By: Kyran Young, AIM student at Marquette
University
Disclosure: The AIM Equity
Fund currently holds this position. This article was written by myself, and it
expresses my own opinions. I am not receiving compensation for it and I have no
business relationship with any company whose stock is mentioned in this
article.
Summary
•
Exact Sciences Corporation (NASDAQ:EXAS)
is a biotechnology company focused on the detection of colorectal cancer
through their non-invasive test, Cologuard. Colon cancer is the second leading
cause of cancer deaths in the U.S. and each year there are about 140,000 new
cases and 51,000 deaths from colon cancer. In addition to Cologuard, EXAS also research
and develops treatments for addition cancers, such as liver and lung.
•
EXAS has recently signed a major contract with Blue Cross Blue Shield of
Illinois, one of the largest health insurers in IL.
•
CellMax Life, an early stage biotechnology company focused on early detection
of cancers, recently presented at the 2018 Precision Medicine World Conference
in Silicon Valley and demonstrated their ability to detect cancers more
accurately through saliva and blood samples.
•
EXAS have incurred losses since they were founded in 1995. These losses have
continued to accumulate and could affect future growth opportunities in the
future.
•
Despite continued losses and CellMax’s recent presentation in Silicon Valley,
investors should not be concerned as EXAS is projecting strong growth for
Cologuard in 2018.
Key points: EXAS’s Cologuard is the only non-invasive,
patient friendly, and FDA approved stool-based DNA test to detect colorectal
cancer and pre-cancer. Each tests costs about $500 to $525.
In
March 2018, EXAS signed a major contract with insurance giant, Blue Cross Blue
Shield of Illinois (BCBS-IL). This is a significant win for the company as
BSBC-IL covers about 8 million individuals, which makes it one of the largest health
insurance companies in IL with about 65% to 80% market control. This is a major
win for EXAS as BCBS-IL is supporting the use of Cologuard to test for
colorectal cancer and pre-cancer. BCBS-IL is managed by Health Care Services
Corporation, which also controls Blue Cross Blue Shield of Montana, New Mexico,
Oklahoma, and Texas. EXAS and BSBC-IL’s contract may be a foreshadowing of many
more insurance agencies validating and supporting Cologuard.
EXAS
has experienced increased competition for early detection of cancers. Other
biotechnology companies, including CellMax Life, are racing to produce low-cost
and highly accurate blood tests (liquid biopsy) for detecting colon and other
cancers. FDA approval and the success of liquid biopsy would be detrimental to
EXAS; however, investors should not begin to worry, as there are still many
steps and tests needed to get approval. In addition, Exact Sciences is
researching and participating in their own studies for liquid biopsy.
EXAS
has incurred losses since inception and have accumulated a total deficit of
about $860.6 million as of December 31, 2017. They expect to continue to invest
heavily in the company in order to develop and commercialize their cancer
testing technology. They hope the commercialization and continued research and
development will ultimately increase revenues to become profitable.
In
2017, EXAS recorded revenues of $266 million and completed about 571,000
Cologuard tests, representing a 168% and 134% increase in revenue and tests,
respectively. Looking forward, in 2018 management expects revenues to be about
$420-430 million and Cologuard test screens to be about 900,000 to 920,000.
What has the stock done
lately?
YTD,
EXAS is down 9.25%. Exact sciences suffered in the first quarter due to the
severe flu season. The flu season has limited the number of patients seeing
their doctors for wellness visits, ultimately, limiting the number of Cologuard
tests prescribed. In the first quarter, offices cancelled 21% of wellness
visits and 22% of doctors had called in sick because of the flu. This
historically severe flu season has impacted EXAS negatively; however,
management still believes they will be able to record $420-430 million of
revenue and complete 900,000 to 920,000 Cologuard tests.
Past Year Performance: EXAS stock has increased 98.75% over the
past year, with a 52 week high – low of $63.60 - $23.47. This large stock
increase is attributed to the success of Cologuard. During 2017, revenue from
the use of Cologuard tests increased 168% and EXAS expanded insurance coverage
on Cologuard from about 70% to about 90%. In addition to their most recent
contract with BSBC-IL, they have also contracts with UnitedHealth and Aetna.
Source: FactSet
My Takeaway
With
the continued commercialization of Cologuard tests and research and development
for testing other cancers, such as lung and liver, EXAS is positioned to grow
in the future. Management has guided to a significant increase in both revenue
and Cologuard tests in 2018. Despite a rough first quarter start to 2018, EXAS
will continue to outperform as they have the only non-invasive, patient
friendly, and FDA approved sDNA test to detect colorectal cancer and
pre-cancer. Therefore, I recommend a “buy” for Exact Sciences Corporation.
Source: FactSet
