Exact Sciences Corporation (EXAS) Earnings Call Transcript & Summary

Welcome to the Wells Fargo Health Care Conference. Before we get started, if you are a member of the press or media, please disconnect at this time. This is a restricted line. Any unauthorized party in this meeting or any unauthorized use of the information communicated in this meeting is subject to prosecution to the fullest extent of the law, any unauthorized person, including the media that is on the line at this time, please disconnect. Please note, today's call is being recorded. Thanks, Marta, and welcome, everybody, to the Exact Sciences fireside chat. With us today from the company is Jeff Elliott, CFO. This is a fireside chat format. So if you have questions, please e-mail them to me at [email protected] or use the question tab on your conference portal. And with that, we'll kick things off. Welcome, Jeff.

Yes, thanks for having us.

So my first question is the typical question. Can you give us an update on the business environment and how the operating environment is trending versus the assumptions you had in your updated guidance?

Well, Dan, it's a very exciting time to be at Exact Sciences. We just came off what I thought was a really good quarter, especially relative to the backdrop. Last quarter, we grew Cologuard, which is our flagship product for colon cancer screening. That product grew 25% relative to the last quarter before the pandemic started, which is Q1 of last year. So 25% growth, I thought, was very good. Our Precision Oncology business also had a very strong quarter, growing over 30%. So all things sold. I think the team is delivering very good results. When you look ahead over the next couple of years, our pipeline is in very good shape. We expect the most productive period out of our pipeline in company history with key data readouts for our colon blood test. Our Cologuard 2 program, which is an enhanced version of an already very good test in Cologuard out of our multi cancer screening test next year. And then later next year, SEDAR readouts expected for MRD and our therapy selection test. So a very busy time in our pipeline. A lot -- there's a lot going on in Exact Sciences and a lot to be excited for. We have talked before about the pandemic presenting both some silver linings in that longer term, we expect the pandemic to help actually catalyze growth of Cologuard. Also some headwinds. When you look right now in the Cologuard business, access to physicians is limited. According to recent survey work, we've conducted 55% of primary care doctors are not allowing reps to come in and see them. And as you know, Dan, that's face-to-face access to physicians is so important. Cologuard is promotionally responsive. Also, fewer patients are seeing doctors for wellness visits. Right now, acute or chronic conditions are being prioritized, but wellness check really preventative care is being deprioritized. So there are some headwinds in the business, but all told, I think the team is executing very well.

Okay. And when you think about promotional sensitivity and headwinds with rep access, do those comments apply just to your screening business? Or would you also flag those as considerations for the profiling business?

Those comments are true in sales broadly in that specific to Exact Sciences. In Cologuard, let's start there with Cologuard. Cologuard is still relatively new product. Yes, it's been in the market. It was FDA-approved 7 years ago last month. However, it takes time to introduce a new product and change the standard of care in screening. It takes time to secure broad reimbursement, guide lining conclusion, quality measures. That can take years. That's probably a 5 plus year time frame to secure all that. So it's really a little been in the past couple of years that we've been able to go-to-market with the full package, the evidence supporting Cologuard, guidelines, reimbursement, all the things needed to be successful, it's really only been the last couple of years. And so it takes time to educate physicians once we have those things in place. So we're very early. Our market share today with Cologuard is about 5%. When you compare that to Oncotype DX Breast, that product has been in the market over 10 years. That product is very well adopted. Today, it's used in over 70% of women who are diagnosed with early-stage breast cancer. So that product is very secure. It is the standard of care. I think it'll be the standard of care for many, many years to come. So it's a different environment there. Access is important. But what is the standard of care? Cologuard is still looking to become a standard of care.

Okay. And that's a great jumping off point. Let's talk about some of those levers, which enable Cologuard to become standard of care. And maybe the first one could be share gain compared to colonoscopy. You talked about some share gain during the pandemic. Can you speak to the durability of that share gain?

Well, this is one of the reasons why I say there's a silver line into the pandemic. To look at, the pandemic has affected many Americans. I hate to say there's silver lining, but there really is for Cologuard. When you look in the second quarter alone, Cologuard grew, as I mentioned before, 25% relative to Q1 of last year, 25% relative to the last quarter before the pandemic really hit. Colonoscopy, really screening colonoscopies were down about 25%, we believe, last quarter relative to the start of the pandemic. So relative to colonoscopy, which is the primary method through which people get screened for colon cancer today, Cologuard has picked up significant share. Now the FIT test is different. FIT test is used -- it's a noninvasive test, it's a stool-based test. That one has also picked up some share, but Cologuard has grown much faster, much more strongly than colonoscopy. It shows that there is, that's the share gain. You can see it in the numbers. When you dig in further, the data are even more exciting. And what I mean here, Dan, is when you look at doctors that use Cologuard, the trends here support that we have picked up share in a very key cohort. So we look at doctors that represent the top 40% of orders for Cologuard. These group of doctors. These are the true believers. These are the doctors that are using Cologuard as their standard of care. Orders in that cohort are down about 15%. They're down because the number of patients they are seeing for wellness checks are down 50% or more. That group will come back. Their satisfaction rates with Cologuard are high, and they are the true believers. Where we're seeing growth our doctors that represent the bottom 60% of orders for Cologuard. These doctors, oftentimes, again, before the pandemic, hasn't fully bought in, perhaps they ordered sporadically, maybe once a quarter, they ordered less frequently. However, now in the second quarter, that group is ordering over 40% more submitted before the pandemic. So this is the share of mind, the mindshare that we're gaining. These physicians are now becoming the true believers. These are ones that have opened their eyes to a better way to get more people tested. And that is Cologuard. So this is a key reason why we expect the pandemic to really have a silver lining for us. It's because we're seeing a broadening of the ordering base that, over time, will come out of this pandemic. Those doctors at the top will start seeing more patients again, and we expect their orders to pick back up. Doctors at the bottom. Oftentimes when we even calling these doctors, they're ordered at a much higher rate. They're opening their eyes to a better way. We're confident we will also hold on to this incremental share.

Okay. Can you elaborate on your efforts in rescreening?

Rescreening is another very exciting part of our business now. And really, what Cologuard is, Dan, Cologuard is a system to keep people screened, keep more screened and keep them screened over the course of their lives. That is the power of Cologuard. Most of the patients that were -- probably about half the patients were testing now had never been screened before. And we can help, we know who they are, where we know their names, we know the physician that go to, and we can reach out to them and remind them. And look, it's time to get tested again. We can research the physician and say, look "doc, your patient from 3 years ago, she's due again". Let's work together as a partner and make sure she stays tested. So this is a big opportunity. Part of why it's so exciting is that our success rate at keeping these patients screened every 3 years is improving. This year alone, we expect to generate sales of more than $100 million on 3-year repeat testing. That success rate is growing. At the same time, the pool of patients becoming eligible for testing again is also growing. This year, over 600,000 new patients become eligible for repeat testing. It's a big pool. Next year, 1.1 million more patients become eligible. So this is a huge driver of growth for the business. Over time, I expect this to become at least half of our revenue. And why that's so important for our model, this becomes a resource of returning revenue -- recurring revenue for us and it's higher-margin source of revenue. Because once somebody has complied the first time, once they've done Cologuard once, it's easier to do the second time and the third time. So it requires fewer of our resources to go out and engage with that patient. But it's a more captive customer, so it's a higher-margin customer for us. And from a financial perspective, that's a big win for shareholders.

So just to clarify, you said half the patients have never been tested before. So does that mean half of your volume is coming from rescreening today?

No, Dan, let me clarify. For the patients that we're testing with Cologuard, half of them have never been tested at all, by -- with any means.

Any means. Okay.

Around -- yes, around 40%. We're previously tested with the colonoscopy and about 10% previously tested with the FIT test. So that was until Cologuard came along. Now when you look at rescreens, like I said, we expect over $100 million of revenue from rescreens this year. What that implies is about 10% of our revenue today from rescreens, 10% and growing.

Okay. And can you speak to your penetration of the rescreen opportunity, how that's changed over time? And what are your specific efforts to drive further penetration of that rescreen opportunity?

Yes. We haven't broken out a specific number, but it -- our goal is to capture at least 50% of patients from 3 years ago. And the way you do that math is that just know that about 30% of the patients are really -- are either had a positive Cologuard 3 years ago. That's somewhere between 15% and 20%. If you have a positive Cologuard, what the recommendation from a provider would be get a colonoscopy and then you're kind of out of the screening world for at least 10 years. There's probably another 10% to 15% that are patients that either become high-risk or they pass away or they -- for some reason, we can't capture them. We can rescreen them. So you're left with, what, 70% of patients from 3 years ago that are eligible for retesting. Of those, my goal is to get to at least 70%. So that equates to what, 50% of the patients from 3 years ago is our target for rescreening. Now, we're not there yet. That is a goal that -- we're not there yet. I have said publicly, we're north of 20%, and haven't broken how far. Again, the good news here is our success rate is going up. It's going up nicely because of the efforts we put out, we have efforts, everything from our sales force, making sure our sales force is engaged in talking to providers about rescreening. Also, we're trying to make it as easy as possible, using different IT solutions, making it as easy as possible for patients to know they're due for a rescreening and to actually get tested again. So this -- a key part of this is Epic. Within Epic, that core Epic platform, why it's so important that physicians shift over from ordering through fax to electronic because native into Epic, we can present options and alerts to physicians to make sure they know when the patient is due. And to the click of one button they can place that repeat order, not only for that one patient, but for all their patients they have eligible for retesting. So Epic is a key part of why our success rate is improving.

And the mechanics behind that, is that one button push and a blast email goes out from the doc practice? Is that what functionally happens?

Functionally, they could have placed an order for all the patients. Look, the doctor has to sign off on the order, making sure those patients are, in fact, eligible. But through the click of one button, they could do a bulk order for all their patients that are eligible for repeat testing.

So then a box shows up on your doorstep. I mean, as a patient, are you aware the box is coming? Like how does that practically occur?

Yes. Before -- and this applies to all our patients before we actually ship the kit, we typically reach out through phone calls. We've got different means electronically to reach out to patients and welcome them to the process and to answer any questions they have that way, they're not surprised when the kit shows up with their goal. But the physician could order the patient. Now, look, what we typically ask is that a physician to make sure we want the physician to make sure they communicate to patients that the patient should expect the kit to arrive. But my point here is that the tools are in place now for a physician to order either for that one patient that they have in front of them right now or if they so choose, all their patients that are eligible for repeat testing.

Okay. And then can you speak to your efforts in targeting the 45-plus population?

This is another really exciting part of the business, Dan. Why it's so exciting is that the typical 45 to 49-year-old, of which there's about 19 million, nearly all of them are average risk and unscreened, the typical 45 to 49-year-old is busy. They're busy with work, kids, other activities, and they don't have time to take 2 days off to go get a colonoscopy, which is that's what the math says, you take time off for the prep and then the day of the procedure, that's a lot of time out of your daily routine. Cologuard fits into their lifestyle well. Not only is it a very accurate test. It's also convenient. It can be done the safety and convenience of your own home. So the uptick here has been very good. It started with making sure that we had evidence. So we ran a prospective study just in this population. So we have evidence to help support, broader adoption. We also worked with the FDA on getting approval, an expanded label for that age group. And now, as you know, Dan, both the 2 key guidelines here. The American Cancer Society and the United States Preventive Services Task Force, both those guidance recommend that we start screening now at age 45 instead of age 50. That's because of the rapid rise in incidence of colon cancer in a younger population. So with those things in hand now, we've turned on our sales and marketing efforts. We have specific ads that help raise the awareness, but the age recommendation is now 45. Those ads have been running since earlier this year. We also have messages from our sales team to make sure physicians know that these patients are eligible. So it's all hands on deck. And we are seeing the rapid growth dating. I'll sit here now. I'm very, very confident that we'll get to at least $40 million of revenue this year alone. From that age group. What that means and you've known Exact for a long time. If you think back to Cologuard for the 50 and over age group, 50 over was first FDA-approved back in August of '14. If you look at the pace of growth, in 45 to 49 relative to 50 and above, back at the time of launch, the 45 to 49-year-old age group, that cohort is tracking faster. The adoption there is trying faster than it did for 50 and above. So we're very optimistic about what this younger population can mean for our business over time.

What do you think is driving the faster uptake in the 45 to 49-year-old population? I believe with some data we've seen that's discordance with the 50 to 55, 56 to 60, there's some literature that suggests the younger you get less compliance with colorectal cancer screening, but it seems like you're bucking that trend. What would you point to?

Yes. I would point to the survey work we've done, the survey work, we look at the relative preference for Cologuard versus other things like a colonoscopy or even a flu shot. We look at the relative preference. The relative preference for Cologuard is very strong within the 50 and above population. It's even stronger. It's almost 50% more -- the relative preference is 50% higher in the 45 to 49-year old-age group. So that's a big part of it, the preference for Cologuard as a convenient at home test. And at home is key because 45 to 49-years-old, they're busy. They don't want to take time off to go into a lab to draw blood. They don't want to have to go in to see a doctor and do a colonoscopy. Being able to do it at home is a huge factor. And why we're seeing such rapid adoption in this age group. Another Dan, is that relative to the time we first launched Cologuard, we've built up an infrastructure. We've built up deep relationships with physicians. We've had over 200,000 health care providers, order Cologuard, and we've got a brand awareness that's very high. Those things, we've laid a foundation that are really helpful. They're helpful not only for 45 to 49, that also helpful for our future colon blood test for Cologuard 2.0 and other products that would layer on top of this foundation.

Okay. And maybe we'll use this as a segue to talk about some of the aspects of your pipeline. The rescreening opportunity, so I'm jumping around a little bit, but the rescreening opportunity you mentioned, the calculus, the 30% that have a positive result, 70% that have a negative, the 70% is your opportunity for rescreening. Can you remind us what happens to that 30% when you come out with Cologuard 2 -- 2.0? And how that impacts the opportunity?

Yes. So the main advantage, the main thing we're targeting for Cologuard 2.0 is improved specificity. Our goal is to reduce our false positive rate, which per the FDA for Cologuard 1 is 13%. Now recall, Cologuard, you're run every 3 years. So on an annualized basis, the false positive rate works out to about 4%. Our goal is to reduce the false positive rate by at least 3 percentage points for Cologuard 2.0. What that means is every time you run Cologuard, you keep 3 points more of patients. Now the false positive is not an ideal outcome. It's not an ideal outcome for us or that patient. For us, that's 3% people that we send to a colonoscopy unnecessarily. If you go to colonoscopy after a Cologuard and they find nothing, meaning it was a false positive, that patient is not considering screens for 10 years. So that's the person that we can't reach now for 10 more years. Obviously, if Cologuard is positive and they actually find something, that person, let's say they find a pilot. That person is likely considered high-risked and they're out of our screening pool. But for Cologuard 2, if we reduce that false positive rate by three points, we can keep 3 points more people every time. It's a better outcome for the patient. From a financial standpoint, the NPV of that, keeping 3 points more people every time plus some other operational improvements we're making, the NPV is well over $1 billion. So for us, this is a home run. It's a better performing test. It's a better overall experience. So the benefits here are pretty significant. We're also hoping for improved precancer detection. You really can't emphasize enough how important precancer sensitivity is clinically. In fact, you could even say, hey, look, the true benefit of screening is preventing cancer from actually happening. In DeeP-C, which is our pivotal study for Cologuard 1, you look at the number of patients that had precancer, it was about 7.5% of patients had precancer. If you find a precancer and you remove it on colonoscopy, you can help prevent that cancer from ever happening. Only 65 basis points of patients had full lung cancer. Look, if you want to find that too, it is important, but far more patients in the real-world have precancer. So therefore, the clinical impact, the impact on outcomes is more important within precancer. So with Cologuard 1, we can find 42% of all precancer that's all forms of precancer. With Cologuard 2 of the early data we've shared shows that there's a path to improving that rate. We haven't put a number out there, but we will to improve that rate and improve patient outcomes even more.

Okay. You put a number around the reduction in false positives. Is there a framework to think about how much better than that 42% sensitivity for precancer's you might be able to achieve?

We haven't put a number out there, Dan, is as high as possible, but we haven't put a number out there.

Sure. Yes. Okay. And remind us when we're going to learn more about the outcome of the Cologuard 2 study.

So the Cologuard, we plan to publish additional case-control data on Cologuard 2 next year. At the same time, we're running what we call BLUE-C. BLUE-C is a prospective pivotal study for both Cologuard 2.0 and our colon blood product. We're simultaneously enrolling patients in both those studies. That -- the timing of the data depends on enrollment. We'll hope enrollment completes this year. It may extend into the first quarter of next year. The reason why it's a little bit slower than we had originally thought is the pandemic because fewer people are getting colonoscopies, and as part of the study, a patient has to get a colonoscopy because fewer patients are getting colonoscopies, that has flowed enrollment down somewhat. So from the time that you finished enrollment. If you look back at DeeP-C, it took 6 months from the time the last patient was enrolled before that top line data could come out. And as you know, with -- back then, this was almost 10 years ago back then, there was no pandemic. So I would think it takes at least 6 months from the time enrollment is completed before we can share top line data for Cologuard 2.0.

Okay. Yikes, I haven't left enough time to talk about your profiling business. We have some time. So with the 8 minutes left, let me do a quick check on questions. So we do have a question on the screening business. So regarding your comments on rep access and wellness visits, are trends in line with your expectations as of the Q2 call? Or are there any incremental headwinds here from Delta?

And Dan, we typically don't give intra-quarter updates. I recall on the last call, we did talk about -- we tempered expectations somewhat for the back half of the year. We lowered guidance about $13 million in the back half of the year. At the time, we talked about rep access and the number of wellness assets. We still -- at that time we say, we still expect growth in the back half of the year. But with what we saw in the landscape, we said, look, we -- it makes sense to bring down the numbers a little bit. We don't give intra quarter updates. So as you can see, that -- everybody can see in the headlines right now, the number of Delta cases out there has grown significantly. And look, that's something that the team has -- is working through. We've spent the last 1.5 years working through these headwinds. And as we said before, we do expect some silver linings from the pandemic.

Okay . So you have a lot going on in your profiling business and lightning round, walk me through the 2, 3 highlights that get you really excited, both from a market opportunity? And then also when we could expect the data catalysts to occur?

What works for us, Dan, is that our strategy at Exact Sciences is to be a partner for patients and physicians all the way from early detection and screening through late-stage cancer and treatments. So with Cologuard and eventually multi cancer, Cologuard 2, colon blood, we will have solutions to help identify cancer earlier. We will add to that solutions around MRD or residual disease testing and recurrence monitoring to help identify residual disease overcurrent cancer as soon as possible. For patients that work through this funnel, if they do show up with stage IV cancer, we can help them identify quickly which therapies maybe to choose or which ones to avoid and also help pair them up with clinical studies that are ongoing to help pair them to the right treatment. So our positioning has been a partner across the end -- the full spectrum puts us at an advantage. We can now funnel patients into these tests to make sure they get the right therapy. So we think we're well positioned here. We've acquired a couple of companies in the past 2 years to bring solutions to bear. The first one was a company called Paradigm we acquired last year. That offered a targeted panel around 250 genes. It's an actual panel, we look at the NCCN mutations and make sure that we can find some therapies for those patients. The key differentiator with this product are twofold: one, is that we can get a solution and answer to patients, a turnaround time in our lab, typically within 3 to 5 business days. Oftentimes you have turnaround times of 2 to 3 weeks or more. So if you have a late-stage cancer patient, they want information, they want answers quickly. We can provide that answer very quickly. This test was built from the ground up with a very fast turnaround time in mind. We can also find an answer for more patients. Our sample input requirement is much lower than many of the tests out there. Oftentimes, when you're trying to get a cancer sample out of somebody, it can be difficult, which means that for many patients, for other alternatives out there, they wait 2, 3 or more weeks to only to find out, sorry, we didn't have enough of your tissue to get an answer. Well, at that point, you're very frustrated because, look, time matters for somebody with stage 4 cancer, you may have weeks or months to live. You want an answer quickly, you want it for as many patients as possible. So again, the 2 differentiators for our test is a faster turnaround time and a lower sample input requirements, which means we can provide answers to more patients more quickly. This year, we acquired a company called the Ashion. Ashion has a full exome panel. It's a therapy selection test, really targeting more at academic or pharma researchers who want to have all the information possible. So a full exome, full transcriptome and a mass germline test. So this is a broad panel. Perhaps if the actual panel doesn't get you information you need, you can switch to the broader panel or if you really want to go deep on the science, you could use this GEM ExTra test. The GEM ExTra test also provides the backbone that we need that full exome panel is important for our MRD test down the road. So we will launch an MRD test and share data next year on that test using this Ashion full exome backbone. Sold through the precision oncology sales force, which does have deep relationships built up oftentimes for over 10 years with the medical oncology community.

So you would expect not only to show data on MRD, but also to commercially launch MRD in 2022.

Yes. We typically talk of launches when you have kind of reimbursement, Medicare reimbursement. So the test will be available perhaps late next year, early the following year, but the true launch won't be until we have commercial reimbursement, which will be sometime after that.

Okay. And how are you thinking about indications for MRD?

To too much here, but some obvious ones, Dan, would be -- think of breast cancer. In breast cancer, the Oncotype franchise is the standard of care for women with early-stage breast cancer. I mentioned, we've talked about this for over 70% of women with the subtype of cancer, the Oncotype type test. And the way this works out is about 50% of all women with diagnosed with breast cancer and up Oncotype DX. If a doctor orders Oncotype DX, we generally get the block of tissue. That block of tissue is important because, as you know, cancer is a disease of the tissue, right? So the block of tissue could serve as the foundation for that full exome, which then we could use that to build our patient informed -- tumor informed panel to offer an MRD and recurrence test over time to that patient. The beauty of our model, again, is that we have -- our relationship starts with that physician and that patient early on, so which puts us in a position to know quickly which physician is likely to need to order this test and for which patient. Again, we have that relationship. If our MRD test or a recurrence test finds something, again, we'll know which physician and which patient at that point, then likely need a therapy selection test. So this is all underpinned by a robust infrastructure, really that IT infrastructure of Epic allows us to track that information, to provide useful insights to patients and physicians all the way from screening through a late stage therapy. So breast cancer is a prime example. We could also talk about colon cancer and MRD. But patients that likely need an MRD test in colon cancer are typically stage 2 or early-stage 3 cancer patients. While Cologuard confined early-stage cancer patients in colon cancer. Again, that puts us in a position to help inform the GI or the oncologist, who is likely to need a recurrence or MRD test.

Okay. You have a lot going on. Not enough to cover. I think we only have 5 seconds left. So we'll leave the other topics, multi cancer screening, capital deployment, we could leave those for another day and the rest of your Q&A. Maybe an Analyst Day at some point. You have a lot going on for sure. Thanks, Jeff.

Thanks a lot, Dan. Thanks for having us. Take care.

Good to see you.

You too.

Bye.