Exact Sciences Corporation

Good day, and thank you for standing by, and welcome to the Exact Sciences Corp Third Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker's remarks, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you need further assistance, please press star 0. I would now like to hand the conference over to your speaker today. Megan Jones, please go ahead. Thank all of you for joining us for Exact Sciences' third quarter 2021 conference call. On the call today are Kevin Conroy, the company's chairman and CEO, and Jeff Elliott, our chief financial and chief operating officer. Exact Sciences issued a news release earlier this afternoon detailing our third quarter financial results. This news release and today's presentation are available on our website at exactsciences.com. During today's call, we will make forward-looking statements based on current expectations. Our actual results may be materially different from such statements. Reconciliations to gap figures are available in our earnings press release, and descriptions of the risks and uncertainties associated with Exact Sciences are included in our SEC filings. Both can be accessed through our website. It's now my pleasure to introduce the company's chairman and CEO, Kevin Conroy.

Thanks, Megan, and thanks to everyone for joining us today. Exact Sciences is advancing life-changing solutions to transform cancer care. offering new hope to patients and physicians. This team has proven that they can take a test from an idea to standard of care. We're currently focused on multi-cancer early detection, colon cancer screening, and minimum residual disease and recurrence monitoring. We believe these opportunities will have the greatest impact on patients. We have a powerful commercial engine which will become more efficient as we introduce new tests from our deep pipeline. This team is committed to finding cancer earlier, even during a global pandemic. Cancer screens have been deprioritized throughout COVID, and the need to get people tested is urgent. Early detection can improve cancer outcomes, and getting more people screened is our top priority. We're also focused on enhancing our customer experience and advancing new diagnostic solutions. Executing on these priorities will ensure genomic information is routinely used to detect, diagnose, and treat cancer. Highlights from our third quarter include testing a record 950,000 patients, hiring 400 primary care field representatives from Pfizer, our co-promotion partner, increasing covered lives for the 45- to 49-year-old group to 70% for Cologuard, generating promising data in our Cologuard 2.0 program, initiating an important minimum residual disease study, publishing Oncoguard liver clinical validation data, and securing regulatory approval for Oncotype DX Breast in Japan. Today we'll discuss our third quarter performance in more detail, fourth quarter and full year guidance, and progress on our 2021 priorities. Our CFO and COO, Jeff Elliott, will now review our financial results. Thanks, Kevin.

Good afternoon. Third quarter revenue was $456 million, an increase of 12% or 39% excluding COVID testing. Security revenue contributed $280 million or 31% growth. with strong contributions from Cologuard rescreen in the 45 to 49 age group. 9,000 new healthcare providers ordered Cologuard during the quarter, and 253,000 have ordered since launch. Precision oncology revenue was $145 million, an increase of 59%, including nine points of growth from our Cheyenne acquisition. Growth is driven by archetype BX breast in the U.S. and internationally. COVID testing revenue was $31 million, as Delta variant cases increased rapidly during the quarter. Gap gross margin was 70%. Non-gap gross margin, which excludes amortization of acquired intangibles, was 75%. Margins were down two points, mainly due to lower COVID testing volume. Sales and marketing expense was $197 million. During the quarter, we made investments in our commercial team to support continued growth. G&A expense was $187 million. This includes $10 million of acquisition and integration costs and $10 million of legal settlement costs. R&D expense was $75 million. The increase was driven by our multi-cancer and colorectal cancer programs. Adjusted EBITDA was a loss of $16 million. We ended the quarter with cash insecurities of $1.2 billion. Turn to the market backdrop. Cold Guard grew slightly less than we had expected. This was due to a rapid rise in the Delta variant, as cases tripled from late July to mid-September, reducing sales force access to physician offices. Growth was also impacted by actions taken by our commercial partner during the quarter. Due to COVID concerns, Pfizer pulled their sales representatives out of the field starting in late July through September, and then reduced the size of their internal medicine team in mid-September. Combined, the Delta variant and our partner Pfizer's decision caused our in-person sales calls to decrease 70% during this time period. This led to a flattening of Cologuard orders in August and September. In October, order growth accelerated during the month, reaching new weekly records due to an improving backdrop and actions we're taking. Delta cases are coming down, in-person sales access is improving, and exact scientists hired 400 representatives from Pfizer and got them back in the field. It takes about 30 days between a Cologuard order and a completed test when we recognize revenue. This means that Cologuard orders in August and September had a modest impact on third quarter revenue and will have a bigger impact on the fourth quarter. Fourth quarter is also impacted by holidays. When seasonality leads to fewer orders around Thanksgiving and Christmas, and a temporary delay in patients returning colorectal kits. With that in mind, we're narrowing our full-year revenue guidance toward the high end of our prior range. We now expect between $1.722 and $1.737 billion. We've lowered our screening revenue assumptions and expect between $1.05 and $1.055 billion. We've increased our precision oncology revenue assumptions and now expect between $547 We've also increased our COVID testing revenue assumptions and now expect between $125 and $130 million. For the fourth quarter, we expect revenue between $429 and $444 million. This assumes screening revenue between $265 and $270 million, precision oncology revenue between $134 and $139 million, and COVID testing revenue between $29 and $34 million. Turning to operating expense, we're decreasing our guidance from our prior range. We now expect lower sales and marketing expense of $800 to $820 million. This is because our partner made fewer sales calls, reducing our fees to them. For G&A, we're raising our guidance to $635 to $655 million due to additional investment in IT and people to support growth. This number excludes acquisition, integration, and legal settlement costs. We're also lowering our R&D guidance to $370 to $390 million due to the timing of enrollment for certain clinical studies. We continue to expect to look at $95 million for intangible immunization and $125 million for CFX. I will now turn the call back to Kevin. Thanks, Jeff.