Exact Sciences Corporation (EXAS) Earnings Call Transcript & Summary

All right. Hello, everyone. Thank you for joining us today. I'm Catherine Schulte. I cover life sciences and diagnostics here at Baird. So we're very excited to have Exact Sciences presenting here today. And representing the company, we have CFO, Jeff Elliott. So thank you so much for being here with us. As far as the agenda, we're just going to dive straight into Q&A. So if anyone from the audience has any questions, please submit them through the web portal, and we will try to work them in. So welcome, Jeff, and thanks for being here.

Hi, Catherine, good to see you again.

I guess starting with some obligatory COVID questions before we move on to the bigger picture. On your second quarter call, you talked about seeing Cologuard orders up year-over-year in June and flat in July, very swift recovery after a meaningful pause in April and May. Just any update in terms of trends that you've seen over the last month or so in terms of doc reopening -- doc office reopenings or sales force access?

We're very pleased by the strong momentum that Cologuard has. When you think back to what happened during the month of April, Cologuard orders were down over 60% year-on-year. At that point, physician office visits were down meaningfully. People were largely hunkering down and not going out to provide preventative care. But because of the actions our team took, combined with the preventative, accurate, convenient nature of Cologuard, our business recovered meaningfully. And that momentum, I think, going forward will help us accelerate towards our long-term goal of at least 40% market share. So a couple of actions we took include standing up a consumer-initiated ordering portal. That's got some nice early momentum. And our sales force has also made some swift adjustments to adopt to a world where they're seeing providers virtually more than they are in person. So the team responded quickly, and we've got very nice momentum that we're pleased to see, especially relative to colonoscopy, which is the predominant way to test for colon cancer. Colonoscopy volumes are still down by probably at least 30%. Cologuard volumes, we said on our last call, were relatively flat year-on-year in the month of June and July. So relative to colonoscopy, Cologuard is much better off. More recently, we've seen physician office visits continue to recover to. So now I think we're probably down somewhere in the 20% range. So things are recovering. COVID volumes seem to be receding, which is a good thing, and going forward, hopefully, that continues. When you look ahead to next year, I expect a more normal year. I think COVID volumes will continue to decline, and that momentum we have on Cologuard will help us continue to drive very strong growth into '21.

Yes. Very helpful. And to your point, on colonoscopy volumes being depressed even lower than what we saw with Cologuard, COVID has created a very meaningful backlog of unscreened patients. We've seen several professional bodies say we need to be using more stool tests and help triage, only the higher-risk patients to go get that colonoscopy. Is this something you started to see play out? Do you think physicians are realizing that they're going need to use more of these at-home tests?

Yes. We have, Catherine. This backlog is significant, and the backlog today stands at well over 1 million patients who have either canceled or deferred a colonoscopy. That's in addition to the over 45 million people in this market who are currently unscreened for colon cancer. So this market is massive. There's no lack of opportunity out there. We think this backlog could take years to clear, considering it continues to grow. I mentioned before, total colonoscopies are down pretty significantly still. Screening colonoscopies, which are a subset of that broader pool of colonoscopies, are down more because they typically are deprioritized relative to a more urgent procedure such as somebody with symptoms. So this backlog will continue to grow. We know that Cologuard is helping to alleviate that backlog. And one tidbit is that relative to colonoscopy, as you mentioned, Cologuard is performing much better. Another is that when you ask physicians, how do you see COVID impacting Cologuard ordering and colon cancer screening more broadly? We did a big survey on this. And the vast majority say that they expect to order more Cologuard going forward because of COVID. And we see this playing out in our own numbers. When we look at the ordering trends, historically, doctors who had maybe sporadically ordered Cologuard, ones that ordered, say, every few months, order trends in that group are up -- are actually up year-on-year. There are some more doctors who had ordered more frequently. That's where the order trends are a little bit softer. That's because their patient flow is lower. But when you really dive into the trends, there's some very exciting underlying momentum that will help us accelerate adoption going forward because of COVID.

Yes. And to that point, you've talked publicly in the past about thinking COVID could actually accelerate Cologuard adoption by 1 to 2 years. You mentioned the sporadic orderer is now ordering more frequently. What are you doing to really capitalize on that and make sure that those previously sporadic orderers, that will now be a sticky ordering base? And can you just remind us how penetrated you are from an ordering physician perspective and the revenue potential just from penetrating your existing ordering base?

Yes. Take a step back and look at this market. There's over 106 million people who are on label for Cologuard. So it's about 1 out of 3 Americans. It's a huge market. Of those, as I mentioned before, about 46 million are currently unscreened for colon cancer. So the immediately addressable market is enormous. Our longer-term goal is to capture at least 40% of the total market, which equates to about a $14 billion long-term goal. On the physician side, we've captured about 160,000 primary care doctors, meaning 160,000 have ordered at least 1 test. However, most of those ordered at relative low rates. We estimate we've only captured between 5% and 10% of the opportunity within that base. In fact, the opportunity within that base alone, if they all ordered to the maximum, it's probably around $14 billion just for that cohort of doctors that have already ordered. So if we never added another physician, we could grow significantly for many years. So our multipronged sales and marketing strategy involves targeting those physicians, right, the doctors who haven't ordered with TV ads. So we run a robust campaign to raise awareness of Cologuard. That campaign has been on the TV for over 4 years. It is highly effective. Before COVID, we were adding 10,000 new providers per quarter, and the vast majority had never been touched by our sales force. The sales force focuses on the doctors that have the highest potential and those that have previously already ordered Cologuard. That's a big pool there. As we said before, in total, over 200,000 total providers have ordered Cologuard. So it's a big pool. We call on [ dual ] reps, the most high priority physicians. And they -- we try to target them through live visits where they're open, many physicians are still closed down, live visits where we can. We also have virtual selling capabilities that we try to reach out to doctors that way. The team has taken the time during COVID to make sure we do what's called a total office call. And what I mean by that is they -- we call on the office staff and the nurses and the doctors to make sure they're all aware of Cologuard, and they know how to order it and they know how to give a patient a demo. That way, no matter who the patient talks to, they can provide a unified selling effort to Cologuard. And we also can drag that electronic ordering rate higher. We have seen that rate pick up. Today, we're up to about 37% electronic ordering. We've seen meaningful progress there. I would have thought the conversion to electronic ordering would have slowed during COVID. In fact, it has not. It has accelerated during COVID because of the efforts the team has put forth to do that total office call and really taking advantage of that period. It's things like that, that give me confidence when you look ahead that we can accelerate the adoption of Cologuard towards our long-term goal of at least 40% market share.

Yes. That's very exciting. And clearly, COVID has increased the value proposition of at-home testing. Do you think that, that could shift that overall kind of long-term market share pie away from colonoscopies? Or do you think that 40% market share number is still good for now?

Our goal is to get more people screened, right? And 40% share, that's a $14 billion long-term revenue target. So we'll stick with that one for now. I think the big thing for -- the big advantage of COVID for us is that it helps us accelerate towards that 40% rate. However, I do think that COVID has heightened the people's appreciation for noninvasive, accurate at-home tests specifically because Cologuard and tests like that don't require you to go to a physician. Before Cologuard, we had over 10% of our orders came outside of that face-to-face office visit, meaning they probably -- it was either a phone call or possibly a text message or some sort of e-mail that resulted in the doctor ordering for a patient. Today, that number has ticked up meaningfully because Americans and doctors have adapted to more telehealth-type sales, away from the live patient -- physician to patient visit. So that is a longer-term benefit that I think will stick with us.

Yes. All right. That makes sense. And you gave the update on electronic ordering. You've also put a big emphasis on improving that capture rate on the 3-year rescreen opportunity. So any update on what kind of progress you're making there and how the upcoming Epic broader rollout could impact your success there?

The 3-year rescreening is a huge opportunity for us. It already is a material part of our revenue. Going forward, when you model this out long term, I think that this could be over half of our revenue because that pool of patients that need to be screened again continues to grow. There's over 370,000 patients this year alone who become eligible for their 3-year repeat test. Last year, it was 160,000. So that number continues to grow. On top of that, our capture rate of those patients continues to grow, too, because of the actions we've taken both with patients and physicians. With patients, we have new tools we've put in place to heighten their awareness to make sure they know that, that 3-year interval is there for screening again. On the physician side, this is where we've made the biggest advancements. We now have tools in place through our web portal. When a physician logs in, they can see a list of all the patients they have that are eligible for 3-year retesting. And once they verified those patients are still indicated for Cologuard, they can click a button and reorder Cologuard for all those patients. We can also deliver that list via either a fax or an e-mail if the physician wants that, so -- to help drive awareness on who is due for a 3-year retesting. So our efforts there are leading to a much bigger capture of that 3-year rate. And going forward, with these tools, as you mentioned, with the broader Epic rollout, I expect that rate to go higher. Coming up in the fourth quarter, Epic, who is our EHR partner, our Electronic Health Record partner, Epic has a major upgrade coming in the fourth quarter. What this upgrade will do, it will embed Cologuard ordering, electronic ordering, in that base software such that anybody who uses Epic's software can order Cologuard through the click of a button. Why this is important is because 45% of primary care physicians use Epic. It is the dominant EHR platform out there. It is particularly big in the health systems, where our penetration rate is relatively lower than it is in the independent doctor group. So I think it will help us advance our penetration in the big health systems. And converting from a faxed order, which today is over 60% of our orders, to an electronic order helps drive incremental utilization. Doctors that order via Epic order over 50% more than when they order via fax. It's easier. If you're seeing a physician, if they can just click a drop-down without changing the screen, they're going to -- they're more likely to order it. Instead, today, what they often have to do is log into a portal or fill out a fax form and send it in separately. That's a more cumbersome process. So getting Cologuard embedded, while it drives incremental utilization, it made Cologuard a stickier product for the long term. So that's a big win that we have with Epic in the fourth quarter. Now when Epic makes that software available, it can take up to 2 quarters for all the health systems to adopt it. So it will take a little bit of time for that to get rolled out and then us to get pull-through. But this is one of the big tailwinds we expect next year.

Yes. That makes sense. Another big opportunity is the 45- to 49-year-old bucket. We could potentially have a new USPSTF draft recommendation coming up soon. They stated in their research plan that they'll look at the 45 to 49 age group. I guess what are your expectations for if we might see the age lowered in USPSTF? And any general comments on how you feel you're positioned in the upcoming update?

We need to screen earlier in this country. That 45- to 49-year-old age group is seeing rapid growth in colon cancer rates mortality. So that is the one age group we really should change our perspective on. You saw 2 years ago, the American Cancer Society lowered its recommendation to age 45 based on the rise and incidents that we've seen. USPSTF, as you mentioned, is looking at that. Clinically speaking, we think we should screen earlier in this country. In that age group alone, there are 19 million people who are average risk for colon cancer. And effectively, all of them are due right now for screening. Cologuard fits well into that lifestyle. 45- to 49-year-olds are likely to be working. There's a very good chance that they have kids, and they have a busy lifestyle. So Cologuard can fit right in there. It's different than somebody who is, say, 70 and retired. They may have more time on their hands than a 45-year-old. So Cologuard fits in well. And a customer who's 45, we have multiple chances to retest that patient over the course of their life. So it's a really attractive customer base where Cologuard can really make a meaningful difference. So as far as expectations, we know that USPSTF is looking at that. We think the clinical evidence supports lowering the age. We don't know what that group will do. We will keep working, though, to drive adoption in that group. What we've seen from a commercial uptake standpoint is we've seen much faster adoption in that age group than in the 50 and over group from a low base, but we've seen much faster adoption there. From a coverage standpoint, which is really important for longer-term growth, the coverage of Cologuard in that age group is much better than we expected. When we submit a claim to a payer, over 80% are paid in full today. So the majority are paid in full. However, we want to make sure that all the payers have, all the major payers have the coverage policy that says, "Cologuard is covered as a preventative benefit." So that is the goal we are working towards. However, we do see a reasonably good coverage already before USPSTF even updates their guidelines.