Exact Sciences(EXAS) - 2023 Q2 - Earnings Call Transcript

Financial Data and Key Metrics - Q2 2023 revenue grew 19% YoY to $622 million, with core revenue (excluding COVID testing, prostate business sale, and FX) up 24% to $617 million [8] - Screening revenue increased 31% to $463 million, driven by broad-based momentum in Cologuard adoption [8] - Precision Oncology revenue grew 2% to $157 million (7% excluding prostate business sale and FX) [9] - COVID testing revenue declined 84% to $2 million, and the company discontinued COVID testing in July [9][10] - GAAP gross margin was 71%, while non-GAAP gross margin (excluding amortization of acquired intangibles) was 75% [9] - Adjusted EBITDA improved by $113 million YoY to $67 million, driven by better-than-expected revenue, gross margin, and operating expense discipline [10] - Free cash flow improved by $190 million YoY to $66 million, with cash and securities totaling $776 million at quarter-end [10] Business Line Performance - Cologuard adoption continues to grow, with over 9,000 new healthcare professionals ordering the test in Q2 and more than 321,000 since launch [9] - Approximately 75% of US primary care physicians have ordered Cologuard, with 10% penetration among eligible patients [23][24] - The company implemented 40 new electronic connections with large US health systems in 2023, bringing the total to nearly 300 [8] - Precision Oncology growth was driven by a 26% increase in international revenue, with Oncotype DX Breast test securing reimbursement in Japan [14][62] Market Performance - The US market remains the primary driver, with significant opportunities in colorectal cancer screening, as 60 million Americans are not up-to-date with screening [13] - Japan represents a major opportunity for Oncotype DX, with 90,000 women diagnosed with breast cancer annually, half of whom are eligible for the test [14] - The company is focusing on molecular residual disease (MRD) and multi-cancer early detection as key growth areas, with collaborations with the Broad Institute and Baylor Scott & White [6][15] Strategic Direction and Industry Competition - The company is advancing next-generation Cologuard, which achieved a 30% improvement in specificity and enhanced sensitivity for cancer and pre-cancer detection [12] - FDA submission for next-gen Cologuard is expected by year-end, with potential approval in early 2025 [13] - The company is investing in MRD and multi-cancer early detection platforms, with partial results from the ASCEND 2 trial expected in fall 2023 [16] - The company raised full-year revenue guidance by $54 million and adjusted EBITDA guidance by $63 million, reflecting strong execution and market opportunities [7][11] Management Commentary on Operating Environment and Future Outlook - Management highlighted the company's commitment to eradicating cancer through innovative diagnostics and strong commercial execution [5][6] - The company expects long-term double-digit revenue growth and margin improvement, supported by its scalable platform [7][11] - Management emphasized the importance of next-gen Cologuard in reducing false positives and improving screening outcomes, which will drive future growth [12][13] Other Important Information - The company is working on a blood-based CRC test, with data expected by mid-2024, targeting patients who refuse frontline screening tests [79][80] - The care gap program, which targets hard-to-screen patients, is a key initiative to improve screening rates and strengthen relationships with payers and health systems [52][53] Q&A Session Summary Question: OpEx trends and Cologuard 2.0 impact [18] - OpEx is expected to increase in the mid-single-digit range for the year, with accelerated investments in MRD and hiring in H2 [19][20] - Cologuard 2.0 will target physicians who previously objected to the false positive rate, leveraging data and analytics for targeted outreach [21] Question: Strategy for deepening Cologuard penetration [22] - The company focuses on increasing frequency and consistency of messaging to drive higher Cologuard orders, despite 75% of primary care physicians already ordering the test [23][24] Question: Profitability and G&A leverage [25] - Adjusted EBITDA margins are improving, with a $320 million YoY improvement expected for 2023 [26] - G&A growth was 2% excluding one-time items, with further leverage expected over time [27] Question: Cologuard drivers and rescreen trends [28] - Rescreens are a key driver, with a temporary headwind from COVID-related declines in 2020 orders, but growth is expected to rebound in 2024 [29][30] - The 45-49 age group now accounts for nearly 20% of Cologuard revenue, driven by guideline changes [31] Question: Oncotype DX in Japan and cash collections [34] - Oncotype DX in Japan is expected to contribute $25-30 million annually, with a small impact in 2023 [35] - Improved cash collections contributed over $10 million in H1, with $5 million expected in H2 [36][37] Question: Seasonality and Q3 guidance [38] - Q3 screening revenue is expected to be flat due to COVID-related rescreen headwinds, but full-year growth remains strong at 28% [41][42] Question: MRD Oncodetect launch timing [43] - The MRD test is expected to launch in late Q4 2023, with Medicare coverage likely by mid-2025 [44] Question: Next-gen Cologuard timeline [45] - FDA submission for next-gen Cologuard is expected by year-end, with approval likely in 9-12 months [47] Question: Gross margin trends and Cologuard 2.0 cost savings [48] - Full-year gross margin guidance is raised to 73.5%-74%, with Cologuard 2.0 expected to reduce costs by at least 5% [49][51] Question: Health system electronic connections [54] - Electronic ordering accounts for 65% of Cologuard orders, with plans to connect 60 more health systems in H2 [55][57] Question: Physician feedback on next-gen Cologuard [58] - Early feedback from KOLs and payers on next-gen Cologuard is positive, with expectations of smooth adoption and reimbursement [59][60] Question: Precision Oncology revenue breakdown [61] - International Precision Oncology revenue grew 26% in Q2, with strong momentum in the global breast franchise [62] Question: MRD technology and Broad Institute collaboration [65] - The Broad Institute's MAESTRO technology will enhance the next-gen MRD test, improving sensitivity and specificity [66] Question: Health system backlog and screening capacity [67] - Health systems are partnering with the company to address colonoscopy backlogs and improve screening rates [68][70] Question: Margin profile and COVID rescreen headwind [71] - The $50 million COVID rescreen headwind is temporary, with margins expected to improve as the headwind lifts in 2024 [72] Question: International expansion learnings [73] - The company is leveraging its US experience to explore opportunities for Cologuard in international markets, particularly Europe [74][75] Question: Cologuard blood test timeline [78] - Data for the CRC blood test is expected by mid-2024, targeting patients who refuse frontline screening tests [79][80]