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Exact Sciences Q2 Revenues Up 78 Percent

NEW YORK (GenomeWeb) – Exact Sciences reported after the close of the market on Wednesday that its second quarter revenues rose 78 percent year over year, thanks to a 59 percent increase in testing volumes for its Cologuard noninvasive colon cancer screening test.

For the three months ended June 30, the molecular diagnostics company reported revenues of $102.9 million, up from $57.6 million in Q2 2017. But the results missed analysts' average estimate of $104.7 million.

The firm completed about 215,000 Cologuard tests during the quarter and said that more than 10,000 healthcare providers ordered their first Cologuard during Q2 2018. Nearly 121,000 clinicians have ordered Cologuard since the test was launched. The average recognized revenue per test during Q2 was $479, Exact added. The company had guided for test volumes of 220,000 to 230,000 in Q2 after reporting its first quarter earnings.

"We are excited about the continued growth of our physician ordering base, as well as their increasing Cologuard utilization, which led to a record quarter for revenue, volume, and gross profit," Exact Chairman and CEO Kevin Conroy said in a statement. "We are optimistic about the company's future, including the opportunity to expand Cologuard's label to reach even more people in the 45 to 49 age group, given the American Cancer Society's recent guideline update."

On a conference call with analysts following the release of the earnings, Exact CFO Jeff Elliott noted that one reason the company didn't hit its expected guidance for test volumes in Q2 was that it didn't see the full increase in orders it expected during June. He also said that fewer patients than expected returned their Cologuard kits to the company later in the quarter. However, Elliott also noted that the compliance rate for Cologuard is at 68 percent, which is significantly higher than other testing modalities for colon cancer, such as colonoscopy.

Conroy confirmed that the test volumes were tracking in the middle to the upper end of the firm's expected range for most of the quarter, but that the unexpected drop in patients returning kits did have an impact on final test volumes for the quarter. He added that although Exact estimates that about 90 percent of patients currently have access to Cologuard with no out-of-pocket costs, some patients may be unwilling to pay potential out-of-pocket cost for the test if it wasn't covered by their insurance company. This leads to a small number of patients not returning their kits.

However, he also noted that Exact signed a coverage deal for Cologuard with Anthem Blue Cross Blue Shield in Indiana, Ohio, Kentucky, Missouri, and Wisconsin during Q2, and that the company is continuing to sign coverage deals with other insurers. As this continues, he added, the problem of patients having to pay for the test out of pocket will be ameliorated, which could also have a positive impact on the rate of kit returns. Conroy also said the company is concentrating its sales reps on prescribing physicians with the highest potential for reorders.

Further, Conroy said, moving the screening age for colon cancer to 45 means an additional 21 million people in the US need to be screened. The company is working to expand Cologuard's label to include the 45 to 49 age group. Responses to a survey of 500 people in this age group that Exact conducted shows they're more comfortable with taking an at-home stool test, he added. 

He also noted that the company is still making investments in TV ads. It has rolled out a new 60-second ad, and plans to unveil new ads in the fall to reach a greater number of consumers through digital and social media. "The investments we're making in sales and marketing are aimed toward achieving our 40 percent long-term market share goal," Conroy said.

The firm's net loss for Q2 widened to $36.4 million, or $.30 per share, from $30.8 million, or $.27 per share, a year earlier. Analysts had expected a loss per share of $.33 for Q2.

Exact's Q2 R&D costs rose 52 percent to $14.7 million from $9.7 million in the year-ago period, and its SG&A expenses rose 53 percent to $94.0 million from $61.3 million in Q2 2017. Elliott noted on the call that the higher R&D costs are due to expenses for new test development, and that the higher SG&A expenses are due to hiring of new sales reps.

The company ended the quarter with $225.7 million in cash and cash equivalents and $996.5 million in marketable securities.

Exact said it continues to anticipate revenues of $420 million to $430 million for full-year 2018. Analysts are expecting 2018 revenues of $435.8 million. On the call, Elliott reaffirmed the company's previous guidance for 2018 Cologuard test volumes of 900,000 to 920,000, but noted that it expects to finish near the low end of that range.

Conroy also said that the company is making progress on its test for liver cancer, which Exact sees as an unmet market opportunity worth as much as a $1.5 billion. The firm has conducted two case-control studies of the test, each showing 95 percent sensitivity. One study showed the test had 97 percent specificity and the other showed 93 percent specificity. It is a substantial improvement over current options, Conroy said, adding that Exact is currently enrolling patients in a third, larger study to further validate and finalize the test's design. 

In notes to investors on Thursday, analysts said that while Exact did miss its test volume projections for the quarter, its overall business strategy is solid, and the sell-off in its stock following its earnings release could serve as an attractive entry point for people looking to invest in the shares.

"Based on our conversation with management post the call, we come away thinking that its surprise Q2 miss on volumes marks a temporary dislocation. We believe the Q3 guide is readily beatable, and we think there are enough drivers to enable the company to exceed the low end of its 2018 volume guidance,"Canaccord Genuity's Mark Massaro wrote. He called the after-hours dip in the company's stock "overblown," and added that he believes Exact has the management and sales force in place to correct "what appears to be a transitory issue."

William Blair's Brian Weinstein concurred, noting that while the miss on test volumes is "frustrating," Exact's growth is not stalled. "The opportunity remains vast and remains barely penetrated, market access is at a record level... and reorder volume from patients who took the test three years ago has just begun to trickle in," he said.

Overall, Weinstein added, nothing he saw in Exact's Q2 earnings has dissuaded him from the thesis that the company has long-term growth potential. "We would use what seems to be setting up to be a meaningful valuation correction to move into what we still see as an important long-term growth stock," he wrote.

Exact's shares fell 15 percent to $50.26 in Thursday morning trading on the Nasdaq after sinking more than 21 percent in after-hours trading Wednesday.

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