Exact Sciences Earnings: Strong Cologuard Results Improve Outlook

Exact Sciences EXAS delivered strong second-quarter results on continued Cologuard expansion that allowed management to increase its top and bottom line outlooks for 2023. Although we do not think Exact has dug an economic moat yet, we have increased our near-term assumptions based on these trends, which has increased our fair value estimate to $68 per share from $64 previously. Shares still appear moderately overvalued to us.

In the quarter, revenue growth decelerated sequentially to a still strong 19% year over year. That growth was driven primarily by the colorectal screening business, which grew 31% year over year, while precision oncology only grew 2% and COVID-19-related sales declined 84%. The company’s colorectal screening business remains robust on increased medical utilization postpandemic 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 strong top and bottom line growth for Exact Sciences in the near term at least.

In the longer run, though, we still think liquid biopsies represent a threat to Exact’s stool-based test for colorectal cancer, although next generation trial results from Cologuard released during the quarter may help it stave off that threat in the intermediate term. Specifically, while significantly reducing false positives, Cologuard’s 94% reported sensitivity looks formidable to new liquid biopsies, such as Guardant’s liquid biopsy that recently only reported 83% sensitivity. However, we think the Guardant liquid biopsy will gain U.S. Food and Drug Administration approval in the coming quarters and third-party payer reimbursement shortly thereafter, and we still expect the convenience of blood-based testing will support better patient adherence in liquid biopsies than even Cologuard’s stool-based testing, which creates some risk to Cologuard in the long run.