FMI, EXAS, and a Citron Short (bulwnkl)

Citron has a new short report out, this time for Exact Sciences (EXAS).…

I have yet to read the full thing, but at a glance, it sounds like this Cell Max Life company has announced something about genetic cancer testing. I think I saw something about 80-ish indications/detectable genes. If I recall correctly, Foundation Medicine is capable of 300-something detectable genes.

It seems that the Citron thesis is that EXAS will eventually trade down to $35/share from its present ~$50/share.

I’m not too familiar with Exact Sciences. I did do a quick word search on the Citron report and saw no instances of either “FMI” or the word “Foundation”, which makes me think that Foundation may be completely off of Citron’s radar in regards to this thesis.

Any thoughts? I’ll cross-post over on the NPI board too.

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Hey Volfan - you might have seen the commercial with the cartoon character on the toilet seat, doing some business. This is EXAS commercial for their colon cancer screening - it’s an at home testing that let’s you do it yourself versus going to the doctor and getting the test done. Their growth has been great but last quarter the results, although excellent, didn’t go over with the street that well.

Their ability to grow their TAM into other at home cancer testing is what is getting some folks even more excited. Is it over valued, no clue, all depends on how you view it.

No position in EXAS yet and curious what other Fools have to say

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Any thoughts?

Shush - Don’t give Andrew any ideas . . .

Any thoughts?

Shush - Don’t give Andrew any ideas . . .

Well… I’ve always thought that Amazon company is a fraud (ahem…
I mean I’d love to see its stock price temporarily decrease by 30%.)

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EXAS currently offers an in-home stool screening for colon cancer (it detects @90-95% of precancerous polyps and colon cancer. not as good as colonoscopy, but many people avoid colonoscopies. It’s also has fewer false negatives than some blood tests I’ve seen presented/published. It is real world utility is good. About 1 out of 3 US individuals don’t follow appropriate colon cancer guidelines & it’s been stagnant for years.) It works w MDs out of Mayo & has a blood screening for lung cancer in the works. Initially sensitivities is low 90% with good specifities. Everyone (well…patients, MDs, & insurance companies) want that high sens/high spec. Low 90s is not ideal, but better than doing CT scans on everyone over a certain age. So now revenue is @1/4 billion and market cap at @6. If it’s screening rates, which are said to be @2.5% of total, increase 10-15 fold that is @3 billion in annual sales. Obviously the main ? Is how much market share will they get & what is competition? Also what will the ex-US # do? Lung cancer screening is currently in only high risk individuals, so likely to be smaller market.

Concerning FMI, the look at solid cancers. They are at the opposite end of the cancer battle. They are at the forefront of labeling a cancer according to its genome (instead of body location, ie lung, breast, etc). In fact they get @1/2 their revenue from Biopharma research. That is companies interested in IO (immunooncology) work with them in trial designs to plan which genome changes will work best with a given new approach. It seems that these 2 companies will likely be at the 2 ends (screening w EXAS and genomics categorization of a cancer w FMI) for “awhile”. Obviously the more data gained each could move into the others arena. FMI is partnered with lots of Biopharma (risk spread), main one is Roche. It seems Roche will be an avenue to ex-US sales.

There is lots of competition in liquid biopsies (GRAIL - lead MD is FMI ex, supported by big players: celgene, illumina. CancerSEEK out of Hopkins, others in exUS). Also NantHealth, Nantbio & Nantquest. Thought I’d take a blood test every so often will allow cancers to be caught early on. This should lead to more cures.

This space is changing fast. My opinion is stay put if in EXAS (I think you need to see more studies to see if it can expand to other areas and to see if it continue to expand US colon screening). It’s likely to increase colon cancer screening sales, maybe more 15 times & todays level will be low. From risk/reward standpoint, EXAS TAM is large but it’s valuation is not ‘cheap’ and there is a lot of competition.

Long EXAS (started a $3/share)
Missed FMI
Was long JUNO and KITE
Long NK, ZIOP, BLCM, CARA, ADAP, & BLUE(obviously these are not typical Saul stocks; but I follow bc I like medicine)
Considering NKTR, NH

Most of all excited that cancer paradigm is changing in a major way. Lots of learning (cash burn) still to go, but significant progress is being achieved.


Thanks for that rundown, jandg.

From reading the Citron report, their thesis is that this new colorectal screening ability presented by CellMax Life will very much disrupt the EXAS screening, due to being cheaper, more effective in some manners, and not requiring you to send in a fecal sample collected at home, but rather simply screening a blood sample.

Nice work being long Juno and Kite. That paid off handsomely, and being in EXAS from $3 to $50 is even better probably.

Cellmax study has lower sensitivity (87%), relatively small cohort. Also just an oral presentation, so I’d classify as a potential competitor. Very early. The other potential blood test competitors (cancerSeek at Hopkins, GRAIL via Illumina, FMI ex, I’m sure there are others I don’t know of), I think at least are more serious competitors 2nd funding, likely IP, etc.

Citron seems to cause short term losses (weeks to 6 months). So I expect volatility when they come out. Usually worth quick read to see their viewpoint.

I’m sticking w (not adding too bc feel reward/risk is not as high for new capital) Exas for now b/c

  1. Still see a likelihood of market cap increasing if cologuard increases.
  2. Mayo connection aligns with decent chance of 1st mover data
  3. Lung CA screening potential
  4. Their data sets are often are larger than typical (I will say it again, this space is changing rapidly, so it should get less costly to run better data sets. And with the success of IO more MDs/patients would be willing to do these test). Unfortunately due to the rapidity of information and every institution or company trying to recruit patients, some of the IO trials are being slow to fill. Note: I understand that DNA screening is not the same as IO. The point is that a lot of money is moving to cancer over the past 2-3 years (at least more than the 10 years or so I’ve dabbled in stocks). If you get to IP on what to test for in the blood, stool, saliva, etc, that may help in the IP of the natural course. And then lead to better cures.
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Good info on EXAS product, market, and competition, jandq, thanks!

One thing nobody in this recent thread has talked about regarding EXAS is the incredible revenue growth rate they’re showing. Everyone here talks about SHOP’s revenue growth rate and how there is no other company that has ever had those rates. Well EXAS’s growth rates have been higher than SHOP’s at the same point in their business. I had posted these after their previous earnings report, here’s the latest numbers updated with their estimated results for this quarter.

	Revs (Millions)	
	Q1	Q2	Q3	Q4	   Total	Annual
                                           Revs         YOY Growth

2015	4.30	8.10	12.60	14.40	   39.40	2088.9%
2016	14.80	21.20	28.10	35.20	   99.30	152.0%
2017	48.40	57.60	72.60	87.40*	   266.00	167.9%

*4Q17 was a pre-release number from the company for the not yet released official earnings.

They have been more than doubling revenue every year (just like SHOP, only about a year behind). Next year analysts have them at $416M, which would be a 56% increase over 2017, but I think they will blow that number away and be over $500M based on recent trends of beating/increasing guidance with each quarter.

Here are more growth rates (including sequential QoQ).

	Revs (Millions)

                QoQ Seq   YOY    TTM    TTM YOY
        Rev     Growth  Growth   Rev    Growth

1Q15	4.30	186.7%	        5.80
2Q15	8.10	88.4%	        13.90
3Q15	12.60	55.6%	        26.50
4Q15	14.40	14.3%	        39.40 
1Q16	14.80	2.8%	244.2%	49.90	760.3%
2Q16	21.20	43.2%	161.7%	63.00	353.2%
3Q16	28.10	32.5%	123.0%	78.50	196.2%
4Q16	35.20	25.3%	144.4%	99.30	152.0%
1Q17	48.40	37.5%	227.0%	132.90	166.3%
2Q17	57.60	19.0%	171.7%	169.30	168.7%
3Q17	72.60	26.0%	158.4%	213.80	172.4%
4Q17	87.40*	20.4%	148.3%	266.00	167.9%

To say they’re knocking it out of the park is an understatement, most companies would be happy to have their quarterly sequential growth rates as their annual growth rates. No, I don’t think the rates can stay this high, but they have a huge market they can gain a much larger share of. Yes, they’re currently a one trick pony (working to change that), and they have plenty of risks, along with not being profitable yet, but they are getting closer with each quarter, and based on current trends, I’m guessing they might hit that in about 6-8 quarters. There’s also the real possibility they get acquired as seems to happen in this space for a fast growing company like this.

Here is their non-gaap eps numbers over the same period.


	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)			(0.82)

Here’s where SHOP definitely has a leg up on EXAS, in that SHOP was very close to profitability before recently showing their first profit. But as EXAS revenue has been ramping up, they are quickly moving toward profitability.

I started my EXAS position (not a large one) only about 4 months ago, so do not have a huge gain like other holders that have been in longer, but I think even at their current, rich valuation, they have room to run with the incredible demand for, and growth of, their Cologuard product.



I have not had a chance to look at the Citron report, but your writeup is well done. The only thing I would disagree with you about is missing out on FMI. Although it’s not the opportunity it was was before the Medicare/Medicaid decision, we have not heard from Roche yet. My guess is that they will buy the last 40% of FMI at significant premium.




agree with significant potential for higher market cap of FMI. it’s P/S = 10 based on 2017 sales. But Q4 had big up tick, so it quickly could look reasonable(it’s very challenging to value biotech). it has 2 big tailwinds (more sales in R&D from other biotechs & increase utilization of its genomic evaluation of cancers). That is even if Roche doesn’t buy them out. Remember Genetech Roche merger. Roche did a lowball offer and took about 8-10 months for it to work out. Roche would love to utilized FMI and its EMR connection (iron gate??) and FMI will utilize Roche for ex-US sales.

The reason I’m hesitant to add here to FMI is mainly portfolio allocations. I usually put small to medium size amounts into 5-10 biotech companies that have the following:

  1. a relatively easy path to 10-50x the current market cap soon.
    relatively easy =
    A. a large market for the product, or easy to see a new market develop - that is a need is there and current medical tools are insufficient,

B. has good science, and

C. some perceived competitive advantage)

soon = 2-4 years. Soon is often the hardest part. According to multiple sources (not sure about the accuracy, but gives some context) about 15% of phase 2 trials work out & about 50% of phase 3 trials work out. Each takes about 1-2 years (this is a big generalization). So I like to go in after a good phase 2 results, when the market drops - with all the automatic trading, even someone like me - who can’t check market very frequenlty, can get in with lowish valuation. but biotech is tricky ZIOP has a decent medication for brain cancer vs the horrible ‘standard of care’ options, & i thought they would be FDA approved by now. yes its small #, but the people who have responded are essentially cured, not just alive several months more.

  1. multiple binary events (I don’t always hold to this one if the above is a no brainer…think EXAS in 2007ish. No one was doing any non-invasive studies for colon cancer save expensive imaging. It was trying to solve a good problem, with a big market @1/3 of US adults. If that worked then EU, Asia should follow. If EXAS was in early stages of development of Cologuard now, the risk of a competitor developing some new technology and quickly over taking them is higher. with that said, if option A fails…think Juno mid 2017…they had other options. Also in IO the biggest markets are essentially untouched. that is solid cancers.

  2. very passionate CMO, CEO (if they have one failure, I want them to dig in & 2-3 years later they have a good product). This with #2 gives me some floor for my capital. A lot of cash is burnt up in biotech/good ideas/worked good in 20 people…

  3. an area i find interesting (i’m in the medical field, so that lots of biotech,) but the subject matter needs to be interesting so i can justify the 2-3 hours every 4-6 weeks of reading. That’s one reason I really like this board because it gives great ideas about areas i know little about & have no time to find. It helps a lot with the scouting. Thanks everyone.

So not sure FMI will be a 15 billion market cap company soon. Obviously it is leading one spectrum of genomic testin, that is the treatment selection cancer. They will likely try to get in an early stage (screening, following up). I would say this is a safer biotech investment, high chance of beating market over the next 3-5 years.

Also I already have a fair share of current portfolio in biotech already.


“I usually put small to medium size amounts into 5-10 biotech companies that have the following:”

jandq - would you mind sharing the biotech companies that you have now that meet your criteria?


please see my response to bulwnkl in why i am not adding to EXAS (same as FMI)

concerning your observations, EXAS is fast growing. The company says it is only reaching 2% of its TAM (so 1/4 billion x 50 = 12.5 billion if all reached). Then there is some optionality for other revenue if lung ca screening pans out (looks promising from early results, but still early). So could EXAS be bought out with all the biotech M&A and repatriation? So is SHOP TAM 50x its current value?? All those are good points. Maybe EXAS is maybe a stand alone company that has colon, lung, breast, ovarian, pancreatic cancer markers and everyone over 18 will get tested 1/year in the next 5 years??

the word of caution is that the competition is fierce is this new age of medicine (new = inexpensive way to precisely evaluate large numbers of variables in the human body, alter these variables in inexpensive genetically modified animals & then test (this last step is what is still taking some time — and it should).

Immunooncology is an idea that has been around for 40 years or so. Vaccines were tried for 20 years & newer ones are still being tried. But now there is lots of open IP and lots of ways to experiment and its less expensive. So with diagnostics companies, such as, EXAS and FMI & its competitors, it is very safe to run one of these trials. Safe = easier to get n’s. As such a competitor could catch them and maybe make them obsolete (what if a company creates an at home stool test for colon ca with 97% sensitivity and cost about 65% of Cologuard. How quickly do you think its sales would go down?) So compared to a medical device/medication company, the IP changes in diagnostics may happen fast.

I don’t check every 1-2 weeks on EXAS competitors (probably every 2-4 months; probably should do it more but time is tight), so i don’t think fast will be in a week. Just monitor closely.

so back to the SHOP comparison, I am sure SHOP has fierce competitors. But odds are we would see them if they are making head way. Right? I have expertise in medicine (not cancer or diagnostics, but i feel very comfortable knowing market potential & evaluating scientific studies). Yet it is hard to always get a good look at the data. I found Juno, Blue, KITE, EXAS early on from my personal research (also ADAP, ZIOP, BLCM & NK - those are just treading water), but not FMI. will i find out if company A did a 3000 patient study for 1 year with great cancer screening results compared to gold standards (mammography/bx for breast, etc.)? possibly, but having so several private companies with good capital (GRAIL, cancerSEEK) in this space, with no mandate to publish is official medical journals is a risk that to me is different that 10 years ago.

best of luck


Thanks for your thoughts, jandq, appreciate it!

I didn’t mean to be saying that I feel EXAS is a better overall investment than SHOP at this time, apologies if my email made it sound like that. The reason I brought up SHOP was strictly comparing the two company’s revenue growth rates as SHOP has been the undisputed revenue growth leader around these parts for 1-2 years now. Taking all other factors into account, I believe SHOP is the better investment at this time, and it shows in my portfolio as my SHOP holding is about 4X the size of my EXAS investment.