Operator: Your next question comes from the line of Matt Sykes with Goldman Sachs. Your line is open.
Matt Sykes: Good afternoon, thanks for taking my questions. Just two quick ones for me. One, just — I know you talked about Oncotype DX international growing 48% in the quarter. And I realized that Japan was just launched in October. But could you maybe unpack what Japan represented within that overall international and what type of traction you’re seeing there? And then just secondly, Kevin, you talked about — I think at JPMorgan, you talked about the Oncotype business going from $600 million plus to $1 billion, you didn’t give a time frame. But I’m just wondering, could you maybe talk about some of the key drivers to get you there? Just given sort of the low to kind of high single-digit growth we’ve seen, what kind of acceleration that you’re expecting to get to that $1 billion? And what are the key drivers for that? Thanks.
Kevin Conroy: I think Brian can actually take both of this.
Brian Baranick: The first question is related to Japan. Let me put Japan, if I may, in the context of our broader international business. which is approaching about $200 million in annual revenue. I tend to think about our international business in three archetypes. We have one group of countries, I think Canada, the UK, for example, where very established market, molecular penetration is standard of care and oncotype brand shares and market share is very, very high. The second archetype is where we are driving rapid adoption, both of molecular testing and a oncotype share. And I’ll give you examples like Germany and Italy as two key countries where we’re seeing that grow. Thirdly, we’re launching in new markets, the biggest of which is Japan, which is our largest opportunity.
In Japan, there’s about 45,000 eligible patients in that important geography. And we expect that, that could contribute about $30 million of growth to 2024 for our international business more broadly. On the second assumption, again, I think growing to Oncotype to $600 million and the broader PO business to $1 billion. To get to $600 million, we have to do a lot of things. We’re continuing to, as I mentioned, penetrate underpenetrated market. We have an opportunity to launch in new markets. And then we have an opportunity to convert indirect markets to direct markets where we actually have Oncotype sales folks, teams and resources in country that are under our direct control. So those are some of the key drivers for Oncotype. And then outside of Oncotype, the broader business, I would really focus on the expanding pipeline.
Within 24 months, we already launched OncoExTra, our tissue therapy selection test. We will launch OncoDetect, which is our MRD platform. We acquired OncoLiquid from the Resolution Bioscience acquisition, which we will introduce in due course. And then we also have Riskguard, our hereditary cancer test. So that growth from $600 million to $1 billion will be driven by that pipeline.
Operator: Your next question comes from the line of Patrick Donnelly with Citi. Your line is open.
Patrick Donnelly: Hey, guys. Thanks for taking the questions. Kevin, maybe just on MRD, can you talk a little bit about expectations for this year? What we should be looking for, both on the data side and then just the ramp? And also, how do you think about the incremental dollars invested? I know previously, MRD was above blood on the early detection side. Maybe just talk a little bit about the priorities there would be helpful. Thank you.
Kevin Conroy: I’m going to hand this one over to Brian as well.
Brian Baranick: Thanks, Kevin, and thank you for all the questions about Precision Oncology. Welcome them. Let me just say that I’ll reiterate, Kevin mentioned at the top of the call that we’re here in San Diego. I’m so proud of the team that worked so hard over the last months and years to develop an organic MRD product, which we’re now calling OncoDetect. So hugely proud of the team here in San Diego and also equally proud of the team in our Phoenix lab, who is working through the validation of that test at breakneck speed. So in terms of what you can expect from MRD, apologies, the sound of freedom behind us here in San Diego, if there’s noise in the background. What you can expect in terms of MRD? We are already having a very meaningful and material discussion with customers as well as Medicare on the payer side of the equation.
We’re excited to share the powerful data that we believe will help us secure Medicare reimbursement later this year. And then we’re working very closely in the business unit with Everett and the commercial team to work through the commercial planning activities and very much look forward to introducing that test into the commercial team later this year or very early next year. And that timeline is very dependent on how quickly Medicare gets back to us on the reimbursement side of the equation, which can vary by a few months. But ultimately, that will determine when we really step on the accelerator from a commercialization perspective. One of the things that I’ll add before Jeff, you can comment on some of the contributions financially, I believe we are really competitively unique in the MRD space.
We are thinking very creatively about how to integrate the portfolio, particularly the Oncotype portfolio into our evidence development plans around OncoDetect and then I’ll take you back to the IT platform that Kevin mentioned earlier on the call. It will allow us to do prior authorizations, billing and reimbursement but it will also allow us to bring forward a lot of the great tools that we’re developing for Cologuard around adherence, compliance. If you think about the work that they’re doing, we’re asking patients to do a test every three years. With respect to OncoDetect, we’ll be asking a patient to do a test every three months, which is very difficult and challenging, particularly in the out years, when a patient is tested negative for three, four years consecutively.
We need to get that patient tested in year four and five. And I believe strong debt adherence and compliance engine can be ported over to support the patients around MRD and OncoDetect. Over to you, Jeff.
Jeff Elliott: Patrick, this is Jeff. From a modeling standpoint, we’ve been — as usual, have been sober about the revenue contribution we’re assuming this year. It’s really more of a 2025 effect, given the base of this business, $2.8 billion MRD, while this is one of our biggest pipeline opportunities, I don’t expect a material contribution from a revenue standpoint until next year. From an R&D investment standpoint, this has been and continues to be one of our top three investment areas. Colon cancer screening, broadly, MRD and multi-cancer are the big three. In MRD last year, we did step up the investment given that the near term opportunity we see. Operator, can we go to the next person in the queue?
Operator: Your next question comes from the line of Jack Meehan with Nephron Research. Your line is open.
Jack Meehan: Thank you. Good afternoon. For Kevin or Jeff, I was hoping for an update on multi-cancer. We’re still waiting on progress in BC around the Medicare benefit. Is there any context you can share around what’s in the earnings forecast around R&D investment for MCAD? And are you still planning to move forward with [SWOT] (ph) at this point?
Kevin Conroy: Well, it’s — we have been saying for probably the prior 18 months if Congress did not move to pass legislation to explicitly give Medicare the authority to pay for a multi-cancer early detection test, we would likely scale back our investment. We have scaled back our investment in MSET. In the long term, we still believe that multi-cancer early detection is going to be much more impactful even than Cologuard in terms of creating real value for patients. In terms of this year’s impact, Jeff, you can give color or not?
Jeff Elliott: We did moderate the level of investment in multi-cancer temporarily. As Kevin said, until we see a more clear pathway to reimbursement. From an R&D standpoint, though, it is still one of our big three investment areas. Those three areas to add more color to it. Again, colon cancer broadly. Multi-cancer and MRD are over two thirds of our R&D investment, probably closer to three quarters. So they are investments that represent the opportunity that we see and the value we can provide for both shareholders and patients.
Operator: Your next question comes from the line of Puneet Souda with Leerink Partners. Your line is open.
Puneet Souda: Hi guys, thanks for taking my question. So, Kevin, if you could — you covered the blood competition questions very well. But I was just wondering, can you elaborate a bit on the expectations for the BLUE-C blood readout? I mean, should we expect that to be in line with the comments you made on blood broadly? And maybe just around advanced adenoma performance there, how important is that in the BLUE-C blood readout? And just remind us how this assay is positioned in your portfolio? Thank you.
Kevin Conroy: Sure. Let me start with the last question first, Puneet. The — our blood test, and we think as a class most likely blood test will be — will receive a best second-line screening claim by the FDA. That means, and you’ve seen this before with the Septin9 test, a test to be used when a patient refuses frontline tests that are in the USPSTF guidelines. So we know who the patients are that refuse high-quality tests like Cologuard and colonoscopy and when they refuse those test there’s an opportunity for us to help those patients at least get screened even if the doc isn’t going to get a quality credit or the Medicare Advantage plan, et cetera. Still an uphill battle, no doubt. One of the things that’s competitively unique about our approach is just the cost structure.
It’s a test that’s built on a supercharged PCR platform. And that provides a cost structure that we believe will be best-in-class and provide real value to the health system and to those patients that get tested. So that will allow us, we think, to be — that coupled with our commercial organization, our IT infrastructure to lead in this field. It’s just — I’ll take you back to 2014, ’15, ’16 when we first launched Cologuard without being included in the quality measures until I believe 2017, we were really limited in terms of the patients that we could address and we believe that’s going to be the case with any test that isn’t in the guidelines or quality measures. So that’s how we’re looking at things. In terms of what our expectations are for data, we’re getting pretty close to that date.
So we’ll let the data speak for themselves.
Operator: Your next question comes from the line of Andrew Cooper with Raymond James. Your line is open.
Andrew Cooper: Hey, everybody. Thanks for the time. Maybe just sticking with MRD since we’ve talked a lot about Cologuard. You called out submitting for reimbursement or expecting reimbursement this year, I think for colon. I think the slide also said validation data for breast as well. I just want to get a little bit better understanding of should we expect that, that’s the sort of data to support reimbursement? Is it broadly? Is it more narrow for a portion of breast patients? Just a little bit of help there. And then as we think about these launches, I know, Jeff, you called out a little bit of kind of increased R&D or increased OpEx in the prep for the launch. But anything we should think about in terms of gross margin impact versus sort of the tailwinds you’ll have with next-generation Cologuard and things like that as we think longer term, especially if some of these are not widely reimbursed at least by commercial upfront?
Brian Baranick: Thanks for the question. In terms of the breast data, most of the data that we’re generating right now is really validating the platform. And the plan would be to look towards Medicare more in the 2025 horizon on the breast side. As you may or may not know, some of these subtypes of breast cancer can be somewhat challenging. They tend to be sort of what are known as low shedding tumors, meaning there’s not a lot of ctDNA in the blood. And so one of the things that we’re doing is setting up study such that we can look at our current version of OncoDetect, but also look at what the technology that we license from the [Broad Institute, just to note as MAESTRO] (ph) might allow us to do. And what that technology allows us to do is really twofold.
One, it allows us to shift from whole exome to whole genome to design the assay. And thereby, we can find more mutations that we then want to track in the patient’s blood. And two, it allows us to track more mutations in a patient’s blood at a very, very attractive cost point. So we maintain very high gross margin on that particular product. So it’s a little bit too early to say about when we go full force in blood because we do want to deliver a technology that is competitively unique and differentiated. And we are not sure based on the data that we’ve seen to date from some of the players in the field, whether in certain subtypes the performance is really there. And so we’re being very careful about how we think about evidence building and investment in breast based on the different technology stacks that we have.
Jeff Elliott: On gross margins, more broadly, I expect steady improvement for years to come. When you look at our pipeline, Cologuard 2 should carry even better gross margins than Cologuard 1, given that the team did a fabulous job of finding efficiencies to build into the cost of goods. So we’ve talked before about having at least a 5% reduction in cost per test for Cologuard 2 based on the investment and the efficiencies we gain. So new products overall should help drive better gross margins, temporarily some, as you highlighted that don’t carry full reimbursement in the beginning. Could put a little downward pressure, but I think the overall gross margin still continues to walk higher. From an OpEx standpoint, though, given the investment in this broader foundation, again, the teams out in the field, Brian could talk all day long about the fabulous team we’ve got out in the field with Precision Oncology, the deep relationships they have, that foundation provides a very attractive incremental leverage opportunity as you introduce new products, it’s a lot of the same physicians you’re calling on.
In many cases, it’s the same patient in the same block of tissue that you’re using for both Oncotype DX today and the MRD and therapy selection down the road. So from a margin standpoint, these are really good investments for us to make now and for years to come.
Operator: Your next question comes from the line of Dan Leonard with UBS. Your line is open.
Dan Leonard: So I have a couple of questions on Cologuard 2.0. First, could I get your latest thinking on what pricing could look like for that product? And then secondly, when would you expect the BLUE-C study could get published?
Kevin Conroy: In terms of publication of the BLUE-C study, we would hope that would be in the nearer term. You never can tell, but in the nearer term. In terms of pricing, all we will say here is we are creating value. In particular, we’ve developed a test that detects 30% fewer false positives that directly saves the healthcare system significant money. It saves patients from having to unnecessarily undergo an invasive procedure. And so that’s a tangible value. And because of the huge investment we’ve made and resetting a much higher bar, we expect to get value from that. But in terms of providing any specific pricing guidance, that is not going to happen until you see the day that it is priced by Medicare and commercial payers. So that’s all we can offer now.
Operator: Your next question comes from the line of Subbu Nambi with Guggenheim. Your line is open.
Subbu Nambi: Hey, guys. Thank you for taking my questions. An extension to Doug’s question actually. What’s the rescreen hit rate? In the past, you said it was 55%. Do you expect it to increase in 2024? And just from an observation perspective, do you see individuals who are eligible for rescreen stick to the three-year mark? Or do you see a lag of a few quarters? Basically, what percent of 2024 rescreen eligible patients actually spill over to 2025?
Jeff Elliott: Sure. Subbu, this is Jeff. Thanks for the question. The success rate is a bit below what you said today. However, it is moving higher quickly. We see consistent progress every quarter. And the longer-term goal is to get to the 70%. That’s very good. When you put it in perspective for FIT testing, for example, on the first go round, the first test is often at, say, 20% over time that, as Kevin talked earlier, only about three out of 1,000 people complete the test every year for 10 years. So even where we’re at today is a good outcome, we think we can do even better though. Of the people who become eligible in a given year, it takes about three years, call it, 3.5 years for them to come back. So if 1.6 million people become eligible this year, some of those people become eligible in, say, December.
Well, they’re not going to probably get retested until next year. So if you look at the median time to rescreen, it’s closer to 3.5 years. Again, that time frame is coming in, but it doesn’t happen immediately. It takes a little bit of time to go out and get that person back to the doctor and get them rescreened. And if I could just add something from a customer standpoint, from a rescreen, when we look at our rescreen population, we give them that customer experience. Our customers, our doctors, healthcare providers, they build confidence in the brand and ordering Cologuard. And I see that as the rescreen population gets bigger, as we get more ordering prescribers, the rescreen population helps all around in terms of confidence, compliance, customer experience, and we’re seeing that across the country.
Operator: And your last question comes from the line of Mark Massaro with BTIG. Your line is open.
Mark Massaro: Hey, guys. Thank you for including me in the call. So my first question is OncoLiquid. When can we see data? When do you think we can see this commercially launched? And can you discuss timing around Medicare reimbursement? And then my second question is, obviously, we’ve been getting a lot of questions on what the minimum bar might be for advanced adenomas to be considered a first-line test. Kevin, you talked about 24% for FIT. Is it reasonable to think that perhaps folks might anchor the 24 number? Or how are you thinking about that minimum level? Thank you.
Kevin Conroy: Well, other — thanks, Mark. Others have gone at this. Ultimately, this is an FDA decision, and I believe they’re getting input on this decision in a public form in March. And I’m sure they’re thinking hard about this. But what’s the general sense? It’s probably going to be in the 20-plus range. Hard to tell. So that is not — that is supposition at its best. But again, it goes back to the performance in the modeling and the modeling bar that Efficient Frontier is the FIT test defines that in part with 24% detection. So you can’t be too far away from that.
Brian Baranick: OncoLiquid. I can — this is Brian again. I can take that one. So we’re really excited about the technology that we inherited as part of the [Reds bio team] (ph) as well as the team that we inherited up in up in Kirkland, Washington, just outside of Seattle. So a very robust chemistry platform that has been developed over many years by that team. I’m really excited to get that in the hands of our commercial team. The team right now is working on validating that test and backbone so that we can get Medicare reimbursement as well as New York State approval. And we have a goal to submit to Medicare this calendar year for reimbursement on the OncoLiquid side of the equation.
Kevin Conroy: Let me come back one more time to a topic that people have a lot of interest in. Remember with USPSTF, when they analyze a new screening test, they look at two factors, not just life years gained, but they also look at the false positive rate of the test leading to unnecessary colonoscopies. And the challenge with any of this whole category of blood test is that with a 10 plus — a 10-ish percent false positive rate, you’re generating twice as many unnecessary colonoscopies as the fifth test. That you can’t get away from that fact as you look at the model and whether you get to the efficient frontier. So it’s really a combination of adenoma detection in large part, cancer detection in minor ironically, and then what is the false positive, right? So the FDA looks at this one way, CMS looks at it probably in a similar way as FDA. USPSTF look at it in a totally different way.
Operator: Thank you, everyone, for your participation. This concludes today’s call. You may now disconnect.
