Investors tend to concentrate on revenue and earnings growth when evaluating stocks for portfolios, and Exact Sciences (NASDAQ:EXAS) is unquestionably making progress on both those fronts, but long-term investors might want to base their decision to buy on the company's tiny 2% market share instead of last quarter's sales.

Lots of running room

Exact Sciences' Cologuard is a less expensive and less invasive colon-cancer screening option than a colonoscopy, and as a result, it's quickly winning over doctors and patients.

Doctors are increasingly turning to prescribing Cologuard tests.


In the first quarter, Exact Sciences reports that 10,000 providers ordered initial Cologuard tests, bringing the total number of prescribers to 70,000. Because insurers are increasingly covering Cologuard, and a marketing program is boosting its awareness, Exact Sciences has completed 450,000 Cologuard tests since its launch two and a half years ago, including 100,000 tests that were completed last quarter alone.

According to guidelines used by doctors to determine who to screen for colon cancer (and how often to screen them), everyone between age 50 to 75 should be screened, and if Cologuard is used as the screening method, patients should be screened every three years.

Those guidelines mean that Cologuard's addressable patient population is about 80 million people in the United States. That's a huge target market, and at current average selling prices of $485 per test, it's a massive commercial opportunity for Cologuard.

So far, management calculates its share of that market at just 2%, but it believes it can eventually reach 30% market share. If so, then someday Cologuard could rack up billions of dollars in peak sales annually.

Where we are today

Colon cancer accounts for 50,000 deaths per year, and more than 135,000 Americans are diagnosed with it every year.

Colon cancer can be far more easily treated when it's caught early, but millions of patients historically forgo colon cancer screening. In the past, people haven't gotten screened because they lack insurance. However, that's less likely today because of the Affordable Care Act.

Colonoscopies -- the gold standard of testing -- are expensive and they're invasive, and they require preparation that poses a burden to patients. Other prior-generation alternatives such as fecal immunochemical tests (FIT) aren't as sensitive to finding cancer, according to clinical trials.

According to the Centers for Disease Control, more than a third of patients who should be screened for colon cancer haven't been or aren't up to date on their screening.

Admittedly, Cologuard won't get the screening rate to 100%, but it is improving it. About 45% of the Cologuard tests Exact Sciences has completed so far have been for patients who hadn't previously been screened. Furthermore, the percentage of patients following through with Cologuard (67%) is higher than with colonoscopy or FIT, so that's improving the rate too.

Looking ahead

Cologuard sales are clocking in at an annualized pace of about $200 million, and the company's still losing money because it's investing heavily in promoting Cologuard. However, its 2% market share is tiny, and thus, the revenue (and profit) opportunity ahead of Exact Sciences is enormous.

Management believes that if it can reach its 30% market-share goal, that will translate into $4 billion in sales. In 2017, Exact Sciences estimates it will complete 470,000 Cologuard tests, but eventually, it estimates that it could complete 8 million tests per year.

Obviously, there's no guarantee Exact Sciences will hit those targets, but given the running room ahead, I think it's dumb to bet against it.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.