Exact Sciences Corporation (EXAS) Earnings Call Transcript & Summary

All right. Good afternoon. Thanks for joining us, everybody. Welcome to the Jefferies 2020 Virtual Global Healthcare Conference. I'm Brandon Couillard. I cover life science tools and diagnostics sector here at the firm. I'm very happy to have Exact Sciences with us, virtually audio, at the conference again this year. If anyone has a call, anyone that's on the call that has a question, please do feel free to e-mail me, I will do my best to get to those. So let's jump into it. Joining us from the company, Mr. Kevin Conroy, CEO; CFO, Jeff Elliott; and IR liaison, Megan Jones. Thank you all for being here. I guess we'll just jump right into it.

Kevin, I think you've given a great amount of detail on a monthly and sort of weekly basis on Cologuard order trends as we've gone through this volatile period, which has been extremely helpful. And I think also surprising in terms of the slope of the recovery; it started down 63% through early April, exited the month down 40%. Curious if you could tell us anything about how May orders have trended? And at a higher level, what has been the most impactful factor from your view that's contributed to the order recovery which I think is certainly tracking better than many other specialty diagnostics businesses out there?

Thanks, Brandon. It's great to be at the virtual conference. It's been a decade of attending this conference every early June. So June doesn't quite feel right, not being in New York City at the Jefferies conference. And in terms of how is Cologuard trending, how did it trend in May, it trended strong. It -- the growth continued. We are very pleased with how Cologuard continues to perform. Why is that happening? Well, we believe that is happening because the dynamic is that there are about 450,000 people per month that should be getting screening colonoscopies that haven't been getting screening colonoscopies, and Cologuard is -- the awareness of Cologuard is significant that the brand is very strong and the knowledge that Cologuard as a screening test that's included in the guidelines and highly recommended is helping to drive people towards a test that can be done in the privacy of your own home. And we think that, that trend is not a short-term trend, that is a long-term trend, that there's probably a sea change that can occur over the next 12 to 24 months. And we're happy that, that has the potential to get even more people screened. So things are going well, considering the overall dynamic. And we look forward to being able to get our sales force and the Pfizer team into primary care offices safely to help accelerate the trend of increasing colon cancer screening.

Throughout this period, have you been pleasantly surprised at just how interactive the doctor community has been on a, call it, a Zoom meeting or electronic format of communication? Have you been able to sort of keep that dialogue at a high level with your sales reps?

I think one of the surprising things is that the strength of Cologuard is with a much, much diminished interaction with primary care offices. It is still going on, telephone, e-mail and also virtual meetings that we're having, but no doubt, it is significantly less than it was previously. And that tells us that if we can get that sales force back in the field in the second half of the year, we have the ability to move the needle in terms -- it's really reframing the conversation around Cologuard as an at-home test and the importance of getting people screened. I mean we just cannot, in this country, stop colon cancer screening and breast cancer screening and not expect to have a tidal wave of late-stage disease. I mean this is setting back early detection for cancer decades, literally decades, if we don't change this. And Cologuard, fortunately, has a really important role to play moving forward, and we think we're very well positioned to make a difference.

The model certainly seems to have pivoted very quickly toward a telehealth approach. And you talked about direct online ordering capabilities, which are still early days. But at a high level, did you have some of those plans and programs on the shelf already? And what are the longer-term implications of more of the business shifting to that model in terms of the amount of investment you need, be it in your field sales resources or in terms of DTC advertising? Just curious how the P&L or level of investment might differ in that reality, I guess?

Yes. So it remains to be seen how the DTC efforts will affect the P&L long term. Obviously, there's a -- with 100-plus million Americans average risk on label that need to be screened, that's an enormous consumer market and screening being every 3 years is -- tells you that we've barely tapped into the opportunity here. Cologuardtest.com, if anybody listening, hasn't been screened, go check it out, it's super easy. Now as of yesterday, there's a chat function where you can chat either through the web interface or you can chat via your cell phone and text in directly to get your -- any of your questions answered. And cologuardtest.com is going to be an important part, I think, over the next year, 5 years, even 10 years, that being able to just self-initiate colon cancer screening, nobody has ever been able to do that before. And that's a big deal. Maybe even a bigger deal is the capability of physicians who are in a telemedicine encounter, say, using their Epic platform, to be able then to order a Cologuard test within Epic. Today, a significant percentage, greater than 50%, approaching but not quite 70% of all test orders that come in, come in via fax. And obviously, that doesn't comport well with a telemedicine encounter, you want to be able to do telemedicine within your EMR system and order Cologuard within that system too. And at least with Epic, that will be available later this year, we expect November, December time frame. And then as health systems implement or do the Epic upgrade, then they would have the ability to order Cologuard electronically broadly speaking. That is probably a larger driver over the near to midterm because people who order Cologuard electronically order about 85% more frequently. That's all good news.

In terms of that -- the consumer side, the cologuardtest.com, is a doctor still central to the process? And just how does the workflow differ, if at all, in terms of returning the results back around to the patient?

Yes. So the doctor who actually orders the test is through our partner, which has about 100 physicians that interact with the people who fill out a basic questionnaire and then decide whether Cologuard is appropriate and then that patient receives a Cologuard collection kit. They complete the test and the data goes back to that physician and the data can then be shared with that patient's own physician if they have one. And that aspect of the encounter is electronic. So over time, I think that will evolve and people will be able to initiate through an app rather than through a web browser. And I think that you're going to see this expand in a lot of different ways, building out the basic infrastructure to be able to order this test. We have a tremendous partner who we're working with here, gives us a lot of options for the future.

Have you incorporated that into any of your direct-to-consumer messaging yet, that functionality? And I guess, more broadly also, how will we see that program evolve in terms of messaging or format over the course of the year?

Yes. So cologuardtest.com has been marketed in both television commercials and the digital social work that we're doing. And so it's a mix of our more conventional ads plus a -- this has been during the COVID quarantine period. There were ads that were run specifically focused on the at-home aspect of the test and the ability to self-initiate. The marketing campaigns will evolve over time, and I suspect that cologuardtest.com will be one of the many things that we focus on over the next year plus.

You mentioned Epic just a moment ago and that -- I do think that could be a pretty good deal. But as we sort of think about the rollout of that, to what extent, if at all, would you anticipate needing some type of educational effort to make doctors aware of that such as that there may be somewhat of a lag in terms of utilization of that channel? Or do you think it might actually be pretty quick in terms of docs being aware of it and utilizing that on a higher basis given doctors order a lot more than those -- these fax?

Yes. And doctors do order a lot more when they're able to order electronically. And you correctly point out that having a feature and knowing about the feature are 2 different things. So it will take time to educate physicians. And we have just over 200,000 physicians who have ordered a Cologuard test. That is a -- there are a lot of current customers to educate. That takes time. You can do that with a field force. You can do that with direct messaging. Physicians are busy. So it takes time before they know a tool is available, then they have to learn how to use the tool. They have to feel comfortable and building it into their practice and changing their practice. So there are a lot of steps there. And I think that's where our tremendous commercial organization, our field force, our partner Pfizer, all can help activate this once. The Cologuard ordering capability is embedded within the Epic platform.

You've, I think, been probably somewhat pleasantly surprised at how quickly orders have rebounded somewhat, going into sort of the freeze in March or April, I think, I can't remember. You sort of laid out a pretty aggressive cost-reduction plan. To what extent are you perhaps rolling those back now? And how do we think about just the areas of the business where you are pulling back on spending more broadly?

Yes. Brandon, this is Jeff. I'll take that one. So putting ourselves back in the time frame of late March, early April, at that point, we thought the business would decline and stay flat down at a depressed level. So to your point, we have been very pleasantly surprised at how quickly the business has recovered. Yet back at that time, though, without knowing how long or how severe things would get, we designed a series of cost reductions that, in total, were targeted over $400 million of savings relative to our initial 2020 budget. The cost reductions were designed to be nimble, that way as the business recovered, we could unwind them quickly. And the underlying goal here was to make sure we can maintain a strong balance sheet throughout, which I think we've succeeded in doing that. And now the business is recovering, we have started to unwind some of the reductions. So a prime example of the reductions we put in place was to -- we have pulled back on some hours for workers and now that things are picking back up and with the help of COVID testing, which we also brought online, that has allowed us to keep our team busy and engaged, which is really important here. Not only can we be a part of the solution for this country, but it's a good way to keep people engaged. So we have started to unwind some of the reductions, which is a good thing. The goal here is to continue to support the growth. There was some marketing spending that we did reduce because of things like sporting activities not happening, things like the Olympics going away, some of the major leagues being pushed off or canceled for the year, caused some of the marketing spend to come down. But the good news here is the team is very capable, very -- can be very nimble. So as we find additional smart investments to make, we're in a good position to do that.

Got you. I'd like to -- maybe if we could just get an update, just as far as how uptake of Cologuard 45 is going relative to your expectations and where coverage stands today? And do you expect that to be an explicit update to the USPSTF guidelines that are coming up and remind us what that time line is exactly?

Yes. So 45, why it is so exciting? Is that there's nearly 20 million Americans who are average risk and largely all due for colon cancer screening in that age group, 45 to 49. When you think about the typical person in that age group, they likely have a job, likely have kids and they live a busy lifestyle. Cologuard is an ideal test for that lifestyle. Again, it's accurate, noninvasive, can be done in the comfort of your own home. So Cologuard, we're confident, does appeal to that age group. If you think back to late last year when we received FDA approval for the label expansion, at that point, Cologuard 45 was a pretty minor part of the business given that we don't promote off-label. But we have seen that come on. It has -- I'll say, as a percent of total volumes, it has more than doubled since FDA approval. So it is coming on strong. You're seeing a nice uptake in some of the electronic ordering avenues that we have, the consumer portal. You're seeing a much higher mix of age 45 to 49 in that age group. So the good news here, it's a largely open market with very low screening rates today and Cologuard fits in well. Now from a coverage standpoint, it is early. There's still some major payers who don't cover it yet. Of the tests that have been completed in that age group, about 80% are covered in full. Although, again, we're seeing better pull-through where we do have coverage already. So there's still ways to go. I think that the next big catalyst there for coverage could potentially be the USPSTF guidelines. We expect those guidelines to be updated early next year. We do know that, that group is considering lowering the age group. They put out what's called a research plan. It's really a series of questions they are seeking to answer as part of their next guideline update. In that research plan, they did talk about lowering the age group for net initiating screening. We think there's good reason to start screening at an earlier age. You think about what it means to help save -- find cancer early in, say, a 45-year-old. Well, that person likely has 30 to 40 more years ahead of them. So from a life years gain from a human health impact, screening earlier is -- can be really impactful. So we think it makes sense to start screening earlier. The American Cancer Society lowered its guidelines to age 45. USPSTF, we don't know which direction they'll take. We will find out next year, although we think there's good reason to start screening earlier in this country.

Got you. Kevin, you recently did 2 acquisitions earlier. You did Biomics and Paradigm. You've got a pretty strong balance sheet. But those 2 acquisitions are pretty unique assets. Broadly, how do you characterize your M&A strategy and the types of things that are interesting? What do those 2 deals do for you? And how active are you/are you not at looking at other opportunities?

The -- we're really excited about the acquisition of Paradigm and Biomics, 2 sister companies, Phoenix-based, that had the incredible technology and workflow that allows them to turn around a therapy selection test based on tissue rapidly, 3 to 4 days turnaround that's industry-leading, that gives us the ability to capture significant share of the market. We're making improvements to those tests and the team there is incredibly strong. We're also -- we'll also make available a liquid version of that test so that we enter the fast-moving and impactful liquid biopsy market. We'll do that with the most advanced capabilities and we believe improve the standard of care there, improving sensitivity which is important to the current tests that are in market. We'll continue to look at other opportunities. We have a 1,000 person commercial organization. We believe we have the best lab team and the reimbursement teams and quality teams and manufacturing team and finance capabilities and so on. We have the ability to do things globally with our international team, about 100 people that the Genomic Health team built over time. So we think that we're positioned for strength for years to come and to be the leading cancer -- advanced cancer diagnostics company. This is something we're very, very committed to. And we see opportunities frequently that are attractive. We always have to make sure that the quality of whatever we do, whether it's internally developed tests and we have some exciting things on the horizon there, and potential tests that we would bring into our portfolio externally or tests that meet a whole series of criteria and standards that we have set. We'll continue to look at those things, Brandon.

We're coming up on the second anniversary of the Pfizer partnership in August. Can you talk a little bit about just how the productivity of those Pfizer reps has trended? And clearly, more recently, they've not been able to sort of be in the field. But just general update, I guess, on the health of that partnership and, I guess, the productivity of those reps. And in particular, when do you think we'd start to see them really make some greater headway as far as penetrating health systems?

The health of the partnership is great. We have had a tremendously productive relationship with Pfizer. Right now, their team is out of the field for the same reason that ours is, is to make sure that we have a plan before they come back so that they're safe and so that they don't have any type of negative impact on the physicians in offices and patients that they serve. We are, in terms of the trends and how the productivity of that team has been like with our own reps over time, their reps become more productive with Cologuard. They expanded the number of physicians that order Cologuard because a significant percentage of the calls they make are on physicians that we today do not call on. They have deep relationships, multi-multiyear relationships typically that each rep has with their list of primary care physicians they call on. All of these things bode well for us. At some point in time, we may have our own field force without the Pfizer team for the next -- for the foreseeable future, though we'll continue this partnership. And we believe that partnership will continue to mean great things for Cologuard. It has been a really productive partnership, and we appreciate them as a partner.

Good. I think maybe the last question, Kevin, now that you've got some liquid biopsy competitors moving to initiate the large clinical trials, just curious if you see anything that's really changed on the competitive front? And maybe an update quickly just on your own liquid development program.

Yes. So our goal is to develop a blood-based colon cancer screening test that is priced between $150 and $200 a test. We believe our approach will -- and based on the data that we have seen will offer as high of sensitivity as one can have with the blood-based test and blood-based tests do have some shortcomings because of the biology of cancer, at the right price point with the right marketing and commercial capabilities behind it. We don't see other tests that we think will have a greater impact than ours and our approach. It's a time-consuming and expensive path to bring new tests to market because the clinical trial is a prospective study of at least 10,000 patients, maybe more, to be able to collect the evidence needed to establish the performance. And you don't know how sensitive and specific of the test you have until you go out into the real-world environment and screen people. Today, that screening is greatly diminished. And so the length of the clinical trials, the time to complete a clinical trial clearly has been extended. We are expecting good things though at the end of it.

Very good. I'm afraid we're out of time already. Thank you, both, for being here, and hope to see you soon. Have a great day, everyone.

Thank you, Brandon. Take care.