The “trust crack” of the first brother of early cancer screening

November 12, 2024  Source: drugdu 35

"/In the past ten years, Precision Science's colorectal cancer early screening product Cologuard has told an open growth story. The continuous growth has also made Cologuard synonymous with colon cancer screening.

However, after more than ten years of growth, can Cologuard continue? There are many affirmative voices, but wavering emotions are also beginning to appear.

On November 6, Precision Science handed in a good third-quarter report.

In the third quarter, Precision Science's total revenue reached US$707 million, a year-on-year increase of 13%; among them, the core screening business revenue was US$545 million, a year-on-year growth rate of 15%.

Although the growth rate is still considerable, Precision Science has lowered its full-year revenue guidance. The scale of screening business revenue is US$78 million less than expected, and the full-year revenue cap of this business is US$2.095 billion. This means that there will be a decline in the fourth quarter compared with the previous quarter.

In this regard, Precision Science tried its best to attribute the reason to a special case: the impact of the hurricane caused this year's sales to be lower than expected. Moreover, Exact Sciences has repeatedly stressed that subsequent growth can still be sustained.

But Wall Street chose to vote with its feet: on the day of the financial report, Exact Sciences' stock price fell by 23.48%, and its market value evaporated by more than 3 billion US dollars.

In the face of the expectation of a reduction in Cologuard's revenue, Exact Sciences' management has repeatedly emphasized that the difficulties are only temporary.

The reason for the downward adjustment of performance is that the hurricane affected about 18% of the Cologuard group. Therefore, this will lead to challenges in the fourth quarter performance.

In the conference call, management is still confident about the performance in the next few years, believing that the goal of achieving a 15% revenue growth and an adjusted EBITDA profit margin of more than 20% in 2027 remains unchanged.

The key to supporting this expectation is that the growth of colorectal cancer early screening products is far from over. Management's optimism comes from multiple dimensions.

First, the company's basic base is very solid. At present, the company has established close ties with nearly 250,000 institutions, and continuing to tap the needs of these institutions will bring incremental growth.

Secondly, Cologuard Plus will be launched in the second quarter of next year to drive further growth. Compared with Cologuard, the performance of the Plus version has been further improved. The company believes that on the one hand, this will gain more recognition from consumers, and on the other hand, it will be able to obtain incremental performance through higher prices.

In addition, the scale of repurchases for early screening of colorectal cancer continues to increase. As the user group increases, the scale of consumers who need to repurchase will also increase. According to the calculation of Precision Science, about 1.6 million new people will enter the repurchase cycle this year, and this number will increase to 2.6 million in 2026. Correspondingly, the scale of repurchases in 2025 will reach at least 1.3 million.

Finally, the logic of increasing penetration is still there. In the United States, colonoscopy resources are insufficient, compliance is low and the price is expensive, so Cologuard has the opportunity to be a pre-screening tool. Precision Science believes that in view of the various challenges of colonoscopy use, payers will increase their support for Colguard, and there are still 60 million people in the United States who have not been effectively satisfied, which is naturally its potential growth driver.

However, investors do not buy into the management's rhetoric.

Wall Street's anxiety may not be difficult to understand. The core reason is that the truth hidden by the financial figures does not seem to be as optimistic as the management said.

The most critical point is that even if the income of the 18% of the affected groups is 0, the total scale is only between 35 million and 40 million US dollars. The sales forecast of Cologuard lowered by Precision Sciences is about 80 million US dollars, which is a big difference. In other words, even without the impact of the hurricane, Precision Sciences' performance is still below expectations.

What are the reasons behind this? Under the questioning of investors, factors other than hurricanes are also surfacing.

First, in the peak season from August to October, the volume of Cologuard is indeed lower than expected. This is related to the weakening of the monetization ability of the traditional channels of Precision Sciences. Management talked about the way Americans see doctors is changing, one of which is the reduction in the number of visits to ordinary clinics. This also means that Precision Sciences needs to open up more channels to maintain growth. But unfortunately, the speed of new customer prescriptions is lower than expected.

Secondly, there seems to be a problem with Precision Sciences' sales management, including changes in management and personnel changes. Therefore, analysts have raised questions: Is the company's commercialization level in turmoil? However, the management of Precision Sciences chose to avoid this question and did not answer it directly. This also makes the market worry that the "productivity" of Precision Sciences' sales team has declined to a certain extent.

While focusing on whether the company has problems, the market is also very concerned about whether there is a problem of insufficient demand in the entire market. Under this logic, analysts hope to get an accurate number, including the impact of different factors such as hurricanes. However, this has not been able to get a specific answer from the company.

However, one certain fact is that intensified competition in the future is certain. In the field of liquid biopsy, Guardant Health Shield has been approved for listing. Although its performance needs to be improved, it is still an uncertain factor. In the future, potential competitors such as Mainz Biomed, Prescient Metabiomics and Geneoscopy may launch stool-based colorectal cancer detection products in the US market.

Under this logic, it is understandable that Wall Street chooses to be cautious.

Of course, there is no clear answer as to which side is wrong now. As for the growth problem of Cologuard, it still needs time to verify.

But no matter what, the final answer to the mystery will not affect an established fact: Cologuard is the first successful commercialized phenomenal product for early cancer screening, and it also fully demonstrates the feasibility of the early cancer screening business model.

In addition, the continued growth of Cologuard also shows us the degree of recognition of early cancer screening by payers (medical insurance, etc.) and the degree of recognition of early screening by ordinary people. In the third quarter report and conference call, the two dimensions of data revealed by Precision Science are very worthy of attention.

One is the "compliance rate" data. The so-called compliance, the statistical caliber is: the ratio of products issued to products recovered when the payer initiates large-scale screening. For example, 10,000 screening products were issued and 1,000 were finally recovered, and the "compliance rate" is 10%. The higher the "compliance rate", the higher the market acceptance of this type of early screening product.

The intuitive feeling is that the "compliance rate" of FIT products is only about 10%, but Cologuard's "compliance rate" this year is about 22%, and it even increased to 24% in the third quarter. This shows that even consumers who have not been exposed to early screening products have a high degree of acceptance of such products, and they can continue to grow after market education, which guarantees the growth potential of early screening products.

Another is the repurchase data. The "compliance rate" reflects the acceptance of new consumers, while the repurchase data reflects the acceptance of mature users. Precision Science did not clearly explain the repurchase rate data, but mentioned that the repurchase sales revenue will increase from the current 25% to more than 50% in the future. This also shows that the existing users recognize the early screening products for tumors.

The acceptance of new users is considerable, and the existing users are sufficiently recognized, which proves that the logic of the volume of early screening products for tumors is solid. Regardless of whether Cologuard encounters a bottleneck, there will be more products similar to "Cologuard" that stand out in the future. The prospects for the early screening track for tumors are still bright.

https://mp.weixin.qq.com/

By editor
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