Exact Sciences hasn't pulled any punches when sharing thoughts about blood-based screening options for colon cancer. In recent years, the company has often downplayed both the clinical and commercial significance of the emerging diagnostic class, arguing the tests are less accurate and more expensive.

It's not wrong.

The tools are less accurate than a colonoscopy, stool-based tests such as Cologuard and Colosense, and even generic fecal immunochemical tests (FIT). Liquid-screening tools are also considerably more expensive. Guardant Health enjoys a temporary Medicare reimbursement rate of $1,495 for Shield. A colonoscopy is reimbursed for $660 or $1,097 depending on where it's performed, Cologuard Plus costs $592 per test, and a FIT is just $49 even if you're uninsured.

But blood-based screening tools have a role to play. Whereas stool-based diagnostics offer the convenience of completing a test at home, blood-based screening tools will eventually offer the convenience of completing a test at a regular doctor checkup. Both are selling points for different patient populations.

Most important, the United States only has the capacity to conduct about 6 million colonoscopies annually. Considering there are 55 million Americans who aren't up to date on recommended screening, an all-comers regulatory strategy that includes blood-based options has value.

Exact Sciences has other reasons for downplaying blood-based diagnostics in colon cancer. First, it wields Cologuard Plus. Duh. Second, its own blood-based screening candidate is likely to fall short of current Medicare reimbursement criteria.

Investors should brace for a negative reaction to the pivotal BLUE-C data readout, which is expected this summer. If the experimental test delivers a specificity of less than 90% – which is very likely – then it will be ineligible for Medicare coverage based on headline coverage criteria.

It's possible Exact Sciences will terminate the product candidate altogether. Or, if the data are "good enough," then the company could appeal for regulatory flexibility.

Medicare Reimbursement Requirements, Explained

The Centers for Medicare & Medicaid Services (CMS) follows objective criteria when deciding to cover diagnostics. For a blood-based colon cancer screening test to be eligible for reimbursement, the agency proposes that the product meets three criteria:

1. Earn approval from the U.S. Food and Drug Administration (FDA)
2. Be included in at least one professional guideline, such as the National Comprehensive Cancer Network (NCCN) or more commonly in this setting the U.S. Preventive Services Task Force (USPSTF)
3. Achieve a sensitivity of at least 74% and a specificity of at least 90%

Exact Sciences' blood-based screening candidate is likely to earn FDA approval, if submitted. The FDA doesn't consider intellectual property, pricing, or reimbursement likelihood when making approval decisions – those things are regulated by other agencies. It simply asks, "do the benefits of this product candidate outweigh the risks?"

Similarly, the company's experimental blood-based test should be included in at least one professional guideline. These recommendations aren't all or nothing. Professional societies don't pick and choose a single winner in the market. Rather, they provide an expertly-curated list of suitable treatment options that healthcare providers can choose from. This is helpful for navigating discrepancies across commercial insurance providers, which may or may not cover every available test, in every available geography, for every available patient.

The last requirement is where the heartbreak lies.

In a case control study, Exact Sciences reported a sensitivity of 88%, specificity of 90%, and precancerous lesion sensitivity of 31% for its blood-based diagnostic candidate. Although that appears to meet proposed CMS coverage requirements, subsequent real-world pivotal studies always underperform case control studies by a few percentage points.

A case control study evaluates the performance of an experimental test against patient samples with known outcomes from a biobank. Scientists randomize healthy, cancerous, and precancerous samples; then throw them at the diagnostic candidate to see how it fares. But conditions are closer to perfect. In the real-world, patient samples (tubes with blood in this case) have to be retrieved properly, stored properly, packaged correctly, and shipped to centralized labs for processing. The genetic biomarkers can decay in that time, which leads to lower performance in real-world settings than case control studies.

Unfortunately for Exact Sciences, its blood-based diagnostic candidate delivered a specificity of 90% in a case control study, which means it's likely to fall just short of that threshold when the final pivotal data are announced this summer.

An older patient population and the fact many commercial insurance programs follow CMS decisions makes securing Medicare coverage a necessity for commercial success. There's still a potential path forward.

Could Exact Sciences Earn Regulatory Flexibility?

Exact Sciences could argue for and receive regulatory flexibility with CMS. That's not my base case, but it's perfectly plausible.

The company's product candidate should be competitive with similar diagnostics from Guardant Health and Freenome. Ironically, it might outperform them clinically – and still be rejected for Medicare coverage. Life isn't fair, kid.

To understand a potential path around those proposed requirements, it helps to revisit the three topline metrics for colon cancer screening tools:

• Sensitivity of colon cancer: The ability to correctly identify individuals with colon cancer. Overall sensitivity is most often communicated, which is the rate of detecting cancer at any stage. Tests are differentiated by their ability to detect early-stage cancers (Stage I and Stage II), which are the most difficult to discover and therefore the biggest driver of overall sensitivity.
• Specificity of colon cancer: The ability to correctly identify healthy individuals. It's generally not great to scare the shit out of people by telling them they have cancer when they don't.
• Sensitivity of precancerous lesions (advanced adenomas): The ability to detect benign masses that can become cancer. Precancerous lesions are more important for some cancers (cervical or colon) than others (lung). In colon cancer, screening tools are primarily measured by the ability to detect advanced adenomas greater than 6 mm in diameter.

Consider how liquid biopsy tools for colon cancer, or colorectal cancer (CRC), have performed in their respective pivotal studies. I threw in colonoscopy, FIT, and Cologuard Plus for comparison.

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EpiGenomics earned FDA approval for and commercially launched its product, Epi proColon, but eventually yanked it from the market after CMS denied coverage. The first-approved liquid biopsy tool for finding colon cancer fell below both the proposed sensitivity (>74% needed vs. 72% achieved) and specificity (>90% needed vs. 81% achieved) requirements, although its precancerous lesion sensitivity of 21% remains the highest ever achieved.

Exact Sciences' product candidate is likely to achieve the highest-ever overall sensitivity (>83%) and precancerous lesion sensitivity (>21%) for the diagnostic class, but fall just shy of the specificity threshold of 90% required for Medicare reimbursement.

But the math could be on the company's side.

To see it more clearly, let's think of sensitivity and specificity in real-world terms. These metrics really measure how well a diagnostic tool reduces delayed care and unnecessary care.

• The false negative rate is how many cancers were missed resulting in delayed or no care. It can be calculated as 100% minus the sensitivity.
• The false positive rate is how many healthy patients received unnecessary follow up treatment. It can be calculated as 100% minus the specificity.

CMS determined its thresholds for blood-based CRC screening tools based on the performance of a generic FIT, which has a generally expected sensitivity near 70% and a generally expected specificity near 95%. Essentially, if you can't beat a $49 test with your fancy multi-omics bullshit, then get the hell out of my office.

In practical terms, CMS is willing to cover a blood-based CRC screening tool if it misses fewer than 26 out of every 100 cancers (translating to a sensitivity of 74%) and sends fewer than 10 out of every 100 healthy individuals for unnecessary follow ups (translating to a specificity of 90%).

EpiGenomics' trailblazing product missed roughly 28 out of every 100 cancers (two worse than CMS threshold) and sent 19 out of every 100 healthy individuals for unnecessary follow ups (nine worse than CMS threshold). That's not close, especially when extrapolated to millions of Americans. It would send 190,000 out of every 1 million healthy individuals for unnecessary colonoscopies.

For comparison, Guardant Health's Shield missed 17 out of every 100 cancers (nine better than CMS prefers) and met the agency's proposed specificity threshold. Freenome's product candidate misses roughly 21 out of every 100 cancers (five better than CMS prefers) and sends 8 out of every 100 healthy individuals to receive unnecessary care (two better than CMS prefers).

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Mathematically speaking, Guardant Health and Freenome offer comparable value among blood-based options. To mathematically match peers, Exact Sciences' experimental test would have to notch a sensitivity of 86% and a specificity of 87% – I don't think a lower specificity would be acceptable.

There are two wild cards behind the headline metrics.

First, early-stage cancer sensitivity. Emerging tumors are more difficult to detect, but also easier to treat and cure. Exact Sciences' product candidate outperforms peers on this metric, and CMS has demonstrated preferential treatment for tools with higher early-stage cancer sensitivity.

Second, precancerous lesion sensitivity. Although CMS hasn't set a minimum threshold for this third metric, regulators absolutely take it into consideration. Here's a snippet from the agency's rejection letter for Epi proColon (bold added by me):

Using a test, such as the Epi proColon test with a lower sensitivity threshold (72%), below our proposed sensitivity threshold (74%), will lead to missing more cases of colorectal cancer (more false negative results, 26%).

In addition, Epi proColon is better at detecting late stage colorectal cancer because more of the biomarker (hypermethylated Sept9 gene) has accumulated in the blood in late stage cancer; hence, missing early stage cancer. Thus, the test is more likely to catch cancer in the later stages, potentially lowering the success rate for curing cancer.

Further, this test does not prevent cancer as well as the stool DNA test, since this test does not prevent cancer by detecting large polyps that can lead to cancer; thus, missing the opportunity to remove these pre-cancerous polyps during therapeutic colonoscopy.

Exact Sciences' product candidate is poised to have a much higher precancerous lesion sensitivity than Guardant Health and Freenome. While performance will drop sharply from the 31% achieved in the case control study, the two liquid competitors couldn't top 13%. If Exact Sciences can come close to matching FIT on this metric, or near 23%, then CMS could choose to cover the test anyway.

In fact, if the company's blood-based CRC screening tool delivers overall sensitivity of 86%, specificity of 87%, and precancerous lesion sensitivity of 21%; then it will offer similar clinical value as a FIT test. No other blood-based product comes close.

Does Any Of This Matter?

One question investors might want to ask: Is the market a little too obsessed with blood-based CRC screening tools? I think so, but that's based on the hard numbers.

It's not quite fair to compare emerging blood-based screening options to other diagnostics. They're still ramping up! But investors have handed Guardant Health a generous premium based on its liquid screening tool (likely aided by its astronomical Medicare reimbursement rate), so it helps to poke around.

• In 2024, Exact Sciences sold over 4 million Cologuard tests that generated $2.06 billion in revenue. The company thinks it can eventually sell 14 million tests per year. That would be driven by the United States plateauing at 6 million colonoscopies per year, which could make stool-based tests the preferred screening option for average-risk individuals.
• In 2025, Guardant Health expects to sell up to 58,000 Shield tests that generate up to $45 million in revenue. Both are likely an underestimate, but there's a long way to go before anyone can confidently project market share for the diagnostic class.
• In 2025, Exact Sciences expects to grow Cologuard revenue by $340 million compared to last year.

Blood-based screening options have value, but doctors still overwhelmingly prefer stool-based tests for average-risk individuals. If Exact Sciences can secure Medicare coverage for its blood-based test, then it would be a nice-to-have in the portfolio. But it probably won't add significant revenue growth -- and might be a more important up-risking event for Guardant Health given its premium valuation than a de-risking event for Exact Sciences.

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News Flow & Modeling Insights

(No change.)

My current model for Exact Sciences remains unchanged from February 2025. Management increased guidance in May 2025, which brings expectations closer to my model.

My current 2025 model for Exact Sciences assumes:

• Full-year 2025 revenue of $3.128 billion, representing year-over-year growth of 13.4%. The company's guidance expects $3.105 billion at the midpoint (increased from $3.065 billion previously).
• Screening revenue of $2.444 billion, representing year-over-year growth of 15.9%. The company's guidance expects $2.407 billion at the midpoint (increased from $2.370 billion previously).
• Precision Oncology revenue of $684 million, representing year-over-year growth of 4.5%. The company's guidance expects $687.5 million at the midpoint (increased from $685 million previously).
• Gross margin of 70.5%, marking an improvement from 69.5% in 2024.

The business could flip to positive operating income during quarterly periods in 2025, but it's difficult to confidently model expenses given the avalanche of product launches. The timing isn't that important for this long-term position, which is considered an Anchor position (or a Current Compounder in the June 2025 update for Solt DB Invest).

I'd rather have the launches go smoothly and the company lose money. If the company succeeds in providing Cologuard some help as the lone growth driver (unlike the Pittsburgh Pirates and Paul Skenes), then investors can expect a healthy earnings yield within the next few years.

Margin of Safety & Allocation

Exact Sciences is considered a Current Compounder position with Above Average conviction.

• 1 = High
• 2 = Above Average
• 3 = Average
• 4 = Below Average

The estimated fair valuation based on my current model is below:

• Market close July 11: $51.91 per share
• Modeled Fair Valuation: $85.69 per share
• Allocation Range: Up to 15%

Exact Sciences reported 188.638 million shares outstanding as of April 30, 2025. The modeled fair valuation above assumes 192.410 million shares outstanding, which is equivalent to 2% dilution.

Further Reading

• May 2025 research note analyzing Q1 2025 operating results
• May 2025 press release announcing Q1 2025 operating results
• May 2025 regulatory filing (10-Q) detailing Q1 2025 operating results

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