EXACT SCIENCES: PROFITABILITY DETECTED!

By Grant Bailey & The Sick Economist

In the pharmaceutical world, cancer has long been a deeply significant and challenging topic, profoundly affecting countless lives. The market for cancer treatments continues to grow, in part because as medical advancements help people live longer, the risk of developing cancer naturally increases (advancing age is one of the greatest risk factors for all kinds of cancer).  Unfortunately, almost everyone is touched by cancer, either personally or through loved ones. As people live longer and overcome other illnesses, their chances of facing cancer will rise, which makes research and treatment all the more important. A rapidly aging America guarantees almost inevitable revenue growth, while also presenting an opportunity for companies to create a tangible human impact behind the numbers. So, with that said, is there any company in particular you should be keeping an eye on? 

Exact Sciences Corp (EXAS)

Exact Sciences Corp specializes primarily in developing technology that diagnoses and prevents cancer. Is there a specific product that should impress you? Yes, that product is none other than Cologuard. You’ve probably seen it in commercials all over the country, but in case you haven’t, Cologuard provides a much less intrusive alternative to colonoscopies. What makes this so important? Well, anyone over the age of 45 is recommended to get colonoscopies. Unfortunately, less than 75% of Americans between the ages of 45 and 70 actually get them as of 2021. What primarily discourages people from getting colonoscopies is that colonoscopies are intrusive, uncomfortable, and often complex. 

Cologuard fixes this issue by being a complete alternative to the entire procedure. Colonoscopy does retain some clinical advantages over Cologuard, but considering over 25% of Americans between the ages of 45-70 don’t get colonoscopies, this could be a wide-open market for Cologuard to dominate, without even mentioning the other 75% that could also possibly prefer Cologuard. This means that something like 25,000,000 Americans currently receive no colorectal screening at all, without even discussing other countries that could also be target markets. What’s even more intriguing here is that people are expected to use Cologuard on a triannual basis, which, of course, results in recurring revenue. It’s always a great sign when a company’s best product is also creating an ongoing revenue stream such as this one.

Still not impressed? Don’t worry, there’s more. Exact Sciences is likely about to turn highly profitable very soon, which is typically a good indication that the stock will trend upwards along with the profit. At the tail end of 2024, EXAS lost well over $850 million. However, at the end of June of this year, Exact Sciences had reported that they had broken even for the quarter. To go from an $850 million loss in the fourth quarter of 2024 to breaking even in the second quarter of 2025 is quite something. In fact, the big loss in Q4 of 2024 was just a paper loss caused by an unusual asset writedown….in reality, the company has been slowly crawling towards profitability as revenue has grown and grown, and overhead costs have stayed the same.  The company enjoys a gross margin of about 70%, and double digit revenue growth has become the norm over the last few years. 

To build off the importance of that financial milestone, they actually hadn’t shown any profit at all since 2023. But is there any more important data we should take into account? Well, for starters, EXAS’s free cash flow went from -$49M in Q4 of 2024 to $46M in Q2 of this year, marking a $96M improvement. Additionally, adjusted EBITDA margin improved 130 basis points, and their overall revenue projections now represent over $3.1B in expected annual revenue. Of course, Cologuard is their biggest driver of revenue, and the usage of the product continues to grow. As of right now, well over 20 million Cologuard tests have been completed cumulatively. The product first came out in 2014, and they didn’t even reach 10 million cumulative tests until 2022. EXAS’s growth in its secondary revenue stream, Precision Oncology, has also grown steadily, as the revenue growth has expanded from $165M in Q2 of 2024 to $179M in Q2 of this year.

New Products

But Exact Sciences isn’t done. Additionally they are currently developing a blood-based screening method for colorectal cancer, which has a total addressable market (TAM) of over $15B as of 2023. This would be the next logical step forward after the Cologuard test; a simple blood test screen for colorectal cancer would be much easier than invasive colonoscopies, and even easier than the relatively non-invasive Cologuard. 

Additionally, Exact plans on diversifying their growing revenue by going far beyond colorectal cancer. Regarding their more specific testing products, their Oncodect MRD tests are particularly eye-opening here. These tests can detect cancer 2 years earlier than imaging, and they just hit the market in late April of this year.

This is a kind of test that is administered to a cancer survivor. The test lets survivors and physicians know early if the cancer could return. The long-term growth potential of this product is incredible; as mentioned earlier in this analysis, the longer cancer patients live, the more special testing and monitoring is required. As more and more people are surviving cancer, the potential for Minimal Residual Disease testing is huge. 

The global MRD testing market was roughly $1.67B in 2023, but it’s expected to grow to $6.67B in 2033, representing unbelievably large CAGR potential for the total addressable market. What’s even more promising here is that EXAS recognizes the potential of this TAM, and they plan to penetrate it. Exact Sciences will be looking to launch an even more advanced version of Oncodetect in 2026, which would track 5,000 patient-specific variants of genes.

As if this isn’t enough, Exact has recently launched Cancerguard, a general blood test, meant as a screen for a wide range of cancers. If this test takes off in the world of primary care, it could become a standard yearly test that every patient gets at their annual physical. If this test is accepted by the Primary Care community, the total addressable market would be mind boggling. 

Now might be an opportune time to get on board for investors looking for a company that balances growth with profitability. Exact is currently enjoying consistent double digit revenue growth, while achieving a level of profitability that makes the growth sustainable. Additionally, they have enough new products and services to make sure that double digit growth becomes the norm for a decade to come. As the total healthcare market is currently depressed, many investors seem to have forgotten Exact. It trades at just 3.5 times revenue, which is on the low side for a healthcare innovation company. It’s absolutely a steal next to the current AI frenzy, where unprofitable companies can be valued at 10 or 20 times revenue. If you are less interested in razzle dazzle, and more interested in a growth company that will be around in twenty years, it’s easy to detect value in Exact.