Exact Sciences Corp (EXAS) 2002 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the EXACT Sciences Corp. second quarter 2002 earnings call. At this time, all lines have been placed on a listen-only mode and the floor will be opened for questions and comments following the presentation.

At this time it is my pleasure to turn the floor over to Amy Hedison. Ma'am, you may begin.

Thank you. Good morning everyone and welcome to EXACT Sciences second quarter conference call. I have Don Hardison, our president and CEO and John McCarthy, our COO and CFO here with me on the call. I'm going to turn over the call to Don to make some initial comments.

But first I'm going to remind you of the Safe Harbor and which that any forward-looking statements we make during this conference call are based upon current expectations and are subject to change based upon various factors that could affect each - that could affect our - the company's financial and operating results. These factors are set forth in detail in EXACT Science's 2001 Form 10-K and subsequent filings. Don.

Thanks Amy. Good morning everyone. It's my pleasure to review the results of what I believe is an historic second quarter for EXACT Sciences. From purely a commercialization standpoint the second quarter was our most important quarter to date.

As you know, at the end of the quarter we accomplished what I believe was the single most important business objective we needed to meet in order to commercialize PreGen Plus, our proprietary technology for the detection for the sporadic colorectal cancer in a population base of some 80 million Americans.

On June 27 we announced the signing of a strategic partnership agreement with Laboratory Corporation of America. With the signing of the agreement we believe we have established the commercial and operational foundation needed to support the success of PreGen Plus. This puts applied genomics as represented by EXACT Sciences front and center in the world of early detection of cancer. Never before has the DNA technology opened up such a large - a huge underserved market.

As we indicated when we announced the partnership the total value could reach $91 million. We have received the first $15 million payment and we expect the second $15 million payment will be made in the first half of 2003 when we launch PreGen Plus. Thirty million dollars is associated with commercialization milestones that we at EXACT Sciences must deliver over the next two to three years.

While I'm not going into detail about the milestones suffice it to say that they relate to the areas that clearly enhance the commercial opportunity for both Lab Corp and EXACT, production improvements, reimbursement initiatives, scientist acceptance and other similar

that have been at the highest priority for us for some time now.

The final $15 million will be paid upon achievement of specific revenue thresholds. Finally, if and when Lab Corp exercises its warrant to purchase one million shares of our common stock we will receive an additional $16.1 million. What is most important about the financial terms of the deal, however, is that we believe they enable us to comfortably reach profitability without any additional cash infusion. At these interesting times this puts us in a very enviable position.

In many ways our agreement with Lab Corp encapsulates the ground breaking nature of EXACT Sciences. Not only are we plowing new ground in science but we're also plowing new ground in our business operations. The agreement we signed with Lab Corp represents to the best of our knowledge the largest such agreement in the history of the industry. It has the potential to generate blockbuster sales with outstanding profit margins for both companies. Once again, we've raised the bar in the world of applied genomics this time from a business sense.

We also moved the ball forward from a scientific standpoint here in the quarter. We are pleased that we had 11 abstracts accepted and an oral presentation at

meeting in May. We have recently had an abstract and oral presentation accepted at the American College of Gastroenterology meeting to be held in October. Excuse me. The studies represented by these abstracts and presentations adds substantially to the clinical body of information about PreGen Plus and are clear evidence of how well our

works in the early detection of cancer. With the levels of productivity that we are experiencing consistently in our clinical work and the idea of repeat custom, we believe we can do for

cancer what the pap smear has done for cervical cancer. That is, significantly reducing the mortality associated with the cancer.

Our

has a similar sensitivity to the pap smear and we believe its ease of use will be both attractive to physicians and their patients and help to breakdown the resistance of screening for

cancer. In addition, I am pleased to announce that a 5,000 patient multi-clinical study continues to recruit patients on schedule with complete enrollment by the end of the first quarter 2003 with data available in the second half of 2003.

Now, a few more words about the nature of our partnership with Lab Corp. Obviously, the financial terms of the deal were extremely important to us; however, the people

involved are extremely important. After all, both companies will be working and all working very closely together for the foreseeable future. To that end, we could not be more pleased to have Lab Corp. as a partner.

and his team have made a major commitment to molecular diagnostics. We believe, as do we, that molecular diagnostics is the future. They are absolutely passionate about it and those of you who know the people of EXACT, certainly never questioned our passion for what we were doing. Both organizations have a firm commitment to make

a clinical and commercial success. That commitment comes from several things. First, it comes from a belief that the recent technology we have developed are groundbreaking applications of dramatic knowledge; possibly the first major application to emerge from the

evolution. Second, it comes from a belief that these technologies are also groundbreaking from a clinical standpoint as they give the physician a very accurate non-evasive tool to combat cancer through prevention or at minimum, to detecting cancer in its earliest stages when the cure rates are extremely high.

And finally, it also comes from the fact that in anyone's business life, you get very few chances; if any, to dramatically change the way medicine is practiced and to simply save thousands of lives. The people of EXACT and Lab Corp. have that opportunity. What a great challenge and legacy that would be for the employees of both of our companies. It is indeed a rare thing for a company to be given such a wonderful opportunity to achieve its mission, eradicating the mortality associated with a disease is certainly a tall order. Eradicating the disease seems virtually unimaginable. Yet, that is our mission. We are confident about success against our mission, as technology has been demonstrated in samples after samples and in clinical study after clinical study to detect

cancer at its earliest stages.

Also, working in our favor, is that there is no controversy surrounding the fact that early detection of cancer will save lives. Additionally, there is a real groundswell of support for early detection of

cancer. For instance, within the last few weeks, the United States Preventative Service Task Force, issued its recommendation regarding the importance of regular screening for

cancer and to help education, labor, and pensions committee in the United States Senate pass the Bill that would require insurers across the country to pay for

cancer screening. The growing momentum for screening cannot come at a better time for us and we are taking full advantage of all these opportunities to advance our own message. So, not only are we on a mission, but we now of other constituents who have been working toward that same end. But given all that, what will the next several months hold for that. First, is the continued focus on execution that is the mainstay of the management culture of this company. We keep our promises and have done this consistently since we went public at the beginning of lat year.

Therefore, we have promised to keep

the commercialization of

, this is clearly priority number one to not only get that done, but to get it done with

in the same exemplary fashion that you expect from us.

Second, we are proactively evaluating future opportunities in both colon-rectal cancer and other cancers. We believe that the

technologies that we have developed have broader applications. We will consider these other potential areas with the same scientific and business discipline that has brought us to today's

position.

But even then, it's back to execution, whether it's from a research, development, clinical or commercial standpoint.

It is only be continuing to focus on executing fanatically that we will accomplish what we have set out to do, to apply in a

manner in knowledge contained in the human genome, to develop early detection

that will be used on millions of people and will save thousands of lives. It's a worthy and noble mission that we wear with great pride.

I'm not going to turn the call over to John McCarthy who will offer his thoughts and discuss the second quarter financial results. Following John's remarks, we will open up the conference call to your questions.

Thanks, Don. From second quarter and first six months ending June 30, the company generated a net loss of 7.9 million and 15.9 million respectively, compared to a net loss of 5.7 and 11.1 million for the comparable periods last year, again reflecting our sell rate transition into a commercial operation.

Pro forma net loss for the second quarter and first six months of 2002, which excludes non-cash and stock based compensation expense for the periods total 7.3 million and 14.3 million respectively, versus a pro forma net loss of 4.7 and 9 million for the comparable periods last year.

Pro forma net loss per share for Q2 and first half of 2002 totaled 40 cents and 79 cents respectively, versus 26 cents and 53 cents per share for the comparable periods last year.

On an operating basis, most of the revenue recognized by the company for both Q2 and first half 2002 was associated with the amortization of upfront payments related to our first

agreement which was focused on the HNPCC market.

In a moment I will comment more specifically about the revenue implications associated with the most recent agreement with

for the average risk population for colon-rectal cancer screening.

From and operating expense standpoint, we continued to carefully manage our expense burn rate, while at the same time aggressively support both the internal and external development of our genomics-based technology pipeline. As I mentioned earlier, patient enrollment to date in our large multi-center study is on plan, progressing well since it's initiation in the fall of last year. As a result, trial-related will continue to represent a significant portion of our total R&P spending until the completion of patient enrollment in the multi-center study, which we expect to conclude no later than Q1 of 2003.

In second quarter, at the second quarter end, June 30, the company had approximately $58 million of cash and cash equivalents on hand, 15 million of which resulted from the execution of our previously announced

partnership with

at the end of June. As Don mentioned earlier, we are very excited about our five year exclusive partnership with

to commercialize our D&A based,

based technology for the early detection of colon-rectal cancer in the average risk population, which as a reminder, in the United States alone represents the 80 million plus people above the age of 50.

What we and

believe the

represents the largest commercial opportunity to date for the molecular diagnostics industry, with the potential to significantly reduce the mortality associated with the second most prevalent form of cancer; colon-rectal cancer.

We believe the partnership deal we announced with LabCorp on June 27th represents both the company's belief in the prospects for our current and future technology initiatives.

What we described in our June 27th conference call, the financial dimensions of the LabCorp agreement, let me take a few minutes to reiterate what was outlined in that call. EXACT licensed to LabCorp on a five year exclusive basis all current and future technology associated with its DNA based PreGen assay for the early detection of colorectal cancer within the United States and Canada. For this right, LabCorp has agreed to pay EXACT a per test royalty on all PreGen tests processed by LabCorp in its facilities across the country beginning with the commercial launch of the test, which is expected in the first half of 2003.

In addition, LabCorp has agreed to make the following series of milestone payments to EXACT which could total a potential of 75 million in aggregate. Fifteen million -- first, 15 million was paid upon the execution of the agreement, which we received on June 27th. The second 15 million will be paid upon the commercial launch of PreGen-Plus, which we expect in the second quarter of 2003. Thirty-million will be paid upon the achievement of certain EXACT deliverables as Don described that have been in the works for some time.

While we expect these milestones will be attainable roughly equally in fiscal year 2003 and 2004, for quarterly financial modeling purposes it would be most conservative to expect such milestones to be achieved in the third and fourth quarters of 2003 and 2004. Lastly, $15 million will be paid for the attainment of certain significant revenue thresholds, which one should expect may take some time to achieve.

As part of the transaction, EXACT also issued LabCorp a three year warrant to purchase a million shares of EXACT common stock at $16.09 per share. As a result,

as exercise EXACT will receive an additional 16 million of cash into the company.

The accounting treatment for the transaction is as follows: the first two $15 million payments will be amortized equally over the five period exclusivity, which begins upon commercial launch of PreGen-Plus. The first 15 million payment, therefore, will be amortized over the next 23 quarters beginning with next quarter, Q3 2002.

Against this revenue stream, the company is required to take a non-cash charge for the

value of the warrant issued to LabCorp, which totals approximately 6.6 million and will also be amortized over the next 23 quarters. The net result of these two components of the deal, therefore, is approximately $8.4 million of revenue amortized equally over the next 23 quarters.

The second $15 million which we expect to receive in the second quarter of next year will be amortized equally over the 20 quarters subsequent to its payment. All other milestone payments will be fully recognized into revenue in the period in which they are earned and therefore paid.

From a tax perspective, given the losses generated to commercialize our PreGen technology, we expect such

to substantially offset any tax liability associated with these milestone payments for the foreseeable future. As we indicated on the June 27th conference call, aside from the significantly positive cash flow and revenue implications of the LabCorp agreement, we are not at this time revising our product revenue or expense guidelines until we more fully develop the commercial plan for PreGen-Plus with our partner LabCorp.

I would expect to be able to provide further guidance by the end of the year. Having said this, however, we've made it clear that assuming the achievement of milestones outlined in the LabCorp agreement, we expect to have more than sufficient cash on hand to reach cash flow break even based on current commercial model expectations without the need to go back to the capital markets for additional funding.

Lastly, we've begun to aggressively implement our PreGen-Plus commercial launch plan with LabCorp that includes the senior management teams from both organizations. The plan includes, among other things, full technology transfer to LabCorp, some of which is already in place as part of our original PreGen 26 agreement from last year. Large scale operational support and infrastructure to support a broad based nationwide screening application and a commercial - and I'm sorry, and a comprehensive and fully integrated sales and marketing plan that educates and reaches a diverse audience in the most effective and efficient means possible.

The sales plan also includes a comprehensive training program for Lab Corp's 650 person plus sales force focused on primary care physicians we believe represent the primary target audience for ordering PreGen-Plus. We're confident that working closely with our partner Lab Corp we have the team in place and resources at our disposal to make this commercial plan a reality.

Since our IPO in June of - January of 2001 we have set increasingly more challenging goals for the company and to date have achieved or exceeded all of our major objectives. We believe that consummation of the Lab Corp agreement is yet another major example of the importance we've placed on execution.

With that I'd like to open up the conference call for questions.

Thank you very much. The floor is now open for questions and comments. If you do have a question or a comment, please press the number one followed by four on your phone at this time. And our first question is coming from Mr.

. Please pose your question, sir. Mr.

, your line is live.

Let me take that one, John.

Our next question is coming from Mr.

. Please pose your question, sir.

Good morning guys and congratulations on getting the

deal done.

Thanks . . .

. . .

.

A couple things. Actually several but I'll take it one at a time here. First of all, Don, maybe you could comment on the recent governmental moves to mandate reimbursement for colorectal cancer screening?

Sure. For quite some time now there's been a number of things going on in congress around colorectal screening. Ted Kennedy and Jesse Helmes, speak of the odd couple, have united to introduce a bill that recently actually came out of the senate committee, this health committee I mentioned. That bill will probably be

by a bill that was introduced by Senator Feinstein from California that is a broader colorectal cancer - excuse me, broader cancer screening bill.

We have been working behind the scenes for quite a while in Washington. Barry Berger from our staff, Dr. Berger, has spent a great deal of his time down there working with different congressman and congresswomen and we think we had a good fortune to move some of this stuff along. We also know that a number of this - the people in the senate and the house of representatives are either cancer survivors or certainly know people who have had colorectal cancer and they've been very supportive.

Additionally, former Senator Connie Mack is on our board and he's been very helpful in helping us kind of negotiate through the system down in Washington to try to influence colorectal cancer screening because in the end that's what we want to have happen is to have more people screened.

So, we're pleased with the legislation. We hope it gets you know past by congress and it certainly will help our cause when that happens.

Great. And then a lot of recent articles typically in the gastroenterology community have talked about your refinement of your technology over time making some predictions as to what long term specificity could be or sensitivity could be as well. How is that going to work? Obviously you have a very large setting up that now you're trying to collect data on that and they have

over time but maybe just get into more

on how you can

sensitivity higher over time and not disrupt existing testing.

Well, it is an interesting question, David. We issue as you know from January 31st New England Journal of Medicine article, we have a

license from some technology Bert Vogelstein developed at John Hopkins. It looks very promising. At the same time

here has developed other chemistries that we think also can push the sensitivity of the current assay up to higher levels. We are not sure the limit of that yet, but we are confident that over the next couple of years, Tony either by himself or in a combination with other people will find ways to continue to push the sensitivity of our assay up to higher levels than what we think we will have today. We also are looking at new markets. I mean there are some other markets we are looking at to try to add sensitivity to it, so for us, that job is not done so when you think about other cancers, we are still working very hard to push the sensitivity in respect of this

assay up as high we can.

The beauty of the home brew model, as you well know, is that by adding new markers or adding new chemistries, laboratories like Lab Corp., or like our own, can validate new assays very quickly and also then to physicians and therefore patients. So we are fortunate that that home brew market exists because we think we can take advantage of that.

Okay, then last before I get back in the queue. John, can you specifically comment on the amount of

that has been going on or a specific number you tested for it, or any

in terms of how that program is working with EXACT started back in

.

David, we really haven't broken that out because, as we said right from the beginning, it is not a significant number for either us or Lab Corp. at this point in time and frankly, since we accelerated the conversations with Lab Corp. back 7-8 months ago to begin the negotiations for the

contact which for obvious reasons is a lot more important than pre Jan. 26th. You know, our emphasis has really been on that as has Lab Corp.'s, so it is not a meaningful number and therefore not really that significant to talk about frankly. I say from an operational standpoint though, the technology transfer that we already underwent with Lab Corp. last year significantly helps us in terms of technology transfer for

and therefore should make that transition a lot easier.

Okay, thank you.

Yep.

Economics question is coming from

. Please pose your question mam.

Hello guys. First of all congratulations to a great quarter on front.

Thanks, Yvonne.

Hi, the first questions I have is related to potential for additional partnerships and this is primarily and what I am talking about is for market outside of the U.S. because

U.S., right?

Yes.

So, are you pursuing any discussions for maybe markets like Europe and Japan and when could we expect maybe such new deals to occur?

Yvonne, hi, it's Jon. As we said for sometime, we are in active dialogue with many of the

diagnostics companies that would be the more likely partners for outside the United States. Clearly the opportunity for the colon cancer update here in the States is huge. Having said that, we have been approached for some period of time by folks from outside of the United States that have had a lot of interest in introducing our

in to other countries where in fact the prevalence of colon-rectal is actually higher, or at least

say it's higher than the United States; like Japan and certain parts of Europe.

Having said that, each and every one of those - those international markets have it's own set of

Great. Hello?

Just one moment please.

We thank you for patience, and please continue to hold. Your teleconference will resume momentarily. Once again, we thank you for your patience, and please continue to hold. Your teleconference will resume momentarily.

And once again, we thank you for your patience, and please continue to hold. Your teleconference will resume momentarily.

Hello?

Ma'am, you may begin.

Hi, this is the EXACT Science team. We're back on.

, did you hear the answer to your question?

, please press one followed by four on your phone at this time.

, please press the number one followed by four on your phone at this time.

OK, well, that's OK. We'll take another question. We apologize. We had a phone line that must have gone down on us here.

And our next question is coming from

. Please pose your question, sir.

Can you guys hear it?

Yes, we can.

We can.

Hey,

and I are here. Sorry we were on the other line before and you guys couldn't hear us. Just want to delve into a bunch of stuff that we just keep picking up when we're out talking about the story. And it all has to do with a bunch of reimbursement issues so let me just kind of tackle them one at a time.

First off, can you describe, as best you can, what you think will actually be in place from a reimbursement perspective by the time you launch? In terms of how much work we have already done with insurance companies, with Medicare to just kind of prep them and be able to garner some kind of tacit agreement that their going to pay for the test.

Yes, what we've done -- this is Don -- what we've done over the last -- I suspect it goes back at least three years -- is we have worked both the Medicare system and the managed care system that you would have -- managed care

as you would expect us to work.

And frankly,

, what we found happening over time was that until we launched PreGen 26, we had some very interesting discussions with

about this test that may come out in the year 2003 and you typically got back with them that sounds great when 2003 comes around come back and see us.

So, one of the reasons that we thought it was important to get PreGen

on the market albeit again this small market was we could at least have discussions about a real test and get to develop relationships with people both on the Medicare side but more importantly in this case because PreGen

cancer in those patients tends to happen at a younger age. We wanted to make sure that we were having the right kind of conversations with the

and people like that.

So, Barry Berger, Bob Rochelle here runs marketing, a number of our people had been working with

for quite a while now. We've also started hiring a strategic account management team who's also been working with

. And the process we're going through right now is we are showing them all the clinical data that we have to date and what we think we will have in the near future.

We're also putting together some cost effectiveness studies that we think will be very compelling to kind of push the message forward. In addition to that, we keep working the

leaders which we've done from way back and also have started working on the primary care

leadership in this country and the advocacy group.

So, in the end what we're trying to do is through a number of different mechanisms influence in a positive way the different

out there. What I think will happen this is kind of the catch 22 is that you - they won't typically tell you what they will do until you have the test on the market.

So, to specifically to your question I could not look you straight in the eye today and tell you on the day we launch exactly who would be paying. What I do know is that the PreGen

test we've done, the few that we've seen come through here we've been reimbursed at the full $195 we've billed out. And we feel very good about that.

And we believe in the early stages that there will be a compelling reason for

to pay this - we'll come back to Medicare in a second, because the alternative for a lot of them is colonoscopy. And mass screening with colonoscopy is not a viable option but that's kind of the alternative or they can do a

blood test which has proven not to be as effective as what we're doing.

On the Medicare front this Balanced Budget Act of 1997 you've heard us refer to maybe gets us some help at least it offers the secretary of HHS the opportunity to add new screen

to the program without going through what's called a national coverage decision.

So, what - theoretically what that person can do is to consult with the experts in the field and add new technologies based on the data that's available for them. And we think we will have very compelling data for the Medicare program. Our strategy with Medicare now on the national basis is to get them to decide to declare which - if they will abide by this Balanced Budget Act opportunity they have and from a regional standpoint we're - we certainly talk to all the regional Medicare carriers out there about paying for the test when it's offered. But, again, until it's offered you never really know exactly what's going to happen.

But, John, just a couple of quick follow ups. On the Medicare front obviously if you launch an

which we would we have to wait until the fiscal year starting in October

to have some sense of reimbursement or have they already decided to pay for PreGen

and theoretically it could be coded the same way so that people would code for the full panel under that reimbursement.

It's certainly possible, because the codes we would build today if we had to test on the market today are accepted codes. They're codes for PCR and things like that. If we build that so-called stack of codes for the way the test is done, there is some possibility that it would be paid in the early stages. What we don't know that yet. One of the things that's encouraging, I know that Senator Kerry from our state here has been pushing Medicare to review new technologies on them more often than they do today. He's suggesting, I think at least every quarter, look at new technologies so that those technologies can be offered to that elderly population. And that's what I saying earlier on in my thoughts. There's kind of a groundswell behind a lot of this stuff, that hopefully we can ride that wave and we can get faster action on some of this stuff than people have historically gotten. But we don't know that yet.

OK. And the cost effectiveness studies that you're presenting, is that based on screening every one, three, five years? Or do we know what that right interval is yet?

We don't know the right interval. What we do in these cost-effectiveness models is we simulate all different intervals. And in the end, what you're doing is looking for a quality of life years saved of less than $50,000. And if you come into that, at least you come under that number, at least you're into the ballgame. And I suspect with our task, I mean, who knows. It's probably for an average risk population, maybe it's every three years. We don't know but the reason we think that way is people have called bloods every year,

every five years,

every 10 years. So logically we would sit kind of in between

and people

.

I think in the end, some of this will come down to each individual physician looking at their patient and assessing their risk factors. So if you're at a higher risk and you're getting a colonoscopy every three years or every five years, maybe the interval for our test will be more often than what I just said. I think that will shake out over time.

OK. Great. Thank you guys.

And our next question is coming from

. Please pose your question ma'am.

Hi guys.

Hi Ivan. Sorry about that. It wasn't ...

I'm back. I guess I'll state my question again, because I don't know how far you got in answering it.

I remember the question, so let me see if I can answer it. I think your question again was to what extent do we have any initiatives outside the United States with other players, given the focus of Labcorp's attention in the U.S. and Canada. And I don't know how far I got into my answer, so let me start from the beginning.

We've been in discussions with the major in-vitro diagnostic players for some time, as we said. And the focus there is on two things really. Technology partnerships and working in collaboration with our research team and Tony Schubert and his group. And then increasingly, as we've gotten closer to a commercial launch here, the focus has been also on introducing this sort of technology for

outside of the United States. As you know, each and every one of the countries outside of the U.S. has its own peculiarities and idiosyncrasies. And so we would be really reliant on one of the large IDB players as a partner for us outside the U.S. We do know there's a lot of interest. Over the past couple years at the major shows that we've gone to, we've been inundated by a lot of folks outside of the - a lot of gastros outside the United States looking for this test, especially in those areas where the instance rate of colon-rectal cancer is higher than the U.S., like Japan and several countries in Europe.

Having said that, our real focus over the next six to eight months is on working closely with

to get them operationally functional to be able to offer this test here in the United States, which does not necessarily mean that we are going to do things sequentially, we are going to continue to work with the - and have conversations with the

players about the things I've described. But the - the near-term focus is going to be working with

to get the sort of domestic market up and running here, given the size of the opportunity.

Understood. And then I have a quick -- another question. I don't know if - I'm repeating somebody else's question because I got

. I apologize for that. I was just wondering if you have any estimates - your best estimate right now for the pricing of

and if you have already some with the anecdote reimbursement experience with this product?

Ah, well we as you know, we won't set the price. It's really

doing that, but I suspect from talking to

and his team, they certainly believe in value pricing and the only firm evidence of what we have of what the pricing might look like is that when

was offered by them, they priced it at $495 wholesale, with $625 retail. So I wouldn't be surprised if you don't see pricing somewhere in there, or somewhere under what colonoscopy costs today, which is more than what I just said. So, we - that's probably the best guidance we would be able to give you, because in the end, it's their decision.

In terms of your second question about anecdotal evidence, as Don said, we've - we've done a number of

tests here

lab ourselves. Using the existing CPT codes, you know we got totally reimbursed from a number of insurers for

.

We've also done a select number of - of pilot studies. Our pilot samples here for our

tests. As you know, we don't need approval and we are pre-approved labs so we can run those and we have. And we've done those you know, sort of

reimbursement mechanisms, and we've gotten totally reimbursed on those. Again, using the existing CPT codes, so this gets into the question that

from

was just asking a few minutes ago. You know, questions that we get asked all the time, don't you need a unique CPT code to get reimbursement? And you - and you really don't. Using the existing codes, which the insurance companies are all very familiar with in they are accepted, that is basically the basis upon which we will submit for reimbursement.

Can you identify who the insurance, where they - that have reimbursed for

in the anecdotal cases and how much it was for?

You know at this point,

, I don't think we - we can because you know, the numbers of tests are relatively small, and - and I don't think it would be really helpful. But suffice it to say, that they are very large carriers that - that we've gotten reimbursed from.

OK. Thank you.

OK.

And our next question is coming

. Please pose your question, sir.

Yes, hi.

Hi,

.

Hi. How are you doing? Good...

...great.

Two questions for you. First of all, you know we are in this position now, and I know you can't give too much forward guidance, but working on - and whoever claims they are working on it, we spoke

building revenue models for

. Is there any way you can us any idea, just what market kinds of studies you have done, on how this product might - might be ramping up? What kind of numbers, one - at least in terms of the total market, and which markets you would be attacking first and - and how you see it growing over the next few years?

Well

, this is

. We haven't, you know, we haven't provided any new guidance since, I think, the analyst models were originally built, you know, some time ago. I think in large part because we need to -- first of all, we needed to get the lab partner in place, which we have.

Second of all, once with the lab partner in place -- with LabCore in place -- we need to build a commercial plan with them. You know, we have the second largest lab in the country that has, you know, one of the most significant presence in the

business in LabCore who knows all the major payers. And so, you know, we've got a great partner.

So at this point in time we don't want to provide any additional guidance until we have a clear plan that we can articulate with some level of confidence to you and others. You know, we're going to be introducing the test -- the commercial test -- you know, in the first half of next year. And in terms of qualifying the market opportunity, you know, beyond what we've already done. You know, we talk about the 80 million plus people in the United States above the age of 50 and there's a huge, you know, non-compliant population for people getting screened, which is, you know, a huge opportunity in and of itself.

But I think the more relevant areas to focus on, especially in the early couple of years, are, you know, what numbers of people are getting tested today? And you know, this is all publicly available information. The number of fecal occult blood tests that are done on an annual basis today are anywhere from eight to 10 million tests. That's on an annual basis and that's with a relatively insensitive test. And patients, frankly, just don't like doing it, but there are still eight to 10 million of those that are done.

Flexible

on the other hand, an invasive test, with limited sensitivity because it only visualizes the lower third of the colon -- there are about four-and-half to five million of those that are done today on an annual basis.

So, that sort of gives some color for the size of the opportunity in the compliant population if you didn't increase the compliance associated with offering a much more sensitive, much more patient-friendly test.

So, you know, beyond that sort of scoping it doesn't make sense for us to qualify it much beyond that. I think as we get into this with LabCore and we're able to provide greater guidance in terms of who we're going after and how we're initiating the commercial launch, you know, will indicate it at that time.

OK, great. And the second question has to do with the design of the study that you're conducting now. Can you talk a little bit about how you think the sensitivity of the study would effect the ultimate use of the product as compared to fecal occult blood tests? What kind of a bogey, you know, you're going after here compared to fecal occult blood tests? And in terms of specificity, how important that is an issue compared to sensitivity?

We think -- well, first of all,

, I think you're aware that we've done a number of other studies where we've looked at quite a few more cancers than we will pick up in this multi-center study you're referring to. We consistently see 65, 70 percent sensitivity. And we believe our specificity will be in the mid-90s somewhere. So it will be very good.

In this multi-center study we expect to have -- to show that we're -- I can't even say the word -- significantly better than fecal occult blood in our ability to pick up cancers. And what we're most focused on is early stage cancers. So, some of the analysis we'll be doing is not only our sensitivity to cancer in general but certainly looking at

A and B cancers. And also we're not sure from this study but from other things we've done we've been encouraged by our ability to pick up carcinoma and

and high grade

which is a precursor to cancer. Most gastroenterologists we talked to call these cancer and kind of the line that separates them from a

is very thin indeed.

So, we're hoping in those early stage cancers we show that were significantly better than people with

blood. Although if you look at the - if you're looking for absolute sensitivity numbers you have to look at the broad base of our clinical data because you need a lot of cancers to narrow the competence intervals around that and that's why we believe that that sensitivity from other stuff we've already done is in the 65 to 70 percent range. And we believe that the specificity will hold up in the mid '90s which we think is great.

, this is John. Let me just qualify one thing on the specificity. It is a very important barometer although people tend to focus a little bit less on it than sensitivity. Specificity or you know the false positive

if you will is an important piece for the payers. They don't want to see a lot of false positives.

Now, having said that as you probably know given your background, the - there's some question among the gastroenterologists about whether in fact our false positive rate is what it is. In other words, our false positive rates as Don implied the specificity of 95 percent would imply that you have a false positive rate of about five percent.

Given the fact that ours is a molecular based test there's some question as to whether that in fact is a false positive or is it picking up an early stage pre-cancerous lesion. But you know that's an important piece for the payers.

Great. Thanks a lot and keep up the good progress.

Thanks,

.

Thank you.

Thank you very much and our next question is coming from Mr.

. Please pose your question, sir.

Yes. Just a couple of quick follow ups, guys. We just had a bunch of discussions about reimbursement. Just correct me if I'm wrong, I mean I was under the impression that even initially Lab Corp's

you know pursue a state code methodology.

Right.

If so, can you just kind of walk us through what Lab Corp's thinking as they kind of look through the type of analyses that are going to be required to perform the tests and kind of where they

will come out on? And secondarily on that same topic, have all the steps been completed on the Lab Corp front to optimize the essay for a high volume environment?

, let me take the first part and John will talk about in a second because he's leading our efforts with the Lab Corp team as far as optimization and stuff. Let me give you one kind of over riding thing that we believe about this reimbursement. I should have said it when Dan asked his question earlier.

One of the things that everybody we talk to has commented on in all of our negotiations whether it's a lab company or whether it's an

diagnostic company where sort of the holistic approach we've taken to reimbursement. I wish at times we could give really precise answers to exactly how things are going to happen but for any of us who've been in the reimbursement game for a while we know that that would be extremely naïve. It's really plugging it out payer by payer in the trenches. But what I am confident of and what other people have commented on is the, again, the complete approach we've taken. We're pressing all the right buttons and we feel good about that.

That being said, last quarter has a very strong reimbursement group there. And they have their own process for evaluating how they will bill the test. And frankly it's part of the process that John is taking - leading our team through and

from their side is leading his team through. That is part of that process and we haven't gotten far enough along there for us to have any

comment on it frankly, other than we believe that through looking at the codes that could be used, it will support a value priced test of - in the same ballpark that we mentioned

had been priced in. And if so, we get further down the road with

, I would be uncomfortable saying anymore about it.

,

, in terms of second part of your questions, is first of all that question - on - on whether we have - I think you asked if we had completed the optimization of - of the technology. The answer is no, because if the - you never - you are never entirely complete. What I'll tell you is that one of the benefits that we have in - in how this company exactly was constructed is that you know, we started with a pre-approved lab downstairs and were able to not only design and develop the - the asset - the assets that we've got, but to work on optimizing and utilizing technologies and existing systems out there to increase

and ultimately reduce costs before we even begin to transfer this to

.

So we are very comfortable, as is

that all of the things we have in the works today to optimize the technology are doable. We've got an active team working today, both at

as well as here at Exact, to both transfer the technology and to optimize it in a way that generates some significant margin opportunity for

in terms of operating this test, and then ultimately to us as we get reimbursed from them as a function of - of the average reimbursement price. So you know -the again - the

that we have built is based on existing - existing resources existing standard equipment in the marketplace, so nothing that we are putting into this - into this

is outside of the expertise of

.

if you think about this partnership we have, and if you think about it just in cold-blooded numbers, it's a wonderful deal for both companies. But in the spirit of partnership, there - there are parts of t4he

that there are several ways to do it, and that's the beauty of the home brew model.

is used to transferring technologies over to their laboratories. In some cases, in different parts of the

, there may be a couple of ways to do it, and in the end it's their choice. There are some things they have to choose to do that they are comfortable with, and one of the reasons we selected them is because that is their daily work. They are experts on DNA testing - the analysis part of DNA testing at least. So we've - we feel very good about the way it's going.

And then one of the reasons

shows up in addition to getting the

to this point in time, is that

and his team are constantly working on improving the

from a sensitivity

standpoint, and there are also things that we are continuously working on to optimize the - the

, and again, because it's in a home brew environment, we have the ability working with

to continuously improve it.

OK. Great, thank you.

And once again, the floor is open for questions and comments. If you do have a question or a comment, please press the numbers one followed by four on your phone at this time.

Ma'am, there appear to be no further questions at this time.

OK, thank you everyone.

Thank you.

Enjoy the rest of your summer.

Thank you for participating in today's teleconference, and we ask that you have a lovely day.