Exact Sciences Corporation (EXAS) Earnings Call Transcript & Summary

All right. Good morning, everyone. Thank you very much for joining the BTIG MedTech, Diagnostics, Digital Health and Tools Conference. I'm joined with Jeff Elliott, the company's Chief Financial Officer of Exact Sciences, and I have a virtual snowbird in my back. And so hopefully, next year, we can all get on the slopes. Jeff, thanks so much for joining.

Good morning, Mark. Thanks for having us.

Terrific. So you guys recently had your earnings call, a really solid Q4, beating my and Street expectations. Cologuard screening revenue came in at $250 million. That was up 16% sequentially, 9% year-over-year even despite COVID. I guess can you just walk us through what the key drivers of growth were in Q4? And I'm curious if you think they're sustainable even as we look beyond the holiday and beyond COVID-related headwinds in Q1.

Mark, we were very pleased with the results in Q4. When you look at the backdrop -- you talked about COVID. Obviously, everybody knows about COVID. The headwinds there are significant. For example, colonoscopy volumes are down 25%. Wellness visits in our target age group are probably down close to 40%. So there are some material headwinds out there. Also, when you add to that are the fact that our reps have very limited access to physicians today. In the fourth quarter, we did fewer than 50% of the number of sales calls that we had done pre-COVID. So we basically had 1 or 2 hands tied behind our back. So for the team to deliver 9% year-on-year growth, we were pleased with that. You asked on the drivers. Well, the drivers are the things we've talked about for years, things like a highly effective marketing campaign that raises the awareness of Cologuard. During the pandemic, we emphasize the at-home convenience of Cologuard. You don't have to go out of your home and potentially get exposed during the pandemic to do Cologuard. We also have a big push around electronic ordering, which last year, we saw a 10-point improvement in the rate of Cologuard orders that came in electronically. That paid off -- that pays off in a big way because when a doctor can order electronically, he orders far more Cologuards. We also had in the fourth quarter a big push around patient compliance. We are seeing the best improvement we've ever seen in a short period of time in our compliance rates. So all those things contributed. You asked if they're sustainable. Absolutely, they are sustainable. And what's even better now is that when you look in the current environment, COVID is coming down. So that is removing perhaps the biggest headwind we face now. COVID cases are down 60% to 70%. So that headwind is going away. Our rep access is starting to improve. And then when I look at over the balance of the year, we have some major tailwinds coming that will help growth improve throughout the year.

Right. And so as those COVID cases decline as maybe half of Americans get vaccinated in the warmer weather, I guess this should obviously mark an acceleration in Cologuard volume later this year. I guess are you hearing anything from IDNs or other large customers that would suggest confidence that things will open up later this year?

Yes. I think most people are optimistic that things will open up. I think colonoscopy volumes will stay depressed at least through year-end because physicians have taken precautionary steps to limit the spread of COVID, which means they've reduced the number of colonoscopies they can do. So I think that colonoscopy backlog continues to grow throughout the year, and this is where Cologuard comes in. Cologuard can help alleviate that backlog, which, today, there's over 45 million people in this country who need to be screened. So there's a massive market out there. I think things will start to open up as the vaccine takes hold. And people, I think, are eager to get back to their normal lives.

Right. I wanted to ask about your Q1 guidance. You talked about sequentially down a little more than 4% because of the timing of holidays, travel, 30-day lag. I know you didn't guide for the full year, but you did talk about having a positive growth outlook. So given pressures related to Q1 and where consensus estimates are, do you have a good degree of confidence that there's a path to grow sequentially beyond Q1?

Yes. I mean, look, on Q1, Mark, the comments here were really due to the holidays. And I think some people forget that every year, you should expect Q1 to be down below Q4. So now and into the future, that's what you should model. And it's because during the holidays, both in late December and early January, people don't go to the doctor unless they're sick. So they're not getting physicals, which means they're not getting Cologuard orders. That hurts Q1 because of that typical 30-day lag between a test order and revenue. So that's what we're signaling there. This year, it's a little bit worse because of that big spike we had late last year and early this year because of COVID. But the main story there is the holidays. Well, today now, we're seeing -- we're past the holidays, and COVID cases are coming down. So I do expect sequential growth through the year. Second quarter seasonally is probably our strongest quarter. We see a robust acceleration normally exiting the holidays and into the second quarter. And then on top of that, the growth drivers I've talked about, things like electronic ordering, we are rescreening Cologuard 45, all start to really pick up as we move through the year.

Terrific. So you indicated that you're now live on Epic. I guess are you seeing health care systems converting? And can you give me some examples? I think in the past, you've talked about docs being able to push a button and then have a number of patients get a rescreen. Can you just speak to that? And then I'd be curious if there's a path to maybe clinicians having mobile apps, being able to pull up their old patients and then just hitting a button.

Yes. So we are live now on the latest version of Epic. That latest version did something that I personally never thought would be possible. The latest version embeds electronic ordering of Cologuard for every hospital who upgrades to this new version. So we are on it, and now we have multiple health systems who have already upgraded to the new version. According to Epic, most hospitals who use Epic, which is in the U.S., there's 450 health systems who use Epic. That's about 50% of all primary care doctors. Most should upgrade over the first 2 to 3 quarters. When that happens then, all those systems will have the ability through the click of a button to click order on Cologuard. That order would then route to our lab. We'll take care of testing that patient, and then the result will get routed right back to the ordering doctor. This is incredible because it makes ordering so much easier. Today, still about 40% of our orders come in through fax. Imagine -- I mean I don't know how to use faxes. I basically never do. 60% of orders come in through fax. So what that means is a doctor who -- today, if you go to a doctor, they're looking at their health record system the whole time. They're taking notes. They're typing. If they have to then stop and go over to a different machine, fill out a fax form and fax it to us, that's cumbersome. And so their order rate is lower. So converting to electronic ordering is a big win for patients, and it's a big win for us. We also have a portal that any physician can use. Whether you're an Epic or a Cerner or Athena, any platform, any physician can log into our portal. So that makes Cologuard ordering much easier. It's more available for any doctor. Through our portal, when -- as soon as they log in, they are prompted with the list of all their patients who are due for 3-year retesting. They can pull that list up. And once they verify those patients are, in fact, still indicated for Cologuard, they can click a button and order for all those patients at once. So we've made that 3-year retesting much easier. We want to make this inevitable that a patient will get Cologuard and keep getting Cologuard every 3 years. So we've seen a big lift on 3-year ordering. Our success rate at capturing continues to move up because of these web-based tools.

Terrific. So you made great progress there. You guided for over $100 million of revenue from rescreening for 2021. This appears to be somewhere in the 20% range of the eligible population. What have you done to enable this? I guess how quickly -- you've also talked about being able to rescreen up to 50% of patients for Cologuard rescreening. How quickly do you think you can get to 50? And to what extent is Epic like the primary driver of this?

Epic is a main driver. When you look at the rescreen opportunity, it is really exciting and perhaps is one of the most exciting things at Exact Sciences right now. When I look out, say, 5 or 10 years from now out into the future, rescreens will be half of our revenue or more. Rescreens also carry a much higher margin profile because the patient compliance rate is higher. And it requires fewer sales and marketing resources to engage that patient because we engage in through electronic tools. So you asked then how we got there. Epic is a big part of it because Epic is a unified platform. All of our patient records are in Epic. We can communicate to physicians through Epic. So what we've done is we've put in a series of different tools, things like text messages and e-mails, alerts to make sure that patients know when they are due -- when they're due for 3-year rescreening. We've also put in tools for physicians to quickly see a list of all the patients that are due. And more recently, we put that into the hands of our sales force. So now our sales force can provide that list to physicians. So right there on the spot they can say, "Look, doctor, you ordered this test 3 years ago. Now here is all the patients that are due. Let's take care of them. Let's put the patient first and make sure they get tested again." So this suite of tools has allowed us to drive our success rate much higher. Our longer-term goal is to capture at least 50% of patients. We will get there, I'm confident. This is such a huge opportunity. This year alone, over 600,000 new patients become eligible for 3-year rescreening. When you add that to the patients that became eligible last year that we haven't yet retested, the full pool is over 1 million patients who are eligible for retesting this year. Next year, 1.1 million more patients become eligible. So this is a huge opportunity, and we are going to get this right.

That's tremendous. Would love to ask about USPSTF for the 45 to 49 group. I think -- I believe we should be seeing something soon, in the next few months from the task force. I'd be curious, do you think the 45 to 49 group, you'll see a faster adoption curve from that group than the 50 to 75 cohort?

Well, Mark, 45 to 49 is a huge opportunity. It's a huge win for patients, too. There are 19 million Americans in that age group. That represents a $3 billion market opportunity for us. So we're thrilled to have that. The label now is approved for the -- for Cologuard to test that market. We recently published evidence, a prospective study of almost 1,000 people showing the power of Cologuard in that age group. As far as the timing of the guidelines, we expect it to come out mid-year. [indiscernible] is because commercial payers generally follow USPSTF. So commercial payer insurance coverage should improve dramatically after those guidelines come out. It's also important because screening at age 45 is new. For decades, we've taught patients and physicians, start at age 50. But now because of the science, because what we've seen over the past 20 years is over a 50% increase in colon cancer incidence in the younger age group, we need to test earlier. Cologuard fits into the younger person's lifestyle. And we -- it's intuitive. If you're in your -- if your late 40s, you likely have a job, you often have kids, you're busy. Cologuard doesn't require any time off of work, no prep, you can do it at home. So when we do the service on those age group, the appreciation, really the interest or the acceptance of Cologuard in this age group is even higher than it is in people over the age of 50. So we're optimistic here that growth can move quickly. The one thing to keep in mind is because we've never screened at age 45, there's more education that has to happen here. We have to make sure that physicians know the guidelines have changed. First, the ACS guidelines and, hopefully soon, USPSTF. The guidelines now recommend start at 45. That is a change. We have a tremendous marketing plan lined up to kick off over the summer to make sure we're doing our part to educate our physicians and patients. Our sales team is eager to get out there and spread this message as well. So we're excited. It is a huge opportunity. I said on the call this week, we expect about $40 million of revenue this year from that age group, and that's before coverage has really kicked in. Once coverage kicks in and eventually the quality measures, we expect this to be a very big part of our business.

Terrific. So you also indicated that Humana started covering patients in the 45 to 49 group, joining Aetna. Do you have a series of meetings set up with these plans this year? And do you expect -- if I remember back several years, once you got USPSTF, a lot of them started coming on. Do you think that USPSTF will be the major driver here? Or do you think some others might come in earlier?

I think USPSTF will be the major driver. Mark, when you look back to 2016, that's when Cologuard was first included in the guidelines. In the 6 months after Cologuard was included, 54 new plans started covering the test. And the 6 months before, [ afford ] it. So I do expect it to be a big driver. I mean, look, the evidence is clear. We need to screen earlier. We're pleased that so far, Aetna, Humana, multiple smaller regional plans all covered Cologuard. One exciting thing is that even though a lot of the plans don't yet cover it, when we submit a bill for somebody in this age group, when we submit a claim to the insurance company, over 80% of the time, it's paid in full, no out of pocket for the patient. So reimbursement here is already pretty good before the guidelines have moved. Once the guidelines move, we expect that to improve further.

Terrific. Liver. Liver is a test that you talked about launching later this year. I'm going to imagine I believe this is probably an LDT launch initially. Can you just speak to what type of clinical evidence you think might need to be done to get Medicare reimbursement? And then can you maybe flesh out any expected time lines or thoughts on pricing?

Yes. Mark, the liver cancer market that we're targeting is those at high risk of liver cancer. That typically means people with cirrhosis or hepatitis B. The reason why you test that group as opposed to the average risk group because in that group, that's where over 90% of all liver cancer happens. So it's in enriched population. The big opportunity here is to get more people tested. Today, fewer than 1 out of 3 people are tested for the guidelines. And we know that testing saves lives. Today, if somebody gets tested, their 3-year survival rate doubles from about 1 out of 3 to 2 out of 3. Because if you find something, you can go in and ablate that portion of the liver and improve outcomes. So this is a huge market in the U.S. Internationally, it's even bigger for lifestyle reasons and other factors. Internationally, it's an even bigger market. So eventually, we will take this test outside the U.S. Our goal is making the test available this year, in the first half is to get the test out into the hands of the key thought leaders. We've already been talking to them and designing studies with them that they can run. The goal of those studies is to generate evidence that can be used for guideline inclusion, reimbursement and, ultimately, adoption. So the initial launch will be as an LDT. This test does -- we have been working with the FDA. It does have breakthrough device designation. So longer term, the plan is to go to the FDA once we generate additional evidence.