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Cowen Initiates Coverage of Exact Sciences at Outperform

NEW YORK (GenomeWeb) – Cowen and Company has initiated coverage of Exact Sciences at a rating of Outperform and a price target of $30.

As Cowen analyst Doug Schenkel noted in a letter to investors today, colon cancer is the number two cause of cancer death in the US, but compliance with screening measures such as colonoscopy is low. Exact Sciences' Cologuard screening test could fill the gap, he added — it's FDA approved, has been included in several guidelines, and is being reimbursed by the Centers for Medicare & Medicaid Services at more than $500 per test.

According to Exact, it also has a higher rate of compliance than colonoscopy — in his fourth quarter earnings presentation in February, Exact Chairman and CEO Kevin Conroy noted that Cologuard had a 67 percent compliance rate as of the end of 2016 compared to a compliance rate of about 40 percent for colonoscopy.

"No matter how you cut it, the financial opportunity is large. If you simply take the number of individuals eligible for screening, assume that all are screened every three years, and apply a $500 [average selling price] per test, the US revenue opportunity approaches $15 billion annually," Schenkel said. "This does not include the potential for expansion into a younger population, nor does it include any assumption for [international] expansion. Exact believes it is targeting about 30 percent of the US market opportunity as defined by current guidelines, adjusted for compliance rates and continued utilization of existing tests — this still translates into a $4 billion to $5 billion annual revenue opportunity."

Schenkel also noted that the company has signed several new contracts with insurers over the past few quarters, increasing its commercial lives covered from about 60 million to roughly 171 million in one year. Further, the number of ordering physicians grew from 32,000 in Q1 to almost 60,000 in Q4.

Exact has so far penetrated only 3 percent of its target market, Schenkel added. "We believe building test awareness, continued commercial prowess, and expanding reimbursement will drive increased medical practice penetration and increased utilization per practice over the coming years," he added.

Exact's shares climbed 5 percent to $22.08 in Monday morning trading on the Nasdaq.