Exact Sciences Corporation (EXAS) Earnings Call Transcript & Summary

Awesome. I think that's it, right? We're ready to go.

Let's go, Luke.

I think so. Yes. So pleased here to introduce Jeff Elliot of Exact Sciences. Been covering it for -- or covered it a while in my last -- in my previous life, and known Jeff for a very long time, fantastic guy. No death defying events here. You have to get the side question on that one in the breakout.

But I guess we could just dive right into it. And so as I think about how active you guys have been and when you acquired Thrive. And there's a lot of stuff that you've done from Cologuard that you can take to the -- a lot of these newly acquired businesses, a lot of the learnings. And as you think about CancerSEEK, one of the pushbacks I've gotten and when we were thinking about that business was that it required a reflexed imaging. Just talk about what you guys have learned from your experience with Cologuard and the colonoscopy and educating that physician set and how you're planning to educate the oncologist and cancer board and that you aren't actually adding costs to the system; it's incorporated.

Luke, first of all, great to be here and good to see you again. Last year, this was the first conference that I think switched from in-person to virtual. So hopefully, before long, we can get back into this in person. For those of you who don't know us as well as Luke, Exact Sciences is the leading pure play diagnostics company. Today, we have over 5,000 employees. Last year, sales of our -- our 2 primary products, which are Cologuard and Oncotype generated, on a combined basis, all-in, a nearly $1.5 billion of revenue. So our goal is to offer a complete suite of solutions from -- all the way from cancer early detection, all the way through late-stage therapy selection. So we are building a company to serve patients and physicians throughout that journey. Luke, your question on multi cancer screening, the workflow is an important one. I would just ask yourself, if you or a loved one got a multi cancer test and it's positive, you're going to be asking yourself is there cancer? If so, where is that? You want that answer very quickly and you want to know definitively what is going on with my health or my loved one's health. Our goal here is to provide that answer quickly, the right answer quickly. And the workflow that we are proposing for a multi cancer test is one where typically a primary care physician would order the test for a person. The goal here is to get more people tested for this deadly disease. And after a positive, which some folks will have, probably around 3% of people in this average risk population who have cancer and don't even know it. So the test will be positive for some people. Even if it's just a few percent of people, some people will get a positive. But those people, to get an answer quickly, our patients would likely reflect to a PET CT. A PET CT, a full-body scan would quickly help them determine, do they have cancer? And if so, where is that? And that's really important because if a primary care doctor and a patient both want this workflow to be easy. They want to get to that answer quickly. Some tests may set a person on a diagnostic odyssey where you go through a series of other tests, other images. And the unfortunate thing here is that it could take a long time to get to the answer. And remember, there is a false positive rate with these tests. And for a false positive, a tumor organ test is always rough. So we really like our workflow here. We think it's the right workflow. It'll help patients get to an answer quickly and get a peace of mind. Really, a peace of mind here is extremely important.

That's actually really helpful. And sorry for lack of introduction, this is my first virtual conference. So I guess you could dig in a little bit more on that. So as you think about the overall portfolio, and you're talking about providing all types of cancer testing and how that has evolved over time outside of just colon cancer screening, give us an update on -- I mean, you guys did Base Genomics, you've done Paradigm. There's a lot of other technologies that you've acquired. Can you just talk about which ones you're planning to take as a stand-alone test, which one you acquired from a technology perspective to improve your current testing menu? And just as you look 3 to 5 years out, what that overall menu will look like.

Well, look, our goal here is to get to partner with patients and physicians throughout this entire journey. So if you look across the portfolio, it starts with screening. It starts with Cologuard, which is our colon cancer screening solution to help get more people screened and keep them screened over time. Over time, we will add to that our multi cancer test. There, look, for most cancers, we unfortunately have no way to test people today, no way to screen people, which is why this is such a deadly disease. Very quickly after screening in breast cancer, in prostate cancer, we offer solutions to help patients understand their risk of recurrence and whether they'll benefit from chemotherapy. So that -- we acquired those solutions through the Genomic Health acquisition. Over time, we will come out with additional tests, additional solutions for residual disease testing and for recurrence monitoring so this is where the TARDIS and Ashion acquisitions come in. TARDIS is a very exciting new chemistry. It's a targeted digital sequencing chemistry that can be used to create a patient-informed or tumor-informed residual disease test. Ashion which is an acquisition we hope to close next quarter, Ashion is a very, very high-quality team. Both the Ashion team and the TARDIS technology come to us out of TGen and the City of Hope. The City of Hope is one of the leading cancer institutes. This one is based out in Phoenix, Arizona. So TARDIS and Ashion bring us an exciting technology, a very high-quality team. The main solution on Ashion today is a test for late-stage cancer therapy selection. This is a full exome panel. It's a very high quality broad panel, about 20,000 genes. The important question this helps answer is for somebody with late-stage cancer, what is the right therapy to use and which ones should they possibly avoid. And are there clinical trials that the patient could potentially benefit from? So again, our goal is to offer a suite of solutions all the way across the whole cancer continuum. You named a bunch of the technologies that we've acquired over time. Base Genomics, the idea here is to help improve the accuracy of some of these tests. That allows us to build that methylation and mutation markers in the same reaction, the same well, which, when you're looking for rare events in blood, a tumor -- circulated tumor in blood is a rare event. When you're looking for rare events, every chance you have to improve the accuracy is an important one. So over time, as we develop new products and bring new products to the market, our goal is to do the right thing for patients here. And so we will combine all the different technologies we can to bring up the best solution here possible.

Okay. That's really helpful. And as you think about kind of those opportunities, especially from the liquid biopsy perspective, from screening to predictive to the MRD and the monitoring, what do you view as the most near-term opportunity from a testing perspective and mid-range and then long term?

Well, over the next few years, it's a very exciting time period for Exact Sciences and for patients here. We have today a large pivotal study, a prospective study underway to demonstrate the performance of what we call Cologuard 2.0. It's an enhanced version of an already very good solution. The goal here is to further improve the accuracy. At the same time, we've found ways to reduce the cost of offering that test to patients. So that's one that we should have a readout on that next year, so again, to demonstrate the accuracy. We're also looking to bring a blood-based colon cancer screening test to market. Again, our mission is to get more people screened for this other disease, and a blood-based test can help us reach more and more patients. So the same prospective study for Cologuard 2 is also positioned to allow us to demonstrate the accuracy of a colon cancer blood test. So those will have a -- we should have a readout at some point next year. Our residual disease and recurrence monitoring test, the first step here is to complete the acquisition of Ashion. Again, that brings a really, really high-quality sequencing team based down in Phoenix, Arizona. That team will help serve as the foundation for the residual disease and recurrence test. There, I know those teams are thrilled to come together. We'll have a whole lot of exciting technologies like TARDIS to bring to bear. So that's something, hopefully, on the nearer-term side, we can bring that test to market and help test more patients. Our liver cancer test is one that we plan to launch in the first half of this year. That's a really exciting opportunity to help get more patients tested for -- liver cancer patients who are at higher risk of the disease, which typically that means patients with hepatitis B and cirrhosis. So it's a really exciting next few years at Exact. Again, tests across screening, residual disease. We even have a liquid version of our therapy selection test. We acquired a company last year called Paradigm that has a tissue-based test today that we do offer through our oncology sales force. We are working to add a new version of that, that will use a blood-based patient sample. So over the near term, we should bring that test to market, and again, be able to reach more patients.

Okay. That's really -- thanks for level setting that as from a catalyst and menu expansion perspective. You guys have given us a lot to talk about. Let's go back to the meat and potatoes of the company on Cologuard. A fantastic ramp here, continue to penetrate the physicians. You guys had a peak, I think, it was like something like 12,000 new physicians added. You added about 8,000. I know that -- I mean, it's a limited market right there. So give us an update on how you see the continued penetration going? And if we should start focusing our attention or focus more attention on reorder rates, what are you seeing from past physicians? Are you getting to that above 2.5 to 3 tests per physician?

Well look, your first question on the new physicians who have ported Cologuard, our goal is to make sure they're all educated, that they're all aware of this great new solution to help get more patients tested. Over the past 2 years, 80,000 new health care providers have ordered the test, and that's -- during much of that period, we were facing the pandemic. So our teams have done a really nice job of reaching more physicians and educating them and bringing them to Cologuard. The second step then, once a physician first orders the test, is to make sure they know all the clinical evidence behind it, make sure they understand the benefits of ordering electronically, make sure they know the entire workflow here. Because again, Cologuard is a screening system, something that is designed to help get more people tested and keep them tested over time. We wrap around that a team of high-quality patient care physicians support teams that are available 24/7. So our goal of our field teams is to make sure they've educated physicians on that and help them reach more and more of their patients. You refer to that as the reorder rate. Yes, it's -- or the physician order rate, we want to get that as high as possible, because really, that means that we're reaching more patients. Over the next 5 years, there's a long way for that number to increase because today, only about 5% of patients in this -- the entire market have been tested with Cologuard and still probably 40% of patients have never been tested at all or currently do. So this is a big opportunity. Nearly half of our patients today who use Cologuard had never in their lives been tested before for colon cancer. So I'm very pleased with the results that we've been able to deliver. There's a long runway ahead to reach even more patients and more physicians. The primary focus of our teams out in the field is to increase the number of patients tested. Our marketing teams, or really our [ ad for adjacent ] teams are what draw more and more new physicians to Cologuard. They've really raised the awareness. Given the opportunity ahead, we continue to invest because it is the right thing to do. It drives a very good return for shareholders. So we will continue to invest in sales and marketing, hope to drive the order rate higher and reach more physicians.

Okay. That's a great segue in my next question. I mean you guys spent -- you've spent quite a bit on marketing, right, and S&M, like they -- and you're going to continue to, like you just stated, because it's a huge education aspect of the business. And you talked about another $800 million, $850 million spending towards marketing campaign. Can you give us a sense of how you measure the ROI on these different investments? Is it from the TV spots that you guys have put out versus bringing on new sales force, a targeted sales force? Just give us an idea how that ROI looks per campaign.

So look, there are over 100 million people in the colon cancer screening population in the U.S. alone. That potential here means that a big investment is warranted. It is the right thing to do to help reach more patients. So when you think about that 100 million, typically, in diagnostics or health care, your target patient population are people who already are sick, already have the disease. Cologuard, our target population, are people who are healthy today. Our goal is to keep them healthy through early detection and higher screening rates. So we will continue to invest. It is the right thing to do for patients. It is obviously the right thing to do for shareholders. Our business model provides extensive visibility into the productivity of these investments. So when I look at our teams out in the field, we can see what physicians they call on. We know -- we can look at awareness levels. Again, it's really important that physicians are aware of Cologuard and all the features of Cologuard, all the end-to-end solution that we have. So we can track the awareness levels. We can track the number of orders each physician places. That allows us to understand which tactics are working, maybe which ones we can improve upon. And to your question, track the return on that investment. I know that this team can lead to a very high return on investment. So there are some very simple things we can do to attract that. Our TV ads, also highly, highly effective. Before the pandemic, if I look at the early days of that TV ad campaign, it was highly effective at bringing new physicians who we had never talked to into Cologuard. Of them, around 90% of all the new physicians that ordered, we have never called on. Our teams out in the field have never reached those physicians, yet they placed their first order. That tells you that the TV ad campaigns are working. They are driving awareness higher, and we can run tests. We can run tests in different markets to see, when we run more TV ads or more radio ads, we can see the resultant lift, the impact that we're having on getting more patients tested. And I can tell you those marketing campaigns are extremely effective. The sales force, the teams out in the field, are always probably your single most productive investment in health care. The TV ad campaigns are also highly effective at reaching more patients. So those are things that we're looking at very closely, and we always monitor the level of spending and the financial return. But I can tell you, it is a very good investment for us to reach more patients.

Okay. That's helpful. And it's -- as you think about -- I mean before COVID and the flurry of M&A you guys had, the growth driver on Cologuard, we were talking about online ordering, the integration on Epic, increasing your sales force. Kind of just give us a state of the union as it pertains to those 3 growth drivers before the pandemic hit. And then add on to that, kind of the online ordering and how that has really accelerated, if it has at all during the pandemic itself.

Look, many of the drivers that you mentioned are still the drivers today given kind of during the pandemic. The pandemic is still here. It's still very much here. Hopefully, case counts continue to come down. When I look over last year, though, for much of the year, we were operating with 1 or 2 hands tied behind our back. Our field teams, normally, they're at their most productive when they're out there face-to-face working with physicians to screen more people. However, during most of the pandemic, that team was not allowed out on the field. For their own safety and for all of our safety, physicians said, look, we don't want anybody in the offices unless it's a patient. So sales reps, not welcome; the field force is not welcome during most of last year. Now our teams are getting back out in the field. And we can see, when they're back out there, they are more productive. So that's a positive sign. In the fourth quarter, Cologuard revenue grew by 9%, and that was despite having teams not in the field. That was despite very limited access. Let's deal with Pfizer. The Pfizer teams have been our partner throughout this. During much of the pandemic, Pfizer reps were not out in the field, yet the teams continued to reach patients however they could, over the phone, through video chats. The teams are highly motivated to find more patients to screen. So now that they're getting back out there, that's a very good setup for this year. The reps are getting back out there, able to reach physicians now at an increasing rate. It's still somewhat muted, but they're getting back out there in a bigger way. Over the course of the year, I expect COVID case counts to continue to come down, and our field teams to continue to get back out there and have increasing access to physicians. On top of that, we should have more patients come into Cologuard through the Cologuard 45 population. That's a new opportunity this year. The opportunity here is to help get more people who are 45 to 49 tested. People in that age group have probably been very busy with their jobs, their careers. A colonoscopy typically requires 2 days off of work. And so just imagine, would you like to ask a coworker to take you -- to take a day off of work with you while you prep, drive you to the procedure because you can't drive yourself to a colonoscopy? You have to have a coworker or a friend or spouse or somebody drive you. So a colonoscopy takes a lot of time, it disrupts your life. Cologuard fits very well into the typical busy 45-year-old lifestyle. And again, the goal here is to get more people tested. Why that's so important in the 45- to 49-year-old population? There are 19 million Americans, almost all of whom are untested. And for people under the age of 50, colon cancer is a real threat. In fact, for men under the age of 50, colon cancer is the leading cancer killer, the leading, the #1 killer. For women, it's #3. So we can solve this through better testing. And Cologuard, we think, is the best solution for people under the age of 50. So that's a big opportunity. This should start midyear as the key clinical guidelines are updated. We're expecting that that's happening over the summer. On top of that, this is a really big year for physicians in ease of ordering because with this new version of Epic software that is now available, and increasingly, we're seeing more and more physicians and hospitals convert to this new version, this new version has a big red, easy button. The bigger and easy button is a way for them to order Cologuard electronically just through the click of that button. Historically, the majority of physicians submitted Cologuard orders through a fax, through a cumbersome fax machine that was probably invented 150 years ago, but that is still the primary way that we receive orders. Our goal is to make it easy. We want a physician to be able to click that button and order Cologuard electronically. Today, over 40% of our orders are submitted electronically. So we are increasingly making it easier for physicians to get patients screened. The beauty of that for us is that when a physician can order electronically, they order far more Cologuards than when they order through a fax. No surprise, it's far easier. So that's something that will unfold over the course of this year. And lastly, Luke, is Cologuard is a 3-year repeat test. The guidelines recommend to Cologuard every 3 years. For us, that means that a patient who is 50, okay, we have, let's say, 25 to 35 years to help keep them tested, somebody who is 45, we have even longer. What we've seen is that our teams who are 100% dedicated to 3-year rescreening continue to do an even better job at getting patients screened and keeping them screened over time. That, for us, has a big implication for revenue because this is a big pool. This year, there's over 1 million patients would need to be tested for that 3-year repeat test. Over time, that will continue to grow. And again, the goal here is to get people tested and keep them tested. That provides, for Exact Sciences, a really nice revenue opportunity.

That's a great way to end it. And I guess just last in a couple of minutes here. You're talking about the 45 -- the under-50 population coming on. Any types of different -- you talked about the busy lifestyle. Is there any different strategy that you're going to take to attack this population? Or you really kind of laid the groundwork ahead of this?

Well, we've been working for years to help serve patients in this population. It starts with the evidence. We generated clinical evidence through a prospective study of nearly 1,000 people in this younger age group because we wanted to be able to demonstrate to patients that Cologuard is extremely accurate in this younger age group. We've also been working to design a highly effective marketing campaign. The opportunities here are different and the age -- in the 50-and-above age group, patients have been taught 3 years that they should be tested. The difference now with the 45-year-old age group is these patients have not been told to be tested until now. That's where Exact Sciences comes in. So we are trying to raise the awareness, that the right time to be screened is starting at age 45 as opposed to 50 and make sure the awareness of Cologuard is high. So again, it starts with the clinical evidence. We've generated that study, a 1,000-person prospective study. We've been working on the sales and marketing campaign to make sure that patients and physicians are aware and educated on the benefits of Cologuard. And now we look forward to the key guidelines to update. The guidelines here that have the biggest impact on commercial adoption are USPSTF, the United States Preventive Services Task Force. In draft form, those guidelines were updated in October. They did recommend starting screening at age of 45. We're expecting that to become final over this summer. And we hope that, that will help us reach more patients in the younger age group.

Okay. That's great. Thank you. Really, to wrap it up, you guys have a busy year ahead, a couple of years ahead of you. So thanks again for showing up, Jeff, and look forward to connecting with you guys soon.

Nice to see you, Luke. Thank you, and thanks to Barclays.

Yes, cheers.