Exact Sciences Provides Underwhelming 2023 Outlook

No-moat Exact Science EXAS delivered strong fourth-quarter and full-year 2022 results. Top line growth came in higher than expected, allowing the company to reach profitability on an adjusted EBITDA basis in the quarter, and it expects to maintain positive EBITDA through 2023. However, revenue guidance came in a bit below our projections, which may cut into our $69 fair value estimate, at first glance. Shares appear to be trading near fair value, though, especially considering the very high uncertainty around future cash flows.

Revenue increased 18% year over year (25% excluding COVID-19-related sales) for 2022. Growth was driven primarily by the screening business, which grew 30% organically year over year, while precision oncology decreased 4% year over year. Improved electronic ordering, an enhanced digital patient experience, and further penetration of the available market all contributed to accelerated growth in the quarter. These tailwinds should continue to drive growth in the near term, and we still project low-double-digit annualized growth in our explicit 10-year forecast. In the quarter, the company surpassed 12 million cumulative people tested for cancer, including 10 million tested with Cologuard. Recent developments and adjusted colon screening recommendations have also opened a pathway for Exact to benefit from recurring revenue as the company now screens people in their mid- to late-40s and aims to rescreen these patients every three years until age 85. Rescreens made up 20% of revenue in 2023.

Although the company has discussed entering the liquid biopsy market, management had no update on its blood-based programs on this call. Cologuard 2.0 (coming to the market midyear) includes improved specificity, a better adenoma detection rate, and potentially a lower false positive rate, which we think could help fend off some liquid biopsy competition in the near term. Cologuard 2.0 should also be more cost-efficient, allowing us to assume increasing margins.