Exact Sciences Q4 2024 Earnings Call Transcript

Quartr
Provided by Quartr
February 19, 2025

There are 18 speakers on the call.

Operator

Good day, everyone, and welcome to the Exact Sciences Fourth Quarter twenty twenty four Earnings Call. Today's call is being recorded. All live lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star one on your telephone keypad.

Operator

I would now like to turn the conference over to Derek Lekko, Vice President, Investor Relations. Please go ahead, sir.

Speaker 1

Thanks, operator. Thank you for joining us for Exact Sciences' fourth quarter twenty twenty four conference call. On the call today are Kevin Conroy, the company's Chairman and CEO and Aaron Bloomer, our Chief Financial Officer Brian Baranek, our General Manager of Precision Oncology, will also be available for questions. Exact Sciences issued a news release earlier this afternoon detailing our fourth quarter financial results. This news release and today's presentation are available on our website at exactsciences.com.

Speaker 1

During today's call, we will make forward looking statements based on current expectations. Our actual results may be materially different 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.

Speaker 1

Thanks, Derek. Good afternoon, everyone. Our purpose is to help eradicate cancer by preventing it, detecting it earlier and guiding personalized treatment. We are making this a reality by extending and leveraging our platform. Highlights in 2024 include delivering more than 4,600,000 results to patients with our portfolio of cancer tests growing core revenue 11%, while non GAAP operating expenses grew just 2% increasing EBITDA by 48% and more than doubling free cash flow securing FDA approval and Medicare pricing for Cologuard Plus, our next generation colon cancer screening test completing two studies for Onco Detect, our molecular residual disease test generating evidence for our liquid biopsy colon cancer screening test as well as our multi cancer screening test, CancerGuard and being recognized as a great place to work for the sixth consecutive year.

Speaker 1

This year, we'll increase adoption of our current tests and launch three new tests. Exact Sciences' scale and reach with a large commercial engine and tens of millions of additional touch points with patients and healthcare providers will power continued leadership across the largest impact opportunities in cancer diagnostics. We'll also create an even better customer experience with our secure ExacqNexus technology platform. Aaron will now discuss our fourth quarter financial results and outlook for 2025.

Speaker 2

Thanks, Kevin, and good afternoon, everyone. We're proud of our team's resilience and continued focus on operational excellence, enabling us to deliver another solid quarter. Fourth quarter revenue grew 10% or 11% on a core basis. Adjusted EBITDA increased 52% to $75,000,000 Screening revenue increased 14% to $553,000,000 dollars Growth was led by momentum in Cologuard adoption amongst providers, health systems and payers. On average, more than 900 providers became new Cologuard customers each week and 35 of the top U.

Speaker 2

S. Health systems and payers closed gaps in care with Cologuard, a new record. Our expanding customer base supports our long term growth outlook. Precision Oncology revenue increased slightly to 161,000,000 Growth in the quarter was led by increased adoption of Oncotype DX internationally. Adjusted EBITDA margin expanded nearly 300 basis points, driven by volume and expense controls.

Speaker 2

As a percentage of revenue, adjusted G and A improved more than 400 basis points. This allowed us to reinvest back into growth and innovation, while still meaningfully expanding margins. During the fourth quarter, we recognized an $830,000,000 non cash impairment charge related to the Thrive acquisition, which closed in January 2021. The write down reflects changes in external factors since the acquisition, primarily the expected reimbursement outlined in the recent MSED Act legislation. Additionally, to better reflect our current operations, costs related to customer care were reclassified from G and A to sales and marketing.

Speaker 2

For modeling purposes, we have included a quarterly view of our updated historical income statement within our 10 ks. Moving to the full year, core revenue grew 11% to $2,750,000,000 and adjusted EBITDA margin expanded nearly 300 basis points. We also strengthened our balance sheet in 2024 by more than doubling free cash flow, ending the year with $1,040,000,000 in cash and securities. Our strong free cash flow generation and outlook also allowed us to use cash on hand to repay the full $250,000,000 in maturing convertible notes. Turning to our 2025 guidance, including some key assumptions underpinning our outlook.

Speaker 2

We expect total revenue between $680,000,000 and $695,000,000 for the first quarter and between $3,025,000,000 and $3,085,000,000 for the full year. This assumes screening revenue between $520,000,000 and $530,000,000 for the first quarter and between $2,350,000,000 and $2,390,000,000 for the year and precision oncology revenue between $160,000,000 and $165,000,000 for the first quarter and between $675,000,000 and $695,000,000 for the full year. We expect $410,000,000 to $440,000,000 in adjusted EBITDA for the full year. Annual guidance at midpoint implies total revenue growth of 11%, including 13% in screening and 5% in precision oncology. In screening, we're including approximately two points of lift from Cologuard Plus, which will primarily benefit second half revenue.

Speaker 2

Cologuard Plus will initially be available in the second quarter to Medicare fee for service patients who represented about 15 of Cologuard volumes last year. We are also starting to add coverage with some commercial and Medicare Advantage plans and growth from price and volume acceleration will phase in over the next eighteen to twenty four months as we establish contracts with payers. Specific to Q1, please recall first quarter screening revenue tends to be down sequentially because of seasonal trends. Primary care utilization is lower in December and early January because of the holidays. This impacts screening revenue during the first quarter due to the normal timing between a Cologuard order and a completed test.

Speaker 2

Additionally, about two thirds of care gap revenue in 2024 was recognized in the second half and our 2025 outlook assumes similar phasing. In precision oncology, we expect steady Oncotype DX growth in The U. S. And strong double digit growth internationally again this year. Shifting to profitability, guidance at midpoint implies two twenty basis points of adjusted EBITDA margin expansion.

Speaker 2

Key drivers include volume leverage across our fixed cost structure, price from Cologuard Plus and continued OpEx leverage in productivity, especially within G and A as well as in our lab and supply chain. These initiatives allow us to reinvest back into near and long term growth areas, including educating patients and providers about the benefits of Cologuard, the launch of Onco Detect and research and development to support continued innovation. Back to you, Kevin.

Speaker 1

Thanks, Aaron. Our efforts to get more people screened with Cologuard are setting the stage for a strong 2025. The number of people eligible for their next Cologuard test grows about thirty percent to two million this year and the rate of rescreening is at an all time high. Health systems and payers are turning to Cologuard as the standard of care within large organized screening programs. Our expanded field sales team is deployed in new territories and are actively engaging with the highest potential ordering providers.

Speaker 1

Our sales team has completed training on Cologuard Plus and will become even more productive as we launch one of the most accurate cancer screening tests ever developed. These tailwinds will fuel growth for years to come, improve screening rates and help decrease sales and marketing costs as a percentage of revenue over time. Exact Sciences is uniquely positioned to guide a cancer patient's journey every step of the way. Last year, our precision oncology team delivered actionable insights for a record 230,000 patients around the world. We're leveraging our trusted Oncotype DX brand, deep oncology relationships and global footprint to increase adoption of our broad portfolio.

Speaker 1

These advantages will continue powering strong double digit growth internationally for Oncotype DX, which has become the global standard of care and holds the preeminent position in cancer guidelines. We are applying the same approach with Onco Detect by generating clinical evidence and positioning it as a vital tool for patients. We recently published data in the Journal of Surgical Oncology showcasing the clinical strength of Onco Detect. Results from a well designed study of monitored colon cancer patients found those with a positive Onco Detect test were 50 times more likely to recur than those with a negative result. The study also demonstrated that Onco Detect identifies residual disease up to 10 earlier than imaging, the current standard of care.

Speaker 1

Findings from a second clinical validation study extended the test prognostic benefits for patients with stages two through four colorectal cancer. Earlier this month, we submitted results to Medicare for reimbursement. We remain on track to launch Onco Detect in the second quarter. We're also generating rock solid clinical evidence for Onco Detect across multiple solid tumor types, including breast cancer. Shifting to multi cancer screening, we shared new evidence in the fourth quarter supporting our test CancerGuard.

Speaker 1

The data showed at a ninety eight point five percent specificity, overall sensitivity, excluding breast and prostate cancer was sixty two point three percent, sensitivity was sixty seven point one percent for the most aggressive cancer types. This was from the ASCEND2 study. We remain on track for the launch of a laboratory developed test version of the test in the second half of twenty twenty five through our large screening and precision oncology commercial organization and unique Exact Nexus technology platform. We're also making progress with our blood based colon cancer screening test and remain on track to share top line results from our pivotal BLUCEAS study by the middle of twenty twenty five. Our blood based colon cancer screening test features unique science and a differentiated cost profile.

Speaker 1

Once available, it will be supported by our existing commercial infrastructure along with the patient navigation program embedded within Exact Nexus. We will use these capabilities to deepen our leadership in colon cancer screening, while ensuring patients and providers understand Cologuard as the superior non invasive test. Exact Sciences platform, deeply embedded standard of care tests and pipeline of innovative diagnostics put us in the best position to make early detection and personalized treatment routine. This year is set to be the most productive in company history with continued execution from our team and the launch of three significant advancements in diagnostics. This will power years of growth and profitability, helping us achieve our purpose.

Speaker 1

Before we turn to questions, I'd like to congratulate Eric Holzneck and his wife Katie on the birth of their son. We have big plans for him when he returns from parental leave. We'd also like to welcome Derek Lecco to the Exact Sciences team as our new Head of Investor Relations. We're now happy to answer your questions.

Operator

Our first question comes from Catherine Schulte, Baird.

Speaker 3

Hey guys, thanks for the questions. Maybe first just starting on screening guidance, you're calling for 13% growth for the full year. Some acceleration throughout the year is implied there. So maybe just talk about the build, what growth drivers get you excited as we get into the back half. And then if we look back to your 2027 outlook that you laid out at your Investor Day, it will also take some acceleration over the next few years to hit that target.

Speaker 3

So maybe just talk through your confidence there and some of the opportunities that might drive that acceleration. Thanks.

Speaker 1

Yeah. Thanks, Catherine. We're really excited about 2025. It's set up to be another great year. We enter the year with tailwinds including rescreens, CareGet programs, Cologuard Plus launch, commercial execution, obviously, strength of our platform, our commercial reach, our payer relationships, the IP platform, Exacq Nexus.

Speaker 1

And then we're launching three new tests this year, three of the tests in the largest areas of opportunity, colon cancer screening, Coguard Plus, Onco Detect in MRD and Cancer Guard and multi cancer screening. Aaron?

Speaker 2

Yeah. Building up through then the building blocks of what our growth is in 2025 for screening, you know, it starts with rescreens. The success rate continues to steadily improve. The pool of patients eligible for a re screen is gonna grow again, this year from one point six million patients in '24 to 2,000,000 in 2025. We continue to make, improvement and progress in terms of driving adherence in that as well.

Speaker 2

And then it's a huge engine for growth for us, driving more than 30% growth in that space alone. Next is care gap programs. This continues to rapidly expand. We expect to build on the momentum that we generated from 2024. We talked about the launch of Cologuard Plus.

Speaker 2

We expect about two points of price for the full year. Most of that's gonna be back end weighted. And so if you're looking at the sequential, you'd have about a three to four point impact on screening growth in the back half of the year alone. You know, there's a lot of heavy lifting that's gonna have to go into preparing for that launch and, you know, we're making progress already in terms of contracting with with commercial and med advantage payers. And then lastly, you know, we've made a number of changes to drive improved commercial execution.

Speaker 2

You know, we're starting to see green shoots of positivity with that customer base and and off to a solid start to the year.

Operator

Up next, we'll take a question from sorry, sir, go ahead. In

Speaker 2

terms of here, the point on the long term guide. Really pleased with the progress we've made and confident in our long term goal, both in terms of growth and on profitability. There's no change to our thinking in terms of long term goals on either growth or profitability. Our 2025 guidance includes modest assumptions from Cologuard Plus. That's going to ramp up as we head into 2026 and 2027 over time as we begin to work to renegotiate those contracts with payers.

Speaker 2

And then on the margin side, made great progress again in 2024. We're expecting another two twenty basis points implied in the guide in 2025 and multiple levers to continue to drive margin expansion towards that 2027 outlook.

Operator

And up next, we'll hear from Doug Schenkel, Wolfe Research. Mr. Schenkel, your line is open. Please check your mute button.

Speaker 4

Okay. Thank you for that. Good afternoon, everybody. Thanks for taking my questions and congrats to both Derek and Derek. Two questions then I'll get out of the way.

Speaker 4

The first is on your press release and in your prepared remarks, you talked about 2025 possibly being the most productive year in the history of the company. Can you just unpack that a little bit and just define what you mean by that as you think about balancing the launch of a record number of products in the single year, the goal of driving robust Cologuard revenue growth and volume growth and also demonstrating that you can do all of those things while growing SG and A at a rate that is meaningfully below sales, essentially giving us more operating leverage. I just want to see how you're balancing those three big things as you talk about the most productive year in the history of the company. And then the second question is just a guidance question. In terms of MCED and MRD contributions in guidance, how are you thinking about those?

Speaker 4

Essentially, what's in guidance for both of those numbers at the revenue line? Thank you.

Speaker 1

Yes. Thanks Doug. I'll take the first part and pass it over to Aaron. I think you hit upon the reason we're looking at what we believe will be the best year in our history. Not only do we expect to see continued strong growth with Cologuard with a lot of drivers there, But as you mentioned, we're launching three really impactful tests.

Speaker 1

I think we've resourced this in an appropriate aggressive way and we're seeing lift not only in the top line, but also margin expansion. So we are we have a team that is capable of doing each of these things. We have two different businesses led by strong general managers and teams that are highly motivated. We just had our big global sales force meeting a couple of weeks ago and the team is you know, energized by these new product launches, which have been born of multiple years of intense R and D and clinical trial efforts.

Speaker 2

Yeah. And then just on the sales the SG and A productivity, you know, G and A unpacking that specifically, that's gonna continue to be the largest driver of margin expansion for us over time. Doug, a lot of work has been done. There's more to do and there's a lot more that we can and will do within G and A. On sales and marketing, you know, we're really pleased with the leverage and productivity that we got out of 2024.

Speaker 2

As an example, revenue per rep in Cologuard continues to go up. We saw that go up in 2024. We'd expect that to continue to go up again in 2025. If you think about the in unpacking, investing in the product launches that we have in in 2025, we feel good about the resources that we have to be able to support Cologuard Plus, dropping that into the infrastructure that we've got. Similar for CancerGuard, we're gonna leverage the existing Salesforce that we have.

Speaker 2

And then MRD, you know, it's a new product in a new space for us, and we're gonna look to invest to make sure that that launch is successful. On the comment of just how much do we have, contemplated within the guide on both CancerGuard and and MRD, we're really looking forward to launching both of those products in 2025. You know, we have a modest impact. You know, we just submitted, results recently to MolDX on MRD and we'll provide updates throughout the year as we launch.

Operator

Up next, we'll hear from Tycho Peterson, Jefferies.

Speaker 5

Hey, thanks. I want to maybe probe a little bit on the margin outlook because you are guiding a little bit below the street on EBITDA. So can you is the spending on sales and marketing going to be a little bit higher than you previously telegraphed? And are you able to cut deeper on G and A? Is that kind of the takeaway here?

Speaker 5

And maybe, Aaron, can you talk about whether these are programs that are in flight at this point on G and A? And then a follow-up on blood. I just want to make sure the blood assay is locked down. It seems like there's still some debate on whether the assay is locked down. Thanks.

Speaker 2

Tycho, again, really pleased with the progress we made on margin expansion in 2024. I think puts us in a really strong position, walking into our longer term outlook of 20 plus percent by 2027. If you look at the guide in 2025, it is another two twenty basis points of margin expansion and that's 30% growth. You know, we've outlined there's kind of four key drivers that we're gonna look to deliver margin expansion over the long haul. Starts with growth and fixed cost leverage across our labs, supply chain, G and A.

Speaker 2

We're also driving productivity now, across each one of those organizations along with a lot of our enabling functions. We'd expect to get a meaningful lift from Cologuard Plus, on the margin line, you know, we called out about two points this year. That's gonna have an even more meaningful impact as we head into 2026 and 2027. And then lastly is on on G and A optimization, which is an area we've made a lot of progress. It was the biggest driver of margin expansion in '24.

Speaker 2

There is more work that we that we will do there. Specific then to a couple of the components of the P and L in 2025, starting with gross margin, we'd expect modest gross margin expansion in 2025. That's going to come through, volume leverage, Cologuard Plus pricing. If you think about, you know, the current products that we have on market, Oncotype DX, Cologuard, we see a path to 80% plus gross margins, through both productivity initiatives as well as the Cologuard Plus pricing. G and A, you know, as I mentioned, that's gonna be a huge driver of margin expansion for us moving forward.

Speaker 2

There is more to be done. Pleased with where we're at. More to come. Areas that we're gonna invest in, R and D. R and D, we're gonna continue to invest in in growth and innovation in R and D, largely in CRC and MRD.

Speaker 2

And think about in 2025, at about a similar percent to sales investment is what we had in 2024. Rounding out then with sales and marketing, again, pleased with the leverage and productivity we had in 2024. '20 '20 '5 is a year end of investment, of note within supporting the launch of MRD. But we would expect to get leverage on that line of the P and L again over time. Kevin?

Speaker 1

Yes. And Tycho, we're going to try to limit this to one question a piece. If nobody answers asks a similar question, we'll come back to that at the end. Thanks.

Operator

We'll go next to Matt Sykes, Goldman Sachs.

Speaker 6

Hi, good afternoon. Thanks for taking my question. Maybe just along the lines of the commercial team for this year given the number of new launches you've got and just given some of the challenges you had in Q3 of last year. Can maybe just talk a little bit about maybe some changes you made post that? What were some of the new focus for the sales team going into this year based on some of the lack of acceleration we saw from Q3 to Q4 last year?

Speaker 4

Yes.

Speaker 1

Thanks for that. And we're really happy that as of the end of last year, we have the appropriate sized field rep team and coverage heading into this year. Those reps are armed with the data that they need to achieve the region frequency to make sure that we're calling on the right primary care healthcare providers also on the precision oncology side, the right oncologist, pathologist, surgical oncologist, and they're armed with the right data. So we're pleased with where the team is. At the big sales meeting, they were extensively trained on new products, Cologuard Plus.

Speaker 1

On the screening side, just having Cologuard Plus, which reminder is 95 sensitivity, 94% specificity. There isn't really any other, colon cancer screening test that is close to that. So, you know, you have colonoscopy as a procedure, of course. But that the power of those, all of these, kind of recharging of the field force left that team incredibly excited heading into the new year. We believe this will have an impact and it's going to take a couple of quarters to see start to see the impact.

Speaker 1

But there are a couple of things that we really are pleased with. Number one, the total calls are up and the calls percentage of calls on the right healthcare providers are up. This is a leading these are both leading indicators of enhanced focused activity in the screening sector. This has proven to have worked historically. And just a reminder that there are 50,000,000 to 60,000,000 people left on screen.

Speaker 1

So we have an opportunity to do better this year in the our core customer base and especially those customers who are new to Cologuard in the last three years. That's why we start the year with a high level of excitement and believe we can execute very well.

Operator

We'll go to Dan Brennan from TD Cowen.

Speaker 7

Great. Thank you. Thanks for the questions. Congrats. Just on Cologuard Plus, Kevin, I'm just wondering you're baking in a price benefit given the higher price, but I'm wondering if you're baking in any volume lift.

Speaker 7

It is materially better test. So you guys are always surveying doctors. I'm just wondering kind of what you're hearing from the field and is there a chance that you could see conversion of some of the docs that have stayed on the sidelines with Cologuard? And then just kind of related more broadly to Cologuard, if you would, I guess, we'll hear from Guardant tomorrow night. But I'm just wondering, it's obviously very early in the blood launch, but any color from the field that you're hearing on the profile of Cologuard as it compares to the Shield test as it's early in its launch?

Speaker 7

Thanks.

Speaker 1

Yes. Thanks, Dan. Why don't I take the first question again on blood, we'll come back to that. I'm sure somebody will ask that question. Cologuard Plus, again, 95% sensitivity, 94% specificity.

Speaker 1

We are leading with Cologuard Plus. We expect that launch in Q2 and early in Q2. And because of the high level of performance, we're seeing a high level of healthcare provider engagement. It's new. It's powerful data.

Speaker 1

And there's a high level of excitement both in the field force and in the customer base for a test with that level of performance. Will we see a volume? We believe we will. We're also leading with the message of Cologuard first. That means that we're driving people to think about Cologuard as the way to the first way to think about screening.

Speaker 1

And there have been, experts who have looked at the question of, this big huge backlog in screening, fifty million to 60,000,000 people not up to date. Experts estimate that there are only about six point there's a total U. S. Capacity of screening colonoscopy at 6,300,000. And if you only screen those six point three million and didn't use Cologuard or that test, you would miss ninety percent of the cancers in the population, in that onscreen population.

Speaker 1

You would find them symptomatically. And they also estimate, that then if you implement Cologuard, Cologuard has a significant impact on that detection rate and reducing, cost and improving output. So that's the power of Cologuard Plus is you find more, you send fewer to colonoscopy, it saves a ton of money to the healthcare system and more importantly, finds cancers earlier. And we will come back to blood based colon cancer screening.

Operator

The next question comes from Jack Meehan, Nephron Research.

Speaker 6

Good afternoon. It will be my honor to follow-up on Tycho's question, just ask the status of getting the colon blood test locked down and that leg of the blue C study? Thanks.

Speaker 1

Yes. So, the CRC blood test, which we haven't named yet is on track for middle of the summer in terms of when we expect to unlock the data. That test the team is working really hard to ensure that we are prepared to bring our very best effort with a with multiple marker class test and no new real new news to report there. The team continues to work on it. I'd like to say this, we are not seeing an impact on, in terms of our volumes because of any competitive dynamic.

Speaker 1

I want to again reiterate that this the problem of colon cancer is an enormous one in The U. S. With so many people not up to date with screening. And it's in order to squarely address the problem, there are some requirements to really be able to bring these tests up. And we will comment on our tests, not the competition.

Speaker 1

With respect to our tests, we believe that to have an impact that you need a minimum of Medicare coverage, FDA approval, USPS TF guideline inclusion, we think at the earliest now that's gonna be 2027, late '20 '20 '7, '20 '20 '8 could be delayed beyond that. And then it usually takes about a year to get into quality measures. Until you have that and a reasonably priced test, very hard to address that fifty million, sixty million patients with a blood based mortality. But there's a lot of opportunity to get more people screened. We believe blood testing will have some impact not like the impact that we've had with Cologuard and now Cologuard Plus.

Operator

And next up from William Blair is Andrew Brackman.

Speaker 8

Hi guys. Good afternoon. Thanks for taking the questions. And Derek, looking forward to working with you and Eric. I'm sure you're listening.

Speaker 8

Congrats again. Maybe on Cologuard Plus, can

Speaker 2

you maybe just talk about

Speaker 8

some of the progress you've made on the reimbursement front with commercial payers? What's been their receptivity to sort of this higher price? And also any change in tone from then just in light of the upcoming Braidwood case heading to the Supreme Court? Thanks.

Speaker 1

Yes, we'll take the first question. I'm sure somebody will come back to the second. Cologuard Plus reimbursement, as you know, we had a victory there with Medicare, which issued pricing of $592 that will apply initially to Medicare fee for service patients, which is about 15% of our volume today. We've also seen, a handful of payers cover the task and contract with us at that same price. That's the Medicare is the largest payer and that should be the floor on pricing.

Speaker 1

We expect that over the course of the next eighteen to twenty four months, we will work through our deep relationships with payers altogether. We have about 800 payers and over that period of time we expect to be able to contract. There have been one major payer, national payer that has already covered Cologuard from a policy standpoint, and also acknowledge the code for Cologuard. And then, there have been some smaller plans including a fairly large state blues plan that has covered and contracted. So we'll provide more color in quarters to come, but we like where we're starting.

Speaker 1

And we think it's a pretty clear path going forward, mainly driven by the performance of 95% sensitivity and a much improved false positive. That drives real value for players.

Operator

And the next question is Patrick Donnelly, Citi.

Speaker 4

Hey, guys. Thanks for taking the questions. Kevin, maybe another one on the pipeline side. I know you said maybe some of the tests aren't material this year.

Speaker 9

Can you just talk about,

Speaker 4

I guess, the pathway here on Onco Detect, the MRD side, CancerGuard, NSAID and then the unnamed blood CRC? Which of those do you feel like become material first? What does that trajectory look like? Just curious how you think about the path for the three of them and just the contribution on the revenue side as we look out over the next few years?

Speaker 1

Well, Cologuard Plus, of course, has the first and biggest impact. And then I would say probably, MRD followed by multi cancer screening. If you look at, you know, nearest term, long term act, you know, the multi cancer screening opportunity is one of the biggest opportunities in in all of cancer diagnostics. So we're in the fortunate position at three tests in the largest areas of it. Cologuard Plus and colon cancer screening, a well defined yet vastly under penetrated field OncoDetect in a fast growing hugely impactful area of MRD testing and CancerGuard in multi cancer screening.

Speaker 1

So I don't know which one is going to have the biggest impact long term. It's why we firmly believe that for a decade and beyond, we can deliver double digit growth, huge patient impact, growing profitability allowing us to continue to reinvest in large part because we've made these huge structural technology investments and commercial investments to allow us now to do this in a levered way.

Speaker 2

That's the beauty of it is we're going to be able to, with very attractive test economics, one of the best in the field, drop it into our existing commercial infrastructure and our Exact Nexus platform and get huge leverage on that as these tests scale over time.

Operator

The next question today comes from Vijay Kumar, Evercore ISI.

Speaker 9

Hi guys. Thanks for taking my question. Kevin, maybe on the last question around MRD, your comments here on this being perhaps a more near term opportunity. We had the data from Alpha, correct? I think there was some confusion on the data, the algorithm which was used.

Speaker 9

Could you remind us on what algorithm is being used in the BetaCorrect timing of when we can see the data for BetaCorrect? And based on those results, right, like how should we think about the revenue ramp? I think you submitted to more DX, how critical is that reimbursement? What percentage of population is that covered? And how do you compete against your largest competitor in that space?

Speaker 1

I think there's one overarching question in there Vijay and that's all about MRD. So why don't I pass it over to Brian Baranek, our GM of Precision Oncology.

Speaker 10

Thanks, Kevin. There was a lot in there. I'll start with the first question which was really around the adjustment we made to the cut point in our AlphaCorrect study. What I'll say here is that the teams were kept blind. These were independently validated, and we outlined all the methodology that we followed in the JSO publication that was referenced earlier in the call.

Speaker 10

We then took that algorithm into the BetaCorrect study. And if you reference the press release and the language we used within, that study, which is under embargo, will do a couple of things. One, it will confirm the performance of the assay in stage three colon. It will extend us into stage two, four colon cancer as well as all of rectal cancer. And then again, because the data is Envirogo, what we're going to say here is that we have we believe the data looks very promising, in the sub study of the Galaxy study and we look forward to sharing those results which we will do at ASCO, in the June timeframe.

Speaker 10

With respect to the overall MRD program, I mean, there's a lot of excitement within our team. If we just step back and think about where we are, we have a large underpenetrated market. There's over 6,000,000 patients just in The U. S. Alone that are within five years of their original cancer diagnosis.

Speaker 10

You layer on top of that a very, very large clinical unmet need. We're excited about the program, the alpha and beta correct data. We also believe that we have some really strong unique competitive advantages. You've heard reference to the exact Nexus platform several times on this call already. We think that's going to create a unique and differentiated customer experience.

Speaker 10

We arguably have one of the strongest, if not the strongest brands. Prior to genomic health, there really wasn't a market for high value centralized cancer diagnostics. We helped build that playbook. We intend to utilize that playbook and those skills to propel Anka to tech forward. And then we have a deep tenured sales team that quite frankly is hungry to leverage those relationships to bring new products to the patients and customers that they serve.

Speaker 10

So we're looking forward to the launch. We're excited, what we're going to do in Q2 and we look forward to driving forward.

Operator

The next question today is Subbu Nambi, Guggenheim Securities.

Speaker 11

Hey guys, thank you for taking my questions. Can I ask a follow-up to Vijay's question? Is the test performance expected to be consistent with what you were presented at ASCO GR or can it be better a few percent points either on the sensitivity or specificity?

Speaker 10

Yes. Thanks for the follow-up question. Unfortunately, the data is under embargo. Well, I'll go back to my previous statement and just say, we're encouraged. The data looks promising and we look forward to sharing the details.

Speaker 10

If you just look at the study that we published in the journal Surgical Oncology back in January, Kevin mentioned this earlier in the call, if you look at the performance of the assay, patients who were positive on Onco Detect were fifty six times more likely than a patient who was negative to go on and have a cancer recurrence. We showed ten month lead time to standard of care imaging and being able to spot that recurrence. And if you look at the longitudinal setting, the serial sensitivity and specificity was very competitive with other assays that are out there. The well known GALAXY study, we were excited to get access to a subset of that parent study and we look forward to sharing the data at ASCO and we've also got a number of investments in prospective clinical studies across colorectal breast and then the work that we announced with our partner Flatiron which will bring us into the multisolid tumor scenario as well.

Operator

Puneet Souda from Leerink Partners has the next question.

Speaker 2

Great.

Speaker 12

Thanks. So a simple one for me on pricing. Why shouldn't we see more than two points of lift from Cologuard Plus pricing? And what are the levers and pieces that you think that can potentially drive that higher versus what you provided? And wondering if you can give a pricing assumption from CancerGuard?

Speaker 12

Thank you.

Speaker 2

So the two points, assumes a launch in Q2 within the Medicare fee for service population, which as Kevin alluded to earlier, represents roughly 15% of Cologuard volume. And that obviously has now an increased value to Medicare of about 16%. Implied in the guide is essentially just that Medicare fee for service volume. Keep in mind too, there's there's a the typical lag between when we get an order in and when we recognize revenue, when we get that test back in our lab. And so most of the contribution from Cologuard Plus pricing lift is gonna be in the back half of the year.

Speaker 2

As Kevin alluded to earlier, we are, beginning those conversations with payers, to be able to renegotiate that price, and we'll give updates on that as we go on. Kevin?

Speaker 1

Yes. It's there's potential upside as we update contracts. And right now the assumption is that that's going to occur more beginning of next year than this year. So there is upside. The team is hard at work having those conversations.

Speaker 1

In terms of the CancerGuard price, we'll come back to that if somebody else asked that question. We're keeping

Speaker 7

the list.

Operator

And next up is Dan Leonard, UBS.

Speaker 13

Thank you. I have a question on your screening guidance for 2025, that 13% growth at the midpoint. I thought a few months ago, you were messaging that 15% would be a floor given Cologuard Plus pricing, rescreens, etcetera. Was hoping you could comment on that variance. And I'd love to learn more about what's changed in your thinking over the past

Speaker 1

three months. In what forum do you recall that we signal 15% growth?

Speaker 13

I think it was that, you know, analyst after party you have post the earnings call.

Speaker 1

Oh, no. Well, if you heard, it's some that is not something that we have ever messaged. Look, is there upside to our screening guide? Yes, there is. If we see the commercial execution impact in the second half, if we have more contracts updated in the first half of this year on the commercial side, Medicare Advantage plans, commercial plans, etcetera.

Speaker 1

But it's February right now. And as Aaron mentioned, we're seeing some green shoots in terms of the metrics around the re energized and enhanced sales force on the screening side. And we have some new product launches this year. So the our guide is our guide there on screening that's slightly higher I think than was than you saw last year. And we, the team is raring and ready to go.

Speaker 1

So I will just point to there are opportunities for us to continue to execute well on automating rescreens and getting more of those people who are due for their second, third or fourth Cologuard test screened as close to that three year anniversary as possible. And there is an opportunity for us to expand our CareGet flow. So we enter the year with a strong re screen, CareGap program, Coguard Plus and then commercial execution. Those are the four big levers. It's, we believe we're going to be able to execute this year.

Speaker 1

Dan, what

Speaker 2

we said at JPMorgan was that we are comfortable with where consensus was. And if you look at the midpoint of our guide for screening, it's right on where consensus was, which was 13% growth.

Operator

The next question is Bill Bonello, Craig Hallum.

Speaker 14

Hey, guys. Thanks for taking the call and welcome, Derek. So just given your comments that, you're seeing actually improvement in the rate of rescreen and we see a big uptick to the 2,000,000 people eligible, my sort of back in the envelope math, you know, it seems like the kind of implicit expectation on, people screened for the first time is that that population is maybe growing in the low to mid single digits. Is that kind of consistent with how you're thinking about the numbers?

Speaker 2

Hey, Bill. Directionally, your math isn't that far off with what we've included in our guidance. Important to keep in mind is, you know, care gaps are a channel for us to get more patients screened for the first time. With Cologuard, you know, Kevin alluded to a number of changes we've made into the to the commercial organization, really targeting the the newest ordering providers, that have the highest propensity, to order and and and drive growth for us moving forward. And and that's a that's a channel that we're gonna look to continue to grow over time.

Speaker 2

And the last thing I'd call out is, you know, we continue to target the younger population. Care gap is a great way for us to get get to that younger patient population, but you've also probably noticed some new ads and marketing experiences, that we're trying to deliver that to the younger patient population as well.

Operator

Up next is Sung Ji Nam, Scotiabank.

Speaker 15

Hi, thanks for taking the question. Just one on CancerGuard as well. Without having third party reimbursement when you launch, just could you elaborate a little bit more in terms of your go to market strategy there? You mentioned leveraging your existing sales force, but was curious kind of where you expect to see the biggest traction in terms of the different channels that you have there? Thank you.

Speaker 1

Yeah. You have huge leverage with the current existing deal force. Health systems are more it's amazing. They're more interested in CancerGuard at this point in the product life cycle than they were cold. And the question is why?

Speaker 1

And and and the why is they see a pressing need to identify cancers earlier to keep their patient population within their community cancer centers and to help those patients if they take care of for other needs. And so as we talk with large health systems through our large health systems sales team, we believe this is going to be a strong opportunity. Our field force in screening can't wait to get a CancerGuard. And our precision oncology team too has the ability, and there's a lot of excitement around the team delivering CancerGuard to those patients who've previously been diagnosed with cancer. And, we intend to do it at a price point.

Speaker 1

I think somebody asked a question about a price point. A price point that's likely differentiated and more amenable to out of pocket pay.

Operator

Next up is Eve Burstein, Bernstein Research. Hi there. Thanks so much for the question. I'd actually like to follow-up on Andrew's question about Braidwood. So my interpretation here is that if the court case is upheld when it's heard by the Supreme Court, recommendations from the USPSTF after March of twenty ten no longer need to be covered without any cost sharing.

Operator

So that means both Cologuard and any future blood tests would no longer need to be covered by private payers without that patient cost sharing. Is that correct? If so, how quickly could the no cost sharing be revoked by payers? Like, I imagine there are regulatory filings that don't allow for this sort of change without, some kind of warning. And then that's a pretty big hit to Exact Business.

Operator

How are you preparing or planning if the Supreme Court does uphold that appeal?

Speaker 1

We don't believe there's going to be a hit to the business because payers are highly motivated to get their patients screened in order to drive their quality measures. So as a result, the focus on prevention both from the health plan standpoint and also from the health system standpoint and obviously the patient standpoint remains high. And we don't expect there to be any significant changes because let's take for example, if a large payer decided to impose a co pay, whereas their competitors didn't, they're almost certainly to see a decline across the board in their quality measures associated with prevention. And they just can't afford to do that because of the bonuses that are tied to the perform the quality measure scores across the board. In terms of Braidwood, what is Braidwood?

Speaker 1

Braidwood is a lawsuit that challenges the Affordable Care Act requirement that insurers cover services with grade A or B recommendations from USPS with zero out of pocket costs. As you may have seen, the incoming administration, the Trump administration is taking the same position as the Biden administration in opposing this lawsuit. That is obviously a positive sign for the whole field of prevention. And we know again that payers are highly motivated to keep their screening scores. So we and also the plans for 2025 are already set.

Speaker 1

So even if anybody did want to change, they would have to wait until 2026.

Operator

The next question comes from Andrew Cooper, Raymond James.

Speaker 16

Hey, everybody. Thanks for the question here. A lot already asked, so maybe a little bit on precision oncology. When we think about the guide and we strip out assuming you did have call it that $10,000,000 or so Nexus transition headwind to close the year, it's a little bit slower. You should have a little bit of at least a little bit of Onco Detect dropping in.

Speaker 16

So maybe talk us through what the assumptions on are there and why that can't grow a little bit faster? And then related, I think Aaron in a previous answer you called out sales and marketing some investments behind Onco Detect. In the past, we've talked about that more as another arrow in the quiver for the Onco Type DX sales force. So maybe what's changed or where does that incremental spend need to go to support Onco Detect in terms of the commercial team?

Speaker 2

Hey, Andrew. So just in terms of the full year guide, yeah, kind of mid single digit growth for PO. We would expect a tailwind from the exact nexus change. One, the non repeat of it, but two, just that we know from putting things on the exact the exact nexus platform that the cash collection rate will increase over time. You think about, like, the the core business, you know, growth is, again, gonna be led by international, anticipating, you know, strong double digit growth from our oncology business internationally again.

Speaker 2

And then in The US, just continued growth and momentum with, with The US Oncotype business as well. You know, specific to maybe the Q1 piece of the PO guide, you know, I would just highlight the underlying growth is is steady. You know, if you back out and kind of look at this on a core revenue basis, we essentially have low single digit growth, in Q1 that's backing out the impact from FX where we're seeing some headwinds on the euro and the yen, as well as the reference led business that we have.

Speaker 10

With respect to the, sales sales and marketing side of the Onco2Tech, we're not going to comment on exact size of the sales force. But what I will say is we're being intelligent with the investments that we're making on the sales and marketing side to make investments to make sure that we come out of the gate full steam and have a really successful product launch. In addition, we're making the needed investments we need to make on the clinical evidence side of the equation. We haven't talked a lot about the studies that we're investing in. But in colorectal, we have CORRECT I and CORRECT II, which collectively have over 1,400 patients that we're going to be deploying Onco Detect on.

Speaker 10

We have what is probably the largest prospective clinical study in breast cancer that collectively will enroll eighteen hundred patients. And then on the multi cancer side of the equation, in the press release related to Flatiron in multi cancer, we have over 1,300 patients that we plan on enrolling. So making smart, intelligent investments on sales and marketing, to support the existing Oncotype team, but also investing aggressively on the development side of the equation to make sure that we can quickly move from colorectal into breast and ultimately into multi solid tumor.

Operator

Kyle Mixon from Canaccord has the next question.

Speaker 2

Hey guys, thanks for the questions. Kevin and Aaron, just could you talk about the Care Gap revenue contribution '25 versus '24 in terms of dollars and the year over year growth rate implied? And relatedly, any update on any business shifting from standard primary care Cologuard ordering to Caregap? Thanks. Hey, Kyle.

Speaker 2

So if you think about the full year guide, we did more than 250,000 patients, through the care gap program in 2024. That was triple digit growth last year. And without exactly sizing what it will be this year, I would just say, you know, we expect to build on that momentum heading into 2025. We're seeing meaningful growth in that part of the business in Q1 as well. From a phasing perspective, you know, about two thirds of Care Gap revenue came in the back half of twenty twenty four.

Speaker 2

We're assuming similar phasing, in 2025. And we've talked a lot about adherence, in the past as well. We're doing a lot of things to continue to improve the adherence or the kit return rate, in care gap programs. But from a guidance perspective, we're assuming similar adherence rates to what we saw in 2024.

Speaker 1

Yeah. And just the drivers of care gaps, I just want to remind people it's this ExactNexus technology platform that allows us to do it, our deep relationships with payers, brand awareness of Cologuard and that Cologuard is in the guidelines in the quality measures and comes along with a three year credit because that's the interval for testing. That's awfully powerful. And what we're seeing is a shift in the way that a lot of health systems and payers are starting to think about screening. And so a lot of the first time screeners are going to come in through these programs in the future.

Speaker 1

And over time, we've said, hey, look, this could be a $500,000,000 plus opportunity where we're screening, a million plus people per year. And it can grow from there.

Operator

The next question is Luke Sergott, Barclays.

Speaker 17

This is Seiholm on for Luke. Thanks for squeezing me in here. Maybe taking off of Dan Leonard's question here. Appreciate the color on upside to screening growth. You're guiding to a similar screening growth this year to 24%.

Speaker 17

You've talked about the 2% pricing contribution already. And I'm wondering if regarding restreaming and care gap, you guys kind of talked about maybe a 10% growth contribution, maybe a quarter or so ago. So I'm wondering if that is still intact, and I'll just leave it there. Thanks.

Speaker 2

Hey, welcome. Yes, that is still very much intact. And so what we've talked about is that collectively between rescreens and Caregab that that gets you to something, you know, maybe slightly north of 10% growth. Re screens continues to be the the largest growth opportunity for us, over time. It's growing more than 30% per year and so we'll contribute kinda mid to high single digits and then you can kinda do the math on what that means for for Care Gap.

Operator

And everyone, that was our last question. That does conclude our conference for today. We would like to thank you all for your participation. You may now disconnect.

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Earnings Conference Call
Exact Sciences Q4 2024
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