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Exact Sciences (EXAS) Rides on Cologuard Sales Amid COVID Fear

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Exact Sciences Corporation (EXAS - Free Report) continues to make significant progress with its Cologuard test. However, the pandemic-led continued business disruption is a concern. Exact Sciences currently carries a Zacks Rank #3 (Hold).

Exact Sciences’ third-quarter 2021 revenues topped the Zacks Consensus Estimate. Robust total revenue growth during the reported quarter despite the pandemic-led headwinds is impressive. The company’s legacy Screening business saw significant improvement in revenues during the quarter on Cologuard volume growth. The company registered strong growth in Precision Oncology driven by Oncotype DX Breast in the United States and international market.

The company is currently focusing on three areas to enhance Cologuard growth. Building the best and most effective commercial organization in healthcare by investing in the leadership team, training, and sales force effectiveness is the first strategy. Second, it intends to improve the customer experience by making it simpler to order Cologuard electronically and continue rescreening patients every three years. Third, it targets screening more people starting at age 45 to catch cancer earlier. The company noted that these Cologuard growth initiatives are progressing well and will provide benefits in the future. The company’s electronic ordering rate continues to grow, rising from 40% to 48% in 2021.

Further, Exact Sciences is planning several key milestones to bring six innovative cancer diagnostics from its pipeline to patients in need. This is a culmination of the Exact Sciences team and its partners’ joint work, including the Mayo Clinic, Johns Hopkins and now, City of Hope. Starting with multi-cancer in 2022, the company expects to share case-control data, demonstrating the power of combining methylation, mutation and protein marker classes.

During the third-quarter earnings update, the company noted that clinical data published to reliably detect early-stage liver cancer demonstrated that at 87% sensitivity, ONCOGUARD liver demonstrated 82% early-stage sensitivity, nearly 20 points higher than the current guideline-recommended testing option.

On the flip side, over the past year, Exact Sciences has underperformed its industry. The stock has declined 42% compared with the industry's 25.5% fall.

Exact Sciences exited the third quarter of 2021 on a mixed note. The widening of quarterly operating loss compared with the year-ago period is concerning. The company’s net loss was wider than the Zacks Consensus Estimate. Revenues from the COVID-19 tests conducted during the quarter declined year over year. Moreover, the company lowered its Screening revenue expectations for 2021 due to the rapid rise in Delta variant cases. Contraction of gross margin due to lower COVID-19 testing volumes is discouraging too.

The pandemic has once again led to a dismal bottom-line performance in the third quarter of 2021. According to Exact Sciences, there are two main pandemic-led dynamics impacting the screening business. These are reduced physician office access for the company’s field teams and fewer in-person wellness visits. The company has not seen much improvement in these two factors as previously expected.

Exact Sciences particularly noted that the recent uptick in COVID-19 cases from the highly contagious Delta variant is partly responsible for this drag. The company, on the third-quarter earnings call, stated that only 50% of primary care physicians are allowing sales representatives into their office according to its recent survey. In offices with physician access, the company is seeing faster growth in Cologuard orders. Again, in-person wellness visits are limited whereas cancer screening conversations and Cologuard orders typically occur during the routine wellness visit. This is typically impacting Exact Sciences’ overall performance. Margins were down mainly due to lower COVID-19 testing volumes.

Meanwhile, escalating expenses are straining the company’s operating margin. Sole reliance on Cologuard and competitive headwinds are a major downside.

Key Picks

A few better-ranked stocks in the broader medical space are Apollo Endosurgery, Inc. (APEN - Free Report) , McKesson Corporation (MCK - Free Report) and Thermo Fisher Scientific Inc. (TMO - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Apollo Endosurgery has a long-term earnings growth rate of 7%. The company surpassed earnings estimates in the trailing four quarters, delivering a surprise of 25.6%, on average.

Apollo Endosurgery has outperformed its industry over the past year. APEN has gained 131.4% compared with the 4.8% industry growth.

McKesson has a long-term earnings growth rate of 9%. The company surpassed earnings estimates in the trailing four quarters, delivering a surprise of 19.9%, on average.

McKesson has outperformed its industry over the past year. MCK has gained 38.8% compared with the 12.4% industry rise.

Thermo Fisher has a long-term earnings growth rate of 14%. The company surpassed earnings estimates in the trailing four quarters, delivering an average surprise of 9%.

Thermo Fisher has outperformed its industry over the past year. TMO has rallied 38.7% compared with the industry’s 4.8% rise.