Exact Sciences Corporation (EXAS) Earnings Call Transcript & Summary

We'll get started. Thanks, everyone, for joining us. I'm Patrick Donnelly, Tools and Diagnostics analyst here at Citi. Happy to have Jeff Elliott, the CFO, COO of Exact Sciences with us. A lot to go through, obviously, with you guys.

Maybe we can start off just on -- just chatting about it, just on the 4Q kind of number and then that progression into 1Q. I know there were some revenue recognition in the 4Q piece in terms of some catch-up. So maybe talk through the 4Q results, obviously really strong, kind of what inflected there. And then again, maybe -- say onetime, but maybe some benefits there that kind of won't quite recur.

Sure. Thanks, Patrick. Thanks, everyone in the room, and thanks Citi for having us. Great to be back here in person. So we just came off a phenomenal quarter. I think this is my 25th quarter as CFO and probably the one that I'm most proud of for all the things that happened. One of the highlights for me was the 42% growth for Cologuard, and really we can spend time talking about the growth drivers there. But it's safe to say the growth drivers are broad based. The business has hit an inflection point where growth is becoming more sustainable, more predictable, ultimately more sticky. That's a good thing for the investors. It's a good thing for us, and ultimately, it's a really good thing for patients. Also really proud of the -- how the company pivoted to accelerate profitability. We had said about 15 months ago that we would be profitable in 2024. And at the time, I know many investors said, how the heck are you going to do that? The math doesn't work. Well, the team -- the full team at Exact rallied, came together, found efficiencies on ways to grow smarter. And ultimately, we pulled profitability all the way ahead to Q4 of last year, and now we're getting to a full year profitability. So the company really transformed last year, and it sets us up for a lot of great things ahead. Digging in a little bit more U.S. on the Q4 growth drivers. One of the biggest ones I'd call out is, a pivot we noticed midyear last year, and this really relates to health systems. In this country, over 60% of doctors now work for a larger health system. You're seeing this -- it's a little hard to see in New York, but around the country, the hospital groups are out there, they're acquiring other hospitals, they're hiring the doc groups around, and they're growing. They're growing their market share. And what's happened is that they are now coming to us. They're coming to us saying, "Hey, can you help us with some structural challenges we have?" They have challenges, things like meeting their debt obligations, driving revenue, addressing their colonoscopy backlogs. We recently had a health system come to us and say, we've got 13,000 patients waiting to get a colonoscopy right now. It's not fair to those patients, they're getting subpar care. Can you please help us? And that's just one example. There's many more like it, but these challenges are getting worse. They're getting worse. The pandemic has led to big staffing challenges. You see it everywhere you go. You see it in restaurants, same thing for hospitals. There's a shortage of nurses. There's a shortage of office staff and doctors. So they can't keep up with staffing. Cologuard can help. We can help because we can take on the burden of getting people screened. All the reminder efforts, the outreach we do to get people screened, we can take that on from the hospitals. Another big challenge they have is with their quality scores. Quality scores, HEDIS and Stars, hospitals, insurance companies often get benefits, they can be equivalent to 5% of revenue. Those quality scores are in part based on preventative medicine like colon cancer screening. Well, if you can't get people screened, those rates are going to suffer. Cologuard can help improve those rates and earn the hospital more money. So there's many factors that are probably here. But one of the biggest pivots we've seen in one of the biggest drivers in Q4 was with health systems, the growing demand from them, and there's a long runway ahead there.

Okay. That's a great, great place to start. And I know when you kind of talk about the 4Q to 1Q, typically, there's a good bit of seasonality in there, flu, whatever it might be. Can you just talk about that progression? Obviously, you gave a pretty detailed 1Q guidance, just in terms of 4Q into 1Q, the sequential moving piece is what we should think about there?

In a normal year, we follow typical primary care seasonality. And what I mean there is that, typically, people come out of the holidays early January, they're focused more on work, other things, they maybe just came off vacation, but not going to take off time for work right away to go get preventative care, the wellnesses visit. So the year typically starts a little slower. Again, this is unique to primary care broadly, not just to the Exact. Things build through the first half of the year, all the way to above Memorial Day. Around Memorial Day, kids get on school for the summer, parents take vacations. So things are kind of flat over the summer. And then about mid-August, kids start going back to school, parents return to work, and importantly, they start returning to preventative care. One other added thing that's becoming more pronounced over time is that this push towards quality measures, again, HEDIS and Stars is resulting in health systems and payers due to a big year-end push towards getting their screening rates up. That starts around kind of the Labor Day time frame, so early September. So you see a pretty big steep ramp growth all the way through Thanksgiving, and then things slowdown again around Thanksgiving all the way through New Year's. Because of the way our business model works, we typically recognize revenue 30 to 45 days after a wellness visit. By the time it takes to ship Cologuard out, get the sample back and get that patient tested. So holidays, Thanksgiving, Christmas, New Year's resulted in a headwind to Q1 revenue. So normally, you would expect Cologuard to be down 4% to 5% in Q1 sequentially. And this year, what we're saying is that Cologuard won't be done by as much in part due to the strong momentum that we exited last year with that has continued into this year. So we're off to a really good start in Q1. On top of that, things like the flu season. Normally flu is a headwind to preventative care broadly. However, this year, flu is almost nonexistent. I know kids got it earlier and maybe in December, but that didn't really affect our business. Now flu is really nonexistent. So that headwind isn't there. It could come, but it's not there now. And so all told, Q1 is a little bit better. We're still looking for a modest sit-down in revenue, but not as big as we normally see.

Yes. And I know in 4Q, you guys had some kind of billing practices, you got scrubbed, and had to catch up -- maybe just talk through that and how that impacts 1Q, if at all, in terms of that?

Over the past 2 years, you've seen our team really transform our broader billing capabilities. And this all gets back to the power of Epic, the leading electronic medical record system, built into Epic now is advanced billing of revenue cycle tools that allow us to get paid more fully, more quickly in a lower overall expense. So under a new leader we hired 2 years ago, the team has done a really good job of transforming first, the Cologuard revenue cycle with that Cologuard billing process. And what that's resulted in is a dramatic improvement in our DSOs. Our DSOs went from over 40 days a few years ago to 18 days in Q4. Again, this is just for Cologuard. So we're getting paid quickly, which is that's -- in this environment, especially where cash is king, I'm getting paid quicker matters. We're also driving a higher ASP, really, that revenue we recognize per test, that is going higher for Cologuard. Every dollar here matters. When we test over 3 million patients per year for Cologuard, a dollar ASP really contributes to margin and ultimately, profitability. And we're doing that to overall cost to the company because, again, we've automated this through Epic. We're really unleashing the power of Epic on Cologuard. What Patrick is referring to in the fourth quarter, we had some nice wins, again, on the overall insurance billing processes. That allow us to raise our overall ASP, again, collecting more from the insurance companies. When we implemented those changes, we pulled through some revenue from the prior quarters, Q2 and Q3. So that helped drive upside to Q4. Q4 upside was driven -- the majority of it, was driven by the fundamental business. There was a little sweetener on top from these enhancements to our billing systems. Now on a go-forward basis, our run rate ASP is higher. It was just a bit higher in Q4 because of this dynamic. We had a similar dynamic to our patient compliance engine. Overall, we have wraparound services. We call it our patient compliance engine that helps navigate a patient through the overall Cologuard testing process. So it's a series of outreach we do to make sure a patient understands the whole process, we encourage them to collect for the doctor's orders. And ultimately, we get about 2 out of 3 people that have a Cologuard kit set to them, ultimately comply with the test. That's overall, it's a really high rate relative to what you see in the market. We enhanced that compliance engine in the fourth quarter. Again, that helped pull through revenue from Q2 and Q3 and contributed to additional upside in Q4.

Okay. Makes sense. Yes, maybe we can work through some growth drivers. Obviously, a lot going well for you guys. Maybe we can start with the rescreen. I know that becomes a bigger piece every year. It's been an area you guys have focused on. You've refined kind of the message to capture as many patients as possible. So maybe just talk through that 3-year rescreen opportunity, talk to through again, that capture number, if you will, and we can start there.

So the guidelines recommend you repeat Cologuard every 3 years. So this has become a big growth driver for us. This year, we expect about 20% of Cologuard revenue from rescreens. That's about $320 million of revenue. Last year, we had guided to $220 million. So it's a big step up year-on-year. Over time, if you look out a few years, this could be a $500 million business easily. Eventually, this is half the revenue. And that's part of the beauty of this model. As we grow, the growth becomes more predictable. I think where Patrick is going is with the success rate. So of the patients that we test 3 years ago, what percent come through retest with Cologuard? Well, I've given a number for it, I said it's over 35%. The 35% number was really measured after 1 year. So if you repeat Cologuard every 3 years, let's say, on day 1 of that third year, you become eligible -- really the fourth year. You become eligible for your next test. Well, after 12 months of that order of that window, about 35% or really over 35% of patients complete the test. Well, we keep trying. We don't give up after a year. We keep trying. And after if you go out kind of 2 or 3 years, it's about 50%, about half of patients who had a negative Cologuard from 3 years ago come back. However, I would say the true number is higher than this because over time life happens. So the pool of patients from 3 or 4 years ago looks different today. One thing that can happen is somebody that could have died during that time window. Unfortunately, with this age group, 5% of people die per year. Other things could happen, the patient could become high risk. They could have a heart attack where they're no longer eligible for screening. So the effective screening rate is well above 50% for our rescreen today. Ultimately, I think they can get to 70% or higher. The beauty of this, again, is recurring revenue, it's higher margin revenue, and it is a more predictable source of revenue for us.

Okay. Those are good numbers. I mean, I guess, on the path to that 70%, maybe talk about how you market to those folks? I know obviously, you can't just send a Cologuard, right? That's not how it works. So again, do you go after -- get the doctor involved, text to patients. Maybe just talk through how you've evolved that process. I know it's been something you guys are focused on.

Cologuard has to be ordered by the doctor, but the beauty of our model is that we can reach out right to the patient and say, look, it's been 3 years, we believe you're due for testing again. We know kind of who they are, and we can reach out to them through phone calls, e-mails, text messages. We can also retouch to the doctor and say, "Dr. Smith, these patients from 3 years ago, they're due again." And what we've -- as we learn over time, we continue to enhance this compliance engine. We also involve our sales force and our marketing efforts. And overall -- that's how we lift the overall screen rate up. A big enhancement we made to our IT capabilities last year, allowed doctors to do what we call a place in advanced order. Really, it's a preorder for somebody becoming eligible. So imagine, after you hear response, you may go to the doctor at the same time, the same date every 3 years. However, some patients may go a few months earlier than they did in the prior year. Well, tactically that person isn't do yet for screening again. Typically, the guidelines would say every 3 years. Okay. Well, if a patient comes in a few months early, they're not going to come back in, say, 3 months again for another physical. We can now allow the doctor to place an order up to 12 months in advance of when that patient is eligible. We hold the order. And then when they are at the 3-year anniversary market, we ship the kit out. That allows us to continue to capture a higher percent of the rescreen patients, and it makes it easier for the doctors to do business with us, ultimately driving the top line.

Okay. And then the rescreen kind of a natural progression into 45 to 49. I know that's one of the great benefits of that as you have all the rescreen opportunity over the years. Maybe just talk about that expansion. I think you guys have already done 500,000 patients in that population. So maybe talk about that opportunity, what the penetration looks like and again, kind of the tail on the rescreening side.

This is an exciting opportunity for us. A few years ago, there was a new paper published that showed that incident mortality in the younger population are rising much faster than the 50 and over crowd. I don't think people really know why? It could be diet, it could be lifestyle. But for whatever reason, incidents are growing rapidly. For those of you who haven't been screened, please get screened. Colon cancer is the #1 cancer killer in men under the age of 50. So the screening rate historically had been 50 and above. And I think over time, that group knew you start at age 50. Well, with incidents rising, the guidelines have changed. The guidelines evolved. And now 18 months ago, the key set of guidelines updated to recommend screening start at age 45. Well, the beauty of that is that added 19 million more people, all effectively unscreened all into the screening pool. Well, again, I think back to what I said before, there are structural challenges with a colonoscopy. You can't sell on the screen, 19 million more people overnight. Cologuard -- however, Cologuard can scale quickly. So we can start to address this younger age group. Also those patients 45 -- I'm 45. I know I'm busy all the time with work and family. I don't have time to take up 2 days for a colonoscopy. But Cologuard has done 5 times. I pay out of pocket. I've done 5 times because it fits into my lifestyle. Well, we are seeing very rapid adoption in this younger age group. It took us from FDA approval in 2014 until recently to get 9% penetrated into the age 50 and above that market segment. It took us about 18 months from the time the guidelines updated to get to 8% in this younger category. So adoption there has been robust. This is one of our biggest growth drivers. We said in Q4, we tested 125,000 patients in the younger age group, and we're just getting started there.

Yes. And I guess in terms of that population, I mean, are you doing more targeted marketing to kind of acquire them to your point, I mean, the ramp has been so quick. Is it just younger guys are more prone to do this? Or is it kind of something you guys are pushing, -- targeting, marketing towards and seeing real traction there?

It's a whole host of factors. We do have some targeted efforts. Obviously, the digital and social media is a big category for the younger age group. All of our TV ads have changed, all our ads have changed, and I refer to the younger guidelines. But the foundation that we had laid in creating this brand from 2014 and beyond for the older age group, it's a natural progression to now say, start at age 45. So things like brand awareness now. I mean if you think of brand awareness stuff, today, aided awareness is over 90%. That's incredibly high. So people know of Cologuard, unaided awareness also very high. The electronic ordering capabilities we have for most doctors, they can push 1 button and place that order The ease of ordering was a way to really jump start growth in the younger age group. So again, that foundation we laid for the old age group has laid the foundation for a really strong start in this younger group.

Yes. Then maybe we can kind of flow to the Salesforce side. I know Everett has going to reinvigorate the team. It's been a big part of kind of what the uptick has been. I think there used to be a view you guys have to keep hiring to drive growth. It doesn't seem like that's happening. We'll get into profitability. But maybe just talk about the Salesforce strategy, what's changed there over the last year plus and kind of really driving that productivity?

Well, for me, one of the big highlights of last year was the Salesforce productivity. We shared a slide on our investor deck in the fourth quarter earnings showing that the average revenue per activity just gapped up over the past year and really thanks to in part Everett's leadership, the team below him throughout, it's a really strong team. The team is -- very financially, it's a very operationally disciplined team. They're using analytics to drive their business to make sure they're calling on the right physicians, the right number of details, they've got really creative marketing campaigns they roll out. But we also -- about a year ago, we did a minor restructuring where we reduced some overlap. We had hired a team out of Pfizer that we had co-promoted with Cologuard with for 3 years. When we hired that team of Pfizer, that led to a bit of overlap. Well, we took some time to clear up the territory overlap and make sure that each rep now has their own territory that their own that helps accountability, and ups productivity, and you're seeing that pay off. Lastly, I would add that during the pandemic, access was poor. A lot of physicians said, look, with the pandemic out there you can't come in. Well, that hurt us a lot in '20 and '21 through most of last year, I wouldn't say things are normal, but they're much more normal last year than they had been for several years. So overall rep productivity was a big highlight last year, and there's a long runway for that to continue to improve.

Yes. Maybe kind of using that as a segue to go into the profitability because, again, I know, obviously, sales and marketing is a big chunk of the expenses. You guys are obviously guiding for EBITDA profitability this year. Just talk about the importance there. And again, I guess the levers you're pulling. I mean, G&A is a big line. R&D with some of the multicancer, which we'll get to. And then to your point, sales productivity probably eases the burden of the sales reps. So maybe just kind of talk through each of those and how we should think about them in '23? And maybe we can kind of talk a little forward there.

For me, it starts with smart top line growth. Obviously, we've got huge markets that we serve. We want to make sure that we're growing smartly. So we're focused on the highest impact areas both in our current business and our future products. So we're not out there just chasing growth for all means. We want to make sure we're driving good gross profit in the growth. Our gross profit line -- there's things we're doing now to automate our labs to make sure that we're getting paid fairly for the test that we provide. So that's how we drive the top line and the gross margin line. Ultimately, last quarter gross margin was 73%, I see a path for that to get to around 80% through efforts like scaling our labs, automating more fully, improving that patient compliance rate, all those things help. Walking through the middle of the P&L, sales and marketing, this will be the second year in a row where in absolute terms, sales and marketing are down. And look, the mandate to Everett team wasn't -- because there is marketing. The mandate is to grow the top line efficiently. And so we use -- again, we use analytics here to drive the business. So as we go out and evaluate whether it's marketing or new reps, it's always -- it's an analysis that we do to look at the ROI. And their ROI has been very good on these investments. So we'll keep it up. There are some investments that didn't maybe make sense, so we paused those. But ultimately, Everett's done a nice job of driving through that sales and marketing team, driving really good growth. The beauty -- again, this model is that we have a full national primary team built out. We've had a full oncology team built out U.S. internationally. So as we grow and add new products, you'll see even more leverage in the sales and marketing line. The G&A is our next big area for opportunity. Our G&A number is high today. It's high because we're making significant investments in IT. We are very much an IT company. The IT investments help drive the top line, help improve our customer experience and ultimately will pay off. We are making some investments now that leave that G&A line to be a bit higher. We also make sure we take really good care of our customers. Our customer care team is baked in G&A. And that team does a really good job of providing high-quality customer experience. R&D, there -- it's -- the growth is really from the investments in the key pipeline programs. We're always trying to focus on the highest impact areas. Over time, I think R&D will probably come down to the 10% revenue range. It is a bit elevated now as we work through some of the bigger studies on our key programs.

Okay. That's helpful. Yes. And I guess in terms of kind of the '23 to '24 view, I think '23 OpEx is slightly down, flat to slightly down, correct me if I'm wrong there. How do you think about the progression from here to your point, G&A seems like a lever you can pull, R&D, maybe project by project, sales and marketing. I know we've chatted maybe it grows below the growth, maybe it's mild growth, but is OpEx now in like a pretty good place where it hovers around this level generally and you kind of allow revenue to grow off this pace? What's the way to think about that?

So this year on a GAAP basis, our total OpEx will grow mid-single digits. That includes sales and marketing down in absolute terms. G&A will grow a little faster because of some unique accounting, noncash items. They strip those out, G&A up mid-single digits and then R&D, a little bit of growth there, kind of low mid-single digits. But R&D is more project based. I think of OpEx is an area that over time will grow just a lot slower than revenue. The biggest opportunity for leverage is within G&A. We talked about some of the drivers there. It's really kind of leveraging the strong IT platform we've built out such that as we grow, the income investment in G&A should be less lower.

Yes, okay. And then you talked a little bit about gross margins. One of the things driving it is obviously the improvements in Cologuard. You have 2.0. I know you pulled forward some of the gross margin benefits. I think it's Cologuard 1.5. So maybe we could start with 1.5, maybe just what you did, what that impacts, how that impacts the margins that we can flow to kind of BLUE-C in 2.0?

Yes. Cologuard 1.5 was -- is really one of the enhancements we ultimately expected to be in Cologuard 2. We pulled it ahead into what we call Cologuard 1.5. This was an enhanced version of our collection kit that we sent out to patients. They provided the extent of the stability of that patient sample by 1/3, really 1 more day. That's important because when those samples come back in, if they don't get back to us historically within 72 hours, then we couldn't test that. We'd have to go back out and the new sample, which cost us more money and ultimately, we would lose some revenue there. We've extended that now to 96 hours. That one more day is important, especially on the weekends when shipping can't always happen over the weekends. So what that means now is that this year, we get over point more incremental revenue because we have fewer samples that come back in the door expired. It also helps us our gross margin because there's fewer kits we're going to send back up for recollection. And overall, it's a better patient experience. So we call that Cologuard 1.5. It's a nice contributor. That kit -- that new collection kit rolled out in September, and it was a nice contributor in Q4 and beyond. All the big drivers of gross margin just within Cologuard 1, we have built out significant new lab capacity. We did this right before the pandemic hit because we see where the top line is going. And we want to make sure that the lab can catch all the volumes that the Salesforce is driving. Well, the pandemic hit and that kind of pushed out growth a while. So that led to some negative margin, while we absorbed that additional fixed cost. Well, that new lab is far more efficient than what we had before. So that will help us get to kind of towards the 80% gross margin level. And over time, you mentioned Cologuard 2.0. Cologuard 2.0 is another new version of Cologuard, which is already a great test. Cologuard 2.0 will lower our cost of goods by at least 5% and help drive that gross margin higher.

Yes. Maybe picking up on Cologuard 2.0, big focus on BLUE-C, I think it's 26,000 patients or so, kind of fully enrolled. Maybe talk about data. I think it's midyear, what we should expect you guys have shown some kind of peaks at it? But what are the big focus areas for you guys in terms of that data improved?

The primary goal of Cologuard 2 is to improve upon what's already a really good test. There's 2 specific areas that we're trying to address in particular. In these areas, we pick these areas because to the extent there's ever clinical pushback against Cologuard, it's on either the false positive rate, which is 10% per Medicare in the guidelines or the precancer detection rate. This is the advanced adenoma detection rate, which is 42% overall. Those are both still really good numbers, but we found a way through even more accurate biomarkers to raise that overall performance. So we've shared 2 case control sets of data where we compared Cologuard 1 versus Cologuard 2.0. We are confident Cologuard 2.0 will be a more accurate test. So now we've got to demonstrate that through the BLUE-C. As Patrick said, BLUE-C, the pivotal study finished enrollment in December. We expect to have topline data midyear for Cologuard 2.0 and then we'll work through the FDA process. And that should be a big home run for patients. Improving that false positive rate will help us keep more patients in the Cologuard ecosystem. Even like a 2-point or 3-point improvement to the false positive rate, that's 20% to 30% fewer patients that go on to a colonoscopy unnecessarily. So that's a big win, and that could also help -- end up having more doctors order Cologuard. So ultimately, the NPV on Cologuard 2.0 is at least $1 billion.

Yes. Maybe you kind of mentioned submitting for FDA approval, maybe just talk through the time line in terms of submission, approval? Do you need to get more guidelines? Obviously, Cologuard has checked all the boxes there. Does this just naturally fall in behind it? Do you have to do any work on some of that?

Ultimately, I think the transition from 1 to 2 will be very smooth. The team running this is a very experienced team that helped bring Cologuard to market, helped bring various enhancements to Cologuard to market over the years. So the team is highly capable. The big steps now are preparing for the FDA submission and running all the samples for BLUE-C. Again, the topline data for that should come out midyear. We'll work through the FDA that -- the FDA process submission later this year, maybe next year, the approval time frame should be fairly quick. We don't believe there'll be a panel for the FDA because they already hit Cologuard 1, already went through a panel. So the typical statutory deadline is 180 days on that review. So that speaks to FDA approval at some point next year. Obviously, there's things that could be outside of our control, but that's what we're planning on. Then the transition to market, there's some big things we've got to get through there around coding and reimbursement. We're still working through that one. We'll provide an update in the coming quarters on that. The guidelines, I don't think the guidelines going to be changed at all. The current guidelines as they stand today include Cologuard 1, which is a Cologuard 1 really sets the foundation for Cologuard 2.0 to fit right into all the existing guidelines. So we expect a smooth transition once we ultimately get the product on the market.

Yes. Okay. And then maybe just quickly, if we can dive into your screening pipeline as well. Maybe just on the screening side, outside of you guys, obviously, it's been a noisy one. In terms of some data that's been shown on blood screening, I guess maybe just refresh us on your guys' perspective, the company that showed data isn't the last one, there's going to be more to come. Your view on the potential for blood in colon and then we can kind of dive into your pipeline beyond that?

Well, blood can serve a very important role in cancer screening. And ultimately, that's why we're investing in our own blood test. The reason why is because there's up to 60 million people who need to be screened right now. And this is not a one-size-fits-all market. It never has been. We think where this plays out over time is that we think Cologuard will get at least 40% market share. We're at 9% today and growing very quickly. Colonoscopy, we still think will be a very common way that people get screened. We think that probably settles in some more in the 30% range. And then overall screening rates probably in the 80% to 85% range. What that means is that tests like the FIT test and blood can serve 10% to 15% of this market. The overall market is 110 million people. So even 10% of that is a big market and one that can help impact many lives. So we're glad that new tests could be coming to market that can up save lives. We think that there is a -- [Indiscernible] very different than the Cologuard part of the market that more options here can upstate live. So we think it makes a lot of sense for the blood test. The blood test will have to perform at a certain level to see broad adoption. They have to get included in Medicare coverage, guidelines and quality scores to see broad adoption, and there's still a lot arenas to be seen as to whether they will get that.

Yes. And then again, maybe just segueing that from there into your own screening on the multi-cancer kind of early detection side. I think Kevin has talked about 2 pieces of data we'll see this year, maybe just talk about generally kind of taking a step back, your strategy there and then we can get into time lines and what we should expect this year on that front?

So why multi-cancer is so exciting is that there's 75% of cancers out there, there's no way to screen for. We screen for about 5 today. It's really breast, colon, lung, cervical and prostate. And look, that's all really important. The impact that we're having there is huge. Take cervical, for example. 50 years ago, 35,000 women died per year from a very preventable disease. Today, it's about 3,500. The difference is [Indiscernible]. It's not a super accurate test, but one if you repeat over time, you can save lives. The same holds true for these other cancers, imagine pancreatic, esophageal, ovarian, uterine cancers, we've all heard of somebody that's been impacted by, there's no way to screen for them today. So the goal here is to address those cancers. Again, not the 5 that are screened for today. As a country, we've got solutions there. It's the other cancers. And the goal get us to stage shift. So if somebody today would be diagnosed in Stage III or IV, if you can pull them up even a Stage or II, then you give them far better chance to survive. Stage I cancer is very treatable. For colon cancer, A Stage I, look, over 90% of people survive 5 years. Stage IV is typically terminal. Maybe 10% of people survive 5 years with Stage 4 cancer. So stage shifting here really matters. A multi-cancer test, as we bring it to market over time, could have a bigger impact in human [Indiscernible] outcomes than any other diagnostics. We see this in the U.S. is at least a $25 billion market. We're excited about the data we shared last year where we showed over 60% sensitivity at over 98% specificity. There's a couple more studies we're doing before we move on to our pivotal study. Patrick referred to this year. We expect an interim readout of data midyear and then a final readout in the fall timing. That will be the last set of data we released before we move on to our pivotal study next year.

Okay. And maybe on that front, obviously, you talk a lot about profitability early and then this multi-cancer screening is not viewed as at least near term, the most profitable. How do you kind of think about both the R&D side and then I guess you guys are different than kind of stand-alone, screening companies will have to build out this large infrastructure, you guys already have it. But how do you think about just the scaling of expenses related to this business as well?

Well, our goal has always been to build a strong foundation that can generate sustainable recurring revenue, margin improvement and cash flow. We know that cash flow is really what investors ultimately really do care about. So that's been the mantra here. We pulled an investment in things like our IT platform. We're probably now over $1 billion invested into IT. We've built up the broader commercial channel, broadly defined commercial is 1,300 people for us, both U.S. and internationally, and our lab capacity can scale to multiples of what we do today. So with that foundation in store, now we can invest in the biggest pipeline opportunities and leverage that foundation. So multi-cancer screen is a primary example. MRD, we haven't talked about yet, but that would be another example. Again, leveraging the IT, the sales teams, the evidence teams we have in place, that will allow us to scale and get really good leverage on that investment.

Yes. And you mentioned MRD, might as well jump in there as well. You guys are kind of talking about getting -- scaling up in that market. A few competitors out there now, but attractive, high-growth, early innings. Maybe just talk about your strategy there? And what we should -- what the expectation should be?

Yes. I mean, others out there in the market, like Natera has done a very nice job in build this market, but I think we're probably in the 3% penetrated range. So it's still very early in the life cycle of the MRD. The strategy here is to get what we think will be the best test on the market. We're taking a unique approach where we're offering 2 different types of tests, one, a tumor-informed test where you take a bit of that person's tumor and customize a test for that patient. But 20% to 30% of the time, you can't get enough of that tumor or even any tumor at all to get them an answer. So we're developing a tumor-naive version of the test as well, that way we can get more answers to more patients quickly. So we'll bring both tests to market. We've started to generate evidence on both of them. We will share some additional evidence later this year and launch a colon cancer version of our test later this year. Another part of why we're so excited about this is that in breast cancer, in particular, we already have a leadership position, thanks to our Oncotype franchise, where today about 50% of all breast cancer tissue in the country comes through our lab in Redwood City, California, where in the future, we could take that same block of tissue and first run the Oncotype test on it and then run an MRD test on it. We spent over 15 years building up that commercial channel, building up those relationships with doctors and getting that block of tissue into our lab. So that gives us a huge head start commercially in breast cancer, which breast cancer is the biggest market for MRD. So we're excited about the future of MRD. It is 1 of our top 3 big pipeline areas, and we think we're well positioned to be a leader there.

And how do you think about the MRD piece scaling towards revenue? And then, I guess, material revenue, as you know as well as I do, these diagnostic tests take time, they do really scale up. So maybe just talk us through when we -- what the right expectation should be on the path to the revenue side there?

So we expect to launch the early access LDT later this year. The true launch won't come into the Medicare coverage that will probably take place in '24. Again Natera has done a nice job building out the reimbursement pathway with Medicare. Recently, they had a nice win in breast cancer. So that's great to see the MolDX pathway created for MRD reimbursement. So we're probably talking later next year before you start getting some real Medicare revenue. And then I would say it's probably material in '25, but overall material revenue contribution in 25.

Okay. Got you. You mentioned Onco doesn't get the most spotlight, but I spend a few minutes on it. Just in terms of you guys have pruned the portfolio a little bit this year, you have the international opportunities, but maybe we'll start just with kind of plans there, the expectations this year. I think it's going to offer decent growth again outside of the divestiture. So yes, maybe just talk through current trends and then the international opportunity as well there?

Yes. The Precision Oncology business, it really doesn't get the attention it deserves. It's a high-margin business, over 80% gross margin. EBITDA margins are at 40%. It's a $600 million top line. If that were a stand-alone company, it would be the second biggest company in Diagnostics. So it's a really high-quality team, really highly quality set of assets, and it provides a really strong foundation for growth, both with MRD we just talked about and internationally, which we haven't talked much about. The current trends in that Oncotype business. Really the Oncotype product what that can do is that it can answer 2 key questions for women diagnosed with early-stage breast cancer. The first is what is my risk of recurrence. That's a huge thing on women's minds. Also will I benefit from chemo? Oncotype-DX is the only test proven to be able to answer both of those questions, which is why we've got such a strong leadership position in that market. That foundation, again, very strong in the U.S., internationally -- sorry, in the U.S., we expect probably low to mid-single-digit growth, given the strong leadership position. Growth is really going to be about incidents, maybe plus a point or 2 as we pick up additional share. Internationally different story. Internationally growth there on a normalized basis should be strong double digits. That can vary year-to-year as new markets open up. An example of a new market coming online is Japan. We're hoping that Japan comes in line for us second quarter of this year. Japan has the potential to be the second biggest market outside the U.S. In that first year, this could be north of $25 million of revenue. Now we're expecting about half a year this year, but as Japan comes on, the big growth driver today for Oncotype down the road for MRD and other tests that we launched outside the U.S.

And what's the path in terms of the Japan revenue you mentioned, what's the path to kind of getting there? What steps have to be taken to kind of materialize that?

Yes. We're waiting for kind of final approval on reimbursement in Japan. This has been a long time coming. We didn't have the best execution there last year. But now we've got a new leader internationally. He's doing a really nice job. And I think the foundation is pretty clear. So we've got distribution partners there. We have an early access program in flight right now that as soon as reimbursement turns on, we should see that revenue start to flow on pretty quickly.

Okay. Got you. I think we only have a few minutes left. So maybe quickly just on the balance sheet side. I know you guys did a bit of a kind of a debt cleanup, it was a week ago, 2 weeks ago. Maybe just talk through kind of what happened there, thought process? I know you guys always want to have cash on hand. Just in case, so talk to that.

So our philosophy has always been to operate from a position of strength with a strong balance sheet. That's paid off over time. That gives us flexibility to invest organically, inorganically. No matter what happens in the world. Obviously, with Putin in Russia, there's a lot of uncertainties. With inflation, I want to make sure that forever we can invest and continue to grow that topline. So what we did last week was an exchange offering where we took our existing convertible debt. We have some outstanding to 27 to 28. We took about 20% of that out and extended the maturity to 2030. I look at this is prudent balance sheet management. In the process, we took on about $130 million of additional cash, but we kicked out the maturities, which is important here. Over time, you can expect us to do more of the same. We've got notes due in '25. We've taken 2 bites of that to make sure they were always just kind of laser-focused on that balance sheet, making sure we're optimizing it for all of you, and making sure we optimize it for us.

And then maybe just uses of cash. I mean you guys have done some smaller deals, you've done some larger deals. We have talked about onco. How do you think about the strategy? I mean, do you want to just be kind of this cancer screening company where you cover everything? What's -- or do you want to be this targeted high-growth area? What's kind of the right process to think about?

I mean the primary focus now, this is a year that has execution. We've got a really good thing going with Cologuard and Oncotype, awesome momentum across the business now. So we want to keep that going. We've got a huge year for our pipeline. We talked about some of the milestones. So huge opportunities there to kind of grow the business and expand into new markets through the pipeline. That is the priority. We will look for acquisitions, but there the bar is really high for us. The bar is high. We want to make sure that if we do something, it's the right business to bring in. It's the right return for shareholders. There's a good cultural fit. We've got -- we've been on the Great Places to Work certified for 4 years in a row. There's a way to screw that up, and that's through a bad acquisition. So the bar is really high for us. You have got a strong business, so if we do something, it's because it checked all the boxes.

Yes. And maybe last one, just one minute left here. I guess when you look at the guidance, you've always kind of layered in some levels of conservatism. I guess when you look at it this year, in terms of upside levers, you've talked about rescreens in 45 to 49, and there's a lot go in your guys' direction. Where do you think there's the most upside? And then maybe if there's risk as well, maybe kind of something that kind of offsets that?

Yes. I mean the guidance is the most likely outcome. The philosophy there hasn't changed. Everybody, get that straight. So the -- look, we are for [Indiscernible] many growth drivers. There's clear, there's runway that we could -- the sales rep productivity has been increasing nicely. We talked about health system. There's a long runway ahead there, 3-year rescreens, just a phenomenal year, the last few years. Cologuard 45 far surprised expectations internally last year. So there's clearly opportunity. But it's important to say, so where it's early in the year, we're now 2 months in. We've got a long runway ahead. We've got a lot to deliver this year. If you just look at Cologuard alone, we're guiding to $250 million of growth. That's bigger than most of the diagnostics out there. That's which we expect it to grow this year. So it's not a cake walk. The team has to execute well to these numbers, but there's clear -- there's room if the runway is a long ways ahead. So we expect strong growth for years to come.

And then maybe last quick one, just in terms of if there is upside. How do you think about letting that flow through to the bottom line with this focus on profitability versus reinvesting.

I mean overall incremental EBITDA margins this year are 75%. So a lot of that growth is falling through if -- hypothetically, if there's upside, we'd have to evaluate at that time. But we probably would reinvest some of it, but make sure that we're always delivering incremental margins for shareholders. .

All right. We'll leave it there. Thanks, Jeff.

Thanks, Patrick.