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Exact Sciences Corporation (EXAS) Q4 2022 Earnings Call Transcript

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Exact Sciences Corporation (NASDAQ:EXAS) Q4 2022 Earnings Conference Call February 21, 2023 5:00 PM ET

Company Participants

Megan Jones - Investor Relations

Kevin Conroy - Chairman and Chief Executive Officer

Jeff Elliott - Chief Financial Officer and Chief Operating Officer

Everett Cunningham - Chief Commercial Officer

Conference Call Participants

Derik De Bruin - Bank of America

Andrew Brackmann - William Blair

Dan Brennan - Cowen

Vijay Kumar - Evercore ISI

Catherine Schulte - Baird

Brandon Couillard - Jefferies

Matt Sykes - Goldman Sachs

Jack Meehan - Nephron Research

Mark Massaro - BTIG

Dan Arias - Stifel

Puneet Souda - SVB Securities

Patrick Donnelly - Citi

Andrew Cooper - Raymond James

Dan Leonard - Credit Suisse

Operator

Good morning. My sanction is Rob and I will beryllium your convention usability today. At this time, I’d for illustration to invited everyone to nan Exact Sciences Fourth Quarter 2022 Earnings Conference Call. [Operator Instructions] Thank you. Megan Jones, Senior Director, Investor Relations, you whitethorn statesman your conference.

Megan Jones

Thanks, Rob. Thank you for joining america for Exact Sciences 4th fourth 2022 convention call. On nan telephone coming are Kevin Conroy, nan company’s Chairman and CEO and Jeff Elliott, our Chief Financial Officer and Chief Operating Officer. Everett Cunningham, our Chief Commercial Officer, will besides beryllium disposable for questions. Exact Sciences issued a news merchandise earlier this day detailing our 4th fourth financial results. This news merchandise and today’s position are disposable connected our website astatine exactsciences.com.

During today’s call, we will make forward-looking statements based connected existent expectations. Our existent results whitethorn person worldly differences from specified statements. Discussions of non-GAAP figures and reconciliations to GAAP figures are disposable successful our net property merchandise and descriptions of nan risks and uncertainties associated pinch Exact Sciences are included successful our SEC filings. Both tin beryllium accessed done our website.

I will now move nan telephone complete to Kevin.

Kevin Conroy

The spot of our instauration supporting nan champion brands successful crab diagnostics puts america successful a starring position to proceed delivering innovative crab tests, accordant gross maturation and profitability. We are utilizing this level to help forestall cancer, observe it earlier and guideline curen for much patients globally.

Achievements successful 2022 that helped fortify our activity see surpassing 12 cardinal cumulative group tested for cancer, including 10 cardinal pinch colder expanding our world web of ordering healthcare professionals to much than 350,000, increasing halfway gross $380 cardinal year-over-year, becoming adjusted EBITDA profitable successful nan 4th quarter, completing enrollment of BLUE-C, our pivotal study to support our next-generation Cologuard and colon crab humor tests, and generating grounds for our multi-cancer early discovery and molecular residual illness tests.

Over nan past decade, we person built a high-quality level to present precocious crab tests astatine scale. We person invested heavy successful our people, laboratory infrastructure, exertion systems, objective evidence, plans and customer experience. This level is fueling nan businesslike maturation for our existent tests and complete time, it will substance nan adjacent activity of caller crab diagnostics. Our wellness strategy customers employment astir U.S. healthcare professionals and activity to amended nan value of attraction while reducing costs. They are incentivized to attraction connected preventive care, including crab screenings, today, galore phases unit shortage starring to a inclination of much in-home services specified arsenic Cologuard.

Advanced crab testing – successful precocious crab testing, wellness systems proceed to inquire for less partners to meet their needs, a complete scope of high-quality, impactful tests, wide security coverage, EMR integration and information sharing capabilities. Exact Sciences is uniquely positioned to present connected these needs, because we person nan broadest offering of innovative crab tests, patient-focused services, EMR integration capabilities and payer relationships. This year, we will summation take of Cologuard and Oncotype DX, create an moreover amended customer acquisition and beforehand our cardinal pipeline programs successful colorectal cancer, multi-cancer early discovery and molecular residual disease.

Jeff will now talk our financial results and outlook for 2023.

Jeff Elliott

Thanks, Kevin. Good afternoon. Fourth 4th gross of $553 cardinal grew 17% aliases 28%, excluding COVID testing. Screening gross of $404 cardinal accrued 45%, including 3 points of maturation from PreventionGenetics. For nan year, screening gross accrued 30% organically. During nan quarter, 10,000 caller healthcare professionals ordered Cologuard, bringing nan full to much than 302,000 since launch. Precision oncology gross decreased 4% to $143 million, excluding nan waste of our prostate business and a $2 cardinal FX headwind maturation of 1%. COVID testing gross decreased 87% to $6 million. Fourth 4th GAAP gross separator was 70%. Non-GAAP gross margin, excluding nan amortization of acquired intangibles, was 73%. Net nonaccomplishment was $128 million. Adjusted EBITDA was $5 million, an betterment of $120 million, demonstrating nan powerfulness of nan Exact Sciences platform. We ended nan twelvemonth pinch rate and securities of astir $630 million. Our full liquidity is astir $840 million, including disposable in installments facilities.

Turning to guidance, we expect full gross betwixt $536 cardinal and $551 cardinal during nan first 4th and $2.265 cardinal and $2.315 cardinal for nan year. This assumes screening gross betwixt $390 cardinal and $400 cardinal for nan first 4th and $1.66 cardinal to $1.69 cardinal for nan year; precision oncology gross betwixt $143 cardinal and $148 cardinal for nan first 4th and $600 cardinal to $620 cardinal for nan year; and COVID gross of $3 cardinal for nan first 4th and $5 cardinal for nan year. For nan year, this implies 18% maturation for screening, 5% maturation for precision oncology, excluding nan waste of our prostate business and 14% wide growth, excluding COVID testing and nan prostate sale.

We exited past twelvemonth pinch wide momentum, which is driving a beardown first quarter. This is particularly existent successful our screening business, wherever we are seeing nan benefits of past investments and awesome execution from our team. We expect to dress up to $25 cardinal of adjusted EBITDA for nan year. This assumes non-GAAP gross separator of astir 73% for nan year. Our industry-leading gross margins are powering affirmative adjusted EBITDA and a clear way to free rate travel arsenic we proceed investing successful maturation and efficiencies.

We expect full GAAP OpEx to summation mid single-digits for nan year. This includes an absolute alteration successful income and trading offset by accrued G&A and R&D. Last year, G&A was reduced by $57 million, chiefly from a non-cash summation related to nan Thrive acquisition earn-out. In summation to cycling against that successful this year, we expect $19 cardinal successful non-cash disbursal arsenic we accrue for nan earn-out payments. R&D is expanding to support our multi-cancer and MRD programs. And we expect CapEx this twelvemonth to beryllium astir $120 million.

I will now move nan telephone backmost to Kevin.

Kevin Conroy

Thanks, Jeff. Cologuard is becoming nan preferred colorectal crab screening choice. During nan 4th quarter, astir 160,000 healthcare professionals ordered Cologuard, a caller grounds and nan complaint of group we surface deed an all-time high. We are starting 2023 pinch tailwinds, including stronger healthcare master condemnation successful Cologuard arsenic our frontline screening test, accrued user awareness, improved physics ordering and an enhanced integer diligent experience. Also reached 0.5 cardinal group screened pinch Cologuard betwixt ages 45 and 49. As of nan 4th quarter, we estimate Cologuard grew to 9% penetration of nan much than 90 cardinal group ages 50 to 85 successful nan colon crab screening market. For nan astir 20 cardinal 45 to 49-year-olds, penetration grew to much than 8%, conscionable 18 months aft it was included of that property group was included successful USPSTF guidelines. Screening group successful nan mid to precocious 40s will supply recurring gross for decades arsenic we activity to support them screening each 3 years until they are 85.

Cologuard maturation is supported by nan astir powerful income and trading squad successful crab diagnostic. We prosecute pinch healthcare professionals much than 1 cardinal times each twelvemonth and person much than doubled nan gross generated per relationship successful nan past year. We build marque nickname and loyalty by generating much than 15 cardinal impressions annually. Our commercialized squad supported by rigorous analytics will get moreover much businesslike complete clip and thief alteration income and trading costs arsenic a percent of gross while supporting growth.

Our precision oncology squad has guided curen physicians for much than 1.75 cardinal crab patients astir nan world, including a grounds 220,000 group past year. Oncotype DX will revolutionize bosom crab care. It is internationally recognized arsenic modular of attraction for patients pinch early-stage HR-positive HER2-negative bosom cancer, which represents astir half of bosom crab cases. We person an opportunity to effect moreover much lives by making Oncotype DX easy accessible to much women globally, offering OncoExTra, our enhanced therapy action trial pinch DNA and RNA study and moving pinch our biopharma partners to create caller targeted crab therapeutics. Thanks to our team, trusted Oncotype DX marque and heavy oncology relationships, we tin powerfulness amended curen decisions that are circumstantial to each patient’s disease.

Our precocious R&D expertise successful level screening and precision oncology will thief get our pipeline tests to much patients quickly. We made meaningful advancement successful each of our cardinal pipeline programs past twelvemonth by completing nan enrollment of our BLUE-C pivotal trial, which included much than 26,000 people. Presenting 2 studies, including 4,200 samples showing nan powerfulness of our multi-cancer early discovery trial and initiating and enrolling studies that will reply cardinal questions clinicians and payers person erstwhile evaluating our molecular residual illness tests. We are completing nan last steps of our BLUE-C proceedings and expect to person apical statement next-generation Cologuard information mid-2023 earlier submitting to nan FDA for approval.

We expect to person 2 further sets of multi-cancer early discovery information this year, further validating our multi-market people attack wherever we move to a larger prospective trial. We besides scheme to validate and make our tumor-informed molecular residual illness trial disposable to colon crab patients later this year. Our ngo is to make an earlier detection, a regular portion of aesculapian attraction to thief eliminate cancer. Our level profoundly embedded modular of attraction trial and pipeline of life-changing diagnostics will powerfulness years of maturation and continued profitability, helping america to execute our mission.

Thank you. We are happy to unfastened nan statement for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first mobility comes from nan statement of Derik De Bruin from Bank of America. Your statement is open. Derik De Bruin, your statement is open.

Derik De Bruin

Hi, it’s Derek. Sorry astir that. I had nan shut up on. So tin you conscionable – truthful a mates of points, truthful a mates of questions. I deliberation nan first 1 is I conjecture what were nan cardinal marketplace changes that drove immoderate of nan accrued momentum successful Q4 and nan guideline was amended than expected peculiarly for Cologuard and for 2023? And that’s one. And past conscionable I person gotten a bunch of questions from investors lately astir nan competitory scenery extracurricular of liquid biopsy. There is simply a mates of companies that are advancing immoderate of their stool based colon crab screening trial and besides conscionable benignant of nan scenery for Oncotype arsenic it benignant of goes o-U.S., location is simply a small spot much competitory opportunities retired there. Can you conscionable benignant of talk done nan mates of questions? Thanks. And I will unopen up.

Kevin Conroy

Let’s first reside nan momentum that we saw passim nan 4th fourth and nan commencement of nan year. A batch of this is conscionable nan consequence of nan investments that we person made complete time, nan beardown request for non-invasive screening – colon crab screening tools. So you person immoderate structural tailwinds, including nan easiness of physics ordering that has taken a important magnitude of effort, clip engagement pinch ample wellness systems to present physics ordering done our Epic and EMR capabilities, accrued marque consciousness astir Cologuard. Health systems are highly incented to thrust their colon crab screening scores and they are often now reaching retired to america to inquire for a partner who tin thief them amended their value measures, attraction gaps, etcetera. We are seeing GIs person a unit shortage and location is simply a greater attraction successful nan endoscopy suite connected diagnostic colonoscopies and GIs are ordering Cologuard astatine a higher complaint arsenic superior attraction physicians are certainly. Our income and trading team, I conscionable can’t show you really proud we are of nan activity that they person done and proceed to do beryllium it their efficiency, their engagement is turning nan tide and really making Cologuard our first-line screening choice. Also, of course, nan 45 to 49-year property group. 18 months ago, nan guidelines changed to little from agwe 50 to 45. And we judge Cologuard is starring successful position of marketplace stock coming and nan penetration is impressive. If you return nan 4th fourth number of tests and extrapolate that, we judge we are – nan penetration is astir 8%, arsenic I mentioned earlier. Jeff, I don’t cognize if you want to adhd immoderate colour to that?

Jeff Elliott

Yes. Just to adhd what Kevin said physics bid conscionable a huge, immense twelvemonth past year. Recall erstwhile we started nan pandemic backmost astir 20%, 30% of Cologuard orders for 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 nan road. As we motorboat caller products, we will motorboat correct into that foundation. So overall, a deeper relationship to wellness systems. In Q4, I deliberation arsenic we talked before, Derik, we picked up a small spot of other upside from enhancements we made some to our diligent compliance motor and our billing systems. So again, these added to nan upside, they were nan sole origin of it. The logic I bring those up is because erstwhile we added these enhancements, which will use connected a run-rate basis, we will get amended compliance and amended – benignant of amended ASPs going forward. When we added those enhancements, we typically pulled guardant a spot of gross from Q2 to Q3. So see that catch-up gross that added a small spot much successful Q4, truthful you really can’t return Q4 and extrapolate that. Now I person sewage half of Q1 successful nan books now. I deliberation a small spot of that catch-up revenue, again, from nan building enhancements, diligent compliance enhancements, is spilling into Q1, that’s portion of nan spot successful Q1 and past conscionable everything Kevin said should continue. I cognize location is questions connected competition.

Kevin Conroy

Yes. In position of competitory dynamics, erstwhile you look astatine Cologuard, Cologuard group its modular of attraction astatine a very precocious barroom successful colon crab screening. Cologuard 2.0 aliases what we telephone nan next-generation Cologuard will raise that bar. And we conscionable haven’t seen information indicating immoderate different testing modality that approaches that precocious level of capacity for detecting crab aliases detecting precancerous polyps and having a precocious specificity rate. And you person to beryllium observant erstwhile you return a look astatine data, is it apples-to-apples, what are nan underlying drivers, really ample is nan study, really good powered, et cetera, etcetera? So we consciousness awesome astir nan competitory positioning. There is truthful overmuch much to Cologuard than nan trial is an tremendous finance altogether, astir $1 cardinal invested successful an IT infrastructure, a commercialized team, a laboratory squad and capacity that is requires a multibillion dollar finance to beryllium capable to scope nan hundreds of thousands of ordering healthcare providers and nan tens of millions of patients. Oncotype DX is successful a people of its own. It’s nan only trial pinch nan level of grounds that you person seen pinch TAILORx and RxPONDER. As a result, it has a starring position successful nan U.S. and globally. So these are nan 2 champion brands successful diagnostics. We will support investing successful them. And they person go modular of attraction without adjacent successful position of that Cologuard and its sample type than Oncotype DX. It would beryllium very difficult to replicate that level of evidence. So we are proud of these programs and proceed to expect large things successful nan future.

Operator

Your adjacent mobility comes from nan statement of Andrew Brackmann from William Blair. Your statement is open.

Andrew Brackmann

Hi, guys. Good afternoon. Thanks for taking nan questions. Kevin, possibly 1 for you and benignant of building disconnected immoderate of that stool-based commentary there, conscionable benignant of recognizing 2.0 information is going to come, I deliberation you said astir midyear. Can you conscionable benignant of springiness america an update connected wherever you expect those information to travel in? Anything successful peculiar you would constituent to arsenic we put together those scorecards for that information and benignant of nan longer word benefits of nan model? Thanks.

Kevin Conroy

We expect Cologuard 2.0 to person improved specificity, truthful a little false-positive rate. And we would, connected a secondary basis, we dream to spot immoderate betterment successful nan precocious adenoma discovery rate. The main extremity is to little nan mendacious affirmative rate. We person designed Cologuard pinch much circumstantial markers. We besides expect to spot improved costs efficiencies and different aspects of Cologuard testing. So that is wherever we – that’s what we expect. Of course, we won’t cognize until we complete each of nan validation testing, and we expect that to hap midyear.

Operator

Your adjacent mobility comes from nan statement of Dan Brennan from Cowen. Your statement is open.

Dan Brennan

Great. Thanks for nan questions, guys. Maybe first one, conscionable connected nan rescreen successful nan 45 to 49 and past conscionable 1 mobility connected nan EBITDA guidance for ‘23. So Jeff, tin you conscionable clarify, truthful 8% penetration tally complaint successful 4Q? It seems for illustration person really been number we’re coming up pinch $130,000 cash. Is that successful nan ZIP code? It’s what, 20 cardinal group successful full and you disagreement that by 3 to get nan addressable for Cologuard, that’s for illustration 6.6 million. And past you sewage – you had 8% penetration successful 4Q. So we conscionable took 4th of that and 8% of that. So possibly a small clarity connected nan mathematics location and really we – and benignant of really we deliberation astir – I cognize you guys don’t want to disclose excessively overmuch connected these. But since they are material, it’d beryllium awesome to understand really you’re reasoning astir nan effect for lease screening 45 to 49 successful 2023? And past nan 2nd 1 would conscionable beryllium connected nan $25 cardinal positive of adjusted EBITDA, I guess, dollars ex-stock comp successful 2023. So if you exited 4Q pinch $5 million, conscionable wondering if that’s a blimpish number since I would expect you guys to person immoderate bully momentum contempt each nan investments that you’re doing. So I would person thought it’d beryllium a precocious number successful ‘23. Maybe you could conscionable speak done immoderate of nan drivers there? Thank you.

Jeff Elliott

Sure. A batch there. Obviously, Kevin talked astir 45 successful rescreen conscionable being important maturation drivers, and that will proceed for a agelong time. Last year, we person put retired guidance for $45 cardinal of astatine slightest $100 cardinal of revenue. We hit that nicely. And for rescreen, we said astatine slightest $220 million, we hit that nicely. So, some person really bully momentum. This year, we expect rescreens to astir 20% of gross successful total, and that should turn from there. Eventually, this becomes half of our gross and $45 cardinal should person a beautiful akin trajectory arsenic 3 streams. Huge drivers there. In Q4, you benignant of talked astir nan wide penetration complaint for 45. And conscionable to beryllium clear connected nan meaning here, we’re looking astatine nan excavation of patients, which is astir 20 cardinal group and saying that Q4 tally rate, telephone it astir 125,000 group tested. If you set that for nan interval and nan annualized it we were astatine astir 8% penetration into that younger property group. The logic we highlighted that is Cologuard sewage location successful astir 18 months aft USPSTF line inclusion for nan younger property group. You opposition that to nan 50 and supra property group, which is that’s been nan biggest diagnostic motorboat successful history. We’re astatine 9% location today. So nan constituent location is really 45 is increasing very, very quickly.

The mobility connected adjusted EBITDA, what we are guiding to is level to $25 cardinal adjusted EBITDA for nan year. This really speaks to nan powerfulness of nan platform. You’ll callback that we had accelerated nan way to profitability. It was going to beryllium ‘24, nan mid-‘23. It yet sewage location and past successful ‘22. For nan twelvemonth now, what we’re guiding to is complete $150 cardinal of adjusted EBITDA maturation connected an incremental adjusted EBITDA separator ground we are talking complete 75% incremental. So nan guidance is nan astir apt result of astir apt what nan squad has delivered here. These are very proud of these numbers, it’s a important betterment year-on-year, and it puts america successful a position to really proceed investing successful maturation and efficiencies and delivering profitability to investors.

Operator

Your adjacent mobility comes from nan statement of Vijay Kumar from Evercore ISI. Your statement is open.

Vijay Kumar

Hey, guys. Thanks for taking my question. Jeff, 1 successful your – I conjecture I had a two-part question. The 2.0, Cologuard 2.0 results, I cognize you mentioned accrued specificity, and you expect an summation successful precocious adenoma sensitivity. Is location immoderate consequence arsenic you return up that specificity that nan sensitivity for crab perhaps, it drops? I cognize fixed AA sensitivity going up, possibly that’s not nan case. But possibly conscionable talk to us, is location immoderate consequence present from a sensitivity position heading into these results? And connected adjusted EBITDA, Jeff, really should we deliberation astir those leverage levels going forward, nan incremental leverage mathematics that you conscionable laid out, should that clasp existent erstwhile we deliberation astir ‘24 and ‘25? Thank you.

Kevin Conroy

Well, I return nan first part, Jeff, and you return nan 2nd part. So we would expect nan crab sensitivity to beryllium astatine aliases supra 90%. We would expect location successful nan vicinity of 100 crab samples successful nan study. So it’s successful nan – if you callback successful nan DeeP-C study, we had 65 samples. So what person we done to amended nan likelihood of success. We, number one, summation nan powering of nan study; number two, we’ve done a important magnitude of activity to comparison nan existent type of Cologuard pinch nan next-generation type of Cologuard successful samples, including samples from nan DeeP-C study. So we person a head-to-head comparison which gives america assurance that Cologuard 2.0 is – performs amended than Cologuard 1.0. You tin ne'er power each of nan consequence because nan basal organization has changed aliases for example, you spot a batch much smaller cancers, harder-to-detect cancers. You don’t cognize that and you can’t power them for it. So what we person done is developed nan very champion trial pinch nan champion markets, nan astir businesslike and powerful DNA seizure technologies and deploy that into nan study. And we look guardant to opening nan results of nan study and sharing them pinch you, and that’s our reasoning connected that. Jeff, possibly you return nan 2nd one.

Jeff Elliott

Yes. This is Jeff. On nan leverage question, look, this exemplary has been built to standard to consciousness efficiently, yet present affirmative free rate flow, which we expect to scope successful ‘24. Can we prolong 75% positive incrementals. I dream so, but that’s a beautiful gangly order, Vijay. When I deliberation astir leverage going forward, nan champion measurement to do it is to thrust a really beardown apical line. I cognize each squad are going to do that. We’ve sewage immoderate bully levers to propulsion erstwhile I locomotion done nan P&L, reasoning of gross margin. We’re targeting complete 80% gross separator for nan 2 cardinal products here, Cologuard and oncotype. Oncotype is there, I’m assured Cologuard will get location complete time. So I expect immoderate bully gross separator improvement. G&A, this year, I talked astir that Thrive earnout costs is driving higher G&A maturation connected a GAAP basis, but you set for that it’s mid-single-digit growth. Over time, nan G&A leverage will improve. Sales and marketing, possibly location is really to make judge we’re ever investing successful nan smart growth, a bully driblet there. So we’re seeing a really bully leverage wrong income and marketing. R&D, nan measurement we will get leverage location is to attraction connected nan highest effect opportunities, and Kevin has talked astir those today. Over time, arsenic we get nan benefit, Cologuard to nan MRD programs, multi-cancer arsenic we get nan use from those programs, that will thief thrust further leverage done nan P&L.

Operator

Your adjacent mobility comes from nan statement of Catherine Schulte from Baird. Your statement is open.

Catherine Schulte

Hi, guys. Thanks for nan question. And acknowledgment for showing that descent connected rep productivity. It’s awesome to spot Cologuard gross per section continuing to inclination upwards. But I’m funny what’s that number, what look for illustration pre-COVID and if you tin talk to wherever you deliberation that number should spell complete time?

Jeff Elliott

Hey, Catherine, this is Jeff. Pre-COVID, I deliberation location is simply a batch of moving pieces there. When you deliberation of nan Pfizer relationship, it’s a awesome partnership. It conscionable does alteration nan move arsenic well, which is why we focused connected nan quarters that we displayed connected nan descent deck. Going forward, wherever tin it spell successful truth tin start, but ever successful please chime in. And location is simply a agelong ways to grow. When you deliberation of that marketplace penetration number astatine 9% and that 50 positive property group, longer term, I’m assured we tin get to astatine slightest 40%. And I deliberation we’ve already sewage a beardown squad successful place. So I expect that productivity to spell measurement up each nan time, but Kevin?

Kevin Conroy

No, thanks, Jeff, and thanks, Catherine, for nan question. I’m really proud of what nan commercialized squad has done complete nan past years since we’ve launched Cologuard, and we proceed to germinate nan commercialized team. There is galore things that are contributing to nan productivity. I’ll conscionable item a mates of things. Number 1 is nan measurement successful which we’ve evolved our territories, we’ve cleaned up nan overlap successful territories, which person driven deeper customer relations. And I deliberation that’s driving a batch of nan acceptance of why now Cologuard is simply a preferred prime for screening. Number two, we usage information and analytics now successful position of who to telephone on, erstwhile to telephone on, really often we telephone connected those customers. And we’re conscionable overmuch amended now successful looking and knowing precisely what to telephone it for nan growth, and we reappraisal those analytics and who we’re calling connected a play and monthly, very rigorous process successful our commercialized organization. We conscionable don’t do it centrally, but we’re now doing it arsenic a marketplace and area level of wherever that execution is happening.

And past Jeff mentioned – benignant of mentioned successful position of we’re going to ever put for growth. We’re really focused connected wellness systems. That’s wherever a batch of our customers and patients are. We’ve accrued our magnitude of relationship executives astatine nan wellness systems level, and nan conversations now that we’re having astir nan screening is our wellness systems are now coming to america and really tin we partner for those difficult to surface patients wherever they request to adjacent nan attraction gaps. We saw a batch of that astatine nan tail extremity of 2022, and that’s going to proceed successful 2023. I consciousness bullish that our productivity will proceed to improve.

Operator

Your adjacent mobility comes from nan statement of Brandon Couillard from Jefferies. Your statement is open.

Brandon Couillard

Hi, thanks. Good afternoon. Just a two-part mobility successful position of nan guideline for nan year, Jeff, what’s embedded for nan banal comp expense? And then, Kevin, conceptually speaking, if nan apical statement is, let’s say, moving up of scheme arsenic we move done nan year, would it beryllium your penchant to reinvest immoderate of those dollars but still present connected nan profitability target aliases would you fto that driblet down? Thanks.

Kevin Conroy

Brandon, this is Jeff. The first one, it’s connected comp. I deliberation we’ve fixed you nan – benignant of each nan pieces betwixt erstwhile you look astatine nan gap, nan woody maturation successful FX, adjusted EBITDA. So I deliberation you tin – banal comp is astir apt nan biggest portion betwixt there. If you look astatine past year, which you person that you’ll person successful nan lawsuit you do already, it’s going to turn from location arsenic if you look backmost astatine nan headcount maturation complete time. But I deliberation that’s capable to springiness you nan mathematics betwixt nan GAAP number and adjusted EBITDA number. Second mobility connected reinvestment.

Jeff Elliott

So successful position of investment, we’re still making tremendous investments successful caller merchandise programs. We’ve touched connected nan 3 large ones, colon cancer, multi-cancer early discovery and nan MRD program. So we besides person immoderate insignificant programs that we’re moving connected successful liver esophageal crab and endometrial cancer. We’re making those investments today. We’re making important investments successful our IT infrastructure. So we selectively reinvest immoderate of those profits? Yes. Are we bias towards and starring towards letting that autumn through? The reply is, yes. The full institution is connected committee pinch that. They are driving to it. We’re each rolling together arsenic 1 squad to show nan profitability motor that we have, and that’s very important to us.

Operator

Your adjacent mobility comes from nan statement of Matt Sykes from Goldman Sachs. Your statement is open.

Matt Sykes

Hi. Good afternoon. Thanks for taking my questions. Maybe nan first 1 conscionable connected compliance. Jeff, you mentioned immoderate of nan enhancements you were making to compliance. And if we adhd successful nan rescreen opportunity complete time, could you possibly thief america framework wherever you deliberation compliance tin spell to for Cologuard complete nan adjacent twelvemonth aliases two? And past – and conscionable secondly, I’ll inquire them some upfront. But secondly, conscionable connected Oncotype extracurricular of nan U.S., I deliberation you mentioned that benignant of nan main maturation area for you. Could you possibly talk astir what you spot arsenic benignant of nan maturation complaint for ex U.S. wrong Oncotype for this year? Thanks.

Jeff Elliott

Yes, this is Jeff. I deliberation I’ll grip some of those. Cologuard diligent compliance, nan measurement we typically study this retired is looking astatine statistical 12 to 18 months prior. That complaint is successful nan mid-60s percent, truthful astir 2 of nan 3 patients comply pinch Cologuard. Over time, expect that to spell supra 70% – perchance is 75%. The logic why I’m assured we will get location is that connected rescreening patients, nan wide diligent compliance complaint is 15 to 20 points higher than first statement patients. So complete time, that’s going to beryllium a large driver of wide assistance successful nan patient’s compliance rate. And we’re making important investments to heighten that customer experience, amended ways for outreach, amended ways inactive akin to Cologuard. And complete time, that will people bring that diligent compliance complaint up.

The 2nd mobility connected Oncotype DX world growth, location is simply a important runway ahead, acknowledgment to nan spot of nan squad there, nan spot of nan grounds that Kevin alluded to, Oncotype globally is opening up successful caller markets done reimbursement and access. What we’ve baked into this twelvemonth is successful nan U.S., maturation location is approaching prevalence positive a constituent aliases so. So I deliberation of benignant of debased to mid-single digits. International will turn faster. It tin beryllium easy into nan double digits depending connected caller markets that launched wrong a fixed year. This, you expect Japan, which could yet beryllium nan biggest marketplace extracurricular nan U.S. We expect Japan to travel connected perchance midyear, and that tin beryllium a large driver starting midyear and into adjacent year.

Operator

Your adjacent mobility comes from nan statement of Jack Meehan from Nephron Research. Your statement is open.

Jack Meehan

Thanks. Good afternoon. My questions for Kevin are connected nan humor screening programs. First, tin you springiness an update connected nan humor information of BLUE-C? When you expect that to publication out? And past second, connected MCAD, talked astir validating further markers, tin you conscionable talk astir really that mightiness beryllium akin aliases different to what you presented astatine ESMO and what that mightiness mean for clip statement for nan SOAR study?

Kevin Conroy

Sure. On nan first program, we haven’t fixed circumstantial guidance arsenic to erstwhile nan colon crab humor programme will publication out. The squad that is focused connected our colon crab programs are focused some connected stool, Cologuard 2.0 and blood. There is simply a immense magnitude of effort that is required to anterior to testing samples. So location is simply a rigorous analytical validation studies that are required verification studies, package improvement and validation. And truthful location is an tremendous magnitude of rigor that goes into that and preparing nan automation full programme and submission that goes to nan FDA. You don’t deliberation changes easily. So you request to make judge that, that – nan manufacturing capacity and each nan studies are locked down. So nan Cologuard 2.0 next-generation Cologuard is first, and past that squad will displacement its attraction to nan validation and verification studies for CRC humor afterwards. In nan coming quarters, we will supply much clarity arsenic to erstwhile that pivotal study from nan humor information of nan CRC programme will beryllium complete.

In position of nan MCAD marker validation study, we person interim and afloat tests of nan trial designed benignant of a lockdown study anterior to moving into nan ample prospective study. That study, we expect to publication retired this year. So 2 different studies will publication retired during nan year, and that is simply a overmuch larger type of nan information that you saw astatine ESMO past year. That is – that will fastener down our last marker classes. And past we expect SOAR to commencement adjacent year. We would expect that to commencement successful nan first half of adjacent year. And each of nan squad correct now is moving connected perfecting nan test, making judge that, that trial and nan automation surrounding it is locked down earlier we commencement that study. Again, erstwhile you commencement a prospective study aliases a crab screening test, you don’t make changes to that product. So it’s wholly lockdown.

Operator

Your adjacent mobility comes from nan statement of Mark Massaro from BTIG. Your statement is open.

Mark Massaro

Hey guys. Thanks for nan mobility and congrats connected nan progress. My first 1 is connected MRD. So, it’s awesome to spot your planned LDT motorboat later this twelvemonth successful colorectal cancer. When tin we expect to spot further data, which would support reimbursement? And person you had discussions pinch immoderate Medicare contractors? And past my 2nd mobility is connected nan Thrive multi-cancer initiative. I admit that further information will beryllium rolling retired this year. But maybe, Kevin, tin you conscionable springiness america a sense, this is not for illustration you are rolling retired an LDT. This is benignant of a higher risk, bigger opportunity. What types of factors do you deliberation mightiness alteration nan scenery complete nan adjacent fewer years that could possibly summation nan probability of success? And past tin you springiness america a consciousness for nan size of nan diligent enrollment? Is it location adjacent nan 80,000 to 100,000-plus mark?

Kevin Conroy

Okay. So, nan first mobility successful position of what are nan things that are going to alteration to make a multi-cancer early detection, this full class of testing much apt to beryllium successful. Certainly, Congress creating Medicare use class is 1 that’s important. And we expect that authorities to beryllium reintroduced successful this Congress. Remember, past year, location were much than 50% of Congress were cosponsors, adjacent number of Democrats and Republicans. So, we are moving difficult correct now to make judge that Medicare beneficiaries will person entree to nan unthinkable caller class of testing. The grounds that is being built by Exact for illustration others successful this section shows awesome committedness for nan expertise to displacement nan shape of crab and discovery crossed many, galore different types of cancers, from later stage, much difficult-to-treat crab to earlier cancers wherever nan therapy often is room pinch an intent to cure. That’s a large shift. And nan much grounds that is generated that we – location is much excitement that is being built successful this space. We judge that we person a important advantage because of nan spot of our Cologuard screening team, infrastructure, laboratory capability, etcetera, perfectly positions america for success. This is going to play retired complete a agelong play of time. We judge location are good northbound of 100 cardinal group successful nan U.S. alone, galore much extracurricular nan U.S. that are going to use from nan test. And nan cardinal takeaway present is that location is nary therapy arsenic effective arsenic earlier detection. Earlier discovery intends your therapy scheme is going to beryllium very different. And that’s nan extremity of program. We are excited astir it. We are committed to making this happen. And we are doing nan activity to – nan rigorous technological activity to create nan champion test.

Everett Cunningham

Mark, you had besides asked connected MRD. So, we scheme to people astatine an upcoming technological convention successful nan tumor-informed type of tests. Recall, we are moving connected some tumor informed and tumor-naïve, by tumor-informed information to colon crab puts america 1 measurement person to bring that trial to market, which we scheme to do later this twelvemonth versus an LDT. Next year, we will taxable retrospective prospective information to MolDx, hoping to unafraid affirmative [ph] pinch that. Behind nan scenes, we person been moving connected pivotal studies for some colon and breast, truthful that’s what helps that we deliberation nan modular for grounds successful this space. We consciousness good. Same point pinch multi-cancer and leveraging nan instauration we built successful superior care. MRD, fixed our positioning pinch oncologists, immoderate nan squad has done location building deep, heavy relationships. As you know, 98% of oncologists person ordered Oncotype DX from us. So, we deliberation we tin leverage nan aforesaid spot of nan commercialized instauration into MRD.

Operator

Your adjacent mobility comes from nan statement of Dan Arias from Stifel. Your statement is open.

Dan Arias

Good day guys. Thanks. Kevin, backmost connected nan pipeline, conscionable immoderate update connected nan thoughts astir commercialization for Cologuard 2.0, I deliberation astatine 1 point, that was a imaginable ‘23 event. So, conscionable funny if that’s still a possibility. And past really limited connected that, would commercialization beryllium connected conscionable capacity and information astir nan trial versus different factors for illustration income training, reimbursement, etcetera? Thanks.

Kevin Conroy

Sure. We expect, Dan, to taxable this year, and it’s astatine slightest six months pinch nan FDA earlier approval. So, that puts america into adjacent twelvemonth pinch nan launch. A batch of prelaunch activity will spell on. Certainly, that motorboat will incorporated nan caller and different sensitivity and specifics specificity. And past immoderate of nan agelong mundane aspects of motorboat would see nan billing codification for nan caller type of Cologuard does it change, doesn’t it alteration payer relationships, Medicare, etcetera, you request to do a batch of activity location earlier you move complete to a caller test, laboratory automation changes, etcetera. So, that will beryllium a very thoughtful modulation from nan awesome existent type of Cologuard to an moreover amended type of Cologuard. The bully point is we person a awesome trial successful Cologuard today, and it’s each upside for patients, wellness systems and an nonstop subject to shareholders erstwhile we bring nan caller invention to patients.

Everett Cunningham

And conscionable to adhd to that, callback that precocious past year, we pulled ahead. One of nan cardinal benefits of Cologuard 2.0, we pulled up internally what we telephone Cologuard 1.5. What Cologuard 1.5 did is it extended nan stableness of that diligent sample by a third. That’s important because it helps to get much of those tests backmost to our laboratory pinch nan sample we still utilized without expiring. So to-date, this caller type of nan kit, this caller Cologuard 1.5 has helped complete 45,000 samples that travel backmost to our laboratory without expiring. Now, immoderate of those we could person gone connected to recollect before. But it creates an wide amended diligent experience, much gross for us, amended gross margins for us. So, nan squad is not opinionated by idly, by immoderate intends they are pulling up this large benefit. Overall this year, that will summation completed tests by astatine slightest a point.

Jeff Elliott

And past commercially, we are already there. We cognize our targets, obviously, arsenic Kevin said, pinch Cologuard connected nan marketplace now, it will beryllium a seamless modulation from a trading and trading standpoint.

Operator

Your adjacent mobility comes from nan statement of Puneet Souda from SVB Securities. Your statement is open.

Puneet Souda

Yes. Hi Kevin and Jeff. Thanks for taking nan questions. So, nan first 1 is you mentioned nan 8% penetration for 45-year-old to 49-year-old. What’s nan ceiling for that penetration fixed nan momentum you are seeing here? And past connected nan data, I mean should we beryllium expecting that astatine AACR aliases ASCO aliases later successful nan twelvemonth astatine ESMO? Thank you.

Kevin Conroy

I will return nan first part. Jeff, tin you return nan 2nd part. In position of nan ceiling, we deliberation that nan ceiling is higher than nan 40% penetration that we person agelong guided to for Cologuard successful that earlier property group because group who are 45-year-old to 49-year-old typically are busier than retirees, and it’s much of a situation for them to schedule a screening colonoscopy, which tin return 1.5 days of your life. Typically your, a information of your week that you are usually working. So, we besides person been capable to amended and scope group digitally, our integer investments and societal media trading will summation complete time. So, Cologuard is simply a trial that fits wrong their license, do we get to 50% to 60% penetration that wouldn’t astonishment maine complete clip successful that property group. And what you are seeing is you are seeing nan endoscopy suites are very, very engaged today. Any conception that Cologuard was going to slowdown nan business of gastroenterologists endoscopy suite is conscionable not going to beryllium accurate, successful fact, to thief them to focus. But nan – and location is an opportunity for Cologuard, and is being ordered much often successful that diligent organization because nan consequence of colon crab is little and GIs are – and wellness systems are focusing connected getting those group screened, it goes into their colon crab value ratings done Cologarud, visiting past week pinch superior attraction physicians who person very engaged practices – their attraction connected Cologuard. One agency I met was switched 100% to Cologarud, why, because nan GIs are truthful engaged successful that portion of nan state that they don’t want to spot much mean consequence patients. So, we spot that Cologuard will proceed to turn because it’s easy, it’s astatine home, it’s accurate. Jeff, I deliberation location was a 2nd portion of that…

Jeff Elliott

Hello, this is Jeff. The Exact squad has done a really bully occupation generating a wealthiness of grounds to thief build retired this caller category. As Kevin talked about, location are 2 sets of information coming this year. The first one, I don’t deliberation we will get AACR, I don’t cognize nan convention for sure, but I would deliberation midyear connected nan first group and past a afloat clip being for nan 2nd set. When we do what convention though, we will fto you know.

Operator

Your adjacent mobility comes from nan statement of Patrick Donnelly from Citi. Your statement is open.

Patrick Donnelly

Hey guys. Thank you for taking nan question. Jeff, possibly 1 for you conscionable connected benignant of nan cadence of nan twelvemonth coming retired of nan beardown 4Q, I cognize moreover going backmost to nan convention successful January, you were talking astir 4Q had immoderate benefits. I deliberation you mentioned nan billing enhancements connected nan telephone here. No surprise, 1Q down sequentially connected Cologuard. Can you conscionable talk about, are we getting backmost to that normal seasonality? Obviously, again, 4Q had that awesome inflection. You talked astir each nan factors there. So, really do we deliberation astir that going guardant into ‘23? It’s been a weird mates of years, obviously, successful position of nan impacts you guys person seen. So, really do you deliberation astir nan cadence of this twelvemonth some connected nan apical statement pinch Cologuard and past besides possibly connected nan EBITDA side, if location is thing we should beryllium looking retired for location successful position of disbursal timing? Thank you.

Jeff Elliott

So Patrick, nan emblematic cadence of Cologuard hasn’t changed. There – it’s really driven by superior attraction utilization trends. So, what those are is that we typically started nan twelvemonth if group are coming disconnected nan holidays, deductible conscionable reset. So, superior attraction and usage is to beryllium little successful January. Things build until Memorial Day astatine nan extremity of May. And past complete nan summer, that typically flatter arsenic emblematic vacations and our attraction is overmuch connected superior care. At astir mid-August aliases Labor Day, things prime backmost up and typically climb beautiful steeply until Thanksgiving timing and past slowdown complete nan holidays arsenic group spell connected to again vacations. And what that intends for Cologuard, location is astir a 30-day lag betwixt superior attraction visit, and we would admit revenue. That’s typically why you spot a measurement down from Q4 to Q1. And I only expect that to alteration going forward. However, our business is becoming much predictable. More predictable, we get much unchangeable maturation drivers, arsenic Exact squad person done a really bully occupation building retired a full wealthiness of different drivers. It’s not conscionable tied to 1 point anymore. From Q1 this twelvemonth standpoint, location is simply a mates of unsocial things that are happening. Everybody is seeing nan flu data. The flu is really mild this year, comparative to astir years, and flu usually a headwind to america and others successful early Q1. That headwind has really not existed this year. So, I deliberation almost equal, Q1 a small stronger this year. Also immoderate of nan carryover benefits that I talked astir earlier from enhancements to some our diligent compliance motor and our billing systems, we are picking up a small spot of a catch-up gross connected some those things. So each told, Q1 seasonally stronger this twelvemonth arsenic you deliberation astir phasing passim nan year, don’t expect that aforesaid sequential build Q1 and Q2 this year, arsenic you would normally. From an adjusted EBITDA standpoint, Q1 typically has nan lowest profitability of nan twelvemonth because of nan apical statement being a small lighter seasonally, and expenses are a spot higher arsenic you rotation into a New Year, and we person sewage immoderate unsocial income and trading events successful Q1 also. So, lighter profitability successful Q1, but wide spot to nan twelvemonth from a profit standpoint, again, important pickup year-on-year successful adjusted EBITDA.

Operator

Your adjacent mobility comes from nan statement of Andrew Cooper from Raymond James. Your statement is open.

Andrew Cooper

Hi everybody. Thanks for sneaking maine successful present towards nan end. Maybe first, conscionable Jeff, you mentioned immoderate of nan anterior play collections and immoderate of nan improvements successful compliance. Can you springiness america a consciousness for precising of that successful nan 4th quarter? And past I deliberation it was astir a twelvemonth ago, possibly this telephone past year, you talked a small spot astir a chance for pricing and ASP to proceed to climb a small bit. So, tin you conscionable springiness america an update, person you been capable to seizure a small spot much connected benignant of apples-to-apples ASP and what that looks for illustration and really that impacts to move to profitability arsenic good arsenic successful a beautiful steep driblet down there?

Jeff Elliott

Andrew, successful Q4, nan guidelines business exceeded expectations. This is nan things that Kevin person ever talked about. It’s nan spot of nan relationships pinch wellness systems, nan income unit productivity. Cologuard rescreens, 45 and each those things drove nan upside. The logic I called retired immoderate of these different items is because we didn’t want to do to return successful Q4 and past immoderate that’s benignant of nan caller guidelines tally complaint going forward. I look astatine it arsenic much sweetener successful position of a mates of things. The enhancements to our billing systems, enhancements to patients compliance what happened to, let’s say, you move those connected early October. Well, because of those enhancements, we were capable to seizure patients and gross that different would person deed successful Q2 and Q3, we picked up successful Q4. So, it’s a bully guideline location connected a go-forward ground now, our gross per trial aliases ASP is higher, and our diligent compliance complaint should amended connected a go-forward basis. The – and you spot it successful different ways, you spot that things for illustration our DSO betterment improved by 15 days year-on-year. So, each that squad has made done a really bully occupation astatine enhancing our wide benignant of billing systems successful nan processes. On a run-rate basis, ASP for Cologuard, nan correct measurement to deliberation of this is astir $480 of gross per test. There are immoderate puts and takes there. And obviously, you person sewage this newer property group 45 to 49. For a while, that was – it carried a little gross per trial arsenic we built up nan security coverage. There are besides immoderate different classes for illustration Medicaid that rightly truthful travel successful astir 80% of nan meta waste and acquisition disconnected astatine times. But again, present nan squad has done a bully job. And longer term, I deliberation we tin activity that complaint towards...

Operator

Your last mobility comes from nan statement of Dan Leonard from Credit Suisse. Your statement is open.

Dan Leonard

Hello. Thank you for taking nan question. So, I person a mobility connected your Precision Oncology guide. It doesn’t look for illustration you are expecting overmuch from OncoExTra. Is that accurate? And could you locomotion done nan past for immoderate of these caller products for illustration OncoExTra and MRD to lend to nan income ramp successful Precision Oncology? Thank you.

Kevin Conroy

I tin commencement and possibly Everett tin jump in. So, what’s baked successful nan PO guideline globally, U.S. and we person been talking astir this for a agelong time, fixed nan beardown existent marketplace position, arsenic a class, that nan penetration complaint location is complete 70%. We do a bully occupation wrong that fixed nan beardown position, nan maturation successful nan U.S. for nan Oncotype DX business, I deliberation of low-single digits. This is prevalent positive possibly a point. Now, nan spot of that instauration will let america to motorboat different programs for illustration OncoExTra, for illustration MRD, for illustration nan Riskguard, which is nan hereditary crab product. Internationally, nan maturation location is that business deliberation of benignant of $150 cardinal a twelvemonth correct now. Growth location complete clip should beryllium double digits for galore years to come. Year-to-year, it tin beryllium a small different depending connected which markets opened up that year. This year, nan large caller marketplace that we expect to travel online is Japan midyear. So, what’s baked successful is stronger maturation successful nan U.S., but it’s not that we won’t get nan afloat twelvemonth effect from Japan. So, it’s not beardown double-digit maturation this year. It’s astir apt precocious azygous aliases low-double digit guidelines in. OncoExTra, location I deliberation it’s considered northbound of $10 cardinal of gross this year. It is nan first twelvemonth of launch. I cognize that ever nan squad are excited astir nan launch, but it’s early. So, we will travel backmost to you and look guardant to providing an update arsenic nan twelvemonth unfolds there. Everett, will you return that?

Everett Cunningham

Yes. I will conscionable add. We often talk astir nan productivity of our Cologuard income and trading team. My hats disconnected to our Precision Oncology income and trading team. We had nan motorboat of OncoExTra a mates of weeks ago. The training squad and trading squad did a awesome occupation of preparing our income statement to motorboat it time one. And again, nan granularity of who we are focused on, connected who we request to thrust OncoExTra was really evident astatine our income and marketplace – astatine our motorboat of OncoExTra. And we are already generating orders. So, arsenic Jeff said, we are going to look to deed provender our target for OncoExTra successful 2023.

Kevin Conroy

Yes. And conscionable to understand nan differentiation of OncoExTra. This is an enhanced type of a therapy action test, which is an ultra broad panel. It includes DNA and RNA, it detects nan clinically actionable mutations infusions, including [indiscernible] full transcript connected sequencing. It besides includes diligent matched tumor normal sequencing, and it has an incredibly easy to construe consequence reports for FDA-approved therapies, immunooncology signatures, etcetera. And past 1 thing, Dan, you didn’t inquire this question, but I don’t deliberation we touched upon was astir nan follow-up colonoscopy changes. Everett, possibly you want to conscionable touch connected that?

Everett Cunningham

Absolutely. Thanks Kevin. One of nan biggest objections from our customers astir Cologuard was hey, if they get a affirmative Cologuard test, that diligent is burdened pinch paying for nan follow-up colonoscopy. CMS and commercialized past twelvemonth made nan affirmative improvement that location will beryllium nary co-pay, zero co-pay for colonoscopy. Our statement is now focused connected getting that connection out. It takes time. We had to amended complete 300,000 superior attraction physicians and wellness systems connected that caller ruling. But we are really excited astir that caller improvement legislation, and we are retired each time talking astir nan affirmative development.

Operator

And this does reason today’s convention call. Thank you for your participation. You whitethorn now disconnect.

Editor: Naga



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