase in shareholder equity is normally beneficial for shareholders, and it shows the company is worth more. However, on occasions, this can be detrimental as it can dilute the value of existing shares. This is better seen in the cash flow statement below.
Cash Flow Statement
From the cash flow statement, we see that, on average, net income (profit) decreases over time.
However, it does look like 2020 was a tough year which can be attributed to the economic slowdown and the COVID-19 outbreak. It is well documented that the COVID-19 pandemic disrupted healthcare across the board and had a particularly detrimental effect on patient care.
The further loss in 2022 can be attributed to the rise in expenses associated with the processing of tests and operating expenses for supporting the company's growth.
Additionally, the increase in cash used was a result of the timing of payments made on accounts payable and accrued expenses.
Further down the cash flow statement, we see that Exact Sciences engaged in the sale of common and preferred stock, which matches the growth in shareholder equity we saw in the balance sheet.
While the increase was notable in 2020, it is not as significant in 2021 and in 2022. This suggests that over the last two years, the company has managed to grow naturally, a positive sign for existing shareholders.
In 2020 the sales of shares may have been necessary due to the COVID-19 outbreak, and proceeds were used for general corporate purposes. The company does have a history of diluting its share price, but it can be argued that it’s not by a significant amount, as the shareholder equity appeared to be rising at a much faster rate (see ‘common equity’ in the balance sheet above).
On February 23, 2023, the company announced a $500m issue of 2% convertible notes due in 2030. These notes are being issued to an existing investor who is exchanging some of their existing investments plus cash. This further increases Exact’s debt levels but provides it with additional capital to pursue its growth opportunities.
Latest Results
In its Q4 and full-year 2022 results, CEO Kevin Conroy states:
"With a strong finish in 2022 and a great start to 2023, Cologuard and Oncotype DX® are setting the tone for an impactful year ahead, our financial strength, scientific capabilities, and deep partnerships with health systems put Exact Sciences in a leading position to deliver innovative tests that help prevent cancer, detect it earlier, and guide treatment to more patients globally."
Exact Sciences released its Q4 and full-year 2022 results on February 21, 2023. The results were great, beating analyst expectations for sales and earnings. In Q4, revenues came in at $552.9m (up 17% Y/Y) and EPS of -$0.72.
Exact reported a Q4 gross margin of 70% with a net loss of -$128m. The company ended the year with cash and securities worth around $630m and total liquidity of about $840m, including available credit facilities.
In 2022, Exact Sciences had plenty to celebrate. The company was certified as a Great Place to Work for the fourth year in a row, proving that its employees are happy and satisfied.
The company also made great strides towards profitability, with positive cash flow from operating activities in Q4. Finally, its R&D initiatives within colorectal cancer screening, multi-cancer early detection, and molecular residual disease all received high-quality evidence supporting their progress.
Looking ahead, the company anticipates sales of $2.26bn to $2.31bn for the full-year 2023.
According to FactSet, Exact’s latest financial results led to five analyst Buy ratings, one Overweight, and one Hold.
A Tale of Two Trends: Short-Term Dip and Long-Term Growth
While the market remains suppressed as economic uncertainty prevails, the Exact Sciences share price may endure some price pressure. However, it has proved resilient in recent years, and there are plenty of positive catalysts to suggest the company will continue to do well.
Cathie Wood of ARK Invest is a big fan of EXAS stock, and the ARK team projects that the company's shares could grow at an average annual rate of 25% and reach $140 by 2027, according to its base case scenario.
The team argues that Exact Sciences' growth potential stems from its commercial scale, brand recognition, deep regulatory experience, established relationships with payors, partnerships within the industry and research communities, robust clinical evidence, and its technology platform.
Envisioning the Future
A recent study from the University of Chicago stated that only 14% of cancers are found through screening.
The need for early detection really hits home when you consider most cancers are found once the patient is symptomatic. Sadly, this is often later stage, and late-stage cancers have often spread, thus making treatment complex.
One way to initiate change and tackle the mounting problem of cancer overall is to couple advanced therapies with earlier detection. Thereby generating many more positive outcomes.
On the strength of its Cologuard and Oncotype tests, Exact Sciences can afford to invest heavily in building the company around a full range of tests.
The mission is to help patients determine what their predisposition to cancer is, and their genetic risk. It also wants to develop new screening tests to help detect cancer earlier, along with tests that diagnose and, like the Oncotype test, forecast what the outcome of that cancer will be.
Why Liquid Biopsies are Gaining Favor
Tissue-based testing, such as Exact Sciences’ Oncotype test, has some limitations. It requires high-quality tumor tissue samples, which can be invasive to obtain and may not be possible for patients with insufficient tumor tissue or those who are immunocompromised. Unfortunately, the test can only be done once, as the tissue is destroyed in the process.
So, as demand for stronger diagnostic and therapeutic options rises, the push for innovative solutions continues.
Liquid Biopsies pose an alternative or complementary solution, as they are minimally invasive. Costs have come down thanks to sample handling techniques, machine learning and lower DNA sequencing costs. Mobile blood-drawing services mean liquid biopsies can potentially be done at home, and the tests can be repeated. Furthermore, the addressable market has significantly expanded.
This poses a potential risk to Exact Sciences' market share, but ARK Invest believes there’s more than enough business to go around and enough to accommodate multiple major players in the coming decades.
Thanks to its Genomic Health acquisition, Exact Sciences is nicely positioned to expand its presence in the oncology testing market.
On its Q4 2021 earnings call, Conroy stated, “We have relationships with 98% of oncologists in the US.” This gives it an edge over competitors starting out.
Oncology testing covers cancer diagnosis and disease progression, including biopsy, imaging, blood testing and genetic testing.
Minimal residual disease (MRD) testing measures the presence of residual cancer cells after surgery or treatment such as chemotherapy.
The Oncology testing market is larger than the MRD testing market, but both are significant and growing.
Oncology testing is currently a $75bn market with only 4% penetration6.
Meanwhile, as the number of cancer survivors increases, demand for regular testing will naturally grow, boosting the MRD testing market. With this in mind, ARK projects the US minimal residual disease testing market will scale to ~$20 billion annually over the next twenty years. And today, market penetration is under 1%.
As more seemingly healthy people are diagnosed with early-stage cancer thanks to secondary prevention methods, it is likely to spur more people to look at primary prevention. Younger family members, in particular, if they’re outwith the age range, may look at hereditary cancer testing (HCT).
Some famous women have opted for surgery after hereditary genetic testing. Angelina Jolie underwent a double mastectomy after learning she was a high-risk candidate for breast cancer after her mother died from the disease. Sharon Osbourne did the same after learning she carried the gene for hereditary breast and ovarian cancer.
Exact Sciences does not offer much in the way of primary prevention, which predicts and prevents disease, but its acquisition of PreventionGenetics may increase this offering in this area over time.
Indeed, genomics is set to drastically improve care across the cancer journey, giving scope for multiple entities to build successful businesses.
PreventionGenetics made around $36m in sales in 2021, equating to 2% of Exact's total revenue. ARK Invest believes Exact will streamline PreventionGenetic's portfolio to hone in on oncology testing. While competitors like Invitae and Myriad Genetics currently have a bigger share of the market, Exact could boost Prevention's share by cross-selling through its established network.
Furthermore, ARK believes Exact Sciences could increase its hereditary cancer testing (HCT) market share by 40% over the next 5 years, from $36m in 2021 to $205m in 2027. This is based on hitting 5% of its Cologuard and Oncotype DX customer base.
Meanwhile, secondary prevention aims to detect the disease in its very early stages, and here, Exact Sciences is already well established through Cologuard, Oncoguard, and Exact’s budding multi-cancer earlier detection (MCED) tests.
Exact Sciences Marketing Efforts
“Our vision is to eradicate cancer and the suffering it causes through tests that detect it earlier and provide guidance for successful treatment.”
Cologuard’s success is undoubtedly due to its powerful sales and marketing approach, which has helped propel the brand name to household recognition.
In recent years the company has launched multiple direct-to-consumer ads for Cologuard, personifying the product to shine a humorous light on a serious topic.
As reported on the Q3 2022 earnings call, about 90% of people 45 and older see a Cologuard advertisement once a week.
Further entertaining efforts include a YouTube video instructing viewers on how to “Make your own Cologuard Halloween BOXtume”.
In March 2021, the company launched a public service announcement with Stand Up to Cancer and Academy Award® winner Jamie Foxx to increase awareness of colorectal cancer.
Continuous Innovation
If one thing’s clear, it's a strong need for non-invasive screening when it comes to colon cancer. Fortunately, structural tailwinds are making it easier for people to get screened. For example, delivering electronic ordering through Epic (a privately held electronic health record software company) and enhanced Electronic Medical Record (EMR) capabilities make it much simpler to order screenings electronically.
To date, Exact Sciences has invested around $4 billion in its patient engagement engine, its commercial team, 320,000 square feet of lab space, and 250 health system connections using Epic to enable health professionals to electronically order Cologuard and collect results.
By streamlining the ordering process, physicians can spend more time with their patients and waste less time on technicalities.
Exact Sciences’ sales team meets with physicians and their staff a million times per year. It uses each touchpoint to send the message that Cologuard is a superior, non-invasive test and the appropriate role blood tests should play in cancer detection.
This process is continuously adding overall company value as the learnings it can take from these meetings can be applied to improving future products. And the established relationships cultivated to make new product launches smoother and broader.
Intellectual Property (IP)
Exact Sciences’ intellectual property (IP) is extensive and worth brief consideration. The company has proprietary information that must be protected at all costs, which it does through patents and trademarks.
In a recent earnings call, CEO Conroy discussed IP in relation to multi-cancer detection. Exact Sciences sees the value of its IP and is leveraging it through M&A. Its various acquisitions enhance the business, and its end goal is to be a top player in cancer eradication through earlier detection. Thrive’s IP, combined with Exact’s IP, brings two technological pathways, DNA methylation and DNA mutation, together to increase the yield in finding cancers.
Therefore, Exact’s acquisition of Thrive gives it a step up in the multi-cancer detection journey.
Success Breeds Competition
The success of Cologuard in becoming a top colorectal cancer screening test and cash generator makes the CRC market attractive to competitors.
Guardant, Freenome, Grail, and Natera are among the companies entering the market that may pose a threat. This could worry investors, but Exact Sciences has established persistent revenues, and its industry-leading gross margins are powering positive adjusted EBITDA and a clear path to free cash flow. And it has built its infrastructure and technological superiority to cement that growth as it continues investing in efficiencies.
Indeed, the company is confident its strong position makes it difficult for new entrants to the colorectal cancer market to keep up. Especially given the current environment where cash is expensive and liquidity is not what it was.
Cologuard has made significant investments in innovation, making it easier for physicians to order the test and for patients to use it. This investment provides the company with a strong moat and competitive advantage. Despite increased competition, there remains a significant need for colorectal cancer screening, with 50,000 annual deaths from the disease making it the second leading cause of cancer death in the US.
It’s unsurprising that Exact Sciences is facing rising competition as the success of Cologuard mounts. Nevertheless, the team believes it has an elevated advantage in the power of its technology and experience.
Some of Exact Sciences' direct competitors in the cancer screening space include:
These companies also offer non-invasive cancer screening tests, usually based on liquid biopsy technology.
Grail is a subsidiary of California-based Illumina (NASDAQ: ILMN). It was founded in 2016 with the goal of developing a comprehensive and scalable blood-based screening test for cancer.
At a January 2023 conference, Kevin Conroy, Exact Sciences CEO, said:
“Grail and other companies really started doing good work to evaluate whether [a blood based multi cancer test is] achievable. And in fact, it is. You can detect most cancers through a blood draw. Now, not all cancers, but maybe ultimately half of [all] cancers through a blood draw.”
Grail aims to revolutionize cancer screening by offering a simple, non-invasive test that can detect cancer at its earliest stages. The company's blood test, called the Galleri test, is designed to detect multiple types of cancer, including those that are currently difficult to diagnose with existing screening methods. The company is working to develop a broad range of tests that can screen for lung, colorectal, prostate, breast, and pancreatic cancers.
Overall, Grail represents a significant advance in the field of cancer screening, and its efforts are expected to have a major impact on the way that cancer is detected, diagnosed, and treated.
Another key competitor is Guardant Health (NASDAQ: GH), a $3.2bn US company that also has a colon cancer-detecting blood test. However, in December, Guardant released results showing its test to have an 83% sensitivity in detecting colon cancer, which doesn’t come close to Cologuard’s 92% sensitivity. Furthermore, Cologuard 2.0 sees this improve to 95% sensitivity and its specificity improve to 92%, up from 87%.
Dutch company Qiagen (NYSE: QGEN) helps its customers to obtain molecular insights from biological samples.
Biocept (NASDAQ: BIOC) is an oncology lab service company. It develops and commercializes molecular diagnostic assays that provide physicians with clinically actionable information for treating and monitoring cancer patients.
Natera (NASDAQ: NTRA) provides a range of genetic testing services, including cancer diagnostics.
Personalis (NASDAQ: PSNL) offers liquid biopsy tests to help diagnose cancer and other medical conditions.
Management Team
Kevin Conroy
Kevin Conroy took over as CEO of Exact Sciences in 2009 and became Chairman in 2014, turning the company into a leading cancer diagnostics firm with over 6,500 employees. Under his leadership, Exact Sciences launched Cologuard, which received simultaneous FDA approval and national Medicare coverage. In 2019, Exact Sciences acquired Genomic Health and is now focused on detecting cancer earlier and providing treatment guidance.
Before joining Exact Sciences, Conroy served as CEO and President of Third Wave Technologies and held leadership positions at GE Healthcare. He is a director of Epizyme and Adaptive Biotechnology and serves on the board of the American Clinical Laboratory Association and Personalized Medicine Coalition.
Graham Lidgard
Graham Lidgard is the co-creator of Cologuard® and has held the position of Chief Science Officer since 2009. He previously worked at Nanogen, Gen-Probe, and Matritech as Vice President of R&D.
Jeff Elliott
Jeff Elliott has been serving as the Executive VP and COO of Exact Sciences since April 2021 and the CFO since November 2016. He has a background in finance and business development, previously working as a Senior Research Analyst at Robert W. Baird & Co. and as a consultant at Cap Gemini Ernst & Young.
Everett Cunningham
Everett Cunningham was appointed as the Chief Commercial Officer of Exact Sciences in 2021. He has over 25 years of experience in the pharmaceutical and medical industry, with a focus on leadership. He was previously the President & CEO of GE Healthcare's US and Canada region, and before that, he held various senior leadership positions at Quest Diagnostics and Pfizer.
Dr. David Ahlquist
Sadly, Dr. David Ahlquist died, aged 69, on November 1, 2020. Described as a visionary leader, compassionate clinician, dedicated mentor, and tireless innovator, he dedicated his research to meaningful change in the prevention and early detection of cancer.
Speaking about Dr. Ahlquist at the JPMorgan Healthcare Conference in January 2023, Kevin Conroy said:
“he left us with this incredible mission, which was to focus on early detection and prevention to eradicate colon cancer and to expand that beyond colon cancer. Because as he said, look, if you're under age 85, the number one cause of mortality is cancer. Number one thing you have to worry about is cancer.”
“what started with a one day meeting with Dave Ahlquist turned into 10 million people screened. And now by 2027, so four years from now, we expect that to turn in to a total of 30 million people.”
A Solid Foundation for Continued Growth: The Exact Sciences Advantage
All the best stock stories offer something that improves our lives both individually and collectively.
Apple helped us look cool. Google revolutionized search. Facebook reignited long-lost connections. Amazon reinvented shopping, and the list goes on…
All these brands offer convenience, status, and connection, and despite share price volatility at times, long-term investors have reaped the rewards.
Exact Sciences empowers individuals in another way.
While Cologuard offers convenience, it also hands privacy and control to the user, providing the tools to face up to mortality, take control and reclaim your future with confidence.
The state of the world, the economy or healthcare services don’t change the brutal fact that cancer diagnoses are rising. In fact, they have been rising for over 20 years, and this trend is sadly set to continue.
However, technological advances have been phenomenal, meaning there are, thankfully, a growing number of options available to help combat this deadly disease.
Early screening, diagnosis, risk assessment and monitoring are modernizing the industry. Biomolecules offer us an opportunity to gain a deeper understanding of a patient's unique disease and lay the groundwork for precision medicine.
While EXAS stock is a favorite of ARK, the investment firm is also invested in some of its competitors. It sees room for multiple companies to succeed in this arena and has been vocal about the sizeable addressable market.
Exact’s competitive edge is its solid foundation. It is one of the few companies with a well-trained sales team and the technological capabilities to support continued growth. Thus, Exact is expected to benefit from its growing scope of testing products, shared work process and IP.
The company is a cashflow-generating machine, and its ownership of two well-recognized brands gives it a leg up in building further brand recognition. It has a global sales infrastructure, digital channel, successful marketing funnel and significant access to patient samples for machine learning. This paints a positive picture for growth, efficient scaling, and profitability.
Its profits from Cologuard and Oncotype can be put to good use in supporting company growth and paying down debt. With its individual offerings complementing each other, Exact Sciences is becoming stronger overall.
Until Next Time
We hope you’ve enjoyed our deep dive into Exact Sciences. Look out for our next deep dive covering an interesting stock in the artificial intelligence sector.
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