Sunday, May 6, 2018

A current AIM Program Small Cap Equity Holding: Exact Sciences Corporation (EXAS) by: Kyran Young. "Continued Success for Exact Sciences"

Exact Sciences Corporation (EXAS, $47.68): “Continued Success for Exact Sciences”

By: Kyran Young, AIM student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.


Exact Sciences Corporation (NASDAQ:EXAS) is a biotechnology company focused on the detection of colorectal cancer through their non-invasive test, Cologuard. Colon cancer is the second leading cause of cancer deaths in the U.S. and each year there are about 140,000 new cases and 51,000 deaths from colon cancer. In addition to Cologuard, EXAS also research and develops treatments for addition cancers, such as liver and lung. 

• EXAS has recently signed a major contract with Blue Cross Blue Shield of Illinois, one of the largest health insurers in IL.

• CellMax Life, an early stage biotechnology company focused on early detection of cancers, recently presented at the 2018 Precision Medicine World Conference in Silicon Valley and demonstrated their ability to detect cancers more accurately through saliva and blood samples.

• EXAS have incurred losses since they were founded in 1995. These losses have continued to accumulate and could affect future growth opportunities in the future. 

• Despite continued losses and CellMax’s recent presentation in Silicon Valley, investors should not be concerned as EXAS is projecting strong growth for Cologuard in 2018.

Key points: EXAS’s Cologuard is the only non-invasive, patient friendly, and FDA approved stool-based DNA test to detect colorectal cancer and pre-cancer. Each tests costs about $500 to $525.

In March 2018, EXAS signed a major contract with insurance giant, Blue Cross Blue Shield of Illinois (BCBS-IL). This is a significant win for the company as BSBC-IL covers about 8 million individuals, which makes it one of the largest health insurance companies in IL with about 65% to 80% market control. This is a major win for EXAS as BCBS-IL is supporting the use of Cologuard to test for colorectal cancer and pre-cancer. BCBS-IL is managed by Health Care Services Corporation, which also controls Blue Cross Blue Shield of Montana, New Mexico, Oklahoma, and Texas. EXAS and BSBC-IL’s contract may be a foreshadowing of many more insurance agencies validating and supporting Cologuard.

EXAS has experienced increased competition for early detection of cancers. Other biotechnology companies, including CellMax Life, are racing to produce low-cost and highly accurate blood tests (liquid biopsy) for detecting colon and other cancers. FDA approval and the success of liquid biopsy would be detrimental to EXAS; however, investors should not begin to worry, as there are still many steps and tests needed to get approval. In addition, Exact Sciences is researching and participating in their own studies for liquid biopsy.

EXAS has incurred losses since inception and have accumulated a total deficit of about $860.6 million as of December 31, 2017. They expect to continue to invest heavily in the company in order to develop and commercialize their cancer testing technology. They hope the commercialization and continued research and development will ultimately increase revenues to become profitable.

In 2017, EXAS recorded revenues of $266 million and completed about 571,000 Cologuard tests, representing a 168% and 134% increase in revenue and tests, respectively. Looking forward, in 2018 management expects revenues to be about $420-430 million and Cologuard test screens to be about 900,000 to 920,000.

What has the stock done lately?

YTD, EXAS is down 9.25%. Exact sciences suffered in the first quarter due to the severe flu season. The flu season has limited the number of patients seeing their doctors for wellness visits, ultimately, limiting the number of Cologuard tests prescribed. In the first quarter, offices cancelled 21% of wellness visits and 22% of doctors had called in sick because of the flu. This historically severe flu season has impacted EXAS negatively; however, management still believes they will be able to record $420-430 million of revenue and complete 900,000 to 920,000 Cologuard tests.

Past Year Performance: EXAS stock has increased 98.75% over the past year, with a 52 week high – low of $63.60 - $23.47. This large stock increase is attributed to the success of Cologuard. During 2017, revenue from the use of Cologuard tests increased 168% and EXAS expanded insurance coverage on Cologuard from about 70% to about 90%. In addition to their most recent contract with BSBC-IL, they have also contracts with UnitedHealth and Aetna.

Source: FactSet

My Takeaway

With the continued commercialization of Cologuard tests and research and development for testing other cancers, such as lung and liver, EXAS is positioned to grow in the future. Management has guided to a significant increase in both revenue and Cologuard tests in 2018. Despite a rough first quarter start to 2018, EXAS will continue to outperform as they have the only non-invasive, patient friendly, and FDA approved sDNA test to detect colorectal cancer and pre-cancer. Therefore, I recommend a “buy” for Exact Sciences Corporation.

Source: FactSet