Exact Sciences Corporation (NASDAQ:EXAS) Q4 2022 Earnings Call Transcript

Exact Sciences Corporation (NASDAQ:EXAS) Q4 2022 Earnings Call Transcript February 21, 2023

Operator: Good morning. My name is Rob and I will be your conference operator today. At this time, I’d like to welcome everyone to the Exact Sciences Fourth Quarter 2022 Earnings Conference Call. Thank you. Megan Jones, Senior Director, Investor Relations, you may begin your conference.

Megan Jones: Thanks, Rob. Thank you for joining us for Exact Sciences fourth quarter 2022 conference call. On the call today are Kevin Conroy, the company’s Chairman and CEO and Jeff Elliott, our Chief Financial Officer and Chief Operating Officer. Everett Cunningham, our Chief Commercial Officer, will also be available for questions. 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. During today’s call, we will make forward-looking statements based on current expectations. Our actual results may have material differences from such statements. Discussions of non-GAAP figures and reconciliations to GAAP figures are available in our earnings press release and descriptions of the risks and uncertainties associated with Exact Sciences are included in our SEC filings.

Both can be accessed through our website. I will now turn the call over to Kevin.

Kevin Conroy: The strength of our foundation supporting the best brands in cancer diagnostics puts us in a leading position to continue delivering innovative cancer tests, consistent revenue growth and profitability. We are using this platform to help prevent cancer, detect it earlier and guide treatment for more patients globally. Achievements in 2022 that helped strengthen our leadership include surpassing 12 million cumulative people tested for cancer, including 10 million with colder expanding our global network of ordering healthcare professionals to more than 350,000, growing core revenue $380 million year-over-year, becoming adjusted EBITDA profitable in the fourth quarter, completing enrollment of BLUE-C, our pivotal study to support our next-generation Cologuard and colon cancer blood tests, and generating evidence for our multi-cancer early detection and molecular residual disease tests.

Over the past decade, we have built a high-quality platform to deliver advanced cancer tests at scale. We have invested heavily in our people, lab infrastructure, technology systems, clinical evidence, plans and customer experience. This platform is fueling the efficient growth for our current tests and over time, it will fuel the next wave of novel cancer diagnostics. Our health system customers employ most U.S. healthcare professionals and seek to improve the quality of care while reducing costs. They are incentivized to focus on preventive care, including cancer screenings, today, many phases staff shortage leading to a trend of more in-home services such as Cologuard. Advanced cancer testing €“ in advanced cancer testing, health systems continue to ask for fewer partners to meet their needs, a complete range of high-quality, impactful tests, broad insurance coverage, EMR integration and data sharing capabilities.

Exact Sciences is uniquely positioned to deliver on these needs, because we have the broadest offering of innovative cancer tests, patient-focused services, EMR integration capabilities and payer relationships. This year, we will increase adoption of Cologuard and Oncotype DX, create an even better customer experience and advance our key pipeline programs in colorectal cancer, multi-cancer early detection and molecular residual disease. Jeff will now discuss our financial results and outlook for 2023.

Jeff Elliott: Thanks, Kevin. Good afternoon. Fourth quarter revenue of $553 million grew 17% or 28%, excluding COVID testing. Screening revenue of $404 million increased 45%, including 3 points of growth from PreventionGenetics. For the year, screening revenue increased 30% organically. During the quarter, 10,000 new healthcare professionals ordered Cologuard, bringing the total to more than 302,000 since launch. Precision oncology revenue decreased 4% to $143 million, excluding the sale of our prostate business and a $2 million FX headwind growth of 1%. COVID testing revenue decreased 87% to $6 million. Fourth quarter GAAP gross margin was 70%. Non-GAAP gross margin, excluding the amortization of acquired intangibles, was 73%.

Net loss was $128 million. Adjusted EBITDA was $5 million, an improvement of $120 million, demonstrating the power of the Exact Sciences platform. We ended the year with cash and securities of about $630 million. Our total liquidity is about $840 million, including available credit facilities. Turning to guidance, we expect total revenue between $536 million and $551 million during the first quarter and $2.265 billion and $2.315 billion for the year. This assumes screening revenue between $390 million and $400 million for the first quarter and $1.66 billion to $1.69 billion for the year; precision oncology revenue between $143 million and $148 million for the first quarter and $600 million to $620 million for the year; and COVID revenue of $3 million for the first quarter and $5 million for the year.

For the year, this implies 18% growth for screening, 5% growth for precision oncology, excluding the sale of our prostate business and 14% overall growth, excluding COVID testing and the prostate sale. We exited last year with broad momentum, which is driving a strong first quarter. This is especially true in our screening business, where we are seeing the benefits of past investments and great execution from our team. We expect to generate up to $25 million of adjusted EBITDA for the year. This assumes non-GAAP gross margin of about 73% for the year. Our industry-leading gross margins are powering positive adjusted EBITDA and a clear path to free cash flow as we continue investing in growth and efficiencies. We expect total GAAP OpEx to increase mid single-digits for the year.

This includes an absolute decrease in sales and marketing offset by increased G&A and R&D. Last year, G&A was reduced by $57 million, primarily from a non-cash gain related to the Thrive acquisition earn-out. In addition to cycling against that in this year, we expect $19 million in non-cash expense as we accrue for the earn-out payments. R&D is increasing to support our multi-cancer and MRD programs. And we expect CapEx this year to be about $120 million. I will now turn the call back to Kevin.

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Kevin Conroy: Thanks, Jeff. Cologuard is becoming the preferred colorectal cancer screening choice. During the fourth quarter, nearly 160,000 healthcare professionals ordered Cologuard, a new record and the rate of people we screen hit an all-time high. We are starting 2023 with tailwinds, including stronger healthcare professional conviction in Cologuard as our frontline screening test, increased consumer awareness, improved electronic ordering and an enhanced digital patient experience. Also reached 0.5 million people screened with Cologuard between ages 45 and 49. As of the fourth quarter, we estimate Cologuard grew to 9% penetration of the more than 90 million people ages 50 to 85 in the colon cancer screening market. For the nearly 20 million 45 to 49-year-olds, penetration grew to more than 8%, just 18 months after it was included of that age group was included in USPSTF guidelines.

Screening people in the mid to late 40s will provide recurring revenue for decades as we work to keep them screening every 3 years until they are 85. Cologuard growth is supported by the most powerful sales and marketing team in cancer diagnostic. We engage with healthcare professionals more than 1 million times each year and have more than doubled the revenue generated per interaction in the past year. We build brand recognition and loyalty by generating more than 15 billion impressions annually. Our commercial team supported by rigorous analytics will get even more efficient over time and help decrease sales and marketing costs as a percent of revenue while supporting growth. Our precision oncology team has guided treatment physicians for more than 1.75 million cancer patients around the world, including a record 220,000 people last year.

Oncotype DX will revolutionize breast cancer care. It is internationally recognized as standard of care for patients with early-stage HR-positive HER2-negative breast cancer, which represents about half of breast cancer cases. We have an opportunity to impact even more lives by making Oncotype DX easily accessible to more women globally, offering OncoExTra, our enhanced therapy selection test with DNA and RNA analysis and working with our biopharma partners to develop new targeted cancer therapeutics. Thanks to our team, trusted Oncotype DX brand and deep oncology relationships, we can power better treatment decisions that are specific to each patient’s disease. Our advanced R&D expertise in platform screening and precision oncology will help get our pipeline tests to more patients quickly.

We made meaningful progress in each of our key pipeline programs last year by completing the enrollment of our BLUE-C pivotal trial, which included more than 26,000 people. Presenting two studies, including 4,200 samples showing the power of our multi-cancer early detection test and initiating and enrolling studies that will answer key questions clinicians and payers have when evaluating our molecular residual disease tests. We are completing the final steps of our BLUE-C trial and expect to have top line next-generation Cologuard data mid-2023 before submitting to the FDA for approval. We expect to have two additional sets of multi-cancer early detection data this year, further validating our multi-market class approach where we move to a larger prospective trial.

We also plan to validate and make our tumor-informed molecular residual disease test available to colon cancer patients later this year. Our mission is to make an earlier detection, a routine part of medical care to help eradicate cancer. Our platform deeply embedded standard of care test and pipeline of life-changing diagnostics will power years of growth and continued profitability, helping us to achieve our mission. Thank you. We are happy to open the line for questions.

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Q&A Session

Operator: Your first question comes from the line of Derik De Bruin from Bank of America. Your line is open. Derik De Bruin, your line is open.

Derik De Bruin: Hi, it’s Derek. Sorry about that. I had the mute on. So can you just €“ so a couple of points, so a couple of questions. I think the first one is I guess what were the key market changes that drove some of the increased momentum in Q4 and the guide was better than expected particularly for Cologuard and for 2023? And that’s one. And then just I have gotten a bunch of questions from investors lately about the competitive landscape outside of liquid biopsy. There is a couple of companies that are advancing some of their stool based colon cancer screening test and also just sort of the landscape for Oncotype as it sort of goes o-U.S., there is a little bit more competitive opportunities out there. Can you just sort of talk through the couple of questions? Thanks. And I will shut up.

Kevin Conroy: Let’s first address the momentum that we saw throughout the fourth quarter and the start of the year. A lot of this is just the result of the investments that we have made over time, the strong need for non-invasive screening €“ colon cancer screening tools. So you have some structural tailwinds, including the ease of electronic ordering that has taken a significant amount of effort, time engagement with large health systems to deliver electronic ordering through our Epic and EMR capabilities, increased brand awareness around Cologuard. Health systems are highly incented to drive their colon cancer screening scores and they are frequently now reaching out to us to ask for a partner who can help them improve their quality measures, care gaps, etcetera.

We are seeing GIs have a staff shortage and there is a greater focus in the endoscopy suite on diagnostic colonoscopies and GIs are ordering Cologuard at a higher rate as primary care physicians are certainly. Our sales and marketing team, I just can’t tell you how proud we are of the work that they have done and continue to do be it their efficiency, their engagement is turning the tide and really making Cologuard our first-line screening choice. Also, of course, the 45 to 49-year age group. 18 months ago, the guidelines changed to lower from agwe 50 to 45. And we believe Cologuard is leading in terms of market share today and the penetration is impressive. If you take the fourth quarter number of tests and extrapolate that, we believe we are €“ the penetration is about 8%, as I mentioned earlier.

Jeff, I don’t know if you want to add any color to that?

Jeff Elliott: Yes. Just to add what Kevin said electronic order just a huge, huge year last year. Recall when we started the pandemic back nearly 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 the road. As we launch new products, we will launch right into that foundation. So overall, a deeper connection to health systems. In Q4, I think as we talked before, Derik, we picked up a little bit of extra upside from enhancements we made both to our patient compliance engine and our billing systems. So again, these added to the upside, they were the sole cause of it. The reason I bring those up is because when we added these enhancements, which will benefit on a run-rate basis, we will get better compliance and better €“ kind of better ASPs going forward.

When we added those enhancements, we typically pulled forward a bit of revenue from Q2 to Q3. So consider that catch-up revenue that added a little bit more in Q4, so you really can’t take Q4 and extrapolate that. Now I have got half of Q1 in the books now. I think a little bit of that catch-up revenue, again, from the building enhancements, patient compliance enhancements, is spilling into Q1, that’s part of the strength in Q1 and then just everything Kevin said should continue. I know there is questions on competition.

Kevin Conroy: Yes. In terms of competitive dynamics, when you look at Cologuard, Cologuard set its standard of care at a very high bar in colon cancer screening. Cologuard 2.0 or what we call the next-generation Cologuard will raise that bar. And we just haven’t seen data indicating any other testing modality that approaches that high level of performance for detecting cancer or detecting precancerous polyps and having a high specificity rate. And you have to be careful when you take a look at data, is it apples-to-apples, what are the underlying drivers, how large is the study, how well powered, et cetera, etcetera? So we feel great about the competitive positioning. There is so much more to Cologuard than the test is an enormous investment altogether, about $1 billion invested in an IT infrastructure, a commercial team, a lab team and capability that is requires a multibillion dollar investment to be able to reach the hundreds of thousands of ordering healthcare providers and the tens of millions of patients.

Oncotype DX is in a class of its own. It’s the only test with the level of evidence that you have seen with TAILORx and RxPONDER. As a result, it has a leading position in the U.S. and globally. So these are the two best brands in diagnostics. We will keep investing in them. And they have become standard of care without peer in terms of that Cologuard and its sample type than Oncotype DX. It would be very difficult to replicate that level of evidence. So we are proud of these programs and continue to expect big things in the future.

Operator: Your next question comes from the line of Andrew Brackmann from William Blair. Your line is open.

Andrew Brackmann: Hi, guys. Good afternoon. Thanks for taking the questions. Kevin, maybe one for you and sort of building off some of that stool-based commentary there, just sort of recognizing 2.0 data is going to come, I think you said around midyear. Can you just sort of give us an update on where you expect those data to come in? Anything in particular you would point to as we put together those scorecards for that data and sort of the longer term benefits of the model? Thanks.