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Exact Sciences Positions Itself as Cancer Testing Provider of Future as COVID Crisis Continues

NEW YORK – As the COVID-19 crisis shows no signs of abating, some US-based diagnostics companies are reporting second quarter earnings that show the pandemic's negative impact on their core businesses being offset to varying degrees by revenues from COVID diagnostics.

Exact Sciences reported after the close of the market on Thursday that its Q2 revenues rose 35 percent year over year to $268.9 million, despite a 34 percent decrease in revenues for its screening products, which include the firm's colorectal cancer screening test Cologuard. The company also reported COVID-19 testing revenues of $34.6 million for the quarter.

Despite the decline in revenues for screening products, however, Exact noted that Cologuard orders are recovering at a faster rate than colonoscopies, and that the ordering rate for the test is almost back at pre-COVID levels. During its first quarter earnings report, the company had said that revenues for Cologuard decreased 36 percent from March 15 through March 31, and fell 63 percent year-over-year during the first 20 days of April. While volumes were down 34 percent overall in Q2, Exact said, they were up in June.

Exact is taking the recovery in Cologuard revenues as a jumping off point for how it plans to navigate its way through the COVID-19 pandemic. In Q1, the company said it was sinking more resources into telehealth solutions, as it was betting that the pandemic would permanently change how patients interacted with their healthcare providers.

Now, the firm is taking that strategy even further and positioning its cancer tests as the diagnostics of the future: convenient, fast, made to work in a world where patients and doctors can't always see each other in person, and where old testing modalities like colonoscopies and mammograms aren't always possible.

"The COVID-19 crisis has highlighted the need for more convenient and accurate cancer testing options. Experts estimate that over the next decade there will be an additional 10,000 deaths from colorectal and breast cancer due to screenings that have been canceled or delayed just to the end of June," Exact Chairman and CEO Kevin Conroy said during a conference call with analysts following the release of the Q2 earnings. "Patients and physicians are also looking for smarter, faster answers to guide their cancer treatment decisions elevating the importance of our precision oncology tests. Exact Sciences is positioned to create value at every step along the way from cancer screening to late-stage therapy selection."

He noted that the company believes the pandemic will accelerate its goal of a 40 percent market share for Cologuard by one to two years. There has been increased Cologuard use among customers who were previously infrequent users, and use of the test is increasing at a faster pace than screening colonoscopy, which is down 30 percent to 40 percent year over year, Conroy added.

"COVID has caused a significant backlog of screening colonoscopies with more than 1 million missed during the second quarter alone. Gastroenterologists have limited capacity today and we expect they will continue prioritizing diagnostic colonoscopies and more urgent procedures even as the pandemic abates," he said. "Our team is taking action to help address this building colorectal cancer screening backlog. Key initiatives include virtual sales calls, easier ordering processes, and promotion of telehealth which allows people to request Cologuard from home."

The company is also working on enhanced versions of its existing cancer tests as well as new tests that fit this paradigm of convenience and ease-of-use. For example, the company acquired the Paradigm PCDX test when it bought Paradigm in Q4 2019. The genomic alteration panel test helps guide late-stage cancer patients to appropriate therapies, and currently works with FFPE samples.

Conroy said the company plans to launch an enhanced version of the tissue-based test later this year, and will introduce a blood-based version in 2021.

The company is also continuing work on its pipeline of new tests for colorectal, liver, pancreatic, esophageal, and prostate cancer, supported by a long-standing R&D collaboration with the Mayo clinic. The tests work with various sample types, including stool, tissue, and blood, and are indicated for every need a cancer patient would have, from screening to recurrence monitoring.

"Our pipeline team moved several initiatives forward during the second quarter. We made progress toward the launch of our liver cancer test for the 3 million Americans at high risk of developing the disease," Conroy said. "We presented another study at ASCO confirming the superior performance of our liver test when compared to the current guideline recommended protein blood test. We are on track to launch our liver cancer test through our gastroenterology sales team next year."

Exact is also re-initiating its BLUE-C trial to support US Food and Drug Administration approval of an enhanced version of Cologuard — Cologuard 2.0 — and a blood-based colorectal cancer screening test. The primary goal of Cologuard 2.0 is to increase specificity while maintaining sensitivity. The company said it was forced to temporarily suspend the BLUE-C trial last quarter when the COVID pandemic required the institution of stay-at-home orders in several states.

According to Exact CFO Jeff Elliott, there's also an opportunity for the company to penetrate international markets more heavily than it has done so far.

"International COVID trends were really a couple of months ahead of the US trends, and you're seeing that play out in a similar manner in our business," he said on the conference call. "The US precision oncology business stayed strong really through the end of April and started to decline in May. The international business performed better during the second quarter, I think in large part because of the way COVID has played out. Also, the international market is relatively underpenetrated and there's a large growth opportunity over time there. We have some positive trends there and reimbursement increasing adoption so the international business is a nice driver over time."

Elliott also noted that the 45-to-49 age group remains an exciting opportunity for Cologuard sales. There are almost 20 million Americans who are in that target market, he said, so those patients add significantly to the addressable target market for the test.

"We have seen that tick up as a percent of total Cologuard orders, and that's no surprise considering that Cologuard fits very well into the busy 45-to-49-year-old lifestyle, and the clinical evidence there is very strong," he added. "Over the past 20 years, we've seen about a 50 percent increase in the incidence and mortality rate in that age group. So, we think clinically there's a strong reason to adopt Cologuard in that age group. I think the next big leg of growth we expect is through greater reimbursement that likely hinges on guideline inclusion. The team continues to work on driving the reimbursement higher given the strong value proposition for Cologuard in that age group."

Overall, analysts seemed to agree that the at-home-use nature of Cologuard and the way Exact is positioning itself as the provider of cancer diagnostics of the future give the company leverage to overcome the negative impact of the pandemic in the long term.

"We view quality of management as the best predictor of success for a company over the medium to long term, and we believe EXAS is making the best of the hand it's been dealt during the pandemic," Canaccord Genuity analyst Max Masucci wrote in his note on Friday to investors. "While COVID-19 disruption will persist in Q3, we think EXAS is taking the necessary short-term actions to accelerate growth on the back side of the pandemic."

Cowen analyst Doug Schenkel concurred, noting that the company's execution through this challenging time has been solid.

"In many ways, this is a very simple call," Schenkel wrote. The company "executes pristinely; Cologuard is still hugely under-penetrated, has a huge [total addressable market] that approximates $15-20 billion, and is gaining momentum as an at-home test."