Exact Sciences' First-Quarter Results Show Its Strength Under Pressure
On May 4, healthcare diagnostics company Exact Sciences (NASDAQ:EXAS) delivered its first-quarter numbers, reporting revenues of $402 million, a 16% year-over-year increase. Screening revenue was up 10%, contributing $240 million to that total. For the period, it added 8,000 new healthcare providers to the number who are ordering its Cologuard at-home colorectal cancer screening test for patients, bringing the number of unique ordering clinicians to more than 235,000.
On the conference call, CFO and COO Jeff Elliott pointed out that screening colonoscopies and wellness visits remain down by 10% to 20% from pre-pandemic levels, while office visits are only at half of pre-pandemic levels. Despite these headwinds, the company was still able to post 10% year-over-year quarterly sales growth for Cologuard.
Precision oncology fell short
It's unlikely that the $16.8 billion market-cap company's late 2019 purchase of oncology diagnostics player Genomic Health has been as fruitful as management hoped it would be. Exact Sciences' sales in precision oncology for the quarter came in at $129 million, a measly 1% increase from year-ago levels. Both the CFO and CEO pointed out that the company's sales force is itching to get back into the field -- in-person sales visits are typically the most productive way for the company to convey the benefits of Cologuard and Oncotype DX to healthcare providers -- and thus, to get more patients tested using those tools.
The sales team will have some work to do: Precision oncology diagnostics competitor Natera (NASDAQ:NTRA) reported a 36% increase in product revenue in Q1, and rival Guardant Health (NASDAQ:GH) reported a 21% increase in clinical customers year-over-year for the quarter.
Hope for growth
The American Association for the Study of Liver Diseases recommends screening for the most common type of liver cancer, hepatocellular carcinoma, every six months for patients with cirrhosis. According to Exact Sciences, more than 3 million patients fall into that category in the U.S. This gives the company a $1.5 billion total addressable U.S. market for its newly announced screening blood test, ONCOGUARD Liver. Since many patients with cirrhosis are under the care of a gastroenterologist (GI), and the company's sales team has reached 90% of GI clinicians, the Cologuard maker might achieve significant early uptake for its latest test, reinvigorating its sales.
Back in April 2020, screening tests for breast cancer dropped to just 1.1% of April 2019 levels. Mammogram volume through July 2020 was still just 66% of pre-pandemic levels, and given the COVID-19 surge this past winter, the number of women receiving those screenings is still probably well below historic levels. Because of this, it's plausible that the company is likely to see significant growth soon in orders for its Oncotype DX test, which helps physicians determine more precisely what type of breast cancer a given patient has, and how likely it is to spread or recur following treatment.
The fact that Exact Sciences managed to eke out a 1% increase in precision oncology revenue year-over-year despite all of these headwinds is rather impressive. The same issues impacted competitor Guardant Health -- its precision oncology segment only posted a 6% revenue increase. This supports the implication that there is a wave of medical testing to be performed in the near future as people catch up on long-delayed well visits and routine cancer screenings.
Lastly, the Cologuard maker announced that it had acquired PFS Genomics, which focuses on reducing unnecessary radiation treatments in patients with early-stage breast cancer -- an addressable market in the U.S. of 100,000 women. This could be a significant advantage for the precision oncology segment of Exact Sciences. In addition, its Oncotype DX test was just named as the preferred test for predicting the benefit of chemotherapy in certain types of early-stage breast cancer by the National Comprehensive Cancer Network.
A potential value play
All in all, I give the company a passing grade for the quarter. Cologuard showed its strength, and Exact Sciences scraped together slight revenue gains despite a difficult environment. It's now trading at a price-to-sales ratio of just under 10 -- and other than during a few relatively brief periods during the market volatility of 2020, Exact Sciences has not traded at a valuation that low in the last decade. If the launch of the ONCOGUARD Liver test is successful, health screenings return to their pre-pandemic levels, and sales of Cologuard keep growing, then investors could soon look back at today's share prices as a real bargain. As such, value investors may want to take a close look at this healthcare stock.