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Baird: Exact Sciences Should Rebound After First-Quarter ‘Headwinds’

Xconomy Wisconsin — 

Cancer screening test company Exact Sciences may not be anticipating the release of its first-quarter earnings report next week as eagerly as it has past quarters’ earnings announcements. The Madison, WI-based company in February signaled to investors that sales of its flagship product Cologuard, a stool-based DNA test for colorectal cancer screening, hit a bit of a slump this winter. But Exact (NASDAQ: EXAS) maintained that a potential break in the product’s long growth streak wasn’t due to dissatisfaction with the test among physicians or patients. Instead, company executives said, cold weather and an unusually severe flu season disrupted the usual pattern of office visits where doctors most often prescribe Cologuard as a preventive health measure.

Analysts at Robert W. Baird & Co. and other research firms for the most part agreed with the explanation Exact gave in February. But this week, Baird said their own research backs it up. Their survey of doctors confirmed that cold weather and flu led to doctors and patients delaying or rescheduling more appointments than normal, and as a result healthcare providers ordered Cologuard less often between December and March than Baird and other firms had projected previously.

In a research note Wednesday, Baird senior research analyst Catherine Ramsey Schulte describes those setbacks for Exact as “transitory headwinds,” and says she expects them to have a “meaningfully smaller” effect on the company’s financial and business performance between April and June. Schulte expects better results for Exact in the second quarter, according to the note.

Exact is scheduled to report first-quarter earnings on April 26.

Since Feb. 27, Baird has rated shares in Exact as “outperform,” the firm’s strongest recommendation to buy stock in a company at the current share price.

Exact’s stock price increased nearly four-fold last year, closing at $52.54 a share on Dec. 29, the final trading day of 2017. Shares in the company were trading at $46.80 apiece when the closing bell rang Thursday.

Since 2016, Exact has increased the number of Cologuard tests completed per quarter by at least 14,000 over the previous quarter’s total. It appears that streak will soon end. Jeff Elliott, the company’s chief financial officer, said in a conference call with analysts on Feb. 22 that Exact expects to complete between and 176,000 and 181,000 Cologuard tests in the first quarter of 2018. At the high end, that would only be an increase of 5,000 tests over the previous quarter’s total, which was about 176,000 tests.

During the conference call, Elliott and other leaders at Exact said a harsh winter and flu season had slowed the growth of Cologuard orders.

In her note on Exact published Wednesday, Schulte writes that Baird surveyed 61 healthcare providers, all of whom have prescribed a Cologuard test for a patient at least once. About 62 percent of respondents said they had to delay or reschedule medical appointments this winter due to either cold weather or the flu season.

Twenty of the providers Baird surveyed said they order Cologuard at least once a week. Within this group, 45 percent of providers said the flu, weather, or both disrupted their Cologuard ordering patterns between December and March. Among the other 41 providers who reported prescribing Cologuard less frequently, only 7 percent said their ordering behavior was disrupted by weather conditions or flu season.

“We think this makes sense, as abnormal flu volumes would likely cause more noticeable disruption for those ordering Cologuard more regularly,” Schulte writes in the note.

Forty-six percent of the providers Baird surveyed said they planned to prescribe Cologuard more often in the next six months. Meanwhile, another 52 percent of respondents said they anticipate no change in their ordering patterns in the next six months.

“The initial findings suggest flu [and] weather did in fact impact December [through] March order behavior, especially for high-prescribers,” Schulte writes. “We’re encouraged that all but one prescriber planned to maintain [or] increase” their Cologuard ordering rates, according to the note.

Schulte notes that all 61 providers who responded to the survey had ordered Cologuard for a patient in or before March 2017, and the survey results “may not be representative of the overall market.”

It’s also possible that flu season and what has been a cold start to spring in some parts of the U.S. could affect the number of Cologuard tests completed in the second quarter, she says.

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