CFO: Exact in ‘Investment Mode,’ Seeks to Advance New Cancer Tests

Xconomy Wisconsin — 

Shares in Exact Sciences have more than quadrupled in 2017, and the stock’s impressive run has led some analysts to question whether it’s a smart buy at the current price. But Jeff Elliott, Exact’s chief financial officer, says he believes his company is poised for continued growth as it adds laboratory space and works to advance potential cancer diagnostics through its product pipeline.

Madison, WI-based Exact (NASDAQ: EXAS) develops tests for several types of cancer. Its flagship product is Cologuard, a stool-based DNA test for colorectal cancer.

The company’s stock price ticked up after Exact reported better than expected third-quarter earnings last month, and in recent weeks has been hovering around $60 a share. On this day a year ago, its stock was trading at $15.16 per share.

One reason for the strong performance of Exact’s stock in 2017 is that the company has beaten analysts’—and its own—quarterly projections of revenue and completed Cologuard tests.

Robert W. Baird & Co., where Elliott worked as a senior research analyst prior to joining Exact in 2016, recently downgraded the company’s stock from “outperform” to “neutral.” In a note explaining their decision to lower Exact’s rating, Baird analysts Catherine Ramsey Schulte and Emily Stent wrote that they “remain bullish on the business,” but they nevertheless “think expectations going into 2018 are high.”

Baird estimates that Exact will complete 874,797 tests of Cologuard next year, while the average estimate by Wall Street analysts is about 930,000 completed tests of Cologuard in 2018, according to the note. (As a comparison, Exact completed 244,000 of the tests last year, and is projecting it will complete at least 568,000 Cologuard tests in 2017.)

Exact still has yet to turn a profit in the 22 years the company has been in business. Baird analysts said earlier this year that they expect Exact to reach initial profitability in 2019. Elliott says that historically, “very few” companies in the diagnostics industry have made it to profitability. He says his company’s leadership is “confident in our ability to get to profitability,” but that Exact is also currently “in investment mode.” The company recently announced plans to increase its Cologuard test-processing capacity (currently 1 million per year) to 4.5 million tests per year by mid-2019. Exact said it plans to accomplish this by adding onto the lab where it processes Cologuard tests today, and building a new lab, which will also be in Madison.

Exact now has more than 1,200 employees, up from 768 at the end of 2016, according to JP Fielder, the company’s senior director of corporate communications. Earlier this month, Exact said it expects to create more than 250 jobs by 2022.

Exact’s performance as a business will continue to ride largely on sales of Cologuard, which earned FDA approval and Medicare coverage in 2014. The test was developed in conjunction with the Rochester, MN-based Mayo Clinic.

“Without the Mayo Clinic, there would be no Cologuard,” Elliott says, adding that the hospital and clinic network receives a “small royalty” on sales of Cologuard and any future products Exact successfully commercializes.

But Exact also has its sights set beyond colorectal cancer, Elliott says.

“Our plan is to take the foundation we’ve laid with Cologuard—the technology platform and the relationship we have with the Mayo Clinic—and bring other diagnostics to market. [There are] about 40 products in our pipeline that we’re considering.”

The next diagnostic Exact will seek to commercialize is a blood-based biomarker test for lung cancer screening, Elliott says. It would be designed to assess potentially cancerous nodules, or clumps of cells, found in the lungs, he says. The current diagnostic tests for distinguishing between benign lung nodules and lung cancer tend to be expensive and invasive, Exact CEO and chairman Kevin Conroy has said previously.

Elliott says the company has already completed an initial study of the lung cancer test, which involved about 400 patients. The test uses similar technology to Cologuard, and looks at DNA biomarkers identified by Exact and the Mayo Clinic ahead of time.

“This early data is very promising,” Elliott says. “Our plans now are to meet with the FDA in the coming quarters.” Provided that meeting goes well, Exact would then launch another study, which he says would take about two years. If all goes as planned, the test could reach the market as soon as 2021, Elliott says.