Kevin Conroy: So MRD evidence is developing at a rapid clip. Many studies in the U.S. and around the world are occurring, because of the promise of being able to answer two questions. Number one, post initial treatment, is there still tumor present? Did the surgeon, did the oncologist, did the treatment get all of the cancer? And then the second question that MRD testing answers is the cancer return, has it recurred? So what is the evidence that has been developed? There are a number of prospective studies that are occurring globally. And I think the question is, is that going to occur on a tumor type by tumor type or is it going to occur like it did with therapy selection, where after a few tumors were proven out, tumor types were proven out that there was widespread utilization.
We are starting to see signs of the latter that there will be enough evidence developed, that MRD testing will be used broadly. So it’s very different than the screening markets which are unlocked generally by one group called the United States Preventive Services Task Force. In MRD, in oncology, there’s a number of different guidelines that will come into play. We are making progress in terms of our own studies to support our MRD test. And we think this is going to be a huge change in oncology, a huge market and one that we’re excited to participate in.
Operator: Thank you. We go next now to Matt Sykes at Goldman Sachs.
Matt Sykes: Hey, good afternoon. Thanks for my questions and congrats, Megan. Maybe one for Everett just on the commercial penetration, in previous quarters you’ve given some pretty good color on health system penetration. I don’t know if there’s any update on that. And then secondarily, related to that, there’s obviously a lot of opportunity given the penetration rate we’re at today and where you want to get to. Could you kind of like prioritize the white space opportunities that you provide for your commercial team in terms of what they are going after over the course of the next one to two years?
Everett Cunningham: Yeah, thanks for the question. Our health system volume continues to be our largest lever of growth this year. We knew that and that’s why we put additional resources on the health system side. We more than doubled our team on health systems. And we’re also finding a different type of shift or dynamic in the health systems to where we’re actually calling on health systems, we’re going to always do that. But we’re also – health systems are actually requesting meetings with us, because they know and Kevin said it, that the capacity of screening colonoscopies is relatively fixed at 6 million per year and health systems are saying, ‘we need help.’ And this colonoscopy alone strategy is not going to get us there.
So we have several health systems that have documented that, ‘hey listen, if it’s average risk patient, first line Cologuard will be used,’ and we’re seeing volume go up that way. So we’re really happy about that. Also, I look at it as a multi-pronged approach of good product, but we also have to make it easier for health systems to write and order Cologuard. And as we said, 70% of our Cologuard orders are coming in electronically. And what I like about that is, we’re not going to stop there. We know that there are additional targets to get this year and next year. And if we can make it easier to prescribe or to order Cologuard, we know that we’re going to be even a better partner moving forward. As far as in the future, we see – we know that there’s a lot of opportunity.
As we stated earlier, we’re only 10% penetrated with Cologuard. There’s 60 million people that are not upto date with their screening. A lot of those people sit in that health systems segment, and I really like the way that we’re structured now at Exact Sciences with reaching out to health systems, talking to the C-suite, making sure that we can get unique partnerships and how that falls through to the affiliated physicians in those geographies. We’re perfectly structured to continue to make this a growth lever.
Operator: Thank you. We go next now to Patrick Donnelly at Citi.
Patrick Donnelly : Hey guys, thanks for taking the questions. Jeff, maybe one just on the expense side, on the go forward. Can you help us think about just the moving pieces as we work our way into ‘24? Obviously, you have some trials that wrapped up this year, some trials that maybe ramp up next year, maybe touch on the SG&A piece. I know historically you felt that it was clearly going to grow. Expenses were going to grow below revs, but is that kind of low mid-single digit, the right area to think about on expenses? And then a very quick follow up. Just I think you called out some pull forward on Revs in 3Q. If you could just quantify it, that would be great. Thank you, guys.
A – Jeff Elliott: Sure, thanks Patrick. This is Jeff. We typically provide guidance on our February call, which has been – that’s when we do plan to provide it for now. But over time, you can think about continued, very good expense discipline across the board. If you walked on the full P&L gross margin, I mean, many of you saw the tour of our lab this summer. That team has done a fantastic job finding ways to increase efficiencies, automate more tasks and scale the business. So I’d expect continued steady gross margin improvement. This year, we’re tracking in that 73.5 to 74 range, probably towards the higher end. So no change there, but over time, I expect us to get to – our goal is 80%. When you look at sales and marketing, Everett and team have done a very nice job focusing on the highest impact areas to grow this business.
And so now you see the result of that two years in a row with sales and marketing down in absolute terms. Now, on a go forward basis as we launch new products, I expect us to start to reinvest in sales and marketing. So that will grow in dollar terms, but I think we’ll manage it down on a percent of revenue basis. R&D, I look at that as more project by project. You know as well that we scrutinize all of our R&D investments to make sure they carry very good ROIs. I think we’ll continue to do that. That has been a hallmark of Exact. So over time, you may see some movement there. A big one would be our multi-cancer study. If we see that pathway forward from Congress for reimbursement for Medicare, that would help us then make the decision to move forward with a big study in MCED.
So that study would lead to a higher growth rate temporarily, but over time, I think you can see R&D coming down as a percent of revenue pretty steadily, barring the kind of the one-off studies. G&A is an area that there’s been a lot of focus for us. It’s an area that I do expect over time to see probably the most incremental leverage from here. The biggest areas of investment have been building out this foundation. This foundation that has served us so well to get the first billion dollar diagnostic to market, and over time support multiple billion dollar diagnostics. Our longer term goal is to get G&A down to the 10% to 12% of revenue range. To do that, we have to keep automating. That is a challenge to the broader Exact Sciences team, finding ways to continue to drive efficiencies.
So over the next five years or so, I think that’s going to be the biggest area of improvement to drive margin expansion.
Operator: Thank you. We go next now to Jack Meehan at Nephron Research.
Jack Meehan : Thank you. Good afternoon. Kevin, it would be great to get your latest thoughts on the competitive landscape for CRC screening. There were some additional updates at ACG from another stool-based competitor. We’d just love to get your thoughts on what that might mean, if anything, for you guys. Thanks.
