Exact Sciences Corporation (EXAS) Earnings Call Transcript & Summary

So Brian, staying with you for a second before I bounce around some other stuff since you are there, talking about this. So your -- what are some of the differentiating characteristics of some of the stuff that you're bringing online, right? I mean there's a lot of companies that are doing MRD. There's a lot of companies that are doing hereditary cancer testing. There's a lot of companies that are doing this. It's like what are some of your differentiation points in some of these other products? Or is it just offering a full suite that's there and the infrastructures that were taken out? It was like -- was there -- I think when we saw you a couple of weeks ago down at your Genomic Health facility, it was -- you were talking about the R&D innovation that was there. So can you sort of elaborate a little bit more on those topics?

Yes. One of the things I don't think Exact gets enough credit for is the high science that we do. We opened a state-of-the-art facility down in San Diego, where our Chief Science Officer, Jorge Garces, and his team are developing our molecular residual disease test. We've also loaded up on bioinformatics talent down there. So I'm really excited about the science. So I think one of the ways that we're going to innovate is, I believe, based on some data that I've seen, looking forward to share later this year that we will have a better mousetrap, if you will, for molecular residual disease when we come to market. So part of it's having a better test that has better sensitivity and specificity than some of the companies that are out there. Another leg of the stool is some of the stuff that Kevin has been talking about, which I'll define as infrastructure more broadly. On the sales side, we have people in the field. When you go out and visit these reps and you spend time on the front line, they've been in their territories 10, 15, sometimes even 17 years, calling on the same physicians. They know the staff. I think that deep relationship is an advantage. The digital infrastructure that Kevin mentioned, being on Epic, a lot of the machinery that the Cologuard team has built around adherence, compliance, rescreened, these are things that are going to be needed to keep patients on the surveillance regimens. Where in the case of HR-positive cancer, you often see recurrences happen in the 5- to 10-year time frame. These are going to be women who have been tested 20, 25, 30 times with a blood-based MRD test. And if it tested negative consistently for 4 or 5 years, they still need to show up for that 37, 38, 39th test and that machinery that we've built on the Cologuard side can easily be deployed to help patients and physicians with MRD. And then lastly, I lean back on the clinical evidence strategy. I mentioned this to you, Derik, when you were in Redwood City joining the team. I believe that Genomic Health wrote the playbook on how to build evidence around a high-value diagnostic and that happened 15, 16 years ago. We still have a best-in-class team that will stand up, a world-class clinical evidence. Working with these collaborative groups, we have deep relationships back to the birth of Oncotype. I'm talking about groups like the NSABP, ECOG and SWOG. These collaborative groups who really understand how to develop real utility evidence that is practice-changing. So I think it's a combination of all those factors. And the fact that the MRD market, kudos to the early market leaders, but we're still very early in the development of that market, and there's a lot of baseball to be played there, and I think we have ample opportunity to catch up.

Great. Great overview. I want to hit one thing before we talk about blood before the end because we have to. So can you please remind us on the timing of BLUE-C and the read out on that, and the advantages of 2.0 versus Classic? And how important is this to -- or how could Cologuard 2.0 help accelerate uptake in compliance? I mean, is it even a further -- is it something that even doctors would want to prescribe even more, given some of the performance characteristics?

Yes. So Cologuard 2.0 is our next-generation version of Cologuard. It is with more precise markers, better technology, lower cost of goods. And we believe that we will improve across the board in terms of the accuracy of the test. The main goal is to reduce the false positive rate by 20%. We think that's very achievable. We have confidence in that based on the number of studies we have done of the Cologuard 2.0 assay, which has been in development for a decade. An improvement in the pre-cancer detection. So we believe, by far, we'll have the best pre-cancer detection capability of any noninvasive approach to screening. And then we hope to at least remain constant and potentially improve around our cancer detection. We were so strong with cancer detection. We detect 94% of early-stage cancers. It's hard to improve on that. So we want to at least remain as good as with the original version of Cologuard. The BLUE-C study is the pivotal study. We've closed down enrollment. We have tested the vast majority of those samples. All the data will go to the bioinformatics team, and eventually we'll see the data this summer and release the top line data. So the goal is to have that this summer, and the goal is to have that new, incredible product in market a year from now. We think that's going to increase the rate of adoption because the false positive rate -- physicians will say that they want that to be as low as possible. That will be a big win to reduce it. And also, I think payers are really going to love not having to pay for as many false-positive procedures, namely colonoscopy. So we think there's an opportunity for us to capture some of that value that we're creating and share it with the payers. So more to come on that front. We're really excited about the impact that can have on patients.

So then you're also -- this sort of segues into blood conversations. You are collecting blood from your Cologuard 2.0 studies. So what's your latest thinking on the whole blood versus stool debate and the -- some of the data that's out there right now? And also, let's start with colon cancer screening, but I also want to go on to multi cancer detection as well.

Well, this goes back to the very first meeting that I referenced back in 2009 with Dr. Ahlquist, who said, look, the problem with detecting precancerous polyps in Stage I cancers from a blood draw is that those early cancers don't invade into the muscle layer of the colon. So that's where the DNA is being shed into versus a stool test where even with a precancerous polyp, if you take a 1 centimeter precancerous polyp, each shedding a lot of DNA into, because it's on the interlining of the colon, into the stool, so you can find it. So stool is a much better target with more enriched DNA. That's a starting point. We believe that a blood test is still relevant because there are people out there that refuse a colonoscopy, refuse a Cologuard test. We happen to know who those people are. We have several million of them in our database today. And we want to help get those people screened. So even with the blood test that is inferior at detecting cancer, and these blood tests have a very difficult time detecting precancerous polyps. It's just they don't interact with the blood supply like a tumor does. We still believe that, that is an advantage that we have that nobody else has. We also have another advantage. Others in this field are trying to do it with sequencing, which is really expensive. You can't run a blood test every year on a sequencing for the masses. It's very difficult to make the math work. We have a proprietary version of PCR, which is incredibly advanced and allows us to detect at the same rate or higher as sequencing. I won't get into all the details, but we can do it at a much lower price point. Medicare is already priced to blood-based screening test. A lot of people don't appreciate this. It's $192. We can make a reasonable profit and we can target it for the patients who have refused colonoscopy and Cologuard, okay. So what does the FDA think about this space? The FDA has already issued their view on blood-based testing, which is inferior to Cologuard or colonoscopy. And their view is it's not going to get a first-line screening claim. What does that mean? That means it gets a secondary claim. And a secondary claim reads, this is a test for colon cancer screening only to be used on patients who have refused all other guideline recommended screening test. They're serious about that. And there's a reason why they're rightfully worried about having a test with worse performance being used by the masses. So our view on this hasn't changed. There is a need. I think people in this room have probably had friends, family members touched by colon cancer who weren't up to date in their screening, even with Cologuard and colonoscopy available. So there is a need, and back to their 60 million people we know -- 50 million to 60 million people that are not up to date with their screening today. We are in the best position to deploy it. Nobody else has built an ecosystem of the 1,300 people that we have in a commercial organization, the deep investment. We've invested $1 billion in our digital ecosystem, $1 billion. We have deep electronic connections with most, the majority of the large health systems. So we can drop a blood-based test in and guide it to the appropriate patients. In fact, we can go to the physicians, and I tell them these are the patients you ordered Cologuard for and who refused it. And we want to get to those patients. So we think it's another growth driver. And our Chief Commercial Officer, Everett Cunningham, says, again and again, you give me that blood test. We're going to be back and talking about a broad colon cancer prevention and screening program with this broad set of tools. So we think we're going to win this field. With all of that said, blood test is unlikely to get into the guidelines. It's unlikely to count as a quality measure. And if you don't have that, it's an uphill battle. So is it going to take away share or cannibalize Cologuard? No. Is it going to provide upside? Yes. But it has a particular role. People have been asking our view on this. When you study a field intensely and your kind of -- your career depends upon it, you tend to know it pretty well, and we've studied this pretty carefully, so.

So any questions from the audience before I move on to little thing like profitability.

Just a question. Out of the Cologuard tests that you've completed today, what percentage is Stage I or pre-cancer?

So the question is out of the Cologuard tests that are completed today, what percent are Stage I cancers. In the DeeP-C study, the original pivotal study that was initiated 10 years ago, Stage I cancers were 45% of all of the cancers found. There were 65 cancers. That's probably going to vary study to study. But it is -- as you can imagine, when you go into an asymptomatic population and you screen for a cancer, you find earlier cancers. That's the point of screening. So we saw 75% of the cancers were Stage I and Stage II in the pivotal study. We don't know yet what that is for the BLUE-C study, but it's probably between 50% and 75%, if I had to guess.

Yes. And if you add in pre-cancers to that because that's -- Kevin talked about the importance of detecting precancers as well. So precancer Stage I and II was over 98% of the findings in DeeP-C. And that's the real target of screening because that's when you can impact the disease and actually change the outcome.

But assuming that the people in this room are of kind of well distributed in the age population, 1 in 20 people are walking around with a precancerous polyp and don't know it. One in 200 have cancer and don't know it. So those are the targets. So that 5.5% of the population is who you're really screening. But you also find people with smaller polyps, but I know you have a profitability question and we're ready to...

Yes. Now that you hit the inflection point on profitability and as your free cash flow targets coming in sooner than expected, how you're thinking about reinvestment? How do you think about spending on people? How do you -- for the trade-off between profitability and growth and how quickly does the profitability ramp from here?

I look pretty calm right now, but I'm so excited about the fact that we have made a turn, and that turn is not going back. 18 months ago, in January of 2022, we said we're going to be profitable, and we're going to be profitable in 2024 and a grand total of nobody believed us, except our team and our team knew the path. We knew what we had to do from an investment cost standpoint, and we also knew what we have to deliver in terms of growth. And the team delivered on this. And I would just say, we are going to keep delivering on it. When Jeff Elliott, our CFO, said, we are going to not eat through profitability. We're going to punch through profitability. I can tell you that is the message. And this isn't going to slow down and it's years to come. So I have a number sitting on a piece of paper, that I gave to the Board at the beginning of this year for 2027 in terms of top line revenue and profitability. And it's a big number. And we don't think we can deliver on this. We know our business very well, and we are going to deliver on this.

And my final question, as you know it is, what's underappreciated about Exact?

I think what Brian said is the incredible science that has delivered this kind of growth, both in screening and Precision Oncology. And we can't wait to show data this year and next on some of these new products that we're bringing to patients and physicians who need them.

Great. Thanks, everybody, and thank you for listening. And remember, [ II season ] is coming up. So vote early, vote often. Thanks.