ARK Invest Director of Life Sciences Research Simon Barnett joins Yahoo Finance Live to explain why he’s bullish on Exact Sciences stock and why it could hit $140 per share by 2027.

Video Transcript

– Well, speaking of Tesla, one of the stock’s biggest bulls, Cathie Wood, has a new favorite stock in her flagship, ARK Innovation Fund. Exact Sciences is now the top holding in the fund today, overtaking Zoom Technologies. The firm believes shares of Exact Sciences could reach $140 per share by 2027, as cancer prevention and screening services continue to push growth.

Joining us now is the author behind ARK’s research on Exact Sciences, Simon Barnett, ARK Invest Director of Life Sciences Research. Simon, it’s great to see you here. So clearly you’re bullish on Exact Sciences. Why? And what’s a huge catalyst going forward?

SIMON BARNETT: Yeah. No, thank you for having me. So, yes, Exact has become a top holding in ARKK, our flagship strategy, as well as our life sciences focus’ strategy, ARKG. So for those who may not know, Exact Sciences is the creator of Cologuard. You know, 90% of Americans over age 45 are aware of the brand. It’s gone from being FDA-approved in 2014 to just surpassing its 10-millionth unit this past quarter.

And what people may not know is, in addition to Cologuard, Exact Sciences guides medical management for the vast majority of women diagnosed with early-stage breast cancer in the United States, and together, these form a very high-margin, 70-plus-percent, multibillion dollar business that the company is reinvesting into an extremely exciting pipeline of assets.

– Simon, are you bullish overall on diagnostics, or is it something Exact Sciences does specifically that others cannot match?

SIMON BARNETT: Yeah. Dave, that’s a great point. So I think in one of the past slides, you mentioned that health care is traditionally a defensive sector. You know, we know very well statistically how many cases of cancer, how many survivors are accumulating over time, so there’s definitely an element of that that is very certain in the background and in the market. But Exact specifically has tremendous regulatory experience, a really broad scale.

You know, more than 90% of oncologists in the United States have ordered a test from Exact Sciences, so this gives them a great platform in which they can launch additional tests and continue to improve on profitability, which they just accelerated from Q3 next year to actually this past quarter ended, 2022.

– How significant is the upside for Exact Sciences in the next couple of years?

SIMON BARNETT: Right. So you mentioned– the base-case assumption for Exact over the next five years we believe could be $140 per share. But our bull case, which is looking increasingly more likely after this week’s report at the JP Morgan Healthcare Conference is north of $200, and a lot of that is driven by the company’s pipeline as well as the profitability of the core business that I just mentioned.

I think one of the most exciting things for us is the idea of multi-cancer earlier detection. This is a blood-based test that can screen for many cancers at the same time, the majority of which don’t have any screening technology today. And we really think that moving cancers from later stage to earlier stage is a really important part to improve cancer mortality.

– Simon, you mentioned the JP Morgan Healthcare Conference that’s underway right now. You’ve attended this virtually. Just your big takeaways from the conference and how that shapes the life sciences sector here over the next couple of years.

SIMON BARNETT: Yeah. So the first few days I think what’s really been resoundingly true is that the pace of science and innovation really has not stopped. In fact, it’s accelerated quite a bit. The pandemic was a forcing function that caused the health care community to really rally around options that were less invasive or cheaper, so we could navigate all the difficulties that were really placed on us globally from the pandemic, and we’re already starting to see effects of this.

I think over this next year, what’s really important is the deflation that’s coming down in the supply chain of many diagnostics companies, like we’re talking about. You know, over the past 15 years or so, the cost decline of DNA sequencing, which is a key input for running these diagnostics, has declined from over $3 billion per human genome to now under 200.

– I want to ask you about Teladoc. Rough year certainly last year, but up 6% today, about, and up about double that year to date. Are you bullish on the year ahead?

SIMON BARNETT: Yeah, definitely. So not much changed there in terms of our outlook. What we’re really focused on for the company in 2023 is a few things. So the first is, you know, we’re really moving from this era where not a lot of people really knew about telemedicine or thought maybe it was just spot treatment for urgent disorders– or urgent care, rather. And what the consumer is really demanding now is this shift towards quality of care, longitudinal relationships, and really something that is holistic, that encompasses urgent and chronic and behavioral care.

So seeing the company continue to launch and actually win multiproduct deals is really important to us, as well as our ability to actually see the company monetize its user base and improve clinical outcomes. Right? It’s not just about volume. It’s about making sure that patients with diabetes are improving on their A1C levels and patients with depression and anxiety are improving upon those metrics as well.

– Simon, what’s your bullish case here for Teladoc just in terms of how big of a jump maybe we could see over the coming years? Because, like you mentioned, it certainly was a winner during the pandemic, fell about 70% over the last year. What’s the potential upside?

SIMON BARNETT: Yeah, Sean, that’s a great point there. I think it’s been a very challenging year for growth-oriented, you know, equity strategies and a lot of the companies they’re in. So we haven’t published an official price target for the company. I think that’s something that we’re working on currently. But the way that I would think about it is– and it’s really impressive if you look over the past couple of years. You know, one in six Americans is a Teladoc member, so it’s a tremendous amount of scale.

And in addition to that, and I think this is really resonating with investors in this environment, is the company is, you know, operating cash-flow positive in the back of many companies that are quite small and actually not even close to getting to that crossover point.

– All right. Simon Barnett from ARK Invest. Good to see you, man. Thanks so much.