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spk14: Good morning. My name is Rob and I will be your conference operator today. At this time, I'd like to welcome everyone to the Exact Sciences fourth quarter 2022 earnings conference 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, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again press the star one. Thank you, Megan Jones, Senior Director, Investor Relations. You may begin your conference.
spk17: Thanks, Rob. Thank you for joining us for ExactScience's fourth 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. ExactScience 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. Discussions of non-GAAP figures and reconciliations to GAAP 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.
spk04: The strength of our foundation supporting the best brands in cancer diagnostics puts us in a leading position to continue delivering innovative cancer tests, consistent revenue growth, and profitability. We are using this platform to help prevent cancer detected earlier and guide treatment for more patients globally. Achievements in 2022 that help strengthen our leadership include surpassing 12 million cumulative people tested for cancer, including 10 million with Cologuard. Expanding our global network of ordering healthcare professionals to more than 350,000. Growing core revenue, 380 million year over year. Becoming adjusted EBITDA profitable in the fourth quarter. Completing enrollment of Blue Sea, our pivotal study to support our next generation Cologuard and colon cancer blood tests, and generating evidence for our multi-cancer early detection and molecular residual disease tests. Over the past decade, we've built a high-quality platform to deliver advanced cancer tests at scale. We've invested heavily in our people, lab infrastructure, technology systems, clinical evidence, brands, and customer experience. This platform is fueling efficient growth for our current tests, and over time it will fuel the next wave of novel cancer diagnostics. Our health system customers employ most U.S. healthcare professionals and seek to improve the quality of care while reducing costs. They are incentivized to focus on preventive care, including cancer screenings. Today, many phases of staff shortage lead to a trend of more in-home service as Cologuard. Advanced cancer testing. In advanced cancer testing, health systems continue to ask for fewer partners to meet their needs. A complete range of high-quality, impactful tests, broad insurance coverage, EMR integration, and data-sharing capabilities. Exact Sciences is uniquely positioned to deliver on these needs because we have the broadest offering of innovative cancer tests, patient-focused services, EMR integration capabilities, and payer relationships. This year, we'll increase adoption of Cologuard and Noctite DX, create an even better customer experience, and advance our key pipeline programs in colorectal cancer, multi-cancer early detection, and molecular residual disease. Jeff will now discuss our financial results and outlook for 2023. Thanks, Kevin.
spk06: Good afternoon. Fourth quarter revenue of $553 million grew 17%, or 28% excluding COVID testing. Screening revenue of $404 million increased 45%, including three points of growth from prevention genetics. For the year, screening revenue increased 30% organically. During the quarter, 10,000 new healthcare professionals ordered Cologuard, bringing the total to more than $302,000 since launch. Precision oncology revenue decreased 4% to $143 million. 1%. COVID testing revenue decreased 87% to $6 million. Four-quarter gap-first margin was 70%. Non-gap-first margin, excluding the amortization of acquired intangibles, was 73%. Net loss was $128 million. Adjusted EBITDA was $5 million, an improvement of $120 million, demonstrating the power of the Exact Sciences platform. We ended the year with cash and securities of about $630 million. Total liquidity is about $840 million, including available credit facilities. During the guidance, we expect total revenue between $536 and $551 million during the first quarter and $2.265 and $2.315 billion for the year. This assumes screening revenue between $390 and $400 million for the first quarter and $1.66 to $1.69 billion for the year. Precision oncology revenue between $143 and $148 million for the first quarter, and $600 to $620 million for the year, and COVID revenue of $3 million for the first quarter and $5 million for the year. For the year, this implies 18% growth for screening, 5% growth for precision oncology, excluding the sale of our prostate business, and 14% overall growth, excluding COVID testing and the prostate sale. We exited last year with broad momentum, which is driving a strong first quarter we're seeing the benefits of past investments and great execution from our team. We expect to generate up to $25 million of adjusted EBITDA for the year. This assumes non-GAAP gross margin of about 73% for the year. Our industry-leading gross margins are powering positive adjusted EBITDA and a clear path to free cash flow as we continue investing in growth and efficiencies. We expect total GAAP op-ex to increase mid-single digits for the year. This includes an absolute decrease sales and marketing, offset by increased G&A and R&D. Last year, G&A was reduced by $57 million, primarily from a non-cash gain related to the Thrive acquisition earn-out. In addition to cycling against that gain this year, we expect $19 million in non-cash expense as we accrue for the earn-out payment. R&D is increasing to support our multi-cancer and MR&D programs, and we expect CapEx this year to be about $120 million. I'll now turn the call back to Kevin. Thanks, Jeff.
spk04: Cologuard is becoming the preferred colorectal cancer screening choice. During the fourth quarter, nearly 160,000 healthcare professionals ordered Cologuard, a new record, and the rate of people rescreening hit an all-time high. We are starting 2023 with tailwinds, including stronger healthcare professional conviction in Cologuard as our front-line screening test, increased consumer awareness, improved electronic ordering, and an enhanced digital patient experience. Also reached half a million people screened with Cologuard between ages 45 and 49. As of the fourth quarter, we estimate Cologuard grew to 9% penetration of the more than 90 million people ages 50 to 85 in the colon cancer screening market. For the nearly 20 million 45 to 49 year olds, penetration grew to more than 8%. Just 18 months after it was included, that age group was included in USPSTF guidelines. Screening people in their mid to late 40s will provide recurring revenue for decades as we work to keep them screening every three years until they're 85. Cologuard growth is supported by the most powerful sales and marketing team in cancer diagnostics. We engage with healthcare professionals more than 1 million times each year and have more than doubled the revenue generated per interaction in the past year. We build brand recognition and loyalty by generating more than 15 billion impressions annually. Our commercial team, supported by rigorous analytics, will get even more efficient over time and help decrease sales and marketing costs as a percent of revenue while supporting growth. Our Precision Oncology team has guided treatment decisions for more than 1.75 million cancer patients around the world, including a record 220,000 people last year. OCTYPE DX revolutionized breast cancer care. It is internationally recognized as standard of care for patients early-stage HR-positive HER2-negative breast cancer, which represents about half of breast cancer cases. We have an opportunity to impact even more lives by making OCTYPE-DX easily accessible to more women globally, offering OncoXtra, our enhanced therapy selection test with DNA and RNA analysis, and working with our biopharma partners to develop new targeted cancer therapeutic Thanks to our team, trusted Oncotype CX brand, and deep oncology relationships, we can power better treatment decisions that are specific to each patient's disease. Our advanced R&D expertise in platform screening and precision oncology will help get our pipeline tests to more patients quickly. We made meaningful progress in each of our key pipeline programs last year, by completing enrollment of our Blue Sea PIPRO trial, which included more than 26,000 people, presenting two studies, including 4,200 samples showing the power of our multi-cancer early detection test, and initiating and enrolling studies that will answer key questions clinicians and payers have when evaluating our molecular residual disease tests. We are completing the final steps of our Blue Sea trial and expect to have top-line next generation colgar data mid 2023 before submitting to the fda for approval we expect to have two additional sets of multi-cancer early detection data this year further validating our multi-marker class approach before we move to a larger prospective trial we also plan to validate and make our tumor-informed molecular residual disease test available for colon cancer patients later this year our mission is to make earlier detection a routine part of medical care to help eradicate the user. Our platform, deeply embedded standard of care tests, and pipeline of life-changing diagnostics will power years of growth and continued profitability, helping us to achieve our mission.
spk03: Thank you.
spk04: We're happy to open the line for questions.
spk14: 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. We ask that you limit yourself to one question only with no follow-up questions. Your first question comes from a line of Derek DeBruin from Bank of America. Your line is open.
spk03: Derek DeBruin, your line is open.
spk10: Hi, it's Derek. Sorry about that. I had the mute on. So can you just... So a couple of points, a couple of questions. I think the first one is, I guess, what were the key market changes that drove some of the increased momentum in Q4? And the guide was better than expected, particularly for Cologuard for 2023. And that's one. And then just I've gotten a bunch of questions from investors lately about the competitive landscape outside of liquid biopsy. There's a couple of companies that are advancing some of their stool-based colon cancer screening test and also just sort of the landscape for Oncotype as it sort of goes OUS. There's a little bit more competitive opportunities out there. Can you just sort of talk through those couple of questions? Thanks, and I'll shut up.
spk04: Well, let's first address the... the momentum that we saw throughout the fourth quarter and the start of the year. A lot of this is just the result of the investments that we have made over time, the strong need for non-invasive screening, colon cancer screening tools. So you have some structural tailwinds, including the ease of electronic ordering that has taken You know, a significant amount of effort, time, engagement with large health systems to deliver electronic ordering through our ethic and EMR capabilities. Increased brand awareness around Cologuard. Health systems are highly incented to drive their colon cancer screening scores, and they're frequently now reaching out to us to ask for a partner who can help them improve their quality measures, care gaps, et cetera. We're seeing GIs have a staff shortage and there's a greater focus in the endoscopy suite on diagnostic colonoscopies and GIs are ordering a Cologuard at a higher rate as primary care physicians are certainly. Our sales and marketing team, I just can't tell you how proud we are of the work that they have done and continue to do. Their efficiency, their engagement is turning the tide and really making Cologuard a first-line screening choice. Also, of course, the 45 to 49-year age group. 18 months ago, the guidelines changed to lower from age 50 to 45. And we believe Gologuard is leading in terms of market share today. And the penetration is impressive. If you take the fourth quarter number of tests and extrapolate that, we believe the penetration is about 8%, as I mentioned earlier. Jeff, I don't know if you want to add any color to that.
spk06: Just as Annabelle Kevin said, electronic ordering is a huge, huge job. Last year, recall when we started the pandemic back in early 20, 30% of Cologuard orders were electronic. In Q4, that was up to 63%. So that has implications not only for Cologuard. You make it easier to get orders. It has implications down the road. As we launch new products, they'll launch right into that foundation. So it will build deeper connections to health systems. In Q4, I think we talked before, Derek, we picked up a little bit of extra upside from enhancements we made both to our patient compliance engine and our billing systems. So again, these added to the upside, they weren't the sole cause of it. The reason I bring those up is because when we added these enhancements, which will benefit on a run rate basis, we'll get better compliance and better ASPs going forward. When we added those enhancements, we pulled forward a bit of revenue from Q2 and Q3, so consider that catch-up revenue that added Now, I've got half of Q1 in the books now. I think a little bit of that catch-up revenue, again, from the billing enhancements, patient compliance enhancements, is going into Q1. That's part of the strength in Q1. And then just everything Kevin said should continue. I know there's questions on competition.
spk04: In terms of competitive dynamics, when you look at Cologuard, Cologuard set a standard of and a very high bar in colon cancer screening. Cologuard 2.0, or what we call the next generation Cologuard, will raise that bar. And we just haven't seen data indicating any other testing modality that approaches that high level of performance for detecting cancer or detecting precancerous polyps and having a high specificity. underlying drivers, how large is the study, how well-powered, et cetera, et cetera. So we feel great about the competitive positioning. There's so much more to Cologuard than the test. There's an enormous investment altogether, about a billion dollars invested in an IT infrastructure, a commercial team, a lab team and capability that requires a multi-billion dollar investment to to be able to reach the hundreds of thousands of ordering healthcare providers and the tens of millions of patients. Oncotech DX is in a class of its own. It's the only test with the level of evidence that you've seen with TaylorX and Responda. As a result, it has a leading position in U.S. and globally. So these are the two best brands in diagnostics. We will keep investing in them. And they have become a standard of care without PEER in terms of that CoaGuard and its sample type. And Oncotype DX would be very difficult to replicate that level of evidence. So we're proud of these programs and continue to
spk14: Your next question comes from a line of Andrew Brackman from William Blair. Your line is open.
spk01: Hi, guys. Good afternoon. Thanks for taking the question. Kevin, maybe one for you and sort of building off some of that stool-based commentary there. Just sort of recognizing 2.0 data is going to come, I think you said, around mid-year. Can you just sort of give us an update on where you expect those data to come in? Anything in particular you'd point to as we put together those scorecards for that data and sort of the longer-term benefit to the model? Thanks.
spk04: We expect Cologuard 2.0 to have improved specificity, so a lower false positive rate. And we would, on a secondary basis, we hope to see some improvement in the advanced adenoma detection rate. The main goal is to lower the false positive rate. We have designed Cologuard with more specific markers. We also expect to see improved cost efficiencies and other aspects of Cologuard testing. So that is what we expect. Of course, we won't know until we complete all of the validation testing, and we expect that to occur mid-year.
spk03: Your next question comes from a line of Dan Brennan from Cowan.
spk14: Your line is open.
spk13: Great. Thanks for the questions, guys. Maybe first one just on the rescreen in the 45 to 49, and then just one question on the EBITDA guidance for 23. So, Jeff, can you just clarify? So 8% penetration run rate in 4Q. Seems like a really big number. We're coming on like 130,000 tests. Is that in the zip code? It's, what, 20 million people in total. And you divide that by three to get the addressable for Cologuard, so that's like 6.6 million. And then you got 8% penetration in 4Qs, so we just took a quarter of that and 8% of that. So maybe a little clarity on the math there and kind of how we think about it. I know you guys don't want to disclose too much on these, but since they are material, it would be great to understand how you're thinking about the impact for risk reading 45 to 49 in 2023. And then there's a second one would just be on the 25 million plus of adjusted EBITDA, I guess, dollars, the X.com in 2023. So if you exited 4Q with 5 million, just wondering if that's a conservative number, since I would expect you guys would have some nice momentum despite all the investments that you're doing. So I would have thought it'd be a high number in 2023. Maybe you could just speak through some of the drivers there. Thank you.
spk06: Sure, a lot there. Obviously, Kevin talked about 45 and rescreened to see significant growth drivers, and that will continue for a long time. Last year, we had put out guidance for 45 of at least $100 million of revenue. We beat that nicely. have a pretty similar trajectory as three streams. So huge drivers there. In Q4, you kind of talked about the overall penetration rate for 45. And just to be clear on the definition here, we're looking at the pool of stations, which is nearly 20 million people. And in that Q4 run rate, call it roughly 125,000 people tested. If you adjust that for the interval and the annualized hit, we were at about an 8% penetration into that younger age group. The reason we highlight that is because COVID got there in about 18 months after USGSDF guideline inclusion for the younger age group. You contrast that to the 15 and above age group, which has been the biggest diagnostic launch in history. We're at 9% there today. So the point there is really 45 is growing very, very quickly. The question on adjusted EBITDA, What we're guiding to is flat to 25 million adjusted EBITDA for the year. This really speaks to the power of the platform. You recall that we had accelerated the path of profitability. It was going to be 24, then mid-23, and eventually we got there, and then to 22. For the year now, what we're guiding to is over 150 million of adjusted EBITDA growth. On an incremental, I just leave it on a margin basis, we're talking over 75% incremental. So the guidance is the most likely outcome. I'm proud of what the team has delivered here. I'm very proud of these numbers. It's a significant improvement year on year.
spk03: And it puts us in a position to really continue investing in growth and efficiencies and delivering profitability to investors.
spk14: Your next question comes from a line of Vijay Kumar from Evercore ISI. Your line is open.
spk18: Hey, guys. Thanks for taking my question. Jeff, I guess I had a two-part question. This 2.0, Cologar 2.0 results, I know you mentioned increased specificity, and you expect an increase in advanced adenoma sensitivity. Is there... any risk as you take up that specificity that the sensitivity for cancer perhaps drops? And I know given AA sensitivity going up, perhaps that's not the case, but maybe just talk to us, is there any risk here from a sensitivity perspective heading into these results? And on adjusted EBITDA, Jeff, how should we think about those leverage levels going forward? The incremental leverage map that you just laid out, should that hold true when we think about Thank you.
spk03: Why don't I take the first part, Jeff, and you take the second part.
spk04: So we would expect the cancer sensitivity to be better above 90%. We would expect somewhere in the neighborhood of 100 cancer samples in the study. So it's, as you recall, in the deep sea study, we had 65 samples. So what have we done to improve the likelihood of success? We, number one, increased the powering of the study. Number two, we've done a significant amount of work to compare the current version of Cologuard with the next generation version of Cologuard in samples, including samples from the deep sea study. So we have a head-to-head comparison, which gives us confidence that Cologuard 2.0 performs better than Cologuard 1.0. You can never control all of the risks, because if the fundamental population is changed, or for example, you see a lot more smaller cancers, harder to detect cancers, you don't know that and you can't control for it. So what we have done is, developed the very best test with the best markers, the most efficient and powerful DNA capture technologies, and deployed that into this study. And we look forward to opening the results of the study and sharing them with you. And that's our thinking on that. Jeff, maybe you take the second one. Yeah, this is Jeff.
spk06: On the leverage question, this model was built to scale. to scale efficiently and ultimately deliver positive free cash flow, which we expect to reach in 2024. Can we sustain 75% plus incrementals? I hope so, but that's a pretty tall order, BJ. When I think about leverage going forward, the best way to do it is to drive a really strong top line. I know every team are going to do that. We're targeting over 80% gross margin for the two key products here, Cologren and Aquatype. Aquatype is there. A competent Cologren will get there over time. So I expect some good gross margin improvement. The GNA, this year I talked about that Thrive burnout payment. It's driving higher GNA growth on a gap basis, but the adjust for that is single-digit growth. Over time, the GNA leverage will improve. Sales and marketing, the main thing there is really to make sure we're always investing in the smart growth, and Everett's done a nice job there. So we're seeing a really good leverage within sales and marketing. R&D, the way we'll get leverage there is to focus on the highest impact opportunities, and Kevin has talked about those today. Over time, as we get the benefit, Cologuard 2, the MRD programs, multi-cancer, as we get the benefit from those programs, That will help drive additional leverage through the P&L.
spk14: Okay, our next question comes from a line of Catherine Schulte from Baird. Your line is open.
spk12: Hey, guys. Thanks for the question. And thanks for showing that slide on rep productivity. It's great to see Cologuard revenue per field call continuing to trend upwards. But I'm curious, you know, what's that number? What does it look like pre-COVID? And if you can talk to where you think that number should go over time.
spk03: Yeah, Kevin, this is Jeff.
spk06: Free COVID, I think there's a lot of moving pieces there. You know, when you think of the Pfizer relationship, it's a great partnership. It just does change the dynamic as well, which is why we focused on the quarters that we displayed on the slide deck. Going forward, where can it go? I can start, but please chime in. There's a long ways to go. When you think of that market penetration number, 9%, and that 50-plus age group, longer term, I'm confident we can get to at least 40%. And I think we've already got a strong team in place, so I expect that productivity to go way up all the time.
spk05: Thanks, Jeff, and thanks, Catherine, for the question. I'm really proud of what the commercial team has done over the past year since we've launched Cologuard, and we continue to evolve the commercial team. There's many things that are contributing to the productivity. I'll just highlight a couple of things. Number one is the way in which we've evolved our territories. We've cleaned up the overlap in territories, which has driven deeper customer relations. And I think that's driving a lot of the acceptance of why now Cologuard is a preferred choice for screening. Number two, we use data and analytics now in terms of who to call on, when to call on, how often we call on those customers. And we're just much better now at looking and knowing exactly who to call on for the growth. And we review those analytics and who we're calling on on a weekly and monthly very rigorous process in our commercial organization. We just don't do it centrally, but we're now doing it at the market and area level where that execution is happening. And then, you know, Jeff mentioned, Kevin mentioned in terms of we're going to always invest for growth. We're really focused on health systems. That's where a lot of our customers and patients are. We've increased our amount of account executives at the health systems level. And the conversations now that we're having around the screening is our health systems are now coming to us. And how can we partner for those hard-to-screen patients where they need to close the care gaps? We saw a lot of that at the tail end of 2022, and that's going to continue in 2023.
spk03: I feel bullish that our productivity will continue to improve.
spk14: Your next question comes from a line of Brandon Kiard from Jefferies. Your line is open.
spk02: Hey, thanks. Good afternoon. Just a two-part question in terms of the guide for the year. Jeff, let's embed for the stock comp expense, and then Kevin, conceptually speaking, if the top line is, let's say, running ahead of plan as we move through the year, would it be your preference to reinvest some of those dollars but still deliver on the profitability target, or would you let that drop down?
spk03: Thanks. This is Jeff. I think the first one on stock
spk06: I think we've given you kind of all the pieces between when you look at the gap, the deals that have grown and not back to just EBITDA. So I think you can, stock comp is probably the biggest piece between there. If you look at last year, which you'll have in the case you do already, it's going to grow from there as you look back at the headcount growth over time. I think that's enough to give you all the math between the gap number, they just need a down number. Second question on reinvestment.
spk04: So in terms of investment, we're still making enormous investments in new product programs. We've touched upon the three big ones, colon cancer, multi-cancer early detection, and the MRD program. So we also have some minor programs that we're working on in liver esophageal cancer and endometrial cancer. We're making those investments today. We're making significant investments in our IT infrastructure. So would we selectively reinvest some of those profits? Yes. Are we biased towards and leaning towards letting that flow through? The answer is yes. The whole company is on board with that. They're driving to it. We're all rolling together as one team to
spk03: show the profitability engine that we have, and that's very important to us.
spk14: Your next question comes from the line of Matt Sykes from Goldman Sachs. Your line is open.
spk15: Hi, good afternoon. Thanks for taking my questions. Maybe the first one just on compliance. Jeff, you mentioned some of the enhancements you were making to compliance, and if we add in the rescreen opportunity over time, could you maybe help us frame where you think compliance can go to for Cologuard? over the next year or two? And then, and just secondly, I'll ask them both up front, but secondly, just on Oncotype outside of the U.S., I think you mentioned that's sort of a main growth area for you. Could you maybe talk about what you see as sort of the growth rate for ex-U.S. within Oncotype for this year? Thanks.
spk06: Yeah, this is Jeff. I think I'll handle both of those. Cold guard patient compliance, the way we typically report this out The reason why I'm confident we'll get there is that on rescreened patients, the overall patient compliance rate is 15 to 20 points higher than first-time patients. So over time, that's going to be a big driver of overall lift in the patient compliance rate, and we're making significant investments to enhance that customer experience. Better ways for outreach, better ways to make it even simpler to do Cologuard, and over time, that will naturally bring that patient compliance rate up. The second question on Oncotype DX international growth. There's a significant runway ahead thanks to the strength of the team there, the strength of the evidence that Kevin alluded to. Oncotype globally is opening up in new markets through reimbursement and access. What we baked into this year is in the U.S., growth there is approaching prevalence plus a point or so. So think of kind of low to mid-single digits. International will grow faster. It can be easily on new markets that launch within a given year. This year we expect Japan, which could eventually be the biggest market outside the U.S., we expect Japan to come on potentially mid-year, and that can be a big driver starting mid-year and into next year.
spk14: Your next question comes from the line of Jack Meehan from Nefron Research. Your line is open.
spk09: Thanks. Good afternoon. My questions for Kevin are on the blood screening programs. First, can you give an update on the blood portion of blue C when you expect that to read out? And then second, on MCAD, you talked about validating additional markers. Can you just talk about, you know, how that might be similar or different to what you presented at ESMO and what that might mean for timeline for the SWOR study?
spk04: Sure. On the first program, we haven't given specific guidance as to when the colon cancer blood program will read out. The team that is focused on our colon cancer programs are focused both on stool, Cologar 2.0, and blood. There's a huge amount of effort that is required prior to testing samples. So there is... a rigorous analytical validation studies that are required, verification studies, software development and validation. And so there is an enormous amount of rigor that goes into that in preparing the automation entire program and submission that goes to the FDA. You don't make changes easily, so you need to make sure that the manufacturing capability and all the studies are locked down. So the Cologuard 2.0 or Next Generation Cologuard is first, and then that team will shift its focus to the validation and verification studies for CRC blood afterwards. In the coming quarters, we'll provide more clarity as to when that pivotal study from the blood portion of the CRC program will be complete. In terms of the MSED marker validation study, we have interim and full re-outs of the test design, kind of the lockdown study prior to moving into the large prospective study. That study we expect to read out this year. So two different studies we'll read out during the year. And that is a much larger version of the data that you saw at ESMO last year. That will lock down our final marker classes. And then we expect SOAR to start next year. in the first half of next year. And the team right now is working on perfecting the test, making sure that that test and the automation surrounding it is locked down before we start that study. Again, once you start a prospective study or a cancer screening test, you don't make changes to that product, so it's totally locked down.
spk14: Your next question comes from the line of Mark Mazzaro from BTIG. Your line is open.
spk08: Hey, guys. Thanks for the questions, and congrats on the progress. My first one is on MRD. So it's great to see your planned LDT launch later this year in colorectal cancer. When can we expect to see additional data which would support reimbursement, and have you had discussions with any Medicare contractors And then my second question is on the Thrive Multicancer Initiative. I appreciate that additional data will be rolling out this year, but maybe, Kevin, can you just give us a sense? You know, this is not like you're rolling out an LDT. This is kind of a higher risk, bigger opportunity. What types of, you know, factors do you think might change in the landscape over the next few years that could perhaps increase the probability of success And then can you give us a sense for the size of the patient enrollment? Is it somewhere near the 80 to 100,000 plus mark?
spk04: Okay, so the first question in terms of what are the things that are going to change to make a multi-cancer early detection, this whole category of testing, more likely to be successful. Certainly, Congress creating a Medicare benefit category is one that's important. And we expect that legislation to be reintroduced in this Congress. Remember last year, there were more than 50% of Congress were co-sponsors, equal number of Democrats and Republicans. So we're working hard right now to make sure that Medicare beneficiaries will have access to this incredible new category of testing. The evidence that is being built by exact, by Others in this field shows great promise for the ability to shift the stage of cancer detection across many, many different types of cancers. From later stage, more difficult to treat cancer, to earlier cancers where the therapy frequently is surgery with an intent to cure. That's a big shift, and the more evidence that is generated, there is more excitement that is being built in this space. We believe that we have a significant advantage because of the strength of our Cologuard screening team infrastructure, lab capability, et cetera, perfectly positions us success this is going to play out over a long period of time we believe there are well north of a hundred million people in the US alone many more outside the US that are going to benefit from the test and and the key takeaway here is that there is no therapy as effective as earlier detection earlier detection means your therapy plan is going to be very different And that's the goal of the program. We're excited about it. We're committed to making this happen. And we're doing the rigorous scientific work to develop the best test.
spk06: Mark, you had also asked on MRD. So we plan to publish data in an upcoming scientific conference in the tumor-informed version of our test. We're working on both tumor-informed and tumor-raised. you're reversible with that. Behind the scenes, we've been working on pivotal studies for both colon and breast. That eventually will help set, we think, the standard for evidence in this space. We feel good. Same thing with multi-cancer and leveraging the foundation we've built in primary care. MRD, given our positioning with oncologists, whatever the team has done there, building deep, deep relationships. As you know, 98% of all oncologists have ordered Octet DX from us. We think we can leverage that same strength of the commercial foundation into MRD.
spk14: Your next question comes from a line of Dan Arias from Stiefel. Your line is open.
spk16: Afternoon, guys. Thanks. Kevin, back on the pipeline, just any update on the thoughts around commercialization for Cologuard 2.0? I think at one point that was a potential 23 event. Just curious if that's still a possibility, and then how dependent on that would commercialization be on just performance and data around the test versus other factors like sales training, reimbursement, et cetera? Thanks.
spk04: Sure. We expect them to submit this year, and it's at least six months with the FDA before approval, so that puts us into next year with the launch. A lot of pre-launch activity will go on. Certainly, that launch will incorporate the new and different sensitivity and specificity. And then some of the more mundane aspects of launch would include the billing code for the new version of Cold Guard. Does it change? Doesn't it change? payer relationships, Medicare, et cetera, you need to do a lot of work there before you switch over to a new test, lab automation, changes, et cetera. So that will be a very thoughtful transition from the great current version of Cologuard to an even better version of Cologuard. The nice thing is we have a great test in Cologuard today and it's all upside for patients, to shareholders when we bring the new innovation to patients.
spk06: Just to add to that, recall that late last year we pulled ahead. One of the key benefits of COLAGR2 So, to date, this new version of the kit, this new PoliGrid 1.5, has helped over 45,000 samples to come back to our lab without expiring. Now, some of those we could have gone on to recollect before, but it creates an overall better patient experience, more revenue for us, better gross margins for us. So, the team is not standing by any means. They're pulling ahead on this big benefit. Overall, this year, that will increase completed tests by at least a point.
spk05: And then commercially, we're already there. We know our targets. Obviously, as Kevin said, with Colgard on the market now, it will be a seamless transition from a selling and marketing standpoint.
spk14: Your next question comes from a line of Panitsuda from SVB Securities. Your line is open.
spk19: Yeah, hi, Kevin, Jeff. Thanks for taking the questions. So first one, you mentioned the 8% penetration for 45 to 49-year-olds. What's the ceiling for that penetration given the momentum you're seeing here? And then on the MSED data, I mean, should we be expecting that at ACR or ASCO or later in the year at SML? Thank you.
spk04: I'll take the first part, Jeff. You take the second part. In terms of the ceilings, We think that the ceiling is higher than the 40% penetration that we've long guided to in that earlier age group because people who are 45 to 49 typically are busier than retirees, and it's more of a challenge for them to schedule a screening colonoscopy, which can take a day and a half out of your life. Typically, the portion of your week that you're normally working So we also have been able to educate and reach people digitally. Our digital investments and social media marketing will increase over time. So Cologuard is a test that fits within their lifestyle. Do we get to 50% to 60% penetration? That wouldn't surprise me over time in that age group. And what you're seeing is you're seeing the endoscopy suites are very, very busy today. Any notion that Cologuard was going to slow down the business of gastroenterologists and endoscopy suites is just not proven to be accurate. In fact, it's allowed them to focus. And there is an opportunity for Cologuard, and it's being ordered more frequently in that patient population because the risk of colon cancer is lower, and GIs and health systems are focusing on getting those people screened, goes into their colon cancer quality ratings through Cologuard. Visiting last week with primary care physicians who have very busy practices, they are focused on Cologuard. One office I met would switch 100% to Cologuard. Why? Because the GIs are so busy in that part of the country that they don't want to see more average risk patients. So we see that Cologuard will continue to grow because it's easy, it's at home, it's accurate. Jeff, I think there was a second part of that question too. This is Jeff.
spk06: The MSET team has done a really good job generating a wealth of evidence to help build up this new category. As Kevin talked about, there's two sets of data coming this year. The first one I don't think will be at ADCR. I don't know the conference for sure, but I would think mid-year on the first set, and then the fall timing for the second set. When we do a conference, though, we'll let you know.
spk14: Your next question comes from the line of Patrick Donnelly from Citi. Your line is open.
spk20: Hey, guys. Thank you for taking the question. Jeff, maybe one for you just on kind of the cadence of the year coming out of the strong 4Q. You know, I know even going back to the conference in January, you were talking about, you know, 4Q had some benefits. I think you mentioned the billing enhancements on the call here. You know, no surprise, 1Q down sequentially on Cologuard. Can you just talk about are we getting back to that normal seasonality? Obviously, again, 4Q had that great inflection. You talked about all the factors there. But how do we think about that going forward into 23? It's been a weird couple of years, obviously, in terms of the impacts you guys have seen. So how do you think about the cadence of this year, both on the top line with Cologuard and then also maybe on the EBITDA side, if there's anything we should be looking out for there in terms of expense timing? Thank you, guys.
spk06: So, Patrick, the typical cadence of Cologuard hasn't changed. It's really driven by primary tier utilization trends. So what those are is that They typically start the year if people are coming off the holidays, deductibles just reset. So primary care use is typically lower in January. Things build up until Memorial Day at the end of May. And then over the summer, they typically flatter as people go on vacations and are focused as much on primary care. Then about mid-August or Labor Day, things pick back up and typically climb pretty steeply until Thanksgiving timing and then slow down over the holidays as people go on to, again, October. And what that means for Cologuard, there's about a 30-day lag between a primary care visit and we would recognize revenue. That's typically why you see a step down going from Q4 to Q1. And I don't expect that to change going forward. However, our business is becoming more predictable. More predictable, we've got more stable growth drivers. Everett team has done a really nice job building up a whole wealth of different drivers. It's not just tied to one thing anymore. From a Q1 of this year standpoint, There's a couple of unique things that are happening. Everybody's seen the flu data. The flu is really mild this year. Relative to most years, flu is normally a headwind to us and others in early Q1. That headwind has really not existed this year. So I think all is equal. Q1 a little stronger this year. Also, some of the caregiver benefits that I talked about earlier, from enhancements to both our patient compliance engine and our billing systems, we're picking up a this year as you would normally. From an adjusted EBITDA standpoint, Q1 typically has the lowest profitability of the year because of the top line being a little lighter seasonally, and expenses are a bit higher as you roll into a new year. And we've got some unique sales and marketing events in Q1 also. So lighter profitability in Q1, but overall strength to the year, more profitable.
spk14: Your next question comes from the line of Andrew Cooper from Raymond James. Your line is open.
spk11: Hey, everybody. Thanks for sneaking me in here towards the end. Maybe first, just Jeff, you know, you mentioned some of the prior period collections and some of the improvements in compliance. Can you give us a sense for sizing of that in the fourth quarter? And then, you know, I think it was about a year ago, maybe this fall last year, you talked a little bit about, you know, a chance for pricing and ASP to continue to climb a little bit. So can you just give us an update? You know, have you been able to capture a little bit more on, apples-to-apples ASP and what that looks like and how that impacts the move to profitability as well, assuming a pretty steep drop down there.
spk03: Andrew, in Q4, the base business exceeded expectations. This is the things that Kevin and I have talked about. It's the strength of the relationships with health systems, the Salesforce productivity, cold and very brief screens, 45, all those things to
spk06: going forward. I look at it as more sweetener. Sweetener in terms of a couple of things. Again, it's enhancements to our brilliant systems, enhancements to patient's compliance. What happened? Let's say you turn those on early October. Well, because of those enhancements, we were able to capture patients and revenue that otherwise would have been in Q2 and Q3. We picked up in Q4. So a good guy there on a go-forward basis now. our revenue per test, or ASP, is higher, and our patient compliance rate should improve on a go-forward basis. And you see it in other ways. You see things like our DSO improvement improved by 15 days year-on-year. So overall, that team has done a really good job at enhancing our overall billing systems and processes. On a runway basis ASP for Cologuard, the right way to think of this is around $480 of revenue per test. There are some puts and takes there, and obviously you've got This newer age group, 45 to 49, for a while, it carried a lower revenue per test as we built up the insurance coverage. There's also some other classes like Medicaid that rightly so come in about 80% of the Medicaid oftentimes. But again, here the team has done a nice job. And longer term, I think we can work that rate towards $500.
spk14: Your final question comes from the line of Dan Leonard from Credit Suisse. Your line is open.
spk07: Hello, thank you for taking the question. So I have a question on your precision oncology guide. It doesn't seem like you're expecting much from OncoExtra. Is that accurate? And could you walk through the path for some of these new products like OncoExtra and MRD to contribute to the sales ramp in precision oncology? Thank you.
spk06: I could start and then maybe Edward can jump in. So what's big is the PO guide globally. U.S., and we've talked about this for a long time, given the strong current market position as a class, the penetration rate there is over 70%. We do a nice job within that. Given that strong position, the growth in the U.S. for the architect DX business, think of low single digits. This is prevalence plus maybe a point. Now, the strength of that foundation will allow us to launch other programs like OncoExtra, like MRD, providers here, cancer products. Internationally, the growth there is, let that business think of kind of $150 million a year right now. Growth there over time should be double digits for many years to come. Year to year can be a little different depending on which markets open up that year. This year, the big new market that we expect to come online is Japan mid-year. So what's baked in is stronger growth in the U.S., but it's not that we won't get the full year impact from Japan, so it It's not strong double-digit growth this year. It's probably high single or double-digit. I'll go extra. There, I think it's considered north of $10 million of revenue this year. It is the first year of launch. I know that, Everett and the team are excited about the launch, but it's early, so we'll come back to you and look forward to providing updates as the year unfolds there.
spk05: Everett, did they ask you? Yeah, this is Ed. We often talk about the productivity of our Cologuard sales and marketing team. launch of OncoXtra a couple of weeks ago. The training team and marketing team did a great job of preparing our sales organization to launch it day one. And again, the granularity of who we're focused on, on who we need to drive OncoXtra was really evident at our launch of OncoXtra. And we're already generating orders. So as Jeff said, we're going to look to hit, exceed our target for OncoXtra in 2023.
spk04: Yeah, and just to understand the differentiation of OncoExtra, this is an enhanced version of a therapy selection test, which is an ultra-comprehensive panel. It includes DNA and RNA. It detects the clinically actionable mutations and fusions, including whole exome, whole transcriptome sequencing. It also includes patient-matched tumor normal sequencing. And it has incredibly easy-to-interpret reports for FDA-approved therapies, immuno-oncology signatures, et cetera. And then one thing, Dan, you didn't ask this question, but that I don't think we touched upon was around the follow-up colonoscopy rule changes.
spk05: Everett, maybe you wanted to just touch on that. Absolutely. from our customers around Cologuard was, hey, if they get a positive Cologuard test, that patient is burdened with paying for the follow-up colonoscopy. CMS in commercial last year made the positive development that there will be no copay, zero copay for follow-up colonoscopy. Our organization is now focused on getting that message out. It takes time. We have to educate over 300,000 primary care physicians and health systems on that new ruling. But we're really excited about that new development legislation, and we're out there every day talking about the positive development.
spk03: And this does conclude today's conference call.
spk14: Thank you for your participation. You may now disconnect.
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