Q4 2021 Exact Sciences Corp Earnings Call
Yeah.
Ladies and gentlemen, good afternoon. My name is <unk> and I will be your conference operator today at this time I would like to welcome everyone to the exact Sciences Corporation fourth quarter 2021 earnings Conference call.
Today's conference is being recorded and all 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 the star key followed by the number one on your telephone keypad. If you would like to withdraw your question Press Star one once again.
Thank you and I would like to introduce Megan Jones Senior director of Investor Relations. MS. Jones, you May begin your conference.
Thanks, Abbe and thank all of you for joining us for exact sciences fourth quarter 2021 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.
Is that science has 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 exact sciences dotcom.
During today's call we will make forward looking statements based on current expectations. Our actual results may have material differences from such statements 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. So it can be accessed through our website.
I'll now turn the call over to Kevin.
Thanks, Megan our mission is to eradicate cancer by making earlier detection in routine part of medical care.
Brought together a talented team dedicated to making therefore a reality.
Highlights from 2021 includes being a great place to work certified for a third year in a row.
Testing, nearly 4 million people and growing our core business by 29%.
Generating over $1 billion in Cologuard revenue, the first diagnostic tests to reach that milestone.
Exceeding $500 million and our precision oncology business for the first time ever.
Adding new tests to support a regulatory cancer testing liver cancer surveillance and comprehensive tumor profiling for advanced cancer.
Strengthening our commercial engine by welcoming Mays talented sales team from Pfizer and generating evidence to support test I'll be real patient need.
We're the leader in advanced cancer diagnostics, because of our scientific capabilities commercial engine and focus on screening and early detection and we're just getting started.
Jeff will now review our financial results. Thanks.
Thanks, Kevin Good afternoon fourth quarter revenue was $474 million, an increase of 2% or 16% excluding COVID-19 testing.
<unk> revenue was $278 million up 11% driven by Cologuard volume.
10000, new health care providers ordered cologuard during the quarter and more than 263000 of orders since launch.
<unk> revenue was $149 million, an increase of 27% driven by Oncotype Dx breast volume <unk>.
Our acquisition of the Cheyenne added seven points of growth in the quarter.
Covid testing revenue decreased 52% to $47 million.
Which was above our expectation due to increased testing for their home country.
Fourth quarter GAAP gross margin was 70% non.
non-GAAP gross margin, which excludes amortization of acquired intangibles was 75%.
Sales and marketing expense was $284 million a.
Above our guidance due to a $36 million payment to Pfizer related to our co promotion agreement, which ended in December and November .
G&A expense was $179 million.
And R&D expense was $88 million, both consistent with our guidance.
Net loss was $221 million.
Adjusted EBITDA was a loss of $122 million weighted.
We ended the quarter with cash and securities of over $1 billion.
Turning to our guidance, we expect total revenue between 449 and $469 million during the first quarter and between $1 975, and $2 <unk> $2 7 billion for the year.
We expect screening revenue between 284 and $294 million for the first quarter and between $1 34, and $1 $3 67 billion for the year.
This includes prevention genetics revenue of approximately $9 million for the first quarter and between 40% and $42 million for the year.
We expect precision oncology revenue between 140 and $145 million for the first quarter and between 595 and $610 million for the year.
We expect Covid testing revenue between $25 million to $30 million for the first quarter and between $40 and $50 million for the year.
Guidance assumes the pandemic continues to abate and Salesforce access and wellness visits gradually improved throughout 2022.
We expect screening revenue to be slightly less backend loaded than current consensus estimates.
For precision oncology, we expect continued momentum from Oncotype Dx breast globally.
We're expecting the total U S business to grow in the mid single digit percent range and international to grow over 20% we.
We expect the Cheyenne acquisition to contribute similar growth in the first quarter as the fourth quarter and then it will annualize in April .
We expect our Covid testing revenue to continue decreasing following a steep decline in the business during February .
We expected about a one point decrease in non-GAAP gross margins this year to approximately 73%.
This is due to unfavorable mix and negative leverage as COVID-19 testing volumes decline.
The added capacity sort of in that could support the fight against Covid and prepare for accelerating cologuard growth.
We expect strong cologuard gross margin improvement as we absorb this capacity and benefit from automation enhancements.
Long term, we remain confident in Cologuard gross margins will reach at least 80%.
Moving to Opex, we are investing in growth given our confidence in our long term outlook for Cologuard, oncotype and our pipeline of innovative cancer diagnostics.
For the full year, we expect sales and marketing expense of $900 million to $920 million.
This includes the full year impact of the sales team, we hired from Pfizer last year and expanded advertising for Cologuard with a new campaign to reach the 46 million Unscreened Americans.
We expect our sales team to drive strong incremental profitability as we grow the business and launched new products, such as our hereditary cancer test.
For G&A, we expect $770 million to $790 million and significant leverage going forward.
We're investing in several initiatives to provide scale and drive tens of millions of dollars in recurring savings.
One example is within our revenue cycle operations, we are upgrading our systems and benefit eligibility checks, reducing errors and manual work.
These new tools streamline our revenue cycle efforts and enable lower cost and faster collections.
We expect this to just deliver over $30 million of incremental cash flows on a run rate basis within three years.
For R&D, we expect $430 million to $450 million.
More than 70% of R&D is supporting future products.
We expect to a $99 million for intangible amortization and capex to be around $200 million.
We're investing in facilities to support future growth and develop state of the art R&D centers around the country.
I'll now turn the call back to Kevin.
Thanks, Jeff we exceeded our goals for several cologuard growth initiatives last year, providing lasting benefits and advancing our leadership in colorectal cancer screening, we achieved more than $100 million in revenue from patients being re screened with cologuard more than $40 million from patients in the 45% to 49 age group.
And a 10 point improvement in the electronic ordering rate to 50%, making it much easier to order cologuard.
These initiatives and our strengthened commercial team will fuel cologuard growth for years to come.
We plan to build on the momentum we created during 2021 by educating more providers and health systems about the benefits of Cologuard through our expanded sales reach.
Enhancing our customer experience to make repeat cologuard testing easier for both health care providers and patients.
Screening more people earlier, starting at age 45.
And releasing a new exciting advertising campaign in March to encourage a 46 million unscreened Americans to take action.
Our precision oncology team delivered outstanding results last year by testing a record number of people with Oncotype Dx.
Supporting the publication of the responder study in the New England Journal of Medicine, and adding a new test to support comprehensive tumor profiling for advanced cancer <unk> extra.
The Oncotype Dx breast test has answered the important questions of chemotherapy benefit and risk of recurrence.
One 3 million women diagnosed with early stage breast cancer, and we have an opportunity to continue to impact even more lives.
The responder study study quickly led to our Oncotype Dx tests, becoming the standard of care for women with early stage node positive breast cancer Justice Taylor exited for no negative.
We're making our Oncotype Dx breast test available to more women globally, focusing this year on the two countries with the largest incremental growth opportunities, Japan and Italy.
We're also successfully integrating our Cheyenne acquisition, which provides the foundation necessary to extend our leadership in precision oncology.
<unk> gives us additional sequencing and bioinformatics capabilities.
A differentiated comprehensive tumor profiling tests.
The foundation of our tumor informed minimum residual disease test.
And Biopharma partnership opportunities like our recently announced license agreement with <unk> Therapeutics.
Helping more people understand their inherited risk of cancer can motivate them to undergo screening detect cancer earlier.
And also got more effective treatment.
We've provided an oxide dx test to more than 70% of all women diagnosed with ER positive <unk> negative early stage breast cancer each year in the U S.
College's order for regulatory testing only 40% of these.
Offering the hereditary cancer and Oncotype Dx test for all of them could provide the full picture necessary to understand and treat their cancer.
We have relationships with 98% of oncologists in the U S.
Our team can reach most of the 290000 patients diagnosed with breast cancer not just.
Not just those eligible for Oncotype Dx.
And the nearly 2 million people diagnosed with cancer each year.
We plan to expand hereditary cancer testing beyond oncology into primary care to engage people in proactive care earlier.
We have established relationships with more than 200000 primary care providers. They can help their patients understand their germline risk of cancer, leading to risk reducing actions like more frequent screenings with our multi cancer early detection test.
The team at prevention Genetics provides a cost provides a customizable test.
High quality lab and experienced Phd.
Phd geneticist.
Combined with our sales marketing and insurance coverage expertise, we're positioned to make this vision a reality with minimal incremental investment.
We're off to a good start generating evidence for our test within the three largest patient impact opportunities in diagnostics with more data coming.
Our pipeline goals over the next 18 months or 2% colon cancer blood data and announce topline results from our prospective.
The Lucy study to support FDA submissions for Cologuard two <unk>, our next generation version of Cologuard and our colon blood test.
Present, multi cancer feasibility and validation data finalizing the design of our multi cancer tests before beginning our prospective study and launching a lab developed.
And share data in colorectal cancer for our tumor informed and tumor 90 minimum residual disease.
And recurrence monitoring.
Our pipeline of cancer tests could transform how patients are treated and contribute billions of dollars of growth on top of Cologuard and Oncotype Dx.
We're pleased with recent progress from our multi cancer team on test development.
And plans for lab developed test and commercial launch.
Our hereditary cancer Cologuard, two <unk> colon cancer blood and multi cancer tests will create the most.
Ron and compelling screening offerings available.
Combining this with our precision oncology efforts, we have test technology and team supporting a cancer patient every step this will make exact sciences is unique and the value we provide and how we serve providers health systems and most importantly patients.
We're now happy to take your questions.
Thank you and at this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad and we'll pause for just a moment to compile the Q&A roster.
Okay.
And we will.
Our first question from Mac Sykes with Goldman Sachs.
Hi, good afternoon, everyone. Thanks for taking my questions, maybe just starting on the on the <unk> Guide first and I would just love to get maybe a little bit more how youre thinking about the cadence of recovery I know you guys talked about.
Be less backend loaded than what consensus expects for prescreen.
For screening, but just would love to kind of hear how you're thinking about physician access wellness visits as we as we move through the first quarter in the second quarter of this year and what you are baking.
Making in for that for the overall guide.
Hey, Matt This is Jeff I'll take that one.
If you look at <unk> data with active you would talk about in November that physician office assets in primary care was somewhere between 50 and 60% of where it was before the pandemic started.
Since then obviously, we had the holidays in the Omaha and bearing to the pandemic and so.
I think advertising has it changed a whole lot.
The good news here is that now the Omar kind of cases are way down which means fewer people are calling in sick and it's it's having a less of an impact on this country.
Going forward ex the continued improvement in both physician office access and wellness visits now that said, we're in a highly uncertain environment with the pandemic there could be other variance that are out there.
And then over time I think our reps are finding better ways to.
To access physicians and educate them on Cologuard and Oncotype. So the team has done a nice job to work to overcome these headwinds, but they still exist. So I don't think I don't think things will fully normalized yet there in the market this year.
Got it thanks for that Jeff and then maybe one more just on you had mentioned the gross margin impact for 'twenty, two which is understandable given the COVID-19 capacity build out but you had talked about.
The potential for Cologuard to hit sort of 80% as we kind of think about your path to profitability and the importance of of Cologuard within that is sort of 2020 for when we should be thinking about that potential and then you'd mentioned sort of adding in automation do you think you could accelerate.
That gross margin expansion for Cologuard, specifically to 80% prior to that or is that sort of what you're working with today in terms of your timeline.
80% is a long term target, Matt, but I do expect to make some very nice progress towards that recall before the pandemic, we actually opened up a new lab ahead of the anticipated growth of Cologuard, we had been approaching initiatives, reaching the high 70% range for Cologuard gross margin.
On that new lab added about $10 of cost per test again. This is because the expected growth long term.
And now with the pandemic that added some additional negative leverage going forward, though as we absorbed that that additional fixed costs and very confident that we'll get back to where we were pre dependent mix that will reach new highs that's going to be a combination of both automation, which the team has done a very nice job of automated these labs leveraging that fixed costs also improved.
<unk> and our Cologuard revenue per test longer term, there expect a clear path to at least $500 per test.
The value of that Cologuard provides so we can do the math on that.
Again, I think there's a clear path to longer term, 80% gross margin for Cologuard.
And we will take our next question from Brandon Couillard with Jefferies.
Hey, Thanks, good morning.
And then I think Jeff you mentioned I think 10000, new docs added in the fourth quarter, which is pretty good given seasonality I'll just kind of talk about your outlook over the course of 'twenty two.
Just.
Just how the integration with the kind of Pfizer reps has gone so far and whether you're happy with according to <unk> from Lucky.
Hey, Brian I can start on the outlook for new Doximity, Kevin can chime in on the Salesforce outlook up.
As far as new provided.
Very excited to see if the 10000, new in the quarter. That's a very good number, especially in light of the pandemic.
Going forward I think the number can probably be in the 35 plus range. This year, maybe up to 40000. There is a significant number of new providers out there that we still have to reach with Cologuard and our innovative marketing campaign. The bigger opportunity is to continue lifting the order rate and number of orders per provider and that will be.
The biggest driver of growth this year.
When you look at the number of new drivers, we have things like Cologuard re screened Cologuard 45. This expanded sales force that we expect additional productivity from this year, we're very fortunate to have a wide variety of growth vendors soon.
We're part of the growth this year, Brendan will be higher orders per Doc rather than the number of new doctors quarter, Kevin you on top of the Salesforce.
We're really proud of the work that the sales force.
<unk> to integrate 450, new team members.
We have an amazing commercial organization.
Both of them.
Screening side and the precision oncology side on the screening side with Cologuard.
The team has just done a remarkable job through omicron.
Forming together as one team organizing into four large teams across the country being very thoughtful about how we approach health system.
We're bullish on.
What additional upside there will be this year potentially with.
This.
Really focused effort to bring more digital tools to physicians through our.
Our instance of epic and the investments that we're making in it.
It.
There is an intense focus on the 45 to 49 year old group, we saw a lot of progress there last year, even with half a year. The team is chomping at the bit to grow that more and to make cologuard at the standard of care for people 45.
Let's say prior to retirement that just people opt for cologuard over colonoscopy. The re screen initiative. This new campaign, we believe is going to put bolt action.
We can talk more about that.
So.
The sales force, so that's where it all starts with and as offices start to open up we expect.
Great things to happen across over the course of the year.
Helpful. Thanks, and then on the <unk>.
Terry cancer lives should we talked about timelines of bringing that into primary care and is there any embedded.
And revenue outlook for this year would that be actually in precision oncology screening, Jeff got really clear to me.
Brandon I'll start with the ECT, we do not have any <unk> revenue baked into the outlook. This year, so that as a potential source of upside I did help where they can be prevention genetics base business I said in my remarks $40 to $42 million. This year is baked into guidance as far as timing if you want to cover that Kevin yes.
To encourage nobody.
I want to encourage anybody to bacon hereditary cancer testing revenue this year.
But there is that upside.
Step one of that process is to talk with them.
The payers and to get on contract with the major payers for hereditary testing to add some digital services up to the test to make it easier for physicians to order through our instance of epic.
It resulted similarly.
It provided a strong connection to the medical geneticists that we're proud of that are part of that team.
That's going to take some time and we expect that we will start to kick in in.
In the second half.
Again, we want to express caution there about the timing, where you start to build that into expectation.
Okay.
We will take our next question from Derik de Bruin with Bank of America.
Hey, good afternoon, Hey, just to clarify prevention genetics, and the screening segment that $40 million.
Thats correct here. It is okay. So so with that said with that being said and given all the.
New sales force additions and sort of the rebound the cologuard the implied cologuard growth is still a little bit below.
I think for some of them are sort of walking and so it sort of begs the question on what's the level of conservatism that you have in that number and.
Is that sort of more driven by the fact that the markets are still.
Sort of recovering from Covid sort of sales force.
With that embedded $40 million in the number of the <unk>.
Revenue number was a little bit below I think where people were looking.
Yes, what's implied for Cologuard is one three to $1 $3 billion to $5 billion that equates to about 24% growth.
Again, we're fortunate to have a significant number of growth drivers you think of things like three of <unk>.
We baked in 220 million of revenue there.
Obviously, when you look at the opportunity there today already Theres a million people available for re schedule another $1 2 million become eligible this year.
Obviously, if we go ahead and hit the ball out of the park this room to deliver a lot more revenue that $220 million.
When you look at Cologuard 45, another big driver this year, but they did about 100 million of revenue obviously the size of that market. There's 19 million people in the age of 45% to 49, the essentially all need to be screened right. Now. So again, it's a huge opportunity there and things are trending very well on that driver and obviously the sales force the sales force as Kevin said Thats, where.
It all starts the sales forces out there educating doctors on re screened 45 electronic ordering so I'll start there and now with this expanded team we're expecting some really great things of that sales force this year.
Look I mean, you turn on the news that we're still in the middle of Covid, There's a lot of uncertainty there. So it is important that as a company.
They silver.
<unk> recognized the reality that there are some headwinds out there in the world that we have to account for sitting here early in the year when we provide guidance for the rest of the year.
Yes, I think the key thing that we.
Don't have businesses, Kevin that we don't have perfect visibility into is how quickly will offices start to open up again, and how quickly will patients returned to wellness business, which over the course of the last two years.
Measure.
There is tremendous upside if our face to face office visits.
Returns to the pre pandemic right.
We're off by.
50% on average about and during the course of the pandemic that the face to face visits we missed about $3 million office visits the good news here and I want to go back to the first earnings call into the pandemic. The question was asked what do you think the impact will be and we set.
We think that marginal users of Cologuard, there can start using cologuard marketing.
We have seen that.
Now the key is to focus.
Again on that.
Top half of our customers by ordering volumes that we haven't been able to reach as frequently as we previously did.
So we want to be.
Use Jeff's words sober about how we look at this year not knowing how quickly those offices open up.
Personally I'm pretty positive.
Being the diamond dynamic around the country and how quickly I'm upfront abated.
I think the color on RF guys, great great. Thanks for that incremental color and Thats actually why are we so.
That's what I was looking for in that response.
And can we just go back and talk a little about the Astro Gi data release and sort of like the 57% of sensitivities were obviously up from the 42% for Cologuard one point.
When.
Some investors and I think also we had.
So a little bit difficulty in trying to ascertain what that level of increase sensitivity means sustain above 50% and really that was an incremental driver to get more docs to prescribed the tests can you sort of like help us think about that a little bit more in terms of what that ultimately means that that stays above 50%.
Sent level once the final Pwc data comes in.
The.
The biggest disappointment with the original data and Cologuard was 42% pre cancers.
And.
So what we did is we improved the markers and then also a team from our Redwood City.
R&D team.
Used advanced machine learning techniques.
Help us refine.
The way that we've looked at the data coming off of our Cologuard two <unk> markets. These new.
And more specific insensitive markets. So it's really a combination of machine learning and different markers that bumped that sensitivity for advanced adenomas up to 57%.
And I want to emphasize that the data is apples to apples, we believe with.
The deep C study. So these are not case control samples they were prospectively collected adenomas.
A similar size as we saw in DC.
Commercially what does that do for us 42%.
57% with Cologuard next generation.
That's a big deal because docs.
Really want to see that we're going to detect about 60% of precancerous polyps.
In reality about where colonoscopy.
Because there is so much variability with the detection of precancerous polyps, depending upon your GI your time of day you'd get your scope et cetera. So now we can be a lot more aggressive in how we market.
Cologuard for pre cancer detection, and then when you see that 57% detection rate into the models.
It has a big impact unlike year scheme.
The data that USPS TF, we'll look at we'll see that Cologuard.
The performance fee.
Life years gained.
Compared to the number of unnecessary colonoscopy or farms.
Is vastly superior to fit and is approaching that of colonoscopy. So.
It's a big deal, it's going to take a little bit of time to play out, but it sets a new standard for Cologuard and colorectal cancer screening.
That we see this with the greater awareness of Cologuard.
With the work that we're doing to provide a greater urgency to act is that overtime cologuard become considered the coal equal standard of care, even though it is presently in the guidelines, but in the minds of physicians and patients have becomes a coequal standard of care with colonoscopy.
And we believe it's coming.
And we will take our next question from Brian Weinstein with William Blair.
Hey, guys. Good afternoon, thanks for taking the question so thanks.
So you guys have often talked about that 40% penetration for cologuard.
I don't recall the exact timeframe I think it's something like by the end of the decade that would take you sort of about $3 million testing about $1 $3 billion in revenue. This year to about 14 million tests or $7 billion in revenue and I'm curious as you think about that trajectory where does that really come from.
If your thoughts advanced at all between the difference between driving that from colonoscopy conversion unscreened individuals and how you target each differently, Jeff I think you talked about the new sales and marketing campaign going after the on screen. So it's part of that answer maybe you can address.
That campaign and why do you think that can be successful.
Sure Hey, Brian This is Jeff I'll take that one so today if you look at it overall screening rates are somewhere in the 55% range and again, that's including ages 45 and above longer term, we and many others are targeting 80%. We don't that's possible that's possible adoptions that cologuard is possible because that's where you see screening rates.
For for breast and cervical cancer screening.
So longer term to your question, how does cologuard hit from where it's at today to 40% or higher it's.
From a mix of lithium overall street rates, which there is documented evidence out there today that cologuard is already lifting screening rates in the country with the mixture of that and taking share in the market, which we know were doing when you look at who's using cologuard. We ask our patients have you been screened before and if so with what.
About 50% of patients had never been screened before a 40% previously had gone through with a colonoscopy and about 10% previously we are screening with fecal blood tests. So we know we're taking share in this market. We know we're also importantly, expanding the market and getting more people tested.
Another way to get there Brian is to get more physicians to order cologuard and to Kevin's point earlier dependent that has helped to accelerate that.
We do a decile analysis, so we looked at.
Different ordering trends are different doctors that one thing that I've talked about before on these calls that really stands out to me.
When you look at the doctors that represented the top 40% of orders before the pandemic.
Those doctors today in Q4, the order trends are down they are down about 15% versus the start of the pandemic, while they're down because they have fewer patients coming through their doors again because of the pandemic and our salesforce axis. There has been somewhat limited because of the pandemic.
It gets really excited is that as we come out of the pandemic reps will get back in their patients will get back in there and those doctors will come back. They are the true believers that doctors that represent the bottom 60% of orders again before the pandemic those doctors as of Q4.
And 60% more nearly 60% more than they did start to pin debit. So we're seeing a significant broadening the ordering base of deepening the penetration amongst the doctors kind of near the bottom.
That all bodes well for the future. So that's how we're going to get there. This new marketing campaign stay tuned there Brian the growth not the very near term here that one im very confident that that one will help increase the urgency to get more people screened and lithium screening rates in this country.
Okay, and then just a follow up on timing for data Readouts just wanted to make sure that there is no change in <unk> would you mind, just sort of running through the timing on when you expect various readouts over the next kind of year or so it could take place.
Yes, I'd be happy to take that Brian .
Next generation Cologuard.
The Blue C topline.
<unk> two readout.
The second half probably fourth quarter. This year, our FDA submission in the first half of next year.
Colon cancer blood.
We expect to have data this year.
That will then lead to our Blue C study top line pivotal data.
In the first half of 2023.
Multi cancer early detection.
<unk> SaaS combined with the exact sciences.
Technology, the case control data feasibility data in mid 2022 case control clinical validation second half 2022.
Our prospective study starts late 2022.
Our MLR D test clinical validation will be will be in the second half.
This year and.
I just wanted to call attention to the fact that our encore guard liver test reimbursement multi X wants a different type of study that will probably take about 18 months to complete so that unfortunately.
Is pushed off.
Before we can get reimbursement will continue to offer that.
Cash pay out of pocket.
Continue to build real world evidence with.
Key partners.
And that system or anything else that I didn't touch upon Brian .
I think you got everything that I had and I'm sure. If I missed one someone else will pick up on it but thank you guys and we'll talk to you after the call.
We will take our next question from Vijay Kumar with Evercore.
Hey, guys. Thanks for taking my question, Jeff maybe one on the guidance here.
The screening revenue guidance here once before.
X X acquisition, it's about round one two build initiatives at the low end.
I think last year, you guys noted about.
Please screening, perhaps being $100 million and you expect that to go to.
Double up in 'twenty two.
Screening and 40% to 45 age group, perhaps 40.
In fiscal 'twenty, one doubling up in fiscal 'twenty two.
If I back out those screening.
And the 40% to 45 eight.
<unk>.
Contribution.
Your base Cologuard and into the Pfizer contribution I mean, it seems to be decelerating year on year I'm not sure.
If that makes sense to you.
Maybe just.
Walk us through and why.
<unk> access is improving other device companies are assuming procedures to improve.
Why cologuard revenues would be still rich.
We are screening in the 40% to 45 zero contribution.
Distributed this is Jeff.
First just to start where we're guiding to an incremental $250 million of revenue at the midpoint, that's pretty consistent from year to year, so that viewed as a deceleration.
The beauty of this business model is that we have multiple large growth drivers that all works together right. As an example via our sales force, which we expanded last year.
Expectations for this year to see incremental productivity will that Salesforce is the biggest driver of our <unk> program and Cologuard 45. So they will work hand in hand, So you really you can't parse all of those things out.
The point, where youre getting is what is the core business do it in a $50 above we do expect very good growth out of that part of the business.
That's not to say that.
Overtime other parts won't grow faster Cologuard re screened and Cologuard 45.
Probably the fastest growing parts of our business now that's a good thing the.
The re screen business its a recurring source of revenue into higher margin source of revenue and over time I expect to grow faster because that eventually becomes half our revenue and that will drive margins higher that'll drive patient compliance higher that's a good thing right Thats a way for us to get more people screened and keep them screen for a long period of time.
Looking at 45% again.
And thats exciting because of.
At 19 million people that was a significant increase in the pool of patients who are eligible 45 year old.
When we screen them, we have 30 40 years to keep them screens. So again, a big source of recurring revenue, we have a significant amount of attention on three screens in 45, but we expect broad based growth. This year P. J to your point, but earlier, we talked about look we got to see silver here the.
The fact that access is still somewhat limited.
While the system are down because of the pandemic. So we think all those things into our guidance.
And maybe one follow up to that.
Jeff you said that.
250 million.
Dollar of increase.
Roughly similar to work.
21 increase was paid for screening revenues.
And I think.
Pat you had mentioned the incremental.
400, plus of Pfizer sales reps.
You expect them to be cash flow neutral is that still the case and.
Im just looking at the guidance rates last year, but you didn't have Pfizer.
Access was severely curtailed and we added $250 million of revenues.
We have Pfizer this year and we're still on a dollar basis it seems to be in line with that.
The dollar increase in 'twenty one.
So perhaps there is some conservatism in the guidance here.
Well.
The team that we hired from Pfizer again, we're thrilled to have done or the incremental productivity has been good I do expect for them to at least.
Be breakeven on a cash flow basis, actually probably better given the productivity that we've seen so far to.
To answer that question I do keep in mind that that team.
The board and employees of exact last year until October .
Working for Pfizer out there driving some productivity. So it's not that that team is all incremental.
Or at least to some extent in the base.
You've got to be careful when you do that year to year comparison.
Also keep in mind that if you go back 2020 had a pretty significant impact from the Covid pandemic.
Which allows the growth in 2020 , one on an incremental basis to look higher.
It was an easy comp that that we faced last year.
Okay.
And maybe one housekeeping, Jeff sorry, My third one.
Hi, Sean what was the contribution in Nam.
<unk> in Q2 of last year.
Eight to nine points or so a quarter that closed during April . So April you had a kind of a partial quarter that way, but kind of think of it as kind of in that high single digit range Vijay and then you'll have another quarter of that annualized since April of this year.
Understood. Thanks, guys.
We will take our next question from Catharine <unk> with Baird.
Hey, guys. Thanks for the questions I guess first for the first quarter screening guide how much of that is prevention genetics.
We back out some impact for that it looks like the core screening business is expected to be flat to slightly up.
Sequentially, despite having your typical holiday seasonality omicron I would imagine from some weather impact. So can you just talk through some of the positive drivers that you're seeing for that business that would drive that sequential increase.
In Q1, Kathryn I mentioned during my remarks, we expect $9 million from prevention genetics.
If you walk through the transcript youll see that we have the full amount for screening and then we break up the month for prevention. So.
And that's a good point the typical seasonal trends here.
Is around the holidays, starting with Thanksgiving and Christmas and new year's fewer patients go out and seek primary care at a cologuard is typically order during a primary care visit so that does have a negative impact all else equal you would expect.
A pretty meaningful step down from Q4 to Q1 and our Cologuard business.
This year, what we're implying is a better trends to better trend for the reasons, we've talked about things like the incremental sales force productivity three year recruiting Cologuard 45, all very positive drivers.
There has been some impacts from <unk>, you had more people both patients and physicians getting the.
The disease and calling in sick and that did have an impact but the good news here is cases have fallen dramatically and going forward. The salesforce access should improve and walnuts as it should improve as well.
Great got it and then you talked about achieving a 10 point improvement in the electronic ordering rate in 2021 equals or targets for further improving that this year.
When you look over the past two years, we went from 30% of Cologuard orders electronic to 40, then now kind of 50, we expect continued improvement.
Each year it gets harder to keep going up at a 10 point. So I don't know full well get there we'll aim for that much catheter, but 10 points.
After the progress they've made in the past couple of years 10 points will be more challenging this year longer term no I'm very confident that that number will keep working higher and the good news here is when a physician orders electronically as you know the order far more.
Better overall experience for the patient and to lower cost quarter for us. So again back to my comments on G&A. We're investing now in G&A. We are investing to build this robust foundation to grow this business efficiently and create a better overall margin P&L.
For everybody. So the investments, we're making now will help lift that electronic ordering rate higher it'll help drive three of re screens that will improve our billing operations. So that's a big part of the investment we're making into G&A is to keep moving that rate higher because its so important not only for Cologuard now also for pipeline products down the road when we launched <unk>.
Pre cancer or multi cancer, they will layer into environment that is very unique the layered into a foundation that allows physicians to click one button and order a test when you compare that to the Moon launched cologuard or other companies launched tests they'll have to launch that into a fax environment, which is far more challenging.
We will take our next question from Dan Brennan with Cowen Group.
Great. Thanks for thanks for taking the questions.
If I could start off just with a question on <unk>.
Blood based competition since that's a key focus.
Kevin can you just.
Kind of remind us is that 85% is still the number that you think kind of above which maybe their share gains and below which the share loss and then b I know.
It's very.
Nuanced question, because there's a lot of levers here, how does pre cancers.
Nobody detection fit into how the blood based competition will do and then the final point to this question is while USPS TF decision will likely be years out in the future.
Should we be looking for other bodies, whether <unk> or <unk> or others that could come in.
Make decisions or recommendations that could have an impact on the paradigm for screening once once a blood based that is out there.
Yes, let me start with that one.
The most important guidelines by far our USPS TF guidelines.
<unk> cancer Society also weighs in but the guidelines that payers follow our USPS.
So those are the most important ones are also the most rigorous.
So coming to what level of performance do we think.
As the minimum required to have.
A positive impact on overall screen.
Well, 85% is not.
We think just at 85%, there's just not much of an uptake with a blood based test it will be kind of a test of last resort.
Now thats going to a test of last resort in a patient population of well over 100 million people is still an important test, but you have to remember where the fit test is today. The fit test is about 75% sensitive detects, 24% and precancerous polyps with a 5% false positive.
And it's it reimburses at $16.
So as a blood test that detects 85% of cancers, a smaller percentage of precancerous polyps.
With a higher false positive rate going to have an impact.
That cost.
Some people are touting multi hundreds of dollars no. It's not going to have much of an impact in part of the reason is take a look at the Medicare guidelines. They are only going to pay every three years.
But at that level of sensitivity and specificity its going to have to be used every year to have an impact, but theyre not going to pay for it every so who is going to go down that path is the screening.
It's the challenge there is no doubt about it and our data show that.
One, 7% say they would not feel comfortable ordering a colon blood test if the sensitivity is 85% or lower.
And it's the pre cancer sensitivity is 40% or is it going to have an impact yes.
Is it going to have a major impact at that level of sensitivity and specificity.
We don't think so we get asked this question all the time, we have our own blood cancer tests.
Is it important to us yes.
I know people, who have passed away from colon cancer, because they refused all other types of screen. So is there a need absolutely is it going to impact.
Colonoscopy and Cologuard is the critical standards of care.
Just to clarify the answer there only the survey data to that only one in seven docks would order a test if.
The cancer sensitivity will below 85% and the pre cancer sensitivity, we're below 40%.
Got it thanks, Scott Thanks, Kevin.
Right.
Okay.
Yes.
Sorry for that and you can talk of you guys.
And then and then maybe as a kind of different question for Jeff.
We think about the long term path for the company towards.
Turning profitable in cutting self financing so free cash flow positive.
What are the markers as we look ahead.
In the coming years to think about that.
Would enable you to achieve that.
All else equal there are certain revenue base at <unk>.
We should expect those things to occur or just any.
Any any helpful thinking along those lines would be great. Thanks.
But if you go back two years now I think we show what this business model can do go back when the pandemic hit we quickly pivoted and adjust the cost structure pulled back on some of the pipeline assessments and we generated in 2020 over 70 million of free cash so that shows what this business can do cologuard.
Oncotype generates significant cash flow.
Over time.
Right now helping to fund growth in things like <unk> and R&D over time that will fall through and we will gladly share that with investors.
As far as the roadmap forward, we're very confident in delivering adjusted EBITDA profitability in 2024, how do we get there it starts with the top line.
Note that the opportunity ahead is significant.
We'll keep growing that top line that will generate additional gross profit between now and the next few years I expect some very substantial gross margin improvement as we leverage that fixed cost structure and automated Atlanta, either further when you walk down the P&L. If you look at things like sales and marketing, we're fortunate to have a broad sales and marketing team now.
Fans from primary care.
Women's health oncology surgeon that sales team over time.
More products to their bag that will help incremental profitability flow through G&A.
G&A, we've probably the investment here, we frontloaded because that gives us a strong foundation from which to grow I guess some color on some of the investments things like systems and billing systems that will drive significant savings and leverage overtime Youll start to 2000 unfold even this year.
I think we'll do a good job of holding the line in the coming years and you'll see a good good leverage of the G&A.
R&D I said in my remarks, the vast majority of R&D nearly 75% of R&D is on new growth.
It's the right thing to do for investors is to keep driving that growth forward.
Things like multi cancer and Mardi Cologuard two <unk> are the major areas of investment over time that will open up new sources of growth that will allow us to drop even more cash flow through to investors. So there's not one single pointed I'd point, you to Dan, but theres a whole series of things that we've got laid out in our internal plan.
That will get us to profitability in 'twenty, four and middle out continued steady gross margin and cash flow improvements thereafter.
And we will take our next question from Jack Meehan with Nephron research.
Yes.
Thank you and good afternoon.
Wanted to focus on multi cancer screening, so NCI recently announced an RFP for a large scale RCT.
I was wondering if you plan to respond to that RFID and participate and just talk about how does this fit into your development plans versus the pivotal study that you've talked about launching.
We are responding to the Mci.
Request for proposal and.
We're.
The good news with what NCI is doing is showing just how.
Badly or federal government wants to be involved in changing the way that.
Cancer is treated.
<unk> is accretive largely as a late stage metastatic disease, because 70% of cancers have no screen.
With a multi cancer screening tests that changes everything because over time you could.
Moved from 15% to 20% of cancers found through screening to north of 50%.
And that's where everything changes in oncology and that time is not far away Ncis involvement here is another good sign we will continue of course to have our own pivotal study others will have their own too and thats needed because to get a new screening modality into USPS TF guidelines.
It's going to take more than one study and it may take multiple studies.
So.
The NCI study is yet another way for.
We and others to generate evidence.
And we're excited about that the other thing is the Moonshot program, which was just brought back to life.
One of the things that President Biden emphasized was the way too.
Reduce cancer mortality in half over the next couple of decades is through a multi cancer early detection screening so.
The NCI involvement here is a really positive step.
Great and as a follow up I was wondering if you can just talk about how youre thinking about the FDA review timeline for colon blood.
And for a multi cancer test.
And on the ladder does the involvement of NCI kind of change your view as to when the FDA might get a round of reviewing multi cancer test. Thanks.
So let's start with multi cancer, then take colon cancer multi cancer.
Studies are going to take a number of years to complete.
And so the FDA typically will have a panel meeting and then.
You will need to.
Submit all the data have the panel review so that with Cologuard was I think a six to nine month process from submission of data to approval.
Maybe it was about a six month timeframe from submission to approval.
We would expect probably something similar there with multi cancer colon cancer is the same I suspect that since there are multiple aspiring entrants into that space that they will have one big panel meeting that's what they typically would do.
So it will depend if there.
Our three or four submissions there I suspect there'll be one panel meeting to look at all of that data and again that's probably.
A six to nine month process, we have to keep in mind right now.
Office, but in vitro diagnostics is just.
Thats been overwhelmed by Covid testing submissions in.
That hasnt abated so.
It really depends on where the staffing levels are and how busy they are with other projects.
And we will take our next question from Andrew Cooper with Raymond James.
Hey, everybody. Thanks for the questions lots have been asked but maybe to follow up on that last one I think in the comments you talked or mentioned LDP path for multi cancer. So just wanted to get sort of the latest and greatest on that and how things like the NCI RFID.
What we're hearing from the one player out on the market.
The impacting your view of what the best pathway is how you sort of go down that dual pathway for FDA and <unk> and just the latest and greatest thinking there.
Yes.
I think the other aspiring entrants here has done a great job there.
Grail is.
Type of.
Company, you want into a new space like this because they are serious about the database generate and.
You need more than one.
Company more than one product involved to get.
Congress to act and cover it test it they're very unlikely.
Plucked and to do it if they see that they're doing work for one company.
No.
We're really pleased to work with Grail in.
And the way that we have over the last year with advocacy groups.
Et cetera.
<unk>.
How does this play out from an <unk> perspective, we expect to have in a lab developed test.
Our own.
Next year.
There are over 100 million people, we think that ultimately will get screened and it's going to be different than cologuard remember with cologuard. There there was colorectal cancer screening for.
A quarter of a century before cologuard shutdown and there or.
Receptions about which tests were used we hit a go unchanged.
How people were screened.
There is no multi cancer screening that exists today.
So there's going to be a lot of opportunity for growth and in my mind. The question is in the first year of FDA approval Medicare coverage potentially just how many people are getting get screened in that first year, it's going to be one of those.
Medical innovations that just changes everything.
<unk> developed tests.
An opportunity for significant growth and I think you can see that from what's going on in the market, it's not going to be.
It's going to be so much greater though when you have broad based insurance coverage guideline inclusion et cetera.
This is a long term investment it's a long term opportunity as we believe let me come back to going from 15% to 20% screen detected cancers.
To over 50% screened detected cancers will change everything about cancer, and how it's treated and outcomes.
Okay, great helpful and then.
Kind of in the Nitty gritty, but you mentioned multi X wanting some different data for also guard.
I guess can you give us a little bit more flavor for what that means and then is there anything to take away in terms of what <unk> may be looking for for some of the other pipeline items or any changes to your approach is because of the additional request they're looking for on that one.
Sure let me extra comeback.
Multi cancer screening the reason that we're so excited about our lab develop test is because we're going to put that into the hands of.
Over 1000 people on our commercial team.
We will be able to.
Put that onto our instance of epic, making ordering resulting tremendously easier. So a huge advantage that we have.
<unk>.
Ankle guard liver, it's just a different study approach that without getting into all the details that multi X wanted.
And that unfortunately extends the time, because we have to do.
Start that study and completed before we are able to submit.
The read through on our other products.
<unk> already has categories for.
<unk> well established liver just didn't.
And that's.
There won't be a lab.
Test.
Palmetto.
Local coverage decision for multi cancer, because the law doesn't permit that.
So there is I don't think theres any read through on liver too.
Any of our other pipeline programs.
And we will take our next question from Puneet <unk> with SBB Leerink.
Yes, Hi, Jeff Kevin Thanks for taking the question.
Maybe if I could ask.
Simplify the question I know a number of questions have been asked on the guide.
I think investors are.
Drug Ling with identifying is there anything beyond the general uncertainty associated with the sort of the unpredictability of Covid.
In the full year guide that is making you more prudent if I could use the word that Jeff had sober.
I mean, you have $220 million re screens 145 year old plus.
Contribution new docs coming in a stronger sales force with more than 1000 electronic ordering in person sales reps a number of other things. So I mean, just in a very simple way. If you could just clarify is it just the learnings from our very uncertainty last year.
<unk> is making you more protein Terry just wanted to understand.
I think thats accurate.
I think.
We still are the biggest question again is how fast are the offices open up.
I think theres a lot of upside too.
Cologuard growth and we look at this.
And in a prudent way given that offices still.
<unk> access is not what it was pre pandemic.
And that's probably the main.
Variable.
As we look out across the year, but I want to start by saying this the growth that we have baked in here is strong growth coming out of the pandemic.
We have had a very good start to the year.
The team has worked through the <unk>.
Impact omicron than we.
Are tremendously positive about cologuard for this year.
I think a good way to.
Summarize here and so Meg.
<unk> do we have any other.
Sure.
So thanks, everybody for joining us on the call today.
Base of more than 1 billion, we expect cologuard to grow at least 24%. This year, our precision oncology team tested a record number of patients with Oncotype last year, and we have exciting growth drivers ahead in node positive breast cancer international markets and with our therapy selection tests.
In addition.
Through our core business, we have the best team in cancer diagnostics working on a pipeline of innovative tests.
Mardi multi cancer early detection hereditary cancer testing to support millions of patients.
<unk> of dollars of growth, we look forward to providing updates throughout the year.
Ladies and gentlemen, this concludes today's call and we thank you for your participation you may now disconnect.
Please wait the conference will begin shortly.
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