Exact Sciences Corporation (EXAS) Earnings Call Transcript & Summary

All right. Good morning. Thanks for joining us. Welcome to the Jefferies 2021 Virtual Global Healthcare Conference. I'm Brandon Couillard. I cover the life science tools and diagnostics sector here at the firm. It is my great pleasure to have Exact Sciences with us back at the conference again this year. Joining us for this fireside conversation, CEO, Kevin Conroy; as well as CFO and recently appointed COO, Jeff Elliott. Thank you both for being here. We'll just jump right into it.

Kevin, I'd like to start with the Cologuard business. Yes, I was certainly one that was expecting a faster recovery in the first quarter for that franchise. You did return to positive year-over-year revenue growth in the fourth quarter. The first quarter was down sequentially, again, mostly due to seasonality. But what are some of the gating factors that are still holding back Cologuard in terms of a faster rebound right now?

Thanks, Brandon. The great thing and the reason that we're really happy with where Cologuard is, it's an indication of where it can go. As you know, our field team has had very limited access to offices. The Pfizer team is now just coming back to the field. So you see where Cologuard has gotten to with very limited interaction on an office-by-office basis. So as you know, the more frequently a rep visits an office, the more screening occurs and the more Cologuard utilization occurs. That is because primary care offices are typically very, very busy and screening is not always on the top of mind for health care providers. So not having our field force super active in the office has been a major headwind. So this is going to take some time. It's why we have been very cautious about how quickly Cologuard returns to normal. We know this incredible base of strength that we have with Cologuard. And as we get more access to the offices and as more people come back for wellness visits and things other than vaccinations and immediate health crises that they have, as the world starts to return more to normal, we expect to see resumed aggressive growth. And so the positive takeaway is that you're seeing the strength of Cologuard with very limited sales force interaction. And when that all comes back, that 650 field force, 500 in the field, 150 inside plus the even larger Pfizer team, we think that is going to be a recipe for future growth.

Jeff, I think you mentioned on the call that I think wellness visits maybe were still down 10% to 20% in the first quarter. First, is that right? And what's the latest data that you have telling you as far as that trend, April, May, which seems to also be lagging kind of broader health care utilization and more, let's say, routine central lab-based kind of testing volumes?

Brandon, that is still the right range, down 10% to 20%. And when you think about our target patient population, it's probably down closer to 20% or more. Our age group, our average customer is in the early 60s, and that age group is more susceptible to this pandemic and therefore more cautious, so less likely to go out and do things like wellness visits. As Kevin talked about, as patients start to get vaccinated and resume their normal lives, they're out there and taking care of more acute things. Over the past year, we've seen a rise in mental health issues. Okay. While they may be going to the doctor for that, wellness visits are not stepping back as quickly. They will come back. There is a huge backlog of patients who want to and need to get wellness visits and cancer screening. Cancer didn't stop over the past year. So when I look at the backlog of people needing to be screened, it is enormous. Today, there's over 45 million people in the United States alone who need to be screened for colon cancer to prevent this deadly disease from taking their lives.

Kevin, you mentioned Pfizer reps are just beginning to get back into the field. In terms of your own internal sales force, you mentioned 500 field reps. How many of those are able to do face-to-face visits and kind of resume a more normal sort of detailing schedule right now? And I'm curious kind of what's embedded in terms of the guidance as far as a return to normal for those field reps.

The -- our field reps have been back in the field for several months now. And most of them have some access, some of them still have very limited access, others greater access. But this may be 50% to 75% reduced and getting time with primary care physicians is harder. Now that's going to change. And when it does change, one thing we know is the more frequently our field force visits with health care providers, the more frequently the health care providers engage in screening and offer choice, including Cologuard and the more Cologuard utilization there is. So it is going to come back, we're very confident about that. That has been the math that we have shown over the years about how effective that strong field force is. So we're confident. It's just a question of a matter of time. Is it going to be -- it's not going to be 3 months before the world returns to normal, and we hope it's not a year but it's probably somewhere in between there. It all depends on how these doctors' offices start to feel comfortable in terms of bringing people back in and being safe with their own staff and also with their patients.

You haven't talked much about recently about online ordering, which I feel like flashing back 6 or 9 months ago, it seemed like a major opportunity to sort of fill the gap in this period by enabling patients to go online and order a Cologuard test virtually. What percent of volume does the online platform account for today? And why isn't that a lot higher?

Well, overall, it's a small percentage of volume. Over time, that will grow. It's a meaningful opportunity for us, especially as we engage at the health system level and the -- with payers to help drive screening towards something that is a broader and less transactional or just happenstance by you happening to have a wellness visit. And that just takes time to build, so it takes time for individuals to know that there is a different way to get screened and to motivate them to do that. So we're really happy with the growth. But it is still off of a small base.

Yes. If we look at the Cologuard revenue guidance that you gave or reestablished for the full year and we consider your 2Q outlook, let's call it, $275 million or so, would apply the back half grows at about 8% to 9% sequential sort of growth rate, which is about in line with what you did in the second half of '18 and the second half of '19. Given kind of the confluence of positive tailwinds, be it from expanded electronic ordering, Cologuard 45, just having to build sales force back on offense, why wouldn't it necessarily be a little bit better than kind of historical averages?

Well, Brandon, as you mentioned, there's a lot to be excited about, both this year and well into the future. Electronic ordering, that's a huge driver this year and for many years to come. Longer term, we're going to look back at the pandemic and say this was a turning point for colon cancer screening in this country and for Cologuard specifically. We think that ultimately, the pandemic will help accelerate us towards our long-term goal of at least 40% share by a year or 2. And we could dig into the numbers and see early signs of that. That said, the pandemic is still here. People have still changed their lifestyles. As Kevin talked about, wellness visits are down, people have put off colon cancer screening for now. It will come back. But when I look at guidance for this year, we have to reflect the current realities that exist with the pandemic. Longer term, very optimistic though. The guidance, you should believe in those numbers. Those guidance are -- those numbers are meant to be what the year -- where we expect the year to land.

Maybe taking that one step further, your guidance for Cologuard for '21 implies that 40% year-over-year growth. And given those -- that bolus of catalyst for the business, like I mentioned, 45, electronic ordering, expanded 3-year rescreen pool and having the field sales teams back in front of docs, is it reasonable to think about Cologuard's growth potentially accelerating in '22? Not asking you to give guidance, but is that kind of a reasonable sort of framework to think about in terms of the trajectory into next year?

We do expect strong growth next year, Brandon. I'm not ready to give guidance for the year. There's still a lot of unknowns. When will things get back to normal with wellness visits? When will the reps get back out into the field on a more normal basis? When you think about the past 15 months, there's been a cumulative headwind that has built. And as Kevin talked about, the more times that our reps visit a doctor face to face, the more the doctor orders. Well, the converse is true, right? The longer they've been out of the field, the bigger that headwind is. So as things get back to normal, I'm optimistic here, but it's going to take time. And then I can't look ahead to next year and say for sure, where wellness visits be, where will rep access be. So longer term, we're super excited. I do expect strong growth next year. As far as what level, we'll share more about that next year.

Are you able to assess or quantify to any degree the magnitude of volume you may be picking up from the backlog of deferred screening colonoscopies? And what does that sort of look like today in terms of a pool of theoretical patients that could, I guess, be switched to Cologuard?

Well, that pool of patients who defer the colonoscopy or canceled it over the past 15 months is well over 1 million people and are growing. Today, colonoscopies are still depressed by 10% to 20%. And the ones that are happening tend to be people with symptoms or people who have more urgent need. Screening colonoscopies tend to be towards the bottom of the list of priorities. And that's where Cologuard comes in. Cologuard, again, has been showing year-on-year growth for several quarters now. That has allowed us to help start to alleviate the backlog where that backlog is enormous and continues to grow. And I think the backlog will continue to build over the course of this year. The true backlog, Brandon, if you will, is the 45 million people who need to be screened. And again, that's where Cologuard comes in. That's why Cologuard was designed and it's to get more people in this country screened and keep them screened over the course of their lives.

I'm taking a look at -- here at Gastroenterology & Endoscopy News this morning. And the headline article is, "Model Finds Stool Tests Key to Lowering CRC Screening Age." And the thesis of this -- the investigators who looked into how in the world are we going to screen people 45 to 49, the answer came back with Cologuard and the FIT test. Now we think the FIT test is really a test that probably shouldn't be used because the performance is so much lower than Cologuard. The adherence is 30 percentage points lower than Cologuard, and adherence really matters. And it's great to see them say, "Look, we know colonoscopy is a limited resource, and Cologuard is an opportunity to get this population of 19 million Americans aged 45 to 49 screened." Over time, we know that once somebody uses Cologuard starting at age 45, they're most likely to use Cologuard again and again and again. And then ultimately, colonoscopy becomes more of a resource that is used for people who have a family history or who have had a positive stool test or who have had a personal history of precancerous polyps. And that is so rational to screen people in this way. And it's being recognized even in a leading GI journal. So this is why we are so optimistic about 2022 or the rest of 2021 and 2022 and beyond is that there is a recognition that Cologuard is a tremendous way to screen people for colon cancer. And we're seeing it in the base business where we're hitting peaks without our gigantic field effort that we have employed that is only fractionally impactful today and that's going to change. That is going to change and we are going to see growth as we look forward.