Exact Sciences (NASDAQ:EXAS) markets a diagnostic test called Cologuard for the detection of colorectal cancer, the second deadliest cancer in America with more than 51,000 deaths annually. Early detection can be life-changing. According to the company, 90% of patients can live for five years or more if their cancer is detected at either Stage I or II. If diagnosed late at stage IV, only one in 10 patients will live for five years.

FDA approves expanded use of Cologuard

Eighty-seven million people in the U.S. over the age of 50 make up the initial target for Cologuard. On Sept. 23, the U.S. Food and Drug Administration (FDA) approved an expansion for the use of the test in people aged 45 and older. This 45 to 49-year-old segment adds another 19 million people, making 106 million Americans eligible for the test. That's almost one-third of the U.S. population. Exact believes it's an $18 billion market, and that Cologuard is in the early innings for market adoption.

Cologuard diagnostic

Image Source: Exact Sciences

Exact generated $200 million in second-quarter revenues, a 94% increase over the prior year. In the 12 months ended June 30, 2019, Exact brought home $623 million in top-line sales. Similarly, 415,000 tests were run in the second quarter of 2019, 93% more than the period in 2018. While this seems like a lot, it only represents 5.7% of the market and does not include the newly approved 45 to 49 age group.

Co-promotion agreement expands outreach to doctors

In August 2018, Exact entered into a co-promotion agreement with Pfizer (NYSE:PFE) to drive awareness and adoption by physicians. Pfizer's pipeline includes drugs for colorectal cancer so it is motivated to make sure patients are diagnosed.

Doctors appear to like the test as well. Since launch in Q2 2016, 174,000 doctors have ordered the test, providing a healthy CAGR of 64% among healthcare providers. Reimbursement, which can be an impediment to use of medical tests and therapies, appears to be no problem. Exact reports that 94% of Cologuard patients do not have any out-of-pocket costs, and it is fully covered by Medicare.

Exact Sciences and Genomic Health announce merger to create a global cancer diagnostics company

On July 29, 2019, Exact announced a merger with Genomic Health (NASDAQ:GHDX). Genomic Health brings the OncoType DX cancer diagnostic for breast and prostate cancers. This test earned $116 million in the second quarter and $223 million in the first half of the year. Another key driver for the merger is Genomic Health's foreign infrastructure. Exact stumbled launching Cologuard in Europe causing it to refocus its resources to the U.S. launch. With a commercial presence in 90 countries, the combined company can leverage its global footprint to deliver its diagnostic tests and others in the future into these markets. Pro forma guidance for 2020 is revenues of approximately $1.6 billion with gross profit of $1.2 billion. The merger should close before the end of this calendar year.

Third-quarter earnings should be reported in about a month from now. While quarterly guidance is not provided, revenue growth over the last twelve months shows roughly a 20% increase quarter-over-quarter. Exact gave annual guidance between $800 and $810 million in 2019 revenues. Gross margins are currently 74%, and Exact aims to improve that to 80% in the future.

Reasons to get excited now

There are more than a few reasons for investors to consider opening a new position in Exact Sciences today, or adding to an existing position, including: 

  1. September's FDA approval for expanded use of Cologuard in patients 45 and older
  2. Marketing partnership with Pfizer to extend the reach to physicians beyond Exact's salesforce
  3. Genomic Health acquisition expected to close by the end of 2019 making a global cancer diagnostics company with a projected $1.6 billion in revenues
  4. Pipeline of non-invasive diagnostic tests in development for additional cancers
  5. Stock price that is 25% cheaper than last month

Exact's stock peaked above $120 per share earlier this year. Right now, you can buy it for 25% below that. If it breaks below $90 per share, this becomes a no-brainer decision to buy and hold for the next few years. Three years ago, Exact could be bought for under $10 a share. There is still plenty of room to grow, even with a $90 price tag.

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.