Image Source: Exact Sciences Investor Relations Page
My friend Mike just recently had a cancerous polyp removed and we went to dinner to celebrate.
"Man Aaron, I can't believe how lucky I am," he said. I told him how lucky I was to have him as one of my best friends for another day or three. "Me, too," he replied as we proceeded to dine on pasta and salad.
Mike then told me of the procedure he had to go through to get the polyp removed. I will spare you the gory details but needless to say, his chance of survival is pretty good now.
Which got me wondering about whether there is a company out there that can detect cancers early without going through a biopsy? Believe it or not, there is!
Exact Sciences, NASDAQ: EXAS, is a company whose mission is to help patients and providers detect cancer early enough to be treated without going through either a biopsy or colonoscopy. The flagship product for Exact Sciences is Cologuard, a non-invasive stool-based DNA screening test for the early detection of colorectal cancer.
According to the National Institutes of Health, an estimated 135,000 people are susceptible to developing new cases of colon cancer with an estimated 50,000 deaths from colon cancer yearly.
The American Cancer Society notes that colorectal cancer is the third most common cancer diagnosed in both men and women in the United States as well as the 3rd leading cause of cancer-related deaths in the US.
Thus, the key to preventing deaths from colorectal cancer is early detection. Early detection of colon cancer is the specialty of Exact Sciences. The company has helped providers embrace the use of their Cologard product from a base of 4,000 doctors in 2015 to over 80,000 in 2017 thus far.
In addition, the United States Preventive Services Task Force (USPSTF) has approved the effectiveness of Exact Sciences' Cologard product, which means further adoption and payment from public payors and private insurers like Medicare & Aetna.
As a result, revenues for Exact Sciences has grown at a fast clip. In their second quarter, revenues increased to $57 million from the same period in 2016. The gain percentage wise over that period was 149%!
While the company is losing money, they have managed to lose less money over the last five quarters and should turn profitable within the next 4 quarters thanks to the success of their sales force with getting Cologard in provider offices while improving their gross margin to 69%.
Exact Sciences isn't just a one-trick pony, though. The company is looking at other potential areas of growth such as partnering with the Mayo Clinic to develop screening tests for gastrointestinal cancers. The company is also working with the MD Anderson Cancer Center to jointly develop and commercialize blood-based screening and diagnostics tests for the early detection of lung cancer. If either of these products come to fruition, they will add to an already growing top line revenue.
There are however risks to the company's products. There are a number of patients over 50 who suffer from colorectal cancer. As that population of patients shrinks, that could over time have an impact on the company's revenue growth if they are unable to develop other screens to detect other forms of cancer.
Another risk in financing their operations. Generally, biotech stocks like Exact Sciences finance themselves with stock offerings leading to dilution of existing shares. The sale of additional stock, however, builds the cash portfolio of the company giving it much-needed wiggle room to develop new products and boost revenues.
A third risk is product obsolescence where another company can come up with a better product and take away market share. In Exact Sciences' case, however, I don't see any company getting the same level of penetration that they have in such a short period of time.
In short, keep an eye out for Exact Sciences continuing to fulfill its mission of helping patients and providers detect cancers early, leading to healthier lives. For more information about Exact Sciences', click here!
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