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Maxx Chatsko

Is Cologuard Maker Exact Sciences Underestimating Revenue Guidance?

Exact Sciences (EXAS) reached an important milestone in 2021. Its flagship product, the colon-cancer-screening tool Cologuard, became the first diagnostic test to achieve $1 billion in annual revenue. 

That was more revenue than peers Invitae (NVTA), Sema4  (SMFR) , and 23andMe (ME) generated combined – and it's only one part of the leader's overall business. 

Management this year expects the growth engine to keep humming along. The midpoint of full-year 2022 revenue guidance exceeds $2 billion, including at least $1.3 billion from Cologuard alone. That would represent year-over-year growth of 20% when covid testing revenue is excluded.

It could also be underestimating the company's growth potential.

Will Exact Sciences Increase Revenue Guidance?

Exact Sciences places its business in two primary categories.

  • Screening is composed of tools for quantifying cancer risk in healthy individuals and early detection of tumors. Cologuard and PreventionGenetics, a recently acquired subsidiary providing hereditary cancer screening products, are expected to generate $1.35 billion of sales in 2022. That would mark year-over-year growth of 27%.
  • Precision Oncology includes a suite of tools designed to characterize the genetic profile of tumors and optimize treatment for patients. This part of the business is expected to generate $602.5 million in sales in 2022. That would mark year-over-year growth of 7%.

The company also expects to generate about $45 million in revenue this year from covid testing, but investors can exclude this fading source of revenue when evaluating the business. Doing so shows full-year 2022 revenue is expected to grow about 20% from 2021.

However, Exact Sciences started the year with considerable momentum. Screening revenue leaped 28% in Q1 2022 from the year-earlier period, while precision oncology revenue increased 18%. That puts the growth trajectory above trend.

Indeed, management increased annual guidance when Q1 2022 results were announced.

Can the momentum be sustained? It looks increasingly likely.

Management has noted that many individuals postponed colon-cancer screening during the pandemic. That occurred just as screening recommendations were changed to include individuals aged 45 years or older, or five years younger than previous guidelines. 

It's a meaningful change. Exact Sciences expects to generate $100 million in revenue this year from screening individuals in the 45-49 age group.

If doctors and patients get back on track now that the worst of the pandemic has passed, and if younger individuals heed the new guidelines, that would create a solid tailwind for Cologuard in the second half of the year.

The precision oncology portfolio could also continue to exceed expectations. Q1 revenue of $153 million put the division on track to generate $612 million in full-year 2022 revenue. That would be well ahead of expectations for the year.

Of course, oncology diagnostics aren't cellular phones. Revenue is a little less predictable. So although investors cannot expect revenue to march higher each quarter, that has been the trend for six successive quarters.

One caveat is that a strong U.S. dollar could present a stiff headwind for international sales, which have become an important source of growth for the precision oncology portfolio recently. Nonetheless, the likely conservative guidance leaves room for a surprise to the upside.

Long-Term Investors Are in Good Hands

I wouldn't be surprised to see Exact Sciences increase full-year 2022 revenue guidance when it reports Q2 2022 results. Then again, nudging expectations incrementally higher isn't terribly important for investors with a long-term mindset.

Exact Sciences has a solid growth trajectory in the years ahead. The business can lean on the continued dominance of Cologuard, which may only be scratching the surface of its long-term potential. 

For example, a proposed change by Medicare could provide a meaningful sales boost in 2023. The Madison, Wis., company also has many opportunities to expand PreventionGenetics by leveraging the industry's most robust commercial infrastructure.

Meanwhile, an avalanche of new screening and precision oncology tests are expected to launch in the next 24 months. That includes the company's first liquid biopsy tools, a second-generation Cologuard test, and more.

These developments combined have solidified management's belief the business can achieve profitable adjusted Ebitda by the end of 2024. That would provide considerable advantages in an industry that's chock full of unprofitable peers.

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