Exact Sciences Earnings: Cologuard Strength Improves Projected Timeline to Free Cash Flow

Exact Sciences EXAS delivered strong first-quarter results on better-than-anticipated Cologuard expansion that allowed management to increase its 2023 sales outlook and accelerate its timeline to reaching positive free cash flow in 2023, up from 2024. Exact’s positive sales growth and profit trends inform our positive moat trend, although we do not think Exact has dug an economic moat quite yet. Based on these positive trends, we have tinkered with our near-term assumptions slightly, but we do not anticipate changing our $64 fair value estimate materially. Shares remain about fairly valued, too.

In the quarter, revenue growth accelerated to 24% year over year and 33% excluding COVID-19-related revenue. That growth was driven primarily by the colorectal screening business, which grew 45% year over year, while precision oncology only grew 2% and COVID-19-related sales declined 86%. The company’s colorectal screening business appears to have accelerated on increased medical utilization post-pandemic along with the firm’s own initiatives to improve electronic ordering, enhance the patient experience, and further penetrate the available market. These tailwinds should continue to drive robust growth in the near term at least.

In the longer run, though, we think liquid biopsies may create a real threat to Exact’s stool-based test for colorectal cancer in both the near and long term. And although Exact has discussed entering the liquid biopsy market in this end market, too, that is a longer-term prospect, and Cologuard 2.0 (its next-generation stool-based test) looks like its near-term way to fend off new liquid biopsy entrants. However, we suspect blood-based liquid biopsies may steal market share from existing screening options, like Cologuard and colonoscopy, eventually. For example, Guardant’s Shield test is closing in on key potential commercialization milestones, like potential U.S. Food and Drug Administration approval and third-party payer decisions, in the near future.