Exact Sciences Corporation

Good day and welcome to the Exact Sciences second quarter 2022 earnings call. Today's call is being recorded. I would now like to turn the call over to Megan Jones, Senior Director of Investor Relations. Please go ahead. Thanks for joining us for Exact Sciences second 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 second 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.

Thanks, Megan. During the second quarter, the team made several advancements toward our vision to eradicate cancer through earlier detection and smarter answers for patients and their healthcare providers. Highlights from the quarter include being a great place to work, certified for the fourth consecutive year, screening more than 700,000 people for colon cancer with Cologuard, Securing an improved position in ASCO guidelines for Oncotype DX breast as the preferred test for early stage breast cancer patients. Improving our path to profitability and cash liquidity position. Cutting adjusted EBITDA loss in half quarter over quarter. Showcasing the breadth of our screening and precision oncology pipeline with 13 abstracts at ASCO. Making progress towards completing Blue Sea, our pivotal study to support our next generation Cologuard and colon cancer blood tests. Publishing evidence for our Tumor98 minimum residual disease testing colon cancer. Generating additional evidence for our multi-cancer early detection test, which we plan to share at the European Society for Medical Oncology, or ESMO, conference in September. And finally, enhancing our sequencing capabilities by partnering with Ultima Genomics. We're focused on executing with our core business of Cologuard and Oxytype DX, prioritizing the highest impact projects to reach profitability and generating high quality evidence for our pipeline of advanced cancer tests. Jeff will now review our financial results.

Thanks, Kevin. Good afternoon. Second quarter revenue was $522 million, an increase of 20% or 20% from COVID testing. Screening revenue was $354 million, an increase of 34%, including four points from prevention genetics. Cold drug growth was driven by improved sales team productivity, a marketing partnership with Katie Couric, three-year rescreens, and use in the 45 to 49 age group. 9,000 new healthcare providers ordered Cologuard during the quarter, and nearly 282,000 have ordered since launch. Precision oncology revenue was $154 million, an increase of 12% driven by Oncotype DX breast and therapy selection. Foreign exchange was a $2 million headwind. COVID testing revenue decreased 58% to 14 million. Second quarter gap gross margin was 68%. Non-gap gross margin which excludes amortization of acquired intangibles, was 72%. Margins were lower than expected due to inflation, especially shipping and wages. We expect inflation and unfavorable foreign exchange to be about a two-point headwind in the second half of the year compared to our prior guidance of about 73%. We expect margins to expand as we absorb the additional lab capacity brought online for Cologuard and introduce new automation. Sales and marketing expense was $216 million. G&A expense was $182 million, including a $24 million net gain, mainly related to Thrive, and a $5 million expense from cost reduction activities. R&D expense was $106 million. Net loss was $166 million, and adjusted EBITDA was a loss of $46 million. This improved $76 million from two quarters ago and $44 million from last quarter. We entered the quarter with $728 million. We established an AR securitization facility during the quarter with up to $150 million in borrowing capacity. For the agreement, we borrowed $50 million under the facility. We also have about $150 million available under revolving credit facilities. This provides total liquidity of almost $1 billion. We're also exploring ways to unlock capital from our real estate facilities. We expect our cash use to be lower in the second half of the year compared to the first half. And we're confident in achieving adjusted EBITDA profitability in 2024, while we continue investing in future growth and efficiencies. For example, we're investing $300 million in IT this year to improve our digital tools and support initiatives like Colograd rescreens, enhance our customer experience in billing systems, and eliminate redundant costs from legacy IT platforms. Certain to our guidance, We expect total revenue between $490 million and $505 million during the third quarter and between $1.98 and $2.022 billion for the year. We expect screening revenue between $350 and $355 million for the third quarter and between $1.35 and $1.372 billion for the year. This includes prevention genetics revenue of approximately $10 million during the third quarter and between $40 and $42 million for the year. We expect precision oncology revenue between $135 and $140 million for the third quarter and between $580 and $590 million for the year. Our expectations for global Oncotype DX breasts are unchanged. We're updating our guidance to reflect product portfolio changes and a $4 million incremental FX headwind for the year. We divested our Oncotype DX genomic prostate score test to ensure our team is focused on the highest impact projects and improving our profitability. Certain members of our dedicated team will transition to MDX Health, a commercial stage precision diagnostics company focused solely on prostate cancer and other urological diseases. We've agreed to provide certain transition services to MDX Health, including lab services, to ensure a smooth transition for patients. For the agreement, Exact Sciences received $30 million upfront, including $25 million in cash and $5 million in MDX Health equity. An additional $70 million is payable to Exact Sciences upon achievement of certain revenue milestones. We expect COVID testing revenue between $5 and $10 million for the third quarter and between $50 and $60 million for the year. Moving down facts, for the full year, we are lowering our sales and marketing expense by $30 million and now expect between $870 and $890 million. In the second quarter, we saw improvement in key sales and marketing metrics, such as revenue per sales representative. We expect this to improve further as we grow Cologuard and make more products available. We're also lowering our research and development expense by $5 million and now expect between $425 and $445 million. Our expectations for GNA, CapEx, and intangible amortization remain the same. And I'll turn the call back to Kevin.

Thanks, Jeff. A recent study showed that about half of Americans between ages 50 and 75 are not up to date with colon cancer screening. That means as many as 60 million Americans need to be screened. Cologuard is helping to solve this problem. Almost half of first-time Cologuard users are new to screening. The Centers for Medicare and Medicaid Services, or CMS, recently proposed removing a barrier to getting more people screened by eliminating Medicare cost sharing for a follow-up colonoscopy after a positive stool-based screening test. This follows a federal regulation requiring private payers to eliminate cost sharing starting in 2023, addressing a top concern patients and providers have about using Cologuard. Our sales and marketing teams are helping screen more people with Cologuard by using a multi-channel marketing approach to elevate colon cancer screening and Cologuard. Investing to support our health system partners' needs and implementing tools to help keep people up to date with screening. A powerful data and digital infrastructure is one key to unlocking the full potential of Cologuard, Oncotype DX, and our future tests. We have spent nearly a decade thoughtfully designing and enhancing our IT systems, including a custom-built laboratory information system and installing Epic as the backbone of all processes from ordering to billing. This will power one interface to meet our health system and physician partners' testing needs in hereditary cancer, colon cancer, multi-cancer, cancer prognosis, minimum residual and late stage therapy selection. Our goal is to make it easy for health care providers to order all advanced cancer tests through one partner, making prevention and diagnosis simple and personalized instead of complicated and fragmented. Exact Sciences has the foundation in precision oncology to provide answers to key questions a cancer patient, oncologist, biopharma, or academic partner may have.

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