Kevin Conroy: We expect Cologuard 2.0 to have improved specificity, so a lower false-positive rate. And we would, on a secondary basis, we hope to see some improvement in the advanced adenoma detection rate. The main goal is to lower the false positive rate. We have designed Cologuard with more specific markers. We also expect to see improved cost efficiencies and other aspects of Cologuard testing. So that is where we €“ that’s what we expect. Of course, we won’t know until we complete all of the validation testing, and we expect that to occur midyear.
Operator: Your next question comes from the line of Dan Brennan from Cowen. Your line is open.
Dan Brennan: Great. Thanks for the questions, guys. Maybe first one, just on the rescreen in the 45 to 49 and then just one question on the EBITDA guidance for €˜23. So Jeff, can you just clarify, so 8% penetration run rate in 4Q? It seems like have really been number we’re coming up with $130,000 cash. Is that in the ZIP code? It’s what, 20 million people in total and you divide that by 3 to get the addressable for Cologuard, that’s like 6.6 million. And then you got €“ you had 8% penetration in 4Q. So we just took quarter of that and 8% of that. So maybe a little clarity on the math there and how we €“ and kind of how we think about €“ I know you guys don’t want to disclose too much on these. But since they are material, it’d be great to understand how you’re thinking about the impact for lease screening 45 to 49 in 2023?
And then the second one would just be on the $25 million plus of adjusted EBITDA, I guess, dollars ex-stock comp in 2023. So if you exited 4Q with $5 million, just wondering if that’s a conservative number since I would expect you guys to have some nice momentum despite all the investments that you’re doing. So I would have thought it’d be a high number in €˜23. Maybe you could just speak through some of the drivers there? Thank you.
Jeff Elliott: Sure. A lot there. Obviously, Kevin talked about 45 in rescreen just being significant growth drivers, and that will continue for a long time. Last year, we have put out guidance for $45 million of at least $100 million of revenue. We beat that nicely. And for rescreen, we said at least $220 million, we beat that nicely. So, both have really good momentum. This year, we expect rescreens to about 20% of revenue in total, and that should grow from there. Eventually, this becomes half of our revenue and $45 million should have a pretty similar trajectory as three streams. Huge drivers there. In Q4, you kind of talked about the overall penetration rate for 45. And just to be clear on the definition here, we’re looking at the pool of patients, which is nearly 20 million people and saying that Q4 run rate, call it roughly 125,000 people tested.
If you adjust that for the interval and the annualized it we were at about 8% penetration into that younger age group. The reason we highlighted that is Cologuard got there in about 18 months after USPSTF guideline inclusion for the younger age group. You contrast that to the 50 and above age group, which is that’s been the biggest diagnostic launch in history. We’re at 9% there today. So the point there is really 45 is growing very, very quickly. The question on adjusted EBITDA, what we are guiding to is flat to $25 million adjusted EBITDA for the year. This really speaks to the power of the platform. You’ll recall that we had accelerated the path to profitability. It was going to be €˜24, the mid-€˜23. It eventually got there and then in €˜22.
For the year now, what we’re guiding to is over $150 million of adjusted EBITDA growth on an incremental adjusted EBITDA margin basis we are talking over 75% incremental. So the guidance is the most likely outcome of probably what the team has delivered here. These are very proud of these numbers, it’s a significant improvement year-on-year, and it puts us in a position to really continue investing in growth and efficiencies and delivering profitability to investors.
Operator: Your next question comes from the line of Vijay Kumar from Evercore ISI. Your line is open.
Vijay Kumar: Hey, guys. Thanks for taking my question. Jeff, one in your €“ I guess I had a two-part question. The 2.0, Cologuard 2.0 results, I know you mentioned increased specificity, and you expect an increase in advanced adenoma sensitivity. Is there any risk as you take up that specificity that the sensitivity for cancer perhaps, it drops? I know given AA sensitivity going up, perhaps that’s not the case. But maybe just talk to us, is there any risk here from a sensitivity perspective heading into these results? And on adjusted EBITDA, Jeff, how should we think about those leverage levels going forward, the incremental leverage math that you just laid out, should that hold true when we think about €˜24 and €˜25? Thank you.
Kevin Conroy: Well, I take the first part, Jeff, and you take the second part. So we would expect the cancer sensitivity to be at or above 90%. We would expect somewhere in the neighborhood of 100 cancer samples in the study. So it’s in the €“ if you recall in the DeeP-C study, we had 65 samples. So what have we done to improve the likelihood of success. We, number one, increase the powering of the study; number two, we’ve done a significant amount of work to compare the current version of Cologuard with the next-generation version of Cologuard in samples, including samples from the DeeP-C study. So we have a head-to-head comparison which gives us confidence that Cologuard 2.0 is €“ performs better than Cologuard 1.0. You can never control all of the risk because the fundamental population has changed or for example, you see a lot more smaller cancers, harder-to-detect cancers.
You don’t know that and you can’t control them for it. So what we have done is developed the very best test with the best markets, the most efficient and powerful DNA capture technologies and deploy that into the study. And we look forward to opening the results of the study and sharing them with you, and that’s our thinking on that. Jeff, maybe you take the second one.
Jeff Elliott: Yes. This is Jeff. On the leverage question, look, this model has been built to scale to feel efficiently, ultimately deliver positive free cash flow, which we expect to reach in €˜24. Can we sustain 75% plus incrementals. I hope so, but that’s a pretty tall order, Vijay. When I think about leverage going forward, the best way to do it is to drive a really strong top line. I know every team are going to do that. We’ve got some nice levers to pull when I walk through the P&L, thinking of gross margin. We’re targeting over 80% gross margin for the two key products here, Cologuard and oncotype. Oncotype is there, I’m confident Cologuard will get there over time. So I expect some good gross margin improvement. G&A, this year, I talked about that Thrive earnout payment is driving higher G&A growth on a GAAP basis, but you adjust for that it’s mid-single-digit growth.
Over time, the G&A leverage will improve. Sales and marketing, maybe there is really to make sure we’re always investing in the smart growth, a nice drop there. So we’re seeing a really good leverage within sales and marketing. R&D, the way we will get leverage there is to focus on the highest impact opportunities, and Kevin has talked about those today. Over time, as we get the benefit, Cologuard to the MRD programs, multi-cancer as we get the benefit from those programs, that will help drive additional leverage through the P&L.
Operator: Your next question comes from the line of Catherine Schulte from Baird. Your line is open.
Catherine Schulte: Hi, guys. Thanks for the question. And thanks for showing that slide on rep productivity. It’s great to see Cologuard revenue per field continuing to trend upwards. But I’m curious what’s that number, what look like pre-COVID and if you can talk to where you think that number should go over time?
Jeff Elliott: Hey, Catherine, this is Jeff. Pre-COVID, I think there is a lot of moving pieces there. When you think of the Pfizer relationship, it’s a great partnership. It just does change the dynamic as well, which is why we focused on the quarters that we displayed on the slide deck. Going forward, where can it go in fact can start, but ever in please chime in. And there is a long ways to grow. When you think of that market penetration number at 9% and that 50 plus age group, longer term, I’m confident we can get to at least 40%. And I think we’ve already got a strong team in place. So I expect that productivity to go way up all the time, but Kevin?
