Veracyte (VCYT 0.64%) and Exact Sciences (EXAS -1.04%) focus on genomic tests to diagnose various cancers. It's an area that is expanding wildly. A report by BIS Research puts the molecular cancer diagnostics market at $4.1 billion in 2022 but with a compound annual growth rate (CAGR) of 11.4% through 2032, reaching a $12.1 billion market by that time.
Cancer is formed by changes to the genome in a body's cells, leading to uncontrollable growth. DNA mutations in the genome that cause cancer can be detected by comparing them to normal genomes. Increasingly, the tests to determine cancer are becoming less invasive, using blood and other tissue samples. Medicare and insurance companies are becoming more willing to cover the tests because early detection will save lives and medical expenses.
Veracyte and Exact Sciences are riding the wave of expanded genomic oncology testing, but which one is a better long-term stock? Let's take a look.
The case for Veracyte
Veracyte's stock is down more than 11% over the past year but up more than 59% over the past three months. The company, founded in 2008, is not profitable yet and is just now beginning to turn the corner toward profitability, but it may have more growth ahead than Exact Sciences.
The healthcare company was the first to market with genomic oncology tests for thyroid cancer, lung cancer, and idiopathic pulmonary fibrosis (IPF) -- three underserved diagnostic areas. Veracyte said its goal is to make earlier, more precise diagnoses available for physicians to prevent unneeded surgeries. It also has genomic diagnostic tests for prostate cancer, bladder cancer, and breast cancer, and has tests for kidney cancer and lymphoma in the works.
In a presentation at the J.P. Morgan Healthcare Conference last week, Veracyte estimated that its Afirma thyroid cancer test could cut unneeded surgeries by 70%, and the target market could be worth $500 million annually in the U.S. It also said that its Percepta nasal swab test for lung cancer, which it is collaborating on with Johnson & Johnson, is designed to bring more accuracy than lung nodule biopsies and could be worth $30 billion to $50 billion globally. It also sees the potential for $525 million in annual revenue in the U.S. and Europe for its Envisia test to diagnose IPF, a hard-to-diagnose, chronic-scarring lung disease.
The company reported third-quarter revenue of $75.6 million, up 25% year over year, led by Afirma and Decipher (prostate cancer test) sales. The company lost $8.7 million in net income in the quarter, a 38% improvement over the same period last year. Veracytce's full-year guidance for revenue is $288 million to $293 million, a rise of 31% to 33% over 2021.
Exact Sciences is in a stronger position
Exact Sciences is a much bigger company than Veracyte, with $2.1 billion in revenue in 2022, up 17.8% over 2021, it said at the J.P. Morgan Healthcare Conference. Through nine months, it reported a net loss of $495.8 million compared to a loss of $375 million in the same period in 2021.
The company saw its shares fall more than 12% over the past year but rise more than 106% over the past three months. Exact Sciences brought in $1.4 billion in revenue in 2022 alone from its lead test, Cologuard, to diagnose colon cancer. Its No. 2 diagnostic test, Oncotype DX, to detect breast cancer, earned $601.2 million in 2022.
Like Veracyte, Exact isn't profitable, but it had, as of Q3, $699 million in cash to only $179.01 million in cash for Veracyte, which gives Exact more flexibility in trying to become profitable. The company said it expects to be positive in earnings before interest, taxes, depreciation, and amortization (EBITDA) by this year's third quarter.
Exact Sciences also has only $50 million in long-term debt in Q3, while Veracyte reported $1.2 billion in long-term debt in its Q3 report.
The choice isn't that easy
Both companies could easily be profitable by next year thanks to increased revenue. Veracyte's rate of growth makes it attractive, but Exact Sciences still has plenty of growth ahead and a stronger financial situation. That should allow it to find more growth either through more research and development of cancer screenings or by buying into growth through acquisitions. Its Cologuard test gives it name recognition that should help its other products.