Exact Sciences Corporation (EXAS) Earnings Call Transcript & Summary

[Audio Gap] diagnostics here at Baird. We're very excited to have Exact Sciences here with us today. From the company, we have the CEO, Kevin Conroy; CFO, Aaron Bloomer; and the new Chief Growth Officer, Raj Pudipeddi. So thanks, everyone, for joining us. And Kevin is going to kick us off with a few slides, and then we'll go into Q&A. If anyone has questions during the session, you can e-mail them to [email protected], and I will pass them along. Kevin?

Thank you, Catherine. It's really great to be back at the Baird conference. This may be my 20th year being here, and I look over here to my right and see Quintin Lai, who was the analyst, the very first analyst to cover Exact Sciences when nobody else thought there was any hope and that I need to go dig up that initiation report because he wrote it in the month of December and initiated before the end of our first year at Exact back in 2009, when there wasn't a lot of money being invested in early-stage companies. But thanks to the whole Baird team for all of the belief and effort that they put into helping us grow as a company. And there are some disclosures here. We will be making forward-looking statements. The value proposition here at Exact from an investor standpoint is -- it starts really with the unique science and this robust commercial and technical capability to deliver electronic orders, results to physicians and patients that help achieve our goal and our vision is to help eradicate cancer with tests that prevent it, detect it earlier and guide treatment. Happy to report that we are still in the early innings of making that vision a reality, and the team is really focused on that. And Aaron Bloomer, our Chief Financial Officer, will be available for questions about the tremendous financial profile growth that we have seen top line growth and bottom line growth. One of the things that's most underappreciated about Exact Sciences and the Cologuard brand and Cologuard as a test is the power of that brand. When we all go to the store, buy a box of Kleenex, we buy Kleenex. Why? We don't want rough tissue paper. We don't want to risk it. We keep buying Kleenex. Health care brands take a long time to build because trust takes forever. We all know that Institute of Medicine's report that says it takes about 10 years to change the practice of physicians. That's been true with Cologuard, but now we're hitting that point where you have over 90% brand awareness, about 95% of people when prompted, say, "Oh, yes, Cologuard, that's the colon cancer screening test. " But what's even more impressive is when you leave that open-ended blank, what is the most -- what is the way you'd get screened for colon cancer fill in the blank. More people now say Cologuard than colonoscopy. Something has changed. 11 years of marketing to physicians and patients has changed everything. And the power of a health care brand is that there is a trust because your life may depend upon the quality behind that. And with Cologuard, 95% sensitive, 94% specific, doctors don't want to recommend -- they recommend either Cologuard or colonoscopy. Across the country, that is what's happening, and it's having a huge impact. We've estimated that we've helped detect over 100,000 patients with early-stage treatable cancer and over 600,000 people with precancerous polyps. There's a power here that is built into that trust and the quality, but also all of the service elements that we'll talk about today during the presentation. And that translates into loyalty, and it's loyalty that you can then leverage into other tests that also have a positive impact on life. And this is all able to be delivered because of a very thoughtful construction of a digital ecosystem that ties together payers, providers, patients, large health systems to eliminate the terrible amount of friction that exists in getting people screened and up to date with colon cancer screening. There are 50 million people out there that today in the U.S. are not up to date with screening. This ecosystem is helping us get more and more of those people screened. And some of it is the data that we have now in 30 million unique patients in this database. And that gives us the ability to reach people, empower them to not only get screened in the first place to allow them to stay up to date with their screening, what we will call rescreens. And that's a recurring part of the business model that is transforming the way we're screening people in the U.S. The commercial organization is a big part of this. It took a long time for us. In the first couple of years of launching Cologuard, we had 80 reps. And I remember thinking Maneesh Arora, our Chief Commercial Officer, at the time said, what do you think? Can we go with 50? And I said it's going to freak out Wall Street. Let's go with 80. And we're now up to a field force when you're calling on a universe of potentially 600,000 ordering health care providers, physicians, nurse practitioners, PAs, you need a large sales force, and you need to know who to call on. And that's part of the capability that we've built that Raj Pudipeddi, our leader overseeing marketing, international and the Cologuard brand will talk about today. And what is the output of all of this? The 11 years of painstakingly built bringing quality to physicians and patients. One of the most exciting things, if you go up to COVID, you saw a nice slope of the line there. Since COVID, and you look out over the last couple of quarters, you see an inflection. That inflection comes right back to the brand, the commercial engine, the digital reminder capabilities. What we'll talk about is the care gap programs, programs with payers and large health systems where they are highly incented to make sure that their patients who are recalcitrant to get screened, get screened. This is exciting, and so there's a lot of growth. And where does this take us in our screening business? You have Cologuard. Now Cologuard Plus, which has fueled our ability to deliver a message to patients, Cologuard first colonoscopy is needed. Cancerguard, our multi-cancer screening test, which Raj is responsible for launching in the U.S. and globally. That launch occurs this month. We're excited. A CRC blood test that is targeted towards patients who are unique. They are those people who refuse colonoscopy or Cologuard. Well, we know who they are. We have the capabilities to identify them and help them get screened. And then other new tests as we move forward. This all powers an incredible engine and that engine, it will help bring Cancerguard to patients who need it. Cancerguard is one blood draw most cancers. It's a powerful test, and it's from the makers of the people who brought you Cologuard. That's the message we're delivering in the U.S. Raj is also focused on launching outside of the U.S. Cancerguard is undergoing multiple clinical trials right now, and we will launch it as a lab-developed test, awfully exciting times at Exact. And the financial profile of the company is also exciting. With the top line growth, with the discipline on cost, we are seeing an inflection not only on the top line, the bottom line, and Aaron will be happy to answer those questions today. So thank you, Catherine, and look forward to the conversations throughout the day.

Thank you, Kevin. A great overview. Maybe just first, as we talk about Cologuard and kind of building the long-term growth of that franchise and why it might be different than what goes on in other diagnostics. It seems like the base of that growth is really rescreens and then there's penetrating docs more deeply and then there's going after new docs. So maybe starting on that rescreen piece, can you just talk a little bit about how you're executing on that today and what that looks like from a long-term perspective?

Yes. The rescreen opportunity is that every 3 years, patients are recommended to get their next test. So last year, we had 1.6 million people who are due for their rescreen test. This year, it's 2 million. Next year, it's 2.6 million. That growth is additive because you have first time, second time, third time, even fourth time rescreeners. And because of that curve that you saw, you're getting more and more people into the funnel with 5 million people or thereabouts that will get screened this year, 3 years from now, think about 70% of those people will be eligible for a rescreen, maybe 75%. And that is -- drives a recurring business -- recurring revenue business model that helps us get people screened and keep them screened.

And over the past few quarters, you've had core Cologuard improvements. You've largely been driven by some of the commercial changes you made towards the end of last year. Can you just walk through kind of some of those changes? What do you think has been most impactful when it comes to getting Cologuard back on the right trajectory? And what is there going forward?

It was really about going back to the same approach that we took when we built Cologuard, and that was giving reps accountability and ownership for their territory and making sure that we covered every ZIP code in the country, number one. So what we're seeing is about 20% improvement in productivity. Half of that is because reps get credit for everything in their territory. That's the way we built the sales force. There was a change under prior commercial leadership about 3 years ago. We're back to the way that we've done things historically, and you're seeing about -- of that 20% productivity gain, about half of that is just giving people their own territory. And then the other half of it is giving them automated AI tools. So with a click of the button when I wake up in the morning and I'm a rep and I want to know who am I going to visit today. Raj and his team have stratified all the docs, fed it into a large language model, which analyzes all of that data and recommends a route. It also looks at traffic and it creates a route for a rep to call on a dozen physicians in a day. Go visit a dozen offices. If there's a gap in the day, boom, you click the button again and you get a list of 10 new docs and you drag those docs over that you want to go see in the extra hour that you have. So if there's a cancellation, boom, automatically, you couldn't do that before this year. That's another 10% of the power. And as a result now, that productivity, as you saw in Q1 and Q2, as you saw a really nice response to that. We're pleased. We're not done, much more improvement to do, and we believe that there's a sustainability to this.

And as you mentioned in your prepared remarks, this is something that takes a large sales force to go after primary care. I guess how do you feel about the size of your sales force as it is today? Does that change -- do your needs change at all with Cancerguard or the blood test opportunity?

I'll never forget about 14 years ago, as we were thinking about launching Cologuard maybe 13 years ago, we thought we would partner with one of the large labs. We met with one of the large labs and they said, look, here are all the reasons you don't want to partner with us. It's just -- it will be painful for you. We won't really promote your product. We'll take most of the economics. I still think that individual at 1 of the 2 largest labs in the U.S. for just being fruitful with us. But on the other side of the equation, we had hired one of the top consulting firms in America that gave us the analysis, whatever you do, do not launch in primary care, you can't make the numbers work. And they were right, but we didn't have a better alternative. So we launched. And it's taken a decade, but we've hit this escape velocity. And so the message is it's hard to build primary care sales force because there are 600,000 or 700,000 prospective customers to go after, and they only have 8 minutes with their patients. So you've got to get them to promote to elevate colon cancer screening, which usually is not in the top dozen things they want to talk to a patient about. And we've been able to do that. We're thankful for that because now that is an asset that allows us to bring other life-saving tests to that same group of physicians.

And maybe talk about Cologuard Plus, how that helps you from a competitive standpoint? And then, Aaron, maybe you can chime in on kind of what pricing contribution was in the quarter, what you expect for this year? And given just the timing of how those contracts come into place, is that an even bigger dynamic as you get into '26 and '27?

So just from a pacing perspective, what we saw in the second quarter was about a 200 basis point positive impact. So we grew our Cologuard business 18% in the second quarter. So a significant kind of step-up and acceleration. That's what we've guided to in the back half of the year as well. About 200 basis points came from price, 16 points from volume. In terms of the kind of what we saw in Q2, it was still just Medicare fee-for-service. What we were excited to announce on our earnings call was that due to the brand of Cologuard, the quality credit that we're getting to these payers through our care gap programs, the conversations we're having now on the contracting side has been very productive. And we were able to secure 2 of the top 10 payers already, Humana and Centene, which are going live here later this year. In terms of kind of full year kind of what's embedded in our guide, it's kind of about 200 to 250 basis points in terms of top line impact. As we continue now the contracting process through the back half of this year, at some point, we're going to reach the point where we'll sunset Cologuard. Cologuard Plus is a much better test. We want to get that in the hands of patients as soon as possible. So we're working on contracting discussions here as we close out this year, and we would expect that to be a tailwind to growth in 2026 and 2027. How much of that sort of inures to the benefit of '26 versus '27, we'll update you all on our February earnings call when we give 2026 guidance.

All right. Great. And maybe on care gap programs, which you mentioned as well, Kevin. What's the opportunity there? How big could those become over time as a growth driver for Cologuard as you become more of a partner with these payers and systems?

It's a huge opportunity. And let me take a step back, what is the care gap program. There are about 30 quality measures that commercial payers, Medicare Advantage payers are measured on in terms of achieving certain star levels as they are rated by how good they are at preventive medicine. So the whole goal is to bend the cost curve by taking care of people, including cancer screening. And so that measurement for colon cancer screening is a really important one because most health plans, most health systems aren't great at colon cancer, keeping 90% of their patients, even 80% of their patients screened. And so the payers and the health systems come to us to say, can you partner with us to deliver colon cancer screening to our patients in the privacy of their own home. We'll give you a list of 100,000 patients that are not up to date. You ship them collection kits, you take the risk, we're willing to take the risk, and then we follow up with those patients to get them to return the kit. That's a care gap program. And what we have seen is explosive growth over the last 2.5 years. Why? Because care gap programs in colon cancer screening for a long, long time has been shipping FIT tests to 100,000 patients and getting 8,000 or 9,000 of those kits back and getting 1 year of quality credit, which means the next year, you have to do it all over again. And by the way, the health systems and payers had to pay for that FIT kit to be sent out. We come in and deliver a totally different value proposition, which is we'll triple the return rate into the 25% to 30% range and you get 3 years of quality credit. So that delta is 9x altogether. And as Aaron said, we have 10 of the top 10 payers who run these care gap programs, which, by the way, is helping us in the contracting discussions we're having with them because they really see the value to their Medicare Advantage, their Stars ratings and their commercial HEDIS ratings. And so this program has grown. It's going to keep growing. You take rescreens and care gaps and what we call new to point of care. So new customer growth in that point-of-care setting. And what we're seeing there, too, is strong. We're also continuing to see about 800 new first-time ordering health care providers every single week. We thought 5, 6 years ago that, that would abate and decline over time. It's not. And about half of those health care providers that are new to ordering Cologuard are nurse practitioners and physician assistants. That's about half of the new ordering providers, which means we're seeping into new parts of the health care primary care ecosystem, helping us fuel growth not only for Cologuard, but for Cancerguard and other tests down the road.

And then just sizing the care gap and just the overall opportunity longer term. What we've said was last year, we did more than $125 million in revenue. It was growing triple digits. This year, what we're seeing, as Kevin mentioned, is explosive growth in that part of the business as well. It's a meaningful contributor to growth through the first half of the year and embedded in our guide as well. And what we've said is, over time, in the Med Advantage population alone, we see this becoming a $500 million opportunity. We're well on our way towards that trajectory. And then if we're able to improve the adherence, much like we're trying to do on rescreens as well, is you could double that business then overnight from a $500 million to $1 billion opportunity longer term.

All right. Very helpful. I wanted to move to blood. Your initial internal data came in below expectations, but you coupled that with the Freenome licensing agreement. I guess, do you feel on the internal side, do you have a clear path forward for that program? And maybe when could we learn more on that side?

All we've said there, Catherine, is that testing continues. We continue to work with that. We haven't yet submitted data to the FDA -- so we're just not going to be talking about that topic more. And the Freenome test is now the Exact Sciences test. And it's a high-quality test. We have confidence in the ability to get that through the regulatory processes. We need to get it through the FDA process in collaboration with Freenome. And we like the data that we've seen. It's a very clean submission. And the data are strong and very similar to the other aspiring entrants into this field. So how are we going to use that test, I think, is the important question. And there's a distinct patient population. We know them because we have 10 million people out of the 30 million who've had Cologuard orders over time, 10 million people who haven't returned a Cologuard kit. That's a really good starting point. And there are 3 guideline groups out there, ASGE, a GI Society, AGA, the leading GI society and the cancer guidelines, NCCN. They've all said, look, there's a distinct use case for an inferior blood test. It's for patients who refuse colonoscopy or Cologuard. We're uniquely able to work with physicians, health systems to be able to ship the patient a blood collection kit that they would then take and get their blood drawn with and then return that to our labs. We have a unique ability to help get more people screened. And so I think that's what Freenome saw was our reach. What we see is the appropriate use for a test, which is -- it doesn't see precancerous polyps. It is not as strong at Stage 1 detection as Cologuard. And -- but there is a use case for it. And Medicare is willing to pay for this test. Commercial payers is not so much. So we'll be able to make sure it's kind of the appropriate patient. And then the hope is in the future, you get that patient to switch over to a Cologuard test, which has higher efficacy.

I want to dig a little more into the Freenome side, but maybe just to close the loop on the internal program. You obviously had a different marker set that you had previewed at ESMO last year. You say testing continues. I guess if you were to have a different assay, do you have the samples you would need to run such an assay? And if not, how long would it take you to procure those?

That whole topic, we're just not really going to talk a lot about it in terms -- because we haven't sat down and engaged with the FDA. And if there's one thing that I have learned over the last 20 years, talk to the FDA first before you talk to Wall Street. And we need to have those conversations. And I would just revert back to -- the Freenome test is our blood test. And we're excited about it. We believe that we can bring it to patients and physicians who need it sooner than we would have been able to bring our own test anyway. So there's a real thoughtful approach to what we've done here with Freenome.

Yes. And on Freenome's test, it sounds like they have their own V2 data on hand. Any details on when we could see that? And is that something that you guys have already seen?

We saw their V2 assay tested on a cohort of patients that will not be part of the ultimate pivotal study. However, they were patients that were enrolled in the same fashion and as a part of that pivotal study enrollment. So we have seen V2 performance in patients with adenomas and normal patients, which gives us -- it was interesting, intriguing data. One thing that we have learned is it's a lot harder to detect precancerous polyps from blood than you ever thought it would be. And I think you saw that last night with another company's data that came out. It's just -- it's hard -- you can bring -- you can look as hard as you want for fragmented circulating tumor DNA if it's not there you can't detect it. And that's the fundamental challenge with detecting precancerous polyps or even Stage I cancers from a blood draw. Looking for DNA, if it's not there, you can't detect it.

Yes. And maybe one more before we move on to multi-cancer. It's just assuming FDA approval for Freenome's test, how do you position that within your primary care sales force and whether that's incentives or messaging versus Cologuard?

Well, it's about caring for these patients. It's making sure that those refusers are identified and are reached out to about a potential blood draw. So the appropriate patient should get this test. And again, over the last 10 years, with this ramp-up, it's growing every year, the number of patients who don't return a Cologuard kit in a year. Maybe it's a year or 18 months after we have done our full 21 touch points that Raj is responsible for, among other things, to maybe we ship them that blood test. And so we'll work with the offices to identify those patients and serve them.

And on multi-cancer, I think online ordering became available late last month. You've priced the test at I think just under $690. You've mentioned you trained a little over 200 reps on the test and you expect to have your entire sales force selling that in the first quarter. But how do you position that initially? Who's the target patient or physician base?

Let me take that at a high level and pass it to Raj, who owns the Cancerguard business. And that is a test, again, one blood draw, most cancer types, the cumulative prevalence of cancer in a population is what a blood test can help go identify those patients pull one stage earlier. But Raj, maybe you can talk about how you're thinking about the opportunity to serve patients.

Of course. Thanks, Kevin. Look, 80% of diagnosis, cancer diagnosis in the U.S. don't have a standard of screening. There are only 4 cancers for which there is a standard of screening. You got breast cancer, colorectal cancer, lung cancer and cervical cancer. So the remaining 80% of the 612,000 deaths in the 2 million diagnosis that happen in the U.S. don't have a standard of screening. And the best way to kind of think about a standard of screening supplement at scale is a multi-cancer blood test. Think about this, right? If you have to find one ovarian cancer, you've got to go to 1,000 patients before you find one. But if you accumulate cancers, all of the cancers and start to detect, you could actually just need to go to about 35 to 40 people before you can start to kind of detect the cancer. So the power of this cancer is it actually enables us to screen and find cancer early when it actually is treatable and it makes sense. The second piece is the size of the market. We think there are about 110 million consumers in the U.S. who could benefit from this test. So we think the size of the market is about $25 billion. And remember, this is just in the U.S. There is no reason to believe that folks outside the U.S. won't be as keen to kind of get to this cancer test as anybody else, right? And for those of us who are asking this question, right, hey, would people pay $700 for a cancer screening test? What I'd tell you is think about this, right? So the last company I used to work for is Align Technology. The cost of Invisalign, kind of clear aligners to straighten your teeth is $5,500 in the U.S. It's $10,000 in some other markets globally. So the question is, can we actually, to your question, frame the value of this test to this consumer such that the consumer sees the importance of this test. Look, we're going to only 50-plus consumers who have a higher income. But the way I look at it is, this is a marketer's dream, right? How do you actually take a life-saving test and get people to use it so that we can detect cancer earlier and save lives. We presented some data, just so you know, at ESMO. And our modeling indicates we can cut cancer-related mortality by 17% if we can scale this test. Now show me one more test in the world that could do that.

Yes. And I think we're about out of time. But Kevin, maybe just to end things here, as you look over the next year, what are the 2 biggest opportunities that you see for Exact Sciences?

Well, in addition to Cologuard Plus, you have Cancerguard and OncoDetect, which is our MRD test, leveraging off of Oncotype DX, which is -- has 90% share in breast cancer. So we're excited about Cancerguard and OncoDetect and can't wait to really continue to lever off of this incredible network that we've built, our ExactNexus network. So looking forward to future conversations on those topics.

All right. Great. Well, with that, we'll leave it there. Thanks, everyone, for joining. And Kevin, Aaron, Raj.