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20 Million More Potential Customers for Cologuard: Time to Buy Exact Sciences Stock?

By Keith Speights - Jun 4, 2018 at 8:09AM

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New guidelines mean new opportunities for Exact Sciences -- and maybe for investors, too.

Opportunity knocks -- and sometimes harder than expected.

Exact Sciences (EXAS 7.96%) already knew that the potential market for its Cologuard DNA screening test for colorectal cancer was big. Many Americans who need to be screened for colorectal cancer don't want to undergo a colonoscopy because of the preparation required and the inconvenience. Cologuard presents an alternative for early detection of colorectal cancer that's easy to use.

Now the opportunity for Cologuard could be larger than expected thanks to a change in screening guidelines announced by the American Cancer Society (ACS). Exact Sciences stock jumped by nearly 15% on the news. Is the stock still a smart buy?

Exact Sciences' Cologuard colorectal cancer DNA screening testkit

Image source: Exact Sciences.

New guidelines, new opportunity 

In the past, the ACS has recommended that individuals ages 50 and up with an average risk of colorectal cancer should be screened. As of May 30, 2018, though, the organization recommends that the minimum age for this average-risk screening be lowered to 45.

With around 20 million Americans between the ages of 45 and 49, the new ACS guidelines present a significant new market opportunity for Exact Sciences. As with its previous guidelines, the ACS identified stool-based tests and colonoscopies as alternatives for screening. And the ACS again specifically mentioned Cologuard as the only stool DNA test currently available.

Lowering the recommended age for screening made sense. The number of diagnoses of colorectal cancer in the age 40 to 49 demographic has increased in recent years. Colorectal cancer is the second-leading cause of cancer deaths in the U.S. but it's treatable and even preventable if detected early enough.

There still are two hurdles to jump over before Exact Sciences can take advantage of this new opportunity. First, the company must obtain Food and Drug Administration (FDA) approval for Cologuard to be used in colorectal cancer screening for individuals between the ages of 45 and 49. That shouldn't be too problematic, though. Exact Sciences will move forward with the necessary clinical studies to hopefully secure the needed FDA approval. 

The other hurdle is that payers will have to adopt the ACS' new guidelines. While the ACS now calls for screening to begin at age 45 for individuals with average risk of developing colorectal cancer, the U.S. Preventive Services Task Force (USPSTF) still recommends screening begin at age 50. Under Obamacare, insurers must abide by the USPSTF guidelines -- but they don't have to follow the ACS guidelines.

Still, some insurers could align their coverage policies with the ACS guidelines. It's also possible that the USPSTF updates its guidelines to call for screening at age 45. 

Same old risk

Back in May 2017, noted short-seller Andrew Left with Citron Research predicted that Exact Sciences stock would fall to $20 per share over the short term. A month later, I discussed some of the risks for the stock but strongly disagreed with the bearish view that Left espoused. Exact Sciences stock now is roughly triple the price target set by Andrew Left. 

Several of the risks I talked about then aren't much of a concern today -- just as I expected. I noted that it was possible that the price of Cologuard could drop significantly and therefore hurt Exact Sciences' revenue. That hasn't happened and doesn't appear to be an issue going forward.

Another risk was that physicians might not prescribe Cologuard as much as hoped. While growth for the test wasn't as much as investors would have liked in Q1, there wasn't any reason to worry. Many doctors limited wellness visits because of an especially nasty flu season. Colorectal cancer screening typically is discussed during wellness visits, so this negatively impacted Cologuard sales. That was only a temporary issue, though. 

The third risk I mentioned last year, however, still is something that could be a threat. It's quite possible that a liquid biopsy is developed for early screening of colorectal cancer that makes Cologuard obsolete. Exact Sciences also is working with the Mayo Clinic to develop liquid biopsies for early cancer detection. There's no guaranty, though, that the company will be successful or among the first to market.

Time to buy?

Exact Sciences estimates that around 85 million Americans are currently eligible for colorectal screening. But if insurers adopt the new ACS guidelines, that number would increase by more than 20%. Should investors buy Exact Sciences stock because of this change? No.

However, there are two other numbers that I think make Exact Sciences stock still one to consider seriously. The first number is 38%. That's the percentage of Americans who should be screened for colorectal cancer today but aren't. The second number is 2.6%. That's Cologuard's current market share in a total addressable market of more than $14 billion.

In my view, now is a good time to buy Exact Sciences stock because the company still is only scratching the surface of the opportunity it has. But with the recent ACS guideline change, opportunity is knocking harder than ever on Exact Sciences' door.

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