What happened
A more than doubling in fourth-quarter revenue failed to offset concerns that a colon cancer liquid-biopsy test could pose a future competitive threat, and as a result, Exact Sciences (EXAS +0.00%) shares slipped 10.3% in February, according to S&P Global Market Intelligence.
So what
Demand for Exact Sciences' Cologuard, a simple-to-use colon cancer screening kit, continued to grow in Q4 2017. On Feb. 22, management reported the company's fourth-quarter revenue skyrocketed 148% to $87.4 million and its quarterly loss improved to $0.18 per share from $0.34 one year ago.
A Cologuard kit that patients can use to collect a stool sample for testing. Image source: Exact Sciences.
Clearly, doctors and patients are increasingly turning to Cologuard to address the significant need to improve patient compliance and boost colon cancer screening rates. A colonoscopy is a favorite choice of doctors because polyps can be removed during it, but preparing for a colonoscopy can be unpleasant and its cost can be a barrier for some patients. It's estimated that 20 million of the 80 million Americans who should be screened for colon cancer are behind schedule on their screening.
Cologuard's demand could wane, however, if an even-simpler screening test emerges.
In January, data was presented at the American Society of Clinical Oncology's Gastrointestinal Cancers conference that suggests a liquid-biopsy test for colon cancer could be an effective alternative. Specifically, a blood test demonstrated up to 88% accuracy in a 620-patient trial
According to the study's co-author Ashish Nimgaonkar, most patients would favor a blood test to a stool-sample test, such as Cologuard. Furthermore, Nimgaonkar said he thinks a blood test that costs less than $100 could be created. That would be significantly less than the $498 paid on average for Cologuard in Q4 2017.
Now what
Exact Sciences' $266 million in 2017 revenue far exceeded its guidance for sales of at least $250 million exiting Q3 2017, and since the addressable market is in the tens of millions, there's reason to think this company's still in the early innings of its growth story. Exact Sciences is guiding for revenue between $420 million and $430 million this year on Cologuard volume of 900,000 to 920,000 completed tests.
Competing against a blood test is a long-term concern, and Exact Sciences isn't resting on its laurels. It's researching its own blood tests, and importantly, its research includes evaluating patients with other cancers, including lung cancer and liver cancer. Exact Sciences estimates the liquid-biopsy market could be worth over $13 billion by 2030, and its research efforts indicate it wants to be a leader in that market.
Because Exact Sciences continues making progress toward its goal of 40% market share in colorectal cancer screening, and its liquid-biopsy tests could significantly expand its addressable market, it could be smart to use the recent weakness in its shares as an opportunity to buy.
