Exact Sciences Corporation

Ladies and gentlemen, good afternoon. My name is Abby and I will be your conference operator today. At this time, I would like to welcome everyone to the Exact Sciences Corporation fourth quarter 2021 earnings conference call. Today's conference is being recorded and all lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one once again. Thank you. And I would like to introduce Megan Jones, Senior Director of Investor Relations. Ms. Jones, you may begin your conference.

Thanks, Abby. And thank all of you for joining us for ExactScience's fourth quarter 2021 conference call. On the call today are Kevin Conroy, the company's chairman and CEO, and Jeff Elliott, our chief financial officer and chief operating officer. Exact Sciences issued a news release earlier this afternoon detailing our fourth 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 have material differences 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. I'll turn the call over to Kevin.

Thanks, Megan. Our mission is to eradicate cancer by making earlier detection a routine part of medical care. We've brought together a talented team dedicated to making that goal a reality. Highlights from 2021 include being Great Place to Work certified for our third year in a row, testing nearly 4 million people and growing our core business by 29%. Generating over $1 billion in Cologuard revenue, the first diagnostic test to reach that milestone. Exceeding $500 million in our precision oncology business for the first time ever. Adding new tests to support hereditary cancer testing liver cancer surveillance, and comprehensive tumor profiling for advanced cancer. Strengthening our commercial engine by welcoming a talented sales team from Pfizer and generating evidence to support test solving real patient needs. We're the leader in advanced cancer diagnostics because of our scientific capability, commercial engine, and focus on screening and early detection. And we're just getting started. Jeff will now review our financial results. Thanks, Kevin. Good afternoon. Fourth quarter revenue was $474 million, an increase of 2%, or 16%, excluding COVID testing. Screening revenue was $278 million, up 11%, driven by Cologuard volume. 10,000 new healthcare providers ordered Cologuard during the quarter, and more than 263,000 have ordered since launch. Precision oncology revenue was $149 million, an increase of 27%, driven by an Oncotype DX breath volume. Our acquisition of Estrion added seven points of growth in the quarter. COVID testing revenue decreased 52% to $47 million, which was above our expectation due to increased testing for the Omicron variant. Fourth quarter gap gross margin was 70%. Non-gap gross margin, which excludes amortization of acquired intangibles, was 75%. Sales and marketing expense was $284 million, above our guidance due to a $36 million payment to Pfizer related to our co-promotion agreement, which ended in November. G&A expense was $179 million, and RMB expense was $88 million, both consistent with our guidance. Net loss was $221 million. Adjusted EBITDA was a loss of $122 million. We ended the quarter with cash and securities of over $1 billion. Turning to our guidance, We expect total revenue between $449 and $469 million during the first quarter and between $1.975 and $2.027 billion for the year. We expect screening revenue between $284 and $294 million for the first quarter and between $1.34 and $1.367 billion for the year. This includes prevention genetics revenue of approximately $9 million for the first quarter and between $40 and $42 million for the year. We expect precision oncology revenue between $140 and $145 million for the first quarter and between $595 and $610 million for the year. We expect COVID testing revenue between $25 and $30 million for the first quarter and between $40 and $50 million for the year. Guidance assumes the pandemic continues to make and Salesforce access and wellness visits gradually improve throughout 2022. We expect screening revenue to be slightly less back-end loaded than current consensus estimates. For precision oncology, we expect continued momentum from Oncotype T-Express globally. We're expecting the total U.S. business to grow in the mid-single-digit percent range and international to grow over 20%. We expect the Cheyenne acquisition to contribute similar growth in the first quarter as the fourth quarter, and then it will annualize in April. We expect our COVID testing revenue to continue decreasing following a speed decline in the business during February. We expect a 1-point decrease in non-GAAP gross margins this year to approximately 73%. This is due to unfavorable mix and negative leverage as COVID testing volumes decline. We had an added capacity so our lab could support the fight against COVID and prepare for accelerating Cologuard growth. We expect strong Cologuard growth margin improvement as we absorb this capacity and benefit from automation enhancements. Long-term, we remain confident Cologuard growth margins will reach at least 80%. Moving to OpEx, we're invested in growth given our confidence in the long-term outlook for Cologuard, Opetype, and our pipeline of innovative cancer diagnostics. For the full year, we expect sales and marketing expense of $900 to $920 million. This includes the full-year impact of the sales team we hired from Pfizer last year and expanded advertising for Colgar, with a new campaign to reach the 46 million unscreened Americans. We expect our sales team to direct strong incremental profitability as we grow the business and launch new products, such as our hereditary cancer tests. For GMA, we expect $770 to $790 million in significant leverage going forward. We're investing in several initiatives to provide scale and drive tens of millions of dollars in recurring savings. One example is within our revenue cycle operations. We are upgrading our systems and benefit eligibility checks, reducing errors in manual work. These new tools streamline our revenue cycle efforts and enable lower costs and faster collections. We expect this to deliver over $30 million in incremental cash flows on a run rate basis within three years. For R&D, we expect $430 to $450 million. More than 70% of R&D is supporting future products. We expect around $99 million for intangible amortization and CapEx to be around $200 million. We're investing in facilities to support future growth and develop state-of-the-art R&D centers around the country. I'll now turn the call back to Kevin. Thanks, Jeff. We exceeded our goals for several Cologuard growth initiatives last year, providing lasting benefits and advancing our leadership in colorectal cancer screening. We achieved more than $100 million in revenue from patients being rescreened with Cologuard, more than $40 million from patients in the 45 to 49 age group, and a 10-point improvement in the electronic ordering rate to 50%, making it much easier to order Cologuard. These initiatives and our strengthened commercial team will fuel Cologuard growth for years to come. We plan to build on the momentum we created during 2021 by educating more providers and health systems about the benefits of Cologuard through our expanded sales reach, enhancing our customer experience to make repeat Cologuard testing easier for both healthcare providers and patients, screening more people earlier, starting at age 45, and releasing a new exciting advertising campaign in March to encourage the 46 million onscreen Americans to take action. Our precision oncology team delivered outstanding results last year by testing a record number of people with Oncotype DX, supporting the publication of the Responder Study in the New England Journal of Medicine, and adding a new test to support comprehensive tumor profiling for advanced cancer, The Oncotype DX Breast Test has answered the important questions of chemotherapy benefit and risk of recurrence for 1.3 million women diagnosed with early-stage breast cancer, and we have an opportunity to continue to impact even more lives. The responder study quickly led to our Oncotype DX test becoming the standard of care for women with early-stage known positive breast cancer just as TaylorX did for Node-Negative. We're making our Oncotype DX breath test available to more women globally, focusing this year on the two countries with the largest incremental growth opportunities, Japan and Italy. We're also successfully integrating our Ashayan acquisition, which provides the foundation necessary to extend our leadership and precision oncology. Ashayan gives us additional sequencing and bioinformatics capabilities, a differentiated comprehensive tumor profiling test, the foundation of our tumor-informed minimum residual disease test, and biopharma partnership opportunities, like our recently announced license agreement with Onzerna Therapeutics. Helping more people understand their inherited risk of cancer can motivate them to undergo screening, detect their cancer earlier, and also guide more effective treatment. We provide an Occupy DX test to more than 70% of all women diagnosed with ER-positive or 2-negative early-stage breast cancer each year in the U.S. Oncologists order hereditary testing for only 40% of these women. Offering a hereditary cancer and Occupy DX test for all of them could provide the full picture necessary to understand and treat their We have relationships with 98% of oncologists in the U.S. Our team can reach most of the 290,000 patients diagnosed with breast cancer, not just those eligible for Oncotype DX, and the nearly 2 million people diagnosed with cancer each year. We plan to expand hereditary cancer testing beyond oncology into primary care to engage people in proactive care earlier We have established relationships with more than 200,000 primary care providers. They can help their patients understand their germline risk of cancer, leading to risk-reducing actions like more frequent screenings with our multi-cancer early detection test. The team at Prevention Genetics provides a customizable test, a high-quality lab, and experienced PhD geneticists. Combined with our sales, marketing, and insurance coverage expertise, we're positioned to make this vision a reality with minimal incremental investment. We're also a good start generating evidence for our tests within the three largest patient impact opportunities in diagnostics with more data coming. Our pipeline goals over the next 18 months are to present colon cancer blood data and announce top line results from our prospective blue C study to support FDA submissions for Cologuard 2.0, our next generation version of Cologuard, and our colon blood test. Present multi-cancer feasibility and validation data, finalizing the design of our multi-cancer tests before beginning our prospective study and launching a lab development. And share data in whole rectal cancer for our tumor-informed and tumor-naive minimum residual disease and recurrence monitoring tests. Our pipeline of cancer tests could transform how patients are treated and contribute billions of dollars of growth on top of Cologuard and Oncotype DS. We're pleased with recent progress from our multi-cancer team on test development and plans for lab-developed tests and commercial launch. Our hereditary cancer, Cologuard 2.0, colon cancer blood, and multi-cancer tests will create the most broad and compelling screening offerings available. Combining this with our precision oncology efforts, we have tests, technology, and teams supporting a cancer patient every step. This will make Exact Sciences unique in the value we provide and how we serve providers, health systems, and most importantly, patients. We're now happy to take your questions.