Exact Sciences Corporation (EXAS) Earnings Call Transcript & Summary

Hi. Good afternoon, everyone. This is Derik De Bruin, the senior life sciences and diagnostics tools analyst from Bank of America. Welcome to our 2021 Virtual Viva Las Vegas Healthcare Conference. With me today is -- from Bank of America is Ivy Ma. And our next company up for our discussion is Exact Sciences. And today from Exact, we have Kevin Conroy, Chairman and CEO; and Jeff Elliott, Chief Financial Officer. Kevin, Jeff, thank you for being here. Always a pleasure to host you for these events. Just to kick things off, would you like to make some few opening remarks? Or I can start the pummeling with questions now?

Well, I would start by saying I love being in Las Vegas and can't wait to get back there. We're really excited about our coming out of the pandemic, we believe we're coming out as a much stronger company, a strong -- an even stronger company culture. And we're participating, and this is important, in 3 of the largest opportunities to impact cancer and cancer care. That is colon cancer screening with Cologuard and our blood-based program with our multi-cancer testing program, which is going to have an enormous game-changing impact on early cancer detection, and then also with minimum residual disease tests. So looking forward to having these conversations today. Thanks, Derik, and thanks, Ivy.

Great. So look, you guys have a solid first quarter despite some order seasonality, some onetime headwinds, the businesses still in recovery from COVID. Could you talk a little bit about the Cologuard and Precision Oncology trends you saw in March? And so -- and up to that, just was sort of like how's it compared with your patient? Where do you think there's still some lags in that? Just sort of like opening an statement.

Jeff, do you want to take that?

Yes. So Derik, we were pleased with the results in the quarter for both Cologuard and the Precision Oncology business. In total, we grew revenue 16% despite the backdrop here. Looking at Cologuard, as is typical, the year started off slower, and that's really because of seasonality. Around the holidays, Christmas, New Year's, people don't go to the physician for wellness visits. They go if they're sick, but not for physicals. Physicals are typically when Cologuard's orders are placed. So that means our year starts off slower in any given year. What compounded that this year in January was this large spike we saw in COVID cases. That may have been the peak for the whole pandemic, hopefully. So the year started off slower. When you look at to February, the pandemic started to abate. February got hit by a large storm that hit Texas, which is a key state for us in a lot of the sell. So things were slower in January and February, and they really came on strong in March, which really gives us confidence when we look ahead to the rest of the year. The team is inspired under a new leader, Pat Setji. We've got some new initiatives in place that are really helping drive the business. On the Precision Oncology side, we had what I thought was the strongest quarter in that business' history, $129 million. What really stood out to me was that mammography trends, which are so important for that business to help -- that really starts the process here with breast cancer diagnosis, down streaming that is often an Oncotype DX Breast test order. Mammography trends have really started to normalize, which is helping that business. Also, the team made very good execution. Internationally, we grew over 20% in the quarter. And again, that's despite a challenging backdrop. So we're still -- though, when you look ahead, there's still some headwinds out there. Rep access is still very limited. So our teams on the field cannot spend as much time with the physician. We're probably down by 50% on the screening side and probably down 75% on the Precision Oncology side. So there's some headwinds out there, but all in, I feel very good about the state of the business.

So interesting question. I mean I've been -- every one of the life sciences companies I've been talking to is like their engagements are actually up with their customers and like that. And I'm just sort of -- I know it's a little bit different in the diagnostic space, but I'm just surprised to hear that, still, the face time with physicians is as important in sort of getting in there and doing this. I guess why -- I guess, how successful have your teams been in sort of like outreach over the web? And I guess, do you still need that face time contact with the physician, that specific detailing in order to drive it? And just sort of put some thoughts on that?

Primary care physician offices are incredibly busy, and they're seeing just this huge array of problems, problems that are in the preventative realm, and then problems where people come in with a litany of issues. And the average office visit is about 8 minutes. The way to drive engagement and a focus on screening is through repeat visits to an office, focused on the data, focused on education and really getting offices to rethink how they are approaching colon cancer screening. And it clearly works. When you look at the data in any given quarter, the number of visits that you make to a physician's office with the amount that they order Cologuard, there is a straight line correlation, a significant increase. The more frequently you visit -- and there's good reason for that, because they are busy and focused on so many other things. And you're still teaching so many new people about the amazing technology that Cologuard embodies. So it's -- that's not going to change. If you take a look at Pfizer, there's a reason they have a huge primary care sales force. It's the same reason that we have a large one is it makes a big difference.

Got it. Makes sense. Jeff, you alluded to the fact that there's a lot of reasons to be bullish heading into the second half of this year. I mean you've had a number of initiatives that were ongoing last year, Epic, just adding new salespeople and doing things like that. So can you sort of like lay out what you sort of see as the key drivers going into the back half of the year? And basically, this is looking like a key catalyst lineup from a marketing standpoint, and then any sort of like data otherwise with like this. But give us a list of like these are the things that -- why we should see accelerating growth in the back half?

Derik, if you look back last year, at one point we said, we thought that longer term, the pandemic would help to accelerate Cologuard adoption by a year or 2. And sitting here now, I absolutely believe that. We have seen accelerated adoption towards many initiatives. And one that I could call out is electronic ordering. Electronic ordering is so key to engaging with patients, engaging with physicians and making sure the process is easy. Well, in part due to the reduced face-to-face access over the past year, our teams have made electronic ordering a high priority. So we've seen the best conversion that we ever have seen in the past year. We added 13 points of additional electronic ordering over the past year, again, despite the pandemic. And I'm confident looking ahead that, that number will continue to go higher. That -- over time, that leads to accelerated growth. When you make it easier to order, physicians order more. We get more patients tested. So the pandemic will serve to have changed the mindset on screening. We believe there is a better way. We believe that Cologuard, through high levels of accuracy and convenience, is a key to get more people tested, and the pandemic is changing people's mindset. And we've also made big gains on things of electronic ordering. Over the balance of the year, in addition to incremental gains in electronic ordering, Cologuard 45 is a huge new opportunity. Importantly here, there's 20 million people in that age group, almost all of them need to be tested right now. The reason why is that incidence rate is rapidly growing in patients under the age of 50. We need to get those people tested. Cologuard fits into their lifestyle very well as a flexible at-home test. And we expect to see a key USPSTF guidelines updated during the middle of this year at some point. That hopefully will lower the screening age from 50 previously to 45. After that, we expect gains in insurance coverage, also very key for adoption. And lastly, I would say 3-year rescreening, very important. This is one of the -- the real beautiful features of Cologuard is a testing system. We can get more people screened and keep them screened over the course of their lives. So 3-year rescreen is how we go about doing that. This year, we expect over $100 million of revenue from 3-year rescreening. Our success rate at capturing those people every 3 years is growing. At the same time, the pool of patients who become eligible is growing rapidly. So over time, that's a big driver. From a data standpoint, this year and next year are perhaps the biggest years for data releases, really advancements in our pipeline in company history. We expect some data at ASCO in the near term here, really on the Precision Oncology side of our business. Later in the year, we expect data on our liver cancer test, and we can talk more about that opportunity. That will be a full manuscript with the validation data. Later this year, maybe early next year, we'll share data on our colon blood test. We've been working on it for many years, and we're very excited to get that data out there. And then looking ahead to next year, we should have data on our multi-cancer test. This will be a full validation study. We also expect to have data on Cologuard 2.0 from our pivotal study as well as data from our pivotal study on Cologuard blood. So it's a robust period of evidence for Exact Sciences.

Yes. I didn't -- maybe I missed it earlier, I didn't realize that you were expecting pan cancer data next year, et cetera. That's -- is that new? Or if you said that on the last call? Because if it is, I missed it, but I was probably exhausted.

You don't miss much, Derik.

Yes. Okay. All right. That's -- okay. I was just making sure because that's like [indiscernible]. So let's talk about -- so let's sort of focus on that then. So look, I think one of the things that I still get questions on from investors is the debate between what ultimately is the state of Cologuard and stool, like these blood tests come out. So can we sort of talk about how you sort of see that market evolving? You've obviously heard some commentary from some of the other companies in this space, they're working on the colon cancer test. And there's guidelines out there. And what is your sort of assessment of the colon cancer and the pan cancer landscape right now for liquid biopsy?

Starting with colon cancer is the #2 cancer killer. There are over 100 million Americans in the screening population. About -- if you look at people 45 and older, there are about 45 million Americans who are totally unscreened. Cologuard is wonderful as a launch that we've had and growth and brand creation over the last 6 years. We're approaching ballpark 6 million people tested. There's so much room to grow here. Colonoscopy has flattened out, and the FIT test still has a fair amount of utilization. Only 65% of people in the 50 and older group are getting screened at all. So there's -- this is another way of saying, there's a huge opportunity for innovation in this space. We firmly believe that Cologuard is the best approach. If you take a look at anything, colonoscopy is a very good approach. We believe Cologuard models in a very similar way to colonoscopy. After that, you have a FIT test, which is not, in our view, a very good test. Maybe a blood test is a little bit better than a FIT test. And if sold, and it's going to have an important role to play because of the ease of collecting a sample over a FIT test. Cologuard is always going to play an important role in screening, number one, because of test performance. And I think it's fair to say that the Cologuard test performance is going to -- the way we look at it, is going to perform better than our blood test. And we think our blood test is at least as good as other aspiring entrants. And because of that performance difference, you're always going to want to go for the test that detects more precancerous polyps in more Stage I cancers, if you have a choice. Second of all, ease of use. And if anything has been shown over the last year is Cologuard is really easy to use. There's a data point in our prospective study, about 20% more people complete a Cologuard test than complete a blood draw. This is that experiment. You're incentivizing people to complete a screening. A lot of people still don't want to get a blood draw. So there's going to be a mix. And I think that mix is going to weigh in favor of Cologuard because of ease of use and performance. We are excited about our own blood program because it's going to help fill the gap and increase the overall screening rates. If we can get 80% or 85% of people screened, with either colonoscopy, or Cologuard, or a blood draw, we wipe out this disease, and we think we're going to lead the way here. We have the right team, we have the right infrastructure and the ability to deliver on that primary care setting. So we're very, very confident about the impact we can have over the long haul.

So I mean, the -- I think one of the questions that keeps coming up on the whole pan cancer opportunity is -- I mean, for colon cancer, there's a clear regulatory pathway. We know sort of what the price is going to be. We have performance. We sort of know all the things that the payers and everybody want to see. And so if the test can deliver at a certain level, we understand the markets there. I think pan cancer is still a little bit questionable in terms of the performance characteristics you need to see, the regulatory landscape you need to see on that one. Can you sort of talk about, I think, what sort of levels of performance you can just show with the pan cancer test? And obviously -- and some companies are obviously trying to take more of an LDT approach versus an FDA-approved approach. So I'd love your sort of thoughts on what do you need to see from performance characteristics? And then what do you sort of think on the regulatory and commercial pathways?

Well, Derik, this reminds me a lot of 2009 through 2014 period of Exact Sciences when we were developing Cologuard and there wasn't a clear pathway. We had to do some invention along the way and win over a lot of people to the idea that more noninvasive screening could have a great impact. And with multi-cancer screening, it's an exciting time because the studies and the technology show you can detect cancers earlier. In the prospective data that exists shows, today, less than 50% cancer detection for Stage I and II cancers. And that's where the big, big impact will be.

Yes.

We believe that our approach of combining a mutation panel that's highly curated and a highly curated methylation panel into one test, along with proteins, is a winning formula for a superior test performance. And in terms of the regulatory pathway, we believe, ultimately, Medicare will pay for an FDA-approved test and probably will not pay for a test that is not FDA-approved. So that's going to require a prospective study. We have agreement with FDA on the parameters of a prospective study, which we expect to start next year in the first half. So we're very pleased with that regulatory pathway. What is up in the air at this point is the guideline group. USPSTF is so important to getting broad-based insurance coverage, including Medicare. And the good thing is that there are high-quality people and companies involved in this space. I think that they're -- we're all working together towards that same end, and that's important. So I think it's -- the power of the test will ultimately win over the guideline groups, win over Medicare. Think about it this way. This may be the first and only cancer screening test that is potentially cost savings. That means if you apply this at a population level by shifting towards surgery and a way towards expensive targeted therapies, you probably have the ability to reduce costs. So we're really excited about that. And this is going to play out over a longer period of time. We're confident it's going to make a big difference.

Great. So I got a question from a client that just popped up. It's like, can you ask Kevin and Jeff whether the readout next year for multi-cancer is an interim readout of the largest study that was set to read out in 2024? I think you're still -- you're talking about a validation study. This isn't right. Next year's data is validation. It's not the longer-term study for approval?

Right. So to be clear, what is going on right now is the product development teams are working on the performance of the 2 tests, optimizing it, locking it down, developing the automation and the pathways within the lab for those samples to go from sample to result. And to lock that down, we will go through a series of case control studies culminating in a study where we will lock the algorithm for mutations, proteins, methylation, and then we will launch into the prospective study.

Got it.

And so some of that validation data, algorithm setting data will be shared then at some point after we lock that down, just like we did with Cologuard in a very transparent, methodical way.

Got it. That's helpful. So I want to do one more pipeline question before I switch over to talking about some of your recent M&A activity. So could you remind us on -- you talked about ONCOGUARD and liver earlier. Can you give us an update on the launch plans? Your thought on the revenue opportunities and competitive landscape there?

ONCOGUARD liver became available this week. We're really excited about that. We say became available and not launched because we don't consider a product launched until there's insurance coverage. It's probably 16, 18 months between now and Medicare coverage on that test, and that will then become the official launch. So you need a publication, you need to submit a dossier to MolDx, and then ultimately, that they have about a year with that.

Got it.

And so we expect to do that towards the end of this year. And that is an opportunity to test about 3 million people who have liver disease, or cirrhosis, hepatitis B, et cetera. We think that market could expand over time. And we believe there's just a better approach than ultrasound or the CEA test, which are the 2 approaches used today. More accurate, both from a sensitivity standpoint and a specificity standpoint. It also helps us kind of prelaunch a multi-cancer test because you put in place the blood draw infrastructure, testing capacity, it forces you to flex your muscles a little bit with the whole commercial and clinical laboratory infrastructure that is needed to be high quality and impactful.

Got it. So in addition to Thrive, you've acquired a number of companies over the last, I would say, 18 months. Can you sort of walk us through this flurry of deals and how they fit in? I think, what, there's TFS, there's Ashion and there's Paradigms, Biomics, Base Genomics and TARDIS, and I'll refrain from my Dr. Who Dalek impersonation on the TARDIS one. But I'd love to see how all these things sort of like come together? And how you're thinking about revenues over the next couple of years. Like -- so how does this -- how does whole landscape from that into your grand design?

Sure. Well, we're really excited. It started with the acquisition of Genomic Health, really an amazing company that has transformed breast cancer treatment and has 98% of oncologists in the U.S. have ordered Oncotype DX Breast Recurrence Score. It is standard of care. It is the preeminent test in the guidelines for determining whether an early-stage breast cancer patient will benefit from chemotherapy. Because of the 100-person commercial team -- actually, it's larger than a 100-person commercial team, that gives us the ability to really deliver minimum residual disease testing in that space. We have the tissue, the whole tissue block. That is the starting point then for minimum residual disease testing, for example, in breast cancer patients. To build a minimum residual disease capability, we get a licensing deal with TGen to acquire their TARDIS, T-A-R-D-I-S, technology. We also acquired Ashion from TGen, which is a whole exome and whole genome capability that allows us to service the starting point for an MRD test. And you combine those teams and their capabilities, we can move into this incredible new world of minimum residual disease testing, and we're excited about our position in it because of those strengths. We also acquired Thrive. We've already touched upon that, and Base Genomics, which is a fundamental game-changing technology allowing you to convert methylated DNA in a way that you preserve information and you don't destroy a DNA like you do with bisulfide treatment. So that's going to play out in a lot of different ways over a long period of time. Our recent PFS genomics acquisition could really double the opportunity for early-stage breast cancer patients in terms of, one, will you benefit from chemotherapy or not? And secondly, will you benefit from radio therapy or not? And that second question, PFS Genomics has a classifier, which appears to answer that question. They've lined up another clinical trial that will run over the course of the next year, and that will serve as the basis for validating another new impactful test, adding on to the strength that we already have with the Breast Recurrence Score. I'm sure I've missed something. But with all of that, it's why we're tremendously excited. Let me say this, we couldn't do this without awesome scientists, the first rate science and the ability to deliver to patients, that means labs, IT capabilities, direct-to-consumer engagement, quality teams, regulatory teams, clinical affairs team. This is second to none, we believe, in the industry, and we're going to keep investing in our people and our teams who will, we believe, change cancer care forever.

Yes. I mean, it's sort of like the general -- I mean I know you got some pushback when you originally bought Genomic Health, but is this just sort of your initial plan all along? Do you use that as the basis to sort of build out all these other verticals?

We believe you start with the highest quality with the deepest engagement to the customer. And by understanding that customer, and them understanding what we can deliver, you can create magic. And what Kim Popovits and team and Randy Scott created over the years is we'll pay dividends for people with cancer for years and years, decades to come. We really believe that.

So I'm going to ask you -- switch back. I'm going to ask you the #1 question I've been getting from investors for the last couple of weeks, which is, why do you think shares have been under such pressure? We know the market has been volatile, especially for growth stocks. It's part of an ETF holding that have been volatile. But your shares are down significantly since April. There's no real change in fundamental. The stock is already a deep discount for peers. I'm a bit perplexed because I don't really have a good answer for these investors. But I'd love to just rehear your views on what's going on, and what you're hearing from investors?

Look, I've been doing this for 12 years, and I've seen our stock move around quite a bit. I know what that trend line has been over that 12-year period of time. And it's -- we're tremendously excited about the future, and that's what we're looking at. This is a 10-year and a 20-year and a 30-year company, and there are going to be times like this. I look at it as -- the answer is this is an amazing buying opportunity because of all these fundamentals that we've touched upon. Why is it? I have no idea. But I do believe that there are going to be opportunities like this, and this is where investors have to ask your question, do they believe Jeff? Do they believe me? Are we committed to this? Do we have the right science? We think the answer is yes. And we plan on delivering.

So my normal question is, what do you think the Street underappreciates about your business? I think you just probably answered that question. Is that -- if they don't appreciate how all those sort of bits and pieces are fitting together and what's there. But when you look at the sort of grand vision, what's the biggest risk to it?

The risk always is, can you get the job done? And that comes back to our teams. And I would bet on this team over and over and over again. The leadership, the people on the front lines, the -- how much are customers like working with us. So -- but the risk is, can you develop the test? Can you run the clinical trials? Can you navigate the regulatory pathway? And then can you execute commercially? And let me just say this about the commercial team. There is no commercial team in cancer diagnostics that has been built block by block, step-by-step in primary care, in GI, in oncology, in urology, in women's health, in health systems, in health IT that is anything close to this. So this is going -- this is our -- the base upon which the amazing science gets introduced to physicians. We're really good at that, and we look forward to proving that in the years to come.

Great. I didn't get any -- I don't have any other incoming questions from investors. Let's see, we've got 20 seconds. One I didn't get to on the list, the Pfizer partnership, how is that -- is that coming up for renewal? Is that something you're going to take forward again?

They've been a great partner. We need to get them back into the field. We hope they are in the next month, but we hope so.

Great. And with that, we're out of time. Thank you, Kevin, and thank you, Jeff. Thank you, investors, for listening. Thank you for your support, and have a great rest of the conference. Good day.

Thanks, Derik.