Exact Sciences Earnings: Cologuard Continues to Grow at Strong Pace and Shares Undervalued

Exact Sciences EXAS delivered excellent third-quarter results on Cologuard expansion. Guidance for 2023 was raised again, with midpoint guidance for total revenue now at $2.481 billion, or $25 million higher than previous guidance, and screening revenue now at $1.85 billion. We maintain our fair value estimate of $78 per share. The shares are trading at a 17% discount to our fair value, which we view as modestly undervalued.

Revenue growth for the three months was 31% for screening and 3% for precision oncology. There were no sales from COVID-19 testing, which was discontinued in July. Gross profit margin was 26.8%, or 1.5 percentage points better than the same period last year, and sales, general, and administrative expenses as a percent of revenue fell to 62.2% from 72.6%. We think the company is making significant progress toward achieving positive net profit within the next few years.

The company reiterated its goal to reach $4 billion of revenue by 2027, which we think is realistic given our positive view on Cologuard adoption. The next generation of the test, Cologuard 2.0, could launch in 2025, which should not only drive more adoption due to better specificity and fewer false positives but also improve gross profit margins. The company suggested the cost of sales as a percent of revenue for Cologuard 2.0 could be 5 percentage points lower than the current test, too.

The company reiterated its plans to launch tumor informed molecular residual disease, or MRD, tests for colorectal cancer and breast cancer in 2023 and 2024, respectively, and submit to MolDx for local coverage determination the following years. Despite Natera’s current leadership in tumor informed MRD testing, Exact may be able to achieve commercial synergies with its Oncotype platform due to the high number of tissue samples it tests. Given the high growth potential of MRD testing and its potential for moat-building, we look forward to monitoring Exact’s progress in this area.