Companies that underpromise and overdeliver tend to deliver above-average returns over the long haul. Exact Sciences (EXAS) could deliver just such a surprise when it announces third-quarter 2022 operating results in early November.
The genetic testing leader previously told investors to expect $497.5 million in Q3 revenue. That includes an estimated $342.5 million in sales from the colon cancer screening product Cologuard, which is the only genetic diagnostic tool on the market that generates at least $1 billion in annual revenue. The business expects full-year 2022 revenue of $2 billion, including an estimated $1.32 billion from the at-home screening tool.
It's possible the company might have offered intentionally conservative guidance. At the very least the business is well positioned to meet full-year guidance and deliver healthy growth compared to last year. It may be as simple as looking at the dominance of Cologuard.
Can Cologuard Force an Upward Revision to Guidance?
On the conference call to discuss second-quarter 2022 operating results in August, at least one Wall Street analyst directly asked management if it was being too conservative with guidance. They had a point.
Exact Sciences told investors to expect no more than $335 million in Q2 2022 revenue from Cologuard, but the at-home screening tool achieved $344 million in quarterly sales. It was easily above the midpoint of guidance.
Despite the comfortable beat, management didn't increase full-year 2022 revenue guidance for Cologuard. It still expects roughly $1.32 billion in revenue from the flagship product for the year. Let's unpack that:
- The latest guidance requires achieving $679 million in second-half 2022 revenue from the colon cancer screening tool. That's a relatively small leap from the $641 million delivered in the first half of the year.
- The latest guidance expects Cologuard sales in Q3 to be lower than revenue achieved in Q2. That would also mean Cologuard sales in Q4 would be lower than revenue achieved in Q3. That doesn't make much sense, nor does it follow historic trends for prescriptions.
That suggests Cologuard could deliver another quarter of guidance-beating sales in Q3 and force management to raise full-year 2022 revenue guidance--at least insofar as the flagship product is concerned.
Whether or not Exact Sciences can increase full-year 2022 revenue guidance for the combined product portfolio may depend on the strength or weakness of precision oncology tools. The latest guidance expects these tissue biopsy diagnostics to deliver year-over-year growth of only 4%. Although that includes the recent divestment of a prostate cancer tool, it also showcases broader headwinds.
One thing for investors to remember is that the precision oncology portfolio is the most exposed to international currency headwinds. A strong U.S. dollar has whacked many global businesses in 2022. Exact Sciences generates almost all its total revenue from the United States, which represents an advantage as central banks reverse easy monetary policy. The caveat is international sales were becoming a more important driver for the company's precision oncology tools.
In other words, perhaps the most likely scenario is more nuanced. Exact Sciences may continue to benefit from the strength of Cologuard, which appears to be on pace to easily outperform full-year 2022 guidance. However, the flagship product's strength might only offset weakness from the precision oncology portfolio.
Even in that mixed scenario the business would be on solid footing. Simply meeting full-year 2022 revenue guidance of $2 billion would represent year-over-year growth of 13%. That's a respectable growth rate for a company of this size – and especially compared to a difficult operating environment that's stifling many smaller peers. Either way, it all comes down to Cologuard.
