EXAS teams with Pfizer

[foodles]

OK, after that weekend interruption, lets get back to some high growth stocks! This one is not like the current portfolio as it is not SaaS and not really recurring revenue, but it has been high growth, and for someone who maybe invests in more than 10-15 stocks, or wants some diversity, maybe this has a place.

I’ve been posting updates on Exact Sciences about once a quarter (or when there is news worthy to discuss). I didn’t think many people were interested in the stock, but when I looked back at my last post there were 47 recs, so I guess some people found it worthwhile, so I will continue.

Here is a link to the last post I made back in June:

http://discussion.fool.com/exas-two-new-catalysts-33099292.aspx

For some recent history on EXAS, follow that link and it gives the numbers from 18Q1 and 2 catalysts that had been recently announced (the American Cancer Society recommending screening for colorectal cancer begin at age 45 instead of 50, thus increasing their TAM by 20%, and EXAS announcing they have developed a blood test that can detect liver cancer). Details of those announcements are in the above post, along with a link to a previous post that gives more background on the company, peruse them if you’re interested.

So what has happened since June? Well, they released their 18Q2 results which still show tremendous growth (although slowing), which brought the stock price down. And they announced a business partnership, which launched the stock back up near all time highs.

So first the Q2 results:

http://investor.exactsciences.com/investor-relations/press-r…

Highlights from the release:

- Revenue was $102.9 million, an increase of 78 percent, and test volume was 215,000, an increase of 59 percent
- Average recognized revenue per test was $479, an improvement of 12 percent
- Average cost per test was $125, an improvement of 6 percent
- Gross margin was 74 percent, an increase of 510 basis points
- Operating expenses were $108.7 million, an increase of 53 percent
- Net loss was $36.4 million or $0.30 per share, compared to $30.8 million or $0.27 per share
- Non-cash interest expense related to convertible debt was $6.7 million, or $0.05 per share
- Cash utilization was $45.3 million, compared to $43.9 million
- Cash, cash equivalents and marketable securities were $1.2 billion at the end of the quarter
- More than 10,000 healthcare providers ordered their first Cologuard test during the second quarter, and nearly 121,000 have ordered since the test was launched

Revs (Millions)	
					
	Q1	Q2	Q3	Q4		Total Revs	Growth

2015	$4	$8	$13	$14		$39	        2088.9%
2016	$15	$21	$28	$35		$99	         152.0%
2017	$48	$58	$73	$87		$266	         167.9%
2018	$90	$103	

So revs for the quarter went up to $103M, a QoQ sequential growth of 14%, and YoY growth of 79%. Last Q was up 87% YoY and the previous 2 years, all quarterly YoY growth was triple digits (ranging from 150-250%). The company is guiding total revs for 2018 to $420-$430M, which at the midpoint would be a 60% increase from 2017.

Here is the last 2 and a half years of revenues and growth rates:

Revs    ($M)   Seq Rev Growth   YOY Rev Growth   TTM Rev (Millions)   TTM YOY Rev Growth

1Q16	$15	    2.8%	     244.2%	       $50	           760.3%
2Q16	$21	   43.2%	     161.7%	       $63	           353.2%
3Q16	$28	   32.5%	     123.0%	       $79	           196.2%
4Q16	$35	   25.3%	     144.4%	       $99	           152.0%
1Q17	$48	   37.5%	     227.0%	      $133	           166.3%
2Q17	$58	   19.0%	     171.7%	      $169	           168.7%
3Q17	$73	   26.0%	     158.4%	      $214	           172.4%
4Q17	$87	   20.4%	     148.3%	      $266	           167.9%
1Q18	$90	    3.0%	      87.0%	      $308	           131.5%
2Q18    $103       14.4%              78.8%           $353                 108.5%

Still pretty amazing revenue growth, although the most exciting part is the announcement that came 3 weeks after the earnings release:

http://investor.exactsciences.com/investor-relations/press-r…

Exact Sciences And Pfizer Enter Into U.S. Promotion Agreement For Cologuard®

…Pfizer will join Exact Sciences’ sales representatives in reaching both physicians and health systems and will also actively participate in extending and deepening the Cologuard marketing campaign…Pfizer brings a large and experienced sales force and relationships integrating with the leading health systems…Under the terms of the agreement, Pfizer will co-promote Cologuard with Exact Sciences beginning in the fourth quarter of 2018. Exact Sciences will maintain responsibility for all aspects of manufacturing and laboratory operations of Cologuard. Pfizer will share gross profits and marketing expenses equally above an agreed upon baseline.

So the co-promotion won’t begin until 18Q4, so we won’t know how it’s doing until 2019, but I think this partnership has the potential to re-accelerate rev growth for EXAS in 2019.

The stock price has been a roller coaster with each announcement, but I’m enjoying the ride. I have positions from the $30s to the low $60s with the current price around $77. I would not recommend the stock to anyone without a high tolerance to risk and volatility.

Would love to hear others’ thoughts…

[XMFRob]

Very interesting, but it doesn’t seem they’re making much progress on the EPS front. (Yes, I have a boatload of companies that are growing fast and not making EPS). Couple that with the trailing off of the growth rate and I’m not feeling compelled to buy. I like the rise in margin though. Maybe the Pfizer thing will help, but I note there will be a sharing of the gross profits and I’m not sure how great the net benefit will be. Perhaps the real carrot is a possible future buyout?

Probably a poor decision on my part, but I’d like to continue just watching for now.

Sorry if my tepid response disappoints.

Rob
Rule Breaker / Market Pass Home Fool & STMP/MTH Maintenance Coverage Fool
He is no fool who gives what he cannot keep to gain what he cannot lose.

[foodles]

Thanks for the reply, Rob.

doesn’t seem they’re making much progress on the EPS front…

Agree! They were making great progress until the last 2 quarters, where they went backwards some on the EPS front. Here are those numbers for the last few years for those that are interested.

Non-GAAP EPS	
				
	  Q1	  Q2	  Q3	  Q4		Total EPS

2015	(0.40)	(0.44)	(0.45)	(0.41)		(1.70)
2016	(0.49)	(0.46)	(0.36)	(0.34)		(1.65)
2017	(0.32)	(0.27)	(0.23)	(0.18)		(1.00)
2018	(0.33)	(0.30)				(0.63)

From 16Q1 until 18Q1 they improved EPS at a great pace, then Q1 and Q2 of this year have stayed pretty flat. I do like how every quarter, the revenue/test increases and the cost/test comes down, as long as they can keep that up, they should be headed in the right direction assuming they can keep other costs in check.

Maybe the Pfizer thing will help, but I note there will be a sharing of the gross profits and I’m not sure how great the net benefit will be…

…but also a sharing of the costs. The real benefit IMO would be to grab more market share which they currently stand at just 1%, as I remember, of the 80M TAM in the US.

Perhaps the real carrot is a possible future buyout?

Agree, that this is a real possibility, although not my main thesis, I would take it if it occurs.

Probably a poor decision on my part, but I’d like to continue just watching for now.

Sorry if my tepid response disappoints.

No worries, appreciate others’ points of view. My reasons for continuing to hold and adding at opportune times is the many potential catalysts that could drive the price higher:

• Continued high organic rev growth.
• Insurers and the medical community going with the American Cancer Society’s recommendation to start colorectal screening 5 years earlier, thus increasing the TAM.
• Their liver cancer blood test getting drug approval.
• The Pfizer deal providing a boost to the growth rates.
• Potential buyout by large pharmaceutical company.

And it’s currently just a 3-4% position in my portfolio, I won’t invest more in it than about a 5% position.