Exact Sciences Corporation (EXAS) Earnings Call Transcript & Summary

Hello, everyone. This is Rachel Vatnsdal from the Life Science Tools and Diagnostics team. Thank you so much for joining us today. Today, we've got Exact Sciences. As a reminder, this will be a 40-minute session. The first 20, give or take, will be a presentation followed by 20 minutes of Q&A. So with that, I will pass it off to Kevin for the presentation. Kevin?

Thank you, Rachel. Thank you, Rachel and JPMorgan. Welcome to all of you. Welcome to those who are listening on the webcast. Our purpose at Exact Sciences is clear and bold. It is to help play a role in the eradication of cancer through tests that prevent it, detect it earlier and guide treatment. That's who we are. It's what we are. We're a cancer diagnostics company, and we're one that's having an impact. This is our safe harbor statement. We will be making forward-looking statements today. What's next is now, this year, we expect to have the most productive year in the history of Exact Sciences, launching 2 major impactful tests, tests that really will change the practice of medicine. Cologuard Plus, we'll talk about it. Oncodetect in the molecular residual disease field, a tremendous and fast-growing field that's having patient impact and multi-cancer screening Cancerguard. We're so excited this year. We're also going to announce data in about the middle of the year in our colon cancer blood program. So it's going to be a really busy year, and we're excited to have you along for the ride. So when we first started Exact Sciences 15 years ago, the whole idea was to eradicate colon cancer by addressing a huge unmet need. Well, since that time, we've become more of a platform company. And how have we done this? Really 3 ways. Number one, with our scientific platform, which we'll also talk about. Our commercial engine, best-in-class, 1,400 people allowing us to bring innovations to patients and physicians who need them and then also the exact Nexus IT platform. These capabilities that we've developed have taken a long time, significant investment. And I think what you'll see over the next several years is the rewards of those investments that we've made over the last 15 years. All of this allows for personalized treatment of cancer, and it also allows for the earlier detection. It's a powerful platform, and it really starts with people. So when you look at our flywheel, the thing that creates momentum at Exact Sciences, it starts really with incredible scientists and the scientific platforms that we've developed. And then with that platform of people and science, we're always developing clinical tests that actually change the practice of medicine. All too often in our field, you see tests that are developed that don't actually change the next step in clinical practice. You know with Cologuard, you know with Oncodetect DX. It changes that next step. The next part of the flywheel is so important because it is developing evidence that is rock solid. Evidence that you know clinicians, guideline groups and importantly, payers rely upon to issue coverage decisions to incorporate into the standard of care. All too often, companies don't always think about developing robust evidence. Our hallmark at Exact Sciences is ensuring robust clinical studies that help answer the questions, getting these tests into guidelines. And this is the hard work. The right side of the flywheel, it takes a tremendous amount of time and effort. As you get to the bottom of the flywheel, this is where your people, your commercial engine starts to accelerate things. And then the exact Nexus platform, that customer engagement, health care providers, patients, health systems. That's where the acceleration occurs and you see that with the top line growth and then also bottom line growth, allowing us to reinvest back into the business. It's an important part of who we are and how we grow over time in a way to be able to bring a robust pipeline to the physicians and to the patients who need this. We have 2 units at Exact Sciences, our screening business unit and also our precision oncology business, each anchored by the 2 most well-known brands in cancer diagnostics: Cologuard and Oncotype DX. On the screening side, you're going to see a lot of innovation coming through to our customers and having a significant impact in the field. And you're starting to see that, too, on the precision oncology side. So this is a powerful pipeline that will have an impact not only in 2025 but for years to come. The Exact Nexus platform. This is an incredible, almost magical platform that when we first started out, we were just trying to develop a test that would improve colon cancer screening. And quickly, we realized you really need to build a technology company upon which you bring advanced cancer tests to health systems, to physicians and importantly, to patients. And how do you do that? And what is ExactNexus? Well, ExactNexus is a best-in-class and incredibly robust IT stack with about 100 applications connected to the Epic EMR system that allows us to connect with 70% of health systems in the U.S. today. That doesn't happen overnight. That is health system by health systems integrating electronically. So a physician within that health system can electronically order a test and get a result of a test, can get prior authorization completed, billing completed, the clinical next step completed. And with the power of AI, it will change all of this, making it more seamless. It also powers, for example, our care gap programs, which we'll talk about. It allows population health management. And population health management in the world of screening is how you bridge this gap of 60 million people who aren't up to date for colon cancer screening. This is powerful, and it continues to grow. We brought Oncotype onto this platform this year -- this last year. And now we're able to drop new tests into this platform, bringing their impact to patients. I'll give you one stat. When you bring Cologuard into -- when you bring a new health system into the ExactNexus platform, you see a step-up of 30% more people getting screened with Cologuard because it's easier to order. It's easier to get those results. We don't talk about this enough, you will see the power of it in years to come. Now let's talk about Cologuard. Colon cancer is the #2 cancer killer in the U.S., but it's also the most preventable and least preventative cancers. Screening, you actually -- with Stage I cancer, there's a 98% 5-year survival rate. If you find and remove a precancerous polyp, you can actually prevent cancer in the first place. That's the power of Cologuard. And when we first started, I know a lot of people thought there's just no way you're ever going to get millions of people screened. Well, we've had 18 million people screened today with Cologuard. And the power of this is that it's resulted in $22 billion of savings to the U.S. health system because of earlier detection, because of prevention. Last year, so proud that 4 million people were screened with Cologuard. And we're just started. That's about 13% share. We believe, over time, we have the ability to get to 40% share. And another thing to put in perspective is today in the U.S., there are about 5 million to 6 million people who are screened with screening colonoscopy every year. Cologuard is at 4 million. We will surpass that in the near future. And it only makes sense to have a less expensive, highly accurate way of screening for colon cancer to be adopted. And we see that world where you're at 14 million or more people screened every year. Cologuard remains an open-ended growth story. 21% 5-year compounded growth. We have the ability this year to accelerate growth. When you take a look at our rescreens, that's the people who get their second or third Cologuard test. When you look at our care gap programs, combined, that could be 10% base growth right there, Cologuard Plus, another couple of points of growth. Then our commercial effectiveness. We have the ability to improve how we reach the physicians who are new to ordering Cologuard. And so this year could be a really special year, and the team is working together in a way to make this happen. Let's focus in on repeat testing or what we call rescreen. So Cologuard is indicated by the guideline groups to be used every 3 years. When you use it every 3 years, it's the most cost effective. By getting tested every 3 years, you can significantly reduce your risk of mortality from colon cancer. And what you see here is in the dark, 1.1 million here. And then the purple, you see the number of people who are due for their first rescreen and their second rescreen. And you see this grow over time and then third rescreen. And over a long period of time, a tenth Cologuard rescreen. And today, what you see is about 50% to 60% of people in any one of these columns gets rescreened within the next 2 years. We believe we can drive that to 80% to 90% by automating this, again, through the ExactNexus platform, creating incredible customer stickiness. And it's so important to get people tested again and again and again to keep them safe and to actually move towards disease prevention and disease eradication. We know what has happened with cervical cancer in the U.S. Cervical cancer, where you've seen 80% to 90% of people screen on a regular basis. You've seen cervical cancer go from the #1 cancer killer of women in the 1960s to #13 today. That's what's going to happen with colon cancer if we keep this up. And it's a powerful story. And there is another driver of growth that we've seen emerge in the last 2 years. This is care gap programs. When you look at preventative health, Medicare Advantage plans, commercial plans incentivize it. In Medicare Advantage plans alone, we estimate that there is about 1 million people a year that we can help get Medicare Advantage members tested on a regular basis. So that they're up-to-date with screening. And why does this matter? Because Medicare Advantage plans offer about $12 billion in incentives based upon quality measures, the Stars and the HEDIS quality measure ratings. So we've -- in the last couple of years, those plans, we've had deep engagement with them, and I'll give you an example of one of those plans. A Blue Cross Blue Shield plan came to us in one large state and said, we'd like you to screen 90,000 of our members who have persistently been underscreened. And so through the ExactNexus platform, we were able to screen those people, because of the data we have, we were able to inform many of them that they were already up to date. And even the health plan wasn't aware of that, and then ship Cologuard kits and communicate with those members to get them screened. There is -- just last year alone, we had over 250,000 people screened through these care gap programs. Health systems are also doing the same thing. They're coming to us and saying, look, these are patients that we haven't seen in 3 years. Can you help us get them up-to-date with colorectal cancer screening? And when you think about it, it's the logical way to screen people over time. When a patient comes in to see their primary care doc and they have 8 minutes, colon cancer screening, a lot of times, doesn't make the top 15 items. This is a way to automate it at a societal level, and it's working. It's having a big impact on patients. Now this is my favorite part of the presentation. This is Tim from Massachusetts, we're going to share his story in his own words. [Presentation]

Yes. That's why we come to work every day. I am so proud of the team that has made this possible. And last year, screening 4 million people is just the start. We estimate over time that there have been 86,000 people like Tim who've been diagnosed with early-stage treatable colon cancer because of Cologuard. There have also been 500,000 people who have had precancerous polyps removed leading to disease prevention. As you can see here, the impact that we can have, the real impact that we can have is generational, and we're not going to stop. The Precision Oncology team is doing work that is equally as impactful. Oncotype DX has changed everything really in advanced cancer diagnostics. Oncotype DX answers really important questions for patients with early stage HR-positive HER2-negative breast cancer. That's about 70% of patients diagnosed with breast cancer in the U.S. And before it came along, you had this real challenge, like how do you decide whether a patient should get chemotherapy, only 20% benefit, but you don't know which should get it. Oncotype DX answers that question. And it's backed by evidence with 100,000 patients in studies. It's become a standard of care. Because it's become a standard of care, 2 million patients have benefited around the world. And this patient here who got a score of 13. What does that mean? That means only 1% chance of recurrence and virtually no benefit from chemotherapy, can safely avoid chemotherapy. The Precision Oncology team really delivered last year, $655 million in revenue based on the strength of Oncotype DX. And this is the business -- this is the team that is delivering on Oncodetect, which is going to impact patient care all over the world. And we're so excited because the strength of our relationships with oncologists, 98% of oncologists in the U.S. have ordered at least 1 Oncotype DX. We have 90% share. That's the base of relationships and customers, which will grow our Precision Oncology team. So let's now talk about the pipeline. The pipeline is driven by our insights and our unique capabilities in DNA, RNA, proteins, multi-omics. And just a ton of technologies. We have 2 incredible R&D teams, 1 in Madison, Wisconsin, 1 in San Diego. And these teams are focused on next-generation sequencing and our TELQAS technology platform that delivers the power of Cologuard Plus. And this capability, the scientific capability will fuel us for years to come. Cologuard Plus, amazing new technology. With only 3 biomarkers, we're able to detect 95% of colon cancers from a stool sample with only a 6% false positive rate. That's a reduction in the false positive rate of 40% relative to Cologuard. It's been recognized New England Journal of Medicine publication last year, FDA approval last year. Importantly, at the end of last year, Medicare announced pricing for Cologuard Plus, recognizing this improved value of Cologuard, fewer false positives, less wasted cost and unnecessary colonoscopies, increasing the relative value to Cologuard by 16%. Proud of the scientific work that has led to that. And large payers are already starting to cover Cologuard Plus. We've been told by the guideline or by the HEDIS group that it will be included in the quality measures and CMS that it will be loaded into their system, so we'll be ready to launch at the beginning of the second quarter. Oncodetect. Okay, so for patients who are diagnosed with cancer, current treatment is you treat the patient, you hope that you got it all, but you don't really know. And then maybe you do PET scans down the road. The future is to look into that individual patient through a blood draw and look for even tiny fragments of residual tumor. So you have the tissue, you can find the mutations, look for those mutations in blood. So you can answer the question, did you get it all? Has the cancer come back? And there are studies showing that there's an ability to detect recurrence a year sooner through a blood draw than even the most sensitive imaging PET scans. This is a powerful technology. This field is growing. It's about a $500 million market, only 5% penetration to date. Oncodetect, we expect will be launched in the second quarter with Medicare coverage in the colon cancer space, and we expect to expand from there. Our technology and our unique approach is today, looking at between 50 and 200 mutations and in the future, looking for 2,000 to 5,000 mutations. That's our unique scientific advantage, launching this through the precision oncology team. Let me see here. Okay. So I may have messed up the slide there. Let's move on to Cancerguard, our multi-cancer screening test, one blood draw, most cancers. We've been working on this for a very long time, almost a full 15 years since I've been with Exact Sciences. Second half of this year, we launched it. Why would anybody want to get one blood draw detect most cancers? Because 70% of cancers aren't screened for. There's only 5 cancers that are recommended in screening. Leading to only 14% of people diagnosed with cancer are found through screening when you're detecting earlier. To really bend the cost curve, this is how you do it. Initially, we'll launch into patients at a reasonable price point, out-of-pocket pay, right out of the flexible spending account or the health savings account, and we believe this can have significant impact. Performance in 2024, we delivered, and this is new news. We issued a press release yesterday, $2.76 billion in revenue. We provided guidance in the last quarter call of $350 million of adjusted EBITDA, we expect to be at least at that level, which is 44% year-over-year improvement. Again, we expect our Cologuard screening business to accelerate leading into 2025. I just want to emphasize that we are comfortable with current analyst expectations around 2025 total revenue. We're also well on track to delivering on our 5-year financial targets of 15% compounded growth and at least 20% adjusted EBITDA margins. 2025, our team is hyper focused, accelerating core growth, launching new advanced cancer tests and extending and leveraging the ExactNexus platform. What's next is now, can't wait to take your questions.

Perfect. Thank you, Kevin. So maybe first up, just question, can you explain what the QR code is behind us?

Sure. How many of you in this room are over, show of hands, over 45 or over? Okay. Put your hand down -- keep them up, if you would, for a minute. How many -- drop your hand if you're not up to date with colon cancer screening. All the people who dropped their hands, this QR code, in 3 minutes, you can have a Cologuard kit being shipped to your home. You answer some questions, put in your name and address, put in your insurance information, and you'll get a Cologuard test at your home. So the power of the digital platform that we're delivering is shown by this. It also, over time, will be used to automate rescreens. It's really exciting.

Perfect. Maybe I just wanted to dig into 4Q. You guys preannounced yesterday -- or earlier today with a solid announcement. Can you just kind of walk us through what were some of the drivers of growth within that fourth quarter?

Yes. So we're pleased with how we ended up finishing the fourth quarter, about $20 million above where our guidance expectation was at the midpoint. And the growth was really driven by Cologuard, okay? And within Cologuard, there are kind of 2 key factors. First, from the care gap programs that Kevin has talked about and the momentum around our care gap program just continues to build, and that was ahead of our expectations. The second, one area we called out on our call was the impact from the hurricanes, most notably in the Florida region. Those orders started to come back a bit better than anticipated as we closed the fourth quarter. And then within our Precision Oncology business, we're pleased with where the cash collection rate of our Oncotype DX business finished within the fourth quarter, setting us up for even better cash collections in that business heading into 2025. And as Kevin alluded to, we are comfortable with where 2025 analyst expectations are right now, and that would imply accelerated growth for all the reasons and the drivers Kevin hit on in his presentation.

Perfect. We'll dig into 2025 in a minute. But first, I just wanted to ask about Cologuard Plus. You recently secured pricing there. You plan to launch the product in a few months. So how should investors be thinking about the benefit there translating to your P&L? Really when will those be realized?

Well, we'll start to launch in the second quarter and first into the Medicare population where we have coverage. And then over time, commercial patients will get access to that. It's probably at least an 18-month transition until we decommission Cologuard and make Cologuard Plus. One of the things Cologuard Plus will do is that it will reenergize the conversations that we're having with health care providers on a regular basis because it gives something new for the sales force to really talk with those offices about. And it's really the patient impact, the sensitivity of the test and the improvement there and the lower false positive rate.

And then just in terms of timing and what we would expect, this is going to lead to growth acceleration for the next several years as well as margin expansion. And so what we've outlined is that we would expect just based off of the Medicare fee-for-service population at launch and a launch in Q2, this will add a couple of points of growth in 2025. Most notably, though, it will be in the back half of the year. With the launch in Q2 and about a 30- to 45-day time lag between when we ship a kit and when we get the kit back, we would expect that contribution to be in the back half of the year. And then on the margin side, it's a 16% increased value that we have with Cologuard Plus. And so we would expect to be able to see meaningful, several hundred basis points of margin expansion over the next couple of years.

Maybe as a follow-up on that, just on Cologuard Plus. Can you talk about -- do you expect that to be covered by Medicare? And also, do you expect it to be included in quality measures as well?

Yes. As I mentioned, the quality measure group has already indicated that they consider Cologuard Plus to be just a modification of Cologuard in terms of how they think in the quality measures. So that will be included. Medicare, the national coverage group has indicated to us that there will not need to be a modification to the national coverage decision. And we, again, are starting to see large national payers just routinely now cover Cologuard and also start to take the code for Cologuard that the AMA issued and start to load it into their systems.

Perfect. Maybe shifting over then just to MRD. I think this is an area that a lot of investors are interested in, just given the size and the speed that this market is growing at. So can you spend a minute talking about how is Exact differentiated across the competitive landscape in MRD?

Yes. Well, let's take a step back first. This is such a wonderful story for our industry and our field because this nascent technology has been applied by doing the right clinical studies to prove that the patient impact and the ability to detect recurrent sooner. And so you can either have greater intensive therapy or potentially deescalate therapy over time. And our -- we have 2 things that really stand out with Oncodetect. First of all is we're looking for more mutations and you take a disease like breast cancer. Breast cancer doesn't shed a lot of DNA into the blood. The ability to detect that by looking for thousands of mutations is -- confers, we believe, an advantage that over time will allow us to get more people tested with Oncodetect. And today, the current version is 50 to 200 mutations. So that's an advantage. But also, look, we have deep relationships with virtually every health system in the U.S. because of Oncotype DX, not only in the U.S. but there's about 25% adoption internationally and that continues to grow. So we have a platform that we can deliver this to electronic ordering, electronic resulting. Also that ExactNexus platform enables prior authorization through Epic's payer Connect platform that we have unique ability to help those patients get access because of the platform. And so those are some of the advantages, I think, that we have as we enter this field.