Exact Sciences Corp (EXAS) 2003 Q3 法說會逐字稿

Good morning.

My name is Tamea (ph) and I will be your conference facilitator.

At this time, I would like to welcome everyone to the EXACT Sciences third-quarter earnings conference call.

All lines have been placed on mute to prevent any background noise.

After the speaker's remarks, there will be a question and answer period. (Operator Instructions).

Ms. Hedison, you may begin your conference.

Thank you.

Good morning everyone and welcome to our third-quarter conference call.

I have Don Hardison, our President and CEO with me and John McCarthy, our Chief Financial Officer, both of whom will make remarks this morning.

Before I turn the phone over to Don, however, I would like to remind you that any forward-looking statements made during this call are based upon current expectations and are subject to change based upon various factors that could affect the Company's financial and operating results.

These factors are set forth in detail in EXACT Sciences' 2002 form 10-K and subsequent filings with SEC.

Thanks, Amy, good morning.

Third-quarter 2003 was the most important quarter in our company's short history.

All of the hard work by so many came to fruition with the August 13 introduction of PreGen-Plus, our DNA-based assay for the early detection of colorectal cancer.

Additionally, on October 11th during the American College of Gastroenterology Meeting in Baltimore, the topline results from a landmark multicenter study were announced at a symposium that was attended by over 140 physicians.

This important study proved conclusively the study objective; that is, our original bead-based version of our PreGen technology is four times more effective in detecting colorectal cancer than the mostly wide used fecal blood test.

In fact, it is more than four times more effective in detecting Duke's A & B cancers.

These are the early stage cancers that everyone agrees are the most important to detect in order to reduce mortality and to reduce the tremendous costs associated with treatment, not to mention the untold benefits to the patients who are fortunate enough to be diagnosed early.

It is also very important to note that the technology used in this study was our bead-based technology.

We've already improved on that technology with the commercial version of PreGen-Plus that is on the market from last quarter.

The inclusion of enhancements, such as Effipure, only improves on what we already had.

Those improvements also set the stage for other improvements to come.

As we have said repeatedly, working with DNA as an anolyte (ph) means that we have ample opportunities to increase performance further in the future through new markers and/or new chemistries.

As we stated in our press releases, we've conducted research studies of the commercial version of PreGen-Plus and sifting of cohorts (ph) from previously conducted clinical studies, including the multicenter studies, and these studies have shown that the commercial version of the assay detected cancer in samples that the original version did not.

This ability to detect previously missed cancers has been consistent across all studies.

However, the number of samples in each of these studies has been small, thus making it difficult to (indiscernible) quantify the increase in sensitivity of the commercial assay as compared to the original assay.

The objective that Tony Shuber has set for his applied research team is to drive the technology to its biological and technical limits.

One of the real competitive advantages we enjoy is the competency we have in applied research.

This is evidenced by the wonderful ability to do things that were basically deemed impossible before EXACT came along, such as reproducably (ph) isolating human DNA from a stool sample.

I am confident that you'll hear of other reported steps forward from our applied research in DNA in the future.

So with all of that hard work, we have a great test that fills a huge market need.

We also have this huge market to attack.

The fact that over 40 million people continue to go unscreened is sad, represents to us a golden opportunity.

The real market challenge is to get more people screened and to get the compliant patients who are presently being tested with products less effective than PreGen-Plus, has now begun.

I would lead to briefly discuss our plan on how we will drive demand in our usage of our test.

Let's start with the irrefutable fact that introducing any new product is a multifaceted extremely complicated task.

There are obviously many challenges.

In the case of PreGen-Plus, however, we have been fortunate that the cost of the premarketing conducted (ph) by both companies, our partner LabCorp started to receive patient samples the day PreGen-Plus was launched.

As they indicated on their call on Thursday, the daily volume continues to grow and they're expanding their capacity.

The exciting news is that enough time has passed to get the first patients through the billing process, and we now know that those tests are being paid at rates to support our value-based pricing strategies.

Payers and self-insured employers representing over 10 million covered lives have already agreed to pay for the test.

I think this is a great accomplishment for our two organizations after only two months on the market.

From a macro sense, PreGen-Plus is one of only a few non-invasive tests for the early detection of cancer that has ever been introduced.

It is a revolutionary new technology.

I would argue that it's one of the first real products in the genomics revolution and one that is that supported by the largest clinical study of its kind, demonstrating clear superiority over the next best non-invasive option.

Since it is a test for those people over the age of 50 who are asymptomatic and of average risk, it is for the most part a test that targets people who are well.

As you know, there is definitely a difference between targeting a product for a well population versus a sick population.

The well population has been targeted for screening for colorectal cancer for years without great success.

In fact, 40 million of them have never been tested, despite the fact that fecal occult blood testing, flexible sigmoidoscopy and colonoscopy have been around for years.

They have not made a significant dent in the number of annual deaths from this cancer.

Enter PreGen-Plus -- what will make us different?

Well, let's start with where we are after two months on the market.

As I mentioned, in terms of volume, we're seeing a steadily increasing volume of test orders.

These numbers however in total are still understandably small.

Through my years of experience in health care, I have learned that it takes on average 4-6 calls to a physician before that physician considers using a new product.

We're not that far into the sales cycle yet.

Changing physician prescribing habits, even if it is for the better, takes time.

As I have mentioned, for more than 20 years, physicians have had only essentially three primary colorectal cancer screening options -- colonoscopy, flex significant and fecal occult blood testing.

We believe that our success in changing physician and consumer behavior will result in millions of more lives saved each year through the use of PreGen-Plus.

We're up to that challenge and I'm personally excited to be a part of such an exciting opportunity and challenge.

To ensure success, we're working closely with the sales and marketing organization at LabCorp to make their physician calls as effective as possible.

Our own salespeople are extremely active with the LabCorp salespeople -- will also continue to target payers and employers.

Our early success in those areas is very encouraging.

Our people are finding great interest among physicians.

In addition to these sales calls, our marketing seen as an active physician education strategy through the use of continuing medical education programs.

DNA testing is new.

We can't take this educational process for granted.

Doctors are being barraged with new products and tests.

We must make sure that our test grabs significant mind share in all (indiscernible) out there.

If attendance levels are an indication, we're experiencing great success in these educational programs.

There's no question that physicians are becoming more aware of the importance of regular screening for colorectal cancer.

Now we must turn up the heat to educate them as to how PreGen-Plus fits into that regular screening program.

The completion of our multicenter study will help us inordinately (ph) in this process.

The fact that we can now state that, based on this data, PreGen-Plus is substantially more sensitive than the only other non-invasive colorectal cancer screening option available to physicians, is extremely powerful.

I do not believe that physicians are looking for another more expensive fecal occult blood test.

They are looking for something that's different, that their patients will use and that is directly sensitive for early-stage cancers and important adenomas in an asymptomatic average risk population, not just a surrogate marker.

No kind of fecal occult blood test, no matter the version, can claim superior efficacy in this crucial population.

Also, our compliance data indicates that patients prefer our test over fecal occult blood testing and colonoscopy.

We've also been receiving business reply cards from early users of the test.

The feedback is very positive and the data indicate that a full 40 percent of the respondents have never been screened before.

That means that we're not only taking business from others, but that we are attracting new users to the market.

That is precisely what we expected to do.

I can certainly attest to the enthusiasm from the gastroenterology community regarding PreGen-Plus.

From my discussions with the thought leaders in the field and with practicing gastroenterologists, it is patently clear that they're looking for another tool that will help them effectively screen the more than 40 million Americans who are now not getting screened today.

I can also attest to the interest level of the primary care physician community.

The traffic at our booth during a recent conference of primary-care doctors and a smaller OB/GYN conference was strong with numerous requests for visits from the LabCorp salesforce.

The multicenter study data and the entirety of our clinicals are important to the practicing physicians.

That data is also very important to those involved with writing guidelines for colorectal cancer screening.

From the guidelines side, both the American Cancer Society and the members of the GI Consortia (ph) already have been contacted by our physicians to go over the topline data from this study, as well as the other studies that had been previously been published to discuss with them ways to facilitate the review of the data.

In general, both of these groups wait for the peer review of data which would be evidenced by the publication of the data in their respective journals.

I believe that, given the design of our studies which prove precisely what the GI consortium had suggested in their 1997 colorectal cancer screening guidelines document and the prominence of the authors of the paper to be submitted for publication, we will get into those guidelines.

I cannot protect when.

I can tell you that every effort is being made to speed that process long.

Remember that these groups are concerned with one thing -- getting more people effectively screened for colorectal cancer.

We have no indications that they want an external process to get in the way of that goal.

Inclusion into the screening guidelines will facilitate many things.

Physician and patient acceptance (indiscernible) of course payer acceptance.

Although we have experienced early encouraging success with some payers and at least two major employers, reimbursement is always the biggest challenge with the new test.

Guideline inclusion has proven to be an inflection point for other diagnostics, including HPV and cystic fibrosis testing.

I suspect that we will experience the same phenomenon.

That's why we are so focused on that important process and have gone overboard with the clinical data to support the inclusion of fecal DNA testing into those guidelines.

We are convinced that the combination of this strong clinical data that we have which we believe exceeds that of almost any other diagnostic testing in recent past, our compelling cost effectiveness and compliance data and multiple thought leaders in the field who clearly support the need for new screening modalities such as ours, and the desire of physicians and patients for better non-invasive ways to detect colorectal cancer and important adenomas early will be a strong story for payers.

Inclusion into guidelines will only strengthen our position.

Rest assured, however, that we do not believe that guideline inclusion will create a fait accompli or (indiscernible) a PreGen-Plus success.

The challenge we face is that of converting all of the positive things that we have done and are doing to realize actual sales.

That will not happen overnight, but it will happen.

EXACT is totally focused on making this a reality and you're well aware that we have a history of delivering on our commitments.

LabCorp is also focused on making this happen, and they too have a history delivering.

LabCorp has a market franchise with primary-care physicians and payers who will obviously be an important part of our collective success as we move forward.

I'm encouraged with our progress to date.

It is not in my nature or in my team's nature to be satisfied.

The focus has been our strength and we're more focused than ever on pressing the right buttons that will drive the use of our product.

When you are involved with a company such as EXACT and in the early stage of an exciting product launch, it is very easy to get caught up only in the numbers and the strategy and the work.

Is very easy to lose sight of the fact that we're in a business up saving lives.

And to do that well, we will have a very valuable company in many ways.

I was recently talking with one of the people who really keeps me grounded on the importance of our mission.

That person is Priscilla Savory (ph), who leads the colorectal cancer network.

This conversation occurred a few weeks ago at the time we released our multicenter study results.

Priscilla is one of the most passionate, dedicated people I've ever met.

She has dedicated her life to supporting survivors of colorectal cancer and their loved ones.

She will tell you of the pain and suffering she has personally witnessed as a result of this disease.

She will also tell you quite clearly that this is a cancer you should never die from.

Talking with her makes this cancer and its debilitating effects real for me.

Her excitement about the promise of PreGen-Plus is palpable.

When we informed her of the results of our multicenter study, she was enthusiastic as only she can be.

Being a zealot on screening, she knows the pros and cons of the other tests.

Her belief is that our test is the answer to getting large numbers of people screened and detecting more cancers early in their most curable stage.

Her comment to me where was that this test closes the gap.

When I asked her what she meant, she said that PreGen-Plus will help save lives and will save lives that will not or cannot be saved with the present screening method.

I have never been prouder in my business career to be associated with a company, to be associated with a group of scientists, businesspeople and support staff at the time of an introduction of a revolutionary product is extremely satisfying.

But even more satisfying is the fact that with the introduction of this product, thousands of lives will be saved.

On August 13th, we introduced the best non-invasive screening test and the best alternative to colonoscopy.

That is what PreGen-Plus, is pure and simple.

I would like to turn the call over to John McCarthy.

Thank you.

For Q3 and nine months ending September 30, the Company generated a net loss of 6.9 and 22.6 million, respectively, compared to a net loss of 7.4 and 22.9 million for the comparable periods last year.

Pro forma net loss for Q3 nine months of 2003, which excludes non-cash stock-based compensation expense, totaled 6.5 and $21.6 million, respectively, versus a pro forma net loss of 6.9 and 21.2 million for the same periods last year.

Pro forma net loss per share for Q3 and nine months of 2003 totaled 34 cents and $1.15 per share, respectively, versus 37 cents and $1.16 per share last year.

On an operating basis, almost all revenue recognized by the company in the nine-month period of 2003 was associated with the amortization of up-front payments related to our LabCorp agreements, as well as the $15 million milestone payment received from LabCorp in August related to the commercial launch of PreGen-Plus.

As a reminder, the recently received $15 million payment is being amortized over the five-year period of exclusivity of our contract with LabCorp.

As Don mentioned in his comments, we're pleased with the reception of PreGen-Plus since its launch only two months ago.

More importantly, we're quite encouraged by the positive reaction from the clinical community to the release of our multicenter study data earlier this month and believe it will support our active initiatives for guideline inclusion and positive policy-level reimbursement determinations by payers and employers.

In terms of recognized product royalty revenue for the quarter, while LabCorp has been reimbursed for PreGen-Plus test completed to date at prices that support our value-based strategy, as of September 30th, we had not receive payment from LabCorp and therefore did not book royalty revenue for Q3.

As I indicated in prior calls, until we have greater commercial history working with LabCorp, which will minimally be through the balance of 2003, we will be recognizing product royalty revenue on a cash basis when paid by LabCorp.

Lastly, product revenue category for the quarter represents the sale of Effipure units to LabCorp in order to satisfy a stocking inventory for the commercial launch of PreGen-Plus on October 13.

As a reminder, the Effipure technology represents our unique and novel sample prep platform that allows for greater extraction of DNA from a sample which we believe improves the performance characteristics of the assay.

Given the dynamic nature of our product development strategy in working with LabCorp, we recently made the decision to control the assembly of Effipure units to a third party partners and then sell such assembled units to LabCorp.

While we expect to make only a de minimus gross margin on the sale of Effipure units to LabCorp over the foreseeable future, we believe we're in the best position to manage with our partners the product evolution process for this strategically important opponent of the assay.

Going forward, I will continue to break out the revenue associated with the sale of Effipure units to LabCorp as product revenue, given the significant difference in gross margins on this revenue versus that on product royalty and license fee revenues.

As of September 30, the Company had approximately $35 million in cash and liquid investments on hand to fund our operations.

Lastly as a reminder, all future milestones expected from LabCorp will be recognized into revenue when paid.

That concludes my formal comments.

I would now like to open the conference call to any questions.

(Operator Instructions).

Timothy Lee.

I think in the past, you talked about giving us the number of tests that were performed in the quarter (indiscernible) must have missed that.

Could you share that with us?

Tim, we've talked to LabCorp about this, and after a lot of discussion with them, we just believe that the accession (ph) volume in the first 6 months of a launch like this just doesn't really give you any meaningful long-term extrapolation.

We do know this, we will tell you this.

LabCorp started receiving tests from day one, and that volume continues to grow.

They reiterated that on their call last Thursday.

They're extending their capacity.

But we do not think we have any meaningful barometer right now.

We think what we should be talking to you about are the things that we are going to make progress for meaningful numbers, which is our progress with payers, our reimbursement policy level decisions, what progress we made with guideline setters and that sort of thing.

So let's leave it at that right now.

This is John.

To be just a little bit more specifically, as Don said, while the actual volume in our estimation in LabCorp is somewhat meaningful, especially in the first two months of a launch, by the end of this year obviously for the discussion about the full year, we will have to be talking to you about more specifics as it relates to revenues, etc.

So this third quarter is particularly I think significant because we just launched this thing a couple of month ago.

To more quick questions, if I may.

One, what is the level of reimbursement that you are seeing here at his early stage?

And two -- what type of incentives are in place for the LabCorp salesforce to promote the product?

All we can say about the reimbursement is that we have been pleased with the level of it.

It supports our value-based pricing strategy, and we will let you draw your own conclusions from that.

It is on the market for $795, so we're very pleased with what LabCorp is getting paid back right now.

We can talk about that more hopefully sometime in the future, but right now we can't.

As far as incentive programs with the LabCorp sales organization, they have their normal incentive plan, which basically pays their sales reps based on territory growth.

I would suggest that you might want talk to them about more specifics about it, because they have several different plans, depending on what kind of salesperson you are in that organization.

And I will probably tell you something that has been corrected (indiscernible) their entire plan process.

Suffice it to say, they have something in place that we think incensed people to promote this test.

Okay, thank you.

Jessica (indiscernible).

Hi, good morning.

Couple of quick questions on reimbursement.

Will you be giving any sort of goal for 2003 and 2004 on covered lives?

Jessica, we likely won't at this point in time.

I think as Don said in his comments and I in mine, it is still so early that we are in the learning process.

I think it is safe to say because we did it in this call and the we will likely continue to do it going forward, that as we get positive determinations from payers, that we will continue to articulate what that results in in terms of covered lives and perhaps other metrics that are better (ph) meaningful.

But at this point in time, we're really not providing any either revenue guidance or expectations about covered lives going forward until frankly we learn more.

Okay.

And of that 10 million to date, what percentage of that is the employer group?

Of the 10 million line?

Yes.

It's small, it's almost by definition because an employer, even a large employer does not employ that many people.

If you look at Ford or Gross margin, etc., as big as they are, the actual number of employees that they have in their organization looks small when you compare it to a managed care organization that has that many covered lives.

So think about it as a relatively small percentage of that 10 million, but I would say importantly it's very, very meaningful what those self-insured employers, those large self-insured employers step up and agree to pay for this.

It puts a lot of political pressure on managed care organizations and the guideline organization.

Okay, great.

As far as the Effipure data, do you have any kind of guidance on when we might expect to see studies that have come from that?

Tony Shuber, as I mentioned, has done some research studies, and we will probably submit those for publication sometime in the future.

Other studies that we may do -- frankly, we're talking to LabCorp about a post-marketing (ph) study that obviously would include data from the commercial version of this product.

But I cannot give you a definite date on when that might be available.

What we do know, and it's important for everybody to hear this, is that in the samples that we've re-run, we always see a pickup with Effipure.

We see samples that were previously negative for cancer become positive for cancer because of Effipure's ability to isolate more human DNA.

Great, thanks.

Tony Campbell.

Good morning.

I actually have a couple of questions.

The first question is -- is there another milestone payment expected by year-end, and what would that milestone payment be?

What we've stated in the past is that we expect to get milestone payments from LabCorp that could total up to $15 million in 2003 and a similar amount in 2004.

And we have a couple of months more left in the year here.

And at this point in time, we are not changing that guidance expectation.

If it does change, we will certainly let folks know at a later point in time.

But that has not really changed.

The other thing, Tony, we have not been specific about and nor can we be specific about what this milestone will be paid for.

Okay.

And I guess my second question -- I was wondering if you could help us, in terms of building a model for your company.

I'm a little new to the story.

But LabCorp mentioned it was going to ramp-up production.

Are there any more specifics about that, what that means?

We were under the impression that talking to LabCorp, that they were ready to handle all their tests at launch?

I think you ought to address that to LabCorp, frankly.

We were confident at launch that LabCorp had the capacity to handle the volume that might be there.

As volume has grown, they've also, thank goodness, they've increased that capacity to handle even more volume.

So I think you're probably better off addressing that to LabCorp.

Okay.

Kathy Reese (ph).

Hi.

Good morning.

Thank you for taking my questions.

I just have three quick reimbursement questions.

Does LabCorp prequalify payment of all PreGen-Plus tests?

And if the test is not reimbursed, who absorbs the cost of that test, or is it not completed?

Secondly, do you anticipate the reimbursement to continue to be based on the fixed currently used CPT codes?

And finally, in your commercial section of your release, you used the phrase -- their (ph) appropriate patient populations, and I just wondered if you could clarify that for me.

Let's see if we can get those in order.

The first one -- they don't have to prequalify all of the patients.

LabCorp, as you probably know, has a number of contracts with most of the large payers they have contracts with.

And as per those contracts, they can introduce new technologies with notification to the appropriate people with that plan.

So they don't have to get prior authorization for that.

In other situations, they might.

I hate to keep pushing things over to them, but since they own those contracts, you probably would be better off talking to them about the specifics of it.

Second one was -- (multiple speakers) --

I suspect for the time being, we will continue to use those CPT codes, because -- or our lab pool will continue to use those CPT codes, because it's them who's doing the billing.

But those CPT codes are codes that are the ones that a payer would normally see for DNA-based tests.

So it makes sense to continue to use those.

And the other thing was about something that we said in our press release?

Yes, their appropriate patient populations.

I just wondered if you could clarify that?

It had to do -- it was in the commercial section, so I did not know that meant their patients over 50 or what exactly that meant?

Precisely.

Thank you.

Andy (indiscernible).

I'd like to ask a question about the nature and the extent of the relationship with LabCorp.

Is this an exclusive relationship over a specified timeframe, or is the company free to pursue some additional marketing or strategic partners?

Well, the United States and Canada is a five-year exclusive at -- well, a five-year exclusive.

In other parts of the world, we certainly can pursue other partners.

And this relationship was entered into at what time?

No -- June (multiple speakers) this was a two-part contract.

The first one was in June 2001, which was for PreGen 26.

The second related to PreGen-Plus, was the next summer, roughly June of 2002.

Also, what is the current cost -- charge for the standard fecal occult blood test?

It can range from $5 to $25 (indiscernible).

And just remind me -- when did the company go public?

When was the initial public offering.

January 2001.

What was that IPO price - do you recall?

$14.

Thank you very much.

John Smith.

I have a few little questions.

On the Effipure revenues, are those completely additive to the royalties that you received from PreGen-Plus?

And can you give us some guidance as to what the amount per unit is that you receive for Effipure?

They are entirely additive to any other payments we're getting from LabCorp.

The actual specifics of the unit and the pricing, etc., I really don't want to give out for a variety of reasons, not the least of which is that the units of measure here are somewhat confusing, and they're really not that relevant for guidance purposes.

The reason I broke it out as I said in my formal comments is because it's effectively a pass through (ph) with last quarter.

Since that gross margin or that lack of gross margin is so different from that which we'll get on the product royalties, or certainly milestones, I felt from a clarity standpoint, it was better off for everybody to break it out separately.

So as we look to a giving more formal expense guidance for next year some time shortly, I will think about the elements of Effipure, in terms of directional guidance.

But we're really not going to be giving out anything specific about what goes underneath that from a pricing standpoint.

Okay a couple of others, if I may.

On the 10 million covered lives, are they covered for straight-up, pure screening, or are there restrictions placed on those patients, in terms of other tests that they may have passed or failed -- just what are the restrictions that are placed by the insurer on the (multiple speakers).

To our knowledge, there are no restrictions.

Okay.

What specifically is the marketing message that LabCorp is bringing to the clients?

What are they saying when they get into the account?

Kind of a brief version of it would be -- this is a safe, effective, non-invasive tests that has very good sensitivity for colon cancer.

For those patients who are not being screened today for whatever reason, we think this is the best non-invasive option.

For those patients who refuse to have a colonoscopy done for whatever reason, this is another option that can be used in the proper patient population.

Then there's a number of statements that are made -- it depends on what the response is back from the physician.

I have one other question.

Are there plans to do another study at some point with the Effipure PreGen-Plus system that you're currently selling, to generate the data on the tests that are being sold today?

We're certainly kicking around the idea of a postmarketing study, but that would be something that we will decide with LabCorp over time.

Right now, we don't have a specific plan on when we will do that, and we will let you know when and if that starts.

John, it is safe to say that other studies that we're going to be doing, or validation work we're going to be doing on Effipure and others will be done at validation studies.

In other words, we have no plans as we sit here today to be doing a study that looks anything like the multicenter study data, either in financial terms or in size.

Thanks, guys.

Myong (indiscernible).

This is Bob (indiscernible) with Principal Capital.

John, maybe you could talk -- you mentioned that you have the data from the preclinical studies very successful that you announced at the medical conference.

What is the potential timing of the publication of that information in that peer review journal?

I wish I knew.

I can only tell you that we have a huge sense of urgency to get the manuscript submitted as quickly as possible.

We have the assurance of the authors of it, who are pretty prominent physicians.

They have the same sense of urgency.

We're trying to get this thing in as fast as possible.

How long it would take to be accepted, and then after acceptance to be published, your guess is probably as good as mine.

We hope the next year for sure, but we just don't know when.

That is great.

In terms of the guidelines, maybe you could just help outline which of the medical associations would be potentially issuing or currently issue guidelines in regards to colorectal screening that you might hope to provide information to over time?

The center (ph) that we focus a lot on is the American Cancer Society, and the other is this GI Consortia (ph), which is basically a combination of the American Gastroenterological Association and the American College of Gastroenterology.

So we've been in close contact with both of those organizations for quite some time now, and one of things they've been waiting for was this multicenter study data, which they now have seen the topline results of that.

And we are trying to, to the best of our ability, expedite the process of review.

It's not something we totally have control over, but we have been pleased that both organizations, who are certainly in the business of saving people's lives and getting good tests on the market or getting good tests into the guidelines, have been working closely with us to hopefully have a quicker review of this then they normally have in the past.

One of the things that has happened with guidelines over the years is that, since there has not been a lot of new technologies for colorectal cancer screening, the interval between approval of new method-sensitive guidelines has been quite a long time.

We're trying to short-circuit that as fast as we can.

Are the principal investigators, or the main investigators on your recent clinical study, members of these organizations, or are on the boards of any of these organizations?

Correct.

And between them and the people who are on our scientific advisory board and just advisors to our company, a number of those people are certainly prominent in the GI Consortia.

And the people let the American Cancer Society have been very favorable, I would say, to at least the submission of our data to them.

They are a group that really does want to save people's lives, but they're looking for new tests to be added to the guidelines.

Since one of the tests that is already in the guidelines, which has showed beyond the shadow of a doubt we're at least four times better than, I just cannot imagine that process taking a long, long time.

But, we're doing everything we can around that.

The last question I had was just on reimbursement.

Don, I think you said it was approximately 10 million lives currently.

I think in your conference call, a number of weeks ago, you said it was several million lives.

It sounds like you're making some good progress there.

Maybe you could talk about what role LabCorp is playing, what role your team is playing, in terms of respective responsibilities there.

I think it's a pretty good team.

LabCorp has the contracts themselves, so we can't go into those contracts and actually do a whole lot with them without LabCorp being there.

But our role in it is that we're certainly the product experts on PreGen-Plus.

And between our own directors of strategic accounts, our marketing team led by Bob Rochelle, one of our physicians Barry Berger, we have been very, very active with all the major payers ourselves and these self-insured employers.

So I think you have to call it a team effort in that one side has the contract, our side has the product knowledge and you marry the two and go in and make joint calls together.

So we are very pleased to be able to say 10 million lives after two months.

I don't know what other people have experienced in the past, but that seems pretty darn good to me.

Thank you very much.

Bob Parente.

Thank you very much.

The moderator had a quicker hook than the Red Sox management earlier.

Two quick questions.

One -- at least one of our discussions with a major payer suggests that the results of that 5500 patient study in a peer review journal is a large linchpin in their review and reimbursement process.

Can you just give us a little more -- what is the odds of you guys submitting before year-end?

Submitting before year end?

To a peer review journal, right.

I would say the odds are pretty high. (multiple speakers), but that would be one I would bet on.

Thank you.

Now the next question.

To fine-tune were you're getting your volume, it seems like you can pick up the kid at your physician location or a LabCorp patient service center, or even have it mailed directly to you.

I'm wondering what is the breakdown, in terms of volume if I'm covering all the bases?

Is it an even split from all three locations or sources?

It has been heavily weighted towards the physician's office and the patient service centers so far.

It actually surprised us a little bit, but that's the way it has worked.

We're very pleased with that.

The physicians came down (ph) with the kit, we think the compliance will be higher.

Thank you very much for your time.

Timothy Lee.

Just real quick.

On the SG&A line, it was a little bit lower than we had thought and it was down sequentially, which was a little surprising.

Is this the type of level that we should take on the SG&A spend going forward for your next couple of quarters?

No, I don't think you can draw that conclusion, Tim.

You're right, it is down sequentially from Q2 and it is lower than what you and others had expected.

Some of that is timing, so I think it is fair to say that in Q4, you should expect a higher number than that.

We're right in the midst of our budgeting process right now for -- or finalizing our budgeting process for 2004.

So we will have more clear expense guidance for you folks shortly.

But the other thing that we're focusing on Tim very critically here is, as we look forward at the marketing spend for next year, and with the passage of time here working with LabCorp, we've got a better and better sense of what we think is going to be working from a marketing standpoint beyond our focus with our sales folks.

So we're getting more intelligence on marketing spend, and therefore, I think we're getting a better idea of what we think we really need to spend next year.

So long answer to your question, but fourth quarter, you can anticipate a higher SG&A, which is primarily sales and marketing spend for Q3, and more total guidance on 2004 shortly.

Thank you.

Tony Campbell.

Am I correct in thinking that there is actually another non-invasive test, if you will, an MRI?

Here in New York, they advertise with patients that people can take this test.

And I guess it includes your type of test, plus others.

Is that correct or am I incorrect in my thinking?

You're exactly right.

I think you're talking about a virtual colonoscopy, which is getting some play in different parts of the country.

Basically, PT scan of your colon after a bowel prep (ph), much like you go through for a colonoscopy.

And then if you're positive on that test, you would be referred to colonoscopy.

The data is still out on that.

In some studies, you see very interesting sensitivities and specificities; in other studies, not so interesting.

So our opinion on all these technologies is that you need to have a non-invasive technology, first of all, to really get a lot of people screened.

But there's so many unscreened people out there that anybody who's in the market, there's plenty of room for other people.

That was not my point, but I was just curious.

Thank you very much.

Darren Mac.

I had a couple of questions.

I was wondering if you could tell us what LabCorp's processing capacity was at the time of launch?

I think you need to ask -- let me give you my answer to it, but you probably should confirm this with them.

We had run through all kind of scenarios with LabCorp about what volume could be, and nobody knew.

We were all making guesses on it.

We were very satisfied that they had the capacity to run the test that we thought would be available starting the second week of August, and it was the middle of the summertime or toward the end of the summer when a lot of people were on vacation.

What I do know is since that time, they have added capacity, they have added people and other things.

I would prefer you talk to them about that, because it's really their operation.

Okay.

What does the typical payment cycle look like for a LabCorp test?

What sort of lag should we expect, since you're booking this on a cash basis?

There is a rather substantial lag, primarily because it's a brand-new test.

So if you ask LabCorp what their typical DSO is, I think you'll hear something that's between 50 and 55 days.

But coming out of the chute here, as I articulated in a couple of other conference calls, when you start with a new test, you have even a more elongated cash collection cycle, because you have to start from almost ground zero.

So that is why we have made the determination, since it's going to be very difficult for us in the first number of months here to ascribe sort of a revenue accrual as a function of the accession volume that LabCorp has.

We decided to book it on a cash basis.

So really, I anticipate and hope that starting very early in 2004, that we'll have enough working history with LabCorp so that the cash -- we will be off of this basis and be on sort of an accrual basis.

Thank you.

(OPERATOR INSTRUCTIONS) John (indiscernible).

Please excuse if this has been answered already.

Have you given any guidance at all for revenues or earnings for the fourth quarter?

No, we have not.

We gave expense guidance back in January of this year for the entirety of the year.

I think the expense guidance we gave in total was something between $33 and $34 million, John.

We did not give revenue guidance for this year, nor do we expect to give revenue guidance going forward.

You mentioned that you might give an update on '04 some time soon.

Can you narrow that down a little bit, and can you say whether you're going to talk about the fourth quarter then as well?

We have not finalized when we are going to articulate guidance for the year, John, but I should know some time shortly.

Thank you.

At this time, there are no further questions.

Thank you very much, everyone.

This concludes today's EXACT Sciences third quarter earnings conference call.

You may disconnect at this time.