Exact Sciences: Encouraging Cologuard Results Make Investors Hopeful, but No Change To Fair Value

Exact Sciences EXAS released strong test results for its next-generation Cologuard test that pushed shares up 9% in after-hours trading. The strength of these results has made investors hopeful that Cologuard will be able to fend off upcoming competition in the colorectal cancer screening market, but we still believe blood-based liquid biopsies hold significant promise versus the stool-based options. Therefore, we keep our $64 fair value estimate intact for now, suggesting Exact Sciences shares remain moderately overvalued. Also, our no moat rating continues to reflect the potential for increased competition in the long run, despite the solid results.

These new study results demonstrate improvements to the existing Cologuard test, including higher sensitivity and lower false positives that should help the firm deliver near-term market share gains, as Cologuard represents a good noninvasive option to colonoscopy. However, we expect Cologuard to face steep competition from liquid biopsy alternatives in the near future. For instance, Guardant Health’s liquid biopsy test, Shield, may receive approval from the U.S. Food and Drug Administration later this year. Although Shield’s 83% sensitivity rate is lower than Cologuard’s 94% reported sensitivity, the convenience of blood-based testing compared with stool-based testing may support stronger patient adherence to Shield relative to Cologuard, and other liquid biopsy tests may also come to the market after Guardant’s test.

Considering these dynamics, we keep our long-term assumptions for Exact Sciences intact. In addition to the firm’s precision oncology test, the ongoing development of a multicancer early screening test could position the firm as one of the earliest entrants in the multicancer liquid biopsy market. We like management’s long-term strategy, but recognize that it primarily stems from the necessity to develop new tests to offset the potential for Cologuard market share loss to liquid biopsies in the future.