The past seven months have been nothing short of a nightmare for shareholders of Exact Sciences (NASDAQ:EXAS). Shares of the company are down almost 80% in that span following the launch of its colon cancer screening tool, Cologuard, in the summer of 2014 and its slower-than-expected uptake by physicians and consumers in 2015. The drop in its share price has left many investors wondering whether there's value to be had with Exact Sciences or if this is just another hyped product that'll struggle to get off the ground.
Nine numbers Exact Sciences CEO wants you to know
Thankfully for us, Exact Sciences CEO Kevin Conroy presented late last week at the Super Bowl of all healthcare conferences, the J.P. Morgan Healthcare Conference, allowing us a detailed look under the hood, so to speak, as to where Exact Sciences has been and where it's going.
As you can imagine, every CEO offers a rosy outlook for their company regardless of recent performance, and Conroy was no exception. Nonetheless, there were nine numbers discussed during his 23-minute presentation (that I highly encourage shareholders and interested investors listen to) that tell you everything you need to know about the company.
Here they are, both good and bad, in no particular order.
92% & 42%: To begin with, these two numbers, which have previously been highlighted by Conroy and were the reason Cologuard was approved by the Food and Drug Administration, demonstrate the promise of Cologuard.
In clinical testing, Cologuard exhibited a 92% sensitivity to colorectal tumors, and it correctly identified 42% of advanced adenomas. Conroy notes that as the adenomas grow in size they become easier for Cologuard to detect; and since the test is recommended to be done every three years, it should lead to improved detection within patients over time. The prior standard of care in noninvasive testing had correctly identified 74% of all colorectal cancers and 24% of advanced adenomas.
58%: According to data provided by Conroy courtesy of the Centers for Disease Control and Prevention's NIHS survey, only 58% of respondents are getting colon cancer screenings as of 2013, down 1% from 2010 and up only modestly from the 50% reported in 2005.
Why's this important? Exact Sciences has previously stated that colon cancer is potentially the most preventable cancer type, and higher screening rates would go a long way to making that happen. The American Cancer Society and CDC have set goals of 80% colon cancer screening rates by 2018, potentially giving Cologuard a huge growth opportunity.
$4 billion: How big of an opportunity, really, is Cologuard? Of the 80 million people in the age range of 50 to 84 for which Cologuard is designed, Exact Sciences believes it can penetrate 30% of this market on a recurring basis. Thus, Exact Sciences believes it has an opportunity to generate up to $4 billion annually in sales with the product. "Where did it finish in 2015," you wonder? With sales just below $40 million, so there's definitely ample opportunity for sales growth.
10-15 years: Speaking of recurrence, one of the most exciting aspects of Cologuard is its ability to catch adenomas and early-stage cancers. As Conroy points out, it takes a good 10 to 15 years for adenomas to turn into cancerous lesions, and Cologuard's sensitivity actually improves as these precancerous adenomas grow to one centimeter and beyond. Thus, this test provides an incentive for consumers who use it once to do so regularly, creating a recurring customer (and physician) base.
240,000: In 2015, Exact Sciences completed approximately 104,000 Cologuard screening tests. Ultimately, this wound up missing robust expectations from Wall Street and investors, and the company partially blamed slowness during the holiday season for the shortfall. However, 2016 is looking a lot better.
Based on Conroy's comments, the company is guiding to at least 240,000 Cologuard screening tests in 2016, and revenue of between $90 million and $100 million, up around 125% to 150% from 2015 levels. A strong advertising presence on TV and ongoing follow-up with patients and physicians are expected to play a key role in this growth. Conroy estimates the company's current lab could handle up to 1 million tests per year.
80%: An intriguing number noted during the presentation is that 80% of current Cologuard tests are patients covered by Medicare. This reason this is so important is that Cologuard is covered by Medicare, with the test being reimbursed at a rate of $509, down from a list price of $649. Even though Exact Sciences had to play ball with its pricing to gain Medicare approval, the sheer number of patients that now have access to its test by being covered is well worth it. Plus, payments from the government are guaranteed.
71%: Some people view Exact Sciences 71% patient compliance rate as a victory -- prior figures examining patient follow-through for colorectal screenings are much lower -- and to some extent, it is. However, this is also a double-edged sword in that three in 10 patients aren't following through with the test once prescribed. To me, this suggests there's an opportunity here for growth, but also a bit of a concrete block that could hold the company back until compliance rates improve.
56%: Finally, for the remainder of potential Cologuard patients who aren't covered by Medicare, just 56% are covered by a health insurer. This is easily the most disappointing metric in Exact Sciences' presentation, but an area where improvement can be made.
Exact Sciences earlier this month did announce an agreement with Anthem (NYSE:ANTM), the second-largest insurer in the U.S., allowing Cologuard to be covered as an in-network service for BlueCross of California members (approximately 4.5 million people). Exact Sciences and Anthem forged a broader coverage agreement in March 2015 for Cologuard, and there's hope it could expand this in-network service relationship to some, or all, of its 13 operating states besides California.
Does Exact Sciences deserve a spot in your portfolio?
The important question we should ask after these nine key numbers is whether Exact Sciences deserves a spot in your portfolio. I believe the answer to that question depends on your risk tolerance and investment horizon.
On one hand, Exact Sciences lost money in 2015, and it's liable to lose in excess of $1 per share for the full year through at least 2018. This isn't a very defensive investment, and it's always possible that we could see Exact Sciences turn to the open market for a cash raise if it keeps burning through its cash on hand. Any potentially dilutive offerings would be salt in the wound for existing shareholders.
The other side of the coin shows marked Cologuard testing growth and the opportunity to expand its technology with lung cancer and pancreatic cancer screening tools by the end of the decade. A majority of the metrics here are headed in the right direction, and most importantly it has received coverage from Medicare.
I believe that if your time horizon is in the range of five to 10 years and your tolerance for risk is high, then Exact Sciences could make for an intriguing investment. At the very least, I'd consider it a company worth adding to your watchlist.
Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
The Motley Fool recommends Anthem. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.