Some early investors have gotten rich from the genomics revolution. The stocks of two of the top companies in the genomics arena, Exact Sciences (EXAS +0.95%) and Illumina (ILMN +0.20%), have delivered returns of more than 2,800% and 780%, respectively, over the last 10 years.
Both of these stocks could continue to generate significant gains, but which is the better pick for long-term investors? Here's how Exact Sciences and Illumina stack up against each other.
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The case for Exact Sciences
For several years, there was pretty much just one compelling reason to consider buying Exact Sciences stock: Cologuard. The company's DNA test for colorectal cancer has been a runaway success story. The good news for Exact Sciences is that success story is still being told.
Sales for Cologuard soared 85% year over year to $218.8 million in the third quarter. Test volume grew 89% year over year to 456,000. And there are plenty of reasons to think those numbers will increase significantly more in the future.
Exact Sciences' partnership with Pfizer where the big drugmaker's sales team promotes Cologuard is still picking up momentum. The company recently obtained FDA approval for an expanded indication that allows the DNA test to be used by patients ages 45 to 49 with average risk for colorectal cancer, a win that boosts the total addressable market by $3 billion. Exact Sciences is also developing a new version of Cologuard that could drive higher sales.
But Cologuard isn't the sole reason to think about buying Exact Sciences shares these days. The company announced in July that it planned to acquire Genomic Health for $2.8 billion. Although investors have been skeptical about the deal, which closed on Nov. 8, Exact Sciences maintains that it creates a platform for stronger growth over the long run.
There's also Exact Sciences' pipeline to consider. The company is developing a liquid biopsy for detecting early-stage hepatocellular carcinoma (HCC), the most common type of liver cancer. This test recently received FDA Breakthrough Device designation. Exact Sciences plans to launch the new product in the second half of 2020.
Exact Sciences thinks that it now has a total addressable market of $20 billion. Its HCC liquid biopsy should expand that market even more. With the company's market cap standing below $12 billion, the stock could generate great returns in the future if Exact Sciences is able to capitalize on its opportunities.
The case for Illumina
Illumina ranks as the top genomic sequencing company in the world. Its technology has played a pivotal role in drastically slashing the costs of mapping human genomes. Of course, buying Illumina because of its past achievements isn't a great idea -- but doing so because of its future prospects is.
Probably the most promising area for Illumina is in oncology. The rise of personalized medicine featuring drugs that target specific genetic profiles is a major tailwind for Illumina. It already has partnerships with several major drugmakers, including Bristol-Myers Squibb, Eli Lilly's Loxo Oncology unit, and Germany-based Merck Serono, that use its companion diagnostics products.
Liquid biopsies for early detection of cancer could present an especially big oncology opportunity for Illumina. The company is launching its own TruSight Oncology 500 ctDNA liquid biopsy in early 2020. Illumina's technology is also used by other companies that are marketing or developing liquid biopsy products.
Illumina has several other growth drivers. Population genomics initiatives that map the genomes of large numbers of people have been initiated in multiple countries across the world, with many of them using Illumina's systems. Increased use of noninvasive prenatal testing (NIPT) is fueling demand for sequencing. So is continued research into rare and undiagnosed diseases.
One area that has been a sore spot for Illumina this year could become a key source for growth in the future: direct-to-consumer (DTC) personal genomics. Although Illumina CEO Francis deSouza acknowledged in the company's Q3 conference call that Illumina doesn't look for near-term DTC growth, he said that the company is "optimistic in the opportunity for consumer genomics over time."
Better buy
Both of these growth stocks should be long-term winners. However, there's a key distinction between Exact Sciences and Illumina that makes the decision about which stock to go with easier: Illumina is profitable, while Exact Sciences isn't.
I don't doubt for a second that Exact Sciences will continue to grow rapidly and will become profitable in the future. But I think that Illumina's strong financial position and its ability to invest in growth without taking on debt or issuing new shares give it a big advantage over Exact Sciences. I like Exact Sciences, but I like Illumina even more.
