The shares of this diagnostic company were recently upgraded by Benchmark to ‘Buy’ and Zacks reported that the shares are now ‘Oversold’, and noted that earnings estimates for the company have been increased five times in the past two months.
Exact Sciences Corporation (EXAS)
From Canaccord Genuity Research
Shares of Exact Sciences are up 5-6% after EXAS announced it obtained FDA approval to
expand its label to begin marketing to average-risk Americans beginning at age 45. The
timing comes in ahead of expectations by a range of ~1-3 quarters. This is important to
help (1) reduce rising mortality rates of colon cancer for Americans ages 45-49; (2) adds
~$3 billion to EXAS’ TAM; and (3) likely sets up for another growth inflection in 2020 and
beyond. We reiterate EXAS as a top pick and our $135 PT.
EXAS this morning announced FDA approval for Cologuard for average-risk individuals ages 45 and older, expanding on its previous indication of age 50 and older. By our estimates, this adds an incremental $3B TAM for EXAS, summing to a Cologuard TAM of $18B and ~106M Americans. Recall the American Cancer Society (ACS) in May 2018 updated its guidelines to recommend that average risk adults age 45-75 get screened for colon cancer, vs. its prior recommendation (age 50-75). An ACS study demonstrated that 5.1% of all CRC deaths came from the age 45-49 cohort, which sadly is similar to the mortality rate of those in the age 50-54 cohort (7.6%).
FDA label expansion comes in ahead of expectations. We were expecting the FDA label expansion to hit as early as YE 2019 or in line with EXAS’ “1H/20" target, so this comes in ~3-9 months ahead of our thinking. EXAS submitted its package to the FDA in April 2019 and approval came in before its 180-day comment period. EXAS had indicated it did not have to do another large study, and indicated it was able to submit enough evidence to prove CG utility for individuals ages 45-49.
The United States Preventive Services Task Force (USPSTF) is now undertaking its next phase of draft review for colon cancer (CRC) screening guidelines. USPSTF is a volunteer group of doctors who typically meet every 5 to 8 years and examine peer-reviewed data to determine whether new changes need to be made to existing guidelines. EXAS has indicated that there is no guarantee USPSTF will lower the screening age to 45 on its next review, but we are hopeful. Age 45 inclusion in USPSTF would likely accelerate commercial payor label expansion, in our view.
EXAS has engaged with commercial payors to lower the screening age to 45 even if USPSTF does not update its age range. Health plans including Aetna, Anthem BCBS FEP; CareFirst BCBS of MD; and Horizon BCBS of NJ already cover CG for ages 45-49, but we now expect negotiations with other plans to pick up from here.
We believe Cologuard 45 ordering could mark upside to our 2020 estimates. EXAS is seeing early success with Pfizer’s new OB/GYN sales force calling on Cologuard, and believes this partnership will grow in value upon Cologuard’s expansion to ages 45-49.
We believe today’s news may help EXAS meet or exceed its combined company (EXAS-
GHDX) revenue and gross profit targets of $1.6B and $1.2B in 2020, implying GM of
75%, above EXAS’ Q2/19 gross margin of 74%. Our estimates exclude EXAS’ acquisition
of Genomic Health, expected to close by YE'19. We believe EXAS’ powerful recurring
revenue model is underappreciated.
We are not expecting any change to the company’s 2019 guidance as a result of today’s news. As a reminder, EXAS on its Q2 call raised its FY’19 rev. guide to $800-810M (+76-78% Y/Y) from $725-740M (+60-63%) and raised its FY’19 volume guide to 1.66-1.68M (+79% Y/Y) from 1.52-1.54M (+64% Y/Y). EXAS guided Q3 revs of $211-216M (+78-83% Y/Y) and expects to deliver 440-450k Cologuard tests (+83-87% Y/Y).
Exact Sciences remains one of our top picks for 2019.
Mark Massaro and Max Masucci, Canaccord Genuity Research, www.canaccordgenuity.com, September 30, 2019