Exact Sciences Corporation (EXAS) Earnings Call Transcript & Summary

Perfect. Welcome, everybody, to the first post-lunch session. I'm Andrew Cooper. I cover Diagnostics here at Raymond James. Happy to be joined by the Exact Sciences team. We do have the full team. CEO, Kevin Conroy; CFO, Aaron Bloomer. We've got IR in the audience as well. We're going to do a presentation here in this session, and then we'll head downstairs to Amarante 1 for the breakout session. So I will pass it to Kevin.

Thank you, Andrew. So one out of two people will be diagnosed with cancer in their lifetime. It's the #1 cause of death of people under age 85, which in this room, I suspect everybody is under age 85. There is a massive transformation going on in the way that cancer is diagnosed or screened for and how it's treated. And it's because there is this now deep understanding that DNA and changes in DNA and alterations in DNA are the drivers of cancer. So bad DNA causes cancer, changes in DNA causes cancer, causes cancer to evolve. And our deep scientific understanding of the DNA and RNA and proteins associated with cancer are also driving to innovations in diagnostics and ultimately, treatment. That is the underpinning. At Exact Sciences, we are a cancer diagnostics company. We are totally focused on helping to eradicate cancer through prevention, early detection and guiding treatment. That's all we are, and we're in the early innings of a massive growth in this field, powered by this deep understanding of the disease. So that's the starting point. This is our safe harbor statement, and we'll be making forward-looking statements during the presentation, you can go to our website. What's unique about Exact Sciences? We have an incredible team of scientists, a deep understanding of the science. We'll talk about this a little bit more, which has led to a portfolio of tests. And this year alone, we plan to do something that hasn't been done in our field, which is to launch 3 new advanced tests in major areas of impact in cancer diagnostics. We have the largest and we believe most impactful commercial organization that goes out there, educates health systems, payers, health care providers who order tests, and patients. And this education process is so critical in terms of expanding uptake and ultimately having an impact on this disease. We also have an incredible technology platform that helps accelerate the growth and adoption of these tests. Why is the technology platform so important? Because being able to electronically order a test, get results for a test, get prior authorizations for a test, bill for a test, remind the patient when they're due for their next test is critical to really unlocking patient and clinical value. And we have built on top of Epic. So we're the only diagnostic company that built the company on top of Epic, which is the industry-leading electronic medical record platform with about 100 apps that surround this. We've invested $1 billion. We are years ahead of others in the field because of these long-term investments, which create efficiencies, greater customer satisfaction and ultimately an advantage in the fast adoption of our tests. This is the underpinning of who Exact Sciences is. This ultimately leads to acceleration in the number of people tested. It also helps us with our industry-leading 70-plus percent gross margins, our accelerating operating margin and ultimately, free cash flow generation. This is Exact Sciences. And what's next is now, we've been talking about new product launches in impactful areas for many years, and we're so proud this year to announce three. Cologuard Plus, which is the next generation of noninvasive colon cancer screening. There is no test that performs like this. No other screening test has the same performance as Cologuard Plus. It sets a brand-new standard. Oncodetect is in a space called minimum residual disease testing, helping patients who have already been diagnosed with cancer. And Cancerguard may be the test that will have the biggest impact in cancer overall, which is a screening test to detect most, if not all, cancers. These 3 tests are in the biggest areas, the biggest fields, the biggest TAMs in diagnostics, and we believe we'll have the biggest patient impact. We'll go through each of these in a minute. Let's start though with the two businesses that we have, our Screening business and our Precision Oncology business. They're driven by the two strongest and best brands in cancer diagnostics. Cologuard for colon cancer screening and Oncotype DX, which is an essential test to help guide early breast cancer patients to answer the question, should they get chemotherapy or not? Most of the patients HR-positive, HER2-negative, a large subclass of breast cancers. The largest subclass of breast cancer patients get only about 20% benefit from chemotherapy. Oncotype DX definitively answers the question which 20%. Allowing over the last 20 years, patients to move away from chemotherapy, about 80% don't need chemotherapy and 20%, some -- many who thought maybe they didn't need chemotherapy actually do. So it's a really transformational test. We have a suite of products. If there's a checkmark there, that means that product is on market today. And what you see here is Cologuard Plus, Cancerguard, Oncodetect and also a colon cancer blood test that we'll talk about. So 2025 is a huge year. We're really excited about it. It's fueled by our science and our scientists. Our ExactNexus platform. It's an incredible platform which connects patients with health care providers, with health systems and with payers. And what it does is allows a physician to very easy -- in the workflow that they work in every day, been to a primary care doc. They spend more time now looking sometimes at a computer screen than they do you. And if your test is not deeply embedded in the EMR, they don't always see it or have access to it or order it. We made the investment over the last 7 years to move on to Epic, which allows physicians, which is the industry-leading EMR -- allows physicians to easily order electronically a Cologuard test and now our other tests. Why is this so impactful? Because it's also the place that they go to see their -- the results of a Cologuard test or an Oncotype test. It's also the tool that allows you to manage the population level at a health system to run a campaign to get people screened automatically. And only -- in a way only that Cologuard can do that because a patient doesn't even have to come in to see their doc to get a Cologuard test. It's done in the privacy of your own home. Really powerful. There -- we have 390 health systems who are electronically connected. There are about 700 health systems in the U.S. of size. And we expect to add about 100 new health systems a year into the ExactNexus ecosystem. 75% of all of our orders come electronically, believe it or not, in the industry. It's kind of the inverse, maybe 25% come in electronically and most of it still fax orders, believe it or not. Last place fax machines are still used is in health care. The power of this is that it allows better patient engagement. When it's time to be reminded now, you get reminded by your cell phone that you're due for a Cologuard test or that your Oncotype DX results are ready. You can close what are called care gaps. This is a fast-growing part of Exact Sciences, which is payers coming to us and saying, look, we have 100,000 of our members who are persistently refusing to get screened for colon cancer. Can we work with you to ship them Cologuard kits? Yes, we can work with you to appropriately get the right patients a Cologuard kit that need a Cologuard kit, so that you can get your patients screen. Why do they want their patients screened? Because they actually do care about their patients' health and they also care about their quality scores. Their quality scores drive significant Medicare Advantage bonuses and also bonuses from the commercial plans that they provide. They also -- if you're a CEO of a health plan, you never want -- it's 0 to 5 star system. You don't want to be below 4 stars. That's a black mark. And by automating screening, coming to us and saying, please get our patient screened without the patient ever having to go into a doctor's office, don't have to go in to get a blood draw. They just have to do the test at home, which we're becoming really proficient at. It unlocks an enormous amount of value for them. Improving test adherence and adoption. One of the things we've seen over time is an increase in the percentage of people who actually returned the Cologuard kit. Yes, you still have to chase patients down, you do. They don't -- people don't always prioritize prevention and early detection. We have a 21-point contact with patients, texts, letters, e-mails, telephone calls, reminders for them to complete a Cologuard test. We've become very proficient and efficient at this over time. And then one of the great things about the ExactNexus platform, we used to spend an enormous sum of money and effort in billing payers and getting paid. That has been transformed in the 7 years that we've been on the ExactNexus platform because now we can electronically bill and collect in under 30 days. Industry-leading percent recovery, industry-leading time frame. It's a powerful tool for us to be able to unlock capital to invest back into these incredible tests and back into patients. Cologuard. Okay. So colon cancer is the #2 cause of cancer death in the U.S. 50,000 people a year die from colon cancer. It's entirely preventable through screening. With early detection Stage I colon cancer, stage I and II, 90% survive. Stage I, 98% survive. Late-stage colon cancer, Stage IV, 1 in 10 people survive. Screening changes everything. If you haven't been screened and I know there are people in this room that are 45 and older who are not up to date with colon cancer screening, go to cologuard.com, answer the questions, order a test. You can do it through a telehealth service. Get screened. With a negative test result -- here's one reason to get a Cologuard test. If you have a negative Cologuard test, you know that you have a 100-fold less risk of colon cancer. Those are the data. With Cologuard Plus, even better performance, which is being launched in the second quarter. So get screened, encourage your friends and family to get screened. Last year, we screened over 4 million people. Screening colonoscopy screened 6 million people. I remember 16 years ago, when I started with Exact Sciences, people said to me, Kevin, have you taken a leave of your senses? Nobody will do a stool -- home-based stool test. They're not going to do it. They're not going to ship a stool sample home. Last year, over 4 million people. Within a few years, we will screen more people with Cologuard than colonoscopy does. And colonoscopy capacity is fixed, it's known that it's fixed. They're just not making more gastroenterologists, not at a fast enough clip to cover all the ones that are retiring. Cologuard has a potentially nearly infinite number of people that we can screen. And there are 50 million or more people in the U.S. who are not up to date with colon cancer screening. We're going to go and get those people screened. And doing it with an at-home, patient-friendly test is the way to do it. The new performance of Cologuard Plus is remarkable, we will get to that. So in the future, we believe that we will achieve about 14 million people a year getting screened with Cologuard. That equates to about 40% market share. Cologuard is due every 3 years, colonoscopy is 10-year, so you have to normalize for that. But over time, we think we can get north of 40% and maybe more than that. So there could be upside to the total impact, and that's U.S. only. We have yet to commercialize Cologuard outside the U.S. We think that's a huge opportunity. That has led to strong growth. Getting people tested every 3 years is a growth driver. We call that rescreening. So if you see that in our presentation, that's what we're talking about, getting people screened every 3 years. Care gap programs we've talked about. We expect this year to see an enhanced effort from our commercial organization. We've increased the size. We've given better tools, analytic tools. And we've really increased the rigor of that commercial team. So we expect to see lift there. And also, several years ago, the screening age dropped from age 50 to age 45. So some people still think I'm not 50, I don't need to be screened. Why did they lower it to 45? They lowered it to 45 because the incidence rate among younger Americans with colon cancer is skyrocketing. So there is a huge opportunity here. Only 20% of people aged 45 to 49 are screened, and there are 19 million Americans in that age group. We're going to do everything in our power to go get those people screened. We're also focused on making sure that people stay screened every 3 years. The problem with, say, a colonoscopy every 10 years, is that what happens when you -- somebody develops colon cancer in-between 10 years? You miss it. That's called an interval cancer. The idea with Cologuard every 3 years, it's a less expensive way to screen, so you can do it more frequently and have that kind of impact to work towards disease eradication. That's really important. And if you look at this, the total number there at the top of the bar charts, 1.2 million people were due for their second or third rescreen in 2023. 1.6 million last year. This year, there will be 2 million. And by 2027, there will be 3 million people due for their rescreen. Today, we're getting 55% of people screened within 12 months that are due. We're in the process of automating that. We're in the process of bringing tools that make it really easy for patients, so they don't have to go back into their doc's office because we know people don't go to their doc's office every year. They just don't do it. Many people go every 3 years. Some people never go back after a primary care appointment. And this is a way that we can have a lifetime relationship with it -- with a patient to get 10 or more Cologuard tests over their lifetime. You want to really work towards disease eradication. This is how you do it. And this is obviously a significant driver of growth. What are some of the tools we're using to get people to automatically get rescreened? We're texting them, 2 simple questions that they answer. If yes to both, that information goes to a doctor, a doctor decides whether to prescribe a Cologuard test. These are the e-mails doing the same thing. This is a powerful tool for us to digitally activate a patient to remind them to do something that is once every 3 years. It's not like people are great at putting this on their calendar. We can automate this. Again, without having to go into a doctor's office, without having to go get a blood draw, right in the privacy of your own home. A very, very powerful tool. How do you do this? I mean, because this -- it sounds kind of magical. Well, it is. Every time I -- my favorite part of the work that I do is to work with our scientists. They have such a deep understanding of DNA, of RNA, of proteomics. And the performance of our test has been -- nobody has been able to replicate that. And that's because of the deep scientific connections we have, our deep relationship with the Mayo Clinic, which we're on our 16th year of a collaboration, which led to Cologuard and now is leading to other tests like Cancerguard. And it is the deep understanding of this science that allows us to develop tests that are accurate, that are powerful and that change practice. Cologuard Plus is one of them. So Cologuard, the original version, detected 92% of cancers versus 95% with Cologuard Plus. The false negative rate is 100 minus that number. So it went from -- the false positive rate went from 8% to 5%. That's a significant improvement. The specificity, 100 minus that number is the false positive rate. With Cologuard, it was 90% specificity. So the false positive rate has gone from 10% to 6%. That's a 40% reduction, meaning 40% fewer people need to go on to a $2,500 colonoscopy. So there's a health economic value of this. And let's ask the question, has there ever been a screening test with this level of performance? No. Mammography isn't close. Mammography is maybe 80% sensitive for breast cancer. The PSA test, probably 90% sensitive, but a 25% false positive rate, huge false-positive rate. Low-dose CT for lung cancer screening, 25% false positive rate, pretty sensitive, but crazy high false-positive rate. Nobody's ever developed a test with the 95, 94. And so it really changes the game leading to the ability to lead to recommending to health systems and to health care providers, Cologuard first. Go screen your population. You have 50 million people who are not up to date with colon cancer screening. Why are you pushing colonoscopy first when there's only a capacity of 6 million people a year. We can confidently go to health systems, health care providers with this message. It's a powerful tool, and we think it's going to lead to accelerated growth into the future, double-digit growth for years to come. And if we do our job, that could be 15 years, could be 20 years. With the growth externally outside the U.S., we believe it could be. Now there is another important area of cancer diagnostics that there's been a ton of innovation. So here, we are a follower. There -- Natera is a company that has done an incredible job of building a market and meeting the need for patients who have been diagnosed with cancer, think stage II, II, or IV cancer. And the question for those patients after their initial surgery and treatment is did the surgeon and the oncologist get it all? Is the cancer gone? The MRD test answers that. Oncodetect answers that question. There's also a second question that's really important, which is, okay, is that cancer coming back? And you can do blood draws to see on a regular basis, is that cancer coming back? What the data from our first major study showed is that a patient that has a positive Oncodetect test is 50x more likely to recur than somebody who has a negative test. That prognostic value it's unheard of in diagnostics. So why do you want to know that? You could -- well, because the blood test can see the recurrence 10 months before a PET scan can. And it's a simple blood draw rather than a PET scan. So, over time, that allows you the ability to aggressively treat the recurrence before you can even see it on the most sensitive imaging. If it stays negative for a long time -- I have a friend who was diagnosed with kidney cancer with 2 mets. And she has been on KEYTRUDA that whole time, surgery. There's -- those mets disappeared, and there's no evidence of disease in her blood. MRD test is negative. That's a powerful indication that at some point, can you go off of KEYTRUDA? She's unlikely to recur based on the evidence. So this is really a powerful class, Oncodetect, we're launching into that same customer base of Oncotype DX, which is the industry-leading, unquestioned global leader in advanced cancer therapy guidance, and we're going into the same customer base. And it's a huge market. It's expanding rapidly. There's lots of room for new ways to test these patients, and we think Oncodetect is going to provide additional ways to test these patients. We're excited about this launch. Our Cancerguard test. So one of the problems with cancer screening is there's only a handful of ways to screen for cancer. There's mammography for breast cancer in the PSA test and colon cancer screening and lung cancer screening. The challenge is that only 14% of all diagnoses are because of screening, cancer diagnoses. 86% are found symptomatically. Well, guess what, by the time you have symptoms it's almost by definition, Stage III or even Stage IV. And that's really -- it's a heck of a lot harder to treat late-stage cancer, symptomatic cancer than it is asymptomatic cancer. And the idea with Cancerguard is to screen a population, ultimately 100 million people in the U.S., billions of people globally with a blood draw that looks for most cancers, because cancers have a certain set of DNA abnormalities that our test is exquisite at finding. And if, let's say, about 2% of people over age 50 are walking around with cancer and they don't know it, it's just growing and potentially metastasizing. A blood test can screen a population. Even if it -- even a test that only detects 50% of cancers, by doing so when it's asymptomatic, you're shifting the stage to earlier and there's no therapy quite as effective as earlier detection. There's just no therapy that exists that is effective as finding one stage sooner when maybe surgery or surgery and conventional chemo can treat the disease. So it's a powerful tool. We're launching it in the second half of 2025 as a lab-developed test. We don't -- we expect this initially not to be covered by insurers. And so people will pay out of pocket, out of their health savings account. We believe we can access about 1/3 of that 100 million patients with this approach, a reasonably priced test that's highly effective. Our colon cancer blood test. There have been a lot of people who've tried to innovate in this field. And unfortunately, performance just doesn't meet colonoscopy or Cologuard. And the reason is biology. There is a biological barrier between a Stage I colon cancer in the blood supply. And there's a really solid barrier between a precancerous polyp. If you find and remove a precancerous polyp, you've effectively prevented the disease. But the DNA from a precancer or even in early Stage I cancer typically doesn't make its way back into the blood. So they're hard to find. And we have worked on a test. Our case control data show cancer sensitivity of 88%, specificity of 90%, both not as good as Cologuard Plus, and 31% precancer detection also not as good as Cologuard Plus. Being what's called case-controlled studies, this is likely to be worse in a prospective study, the cancer detection and the precancer detection. We expect to complete our large 15-plus thousand patient prospective study, run those samples in the middle of this summer with our test, which we hope will provide an additional way to test for people. But I'll caution, it's a long, long road before a blood test, gets into the guidelines, gets into those quality measures where that's really important for payers to consider paying and for patients to adopt. And we still believe colonoscopy and Cologuard are the two main ways that people will get screened well into the future. What are we doing right now with our tests? There's 100 work streams going on from manufacturing lots of reagents to quality control measures, to automation, to software, QC, all the way to then testing 15,000 samples. So we're working hard at that. We'll keep the investor community apprised of this as we move forward. Strong growth and strong profitability. We generated 48% EBITDA growth this year. We've guided to over 30% next year and our long-term guide. We've guided to a nice increase this year. In 2025, top line, also bottom line and between 2022 and 2027, our guidance is 15% compounded over that time frame and over 20% EBITDA margins. We're well on pace to be able to achieve these targets. We're excited about 2025, the year ahead. What's next really is now, we have lots of new technologies coming to patients, and we can't wait for that to happen. These are the three key things to take away. We're accelerating core growth this year. We're launching three new advanced tests, really impactful tests, and we intend to extend and leverage our platform. This is our vision. We look forward to taking your questions in the Q&A session downstairs. Thank you very much. Appreciate it.