Exact Sciences Corporation

Q1 2022 Earnings Conference Call

4/26/2022

spk12: The Exact Sciences Corp First Quarter 2022 Earnings Call. 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, please press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again press star one. Thank you. Megan Jones, Senior Director of Investor Relations, you may begin your conference.
spk01: Thanks, Josh. Thank you for joining us for Exact Sciences' first quarter 2022 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. Everett Cunningham, our chief commercial officer, will also be available for questions. Exact Sciences issued a news release earlier this afternoon detailing our first 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 now turn the call over to Kevin.
spk16: The Exact Sciences' mission is to eradicate cancer by making earlier detection a routine part of medical care. The entire team at Exact Sciences helped us move towards achieving that mission with a strong start to 2022. Highlights from the first quarter include testing more than a million people globally, growing revenue 24%, excluding our COVID testing, partnering with Katie Couric on an exciting new campaign to get more people screened with Cologuard, Optimizing our sales force structure to reach primary care doctors more effectively and more efficiently. Guiding a record number of patients to more effective cancer treatments with Oncotype DX. Generating evidence to support our next generation Cologuard and multi-cancer early detection tests. Focusing intently on prioritization and growing our company efficiently. and beginning to integrate prevention genetics into our foundation. Jeff Elliott will now review our financial results.
spk08: Thanks, Kevin. Good afternoon. First quarter revenue was $487 million, an increase of 21% or 24% excluding COVID testing. Screening revenue was $307 million, an increase of 28%. Excluding prevention genetics, screening revenue was $297 million, an increase of 24%, driven by Cologuard volume. 9,000 new healthcare providers ordered Cologuard during the quarter, and nearly 273,000 have ordered since launch. Precision oncology revenue was $153 million, an increase of 18%, driven by Oncotype DX breast volume. Precision oncology included eight points from our Cheyenne acquisition, which annualized in April. COVID testing revenue decreased 15% to $27 million in line with our expectations. First quarter gap gross margin was 68%. Non-gap gross margin, which excludes amortization of acquired intangibles, was 72%. We expect margins to gradually improve throughout the year as we absorb the additional lab capacity brought online for Cologuard and COVID testing. Sales and marketing expense was $232 million. G&A expense was $170 million, including a $26 million gain related to the Thrive acquisition. R&D expense was $102 million. Net loss was $181 million, and adjusted EBITDA was a loss of $90 million. We ended the quarter with cash and securities of $817 million, and we have about $150 million available on our credit facility. Additionally, we're exploring other non-dilutive asset-backed financing options. We expect our quarterly cash use to be lower over the balance of the year, and we're confident in being profitable in 2024 on an adjusted EBITDA basis. Turning to guidance, we expect total revenue between $485 and $505 million during the second quarter and between $1.985 and $2.032 billion for the year. We expect screening revenue between $335 and $345 million for the second quarter and between $1.35 and $1.372 billion for the year. This includes prevention genetics revenue of approximately 10 million during the second quarter and between 40 and 42 million for the year. We expect precision oncology revenue between 145 and 150 million for the second quarter and between 595 and 610 million for the year. We expect COVID testing revenue between 5 and 10 million for the second quarter and between 40 and 50 million for the year. We saw modest improvement in Salesforce access during the quarter. Guidance assumes continued gradual improvement throughout the year. As we said last quarter, we expect screening revenue to be more front-loaded than current consensus. In precision oncology, we expect mid- to high-single-digit percent growth in the U.S. and internationally. We reduced our international growth expectations due to a delay in our Oncotype D-Express launch in Japan. This is related to requirements for our ordering and resulting portal, which we expect to complete by year-end. And I'll turn the call back to Kevin.
spk16: Thanks, Jeff. Our sales and marketing teams are fueling Cologuard growth by reaching more physicians and their staff in person, redesigning territories to improve healthcare provider targets and reduce overlap after completing our co-promotion agreement, and creating urgency around the importance of screening through our Mission to Screen partnership with Katie Couric. These efforts are increasing Cologuard adoption in the core 50 to 85 age group, And they're supporting two of Cologuard's biggest growth drivers, the 45, the 49 age group, and the three-year rescreens. Screening eligible people earlier, starting at age 45, and keeping them screened every three years will help address the staggering increase in colorectal cancer incidence in this age group. When compared to a 65-year-old, keeping a 45-year-old screened until they're 85 provides twice as much lifetime Cologuard usage. Since Cologuard was made available, we have invested heavily in our teams, brand development, IT systems, and customer experience. This provides a head start in capturing eligible unscreened patients at every age, and our goal is to make rescreening for life automatic. Our experienced team, trusted Oncotype brand, and strong evidence generation capabilities are supporting our core oncology business and creating new growth opportunities. Our precision oncology team tested a record number of patients with our Oncotype DX breast test in the first quarter, providing life-changing information to more than 40,000 people. We're partnering with a leading breast cancer research institution to conduct a study using our Oncotype DX breast and minimum residual disease tests. The trial, which we plan to initiate in the coming weeks, demonstrates our unique ability to predict recurrence and help patients navigate their breast cancer treatment. Our Oncotype DX test guides about 70% of U.S. patients diagnosed with HR-positive HER2-negative breast cancer to the most effective treatment based on the risk of recurrence. Knowing which patients are at the highest risk puts us in the best position to monitor them and detect recurrent cancer earlier. We're in a breakthrough period for our pipeline as we generate evidence for the three largest patient impact opportunities in diagnostics. In colorectal cancer screening, we've made great progress in rolling cases to power our prospective Lucy study, and we remain on track to complete stool enrollment mid-year. We expect boosty results to support FDA submissions for our next-generation Cologuard and colon blood tests. In multi-cancer early detection, we presented data confirming our strong results using methylation and protein markers, which we'll discuss on the next slide. We're also initiating studies for our minimum residual disease test with a large trial enrolling in colorectal cancer and a breast cancer study starting soon. We expect to have validation data supporting our tumor-informed approach by the end of the year. We believe combining multiple classes of markers will provide the most accurate multi-cancer test for patients, and we're building off the promising methylation and protein data presented at AACR. Our markers detected 80% of cancers at 97% specificity across six cancer types, including five with no screening option available today. We expect to have additional data later this year combining methylation, protein mutation, and other marker classes. We'll also present validation data and expect to begin enrolling our prospective FDA registrational trials shortly thereafter. We recently agreed to acquire Amakera Diagnostics, an emerging leader in proteomics, biomarker discovery located in Germany. This highly skilled team will deepen our proteome profiling capabilities, helping uncover the best biomarkers to include in our advanced cancer tests. Our deep relationships with over 300,000 healthcare providers and more than 9 million patients put us in an ideal position to help detect cancer, most cancers, earlier, before symptoms appear. We have built the infrastructure and capabilities to support this large customer base. We also offer multi-cancer and hereditary testing to the same patient population as Cologuard. Those relationships will deepen in primary care where cancer can be prevented. When cancer is detected, we'll also have the data, tests, and relationships to support the patient at every step of their treatment. We look forward to providing updates on our progress throughout the year, and we're now happy to take your questions.
spk12: At this time, I would like to remind everyone, if you would like to ask a question, please press star followed by the number one on your telephone keypad. We ask that you please limit yourself to one question. The first question comes from the line of Brian Weinstein with William Blair. Your line is open.
spk10: guys can you hear me yes hey guys i appreciate uh i appreciate the question and uh i'm gonna tell you up front i'm gonna probably break the rule here and ask you two things so um first um if we could uh get a question in on uh on the sales structure and the optimization that you're going on to ask the question on uh blood-based testing in screening for colon cancer, you know, just with a lot of companies, you guys and others. I just wanted to get your updated thoughts on the opportunities and challenges that you see to that space as that data starts to come out. So Salesforce structure and kind of how that's going and impacting colon cancer.
spk15: Jeff, why don't you take the – or why don't you start with the first one, and Everett, you follow up. Hey, Brian, this is Jeff. I mean, I think you're starting to see it in the results in Q1. Notably, we started to see a lot of this expanded sales team, which we're really pleased at.
spk08: When you dive into the numbers here, we had a really strong quarter when it comes to rescreens in 45, an area that businesses
spk15: And that's right where the Salesforce infrastructure that Everett can fill in more detail.
spk08: That's where the Salesforce is focused now, making sure that that population, people who need to be screened right now, is educated on the benefits of Cologuard and that we're reaching these physicians frequently. So, Everett, maybe you could provide more details on that.
spk17: Yeah, thanks, Jeff. And hello, Brian.
spk15: As Kevin said, we brought over a really experienced team and of our Pfizer colleagues.
spk17: We brought over 400 Pfizer colleagues towards the end of last year. And one of the good things we've done is we've integrated the Pfizer colleagues with our outstanding legacy exact sciences sales force. So now we're one exact team. So that's the first most important thing is we're now going to market as one aligned exact sales and marketing team. The other thing we've done is around the redesigning of the territories, creating this single point of accountability is really important. They have accountability to drive their growth number, and we measure that on a weekly, monthly, and quarterly basis. And then lastly is we're giving our representatives more, like, detailed targeting data. They know where to go, when to go, and what to say, calling on the highest – opportunity colon guard physician.
spk15: And like Jeff said, the metrics in Q1 have been very, very positive. We've total number of in-person calls per rep has increased.
spk17: The total number of healthcare providers that we've reached has increased, and then our orders per sales call has increased in Q1. So the key is to continue to do this throughout the year and make improvements.
spk16: Brian, answering your second question about how we see the blood testing market evolved. As you know, we have our own blood testing program, and At a high level, here is the way you should think about the opportunity. So there is an opportunity for additional testing. The path, however, is a rigorous one, as the path was very rigorous for Cologuard. So you should think about that. five different elements to this. The first is that we know that blood testing will be less accurate than colonoscopy. The second is that FDA approval and getting them to be challenging for all of those who are aspiring to enter the colon cancer screening market with a blood-based test. We'll get into those details. Third, the bar for guideline inclusion is high, and there is no guarantee that blood tests will meet that bar. We'll talk about that. Pricing is likely to be below $200, and we'll talk about that as well. And finally, maybe most importantly, is there is going to be a chance to order a a less sensitive, a less accurate test for colorectal screening. Let's take these one at a time and if we could bring up a slide with the model comparison between Cologuard and a theoretical blood test. As you see here, importantly, regulators, guideline groups, and also physicians and patients will look at performance difference in tests. At a high level, of course, overall cancer sensitivity is important. When you drill down those 75% of the cancers and the ones that you screen for are stage 1 and 2 cancers, and we would expect stage 1 sensitivity to be approximately 70%. Because there are so many more early-stage cancers in a screening study, like there were 45% of all the cancers found in the deep-sea study were stage 1, is likely, we believe, to be in the 80% to maybe 85% range. Advanced adenoma or precancer sensitivity is very important.
spk15: for guideline inclusion we'll get into the is similar between we believe two technologies but overall the performance difference is stark and the FDA and this gets to the second point is that
spk16: The FDA historically does not like to see performance degradation with new technologies that are subject to a PMA or de novo 510 approval. We've seen two examples of this in colon cancer screening in the recent past. One is septin-9, which is a blood-based test with inferior performance for detecting cancer and precancerous polyps than Cologuard. The panel meeting for that was at the same time, actually the day before the Cologuard test. FDA eventually approved septin-9, but they did it with a limited label compared to Cologuard. their label said it must be offered and refused to, first patients must be offered and refused the range of other tests that were recommended by the main guideline group at that time. The second example is the PillCam, which has a 510 denoval clearance for screening, but only in instances when a colonoscopy can't be completed. So those are two examples of where you have performance degradation, and as a result, the claim language was changed. The FDA's view on this hasn't changed. We don't think it will change, and we think there is a role for blood-based testing, but marketing a test with inferior claim language is certainly going to be a challenge. Next, guideline inclusion. So as you know, I've been doing this for a long time and have been through the USPSTF process. You have to love modeling if you are going to dive into these details. But the USPSTF is the main guideline group, and their guidelines are based on these rigorous statistical modeling approach that is largely dependent on advanced adenoma detection first. That's about 60% of all of the impact comes from advanced adenoma detection. And then cancer sensitivity weighted towards earlier stage.
spk15: And this next slide shows that relative to Cologuard, a CRC blood test with a similar interval
spk16: detects significantly fewer cancers than precancers, and thus leads to a significant degradation in life years gained. It holds the number of colonoscopies constant, or roughly constant, and that ratio is important. But as you can see there, the ratio of life years gained to the number of colonoscopies, which is the main test the USPSDF looks at, is significantly lower for a blood test at three years. So the only way a blood test really gets into guidelines is if it's an annual test. And let me take a step back. This modeling assumes 100% adherence. That means everybody offered the test gets it, and they get it exactly when they should get it. We know that's not realistic, but that's the way the modeling is done. And that's why the FIT test outperforms Cologuard here is because it assumes that a FIT test is done every single year exactly on the anniversary. We know that's not remotely realistic, but that's how you end up in the same ballpark. As you can see, the FIT test, Cologuard, colonoscopy all outperform a blood test.
spk15: Even with this pretty decent performance of
spk16: you know, relatively high cancer detection. So if a test is not included in the guidelines at three years, which here it wouldn't be, then it would have to be every year. Now what is the implication of that? Medicare is going to look at this as they look at pricing a test. So you can think Cologuard at every three years was priced just under one-third of the Medicare average for colonoscopy screening, which was indicated for 10 years. So 10 divided by 3 roughly got you to $500 a test. 500 divided by 3, we believe, gets you into somewhere between $100 and $200 a test. That makes us very challenging with sequencing technology or, for that matter, even PCR testing. Finally, this performance difference, guideline challenges, FDA challenges also creates hurdles for customer adoption. Now, we have been actively promoting Cologuard to primary care physicians for eight years. We know this market well, even with a large commercial organization and a large marketing effort, there is still a bias towards colonoscopies. And we obviously, and based on this last quarter, are showing our progress there. But that is with sensitivity for cancer, strong precancer, and specificity data. We believe that our blood tests will be very challenged to, and we believe our blood tests will perform very similar to others based on the data that we've seen today. This is gonna be a real challenge to get adopted. We believe this is the right way to look, this is the realistic way to look at blood cancer testing. We hear a lot about it. It's usually only small pieces of this complex puzzle. This is the whole puzzle.
spk12: Your next question comes from the line of Derek DeBruin with Bank of America. Your line is open.
spk04: Okay, roughly $3 million, and yet you're lowering the height of the range on screen for the full year by $5 million. I'm just curious what's driving that. I have a follow-up.
spk08: Derek, we're raising and narrowing the range here. I guess check the press release there. But, you know, we're pleased with the first quarter results. Cologuard grew 24%, you know, really across the board broad-based strength. Importantly here, the main drivers, Cologuard rescreens, very good quarter on track for the full year guide. Cologuard 45 to 49, another very good quarter on track for the full year guide. Salesforce productivity, as ever talked about, we're seeing improvement there. So we're feeling good, which is why we did raise the guide, even though it's only one quarter in. That said, it is one quarter in. When you dig into the business, as we've said before, Salesforce access remains muted. And where you see that primarily is in the 50 and over age group first-time users. That group is growing. We have seen improvement there. It isn't growing as fast as we'd like, which is, again, why Everett and team are pursuing some changes to go after that group. As we go through the year and we see improving Salesforce access, that should help that group grow even faster. So at this point, I've assumed, you know, gradual improvement to the extent that things open up more broadly. You know, that could be a source of even greater growth. We know over time that segment of the market will open back up. But it's sitting here after one quarter. I think this is the right thing to do, raising guidance, yet not by the full amount of the Q1B.
spk04: Great. Thanks for that. So I'm just curious, you know, you're taking a tumor-informed approach on MRD. I'm just curious on your thoughts on the tumor naive, particularly since you've got the Thrive multi-cancer detection test. I mean, why wouldn't it make more sense to sort of like backward integrate that and sort of use that since obviously you're going to have different, I mean, for MRD it's going to be different, you know, easier sensitivity and sort of fine with that. Is there something about the multi-cancer test that wouldn't let you do it for MRD or tumor naive?
spk16: As we have mentioned in the past on past calls, we intend to take a two-fold approach so that we will combine potentially all or elements of our multi-cancer screening approach and particularly the methylation aspect and combine it with our tumor-informed approach to be the only company that has both. We believe that confers a significant advantage in those cases where a physician can't get tissue from a patient or chooses not to get tissue. We will have our tumor-naive approach based upon and driven by technology that is included. So your question is... spot on, and that technology is being built into our MRD testing. We're really excited about this approach. Now, lots of work needs to be done to validate that approach, so we don't want to get too far ahead of ourselves, but the fundamental technology investments we've made will pay off, we believe. Thanks.
spk15: Thanks for the questions.
spk18: First, how would you characterize rep access and wellness visit volumes versus pre-COVID levels in the quarter? And then how did those trend so far in April?
spk17: Yeah, thanks, Catherine. We are still not, from an access standpoint, at pre-COVID levels. You know, what we've seen, because I've spent time in the field, I've spent time talking to my commercial colleagues, but we see modest improvement in access. What we feel really good about is the redesigning of our territories and the culture of we are having our reps in every day out in the field. So as we see that access, seeing that modest improvement, we're going to be there consistently to get it in. What I've seen, I've spent time in the field, is when our reps bring value to the physician and to the health system, and the health system and physicians see us as a way that we can increase screening levels, we get access. And so we just have to continue to stay at it. It's about blocking and tackling, and it's about being consistent with a really good message to our customers.
spk12: Your next question comes from the line of Brandon Couillard with Jefferies. Your line is open.
spk06: Hey, thanks. Jeff, the leverage on the sales and marketing line in the first quarter was pretty impressive, down I think $15 million or so sequentially if you exclude the Pfizer fee in the fourth quarter, even though volume growth was up sequentially. Can you talk about kind of moving parts in that line that enable you to get that leverage? And should we assume that your OPEX guidance for the years is consistent with your prior outlook? You didn't formally update it.
spk08: Thanks, Brandon. This is Jeff. No change to the OPEX assumptions for the year. I feel good about our ability to generate leverage over time because now Everett and team have built a world-class, we believe, best-of-breed primary care sales team. And over time, not only can we leverage that with Cologuard, but we'll continue to leverage that as we introduce other new products like Hereditary cancer testing and multi-cancer testing. So I feel good about that. Brenda, I would go back and check some of the moving pieces there, queue to queue. In the fourth quarter, we did have, as we amended the Pfizer agreement, there were some one-time things in there. But I don't think that Matthew is quite right. Over the balance of this year, I think we'll see some really good leverage on that line. If you look at what we implied in the guide originally for the year was a step down from the Q4 run rate for the entire year. So I feel good about that. Some of the new marketing things that Everett talked about, Katie Couric and some new TV ads are really helping drive awareness that over time we'll see a really good return on the investment.
spk12: Your next question comes from the line of Matt Sykes with Goldman Sachs. Your line is open. Hi, good afternoon. Thanks for taking my question.
spk13: It sounds like you've gotten some pretty good momentum in rescreenings and Cologuard 45 in Q1. I know in the last call you had mentioned you were baking about $220 million in rescreening revenues within this year's full-year guide and about $100 million for Cologuard 45. Are those numbers still good to use? If so, do you see additional upside just given the momentum you've seen in Q1, or have you adjusted those numbers?
spk08: Matt, I still feel very good about those numbers. Is there potential for upside? Sir, when you look at the opportunity, let's take rescreen to start with. Today there's over a million people due right now for three-year repeat testing. Over time, that number will grow. In fact, if you look as a percent of revenue, it's going to continue to grow. I think in about three years, this will be a $500 million per year business for us, actually recurring revenue. It's higher margin revenue, and it keeps growing as a percent of our mix. On the 45 to 49 side, Kevin talked a bit in his prepared remarks about this. If you look at the average value to exact of a typical 45-year-old, it's over twice as high, in fact, really close to three times as high as somebody who is 65 or 70. Because a 45-year-old, we can keep screened for 30 to 40 years. So the lifetime value of that customer is significant. That's what really gets me excited about the opportunity here between 45 and rescreen. They work hand-in-hand. and we're off to a really good start this year.
spk12: Your next question comes from the line of Dan Arias with Siebel. Your line is open.
spk14: Good afternoon, guys. Thanks for the question. Jeff, just to push a little bit more on the outlook, I think last quarter the view was that the market and the environment around doc visits and wellness wouldn't necessarily normalize this year. I'm just wondering if that's still how you would characterize the way that you're thinking about the full year Is the assumption still that you're kind of at a suboptimal level three-quarters from now?
spk08: Yes, Dan, that is the assumption. As Everett said, we saw some modest improvement in sales rep access. Why that's important is that Cologuard is still a relatively new product, and what we know is that physicians are promotionally responsive. They respond to that face-to-face access from our sales force. When you dive in deep and look at the ordering trends here, that group of doctors on the top, when I talked about this in prior quarters, the doctors that represented the top 40% of orders before the pandemic, that group is still down. What's driving the growth is the doctors at the bottom, the ones that we historically didn't call on and hadn't ordered Colograt frequently. Their group was up 60% in Q1 versus the start of the pandemic. So as we come out of this and Salesforce access improves, the doctors at the top, their order rate will recover. These are the true believers. We're seeing some early good signs there. Doctors at the bottom, the exciting thing here is that that group of doctors who, again, we typically do not call on, that group is accelerating quarter to quarter to quarter. And so I believe we'll hold on to that. What that means is a significant broadening and deepening of the ordering base. And guidance, though, I have assumed continued muted access to doctors. We're still probably in the 50% to 60% range relative to before the pandemic. From a wellness visit standpoint, things are pretty flat when you look during the quarter. So I've assumed modest improvement there. But we're probably in the 85% range, 85% of pre-COVID levels.
spk16: Yeah, if I could just add, longer-term outlook, which we're all obviously focused on as well, over the next five years, about 30% of GIs are expected to retire. Now, obviously, some of those will be replenished with new physicians, But the trend is towards fewer GIs, not more. That means a greater need to focus on higher-value colonoscopies rather than screening colonoscopies. And this is happening just as the millennials start to hit the age of 45 and start screening. And we know that today in the 45 to 49 population, we already lead colonoscopy as the preferred screening approach. They want accuracy, they want ease, and they want something that is inexpensive, that they know is going to be covered by their insurer. So we are tremendously excited not only about the near term, the long-term opportunities for ColoGuard, and we're just getting started. We believe we can not only achieve that 40% share goal but exceed it. And I think this quarter demonstrates that.
spk15: I have a three-parter, if you don't mind.
spk09: I guess the first one is, could you elaborate a bit on the specific changes to the sales force that you made? Number two, on blood-based competition, Kevin, you gave your view of what you thought the cancer sensitivity would be. What are your expectations for pre-cancerous adenoma detection in particular? given how important it is for modeling. And then finally, on your own blood-based test, historically, I believe you've talked about being superior to what's on the market. Maybe it's just a subtle change, but I think you talked about being in line with what's on the market. Just want to get some clarification there. Thank you.
spk16: Okay. Tell me the first question. Those three came at me really fast.
spk17: Salesforce. Okay. Dan, let me double-click on the Salesforce and give it a little bit more color. I'll start with the Salesforce, the representatives that are out there calling on physicians. The territory design, to me, is so important. When you have individual accountability in your area to drive growth for Cologuard, and you're the one that's responsible for that position and really calling that position, to me what we've seen is we've seen momentum with our sales reps because of that empowerment that they have to drive their individual growth. But let me go up a level. We also made a change to our management structure. Before our management structure was responsible for vertical lines of our business, now we've designed our management structure across geographies. So they own a geography, and they own all the call points, primary care, specialty, and health systems. So our managers out there feel like, man, they are empowered to, again, own that business and to drive it. And then lastly, the partnerships that we have with the rest of our commercial organization, the way our sales organization is working with our marketing organization, the way in which Katie Couric campaign is launched in the month of March during Colorectal Cancer Awareness Month, the amount of hits from a social media standpoint. Our commercial organization, again, while it just started in the month of January, the progress that we're making throughout the quarter is very, very positive. And I just want to pause and thank our sales team, our marketing team for the focus that they've had in the quarter, and also thank Katie Couric for her partnership around the campaign, around the mission to screen.
spk16: Part two of your question, Dan, the advanced adenoma or precancer sensitivity that we're assuming here is 15%. That's the modeling data that we showed was based upon 15% precancer detection. It's interesting because if you model 100% cancer sensitivity at 100% specificity, The model is borderline inclusion on a one-year basis for a blood test. Again, if we had a 100% sensitive blood-based test that was 100% specific under the USPSTF modeling approach, it has a very difficult time with, or it's on the borderline for making a one-year interval. It probably would make a one-year interval, but it's on the borderline. In terms of our test performance relative to other aspiring entrants, I think the way we've characterized that in the past is that we expect equivalent or better performance because of our approach. We don't know how anybody is going to perform. I've seen studies out there with South Korean cases matched with U.S. controls. We've never seen, certainly that's not the approach that we or our clinical partners would ever encourage us to take in a case control study. So we have seen all different approaches to case control studies. It's hard to understand what their performance is. We know that we take a really rigorous approach to matching cases with controls and having a normalized distribution of pre-cancers, early cancers, and later cancers, which also significantly affects that top-line performance. You know, there's going to be a day when everybody who has these programs has to flip over a card and show their data, and that day is going to be an interesting day. I'm telling you, I think the performance, having been down this road before, is going to suffer degradation in that prospective setting where you have no idea – you know, what patients are involved and whether that matches your case control data. So that's our view on this space. We have said it over and over again, and we think that this is the right way to have a framework for assessing the role of a blood test.
spk12: Your next question comes from the line of Vijay Kumar with Evercore ISI. Your line is open.
spk11: Hey, guys. Congrats and one cue, and thanks for taking my question. I did have a three-parter. Apologies in advance. One, maybe on the guidance here, given the Q1B, the annual guide raise for Cologuard, um you know the race was uh it was raised by the the magnitude of q1b so any reason why uh the productivity gains uh shouldn't sustain uh through the back half uh and again sticking with guidance jeff here i know last time we spoke about the orders versus revenue lag i've given omicron impact here in q1 uh any implications for 2q And one for Kevin here on the clinical trial. Kevin, maybe from a big-picture perspective, is there any clinical trial differences in what patients were enrolled or how these trials are being run when you look at your Blue C versus your main comparator on the blood side?
spk16: Why don't I start with that? You know, clinical trials are done all over the country, and we focus on ours rather than theirs. We're enrolling a group of patients very similar to the deep-sea study. These are all comers, people from age 45 through 85 predominantly. And, you know, with these large studies, it's a broad sampling of the U.S. population. And what that means in impact and reality is that you get people who are SIFT Their immune systems are all over the place. They have all different types of comorbidities. And what we saw in our deep sea study was that that impacted specificity. And when your specificity degrades, sensitivity also can be impacted, depending on where you set that cutoff. So that's how we look at the clinical trial. Our enrollment, we believe, will be able to – and this is important. I don't think anybody has asked this question. Our Blue Sea clinical trial enrollment has had tremendous performance in the first quarter. We expect that study to complete enrollment for the stool portion of our test by mid-year and not long after that, the blood component. So that is fully back on track, and we're excited by that.
spk08: VJ, this is Jeff. I'll take the other two. Starting with your second one, Omicron, I think that was primarily a Q1 thing. It happened relatively late last year, early this year, and we can track it fairly closely. So I don't expect a second quarter impact from Omicron. The team did fight through a little bit of the headwind in Q1 and still deliver good results. On the first one, on the annual raise, Look, I just say again, look, we're pleased with the results. We've raised guidance. And to Derek's point, we did raise the high end of screening revenue by $5 million. even though it's early in the year. It's early in the year. There's a lot of unknowns. The biggest one is around Salesforce access. Salesforce access impacts us primarily in that 50-plus first-time user group. So Everton team are doing everything they can to increase their productivity, their reps. We're seeing some early good signs there. But at this point in the year, I think it's important to stay sober, considering we're three months in, and we still have some work to do to execute on the rest of the year.
spk12: Your next question comes from the line of Patrick Donnelly with Citi. Your line is open.
spk05: Hey, guys. Thanks for taking the questions. Jeff, probably a couple for you here. Maybe on the cash side, you guys burned, I think, around $200 million this quarter. As you mentioned, you have $800 million or so on hand. Would you look to shore up the balance sheet, maybe feeling more urgency on that front? You've done equity raises in the past. You mentioned you would look more for non-dilutive options in the future. Can you just expand on that? Is that just market volatility? What would those options look like? And then a second one, just on Coligard ASPs, if you could just talk about the trends there, what you're seeing. Thank you.
spk08: Thanks, Patrick. This is Jeff. On the cash use rate, I think Q1 will be the high water market of the year. There's some seasonal things that cause Q1 to typically be higher. What I think over the next several years about our balance sheet, it really starts with revenue and revenue growth. We are growing on making sure we execute on Cologuard and Aquatype and bringing these massive pipeline opportunities to market. That will allow us to generate this year alone nearly $1.5 billion of gross profit. That's unique in this space. That's a significant amount of gross profit we can use to self-finance most of our investments. Over time, I expect gross margin improvement as we leverage that fixed cost investment in our lab and capabilities so that gross margin will improve. I also expect very good leverage across the OPEX lines. We talked a bit about sales and marketing. I expect very strong leverage in G&A over time as well. When you think of the balance sheet as of Q1, as you mentioned, we have over $800 million of cash.
spk15: We also have... At the same time, we're... An example of that would be... Real estate facilities.
spk08: We have over $300 million invested in those facilities that we could unlock through various sorts of financing mechanisms. And we will do that. That provides a great source of non-dilutive financing. So when I think of that, I think we're in very good shape. We are very committed on an adjusted EBITDA basis in 2024. And I think the balance sheet we have in hand will be any sort of equity financing. And then your last question is for a test.
spk15: It's still about the few different things that are opposing forces at work here. The team has done a really nice job improving our internal capabilities and systems to drive that race. rate higher over time.
spk08: So longer term, I still feel very good about our ability to raise the overall revenue per test or ASP. On the flip side, the rapid growth we're seeing in this younger population, 45 to 49, temporarily puts a little bit of downward pressure on that revenue per test. There's also been a higher mix of Medicaid, which is absolutely the right thing to do. That puts a little downward pressure. When you look at the overall mix of Medicare and Medicare Advantage, it's 38% in Q1.
spk15: For perspective, it was 42% a year ago, Q1 of last year.
spk08: I raise that because that group right now, given the well-established coverage, that group carries the highest revenue per test.
spk16: Let me reemphasize what Jeff just said, that we will not do another equity raise because we don't have to. We are in a very strong position with our revenue growth and all the drivers and our ability to control our OPEX, which we've taken steps to do. So I want to make sure that that is very clear to everyone.
spk07: Your next question comes from Jeff. focus on multi-cancer testing. First, for Kevin, we've seen regulators like NCI last week focus on survival and mortality as the gold standard for multi-cancer tests. So I was curious, do you think the FDA is going to use that as the bar? And can you talk about the implications for the size of your pivotal study and any updated thoughts on timeline for FDA approval?
spk15: approval and then for Jeff what was the game relayed to thrive in the quarter thanks so the first question how does NCI how do others look at this if it's a mortality endpoint that cancer mortality the then most therapies combined. There is no therapy as conversations with key opinion leaders, regulators, NCI, individuals that work for NCI, and there are a lot of different opinions.
spk16: We know that with every cancer screening test that has been adopted, quality endpoint was not required. I do not believe, we do not believe that one will be required here.
spk15: We believe that sensitivity, specificity, positive predictive value, negative predictive value, like with Cologuard, like with the Pap smear, like with HPV testing,
spk16: Like within PrEP, it will be the main thing that FDA looks at. The guideline groups are surely going to look at modeling, such as a stage shift, which occurs sooner than mortality. of high-quality companies who are actively pursuing this opportunity will lead the federal government and you can see this with the cancer moonshot to be very supportive of high-quality clinical studies and tests that move the needle. How is the FDA going to look at this? I mentioned that already. Jeff?
spk08: Hey, Jack. On the gain related to Thrive, what this is is related to the equity coverage, and our expectations for timing have not changed at all for those. The discount rate we use, however, has changed given the increase in interest rates. So it's only related to a The different discount rate, it changed the current value of that contingent payment, which resulted in a $26 million gain. From an adjusted EBITDA standpoint, we do kind of exclude that, so there's no impact on adjusted EBITDA.
spk12: Your next question comes from the line of Andrew Cooper with Raymond James. Your line is open.
spk03: Hey, everybody. Thanks for the question. A lot's been asked. So maybe I'll first, if you could dive in a little bit to the little bit of a delay in the Japan launch for Oncotype, what hurdles you need to cross to be able to get that launched and how it's maybe shifted a little bit. And then secondly, I know it hasn't been too long that it's been in your hands, but any kind of incremental thoughts or initial thoughts on prevention and what's going on in the HCP space since it's been in your hands would be great.
spk16: The high-level Japan question there, there were requirements for order entry and resulting portal that are mandated by the Japanese Ministry of Health. We did not do as good of a job as we should have done in terms of delivering on that portal and all of the requirements The team is working very hard to deliver exactly what the Ministry of Health is asking for. We're confident that that will be complete by the end of this year. We expected that to be complete in the first quarter. The difference is that.
spk08: Yeah, the difference in timing there had an impact of about $15 million on the year. There's oncology because the base business, the U.S.
spk15: business and international outside of Japan performed very well to continue.
spk08: But we did take out of the year any Japan revenue. Second question was on PG and thoughts on HCT.
spk16: Yeah, so the prevention genetics team has really been amazing. It's such a high-quality group focused on.
spk15: And our teams are working fast and furious to very thoughtfully cancer testing solution base, both healthcare providers and patients.
spk16: We haven't provided a lot of color on exactly when that will launch with reimbursement other than that the teams are solution. Yeah, I expect that is, you know, end of year, beginning of next year in terms of when we start to introduce that.
spk12: Your next question comes from the line of Mark Massaro with BTIG. Your line is open.
spk18: Hey, guys. Thanks. Maybe on just M&A, you know, recently you've been doing some small tuck-ins. notably this proteomics biomarker provider in Germany. But I wanted to sort of test, you know, multiples in the space have contracted significantly. And so, you know, some of the assets that may be available in the space would actually help you get to adjusted EBITDA sooner, in my opinion, for 2024. So looking at companies where you could maybe strip out costs or leverage Can you just speak about any of your activities as it relates to doing larger M&A?
spk16: Our primary focus has been on Cologuard, Oncotype, and our three key pipeline programs. And our philosophy on M&A hasn't changed. If it contributes to our long-term strategy of participating in helping patients and physicians all along that cancer continuum, it's a good culture fit. It creates shareholder value. We'll look at it.
spk15: Everybody on the team is hyper-focused, and that is the...
spk16: Model for 2022, prevention genetics added an incredibly strong team and $40 million of profitable revenue. MacAra provides incredibly some of the world's best protein analysis and detection capabilities. So that's our framework for looking at things, and that hasn't changed.
spk12: Your next question comes from the line of who needs Soda with SPP security. Your line is open.
spk02: Yeah, hi, Kevin, Jeff, thanks for taking the questions. I won't have a three-parter, but just if I could ask just two simple ones. First one on the sales force, you were north of 1,000 sales reps after the Pfizer additions since September. So I'm wondering if you can provide us an exact count as part of this structuring. And then just the second one, maybe Kevin at a high level, I just want to clarify, I appreciate all the comments that you made on blood-based assays. Technology has continued to improve. So when you look at Thrive CancerSeq and the methylation technology that you've been involved with, those have continued to improve. So do you think that CRC screening would be amenable to success in liquid biopsy at a certain point or just not today? Because obviously you're working towards technology and driving the success towards liquid biopsy in multi-cancer, obviously. So I just want to clarify that point. Do you think it's possible with blood one day, or is it just that today's trials you don't think it's possible with the trials that are in the market right now? Thank you.
spk16: Yeah, that's a good question. So the first question, we're no longer going to provide clarity on the number of primary care sales reps. We're in a position to do that. We have an amazing team. I will leave it at that, and it's large and it's impactful. On the second question, so I'll go back to the first meaningful meeting that I had as CEO, Bert Vogelstein and Johns Hopkins in 2009. And I walked into his office, and Bert is, you know, is a giant in the field. And I said, Bert, I know you were involved in the early part of Exact Sciences, and it makes more sense. And Bert said, you obviously haven't read my paper.
spk15: And in that paper, what they did is they went and they found patients with stage 1, stage 2, stage 3, stage 4 cancer, and also adenomas. And within the tissue,
spk16: They found a particular mutation and they used digital PCR that could detect even one copy of mutated DNA and they were looking then in the blood with digital PCR for that patient's mutation which they knew was in tissue. And what they showed was an exponential amount of DNA going from pre-cancer all the way to late-stage cancer. I mean, hardly any DNA. And I think what we're down to is that limit of detection, that it's either a molecule is there or it's not there in many of those smaller tumors and certainly adenomas. And so there is just this biological barrier that you're limited to. Proteins help, no doubt. But the world hasn't found a magic bullet protein that is prevalent in blood. And will that change? It could at some point. But the biomarker class of methylation or the fragmentomics approach, we have expertise in all of those areas. And I wish there were a magic bullet. There is not. So I believe that the world hasn't changed a lot. We can provide the reference to that paper if you call back. I recently did a Leadership Connection video conference with Bert for our leadership team, and we had a conversation about that meeting we had years ago. And I said, Bert, has anything substantially changed? And the answer is, yeah, technologies have gotten better, more marker classes, but still here we are. It's tough to detect stage 1 and 2 cancers in blood at the same level as you can in stool or with a colonoscopy or visually or otherwise. Nothing has really changed there.
spk12: There are no further questions at this time. This does conclude today's conference call. Thank you for participating. You may now disconnect.
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