Title

Presentation

Operator: Good morning. My name is Rob and I will be your conference operator today. At this time, I’d like to welcome everyone to the Exact Sciences Fourth Quarter 2022 Earnings Conference Call. Thank you. Megan Jones, Senior Director, Investor Relations, you may begin your conference.

Megan Jones: Thanks, Rob. Thank you for joining us for Exact Sciences fourth quarter 2022 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. Everett Cunningham, our Chief Commercial Officer, will also be available for questions. Exact Sciences 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 exactsciences.com. During today’s call, we will make forward-looking statements based on current expectations. Our actual results may have material differences from such statements. Discussions of non-GAAP figures and 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.

Both can be accessed through our website. I will now turn the call over to Kevin.

Kevin Conroy: The strength of our foundation supporting the best brands in cancer diagnostics puts us in a leading position to continue delivering innovative cancer tests, consistent revenue growth and profitability. We are using this platform to help prevent cancer, detect it earlier and guide treatment for more patients globally. Achievements in 2022 that helped strengthen our leadership include surpassing 12 million cumulative people tested for cancer, including 10 million with colder expanding our global network of ordering healthcare professionals to more than 350,000, growing core revenue $380 million year-over-year, becoming adjusted EBITDA profitable in the fourth quarter, completing enrollment of BLUE-C, our pivotal study to support our next-generation Cologuard and colon cancer blood tests, and generating evidence for our multi-cancer early detection and molecular residual disease tests.

Over the past decade, we have built a high-quality platform to deliver advanced cancer tests at scale. We have invested heavily in our people, lab infrastructure, technology systems, clinical evidence, plans and customer experience. This platform is fueling the efficient growth for our current tests and over time, it will fuel the next wave of novel cancer diagnostics. Our health system customers employ most U.S. healthcare professionals and seek to improve the quality of care while reducing costs. They are incentivized to focus on preventive care, including cancer screenings, today, many phases staff shortage leading to a trend of more in-home services such as Cologuard. Advanced cancer testing €“ in advanced cancer testing, health systems continue to ask for fewer partners to meet their needs, a complete range of high-quality, impactful tests, broad insurance coverage, EMR integration and data sharing capabilities.

Exact Sciences is uniquely positioned to deliver on these needs, because we have the broadest offering of innovative cancer tests, patient-focused services, EMR integration capabilities and payer relationships. This year, we will increase adoption of Cologuard and Oncotype DX, create an even better customer experience and advance our key pipeline programs in colorectal cancer, multi-cancer early detection and molecular residual disease. Jeff will now discuss our financial results and outlook for 2023.

Jeff Elliott: Thanks, Kevin. Good afternoon. Fourth quarter revenue of $553 million grew 17% or 28%, excluding COVID testing. Screening revenue of $404 million increased 45%, including 3 points of growth from PreventionGenetics. For the year, screening revenue increased 30% organically. During the quarter, 10,000 new healthcare professionals ordered Cologuard, bringing the total to more than 302,000 since launch. Precision oncology revenue decreased 4% to $143 million, excluding the sale of our prostate business and a $2 million FX headwind growth of 1%. COVID testing revenue decreased 87% to $6 million. Fourth quarter GAAP gross margin was 70%. Non-GAAP gross margin, excluding the amortization of acquired intangibles, was 73%.

Net loss was $128 million. Adjusted EBITDA was $5 million, an improvement of $120 million, demonstrating the power of the Exact Sciences platform. We ended the year with cash and securities of about $630 million. Our total liquidity is about $840 million, including available credit facilities. Turning to guidance, we expect total revenue between $536 million and $551 million during the first quarter and $2.265 billion and $2.315 billion for the year. This assumes screening revenue between $390 million and $400 million for the first quarter and $1.66 billion to $1.69 billion for the year; precision oncology revenue between $143 million and $148 million for the first quarter and $600 million to $620 million for the year; and COVID revenue of $3 million for the first quarter and $5 million for the year.

For the year, this implies 18% growth for screening, 5% growth for precision oncology, excluding the sale of our prostate business and 14% overall growth, excluding COVID testing and the prostate sale. We exited last year with broad momentum, which is driving a strong first quarter. This is especially true in our screening business, where we are seeing the benefits of past investments and great execution from our team. We expect to generate up to $25 million of adjusted EBITDA for the year. This assumes non-GAAP gross margin of about 73% for the year. Our industry-leading gross margins are powering positive adjusted EBITDA and a clear path to free cash flow as we continue investing in growth and efficiencies. We expect total GAAP OpEx to increase mid single-digits for the year.

This includes an absolute decrease in sales and marketing offset by increased G&A and R&D. Last year, G&A was reduced by $57 million, primarily from a non-cash gain related to the Thrive acquisition earn-out. In addition to cycling against that in this year, we expect $19 million in non-cash expense as we accrue for the earn-out payments. R&D is increasing to support our multi-cancer and MRD programs. And we expect CapEx this year to be about $120 million. I will now turn the call back to Kevin.

Kevin Conroy: Thanks, Jeff. Cologuard is becoming the preferred colorectal cancer screening choice. During the fourth quarter, nearly 160,000 healthcare professionals ordered Cologuard, a new record and the rate of people we screen hit an all-time high. We are starting 2023 with tailwinds, including stronger healthcare professional conviction in Cologuard as our frontline screening test, increased consumer awareness, improved electronic ordering and an enhanced digital patient experience. Also reached 0.5 million people screened with Cologuard between ages 45 and 49. As of the fourth quarter, we estimate Cologuard grew to 9% penetration of the more than 90 million people ages 50 to 85 in the colon cancer screening market. For the nearly 20 million 45 to 49-year-olds, penetration grew to more than 8%, just 18 months after it was included of that age group was included in USPSTF guidelines.

Screening people in the mid to late 40s will provide recurring revenue for decades as we work to keep them screening every 3 years until they are 85. Cologuard growth is supported by the most powerful sales and marketing team in cancer diagnostic. We engage with healthcare professionals more than 1 million times each year and have more than doubled the revenue generated per interaction in the past year. We build brand recognition and loyalty by generating more than 15 billion impressions annually. Our commercial team supported by rigorous analytics will get even more efficient over time and help decrease sales and marketing costs as a percent of revenue while supporting growth. Our precision oncology team has guided treatment physicians for more than 1.75 million cancer patients around the world, including a record 220,000 people last year.

Oncotype DX will revolutionize breast cancer care. It is internationally recognized as standard of care for patients with early-stage HR-positive HER2-negative breast cancer, which represents about half of breast cancer cases. We have an opportunity to impact even more lives by making Oncotype DX easily accessible to more women globally, offering OncoExTra, our enhanced therapy selection test with DNA and RNA analysis and working with our biopharma partners to develop new targeted cancer therapeutics. Thanks to our team, trusted Oncotype DX brand and deep oncology relationships, we can power better treatment decisions that are specific to each patient’s disease. Our advanced R&D expertise in platform screening and precision oncology will help get our pipeline tests to more patients quickly.

We made meaningful progress in each of our key pipeline programs last year by completing the enrollment of our BLUE-C pivotal trial, which included more than 26,000 people. Presenting two studies, including 4,200 samples showing the power of our multi-cancer early detection test and initiating and enrolling studies that will answer key questions clinicians and payers have when evaluating our molecular residual disease tests. We are completing the final steps of our BLUE-C trial and expect to have top line next-generation Cologuard data mid-2023 before submitting to the FDA for approval. We expect to have two additional sets of multi-cancer early detection data this year, further validating our multi-market class approach where we move to a larger prospective trial.

We also plan to validate and make our tumor-informed molecular residual disease test available to colon cancer patients later this year. Our mission is to make an earlier detection, a routine part of medical care to help eradicate cancer. Our platform deeply embedded standard of care test and pipeline of life-changing diagnostics will power years of growth and continued profitability, helping us to achieve our mission. Thank you. We are happy to open the line for questions.

Operator: Your first question comes from the line of Derik De Bruin from Bank of America. Your line is open. Derik De Bruin, your line is open.

Derik De Bruin: Hi, it’s Derek. Sorry about that. I had the mute on. So can you just €“ so a couple of points, so a couple of questions. I think the first one is I guess what were the key market changes that drove some of the increased momentum in Q4 and the guide was better than expected particularly for Cologuard and for 2023? And that’s one. And then just I have gotten a bunch of questions from investors lately about the competitive landscape outside of liquid biopsy. There is a couple of companies that are advancing some of their stool based colon cancer screening test and also just sort of the landscape for Oncotype as it sort of goes o-U.S., there is a little bit more competitive opportunities out there. Can you just sort of talk through the couple of questions? Thanks. And I will shut up.

Kevin Conroy: Let’s first address the momentum that we saw throughout the fourth quarter and the start of the year. A lot of this is just the result of the investments that we have made over time, the strong need for non-invasive screening €“ colon cancer screening tools. So you have some structural tailwinds, including the ease of electronic ordering that has taken a significant amount of effort, time engagement with large health systems to deliver electronic ordering through our Epic and EMR capabilities, increased brand awareness around Cologuard. Health systems are highly incented to drive their colon cancer screening scores and they are frequently now reaching out to us to ask for a partner who can help them improve their quality measures, care gaps, etcetera.

We are seeing GIs have a staff shortage and there is a greater focus in the endoscopy suite on diagnostic colonoscopies and GIs are ordering Cologuard at a higher rate as primary care physicians are certainly. Our sales and marketing team, I just can’t tell you how proud we are of the work that they have done and continue to do be it their efficiency, their engagement is turning the tide and really making Cologuard our first-line screening choice. Also, of course, the 45 to 49-year age group. 18 months ago, the guidelines changed to lower from agwe 50 to 45. And we believe Cologuard is leading in terms of market share today and the penetration is impressive. If you take the fourth quarter number of tests and extrapolate that, we believe we are €“ the penetration is about 8%, as I mentioned earlier.

Jeff, I don’t know if you want to add any color to that?

Jeff Elliott: Yes. Just to add what Kevin said electronic order just a huge, huge year last year. Recall when we started the pandemic back nearly 20%, 30% of Cologuard orders for electronic. In Q4, that was up to 63%. So that has implications not only for Cologuard, you make it easier to get orders. It has implications down the road. As we launch new products, we will launch right into that foundation. So overall, a deeper connection to health systems. In Q4, I think as we talked before, Derik, we picked up a little bit of extra upside from enhancements we made both to our patient compliance engine and our billing systems. So again, these added to the upside, they were the sole cause of it. The reason I bring those up is because when we added these enhancements, which will benefit on a run-rate basis, we will get better compliance and better €“ kind of better ASPs going forward.

When we added those enhancements, we typically pulled forward a bit of revenue from Q2 to Q3. So consider that catch-up revenue that added a little bit more in Q4, so you really can’t take Q4 and extrapolate that. Now I have got half of Q1 in the books now. I think a little bit of that catch-up revenue, again, from the building enhancements, patient compliance enhancements, is spilling into Q1, that’s part of the strength in Q1 and then just everything Kevin said should continue. I know there is questions on competition.

Kevin Conroy: Yes. In terms of competitive dynamics, when you look at Cologuard, Cologuard set its standard of care at a very high bar in colon cancer screening. Cologuard 2.0 or what we call the next-generation Cologuard will raise that bar. And we just haven’t seen data indicating any other testing modality that approaches that high level of performance for detecting cancer or detecting precancerous polyps and having a high specificity rate. And you have to be careful when you take a look at data, is it apples-to-apples, what are the underlying drivers, how large is the study, how well powered, et cetera, etcetera? So we feel great about the competitive positioning. There is so much more to Cologuard than the test is an enormous investment altogether, about $1 billion invested in an IT infrastructure, a commercial team, a lab team and capability that is requires a multibillion dollar investment to be able to reach the hundreds of thousands of ordering healthcare providers and the tens of millions of patients.

Oncotype DX is in a class of its own. It’s the only test with the level of evidence that you have seen with TAILORx and RxPONDER. As a result, it has a leading position in the U.S. and globally. So these are the two best brands in diagnostics. We will keep investing in them. And they have become standard of care without peer in terms of that Cologuard and its sample type than Oncotype DX. It would be very difficult to replicate that level of evidence. So we are proud of these programs and continue to expect big things in the future.

Operator: Your next question comes from the line of Andrew Brackmann from William Blair. Your line is open.

Andrew Brackmann: Hi, guys. Good afternoon. Thanks for taking the questions. Kevin, maybe one for you and sort of building off some of that stool-based commentary there, just sort of recognizing 2.0 data is going to come, I think you said around midyear. Can you just sort of give us an update on where you expect those data to come in? Anything in particular you would point to as we put together those scorecards for that data and sort of the longer term benefits of the model? Thanks.

Kevin Conroy: We expect Cologuard 2.0 to have improved specificity, so a lower false-positive rate. And we would, on a secondary basis, we hope to see some improvement in the advanced adenoma detection rate. The main goal is to lower the false positive rate. We have designed Cologuard with more specific markers. We also expect to see improved cost efficiencies and other aspects of Cologuard testing. So that is where we €“ that’s what we expect. Of course, we won’t know until we complete all of the validation testing, and we expect that to occur midyear.

Operator: Your next question comes from the line of Dan Brennan from Cowen. Your line is open.

Dan Brennan: Great. Thanks for the questions, guys. Maybe first one, just on the rescreen in the 45 to 49 and then just one question on the EBITDA guidance for €˜23. So Jeff, can you just clarify, so 8% penetration run rate in 4Q? It seems like have really been number we’re coming up with $130,000 cash. Is that in the ZIP code? It’s what, 20 million people in total and you divide that by 3 to get the addressable for Cologuard, that’s like 6.6 million. And then you got €“ you had 8% penetration in 4Q. So we just took quarter of that and 8% of that. So maybe a little clarity on the math there and how we €“ and kind of how we think about €“ I know you guys don’t want to disclose too much on these. But since they are material, it’d be great to understand how you’re thinking about the impact for lease screening 45 to 49 in 2023?

And then the second one would just be on the $25 million plus of adjusted EBITDA, I guess, dollars ex-stock comp in 2023. So if you exited 4Q with $5 million, just wondering if that’s a conservative number since I would expect you guys to have some nice momentum despite all the investments that you’re doing. So I would have thought it’d be a high number in €˜23. Maybe you could just speak through some of the drivers there? Thank you.

Jeff Elliott: Sure. A lot there. Obviously, Kevin talked about 45 in rescreen just being significant growth drivers, and that will continue for a long time. Last year, we have put out guidance for $45 million of at least $100 million of revenue. We beat that nicely. And for rescreen, we said at least $220 million, we beat that nicely. So, both have really good momentum. This year, we expect rescreens to about 20% of revenue in total, and that should grow from there. Eventually, this becomes half of our revenue and $45 million should have a pretty similar trajectory as three streams. Huge drivers there. In Q4, you kind of talked about the overall penetration rate for 45. And just to be clear on the definition here, we’re looking at the pool of patients, which is nearly 20 million people and saying that Q4 run rate, call it roughly 125,000 people tested.

If you adjust that for the interval and the annualized it we were at about 8% penetration into that younger age group. The reason we highlighted that is Cologuard got there in about 18 months after USPSTF guideline inclusion for the younger age group. You contrast that to the 50 and above age group, which is that’s been the biggest diagnostic launch in history. We’re at 9% there today. So the point there is really 45 is growing very, very quickly. The question on adjusted EBITDA, what we are guiding to is flat to $25 million adjusted EBITDA for the year. This really speaks to the power of the platform. You’ll recall that we had accelerated the path to profitability. It was going to be €˜24, the mid-€˜23. It eventually got there and then in €˜22.

For the year now, what we’re guiding to is over $150 million of adjusted EBITDA growth on an incremental adjusted EBITDA margin basis we are talking over 75% incremental. So the guidance is the most likely outcome of probably what the team has delivered here. These are very proud of these numbers, it’s a significant improvement year-on-year, and it puts us in a position to really continue investing in growth and efficiencies and delivering profitability to investors.

Operator: Your next question comes from the line of Vijay Kumar from Evercore ISI. Your line is open.

Vijay Kumar: Hey, guys. Thanks for taking my question. Jeff, one in your €“ I guess I had a two-part question. The 2.0, Cologuard 2.0 results, I know you mentioned increased specificity, and you expect an increase in advanced adenoma sensitivity. Is there any risk as you take up that specificity that the sensitivity for cancer perhaps, it drops? I know given AA sensitivity going up, perhaps that’s not the case. But maybe just talk to us, is there any risk here from a sensitivity perspective heading into these results? And on adjusted EBITDA, Jeff, how should we think about those leverage levels going forward, the incremental leverage math that you just laid out, should that hold true when we think about €˜24 and €˜25? Thank you.

Kevin Conroy: Well, I take the first part, Jeff, and you take the second part. So we would expect the cancer sensitivity to be at or above 90%. We would expect somewhere in the neighborhood of 100 cancer samples in the study. So it’s in the €“ if you recall in the DeeP-C study, we had 65 samples. So what have we done to improve the likelihood of success. We, number one, increase the powering of the study; number two, we’ve done a significant amount of work to compare the current version of Cologuard with the next-generation version of Cologuard in samples, including samples from the DeeP-C study. So we have a head-to-head comparison which gives us confidence that Cologuard 2.0 is €“ performs better than Cologuard 1.0. You can never control all of the risk because the fundamental population has changed or for example, you see a lot more smaller cancers, harder-to-detect cancers.

You don’t know that and you can’t control them for it. So what we have done is developed the very best test with the best markets, the most efficient and powerful DNA capture technologies and deploy that into the study. And we look forward to opening the results of the study and sharing them with you, and that’s our thinking on that. Jeff, maybe you take the second one.

Jeff Elliott: Yes. This is Jeff. On the leverage question, look, this model has been built to scale to feel efficiently, ultimately deliver positive free cash flow, which we expect to reach in €˜24. Can we sustain 75% plus incrementals. I hope so, but that’s a pretty tall order, Vijay. When I think about leverage going forward, the best way to do it is to drive a really strong top line. I know every team are going to do that. We’ve got some nice levers to pull when I walk through the P&L, thinking of gross margin. We’re targeting over 80% gross margin for the two key products here, Cologuard and oncotype. Oncotype is there, I’m confident Cologuard will get there over time. So I expect some good gross margin improvement. G&A, this year, I talked about that Thrive earnout payment is driving higher G&A growth on a GAAP basis, but you adjust for that it’s mid-single-digit growth.

Over time, the G&A leverage will improve. Sales and marketing, maybe there is really to make sure we’re always investing in the smart growth, a nice drop there. So we’re seeing a really good leverage within sales and marketing. R&D, the way we will get leverage there is to focus on the highest impact opportunities, and Kevin has talked about those today. Over time, as we get the benefit, Cologuard to the MRD programs, multi-cancer as we get the benefit from those programs, that will help drive additional leverage through the P&L.

Operator: Your next question comes from the line of Catherine Schulte from Baird. Your line is open.

Catherine Schulte: Hi, guys. Thanks for the question. And thanks for showing that slide on rep productivity. It’s great to see Cologuard revenue per field continuing to trend upwards. But I’m curious what’s that number, what look like pre-COVID and if you can talk to where you think that number should go over time?

Jeff Elliott: Hey, Catherine, this is Jeff. Pre-COVID, I think there is a lot of moving pieces there. When you think of the Pfizer relationship, it’s a great partnership. It just does change the dynamic as well, which is why we focused on the quarters that we displayed on the slide deck. Going forward, where can it go in fact can start, but ever in please chime in. And there is a long ways to grow. When you think of that market penetration number at 9% and that 50 plus age group, longer term, I’m confident we can get to at least 40%. And I think we’ve already got a strong team in place. So I expect that productivity to go way up all the time, but Kevin?

Kevin Conroy: No, thanks, Jeff, and thanks, Catherine, for the question. I’m really proud of what the commercial team has done over the past years since we’ve launched Cologuard, and we continue to evolve the commercial team. There is many things that are contributing to the productivity. I’ll just highlight a couple of things. Number one is the way in which we’ve evolved our territories, we’ve cleaned up the overlap in territories, which have driven deeper customer relations. And I think that’s driving a lot of the acceptance of why now Cologuard is a preferred choice for screening. Number two, we use data and analytics now in terms of who to call on, when to call on, how often we call on those customers. And we’re just much better now in looking and knowing exactly what to call it for the growth, and we review those analytics and who we’re calling on a weekly and monthly, very rigorous process in our commercial organization.

We just don’t do it centrally, but we’re now doing it as a market and area level of where that execution is happening. And then Jeff mentioned €“ kind of mentioned in terms of we’re going to always invest for growth. We’re really focused on health systems. That’s where a lot of our customers and patients are. We’ve increased our amount of account executives at the health systems level, and the conversations now that we’re having around the screening is our health systems are now coming to us and how can we partner for those hard to screen patients where they need to close the care gaps. We saw a lot of that at the tail end of 2022, and that’s going to continue in 2023. I feel bullish that our productivity will continue to improve.

Operator: Your next question comes from the line of Brandon Couillard from Jefferies. Your line is open.

Brandon Couillard: Hi, thanks. Good afternoon. Just a two-part question in terms of the guide for the year, Jeff, what’s embedded for the stock comp expense? And then, Kevin, conceptually speaking, if the top line is, let’s say, running ahead of plan as we move through the year, would it be your preference to reinvest some of those dollars but still deliver on the profitability target or would you let that drop down? Thanks.

Kevin Conroy: Brandon, this is Jeff. The first one, it’s on comp. I think we’ve given you the €“ kind of all the pieces between when you look at the gap, the deal growth in FX, adjusted EBITDA. So I think you can €“ stock comp is probably the biggest piece between there. If you look at last year, which you have that you’ll have in the case you do already, it’s going to grow from there as if you look back at the headcount growth over time. But I think that’s enough to give you the math between the GAAP number and adjusted EBITDA number. Second question on reinvestment.

Jeff Elliott: So in terms of investment, we’re still making enormous investments in new product programs. We’ve touched on the three big ones, colon cancer, multi-cancer early detection and the MRD program. So we also have some minor programs that we’re working on in liver esophageal cancer and endometrial cancer. We’re making those investments today. We’re making significant investments in our IT infrastructure. So we selectively reinvest some of those profits? Yes. Are we bias towards and leading towards letting that fall through? The answer is, yes. The whole company is on board with that. They are driving to it. We’re all rolling together as one team to show the profitability engine that we have, and that’s very important to us.

Operator: Your next question comes from the line of Matt Sykes from Goldman Sachs. Your line is open.

Matt Sykes: Hi. Good afternoon. Thanks for taking my questions. Maybe the first one just on compliance. Jeff, you mentioned some of the enhancements you were making to compliance. And if we add in the rescreen opportunity over time, could you maybe help us frame where you think compliance can go to for Cologuard over the next year or two? And then €“ and just secondly, I’ll ask them both upfront. But secondly, just on Oncotype outside of the U.S., I think you mentioned that sort of the main growth area for you. Could you maybe talk about what you see as sort of the growth rate for ex U.S. within Oncotype for this year? Thanks.

Jeff Elliott: Yes, this is Jeff. I think I’ll handle both of those. Cologuard patient compliance, the way we typically report this out is looking at statistical 12 to 18 months prior. That rate is in the mid-60s percent, so about two of the three patients comply with Cologuard. Over time, expect that to go above 70% €“ possibly is 75%. The reason why I’m confident we will get there is that on rescreening patients, the overall patient compliance rate is 15 to 20 points higher than first line patients. So over time, that’s going to be a big driver of overall lift in the patient’s compliance rate. And we’re making significant investments to enhance that customer experience, better ways for outreach, better ways inactive similar to Cologuard.

And over time, that will naturally bring that patient compliance rate up. The second question on Oncotype DX international growth, there is a significant runway ahead, thanks to the strength of the team there, the strength of the evidence that Kevin alluded to, Oncotype globally is opening up in new markets through reimbursement and access. What we’ve baked into this year is in the U.S., growth there is approaching prevalence plus a point or so. So I think of kind of low to mid-single digits. International will grow faster. It can be easily into the double digits depending on new markets that launched within a given year. This, you expect Japan, which could eventually be the biggest market outside the U.S. We expect Japan to come on potentially midyear, and that can be a big driver starting midyear and into next year.

Operator: Your next question comes from the line of Jack Meehan from Nephron Research. Your line is open.

Jack Meehan: Thanks. Good afternoon. My questions for Kevin are on the blood screening programs. First, can you give an update on the blood portion of BLUE-C? When you expect that to read out? And then second, on MCAD, talked about validating additional markers, can you just talk about how that might be similar or different to what you presented at ESMO and what that might mean for time line for the SOAR study?

Kevin Conroy: Sure. On the first program, we haven’t given specific guidance as to when the colon cancer blood program will read out. The team that is focused on our colon cancer programs are focused both on stool, Cologuard 2.0 and blood. There is a huge amount of effort that is required to prior to testing samples. So there is a rigorous analytical validation studies that are required verification studies, software development and validation. And so there is an enormous amount of rigor that goes into that and preparing the automation entire program and submission that goes to the FDA. You don’t think changes easily. So you need to make sure that, that €“ the manufacturing capability and all the studies are locked down. So the Cologuard 2.0 next-generation Cologuard is first, and then that team will shift its focus to the validation and verification studies for CRC blood afterwards.

In the coming quarters, we will provide more clarity as to when that pivotal study from the blood portion of the CRC program will be complete. In terms of the MCAD marker validation study, we have interim and full trials of the test designed kind of a lockdown study prior to moving into the large prospective study. That study, we expect to read out this year. So two different studies will read out during the year, and that is a much larger version of the data that you saw at ESMO last year. That is €“ that will lock down our final marker classes. And then we expect SOAR to start next year. We would expect that to start in the first half of next year. And all of the team right now is working on perfecting the test, making sure that, that test and the automation surrounding it is locked down before we start that study.

Again, once you start a prospective study or a cancer screening test, you don’t make changes to that product. So it’s totally lockdown.

Operator: Your next question comes from the line of Mark Massaro from BTIG. Your line is open.

Mark Massaro: Hey guys. Thanks for the question and congrats on the progress. My first one is on MRD. So, it’s great to see your planned LDT launch later this year in colorectal cancer. When can we expect to see additional data, which would support reimbursement? And have you had discussions with any Medicare contractors? And then my second question is on the Thrive multi-cancer initiative. I appreciate that additional data will be rolling out this year. But maybe, Kevin, can you just give us a sense, this is not like you are rolling out an LDT. This is kind of a higher risk, bigger opportunity. What types of factors do you think might change the landscape over the next few years that could perhaps increase the probability of success? And then can you give us a sense for the size of the patient enrollment? Is it somewhere near the 80,000 to 100,000-plus mark?

Kevin Conroy: Okay. So, the first question in terms of what are the things that are going to change to make a multi-cancer early detection, this whole category of testing more likely to be successful. Certainly, Congress creating Medicare benefit category is one that’s important. And we expect that legislation to be reintroduced in this Congress. Remember, last year, there were more than 50% of Congress were cosponsors, equal number of Democrats and Republicans. So, we are working hard right now to make sure that Medicare beneficiaries will have access to the incredible new category of testing. The evidence that is being built by Exact like others in this field shows great promise for the ability to shift the stage of cancer and detection across many, many different types of cancers, from later stage, more difficult-to-treat cancer to earlier cancers where the therapy frequently is surgery with an intent to cure.

That’s a big shift. And the more evidence that is generated that we €“ there is more excitement that is being built in this space. We believe that we have a significant advantage because of the strength of our Cologuard screening team, infrastructure, lab capability, etcetera, perfectly positions us for success. This is going to play out over a long period of time. We believe there are well north of 100 million people in the U.S. alone, many more outside the U.S. that are going to benefit from the test. And the key takeaway here is that there is no therapy as effective as earlier detection. Earlier detection means your therapy plan is going to be very different. And that’s the goal of program. We are excited about it. We are committed to making this happen.

And we are doing the work to €“ the rigorous scientific work to develop the best test.

Everett Cunningham: Mark, you had also asked on MRD. So, we plan to publish at an upcoming scientific conference in the tumor-informed version of tests. Recall, we are working on both tumor informed and tumor-naïve, by tumor-informed data to colon cancer puts us one step closer to bring that test to market, which we plan to do later this year versus an LDT. Next year, we will submit retrospective prospective data to MolDx, hoping to secure positive with that. Behind the scenes, we have been working on pivotal studies for both colon and breast, so that’s what helps that we think the standard for evidence in this space. We feel good. Same thing with multi-cancer and leveraging the foundation we built in primary care. MRD, given our positioning with oncologists, whatever the team has done there building deep, deep relationships.

As you know, 98% of oncologists have ordered Oncotype DX from us. So, we think we can leverage the same strength of the commercial foundation into MRD.

Operator: Your next question comes from the line of Dan Arias from Stifel. Your line is open.

Dan Arias: Good afternoon guys. Thanks. Kevin, back on the pipeline, just any update on the thoughts around commercialization for Cologuard 2.0, I think at one point, that was a potential €˜23 event. So, just curious if that’s still a possibility. And then how dependent on that, would commercialization be on just performance and data around the test versus other factors like sales training, reimbursement, etcetera? Thanks.

Kevin Conroy: Sure. We expect, Dan, to submit this year, and it’s at least six months with the FDA before approval. So, that puts us into next year with the launch. A lot of prelaunch activity will go on. Certainly, that launch will incorporate the new and different sensitivity and specifics specificity. And then some of the long mundane aspects of launch would include the billing code for the new version of Cologuard does it change, doesn’t it change payer relationships, Medicare, etcetera, you need to do a lot of work there before you switch over to a new test, lab automation changes, etcetera. So, that will be a very thoughtful transition from the great current version of Cologuard to an even better version of Cologuard. The nice thing is we have a great test in Cologuard today, and it’s all upside for patients, health systems and an exact science to shareholders when we bring the new innovation to patients.

Everett Cunningham: And just to add to that, recall that late last year, we pulled ahead. One of the key benefits of Cologuard 2.0, we pulled ahead internally what we call Cologuard 1.5. What Cologuard 1.5 did is it extended the stability of that patient sample by a third. That’s important because it helps to get more of those tests back to our lab with the sample we still used without expiring. So to-date, this new version of the kit, this new Cologuard 1.5 has helped over 45,000 samples that come back to our lab without expiring. Now, some of those we could have gone on to recollect before. But it creates an overall better patient experience, more revenue for us, better gross margins for us. So, the team is not standing by idly, by any means they are pulling ahead this big benefit. Overall this year, that will increase completed tests by at least a point.

Jeff Elliott: And then commercially, we are already there. We know our targets, obviously, as Kevin said, with Cologuard on the market now, it will be a seamless transition from a selling and marketing standpoint.

Operator: Your next question comes from the line of Puneet Souda from SVB Securities. Your line is open.

Puneet Souda: Yes. Hi Kevin and Jeff. Thanks for taking the questions. So, the first one is you mentioned the 8% penetration for 45-year-old to 49-year-old. What’s the ceiling for that penetration given the momentum you are seeing here? And then on the data, I mean should we be expecting that at AACR or ASCO or later in the year at ESMO? Thank you.

Kevin Conroy: I will take the first part. Jeff, can you take the second part. In terms of the ceiling, we think that the ceiling is higher than the 40% penetration that we have long guided to for Cologuard in that earlier age group because people who are 45-year-old to 49-year-old typically are busier than retirees, and it’s more of a challenge for them to schedule a screening colonoscopy, which can take 1.5 days of your life. Typically your, a portion of your week that you are normally working. So, we also have been able to educate and reach people digitally, our digital investments and social media marketing will increase over time. So, Cologuard is a test that fits within their license, do we get to 50% to 60% penetration that wouldn’t surprise me over time in that age group.

And what you are seeing is you are seeing the endoscopy suites are very, very busy today. Any notion that Cologuard was going to slowdown the business of gastroenterologists endoscopy suite is just not going to be accurate, in fact, to help them to focus. But the €“ and there is an opportunity for Cologuard, and is being ordered more frequently in that patient population because the risk of colon cancer is lower and GIs are €“ and health systems are focusing on getting those people screened, it goes into their colon cancer quality ratings through Cologarud, visiting last week with primary care physicians who have very busy practices €“ their focus on Cologuard. One office I met was switched 100% to Cologarud, why, because the GIs are so busy in that part of the country that they don’t want to see more average risk patients.

So, we see that Cologuard will continue to grow because it’s easy, it’s at home, it’s accurate. Jeff, I think there was a second part of that

Jeff Elliott: Hello, this is Jeff. The Exact team has done a really good job generating a wealth of evidence to help build out this new category. As Kevin talked about, there are two sets of data coming this year. The first one, I don’t think we will get AACR, I don’t know the conference for sure, but I would think midyear on the first set and then a full time being for the second set. When we do what conference though, we will let you know.

Operator: Your next question comes from the line of Patrick Donnelly from Citi. Your line is open.

Patrick Donnelly: Hey guys. Thank you for taking the question. Jeff, maybe one for you just on kind of the cadence of the year coming out of the strong 4Q, I know even going back to the conference in January, you were talking about 4Q had some benefits. I think you mentioned the billing enhancements on the call here. No surprise, 1Q down sequentially on Cologuard. Can you just talk about, are we getting back to that normal seasonality? Obviously, again, 4Q had that great inflection. You talked about all the factors there. So, how do we think about that going forward into €˜23? It’s been a weird couple of years, obviously, in terms of the impacts you guys have seen. So, how do you think about the cadence of this year both on the top line with Cologuard and then also maybe on the EBITDA side, if there is anything we should be looking out for there in terms of expense timing? Thank you.

Jeff Elliott: So Patrick, the typical cadence of Cologuard hasn’t changed. There €“ it’s really driven by primary care utilization trends. So, what those are is that we typically started the year if people are coming off the holidays, deductible just reset. So, primary care and use is to be lower in January. Things build until Memorial Day at the end of May. And then over the summer, that typically flatter as typical vacations and our focus is much on primary care. At about mid-August or Labor Day, things pick back up and typically climb pretty steeply until Thanksgiving timing and then slowdown over the holidays as people go on to again vacations. And what that means for Cologuard, there is about a 30-day lag between primary care visit, and we would recognize revenue.

That’s typically why you see a step down from Q4 to Q1. And I only expect that to change going forward. However, our business is becoming more predictable. More predictable, we get more stable growth drivers, as Exact team have done a really nice job building out a whole wealth of different drivers. It’s not just tied to one thing anymore. From Q1 this year standpoint, there is a couple of unique things that are happening. Everybody is seeing the flu data. The flu is really mild this year, relative to most years, and flu normally a headwind to us and others in early Q1. That headwind has really not existed this year. So, I think almost equal, Q1 a little stronger this year. Also some of the carryover benefits that I talked about earlier from enhancements to both our patient compliance engine and our billing systems, we are picking up a little bit of a catch-up revenue on both those things.

So all told, Q1 seasonally stronger this year as you think about phasing throughout the year, don’t expect that same sequential build Q1 and Q2 this year, as you would normally. From an adjusted EBITDA standpoint, Q1 typically has the lowest profitability of the year because of the top line being a little lighter seasonally, and expenses are a bit higher as you roll into a New Year, and we have got some unique sales and marketing events in Q1 also. So, lighter profitability in Q1, but overall strength to the year from a profit standpoint, again, significant pickup year-on-year in adjusted EBITDA.

Operator: Your next question comes from the line of Andrew Cooper from Raymond James. Your line is open.

Andrew Cooper: Hi everybody. Thanks for sneaking me in here towards the end. Maybe first, just Jeff, you mentioned some of the prior period collections and some of the improvements in compliance. Can you give us a sense for precising of that in the fourth quarter? And then I think it was about a year ago, maybe this call last year, you talked a little bit about a chance for pricing and ASP to continue to climb a little bit. So, can you just give us an update, have you been able to capture a little bit more on sort of apples-to-apples ASP and what that looks like and how that impacts to move to profitability as well as in a pretty steep drop down there?

Jeff Elliott: Andrew, in Q4, the base business exceeded expectations. This is the things that Kevin have ever talked about. It’s the strength of the relationships with health systems, the sales force productivity. Cologuard rescreens, 45 and all those things drove the upside. The reason I called out some of these other items is because we didn’t want to do to take in Q4 and then some that’s kind of the new base run rate going forward. I look at it as more sweetener in terms of a couple of things. The enhancements to our billing systems, enhancements to patients compliance what happened to, let’s say, you turn those on early October. Well, because of those enhancements, we were able to capture patients and revenue that otherwise would have hit in Q2 and Q3, we picked up in Q4.

So, it’s a good guide there on a go-forward basis now, our revenue per test or ASP is higher, and our patient compliance rate should improve on a go-forward basis. The €“ and you see it in other ways, you see that things like our DSO improvement improved by 15 days year-on-year. So, all that team has made done a really good job at enhancing our overall kind of billing systems in the processes. On a run-rate basis, ASP for Cologuard, the right way to think of this is around $480 of revenue per test. There are some puts and takes there. And obviously, you have got this newer age group 45 to 49. For a while, that was €“ it carried a lower revenue per test as we built up the insurance coverage. There are also some other classes like Medicaid that rightly so come in about 80% of the meta trade off at times.

But again, here the team has done a nice job. And longer term, I think we can work that rate towards…

Operator: Your final question comes from the line of Dan Leonard from Credit Suisse. Your line is open.

Dan Leonard: Hello. Thank you for taking the question. So, I have a question on your Precision Oncology guide. It doesn’t seem like you are expecting much from OncoExTra. Is that accurate? And could you walk through the past for some of these new products like OncoExTra and MRD to contribute to the sales ramp in Precision Oncology? Thank you.

Kevin Conroy: I can start and maybe Everett can jump in. So, what’s baked in the PO guide globally, U.S. and we have been talking about this for a long time, given the strong current market position, as a class, that the penetration rate there is over 70%. We do a nice job within that given the strong position, the growth in the U.S. for the Oncotype DX business, I think of low-single digits. This is prevalent plus maybe a point. Now, the strength of that foundation will allow us to launch other programs like OncoExTra, like MRD, like the Riskguard, which is the hereditary cancer product. Internationally, the growth there is that business think of kind of $150 million a year right now. Growth there over time should be double digits for many years to come.

Year-to-year, it can be a little different depending on which markets opened up that year. This year, the big new market that we expect to come online is Japan midyear. So, what’s baked in is stronger growth in the U.S., but it’s not that we won’t get the full year impact from Japan. So, it’s not strong double-digit growth this year. It’s probably high single or low-double digit base in. OncoExTra, there I think it’s considered north of $10 million of revenue this year. It is the first year of launch. I know that ever the team are excited about the launch, but it’s early. So, we will come back to you and look forward to providing an update as the year unfolds there. Everett, will you take that?

Everett Cunningham: Yes. I will just add. We often talk about the productivity of our Cologuard sales and marketing team. My hats off to our Precision Oncology sales and marketing team. We had the launch of OncoExTra a couple of weeks ago. The training team and marketing team did a great job of preparing our sales organization to launch it day one. And again, the granularity of who we are focused on, on who we need to drive OncoExTra was really evident at our sales and market €“ at our launch of OncoExTra. And we are already generating orders. So, as Jeff said, we are going to look to hit feed our target for OncoExTra in 2023.

Kevin Conroy: Yes. And just to understand the differentiation of OncoExTra. This is an enhanced version of a therapy selection test, which is an ultra comprehensive panel. It includes DNA and RNA, it detects the clinically actionable mutations infusions, including whole transcript on sequencing. It also includes patient matched tumor normal sequencing, and it has an incredibly easy to interpret result reports for FDA-approved therapies, immunooncology signatures, etcetera. And then one thing, Dan, you didn’t ask this question, but I don’t think we touched upon was around the follow-up colonoscopy changes. Everett, maybe you want to just touch on that?

Everett Cunningham: Absolutely. Thanks Kevin. One of the biggest objections from our customers around Cologuard was hey, if they get a positive Cologuard test, that patient is burdened with paying for the follow-up colonoscopy. CMS and commercial last year made the positive development that there will be no co-pay, zero co-pay for colonoscopy. Our organization is now focused on getting that message out. It takes time. We had to educate over 300,000 primary care physicians and health systems on that new ruling. But we are really excited about that new development legislation, and we are out every day talking about the positive development.

Operator: And this does conclude today’s conference call. Thank you for your participation. You may now disconnect.