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.

Thank you. And at this time, I would like to remind everyone, in order to ask a question, press star then the number one on your telephone keypad. And we'll pause for just a moment to compile the Q&A roster. And we will take our first question from Matt Sykes with Goldman Sachs.

Hi, good afternoon, everyone. Thanks for taking my questions. Maybe just start on the 22 guide first. And I would just love to get maybe a little bit more how you're thinking about the cadence of recovery. I know you guys talked about probably less back-end loaded than what consensus expects for screening, but just would love to kind of hear how you're thinking about physician access, wellness visits as we move through the first quarter and the second quarter of this year and what you guys are baking in for the overall guide.

Hi, Matt. This is Jeff. I'll take that one. If you look at Acuvia's data, what Acuvia would talk about in November, that physician office access in primary care was somewhere between 50 and 60% of where it was before the pandemic started. Since then, obviously, we had the holidays and the Omicron variant of the pandemic. And so I think access hasn't changed a whole lot. The good news here is that now the Omicron cases are way down, which means fewer people are calling in sick, and it's having less of an impact on this country. Going forward, I expect continued improvement in both physician office access and wellness visits. So that said, we're in a highly uncertain environment with the pandemic. There could be other variants that are out there. And then over time, you know, I think our reps are finding even better ways to access physicians and educate them on co-regarded archetypes. So the team has done a nice job to work to overcome these headwinds, but they still exist. So I don't think things will fully normalize yet there in the market this year.

Got it. Thanks for that, Jeff. And then maybe one more, just on, you had mentioned the gross margin impact for 22, which is understandable given the COVID capacity build out, but you talked about the potential for Cologuard to hit sort of 80%. As we kind of think about your path to profitability and the importance of Cologuard within that, is sort of 2024 when we should be thinking about that potential? And then you mentioned sort of adding in automation. Do you think you could accelerate that gross margin expansion for Cologuard specifically to the 80% prior to that? Or is that sort of what you're working with today in terms of your timeline?

80% is a long-term target map, but I do expect to make some very nice progress towards that. Recall before the pandemic, we actually opened up a new lab ahead of the anticipated growth of Cologuard. We have been approaching and actually reaching the high 70% range for Cologuard growth margin. Bringing on that new lab added about $10 of cost per test. Again, this is because of expected growth long-term. And now with the pandemic, that added some additional makeup leverage. Going forward, though, as we absorb that additional fixed cost, I'm very confident that we will get back to where we were pre the pandemic, but we'll reach new highs. It's going to be a combination of both automation, which the team has done a very nice job of automating these labs, leveraging that fixed cost, also improvement in our Cologuard revenue per test. Longer term, they're expected to clear path to at least $500 per test, given the value that Cologuard provides. So we can do the math on that. Again, I think there's a third path to longer-term 80% gross margin for Cologuard.

And we will take our next question from Brandon Couillard with Jefferies.

Hey, thanks. Good morning. Good afternoon. I think, Jeff, you mentioned I think 10,000 new docs added in the fourth quarter, which is pretty good given seasonality. Would you kind of talk about your outlook over the course of 22 and just how the integration with the kind of Pfizer reps has gone so far and whether you're happy with the productivity you've seen from that team? Hey, Brian, I can start on the outlook for new docs, and then maybe Kevin can chime in on the Salesforce outlook. As far as new providers, yeah, I was very excited to see the 10,000 new in the quarter. That's a very good number, especially in light of the pandemic. Going forward, I think the number can probably be in the 35-plus thousand range this year, maybe up to 40,000. There's a significant number of new providers out there that we still have to reach with Cologuard and our innovative marketing campaigns. The bigger opportunity is to continue lifting that order rate, the number of orders per provider, and that will be the biggest driver of growth this year. When you look at the number of new drivers we have, things like Cologuard Rescreen, Cologuard 45, this expanded sales force where we expect additional productivity from this year, we're very fortunate to have a wide variety of growth drivers. The core part of the growth this year, Brandon, will be higher orders per doc rather than the number of new doctors ordering. Kevin, you want to talk about the Salesforce? Yeah, you know, we're really proud of the work that the Salesforce did to integrate 450 new team members. We have an amazing commercial organization both on the screening side and the precision oncology side. On the screening side with Cologuard, The team has just done a remarkable job through Omicron, forming together as one team, organizing into four large teams across the country, being very thoughtful about how we approach health systems. You know, we're bullish on what additional upside there will be this year, potentially with this really focused effort to bring more digital tools to physicians through the our instance of Epic and the investments that we're making in IT. There is an intense focus on the 45- to 49-year-old group. We saw a lot of progress there last year, even with half a year. The team is chomping at the bit to grow that more and to make Cologuard the standard of care for people 45 to, you know, let's prior to retirement, that just people opt for Cologuard over colonoscopies. The Rescreen Initiative, this new campaign, we believe, is going to provoke action. We can talk more about that. So the sales force, though, that's where it all starts with. And as offices start to open up, we expect great things to happen over the course of the year. helpful. Thanks. And then on the hereditary cancer launch, we talked about timelines of bringing that into primary care. And is there any embedded in revenue outlook for this year? Would that be actually in precision oncology or screening, Jeff? It's not really clear to me. Brent, I'll start with the HPT. We do not have any HPT revenue baked into the outlook this year, so that is a potential source of upside. I did, however, bake in the prevention genetics-based business. I said in my remarks, $40 to $42 million this year is big to the guidance. As far as timing, do you want to cover that, Kevin? Yeah, and I want to encourage nobody, I don't want to encourage anybody to bake in hereditary cancer testing residents this year, but there is that upside. The step one of that process is to talk with the payers and to get on contract with the major payers. for hereditary testing to add some digital services to the test to make it easier for our physicians to order it through our instance of Epic and to result it similarly to provide a strong connection to the medical geneticists that we're proud of that are part of that team. That's gonna take some time and we expect that we'll start to kick in in the second half But, you know, again, we want to express caution there about the timing where you start to build that into expectation.

And we will take our next question from Derek DeBrown with Bank of America.

Hey, good afternoon.

Hey, just to clarify, prevention genetics is in the screening segment, that $40 million? That's correct, Derek. It is. Okay. So with that being said, and given all the new Salesforce additions and sort of the rebound, I mean, the implied Cologuard growth is still a little bit below, I think, where some of us are looking. And so it sort of begs the question on what's the level of conservatism that you have in that number and And, you know, is that sort of more driven by, you know, the fact that the markets are still, you know, sort of recovering from COVID, sort of sales force? With that embedded $40 million in the number, the revenue number was a little bit below, I think, where people were looking. Yeah, what's implied for Cologuard is $1.3 to $1.325 billion. That equates to about 24% growth. Again, we're fortunate to have a significant number of drill drivers. You think of things like three-year re-screening. We've baked in $220 million of revenue there. Obviously, when you look at the opportunity there, today already there's a million people available for re-screening. Another 1.2 million become eligible this year. So obviously, if we go out and hit the ball to the park, there's room to deliver a lot more revenue than $220 million. When you look at Cologuard 45, another big driver, this year we've baked in about $100 million of revenue. Obviously, the size of that market, there's 19 million people in the age group, 45 to 49. They essentially all need to be screened right now. So, again, a huge opportunity there. Things are trending very well on that driver. And obviously, the sales force. The sales force, as Kevin said, that's where it all starts. The sales force is out there educating doctors on re-screens and 45 and electronic ordering. So it all starts there. And now with this expanded team, we're expecting some really great things out of that sales force this year. That said, look, I mean, you turn on the news at night, we're still in the middle of COVID. There's a lot of uncertainty there. So it is important that as a company, we face over and recognize the reality that there are some headwinds out there in the world that we have to account for sitting here early in the year and provide guidance for the rest of the year. Yeah, I think that's a key thing. that we don't have, this is Kevin, that we don't have perfect visibility into is how quickly will offices start to open up again and how quickly will patients return to wellness visits, which over the course of the last two years dipped measurably. There's tremendous upside if our face-to-face office visits returns to the pre-pandemic rate. We're off by, you know, 50% on average about. And during the course of the pandemic, that's the face-to-face visits, we missed about 3 million office visits. You know, the good news here, and I want to go back to the first earnings call into the pandemic. The question was asked, what do you think the impact will be? And we said, we think that marginal users of Cologuard are going to start using Cologuard more frequently. We have seen that. Now the key is to focus, again, on the top half of our customers by ordering volume that we haven't been able to reach as frequently as we previously did. So we want to use Jeff's words sober about how we look at this year, not knowing how quickly those offices open up. I'm personally pretty positive, just seeing the dynamic around the country and how quickly Omicron is abated. So that's, I think, the color on our guys.

Great. Great.

Thanks for that acronym color. That's actually what I was looking for in that response. And can we just go back and talk a little bit about the ASCO GI data released and sort of like the 57% sensitivity for AA and being obviously up from the 42% for Cologuard 1.0.

Some investors, and I think also we had, you know, a little bit difficulty in trying to ascertain what that level of increased sensitivity means of staying above 50%. And really that was an incremental driver to get more docs to prescribe the test. Can you sort of like help us think about that a little bit more in terms of what that ultimately means that stays above 50% level once the final WC data comes in?

The biggest disappointment with the original data in Cologuard was 42% pre-cancer. And so what we did is we improved the markers, and then also a team from our Redwood City R&D team used advanced machine learning techniques to help us refine the way that we looked at the data coming off of our Cologuard 2.0 markers, these new and more specific and sensitive markers. So it's really a combination of machine learning and different markers that bump that sensitivity for advanced adenomas up to 57%. And I want to emphasize that the data is apples to apples, we believe, with The DC study, so these are not case-controlled samples. They were prospectively collected adenomas of similar size as we saw in DC. Commercially, what does that do for us? 42% current, 57% with Cologuard Next Generation. That's a big deal because docs really want to see that we're going to detect about 60% of precancerous polyps. That's in reality about where colonoscopy is because there's so much variability with the detection of precancerous pulse depending upon your GI, your time of day you get your scope, et cetera. So now we can be a lot more aggressive in how we market Cologuard for precancer detection. And then when you feed that 57% detection rate into the models, it has a big impact on life years gain. So the data that USPSP will look at will see that Cologuard, the performance, the life years gained compared to the number of unnecessary colonoscopy or harms is vastly superior to FIT and is approaching that of colonoscopy. It's a big deal. It's going to take a little bit of time to play out, but it sets a new standard for Cologuard and colorectal cancer screening. The way that we see this with the great awareness of Cologuard, with the work that we're doing to provide a greater urgency to act, is that over time, Cologuard becomes considered the co-equal standard of care, even though it is presently in the guidelines, but in the minds of physicians and patients, it becomes a co-equal standard of care with colonoscopy. And that day, we believe, is coming.

And we will take our next question from Brian Weinstein with William Blair.

Hey, guys. Good afternoon. Thanks for taking the question. So, hey. So you guys have often talked about that 40% penetration for Cold Guard. I don't recall the exact timeframe. I think it's something like by the end of the decade. That would take you for about 3 million tests and about $1.3 billion in revenue this year to about 14 million tests or $7 billion in revenue. And I'm curious, as you think about that trajectory, where does that really come from? If you're thoughts advanced at all between the difference between driving that from colonoscopy conversion and unscreened individuals and how you target each differently? Jeff, I think you talked about a new sales and marketing campaign going after the unscreened. So, you know, as part of that answer, maybe you can address that campaign and why you think that could be successful.

Hey, Brian, this is Jeff. I'll take that one. But today, if you look at overall screening rates, there's somewhere in the 55% range. And again, that's including ages 45 and above. Longer term, we and many others are targeting 80%. We know that's possible. That's possible with options like Cologuard. It's possible because that's where you see screening rates for breast and cervical cancer screening. So longer term, to your question, how does Cologuard get from where it's at today to 40% or higher? It's a mix of lifting the overall screening rate, which there is documented evidence out there today that Cologuard is already lifting screening rates in this country with a mixture of that and taking care of the market, which we know we're doing. When you look at who's using Cologuard, we ask our patients, have you been screened before? And if so, with what? About 50% of patients have never been screened before. 40% previously had gotten screened with a colonoscopy, and about 10% previously were screened with a fecal blood test. So we know we're taking a share in this market. We know we're also, importantly, expanding the market and getting more people tested. Another way to get there, Brian, is to get more physicians to order Poligar. And to Kevin's point earlier, the pandemic has helped accelerate that. We do a decile analysis, so we look at kind of different ordering trends of different doctors. The one thing that I've talked about before on these calls that really stands out to me is when you look at the doctors that represented the top 40% of orders before the pandemic, Well, those doctors today in Q4, their order trends are down. They're down about 15% versus the start of the pandemic. Well, they're down because they have fewer patients coming through their doors, again, because of the pandemic, and their sales force access there has been somewhat limited because of the pandemic. However, what gets really exciting is that as we come out of the pandemic, reps will get back in there, patients will get back in there, and those doctors will come back. They are the true believers. The doctors that represent the bottom 60% of orders, again, before the pandemic, those doctors, as of Q4, were ordering 60% more, nearly 60% more than they did to start the pandemic. So we're seeing a significant broadening of the ordering base, a deepening of that penetration amongst the doctors kind of near the bottom. That all bodes well for the future. So that's how we're going to get there. This new marketing campaign, stay tuned there, Brian, it rolls out in the very near term here. that one I'm very confident that that one will help increase the urgency to get more people screened and lift the overall screening rates in this country.

Okay. And then just to follow up on timing for data readouts, just want to make sure that there's been kind of no change in things. Would you mind just sort of running through the timing on when you expect various readouts over the next kind of year or so to take place?

Yeah, I'd be happy to take that, Brian. Next Generation Cologuard, the blue C top line, we expect to read out in the second half, probably fourth quarter of this year. Our FDA submission in the first half of next year. Colon cancer blood, we expect to have data this year that will then lead to our blue C study top line pivotal data in the first half of 2023, multi-cancer early detection, the drive that's combined with the exact sciences technology, the case control data, feasibility data in mid-2022, case control clinical validation, second half 2022. Our prospective study starts late 2022. Our MRD test clinical validation will be in the second half of this year, and I just want to call attention to the fact that our oncogardener liver test reimbursement, MOL-BX wants a different type of study that will probably take about 18 months to complete, so that unfortunately is pushed off before we can get reimbursement. We'll continue to offer that. cash pay out of pocket and continue to build real-world evidence with key partners. And that's the summary. Anything else that I didn't touch upon, Brian?

I think you got everything that I had, and I'm sure if you missed one, someone else will pick up on it. But thank you, guys, and we'll talk to you after the call. Thanks.

We will take our next question from Vijay Kumar with Evercore.

Hey, guys. Thanks for taking my question. Jeff, maybe one on that guidance here. The screening revenue guidance here, 1.34 XX acquisition, it's about around 1.3 billion at the low end.

I think last year you guys noted about free screening perhaps being 100 million, and you expect that to go to double up in 22.

uh screening in 40 to 45 you know age group perhaps 40 in latin and fiscal 21 you know doubling up in fiscal 22. if i back up those uh you know be screening uh and the 40 to 45 uh your age uh contribution uh your your base color guard and including a pfizer contribution i mean it seems to be decelerating year on year i'm not sure if uh you know if that makes sense to you but uh maybe just you know walk us through on why you know if your physician access is improving uh other device companies are assuming procedures improve uh why call of art revenues would be so great um um x we screening in the 40 to 45 euro contribution This is Jeff. First, just to start, we're guiding to an incremental $250 million of revenue at the midpoint. That's pretty consistent from year to year, so they don't see it as a deceleration. The beauty of this business model is that we have multiple large growth drivers that all work together. As an example here, our sales force, which we expanded last year, and we have high expectations for this year to see incremental productivity. Well, that sales force is the biggest driver of our three-year rescreen program in Colograph 45. So they all work hand-in-hand, so you can't parse all those things out. I think the point where you're getting at is what is the core business doing, kind of 50 and above? We do expect very good growth out of that part of the business. That's not to say that over time all the parts won't grow faster. Colograph rescreens in Colograph 45 are probably the fastest-growing parts of our business now, and that's a good thing. The rescreen business is a recurring source of revenue. It's a higher margin source of revenue. And over time, I expect it to grow faster because that eventually becomes half our revenue. And that will drive margins higher. That will drive patient compliance higher. That's a good thing, right? That's a way for us to get more people screened and keep them screened for a long period of time. PoliVert 45, again, that's exciting because that's 19 million people. That was a significant increase in the pool of patients who are eligible You know, 45-year-olds, when we screen them, we have 30, 40 years to keep them screened. So, again, a big source of recurring revenue. We have a significant amount of attention on re-screening 45. But we expect broad-based growth this year, TJ, to your point. But earlier we talked about, look, we've got to stay sober here. The fact that access is still somewhat limited and while the citizens are down because of the pandemic. So we bake all those things in when we provide guidance. And maybe one follow-up to that, Jeff, said that $250 million increase, that's roughly similar to what fiscal 21 increase was for our screening revenues. And I think in the past you had mentioned the incremental 400-plus of Pfizer-Covid-19. you expect them to be cash flow neutral. Is that still the case? And I'm just looking at the guidance, right? Last year, we didn't have Pfizer. Access was severely cut out, and we added $250 million of revenues. We have Pfizer this year, and we're still on a dollar basis. It seems to be in line with that, you know, the dollar increase in 21. So perhaps there's some conservatism in the guidance here. Well, DJ, the team that we hired from Pfizer, again, we're thrilled to have them on board. The incremental productivity has been good. I do expect for them to at least be break-even on a casual basis, actually probably better given the productivity that we've seen so far, to answer that question. Do keep in mind that that team, while they weren't employees of Exact last year until October, they were working for Pfizer up there driving some productivity. So it's not that that team is all incremental. they were, at least to some extent, in the base. So you've got to be careful when you do that year-to-year comparison. Also keep in mind that if you go back, 2020 had a pretty significant impact from the COVID pandemic, which allowed the growth in 2021 on an incremental basis to look higher. You know, it was an easy combat that we faced last year. And maybe one housekeeping, Jeff, sorry, my third one. What was the contribution in 3Q and 2Q of last year? Eight to nine points or so a quarter. That closed during April. So you had kind of a partial quarter that way. But kind of think of it kind of in that high single-digit range, Vijay. And then you'll have another quarter of that that will annualize in April of this year. Understood. Thanks, guys.

We will take our next question from Catherine Schulte with Baird.

Hey, guys. Thanks for the questions. I guess first, for the first quarter screening guide, how much of that is prevention genetics? And if we back out some impact for that, it still looks like the core screening business is expected to be flat to slightly up sequentially, despite having your typical holiday seasonality, Omicron, and I would imagine some weather impact. So can you just talk through some of the positive drivers that you're seeing for that business that would drive that sequential increase?

In Q1, Katherine, I mentioned in my remarks, we expect 9 million from prevention genetics. If you walk through the transcript, you'll see that we have the full amount for screening, and then we break out the amount for prevention. So that's a good point. The typical seasonal trend here, you know, is around the holidays, starting with Thanksgiving and Christmas and New Year's, fewer patients go out and seek primary care. And a Cologuard is typically ordered during a primary care visit. But that does have a negative impact. All less equally, you'd expect a pretty meaningful step down going from Q4 to Q1 in our cold guard business. This year, what we're implying is a better trend. It's a better trend for the reasons we've talked about, things like the incremental sales force productivity, things three-year rescruiting, cold guard 45, all very positive drivers. Yeah, there has been some impact from Omicron. You had more people, both patients and physicians, getting the disease and calling in sick. And that did have an impact, but the good news here is cases have fallen dramatically. And going forward, the sales force access should improve and wellness should improve as well.

Right. Got it. And then you talked about achieving a 10-point improvement in the electronic ordering rate in 2021. Any goals or targets for further improving that this year?

Yes. When you look over the past two years, we went from 30% of cool-to-good orders electronic to 40%, and then now it's kind of 50%. We expect continued improvement. Each year, it gets harder to keep going up by that 10 points, so I don't know if we'll We'll get there, we'll wait for that much, Catherine, but 10 points after the progress we've made in the past couple years, 10 points will be more challenging this year. Longer term, though, I'm very confident that that number will keep working higher. And the good news here is when a physician orders electronically, as you know, they order far more. It's a better overall experience for the patient, and it's a lower cost order to us. So again, back to my comments on G&A, we're investing now in G&A. We're investing to build this robust foundation to grow this business efficiently and create a better overall margin P&L for everybody. So the investments we're making now in IT will help lift that electronic ordering rate higher. It'll help drive three-year rescreens. It'll improve our billing operations. So that's a big part of the investment we're making in G&A is to keep moving that rate higher because it's so important not only for Cologuard now, also for pipeline products down the road. When we launched hereditary cancer or multi-cancer, they will layer into an environment that is very unique. They'll layer into an IT foundation that allows physicians to click one button and order a test. When you compare that to Moon Launch Cologuard or other companies' launch tests, they'll have to launch that into a fax environment, which is far more challenging.

We will take our next question from Dan Brennan with Cowen.

Great. Thanks for taking the questions. If I could start off with a question on the blood-based competition, since that's a key focus. Kevin, can you just kind of remind us, is that 85% still the number that you think kind of above which maybe their share gains and below which their share loss? And then B, I know it's a very nuanced question because there's a lot of levers here. How does pre-cancerous adenoma detection fit into how the blood-based competition will do? And then the final point to this question is, while USPSTF decision will likely be years out in the future, should we be looking for other bodies, whether, you know, NCCN or AMA or others that could come in and, you know, make decisions or recommendations that could have an impact on, you know, the paradigm for screening, you know, once, you know, once the blood-based data is out there? Yeah, let me start with that one. The most important guidelines by far are USPSTF guidelines. American Cancer Society also weighs in, but the guidelines that payers follow are USPSD. So, those are the most important ones. They're also the most rigorous. So, coming to what level of performance do we think, you know, is the minimum required to have a positive impact on overall screening? Well, 85 percent is not We think just at 85%, there just is not much of an uptake with a blood-based test. It will be kind of a test of last resort. Now, a test of last resort in a patient population of well over 100 million people is still an important test, but you have to remember where the FIT test is today. The FIT test is about 75% sensitive, detects 24% of precancerous polyps, with a 5% false positive. And it reimburses at $16. So, you know, as a blood test that detects 85% of cancers, a smaller percentage of precancerous polyps with a higher false positive rate going to have an impact, I don't think that costs, you know, some people are touting multi-hundreds of dollars. No, it's not going to have much of an impact. And part of the reason is, take a look at the Medicare guidelines. They are only going to pay every three years. But at that level of sensitivity and specificity, it's going to have to be used every year to have an impact. But they're not going to pay for it every year. So who is going to go down that path as a screening approach? It's a challenge. There's no doubt about it. And our data show that... One in seven docs say they would not feel comfortable ordering a colon blood test if the sensitivity is 85% or lower, and if the pre-cancer sensitivity is 40% or lower. Is it going to have an impact? Yes. Is it going to have a major impact at that level of sensitivity and specificity? We don't think so. You know, we get asked this question all the time. We have our own blood cancer test. Is it important to us? Yes. You know, I know people... who have passed away from colon cancer because they refused all other types of screening. So is there a need? Absolutely. Is it going to impact, you know, colonoscopy and Cologuard as the co-equal standards of care? No. Just to clarify the answer there, only the survey data said that only one in seven docs would order a test if the cancer sensitivity were below 85% and the pre-cancer sensitivity were below 40%. Thanks, Jeff. Thanks, Kevin. Sorry for that. I just want to talk over you guys. And then maybe as a kind of different question for Jeff, just, you know, as we think about the long-term path for the company towards turning profitable and turning self-financing so free cash flow positive, just what are the markers as we look ahead? in the you know in the coming years to think about that um what would enable you to achieve that is you know all us equals are a certain revenue base at which we should expect those things to occur or just you know any any any helpful thinking along those lines would be great thanks but if you go back two years now i think we show what this this business model can do go back when the pandemic hit we quickly pivoted and adjust the cost structure pulled back on some of the pipeline assessments And we generated, in 2020, over $70 million of free cash. So that shows what this business can do. Polar Guard oftentimes generates significant cash flow that, over time, right now, helping funds grow in things like IT and R&D. Over time, that will fall through, and we will gladly share that with investors. As far as the roadmap forward, we're very confident in delivering adjusted EBITDA profitability in 2024. How do we get there? It starts with the top line. We know that the opportunity ahead is significant, so we will keep growing that top line. That will generate additional gross profit. Between now and the next few years, I expect some very substantial gross margin improvement as we leverage that fixed cost structure and automate our advantages further. When you walk down the P&L, they look at things like sales and marketing. We're fortunate to have a broad sales and marketing team now that spans from primary care, GI, women's health, oncology, surgeons, That sales team, over time, will add more products to their bags. That will help incremental profitability fall through. G&A, we've front-loaded the investment here. We've front-loaded it because that gives us a strong foundation for what's to grow. I give some color on some of the investments, things like IT systems and billing systems that will drive significant savings and leverage over time. You'll certainly see that unfold even this year. I think we'll do a good job of holding the line in the coming years, and you'll see good leverage of the G&A. R&D, I said in my remarks, the vast majority of R&D, nearly 75% of R&D is on new growth. And I think that's the right thing to do for investors is to keep driving that growth forward. Things like multi-cancer, MRD, Cologuard II are the major areas of investment. Over time, that will open up new sources of growth that will allow us to drop even more cash flow through to investors. So there's not one single point I point you to, Dan, but there's a whole series of things that we've got laid out in our internal plan that will get us the profitability in 24, and then we'll continue to study gross margin and cash flow improvements thereafter.

And we will take our next question from Jack Meehan with Nefron Research.

Thank you, and good afternoon. I wanted to focus on multi-cancer screening. So NCI recently announced an RFI for a large-scale RCT. I was wondering if you plan to respond to that RFI and participate and just talk about how does this fit into your development plans versus the pivotal study that you've talked about launching?

We are responding to the NCI request for proposal and, you know, we're, the good news with what NCI is doing is showing just how Badly, our federal government wants to be involved in changing the way that cancer is treated. Today it's treated largely as a late-stage metastatic disease because 70% of cancers have no screening. With a multi-cancer screening test, it changes everything because over time you could move from 15% to 20% of cancers found through screening to north of 50%. And that's where everything changes in oncology. And that time is not far away. NCI's involvement up here is another good sign. We'll continue, of course, to have our own pivotal study. Others will have their own, too. And that's needed, because to get a new screening modality into USPSTF guidelines is going to take more than one study. And it may take multiple studies. So the NCI study is yet another way for we and others to generate evidence, and we're excited about that. The other thing is the Moonshot program, which was just brought back to life. One of the things that President Biden emphasized was the way to reduce cancer mortality in half over the next couple of decades is through multi-cancer early detection screening. So the NCI involvement here is a really positive step.

Great. And as a follow-up, I was wondering if you could just talk about how you're thinking about the FDA review timeline for colon blood and for a multi-cancer test. And on the latter, does the involvement of NCI kind of change your view as to when the FDA might get around to reviewing multi-cancer tests? Thanks.

So let's start with multi-cancer and then take colon cancer. Multi-cancer, you know, these studies are going to take a number of years to complete. And so the FDA typically will have a panel meeting and then you will need to, you know, submit all the data, have the panel review. So that with Cologuard was, I think, a six to nine month process from submission of data to approval. Maybe it was about a six-month timeframe from submission to approval. And we would expect probably something similar there with multi-cancer. Colon cancer is the same. I suspect that since there are multiple aspiring entrants into that space that they will have one big panel meeting. That's what they typically would do. So it will depend if there are three or four submissions there. I suspect there'd be one panel meeting to look at all that data. And again, that's probably a six to nine month process. We have to keep in mind right now the Office of In Vitro Diagnostics has been overwhelmed by COVID testing submissions and that hasn't abated. So it really depends on where the staffing levels are and how busy they are with other projects.

And we will take our next question from Andrew Cooper with Raymond James.

Hey, everybody. Thanks for the questions. Lots been asked, but maybe to follow up on that last one, I think in the comments you talked or mentioned, LDT path for multi-cancer. So just wanted to get sort of the latest and greatest on that and how things like the NTI RFI, like what we're hearing from the one player out on the market might be impacting your view of what the best pathway is, how you sort of go down the dual pathway for FDA and LDT and just the latest and greatest thinking there.

Yeah. You know, I think the other aspiring interest here has done a great job there, um, Grail is the type of company you want into a new space like this because they're serious about the data they generate. And, you know, you need more than one company, more than one product involved to get Congress to act and cover a test. They're very unlikely or reluctant to do it if they see that they're doing work for one company. So, you know, we're really pleased to work with GRAIL in the way that we have over the last year with advocacy groups, et cetera. You know, how does this play out from an LDT perspective? We expect to have a lab-developed test of our own next year. There are over 100 million people we think that ultimately will get screened and it's gonna be different than Cologuard. Remember with Cologuard, there was colorectal cancer screening for a quarter of a century before Cologuard showed up. And there were perceptions about which tests were used. We had to go and change how people were screened. There is no multi-cancer screening that exists today. So there's gonna be a lot of opportunity for growth. And in my mind, the question is, in the first year of FDA approval, Medicare coverage potentially, just how many people are going to get screened in that first year. It's going to be one of those medical innovations that just changes everything. As a lab-developed test, there's an opportunity for significant growth, and I think you can see that from what's going on in the market. It's not going to be, you know, it's going to be so much greater, though, when you have broad-based insurance coverage, guideline inclusion, et cetera. So this is a long-term investment. It's a long-term opportunity. It is, we believe, let me come back to going from 15 to 20% screen-detected cancers to over 50% screen-detected cancers will change everything about cancer and how it's treated and outcomes.

Okay, great, helpful. And then? Kind of a nitty-gritty, but you mentioned MoldyX wanting some different data for Oncoguard. I guess, can you give us a little bit more flavor for what that means? And then is there anything to take away in terms of what MoldyX may be looking for for some of the other pipeline items or any changes to your approaches because of the additional requests they're looking for on that one?

Sure. Let me actually come back to multi-cancer screening. The reason that we're so excited about our lab-developed tests is because we're going to put that into the hands of over 1,000 people on our commercial team. And we will be able to put that onto our instance of Epic, making ordering, resulting tremendously easier. It's a huge advantage that we have. Oncoguard liver, it's just a different study approach that, without getting into all the details that Malt DX wanted, and that unfortunately expends the time because we have to uh start that study and complete it before we're able to submit the read-through on our other products uh mrd already has categories uh for uh this well-established liver just didn't um and uh that's um there won't be a lab developed test um palmetto local coverage decision for multi-cancer because the law doesn't permit that. So I don't think there's any read-through on liver to any of our other pipeline programs.

And we will take our next question from Puneet Sauda with SCB VRINC.

Yeah, hi, Jeff, Kevin. Thanks for taking the question. Maybe if I could ask, simplify the question. I know a number of questions have been asked on the guide.

I think investors are struggling with identifying, you know, is there anything beyond the general uncertainty associated with sort of the unpredictability of COVID-19? in the full year guide that is making you more prudent, if I could use the word that Jeff had, sober. I mean, you have 220 million rescreens, 100 million 45-year-old plus contribution, new docs coming in, a stronger sales force with more than 1,000 electronic ordering, in-person sales reps, a number of other things. So, I mean, just in a very simple way, if you could just clarify, is it just learnings from a very uncertain last year that is making you more prudent here? I just wanted to understand. Yeah, I think that's accurate, Puneet. I think, you know, we still are... The biggest question, again, is how fast do the offices open up? You know, I think there's a lot of upside to... and we look at this in a prudent way, given that offices still, office access is not what it was pre-pandemic. And that's probably the main variable as we look out across the year. But I want to start by saying, you know, The growth that we have baked in here is strong growth coming out of the pandemic, and we have had a very good start to the year. The team has worked through the impact of Omicron, and we are tremendously positive about ColoGuard for this year. That's, I think, a good way to summarize here. And so, Megan, do we have any other questions? So thanks, everybody, for joining us on the call today. From a base of more than a billion, we expect Cologuard to grow at least 24% this year. Our precision oncology team tested a record number of patients with Oncotype last year, and we have exciting growth drivers ahead in node-positive breast cancer, international markets, and with our therapy selection test. To our core business, we have the best team in cancer diagnostics working on a pipeline of innovative tests, MRD, multi-cancer early detection, hereditary cancer testing to support millions of patients and billions of dollars in growth. We look forward to providing updates throughout the year.

Ladies and gentlemen, this concludes today's call. We thank you for your participation. You may now disconnect.