Exact Sciences Corporation (EXAS) Earnings Call Transcript & Summary

Great. Exciting stuff underway. All right. Great. So maybe turning back to Cologuard, just thinking about that. BLUE-C underway. Maybe talking -- let's provide -- just bring us up to date on where the cohort sits, wrapping up the data from Cologuard 2.0 and the colon cancer blood test, let's start there.

First one, with Cologuard 2.0 and colon blood test, our -- Cologuard 2.0 is an enhancement to an already very good test of Cologuard 1. Two primary areas of focus for us. One is on the specificity which per USPSTF for Cologuard 1 is 90%. Our goal is to improve that by, say, 2 or 3 points. The other idea here is to further improve the operational elements of Cologuard 2.0, and I'll talk more about that. Both those combined lead to a very attractive NPV for this program, so we're very excited. We shared one key set of data earlier this year to support the ultimate regulatory approval for Cologuard 2.0 and our colon blood program, the one we call BLUE-C. BLUE-C is a study of probably 20,000 people, all average risk for colon cancer, where as they enroll, they're doing both collecting stool, collecting blood and performing a FIT test before they do a colonoscopy. As we've enrolled, what we've seen is that the overall prevalence out there is less than it was in DeeP-C. DeeP-C was the study ran for Cologuard 1. So we expanded enrollment for BLUE-C. We are now at a point where we have sufficient cancers in that study. It's an event-based study. So we've enough cancers in that study to power the trial, power approval. On the stool side, we have enough cancers. However, interesting thing is that blood is enrolling far slower, somewhere between 15% and 20% slower than stool and may be counterintuitive to what some folks would think. These are patients that have agreed to enroll in the study. They should get paid, compensated when they provide the sample. But a lot fewer people are willing to give blood. So we have to keep the study enrolling until we have sufficient blood and stool-based cancers. So enrollment will likely end later this year. At that point, we'll have enough cancers in both stool and blood to move those programs forward. At that time, we have to run all the samples through the assay, analyze the data. We'll publish the top line data for Cologuard 2.0 at some point next year. The path from there is to work through the FDA approval process. That can take anywhere from 6 months to, say, 14 months and then work to launch that program. On the blood side, we'll continue to work on the assay. Jorge and team have done a great job, continue to improve that test. I feel very good about the future there. I think these 2 assays can work hand-in-hand to help lift screen rates even further than they are in this country, and we'll share more data on that in the future.

Okay. Great. So giving optionality. But I guess, you touched on it. But I guess, guideline inclusion and your opinion around kind of blood-based assays just given what you've seen to date. Obviously, I think there are various opinions around this matter. But would love to hear kind of what you're seeing and what your thoughts on the ground are.

Well, it's clear that we need more options to get people screened. Today, there's between 45 million and 60 million people in this country who need to be screened right now. More options are needed. That's why Cologuard was invented. Cologuard has been on the market since 2014. We've tested nearly 10 million people, and probably half or so have never been screened before. So we are expanding the pool overall, and that's well documented. When you offer more choice, more people say yes, more people are willing to get screened. So we think there's a need for blood. I think there's room for blood. There's 110 million people overall in this market, and so it's a huge market. We think that the test that take the largest share will be a test that can find over 90% of cancers. Today, that's only Cologuard, which can find 94% of curable-stage cancers in colonoscopy. Those are likely to be the 2 leading tests for many years to come. Blood, given its likely performance, will perform closer to the FIT test. The FIT test can find 74% of overall cancers. Again, there's still a need for that. But I think that probably settles into around 10% to 15% market share. Still an attractive market relative to 110 million people, but a different part of the market and a much smaller market than stool.

The other thing to add to that is the adenoma detection. So for advanced adenomas, we feel very strong that a blood test will just not be able to match the detection out of stool. And so we feel Cologuard will remain as kind of the test of choice. And then blood testing, I think, to Jeff's point, will play a role. And some people are counting again on adherence to a blood test versus, let's say, a stool test. But one thing that is often ignored is the performance criteria that are being put out there for a blood test, which is more like the FIT test, the interval, we think, is more like every year. And so it's not a fair comparison to say, well, do you choose blood versus stool. It's really -- would you choose to get a blood test 3 consecutive years versus a single stool test once every 3 years, then that's how you really should measure adherence. And so we feel adherence is an important question, but it should be asked in the right fashion.

Okay. Very, very helpful. So you've alluded to the potential for a new CPT code on Cologuard 2.0. I'd love to kind of just dig in a little bit on the puts and takes of what would drive that. And kind of -- I know it's still kind of a bit of early days there, but I'd love to kind of hear that.

We don't think Cologuard 2.0 should need a new one. Cologuard 1 already -- we're showing that it's helping more people get screened. It's helping save lives. We've cleared a lot of the kind of the obstacles that are in the way to get a new test to market. It's not only FDA, it's the guidelines, it's the quality measures and all the reimbursement, CPT code as part of the reimbursement mechanisms. And that can take a long time. That can take years to get all those kinks worked out of the process to where you're paid or reimbursed fairly for the work that you do. For Cologuard 2.0, we think that what should happen is that it should really kind of ride in the wake of Cologuard 1, if you will, layer right into a similar set of coverage and guidelines and all the quality measures, but we have had to work through that. So it's something we're working on now to make sure that, that whole transition is smooth. We have the benefit of having Cologuard 1, which, again, already a really good test on the market, so we can choose to launch Cologuard 2.0 once all the path is clear to make sure there's no disruptions because we can't put patient harm at risk here.

Okay. Understood. Physician office access. So still not quite to pre-pandemic levels yet. I'd love to kind of hear the latest and greatest numbers around that. I think you kind of touched on it last earnings. But yes, kind of where you're hovering at would be great and kind of understanding, obviously, at this point, 2 years post pandemic, I'm sure Exact is evolving its thinking around the potential for maybe wellness visits may get back quite up there. So would love to hear kind of what you're thinking about.

When we talk about access, what we typically mean is that can a rep see a physician face-to-face and have to educate them on Cologuard and all the process around Cologuard. And because of the pandemic, starting back in April of 2020, our ability to do that was minimized, right? We've missed over 4.5 million sales calls during -- from there until now. And the reason why sales calls are important is because Cologuard is promotionally responsive. When our sales reps call on a physician and educate them on the whole process, we see a really strong return. And we always talk about a statistic. When you call on a doctor, within a quarter, every other week or 6 times in a quarter, before the pandemic when access was normal, you saw about a 9x lift. Those doctors ordered 9x more than the doctors that we didn't call on. So access here matters. It's not the only way we can drive the business, but it is an important one. So over the course of the pandemic, we as a country have gotten more used to living with COVID. So the headwinds from COVID, I think, are subsiding. But a new wrinkle here is that physicians are saying, staffing is becoming a challenge. Staffing is a challenge. I'm sure we all see it. I know I see it if I go to a restaurant. Oftentimes, they say, look, we don't have enough waitresses or waiters here. It's going to take longer. Just bear with us. Hospitals are seeing the same thing. They have fewer nurses. Nurses often get burned out because of the pandemic. Maybe the office staff, which is an important part of the process, a lot of them left the workforce or left the hospital [ lease ]. So staffing has also served to limit our access, our ability to educate face-to-face because not only do we call on the doctors, we call the whole office staff for things like electronic ordering. So it's all important. I do think over time, the staffing issue will work itself out. From a guidance standpoint, though, we no longer assume well. We assume the current access we're facing and seeing stays flat for the rest of the year. Previously, with first quarter earnings, we assume things will get better. We're not seeing that, so we changed it. We assume it stays flat.

Okay. And then ordering trends and patterns there. I know that kind of some higher volume doctors had kind of changed their patterns as well. Newer doctors are coming online. I'd like to kind of hear your thoughts around those trends and kind of how you think about that over a longer-term outlook.

we're still seeing a significant interest in new physicians, which surprises me. I'd -- 10 years ago when I studied Cologuard back then, I thought, okay, maybe way down the road, maybe 100,000 doctors and total providers would order the test. Well now, almost 300,000 have. And here we are still, last quarter alone, 9,000 new providers ordered their first Cologuard test. So that's far surpassing the things that I ever thought, which is -- that's a good -- that's an important part of the story. We want to make sure that Cologuard is widely ordered and it is. The more important driver for growth right now is the order rate per physician, how many times in a quarter do doctors order. We see that moving up very steadily now, very nicely now. Before the pandemic, this is a trend I looked at all the time. The pandemic threw a wrinkle in all this. But you can look at different cohorts of doctors when they first ordered and track their progress. Doctors that have been ordering the longest order at the highest rate. Some have fully adopted. They may order hundreds of times per year. Some are there. For the most part, on average, we're between 5% and 10% penetrated into a given doctor's practice. Given doctor -- a typical primary care doc sees 2,000 patients. Of those, maybe 1/3 are on label, call that 700. Half of those or 350 are due right now. So there's a massive opportunity within every doctor's office to grow the pie and get more people screened. And that's where the sales force really comes into play. With access more limited, we've gotten creative. We've gotten creative, things like digital marketing has elevated it. We've shifted investment over towards digital marketing. We're emphasizing the at-home convenience of Cologuard. Jorge talked about blood draws and some of the dynamics there. Well, in this country, only 40% of people even give blood in a given year. With stool, I mean, that's part of daily life. So stool is a convenient at-home test. We can market it a little bit differently in this environment and still drive the business. We expect 22% growth from the back half of the year. That's still very strong growth for $1 billion diagnostic.

Definitely. And the rescreen opportunity, I guess kind of -- I'd love to get kind of an update. Obviously, you gave that in the quarter but kind of how you think about that in the back half outlook as well. And then kind of how you think about that over the medium to long term, just given the higher kind of attach rates and adherence and its potential for kind of accretion to margin.

As CFO, rescreen is probably the most exciting part of the business. I think of the lifetime value of our customers. And when you look at lifetime value of, say a 45-year-old, we can keep somebody screening for 30 to 40 years. That's an extremely valuable customer. And this is why Cologuard was invented, to get more people screened and keep them screened. With colon cancer, it can happen sporadically throughout somebody's life. So you've got to stay current with screening over time. So what we do here is we make sure we provide an easy ordering experience for physicians, for patients, so not only identify who is eligible, when they're eligible. But making sure clicking that button, there's a big red easy button. You can click that and make the test appear and make it really easy. So we've made really good progress on that, making it easier. If you look at now, this year, we expect over $220 million of revenue from rescreens this year. Within a few years, that's probably $500 million. So it's a huge part of revenue growing. Longer term, when I model this out, rescreens are half or more of our revenue. And again, as CFO, it's exciting because it's recurring revenue and it's higher-margin revenue. We look at the patient compliance rate, so what percent of patients return their sample that we send the kit out to. Well, for rescreen patients, again, they were -- they did it 3 years ago or 6 years ago, the more times you do it, the easier it is. On the repeat rate, that repeat compliance rate is 15 to 20 points higher than it is for a first-time user. So I've done the Cologuard 4 times, where I thought each time you do it, it's easier. And over time, that leads to higher gross margins. So we can get at least a point -- a full point of gross margin tailwind just from this mix shift towards rescreens. And as you start to get into the third or fourth rescreen patients, a rescreen repeat test, I think that margin rate could go even higher. So a really exciting part of the business. There's some exciting new tools that we've just rolled out. One will allow a physician to preorder a Cologuard up to a year in advance when somebody's due. Historically, if a patient was, say, 2 years, 6 months since their prior test, the doctor wouldn't order the test because the patient was ineligible. Well, now we can communicate this clearly to both the physician and patient. They can preorder. We can hold on to the order until they're due, and then send the kit out. And that will help broaden up the pool of which patients the doctor could order for. Because right now, there's over 1 million patients eligible for repeat testing. By the end of the year, we'll be up to 2 million people. And next year, another 1.2 million people will become eligible. So it's a huge driver for us and a great way for us to serve more patients.

Yes. Definitely. Let's keep it sticky. You mentioned broadening the pool, which obviously the 45 to 49 cohort is about. And that has obviously been a driver of growth, and I think you have some exciting updates. But just kind of how that has trended versus kind of initial expectations? And just given kind of recent updates, how you're kind of feeling about that opportunity as well?

Well, there's a big unmet need here to screen earlier. If you look at the data over the past 20 years, we've seen a near doubling of colon cancer incidents in the younger population. Incidence and mortality are rising quickly. I'm not really sure why. Some of this is probably lifestyle changes, but the truth is incidence is growing. We've got to find it earlier. We know early detection saves lives. So with that data in mind, the key guideline groups have lowered their recommendation to start at 45 versus 50. What that did is it added 19 million more people to the screening pool, all of them essentially unscreened and due right now. So that is a big growth driver for Cologuard. Cologuard appeals to that group even more than if you think of, say, a 75-year-old who's retired, hopefully on the beach enjoying life, well, they've got time. They've got time on their hands. If you're 45, which I will be in a few months, if you're 45, you're busy with kids and work. You don't want to take 2 days off to go see a doctor. You can do Cologuard in the comfort of your own home, so Cologuard is appealing very well in this younger population. Last year, we had guided to at least $40 million of revenue from the younger age group. We beat that. This year, we said over $100 million, so it's a big contributor. The beauty of this younger age group is, if you get somebody at 45 and you keep them happy and you keep them screened, then you have 30 to 40 years of Cologuard. So that's a lifetime value that's really attractive.

Great. And then on the reimbursement side for that group, how are you trending in terms of coverage for...

The team has made very good progress here. If you look, the key guidelines updated in May of last year. And the key guidelines here are the United States Preventive Services Task Force. It's a mouthful. We call it the task force. That group, when they recommend something as an A- or B-rated service under the Affordable Care Act, commercial payers are required to provide coverage without any out of pocket. So in May of last year, that group updated, so it starts at 45. At that point, I think around 30% to 40% of lives were covered for us in this younger age group. Now we're up to over 85%, so coverage has come on very strongly. And I think we'll get to effectively 100% before too long. If you look at overall, all age groups, we're over 95% covered in full. So coverage, which it should be for preventative care, is largely taken care of. The other big incremental change in coverage as of late -- I don't know if you were going to ask this, but I'll cover it anyway.

Go for it.

It's the follow-up colonoscopy after a positive stool test. Historically, Medicare charged a co-pay. Commercial insurance companies commonly did. In fact, for some insurance companies, the #1 complaint they have from their customers is the cost of a follow-up colonoscopy after a noninvasive stool test. They're often -- patients are often hit with a 20%, 30% deductible, which when you look at a commercial payer, the cost of a colonoscopy, often $3,000. So imagine waking up from a colonoscopy, you've enjoyed the propofol, you've enjoyed the 15 minutes. You wake up and you get a bill for $600. What? That's no fun, right? You went in to get screened, you -- $600 bill? That's not -- screening should -- prevention should be covered in full. So now, thanks to new regulations from the government, the cost -- the follow-up cost for a colonoscopy, starting January 1st, should be covered in full for both Medicare and commercial. That has been our #1 legislative agenda in D.C. for 10 years. So to see this finally come through, it's a big win for patients, and I think it will be a nice lift for Cologuard.

Exciting for patients, more colonoscopies. So over to -- we've definitely talked about -- we definitely covered Cologuard. So a smaller piece of the portfolio, but I'd love to hear about kind of the rationale of the sale of the Oncotype prostate and why you thought maybe it was a better fit for MDxHealth and how you maybe could think about utilizing the proceeds a little bit better.

Brian, do you want to cover that?

Sure. This was a tough decision, right? Anytime there's people involved, Exact team members involved, we took a very careful assessment here. Ultimately, where we landed, we thought this was a win for everybody involved, including our team members, a good portion of which are moving over to become MDxHealth employees, which is now a partner of ours. We felt like having a portfolio in the urology channel was important. MDx has 2 products. This will be a third product focused specifically on the urologist. So we felt like it was a win for patients and a win for physicians. The markets reacted pretty positively on the MDxHealth side. So congratulations to them. For Exact Sciences, you've heard Jeff talk about our path to profitability in 2024. We need to make hard decisions, and we're chasing what I'll call profitable growth, profitable revenue going forward. And this was just an area where we weren't seeing those kinds of returns that we wanted to see financially. And the fact that we brought in $30 million upfront and potentially $100 million overall with the deal, it sort of felt like a win-win for all parties involved.

Great. That's super helpful. We've just got Jorge and Brian, and so I feel like ASCO is past due in quite a number of abstracts. If you kind of want to touch on the greatest hits and maybe -- I know we've gone through a lot of the R&D and stuff, but maybe if there's some science that you think you want to just kind of highlight to the group and that really kind of differentiates...

Yes. I mean I think I can tackle that one very briefly. So I think we had like 9 posters and 5 abstract submissions. So it's really a testament to our pipeline and what's coming down the road. We had posters on diagnostic capabilities, prognostic capabilities, therapy management. We're looking at -- we've been very focused on solid tumors. And we're now looking at blood-based cancers, particularly for markers to enhance our multi-cancer approach. One abstract or poster that was, I think, of interest was around our tissue-agnostic MRD assay, where we looked at a cohort of breast cancer patients and showed that our assay could detect recurrence with about 90% sensitivity. And it could do so about 4 months prior to imaging. So we're very excited about that and more to come. So...

Great. All right. So I guess you've reiterated the commitment to profitability by 2024. I think we've talked about that quite a bit. So all right, let's go to 2030, just to keep it around numbers. I guess, very easy. Just how do you think about where you kind of aspire for Exact to be generating revenues? You've got -- I would presume you'd hope the multi-cancer assay would be FDA-approved and launched and kind of where you see kind of Cologuard. I know you talked about that 40% penetration goal. And like where are we kind of hopefully by then?

Well, 2030 is a long ways off but I'll start, and then you guys can jump in. Yes, I think of this broader portfolio we've been talking about. We talked about Cologuard and multi-cancer, MRD, therapy selection, colon cancer, blood. And this portfolio, I think that will all be in the market in U.S. Multi-cancer, I think, if FDA approved, I think Cologuard will have tested tens of millions of people easily by then. Rescreen will be a huge part of this mix. You have this huge source of recurring high-margin revenue. We'll be well on the way to our 40% market share goal, which that equates to $8 billion plus of revenue. Multi-cancer, the adoption there could even be faster than Cologuard. When you think Cologuard, the market that we've launched that into already had the FIT test, the colonoscopies, which are partially being served. There is no market today for multi-cancer. It's a brand new market. It's the market for flying cars, right? So I think there's going to be a lot of demand early on for that test. MRD, also a huge unmet need. I think there's a lot of companies doing great work out there. And I think we intend to be a leader. And by that point, we should be when you look at this broader foundation. I think we'll be a lot more digitally sophisticated than we are today. I think we do a nice job with this foundation. We've invested over $800 million into our IT infrastructure. That number is growing rapidly. And I think over time, you'll see the benefits there. We're very profitable at that point. We are committed to profitability for the full year in '24. And by then, we'll be generating significant free cash. And we'll see. I look forward to 2030.

All right. Well, thank you so much for joining, guys. Really do appreciate it. It was great to dive into the story. And I think we'll wrap it there.

All right. Thank you.

Thank you.