Roughly 18 months ago, Exact Sciences (EXAS +0.00%) was in rough shape. Cash was getting tight as the company spent aggressively to commercialize its new colon cancer test. Add in some troubling words from a government agency and it is understandable why short-sellers were predicting doom.
Fast-forward to today, Exact Sciences' turnaround has been nothing short of remarkable. Insurance coverage has improved, testing volumes have grown exponentially, and the stock has turned into a monster winner.
But where is this company heading over the next half-decade?
Image source: Getty Images.
A look back
Colon cancer is the second-deadliest type of cancer in the U.S. That's a tragedy because colon cancer is highly treatable if found early. However, patient compliance to traditional screening methods is abysmal, which is a big reason why this cancer remains so deadly.
Exact Sciences' solution to this problem was to roll out a convenient, noninvasive screening tool. The company called its innovation Cologuard and launched the product in 2014.
Using Cologuard couldn't be simpler. A patient simply orders the kit and waits until it comes in the mail. Then they deposit a stool sample and send it back to Exact Sciences for review. Once received, the company analyzes the sample and then sends the results to the patient's doctor for review.
It turns out that patients and provider really like how easy Cologuard is to use. As a result, demand for the test has grown like wildfire. The stock has responded in kind.
EXAS Revenue (TTM) data by YCharts.
As exciting as the company's recent growth has been there is still ample reason to believe that we are still in the early days of growth. Management believes that it has only captured about 2% of its addressable market in the U.S. so far. You can imagine what the numbers look like when you zoom out to include the international opportunity, which the company hasn't even started to address yet.
A look ahead
The next few years will be all about the continued commercialization of Cologuard. Now that most insurance providers are on board, the big task ahead is to continue building awareness for the test and convince more physicians to give it a try. The odds are good that management will eventually turn its attention to international markets, too.
Another exciting growth opportunity for the company is to apply its technology to other types of cancers. It is currently investing its research and development dollars in new testing technology that could be used to detect lung, esophageal, and pancreatic cancer.
What kind of opportunity exists in these other cancer types? That's tough to say at this point, but consider this: When combined, those three cancers kill more than 200,000 Americans each year. That's more than four times higher than the annual death toll from colon cancer alone. I think it is fair to say that the opportunity is large.
But can the company actually roll out a product that works? That's another tough question to answer since there is no guarantee that a Cologuard-like device could also work in other types of cancer. However, given its regulatory success with Cologuard, I think the odds are pretty decent.
Exact Sciences in 2022
Putting it all together, here's a summary of what I expect to happen in five years' time:
- Cologuard will be thriving in the U.S. and international markets, bringing in annual revenue in excess of $1 billion.
- Exact Sciences will reach profitability.
- The company will be on the cusp of launching its first product geared toward another type of cancer.
Could anything derail my prediction? Of course. Cancer research is red-hot right now and plenty of other companies are working to develop early-stage detection technology of their own. For example, Illumina's (ILMN 2.22%) recent spinoff GRAIL is pushing hard to develop a DNA test that will use biomarkers to detect multiple types of cancer at an early stage. Success could make Exact Sciences' technology obsolete.
Despite the potential competition, I'm reasonably confident that my five-year outlook for Exact Sciences will prove to be somewhat accurate. If true, then it wouldn't be much of a stretch to assume that shares would be trading meaningfully higher than where they are today.
