Exact Sciences Corporation (EXAS) Earnings Call Transcript & Summary

All right. Great. Welcome. Dan Brennan, TD Cowen tools Life Tools and Diagnostics Healthcare Conference here -- excuse me, welcome Dan Brennan, TD Cowen's Tools and Diagnostics Analyst Day 1 of the 45th Annual TD Cowen Healthcare Conference. Really pleased to be joined here with me on the stage, senior management team of Exact Sciences. We have Kevin Conroy, CEO, and we have Aaron Bloomer, CFO. So gentlemen, welcome.

Thanks, Dan.

Thanks, Dan.

It's really great to be here.

Great. So Kevin, I thought it'd just be great to have you start off by providing a brief review of the company's progress in 2024 and how the opportunity looks for Exact Sciences in 2025.

Yes. Thanks, Dan. Let me take a step back and first, our vision at Exact Sciences is to help eradicate cancer with tests that prevent it, detect it earlier and guide treatment. There's been a fundamental shift, we think, in the way that cancer is being screened for and detected in part because of Cologuard and Oncotype DX. But now it's -- in part because of the success of those 2 tests, the whole field is changing, and we think we're in the early innings of this change. The things that make Exact, we think unique and differentiated is the science and scientists at Exact, which allow us to develop tests that address real patient needs, high gross margins, the ability to keep reinvesting there, an incredible commercial organization, the largest, we think, the most impactful commercial organization, deep relationships with payers. And ultimately, that capability, coupled with our ExactNexus technology platform, we're the only diagnostics company that sits on top of Epic, providing us enormous flexibility and leverage feeds to increasing operating margins that are sustainable for the long term. So in terms of the progress in 2024, we had another record year with continued growth with Cologuard, Oncotype DX, but we also set ourselves up for 3 important product launches this year. So Cologuard Plus is going to transform colon cancer screening once again, our MRD test, Oncodetect and our multi-cancer screening test, cancer. [Audio Gap] '24, the successes with product development there leads to 3 important launches this year. We believe that we will see continued growth in and lift from Cologuard Plus and then the launch of Oncodetect in multi-cancer early detection are 2 of the highlights this year.

Terrific. Maybe we could start high level again on maybe the guidance for 2025 that you provided calls for 13% year-over-year screening growth. And as you mentioned, there's a lot of interesting levers this year, excuse me, Cologuard Plus, better pricing. You've got momentum in care gap. You have obviously the rescreen opportunity, not to mention the MRD launch. So -- but I wanted to start off with the sales force, right? Because I know that came up towards the end of last year, kind of there was a kind of restructuring of the sales force or kind of reorientation of how they're doing business. Could you just kind of walk through again that kind of reorg, maybe the impact that you're beginning to see it have and kind of what's kind of assumed for the benefit of that sales force maybe getting more productive as we think about the guide?

What we did with our sales force was to increase the size back to the levels roughly that we were at in 2022. And we also provided advanced analytics so that we can focus on the highest potential ordering healthcare provider. So last quarter, just shy of 200,000 healthcare providers ordered Cologuard and about 40% of that 200,000 are new to Cologuard in the last 3 years. So there will be an intense focus on breadth, our call point calling on the right number of healthcare providers and then also with the right frequency. So we tier these physicians and nurses and physician assistants into different groups, the kind of super core group, the core group and the targets. And we want our reps to spend about 70% of their time on that group of, call it, around 125 to 150 per territory. The other thing that we did was to go back to a geographical ZIP code-based territories that allow reps to have a business plan to own that whole territory. So they're spending 70% of the time on the healthcare providers that our analytics tell them are the highest potential, but also 30% of the time in between office visits. They know that there are offices that will be highly productive. What we're seeing so far, so that was all effective December 1. And what we're seeing so far is increased total number of calls, increased calls per rep. And we know that over time -- and also that about 70% of the calls are on the targeted physicians. And that, we know will lead to -- we believe will lead to higher productivity from the base of customers. And with that, we expect to see growth this year and in years to come. There are 50 million people who are not up to date with colon cancer screening. Last year, there were about 6.3 million people who got a colonoscopy. Just over 4 million people who got a Cologuard test. So the year is coming soon when more people will get screened with Cologuard than with screening colonoscopy. And now our message is Cologuard first. That's the message with Cologuard Plus 95% sensitivity, 94% specificity. There is no screening test with other screening tests with that level of performance.

And Dan, just from a guidance perspective, so we didn't encompass really a lot of improvement from the commercial organization into the guide. We're encouraged by all of the early leading indicators that Kevin talked about, but this could take a couple of quarters to play it out. And so we would expect to see some contribution as we progress throughout the year, but we felt like coming into the year, we had growth catalysts around rescreens, care gap programs and Cologuard Plus that kind of get us to that 13% total growth rate level. And then we'd expect to see improvements from the commercial organization over time, which could drive some upside.

Great. No, we'll get into some of those underpinnings. But maybe I wanted to start so kind of at a high level here with the next question, and it relates to the Supreme Court case, right? On the fourth quarter call, Kevin, you gave some helpful commentary about what might take place if the Supreme Court upholds the Bradwell case, which we interpret to mean we'll end the commercial mandate to provide $0 out-of-pocket cost for CRC screening per USPSTF A, B recommendation. So maybe can you just again walk through how this case may play out if there's a reasonable chance for the court to provide a remedy, do you think, to maintain the free screening benefit, if, in fact, they do uphold it rather than have it rescinded. And if there's not, like -- and the free screening mechanism is terminated, what type of impact could that have on Exact?

So we're jumping right into the Supreme Court. Let me take a step back here. What this case is about is the Affordable Care Act has a provision that says, if a test is recommended by the USPSTF, a test, a service, then payers are under an obligation not to charge their members a co-pay. Cologuard is one of only three tests in the colon cancer screening space that is recommended by this guideline group, the United States Preventive Services Task Force. That puts Cologuard in a pretty special class because that means it's also into the key quality measures, HEDIS and Stars. It's really hard to have a cancer screening test and not be in the quality measures. That's the key thing, actually, not USPSTF so much and not the mandate. Why? Well, payers are paid to deliver really high quality measuring scores. If you're a Medicare Advantage plan, you live and die by whether you're a 4-star plan. And the reason that we don't think that payers will charge a co-pay for Cologuard, regardless of what happens with the Supreme Court case is because they can't afford to have their quality measures go down. So if they make it harder for their patients to get screened, their quality measures go down. And if you miss by just a little bit, you miss a ton of incremental bonus payments, which, in some cases, can double your operating margins if you're a Medicare Advantage plan. So there's a lot talked about this, but the nuance that is missed is that once you're already in these guidelines and widely utilizing and relied on by payers to boost your quality scores and health systems, they're not going to start charging for this. We don't believe there's. So we think that there will be continued noise around this, but the actual impact will be minimal, if any.

Okay. Great. So let's maybe jump back into screening and starting with Care Gap. Success there has been terrific by our math, and I think if you disclose this distinctly, but 250,000 tests completed in 2024, right, about $125 million of revenue or so. And within your guidance, you talked about care gap adding about 4 to 5 points to screening growth in 2025. You also talked about a flat adherence rate of 25% in 2025. So maybe the first question would be, Kevin. Just give us a sense of how that opportunity has been progressing? And when you think about the success you've had thus far and the adherence rate, is flat the right way to think about '25? Or is there a lot of opportunity beyond that?

This kind of connects directly with the quality measures. So this care gap concept came mainly from payers who we started having conversations with 2, 3 years ago where they said, "Hey, look, we would like to replace our mail out FIT programs. The FIT test is an inexpensive but also not great way to screen for colon cancer. And the FIT test only gives one year of credit because of the performance is lower. Cologuard gives 3 years of quality credit. So they came to us and started saying, look, why don't we work with a cohort of 100,000 patients, 500,000 patients. And we will -- you ship Cologuard kits out per a doctor's request for these big, large groups of patients and it has seen tremendous growth. Maybe, Aaron, you can comment more about the details.

So last year, we screened more than 250,000 patients. I think like you've done the math, more than $125 million in revenue. That was up triple digits from where we were the year prior. And what we've implied in this year's guide is the combination of rescreens, which we said would grow mid- to high single digits plus care gap gets you to something just north of 10%. So we're anticipating another year of robust growth from care gaps, and that's coming in the forms of the depth of the relationships that we have with primarily these payers, but also the health systems. And so we're getting at new cohorts of patients and trying to help get their members screened in an elevated way here this year. Related to the adherence, we're pleased with the progress that we've been making to drive up the adherence. Keep in mind, the adherence rate for a FIT test that Kevin was talking about is closer to 10%. And so when we're driving 25% adherence, these plans are thrilled with that because it's 2x to 2.5x more and you get the 3 years of quality credit. We've got a number of actions in place to try to drive that adherence up. It's going to take some time. And so we felt like from a guidance perspective, just to kind of as we were -- the rate we were exiting 2024, that's what we'd assume for our '25 guidance.

Great. Maybe just on Cologuard Plus in terms of the price lift that you're going to get, the 16% price lift that you were realized. And I think the guide basically implies kind of a portion of that gets implemented this year. Just can you walk through how it's going to flow through between the different fee-for-service and MA? And then how long will it take eventually to get impacted more broadly across your customer base?

Yes. First of all, let's ask a question, why did we get a 16% added economic value? It's a very different test than Cologuard. The cancer detection went from 92% in Cologuard to 95%. The stage right before Stage 1 cancer, the high-grade dysplasia went from 69% to 75% detection. And the false positive rate fell from 10% to 6%. So 94% specificity. So the performance is so high, 40% fewer patients going on to an unnecessary $2,500 colonoscopy. So there's a real economic driver, a real patient health driver impact driver of Cologuard Plus. So we argued for and received a 16% differential in value. We're now starting to talk with payers. Our view is that Medicare is the biggest payer and Medicare gets the -- nobody gets a better price than Medicare. And so that's very, very important that we -- it was a big investment. One of the interesting things, too, is it was our technology platform that delivered this performance. And it sometimes gets lost at our core, we're still a science company. We went from 10 markers to 3 markers and that positive impact, lower cost of goods total allows us to deliver better results for patients. This will take, let's call it, 12 to 18 to 24 months for us to transition from Cologuard to Cologuard Plus, and we will sunset Cologuard and move totally to Cologuard Plus. Initially, Medicare fee-for-service patients will have access to it, and that, we will flip a switch and the Medicare fee-for-service patients, about 15% of our patient mix today will first this year start to get Cologuard Plus. And then as commercial plans sign on, they will get access to Cologuard Plus as well. So we'll run 2 different lines in our laboratory and start to switch those tests over midstream. We think that at most, that will take 2 years in total.

Okay. And from a guidance perspective, Dan, what we've embedded is essentially just that Medicare fee-for-service population plus then the few contracts of smaller volume that we've already signed on here in 2025, and that transition starts in Q2, and that's kind of effectively what's embedded in our guide related to Cologuard Plus this year.

Right. And I think we talked about this on the call. But in terms of -- and you mentioned it several times here, Kevin, the beneficial test profile, but yet it doesn't appear that you baked in any volume gains or incremental volume gains from more doctors using this test because it is a superior test. Just kind of walk through a little bit how you think about that. If it's not baked in this year, would you expect to see some volume uptick for Cologuard plus versus Cologuard?

Three weeks ago, we had our annual sales meeting and the main message was around Cologuard Plus. And the message now is Cologuard first. Going to these offices and educate offices why they should offer Cologuard first as a frontline screening test. We know there's a fixed capacity of screening colonoscopy in the U.S., as I mentioned, about 6.3 million screening colonoscopies. It's a fixed capacity. We'll add in this country 300 gastroenterologists, we will graduate -- and that's not net. That's gross addition. The capacity is not increasing. But Cologuard capacity is obviously inherently flexible. And so it's our ability to, over time, to drive -- that whole market change started at this sales meeting 3 weeks ago. And people are excited now to be able to go into these offices and say, just offer Cologuard Plus to your patient population. That's a big shift. We think it's going to lead to a lot of growth, and we're really excited about it. And so far, just a few weeks in, this message is resonating.

Good. So maybe one more on this front, and then we'll jump to the pipeline. Just on the rescreen, that's obviously been a tremendous success and it kind of builds right off of Cologuard itself. But you've really ramped up that kind of rescreen compliance rate, if you will. I'm just wondering, it's an important part of the growth this year. Just talk through kind of where the compliance rate sits today? Is it kind of gradual increases that are assumed? Are there big changes ahead that you can even drive a step function change in compliance? Just kind of talk through that rescreen.

Well, the rescreen, this recurring relationship that we have with patients is one of Aaron's favorite parts of our business. So I'll let him talk about it.

It is one of the favorite parts of the business for me because it's a highly predictable recurring form of revenue. It grew more than 30% last year. It's going to grow another 30% this year. And the growth just adds on top of it. It's quadratic in nature. And so to your point on the rescreen adherence, we have made improvements over time. So we've continued to improve that by a couple of points. We're roughly around 55% now. So when a patient comes due for their rescreen within the first year, of eligibility, roughly 55% will complete it. The thing that's got me most excited, though, is if we're able to successfully automate that rescreen process and work with the health systems and the physicians to automate the prescription to get the rescreen order, what we've seen is once the prescription is written, the adherence for the patient is 80% for a first-time rescreener, goes to 90% second, third time that you do for a rescreen. So we have a huge opportunity to take roughly a $500 million business today, growing 30% and add 15 to 20 points on top of that. And into the future, it's -- there's a lot of hard work that goes into it, but it's a huge growth driver for us in the future.

The value of a negative Cologuard test, what is the value of a negative Cologuard test? Your relative risk of colon cancer drops a hundredfold now imagine doing that every 3 years. See, colonoscopy is every 10 years. One of the challenges with colonoscopy, something called interval cancers, those cancers that develop in between colonoscopies. Cologuard is a test every 3 years. If you automate, it provides an enormous amount of value to the patient. And it also takes one thing off the healthcare providers' play because we can just automate it. And one of the pilot programs that we're running right now is sending a text message with only 2 questions to a former Cologuard user that when they answer those questions, it gets fed to a provider. The provider reviews and decides whether to prescribe or not. And we have cell phone numbers for about 2/3 of all of our patients. Again, this is the Exact Nexus platform that allows us to do this in a rapid way. So if that pilots well, we'll be able to expand it. And with that expansion, we believe that we are going to drive adherence in this rescreen population. So many of these things to do to focus on growth and patient impact, and we're excited about that.

Terrific. Maybe jump over to the pipeline, starting with Cologuard Blood. I think back in the fall and then on the Q4 call, you're very clear confidence that planning is exactly in line with where you were last year. So I'm just wondering if you could discuss the test results that you reported back in September were really impressive, got people excited. How do we think about where ultimately you think that test could land in the summertime when I think is the time frame at which you're going to kind of turn over the card and report it out?

So let me first take a step back on CRC blood is what we call our blood-based colon cancer screening. Despite the positive data that we had in September, even that data, if it turned into -- and we've said, look, it's not going to be the 90% specificity, 88% sensitivity, 31% precancer detection, there's going to be degradation from that in a prospective study. There always is. And then the question is, does it ever get blood testing with that level of performance, which is inferior to Cologuard, it doesn't get into the guidelines. It doesn't get it in guidelines. It doesn't get in the quality measures. We talked a little bit about that. It's -- providers won't order a test long term on a consistent basis if they don't get credit for the quality measure. But with that said, we have a CRC blood program because if the market evolves, we want to make sure that -- we're the ones with a large commercial organization, relationships with hundreds and hundreds of large health systems and payers, et cetera. We have the ability to deliver a test. We expect to have the results of our test this -- in the middle of this summer. So we are excited about generating data, and that data will be generated from samples that were derived from our BLUE-C study. What is the team working on now? They're working on manufacturing 3 lots of reagents. They're working on all of the quality systems that go into place, the automation system, the lab processes, the quality processes. There are 100 work streams. And the whole team from Cologuard Plus is now totally focused on this. In terms of what do I think the data will be in the final study, I do not know. If I knew, I would probably be doing something different than I am now. I think it will be -- we think we will achieve the Medicare minimum based on all of the work that we've done over the last 7 years. And that is in order to get Medicare coverage, you need 74% cancer sensitivity and a 90% specificity. There is no requirement for adenoma or precancer detection. So that's the best we can answer there.

Maybe just one more. I mean that novel biomarker, which I think when you were at the Q2 call last year and then you got to September, it looks like performance, the 31% was certainly better than I think most of us expected. And it sounds like there was a novel biomarker that contributed. Just maybe any color just in terms of the ability for you to differentiate, you think, on AA. We know where the existing player is on AA in the marketplace today. Just kind of wondering how you think about kind of just broadly the benefit of AA of your test.

Yes. And now there are a couple of different biomarkers that could end up -- that are different than we looked at before that could end up in the final version of the test. No change at all in terms of how we think about this. We continue to do work, and we will continue to do work over the next couple of months. before you kind of move into the pure manufacturing lab automation approach here, and we'll just keep testing case control samples until the bitter end to make sure that we set the algorithm at the optimum and we're really good at setting these algorithms. You do it with as many data points as you possibly can. And because we have a limited number of markers that gives you kind of tighter confidence intervals as you head in. One of the good things is that the study that we -- the results that we showed in September were about 3,000 samples and 2,800 of them came from the BLUE-C study. So we pulled out normals from the BLUE-C study with the FDA's permission. And so that gives us a ton of confidence around the specificity. These were the normals, and that's how you derive specificity. And then the cancers and precancers were a mix of prospectively collected and retrospective samples. It's the retrospective -- training on retrospective samples can lead you astray and everybody in our field does it because those are the samples that are available. But we think we're in a good position. I just don't want to overpromise what the ultimate results will be.

Okay. Maybe jumping over to MRD. You have plans to launch Oncodetect and CRC in the second half of '25. Maybe could you just speak through the profile of that test, kind of why -- what your strategy is there and kind of what we can expect between now and kind of the plans to launch?

Yes, sure. Molecular residual disease testing answers 2 critically important questions in the field of oncology. And number one is after initial treatment did you get all the cancer? That's a really important question to ask. And today, you don't really know you can do a PET scan, you can do a CT scan, but you don't know for sure. MRD testing helps answer that question. The next question is, if you think you got it all, is that cancer recurring? And one thing we know is that the blood draws and the analysis for even a tiny amount of residual or recurrent tumor DNA in the patient's blood, you can detect that recurrence up to 10 months, maybe a year before you can see it on a PET scan. That's what our most recent study showed. And that if you are test positive, you are 30x to 50x more likely to recur than if you are test negative. So it's important. And what does that allow an oncologist to do? Either it allows them to either upregulate or downregulate treatment. And so that's why this field is growing as fast as it is. It's still maybe 5% to 10% penetrated overall. We're thrilled to have the performance of the test that we do with Oncodetect. More data will be coming this summer and down the road, even more data with multiple studies that we're involved with. So we're launching our test, Oncodetect into our Oncotype DX customer base, which represents -- we have about 85%, 90% share in the breast cancer setting with Oncotype. It's been in market for 20 years. We have deep relationships. They trust us with the tissue block. They trust the quality of our lab, and we have a tremendous commercial organization. They know what our customer service is like, et cetera. And first, we expect to get approval in colon cancer and then in breast cancer and then other cancers. So we don't have a material amount of revenue baked into this year. We expect this to be a leading part of our growth profile in years to come.

Okay. Maybe just on -- we have about a minute or 2 left. Maybe multi-cancer. That's another product that's going to be coming out of the pipeline this year. I think you're going to be the self-pay market. Just speak about like what that opportunity is before there's going to be covered? Just how do we think about your multi-cancer platform?

Well, first of all, multi-cancer screening could be one of the most impactful areas of cancer because there's just is no therapy as effective as earlier detection. Today, only 14% of all patients diagnosed with cancer found that cancer through screening. Imagine if you can go into a population of 100 million Americans, more, obviously, globally and screen for prevalent cancers that the patient doesn't know about, shifting detection a stage earlier. And if you can move cancer detection a stage earlier, there's just no treatment out there that is as effective as that. And one of the advantages we have is our science, our cost profile, allowing us to deliver a test through our current infrastructure, our incredible sales force, biggest sales force, our relationships with health systems, our ExactNexus technology platform, all of those reminder capabilities and reach capabilities to patients, we're uniquely able to deliver that. And we believe this is another leg of top line and bottom line growth for years to come.

Great. So I think with that, Kevin, we're out of time. So Kevin, Aaron, thanks for being with us, and thanks for being here as well.

Thanks, Dan.

Thanks Dan, appreciate it.