Please ensure Javascript is enabled for purposes of website accessibility

Is Exact Sciences a Good Healthcare Stock to Buy Now?

By Cory Renauer – Sep 29, 2020 at 7:27AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The company known for Cologuard is trying to cast a much wider net.

Shares of Exact Sciences (EXAS 9.13%), the company behind all of those Cologuard advertisements, popped last week after management convinced some investors it had the means to quickly expand beyond colon cancer screening and genetic tumor profiling.

Encouraging results from a study with Exact Sciences' new noninvasive pan-cancer screening recently drove shares of the company up about 25% higher overnight. The method could become the standard technique for detecting multiple forms of cancer in their early stages.

Person in a laboratory using a pipette.

Image source: Getty Images.

Is Exact Sciences a good healthcare stock to buy right now, or was the recent stock price bounce just a flash in the pan that investors should ignore? Let's weigh reasons to buy the stock against reasons to avoid it. 

Reasons to buy Exact Sciences

Colorectal cancer (CRC) is relatively easy to treat when caught in its earliest stages, but roughly 45% of Americans ages 45-85 at average risk aren't getting screened every three years as recommended. Exact Sciences' flagship product, Cologuard, is the only option available to this population of roughly 106 million Americans that doesn't require a fasting period and a very uncomfortable trip to a healthcare provider.

In the first half of 2020, sales of Cologuard reached $351 million, and it's not the Exact Sciences' only revenue stream at the moment. In 2019, the company entered the competitive market for post-diagnosis cancer screening with a $2.8 billion acquisition of Genomic Health.

Currently, the Genomic Health segment provides test services that oncologists use to determine which genetic mutations are driving the progression of a patient's disease. Tumor profiling is important, but a pan-cancer screen for healthy adults would create a much larger revenue stream. 

Genetic sequencing giant Illumina (ILMN 4.56%) is in the process of acquiring Grail for $8 billion in hopes of becoming the leading pan-cancer screen provider.

Shares of Exact Sciences surged recently because it seems like it's developing a pan-cancer diagnostic of its own that is capable of competing with the test Grail plans to launch in 2021.

Exact Sciences' test correctly identified 86% of positive cases of cancer across six types of cancer, while Grail's test only correctly identified about 60% of confirmed cancer cases as positive. Grail's test looks unlikely to report false positives, with an impressive 99.3% specificity rate; Exact's test showed an acceptable 95% specificity rate. If both are approved, physicians will likely conduct widespread screening with Exact's test, while keeping Grail's test on standby to rule out false positives.

Medical face masks resting on a pile of money.

Image source: Getty Images.

Reasons to remain cautious

The Food and Drug Administration hasn't cleared pan-cancer screens from Grail, Exact Sciences, or their peers, but other companies are getting close. This summer, the FDA officially cleared Guardant360, a pan-cancer liquid biopsy from Guardant Health (GH 5.74%) that oncologists use to identify which gene mutations are driving a patient's disease. 

Roughly one in four cancer diagnoses involve tumors that aren't easily accessible; at the moment, cancer treatment guidelines only recommend Guardant360 for patients that fall in this category. The FDA's approval doesn't require physicians to assess whether a tumor biopsy is a reasonable option, though, which could give it a big leg up on Exact's precision oncology segment.

Guardant Health could also step on Exact's CRC screening business in the not-so-distant future. Guardant's currently developing the blood-based Lunar-2 assay to detect early stage cancer in asymptomatic individuals. In a study with around 200 samples, 113 of which had been diagnosed with CRC, Lunar-2 correctly flagged 90.3% of positive cases. That's probably good enough to compete with Cologuard's 92.3% sensitivity rate.

Guardant's test also appears much less likely to report false positives, with a 96.6% specificity rate compared to the 86.6% specificity rate Cologuard exhibited in a study that led to its approval.

A stock to watch

Exact Sciences thinks the COVID-19 pandemic will accelerate the adoption of Cologuard, but that wasn't the case in the second quarter. Screening revenue tumbled from $219.5 million in the first quarter of 2020 to $131.2 million in the second. Over the same time frame, precision oncology revenue slid from $128.4 million to just $103.0 million.

If Exact Sciences were generating steady profits for investors now, it might be worth a closer look. Unfortunately, Exact Sciences doesn't appear to be heading for profitability in the foreseeable future. Trailing revenue rose 184% over the past two years, but sales, general, and administrative expenses followed along with a 155% gain over the same period.

If Exact Sciences can't make ends while it has the market for noninvasive CRC screening all to itself, it's hard to see how the company will make any money for investors once it actually has to compete with other diagnostic service providers like Guardant Health and Illumina. It's probably better to keep an eye on any progress Exact Sciences makes with its pan-cancer screen than to bet your hard-earned money on its success.

Cory Renauer has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Guardant Health and Illumina. The Motley Fool recommends Exact Sciences. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Nearly 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Exact Sciences Stock Quote
Exact Sciences
EXAS
$44.95 (9.13%) $3.76
Illumina Stock Quote
Illumina
ILMN
$218.08 (4.56%) $9.51
Guardant Health Stock Quote
Guardant Health
GH
$52.34 (5.74%) $2.84

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
349%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/01/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.