Q2 2023 Exact Sciences Corp Earnings Call
Good day and welcome to the exact Sciences second quarter 2023 earnings call. Today's call is being recorded 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 he would like to ask a question. During this time simply press star one on your telephone keypad and if he would like to remove yourself from the queue that is star. One again, we do ask that you. Please limit yourself to one question I would now like to turn the conference over to Megan Jones, Vice President of Investor Relations. Please go ahead.
Thanks Lisa.
Thank you for joining us for exact Sciences second quarter 2023 conference call on the call today are Kevin Conroy, the company's chairman and CEO and Jeff Elliott, Our Chief Financial Officer Everett.
Everett Cunningham, our Chief commercial officer will also be available for a question.
Discussions of non-GAAP figures in our reconciliations to GAAP figures are available in our earnings press release and.
Descriptions of their isn't uncertainties associated with exact sciences are included in our SEC filings, both can be accessed through our website.
I'll turn the call over to Kevin.
Exact sciences World Class team is the driving force behind the most innovative growth engine in cancer diagnostics.
Our scientists are using advanced technologies to harness the power of DNA RNA and proteins.
We're intensely focused on enhancing our current tests and developing new tests that can help transform cancer care.
Scale of exact sciences labs infrastructure commercial teams and our depth of payer relationships will help those tests impact millions of patients, while providing profitable growth for years to come.
We made significant progress toward our mission to eradicate cancer during the second quarter, including.
Being a great place to work certified for the fifth consecutive year delivering more than 1 billion tests.
<unk> to patients generating core revenue of $617 million, an improvement of $119 million year over year with an 18% decline in sales and marketing expense.
Producing 66 million of free cash flow.
$190 million improvement.
Announcing positive top line results from our Blue C study and which are next generation Cologuard test exceeded our expectations for improved sensitivity and specificity.
Securing reimbursement for the Oncotype Dx test in Japan.
And initiating collaborations with the broad institute to support our molecular residual disease test platform and Baylor, Scott and white to support our multi cancer early detection program.
As a result of the outstanding results in the second quarter, we're raising our full year guidance for revenue by $54 million and adjusted EBITDA by $63 million.
Our second quarter results show, our team's commitment to developing and enhancing tests that impact decision, making and supporting them with the highest quality assets.
Surrounded by a 2000 person commercial and customer care organization will provide the best customer experience for patients and their healthcare providers globally.
This creates a flywheel that will power a unique combination of long term double digit growth.
Thanks, Kevin second quarter revenue grew 19% to $622 million.
Core revenue of $617 million grew 24%, excluding COVID-19 testing the sale of our prostate business and foreign exchange.
Screening revenue of $463 million increased 31%.
We continue to see broad based momentum in Cologuard adoption and traction within health systems since.
Since the beginning of the year, we've implemented about 40, new electronic connections with large U S health systems, bringing the total to nearly 300.
These connections allow health care professionals to order and view results seamlessly.
Even patients access to results and Epic My chart.
He also enable electronic billing and reimbursement and in the future automated prior authorizations, improving the efficiency of our teams assistance for Cologuard and a whole suite of tests.
More than 9000, new health care professionals ordered cologuard during the quarter and more than 321000 have ordered since launch.
About 75% of our U S primary care physicians have ordered Cologuard. So we don't plan to provide the number of new physicians each quarter starting next year.
Precision oncology revenue grew 2% to $157 million.
Growth was 7%, excluding the prostate business sale and foreign exchange.
Covid testing revenue decreased 84% to $2 million.
Second quarter GAAP gross margin was 71% non-GAAP gross margin excluded the amortization of acquired intangibles was 75%.
Gross margin benefited from better cash collections due to improvements made to our billing systems.
GAAP net loss was $81 million.
Adjusted EBITDA was $67 million, an improvement of $113 million driven by better than expected revenue gross margin and operating expense discipline.
Cash provided by operating activities was $100 million.
Free cash flow was $66 million, an improvement of $190 million.
We ended the quarter cash and securities of $776 million.
Turning to guidance, we expect total revenue between 605 and $620 million during the third quarter, and 241 and $2 $4 66 billion for the year.
This assumes screening revenue between 455 and $465 million for the third quarter and.
And between 182, and 183 5 billion for the year.
Precision oncology revenue between 150, and 155 billion for the third quarter and between 615 and $625 million for the year and.
In corporate revenue of $6 million for the year.
Note that we discontinued cobot testing in July .
For the year guidance implies 22% core revenue growth with 28% growth in screening and 6% growth in precision oncology.
We're increasing our adjusted EBITDA guidance for the year to between 170 and $180 million.
Up $163 million from the start of the year.
The exact sciences platform was built to drive double digit revenue growth and margin improvement for years.
Quarter shows this engines, earning potential back to you.
Kevin.
Thanks, Jeff Cologuard is helping to screen more Americans and reduce the suffering from colon cancer.
Next generation Cologuard will raise the performance bar in noninvasive screening and accelerate its positive impact.
Next generation Cologuard achieved a 30% improvement in specificity a measure of the false positive rate, while improving sensitivity for the cancer and pre cancer detection rates.
This is a result of advanced technology deep scientific insights and more than a decade of collaboration between our R&D team and Mayo clinics clinic.
We are proud of our teams for their efforts to bring next generation Cologuard to patients. We're finalizing the FDA submission and we're working to get it in patient's hands in early 2025.
Once next generation Cologuard is FDA approved it will be supported by the best commercial team in diagnostics and.
And the most dedicated frontline team members.
This team has worked tirelessly to build relationships with health care professionals connections to hospitals and a strong brand.
This is a big opportunity to have an impact on this disease, because 60 million people are not up to date with colon cancer screening in the U S with.
With our team's commitment to getting more people screened in a more accurate test.
Cologuard was help improve colon cancer outcomes and continue to fuel our growth.
Our precision oncology team secured reimbursement for the Oncotype Dx breast test in Japan.
Our 90000 women are diagnosed with breast cancer every year.
About half of them are eligible for archetype Dx, making Japan, the biggest opportunity outside the U S with.
With reimbursement now in place Oncotype Dx can provide important answers to women who aren't currently being tested.
Our team in Japan, we will work to educate doctors hospitals and communities about the value of genomic testing with Oncotype Dx, so more women and their physicians can make better personalized treatment decisions.
A special thanks to the international team, who is bringing this important innovation to patients in Japan.
Yes.
Our pipeline teams are focused on two of the biggest opportunities in cancer diagnostics.
Molecular residual disease and multi cancer early detection.
We're working with the broad institute to enhance and extend our molecular residual disease platform called agco detect with an exclusive license to technology development.
At the boat will move from whole exome to whole genome sequencing.
From looking at 50 to 100 mutations in the patient's blood to hundreds if not thousands of mutations.
This will provide best in class performance at a very reasonable cost point, allowing us to reach cancer patients at scale.
Our multi cancer early detection team is working to complete the <unk> two trial, which will validate our multi marker class approach and a large case control study, including 21 cancer types.
We expect to have partial results from the ascend to study this fall with a full readout early next year.
We're generating additional data to support discussions with regulatory agencies guideline bodies and Payors helped.
Helping secure access to this life changing innovation for all patients.
Our focus on eradicating cancer fuels, the exact sciences team and is driving our financial results will continue to invest in our people, reaching more patients with our current tests and developing new cancer diagnostic tests.
Our scaled platform will accelerate adoption of our tests, while sustaining double digit revenue growth, improving operating leverage and meaningful cash flow for years.
This is a rare opportunity to reduce the suffering cancer causes while delivering value to our shareholders.
We're just getting started.
We're now happy to answer your questions.
Thank you and I'll remind everyone that is star one to ask a question and we do ask that you limit yourself to one question.
We will take our first question from Derik de Bruin with Bank of America.
Hi, good afternoon. Thanks for letting me get the first question I appreciate it so I'm going to do two one financial question, Jeff How should we think about opex trending in the back half of the year and the other one.
Just.
How do you think cologuard two <unk> will be a tailwind how much of a tailwind do you think will be once FDA approved I mean are there docs now that we're more likely to use to point out that we're not using one point out just throw your thoughts on how that rolls off and how that impacts the business. Thank you.
Jay This is Jeff I'll take the first one on Opex for the year no change to the assumptions there, which is an overall increase in the mid single digit range.
The way you get there is really continued good management by Edward and team.
We expect our sales and marketing declined for the year in total.
R&D up probably in the mid single digit range G&A as you remember back in to start the year. We talked there there was some kind of moving pieces here related to primarily the three.
<unk> earn out that is driving a big part of the growth. This year. If you strip out that which is noncash now obviously the payout would be several years into the future.
All of that.
Some other kind of unique one time items that growth. There is also in the mid single digit itself.
What that implies for the back half is a bit of an increase in the second half versus the first half.
Recall last call last quarter, we talked about accelerating some investments and Mardi given how quickly that market is moving forward and given our confidence in our technology and our approach there.
Also with.
The growth that we've had hiring is going to pick up in the back half of the year really to help support that continued growth I think there is two questions. There I'll turn it over to effort for the second one yeah. Thanks. Thanks, Jeff you talked about the strategy of Cologuard to point, our first focus will be continuing to grow cologuard until cologuard two <unk>.
The FDA approved.
The great thing about our field forces were driven by data and analytics and we used at Dalian, which we <unk>.
Our sales calls and we take notes on our sales calls so we know which physicians that are out there that have the objection.
Eight the false positive rate.
As an objection. So once we do launched Cologuard to point out we will focus on going to those physicians first and Thats just the power of our commercial organization the data and analytics that we used to go to the right targets with the right message and the commercial team is excited to get Cologuard two <unk> in their bag.
We will take our next question from Catharine <unk> with Baird.
Hey, guys. Thanks for the question.
Yes, maybe ever at another one for you just mentioned that about 75% of primary care doctors in the U S.
Cologuard.
Just how does your strategy change now that the primary focus will be on really deepening the penetration with apple accounts, rather than adding new orders of any examples you could get there.
Yeah. Thanks, Thanks for that question.
We're not complacent at all with that with that number.
We have 10% penetration with Cologuard, So we know that along with the $60 million.
Americans that of average risk that right now are not up to date to screening. So our commercial organization goes up every day knowing that there is there's opportunities that are out there to continue to grow cologuard.
That's our focus and like I said before we use data and analytics.
Just concentrate on the reach of the position, but we need to concentrate on the frequency and making sure that we get the message out there consistently because we know that theres more work to do.
To get our customers out there to write more cologuard and get more people screened.
Hey, guys. Thanks for taking my question.
Maybe I'll just I would.
Wanted to about the profitability question.
Adjusted EBITDA of $130 million in first half.
Second half revenues on a dollar basis.
<unk> don't change a whole lot I think the guide in place like 70 ish of EBITDA for the back half maybe talk about your incremental margins incremental leverage share.
You had mentioned.
<unk> had some noise.
On earn outs.
When can we actually see G&A.
Leverage similar to what we're seeing on the sales and marketing side. Thank you.
Thanks, Vijay a lot there.
Yes, I think we feel really good about the state of the business, especially the foundation we've talked so much about the foundation was built to scale built to scale the top line and drive margin improvement and cash flow improvement for years to come in.
Foundational allowed us to pull in the profitability late last year and accelerate time to free cash flow positivity. This quarter. So we feel good about the long term prospects there.
Take a step back what we're guiding to for the year now is a $320 million.
Rough improvement year on year and adjusted EBITDA.
When you compare that to the level of growth implies very strong adjusted EBITDA margins that we feel good about.
When you look at the guidance raise specifically the midpoint of adjusted EBITDA is coming up by more at $63 million to the midpoint of revenue. So we are driving that leverage.
To your question around G&A in the quarter there were a couple of one timers.
Illegal settlements of $17 million.
In the press release and also I.
I mentioned before these to thrive acquisition earn out again, it's a noncash accretion line that they can flip back and forth between the gain and an expense quarter to quarter. If you strip those two things out.
<unk> grew 2% in the quarter.
So I think the team did a good job managing that relative to the 19% year on year growth in revenue. So some work to be done in G&A, but with this foundation. We have in place we expect that number to come down as a percent of revenue nicely over time.
We will take our next question from Dan Brennan with TD Cowen.
Great. Thanks for thanks for taking the questions guys. Congrats maybe just on Cologuard.
I guess could you walk through some color on some of the notable drivers had the re screen.
And the 45% to 49.
Did you see any impact from that.
Three year look back where you had the coldest quarter three years ago on the <unk> screen just wondering how those two played out in the quarter.
And then as well, obviously, you've talked about only 10% penetration, but momentum has been really strong on clearing the backlog of colonoscopy and kind of the health system's electronic order. So just get a little flavor for how a lot of those key drivers played out in the quarter and kind of what's assumed for the back half of the year. Thank you.
Thanks.
Hey, Dan This is Jeff I'll start then ever can jump in with some some color.
The beauty of this business is that there is a broad based set of drivers here. So there's not just one or two it is broad.
The re screens is a big we've talked about our reskins are growing nicely.
We do have that headwind the team is medicine through and the headwind here is because cologuard is recommended by the guidelines to retail every three years three years ago, obviously was the of the onset of Covid.
And Cologuard orders were negatively impacted especially in the early days of Covid. So you think back to April May June of 2020, Cologuard orders are actually down they did recover nicely what that means now three years later when people are coming up to that restrained. There is an impact on the business that the total number of patients.
Eligible for <unk> this year that three year repeat as won't play 2 million. That's the same as last year.
Good news is when you look ahead to next year jumps to $1 6 million. So this is a temporary slowdown in that restrained growth again. The team is doing a good you have mentioned through it. So we are driving growth here just to think about the size of the headwinds.
For the year, it's over $50 million of revenue again, the headwind it is temporary or big part of that hits in Q3, so get teams driving through that other drivers things like.
Cologuard 45, this new age group that is now part of the guidelines a couple of years ago the guidelines lowered.
<unk> 50 down to age 45% at a 20 million more people.
That that age group is approaching 20% of all Cologuard revenue. So a huge driver there ever can talk more about health systems, but the good news here is that there's a broad set of drivers here that we expect to continue for many years to come.
Thanks, Jeff and I will touch on re screen of 45 to 49 and health systems. This is just a great example of the way our commercial team is working together and they treated this as a team sport from.
Our marketing messages specific to 45% to 49 and re screen our customer experience around those drove drivers of re screen and 45% to 49 and our training while we continue to hone our message around this.
The data and analytics that we're using at the territory level in terms of the targets to go through to to grow. These two type of growth levers has been tremendous and I've been out in the field and it just gets better every quarter as wrong as far as health systems, We're seeing a trend of health systems coming to us to help them with good.
<unk> people screened for colorectal cancer screening theyre getting measured by it and they know that they can't do it alone with colonoscopy only and we're developing broader partnerships around those people of average risk that need to get screening and that had a colonoscopy backlog they are coming to us for help around getting those.
Ah patients screen, and then lastly, I'll just say our brand not just around cologuard, but around Oncotype Dx around are rare diseases and prevention genetics, our brand is solid and they know that they can come to us for help.
We will take our next question from Brandon Couillard with Jefferies.
Thanks, just two for you the Oncotype approval in Japan will that be material incremental revenue contributor in the back half or is that more than 20 core dynamic and then then pre cash collections is that a material benefit to screening revenue growth of 31% in the quarter So call. It.
At all.
Sure Ben This is Jeff on the first one on Oncotype really proud of what the team did to make sure we got reimbursement and access to this this test to help out as Kevin talked about a significant number of women in Japan, which really when you look at the size of this market it could be our largest market.
The U S. In the first full year the.
The revenue run rate could be in the $25 million to $30 million range.
Obviously with the time this is coming on this year, we would expect maybe a quarter of that you have.
Given the way this is going to launch so.
Small contributor this year, but a very nice contributor over time and importantly, a big win for patients second one on on the S. T really revenue per test.
You know Brandon Theres, a lot of moving pieces when it comes to calculate on ASP.
There is the true run rate that you accrue for on a quarter think of this as you go forward rate. The team has done a really nice job driving that rate higher over time.
Continue to do so.
I think Cologuard provides really good value would want to make sure that we're getting paid fairly for that.
What happened in the quarter was in part going back on tests that were previously denied payment on.
And making sure that we could get paid on that because obviously, we have done the work so points of revenue from from past quarters. It wasn't material in the quarter I did call. It out because it is a nice contributor but not a material driver.
It was in the first half of the year, it's over 10 million of revenue when you compare that to the back half of the year.
Maybe $5 million of contribution.
So first half second half there is that dynamic there, but again not material to us to Q2.
We will take our next question from Patrick Donnelly with Citi.
Hey, guys. Thanks for taking the questions.
Jeff maybe one just on kind of the seasonality and pacing of the year I think the guidance for <unk> assumes screening is kind of flat, maybe even slightly down.
It's been a weird couple of years with Covid in terms of the seasonality of the business can you maybe just refresh us in terms of the typical pacing, obviously <unk> got the holiday and get them to <unk>, but.
Just feel a little conservative in terms of that <unk> you guys, maybe just talk us through that and how we should think about the year. Thank you.
Yes, let me start with overall kind of what the seasonal seasonality should look like and then we'll get into this year, specifically so in a normal year.
This is a trend that's really generic general two primary care net suite Cologuard is specifically a.
Primary care trends typically start the year slow as people come back from the holidays. Early January few people go out and get seek primary care that typically busy with work in their lives after the holidays.
And then throughout that first quarter things pick up.
The way through Memorial day things people start to normalize care seeking behavior and really preventative care through that first part of the year When Memorial day hits Kids, often get off of school families take vacations, even people without kids often go on vacation. So trends typically are a little bit softer uptick of flattish trends throughout the summer.
In about mid August maybe end of August things takes back up.
As kids come back to school indications start to wind down.
Growth in primary Retrans trends typically it picks back up then and ramp steeply through November and then with Thanksgiving things slowed down in a fairly quite into the holidays for Cologuard now lets remember there is think of about a 30 day timeframe from the time a test is ordered at the during the physical branch the Doctor's office to win then.
It takes us to 30 days roughly to send the kit out.
<unk> sample get the simple back in our lab processes and and recognize revenue. So that means that we follow a similar trend of typical primary care with a 30 day lag this.
This year that dynamic to think about.
It really comes down to that then Covid headwind I mentioned before COVID-19 headwind on that three year re screen business that.
I've talked about a few minutes ago.
That's $50 million for the year.
The biggest part of that the single biggest quarter is Q3.
Q2 picked up some Q4 picks up some but Q3 is the biggest the other dynamic is that we did have a strong start to the year I mentioned, the ASP benefit over 10 million in the first half coming down to maybe 5% in the second half so that's going to affect the seasonal trends this year.
A step back further you look at the overall guidance for the year, we're talking about about $400 million of incremental growth for cologuard.
If for screening that is the biggest year we've ever had.
In terms of percentage growth Youre talking 28% growth at the midpoint, so very strong growth throughout the year.
Our screening business.
We will take our next question from Dan <unk> with Stifel.
Yeah, Hi, guys. Thanks for the questions on EMR D. Unco detect Kevin you had talked at the analyst day about.
Early access launch.
Believe in for Q.
At the risk of being too granular here on timing do you see that taking place in the fall rather than closer to the holidays and the reason I ask the question is just really just to sort of understand weather.
<unk> I can see you having someone that can speak to being an early user or at least being made aware of the assay to your point. The market is just evolving so quickly I'm just thinking about the clinician feedback.
Data points around early use.
Yes, we.
We expect the MLD test to be available by the.
End of the year. So I would think later in the fourth quarter than earlier.
It's going to take a little bit of time to get physician feedback.
Given that.
We don't expect until kind of mid <unk>.
Third quarter of next year.
Why for Mol Dx local coverage decision and then it typically takes about six months to get that so in terms of.
Being able to offer this.
Our arco detects tests to patients.
Covered by Medicare that will take a part of year and also as you know commercial payers today are broadly.
Covering MRV. So this is a.
An opportunity that is going to take a little bit of time to play out.
<unk>.
Bringing to patients and to physicians, the very best test possible with the right evidence.
We will take our next question from Jack Meehan with Nephron research.
Thanks, Good afternoon.
I wanted to follow up on Nextgen Cologuard could you just elaborate on the next steps there.
The timing when do you think just portion of Blue C.
On the first point, we expect to submit to a journal in the near term focused on next generation Cologuard.
Sorry, what was the second question.
Submitting our MTA PMA.
So we expect to have the last module submitted before the end of this year and then it's it's probably you can think six to nine months for <unk>.
Or nine to 12 months excuse me for approval.
We will take our next question from Matt <unk> with Goldman Sachs.
Hi, Thanks for taking my questions.
Jeff just maybe.
Talk a little about the gross margin expectations for the balance here just given the strong non-GAAP gross margin of 75%.
How are you thinking about sort of cost trends through the balance of the year and then secondly, I know, it's far off but I know you've talked in the past about.
Cologuard two <unk> and.
And sort of the Cogs savings.
For that can you just kind of remind us what sort of the magnitude of that is versus the current version of cologuard and how that might impact sort of a long term view on gross margins. Thanks.
This is Jeff first on gross margin.
Previously, we had guided to about 73% for the year, obviously based on the strength in the first half and the outlook for the rest of the year I think now something in the 73, 5% to 74% range is more likely so feeling good about that again. This platform was built to scale and for those of you who came to Madison back in June you saw the the lab.
The quality of the people in that team the quality of the automation and.
We expect gross margin improvement for years to come so feeling good about that.
Think of the second half specifically here I would just note that in the first half we did have some benefit from that ASP dynamics I talked about earlier and also what we'd call. Our carryout business alternative words ever for a second to talk about that that <unk> business does carry.
Our gross margin over it does contribute nicely to EBITDA dollars and it is important business for us to be and so we do expect that business to be a bit bigger in the second half versus the first and weigh a little bit on gross margins all else equal just second question on cost of goods for Cologuard to.
What we think now is that the cost per test of Cologuard, two <unk> will be at least 5% lower than what it is today for Cologuard one you'll just because of the 10 plus years of work that this team put in to identify more accurate markers into automation and efficiencies that we can build there waiting to cologuard.
So it does help bring down the cost of goods and importantly here. It helps improve as Kevin said it helps reduce that's false positive rate by 30%. So it does provide a lot of value for patients and have you ever could talk more about the Carryout program why that's so important to US yes, thanks, Jeff and there's a reason why we're doing the care gap program first and foremost.
We're getting at really hard to screen patients. These are the patients that have been stubborn to get screening.
And as I talked about this.
<unk> phenomenon around health systems payers and health systems are coming to us for help so it really strengthens our relationships with the payers and health systems and then lastly, because these patients are stubborn and hard to screen. It's usually in that 50, plus cohort and that's really helping us lift our share with the 50 plus.
And then lastly, our customers are coming back to us, saying, we are a better much better option that they.
They like the three year interval, they like our wrap around services and this is the way that we're again improving their screening rates in a very efficient and effective way.
We'll take our next question from Andrew Bachmann with William Blair.
Hi, guys. Good afternoon, and thanks for taking the questions. Jeff I think you caught out a total of 300 systems, who have implemented some form of electronic connections with you guys. How are you sort of think about the runway left there for more connections and can you just sort of talk about the utilization difference that you see amongst that group versus those who have not implemented those connections.
Thanks.
Andrew This is Jeff I'll start and then Eric will talk more about some of the commercial initiatives, we have to drive that rate higher when you look at the overall electronic ordering rate for Cologuard today, it's about 65%, 65% of Cologuard orders come in electronically why that's important when you can make cologuard.
Easy to order easier to get the result back to both the physician and the patient not only is.
Is it a better experience, but also physicians order more the order over 30% more.
And over time, that's a really strong foundation for US then to layer. Other tests that you can imagine a world where the same electronic foundation supports multiple billion dollar franchises, whether its multi cancer or <unk> or Cologuard you name it.
Those same pipes that are being placed between our lab and the health systems can be leveraged for other test. So that's a big win for US there is still a ways to go on how far that.
Driving that rate higher ever can talk about how we're getting there yeah, absolutely again I go back to data and analytics and as Kevin and Jeff said at the beginning.
We've electronically connected about 40 large health system. So far this year in the second half, we probably have about another 60 that we're going to connect and it's all about having that data down to the territory level and all of our sales reps, having the targets where they need to go to the last thing I'll say is when I'm out in the field.
I often hear physicians say you have to make it easy for me to write Cologuard to order Cologuard and I only have seven minutes and a healthcare appointment to really talk to the patient. This is one way that we're making it easier or partner with or partnering with epic and the way in which we're getting at our targets are well served.
As a growth lever moving forward.
Okay.
We will take our next question from Puneet <unk> with Leerink partners.
Hey, Kevin Jeff Thanks for taking the questions.
I know ever gets seven minutes I got seven seconds here, so I'll keep it short.
Kevin would love to know if you have an early feedback from.
From physicians and providers on the Nextgen cologuard data and what it means for them.
And.
Updates from the field that you've had so far.
And any early feedback on the payer conversations too. Thank you.
On Cologuard two point now.
Nextera Cologuard.
Yeah. So the next generation Cologuard tests, we do have feedback where feedback from Kols, we have some feedback from payers and people are.
Related to the reduction in the false positive rate, while increasing sensitivity for both cancer and pre cancer.
Uh huh.
As big note that Theres, a lot of work to do but the initial feedback we couldnt be more pleased with and what does this mean this means that we believe.
One debt.
Next generation Cologuard will end up in the.
Fits within the current guidelines that are already recommend cologuard.
Particularly the U S. P S TFS guidelines and the American Cancer Society guidelines.
That's important because those guidelines are the most important guidelines that implicate.
How health systems and payers are measured in terms of their quality measures.
So we believe it will be a very smooth transition from Cologuard next generation Cologuard. We also see that payers will be receptive to very quickly.
So getting cologuard adopted and paid for.
We will also be working with the American Medical Association CPT coding group to dip.
Make sure that the coding is smooth we've been down this road before we know how to do it.
The team is fired up to make sure that we do this in a an efficient and impactful way because patients will benefit from next generation Cologuard. So.
All the early signs couldnt be more positive and the team can't wait to bring this to physicians and patients.
Okay.
Our next question comes from Dan Leonard with Credit Suisse.
Yeah.
Thank you very much good afternoon.
Switching to precision oncology, possibly you can frame how much of the $10 million in revenue upside from your guidance midpoint in the quarter.
How much of that was from partnered revenue versus revenue from your own co branded products and then secondly can you speak to the second half forecast in precision oncology, which I think at the midpoint is a decline from the revenue you reported in the first half. Thank you.
Yes.
Sure Dan This is Jeff I'll take that one.
Yes.
The broader business has really good momentum when you when you look at International for example international grew 26% in the quarter. So thats, even before Japan came online so feeling good about that obviously that there is no partner revenue outside the U S. Even the when you look at the.
The global breast franchise.
The double digit range, so feeling good about that.
We typically don't breakout partner revenue.
Extra revenue on collection is off to a good start it is early so that's not material yet however that product does.
Broaden out our portfolio and importantly help get another product into this really talented sales teams hands that over time, we'll carry not only uncle extra and Oncotype Dx breast at all so Terry <unk> in hereditary cancer another product so.
Feeling good about the broader momentum there on the seasonality question.
The trend I talked about earlier with Cologuard, there's a similar trend with mammography.
Fewer women seek a mammogram during the summer, which means fewer breast cancer diagnoses, obviously anchored oncotype is typically ordered after a breast cancer diagnosis. So.
That trend Q2 to Q3, that's kind of what you would expect.
A slow down in Q2 to Q3, and then a stronger Q4.
We'll take our next question from Mark Massaro with BTG.
Hey, guys. Thanks for the questions and great to see everyone in Madison, So thanks for hosting that.
Wanted to ask on <unk> I know that you are planning to launch your initial tumor informed alco detect.
MRV test in colorectal cancer like you guys said in Q4 of 2023.
Can you give me a sense for you.
I am pretty sure that this is York the tests that you've been developing for some time now I'm just curious where the broad Institute comes in because you know in that and that PR you talk about the maestro.
Program and how this can detect.
Thousands of patient specific mutations obviously <unk> early so I'm just curious if you can just give us your sense for.
You know.
Your confidence level between your first Gen product and maybe the second Gen product.
And or your confidence level on sticking with tumor informed versus switching over to tumor Nate.
The Maestro technology that we exclusively licensed from the broad Institute will be used in the next generation of MRV. So the test that will be available at the end of this year as the base exact version of the technology.
Of that road.
Technology is an extension and enhancement.
Using more mutations.
Creating a greater sensitivity at a similar specificity.
And that.
Technology would be used in the studies that we've talked about including the web.
West German study group WGS.
And the NSA BP, which is the correct. Two study so the triad study and the correct two studies, which would use that next generation version of our <unk> test.
Okay.
We will take our next question from Andrew Cooper with Raymond James.
Hey, everybody. Thanks for the question and nice quarter for sure I guess, maybe first tagging onto one that I think Scott Andrew other Andrew asked thinking about the health system backlog.
Is there is there a point, where these health systems have to work that down and what's their ability to sort of refill that backlog is it an ongoing dynamic versus I think you've talked about in the past a little bit of Oh shoot we need to get more folks screen.
Or some of these these rating dynamics that can make it a little bit seasonal. So just help us think about the runway there what happens once they've worked that lower end have a trajectory goes.
They get a little bit more mature once they're on boarded.
Yeah I'll I'll.
Touch on that to me and.
If I said backlog I think when we're talking to health systems confident it's a capacity issue.
And they just know that they can't do it alone they have a they have a screening population they have quality metrics that they need to hit.
And they know what that screening population they cannot do it alone with the amount of Gi physicians that they have.
Just their work load that.
It's why they're coming to us they are coming to us for help they know that Cologuard is a great first line option.
And that's where we're coming in with not just cologuard, but we're coming out with a wrap around services that help them with compliance we're coming in with marketing tools and efforts that proactively go out to these patients it's like a surround sound it really helps them with.
With getting their patients screened and also hitting their quality metrics, which benefits that health system tremendously.
Yeah.
Just to add onto that.
<unk>.
Long wait times for colonoscopy.
Come a nationwide issue and that's driven by.
Part one is that 18 months ago, a little more than that now.
The U.
U S. P. S. T F guideline group lowered the screening age to age 45, as you know that added 15 to 20 million Americans into the screening population all starting to need to be screened at once.
And that permanently increase the number of people who needed to be screened well, but that capacity is Everett mentioned is fixed.
The other part of it is that capacity just isn't growing in fact.
In some markets, it's shrinking because we're not seeing.
We're seeing retirements.
Pace the number of new physicians that are becoming G is entering the markets and so there's that dynamic that cologuard is just going to help address the.
The sheer number of people that need to be screened for <unk>.
Decades to come we believe.
We will take our next question from Kyle <unk> with Canaccord Genuity.
Yeah. Thanks, Scott I'm wondering about any financials on the model really Jeff could you kind of walk through the margin implications of this $50 million of Covid headwind to <unk> revenue in the second half I guess I can for context youre guiding to a mid single digit adjusted EBITA margin in the second half that makes sense, given the risk and revenue with higher margin when that headwind lifts and.
The first half of next year, you would think that margins would bounce back, but that's kind of in line with how you talk about pushing margins higher over time, but yes, or other studies coming up in 'twenty four and beyond so.
I guess just wrapping this up how do we kind of think about the margin profile going forward in the context of all these moving pieces.
Yes. Thanks for the question well just about a month ago, we gave long term margin guidance.
At least 20% in 2027 Thats adjusted EBITA margins, we feel very good about our ability to get there.
Based on the momentum we have today, but look we've got work to do.
There's huge markets out there.
You talked about Covid re screened.
The headwind there you'll get it it's over $50 million.
30% growth and over 100 million of incremental revenue, which is thats almost exactly what it was in Q2. So it was very strong growth here and we've got to make sure we make the right investments in this business to keep scaling.
I feel good about it.
As we scale, we will talk more about next year on a future call, but as we scale I do expect margins and cash flow to improve for years to come.
And we will take our next question from Liza Garcia with UBS.
Good afternoon, and thanks for squeezing me in.
Thank you.
Thinking and I know kind of as we're moving internationally in Japan, it's a little bit different because it's oncotype.
This is the first mover, but it has been.
So many years kind of honing the operational model with Cologuard and you've obviously had a lot of learnings, but kind of as you're thinking about internationally and kind of the <unk>.
Best way to tackle kind of what youre learning to kind of.
Just kidding.
Obviously, the revisions that you've done and the operational leverage for Mike how are you.
Youre thinking about tackling internationally to be as effective as possible and kind of the margin profile.
Hi.
I guess kind of what learnings have you think you can leverage from your U S experience into the international market.
Okay.
Thank you we have focus.
Lent Leslie and Cologuard in the U S.
And <unk>.
As a result of that we have.
Developed great scale reach and a ton of learnings.
Applying that outside the U S. We haven't provided guidance.
Guidance as to when Cologuard would be.
<unk> brought.
Outside the U S. There's clearly a need though just if you take a look at that.
The EU market. It is a significant opportunity because the colon cancer mortality rate is significantly higher.
In Europe .
Then it is in the U S screening.
Maybe 30% of the population is up to date with colorectal cancer screening, so theres an opportunity there.
Wait until.
Some point in the future to talk about what our plans are outside the U S. Certainly the learnings that we've developed in the U S and the focus that we've had.
Will help us as we.
Export cologuard outside the U S.
This is Jeff just to add to Kevin's answer here.
That International Foundation is strong today.
Some perspective around it we have a team of over 200 people in our international team really topnotch team here, we do business in over 100 countries already.
This has taken this year's as I, probably over a decade to build up this global footprint and what that is getting us is strong double digit growth for years to come.
The base of revenue today is already over $150 million.
With good margins. It is it is a nicely profitable business largely on one product and as Kevin talked about adding more and more products to that will help improve the profitability.
Is one of the core reasons why back in 2019 that we set out to really come together with Chile accounts is this high quality international footprint.
It sets us up for years to come to provide a really strong important leg of growth.
Partly to help patients around the world.
We will take our next question from Alex Nowak with Craig Hallum capital.
Okay, great. Good afternoon, everyone. I was wondering what is the latest timelines for Cologuard blood and this is a question I've had since the analyst day. It seems that cologuard to point out data was so good why pursue a different assay in blood altogether for colon cancer screening you'll ever mentioned docs when we have a few minutes with their patients.
Adding the test does it potentially risk, making the conversations a bit confusing for primary care in particular thanks.
So cologuard.
<unk> will be or what we call our CRC blood test it hasn't been.
<unk> named yet.
We expect middle of next year to have data.
What is the role for a blood test the role for a blood test, we believe will be for patients who refuse.
Frontline recommended screening test per U S. P. S T F guidelines.
And there are people, who refuse other all forms of colon cancer screening and for those patients are blood tests, which.
Is clearly not going to be as good as detecting precancerous polyps or stage one.
Cancers as other frontline screening test.
A role for that and it's important to screen. Those individuals we happen to know who those patients are people have chosen cologuard over a colonoscopy.
And yet haven't returned to test so it's a discrete relatively small.
Population on a percentage basis, but large in terms of this.
The sheer number of people in the U S measuring.
So we will be able to.
Engage with those patients if they've not completed a cologuard test not completed a colonoscopy worked with their health care provider that we have a deep relationship with work with the health system.
To do our best to get those patient screen and so that's our mission is to eradicate colon cancer and that's going to this is going to be an important.
Tool that we have to help achieve that mission.
Thank you and that does conclude conclude todays question and answer session as well as presentation. Thank you for your participation today and you may now disconnect.
Please wait the conference will begin shortly.
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