Takeaway: We are adding EXAS as an Active Short to the Hedgeye Health Care Position Monitor.

Call Invite | EXAS | Best Idea Short | Monday, March 9, 2020 @ 2 PM ET | There Will Be Blood - exas invite

EXAS | Best Idea Short | There Will Be Blood

Please join us on Monday, March 9, 2020 @ 2 PM ET - Add to Outlook Calendar

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Healthcare & Health Policy Subscribers: CLICK HERE for event details (includes video link, materials link and dial-in).

There will be blood

Notwithstanding a -25% decline in the shares since February 20, we think EXAS is a good short here.  We've found several problems with the consensus forecast for Exact Sciences and the consensus outlook for Cologuard.  As of 4Q19, Cologuard quarterly test volume represents a 5.4% patient share of the colon cancer screening market, and on its surface, appears to be low and offers substantial upside as the company drives toward their goal of 40% patient share.  However, our data shows peak patient share is more likely 20%, it will take longer to get there, and blood based testing lurks as an existential long term threat. Weakening economic growth (Hedgeye Quad 4) and COVID-19 are intermediate term headwinds that will make matters worse.  We see up to 30% downside from here.

TOPICS FOR THE CALL

Macro Quad 4 | The economic impact of Quad4 and slowing growth is likely to be negative for patient visits that result in colon cancer screening. COVID-19 likely exacerbates an already weakening set up as non urgent care is avoided, or even prohibited.  

US Medical Economy Slowdown | As we detailed in our 1Q20 Health Care Themes deck, data for the US Medical Economy has been pointing toward a 2H20 deceleration in utilization since 4Q19, representing an unfavorable back drop for Exact Sciences and many other companies.

Cologuard Opportunity Smaller | There is a significant difference between compliance with colon cancer screening guidelines and the annual testing opportunity for Cologuard.  We'll cover the trend in compliance rates by age, the impact of insurance status and policy, and the rate limiting effect the 10- year interval for non adenoma patients has on annual Cologuard test volumes.  Consensus seems to assume a very large number of currently non-compliant patients are tested with Cologuard.  

Colon Cancer Screening Tracker | Our Tracker measures the colon cancer screening patient population, or claims with a Z1211 diagnosis code. We analyze the distribution of patient volume across colonoscopy, FIT/FOBT, and Cologuard. We'll discuss the data source and methods and the results which show share of Cologuard has already reached 15% of colon cancer screening performed, where the share has come from, and what peak volume looks like.

Genomic Health Tracker | We will cover our Genomic Health Tracker which details test volume by CPT code and diagnosis code.  We don't believe the consensus view on EXAS incorporates a bullish outlook for the Oncotype test family although in this case, visibility into trends will help mitigate risk.

Blood- Based Testing | There is a long list of competitors working toward blood- based testing for colon cancer.  There are many reasonable explanations for why a blood based test won't be successful at detecting pre-cancerous polyps, but we won't argue with the large number of companies devoting time and capital to the effort.  

Thomas Tobin
Managing Director


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Emily Evans
Managing Director – Health Policy



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