Exact Sciences Corp (EXAS) 2003 Q4 法說會逐字稿

At this time I would like to welcome everyone to the EXACT Sciences fourth-quarter and year end 2003 conference call.

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

After the speakers' remarks there will be a question and answer period. (OPERATOR INSTRUCTIONS) Ms. Hedison, you may begin your conference.

Good morning, everyone, and welcome to EXACT Sciences' 2003 year end conference call.

I have Don Hardison, our President and CEO, and John McCarthy, our CFO, here, both of whom will give some remarks and then we will open the call for questions.

Of course, prior to their remarks, 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' SEC filings as well as the prospectus supplement filed last night.

In addition, just to let you all know, we are making this call from New York.

So, for those of you who may want to follow up with questions, we will be getting back to you, but you can just leave messages for us on our voice mail.

Thanks, Amy, good morning, everyone.

I'm going to briefly review some of the highlights of the fourth-quarter and of 2003 and then set the stage of what you can expect from us in objectives going forward.

Last year obviously marked a dramatic sliding shift for us that in many ways can be summed up in our removal from our publicly filed documents of the following seemingly innocuous statement that read "we are a development stage company".

With the launch of PreGen-Plus we are now a full-fledged commercial company, albeit one in its earliest stages and very, very proud of it.

When I think about where EXACT Sciences is today and the promise of PreGen-Plus for tomorrow, I'm constantly reminded of the huge opportunity we have to save thousands of lives each year and to change the way people think about colorectal cancer screening.

It was very satisfying to hear that in the early stage of our commercial launch PreGen-Plus detected a precancerous lesion in a patient.

This woman's prognosis is very good because of early detection.

I was informed just yesterday that two other noncompliant patients recently chose to get a PreGen-Plus test.

The test were positive and polyps were discovered during the colonoscopy.

Lives were potential saved and almost certainly the pain and mental anguish associated with colorectal cancer was avoided.

I can't think of a more exciting reason to come to work every day.

The introduction of PreGen-Plus in August, after a significant and very successful technology transfer, was one of the two biggest highlights of the year for us.

All of the premarket preparation took a tremendous effort and coordination with our partner, LabCorp, in order to be completed in the timeframes we had set for ourselves.

The second highlight of the year was our multicenter study's clear demonstration of superiority over the most widely prescribed fecal occult blood test.

The study results surpassed the clinical endpoint that we had set as we proved conclusively that PreGen-Plus, even in its older B-base version, was four times more accurate than fecal occult blood in detecting colorectal cancer.

We believe that these results clearly establish PreGen-Plus as the best non-invasive colorectal cancer screening option.

I'm extremely proud that we were able to successfully complete, on time and on budget, what I believe is one of the most important and well-designed clinical studies that has ever been attempted for a cancer screening product.

In addition, we were able to complete other smaller research studies that support the performance of the product in various clinical settings.

And in our spare time we were able to enhance our patent portfolio by adding 11 new patents.

I want to emphasize that the assay we used in the multicenter study, as well as all of the other published studies prior to 2003 and the assay that LabCorp is running commercially have some significant differences.

That is the commercial version is an improved version.

For instance, we have highlighted in the past our belief that the addition of Effipure in the commercial assay and the increased DNA yield it provides leads to a more sensitive test for the physician to offer the patient.

But there were other improvements to the test that were successfully validated at EXACT and at LabCorp and are now part of the test that is on the market.

Making that happen was no easy task as our scientists spent many months making it happen.

I'm also confident that improvements will continue.

Regularly improving the test performance will remain a primary goal for us going forward.

I personally had some involvement with the clinical laboratory industry now for over 15 years, and I can tell you that the sales and marketing efforts involved with this product introduction, including the training of LabCorp's entire salesforce, surpassed anything I have experienced in the clinical laboratory industry.

We have treated this no differently as far as strategy and tactics from what you might expect to see from a pharmaceutical or a biotech company product launch.

We believe that by taking the marketing and sales approach that we have, EXACT and LabCorp have laid a great foundation or a great deal of the foundation for PreGen-Plus success for 2004 and beyond.

So in summary, 2003 was a year in which we took a giant step forward, although we're never satisfied and always think we can do more, I congratulate my team on a year full of significant achievements that we are justifiably proud of.

Now I'd like to move into what you can expect from us for future objectives beyond 2003.

Number one, continue to look for superior execution.

We have established over the course of our three years as a public company an enviable track record for doing what we said we would do.

I suspect that you've come to expect nothing less and place considerable value in that.

Our employees and management team take a great deal of pride in that ability, and you should expect the same diligence in 2004.

We are acutely aware that the long-term success of PreGen-Plus, and the success of our company, will reside in our ability to consistently execute.

This is particularly important in 2004 as we note that the objectives that we must accomplish this year will in many significant ways set the stage for the realization of the ultimate commercial potential for PreGen-Plus.

The successful commercialization of a new test takes time.

We are raising physician and consumer awareness, changing prescribing habits, and building a market brick by brick.

There's certainly a tendency to underestimate the time it takes to build a successful product or even to put in place the optimal conditions for selling that product.

We have stated on these calls in the past that the promise of this company is over a several year period of time.

It is obviously important to focus on the right success metrics during the early days of commercialization.

The ultimate measures over time will obviously be sales and profits, but as an example, these metrics and the company's early stages of commercialization often fail to tell the full story about a product's promise.

I suggest that you focus on some very important catalysts, or inflection points if you will, that are trackable, logical and will serve as a clear indication of our progress over the next two years as we work to achieve increased revenue and profits.

Each of these inflection points we believe will help drive long-term growth of PreGen-Plus sales.

Let me discuss a few of the most important.

Let's start with clinical data.

Although we have extensive sets of clinical data for a new diagnostic, we are very much aware that the acceptance and publication of our multicenter study results in a top tier journal is a potential key catalyst.

The manuscript from the study has been submitted and we expect that it will be accepted.

However, we do not know when that will happen or when it will be published.

But the acceptance and the publication of those important results in conjunction with the rest of our clinical data, as well as the cost-effectiveness and compliance studies that are being submitted for publication, will, we believe, start an important cascade of events.

First of all, there are clinicians who are not early adopters, who will use the entirety of that dataset to make a decision to use PreGen-Plus.

Secondly, we know that there are payers that are waiting for the multicenter study publication to make decisions as to whether to pay or write policy to cover fecal DNA testing.

Third, upon a notification of acceptance of the multicenter study in a peer review journal, we will submit our application to CMS with the objective of being included in the Medicare program as quickly as possible.

Fourth, we believe the acceptance of the multicenter study will complete the dataset needed by the cancer screening guideline organizations to start their evaluation with the obvious objective of being included in those all-important guidelines.

As we have stated repeatedly over the past couple of years, clinical data is a prerequisite for the adoption and reimbursement of a product.

Other important factors that we've discussed with you include thought leader opinion, cost-effectiveness, and patient and physician demand.

All of these factors have been worked diligently by EXACT and LabCorp, but the acceptance of the clinical data is certainly a lynchpin.

Now, assuming we are successful with these catalysts, we believe that PreGen-Plus has the potential to grab about 1 percent of the colorectal cancer screening market within three to four years.

While this may not sound very aggressive, it's important to remember that 1 percent of the potential 85 million people who should be screened regularly approaches nearly a million tests a year.

Accomplishing this would represent a significant commercial success for us and for our partner and could make PreGen-Plus one of the most successful, if not the most successful clinical tests in history.

You should not make the assumption that we are any way limiting the size of the market that we're going after.

I can tell you that it's a dyed in the wool sales and marketing guide, that one million tests out of 85 million is not mine or our ultimate goal.

We will be shooting for much more than that.

I just want to reiterate to you that even a 1 percent market share with this product is a blockbuster.

Our marketing and sales effort in 2004 will be focused on converting demand for PreGen-Plus into physician orders and those orders into LabCorp accessions.

We're pleased to date that we've already seen a steady increase in the accessions since the commercial launch.

This positive trend is important and encouraging.

While the total accessions of about 500 through year end may seem small, it is certainly not unexpected at this date given the necessary catalyst yet to occur that I talked about earlier.

And we're also seeing week-to-week growth which is encouraging.

Another positive trend even at this early date is the steady increase in the number of plans that have paid for this test.

To date over 35 plans have paid for at least one test and in most cases at rates that totally justify our value pricing strategy.

The number of lives covered by these plans are outside of the 10 million that we mentioned on our last call.

Notwithstanding these positive trends, the real inflection points for PreGen-Plus are associated with the previously mentioned catalyst.

You track them, you will track our success.

While I've spent a lot of time talking about the commercial side of the business, let me address the important work that's going on in our applied research.

These efforts can be encapsulated in four simple words -- we are not done.

The version of PreGen-Plus that's on the market today is certainly not the first version of our technology, and we are working to ensure that it's not the last.

Tony Shuber and his team continue to work on improving the sensitivity of the test, and they're also working on developing a version of the assay that has an improved sensitivity for those adnomas that are most likely to develop into cancer.

But sensitivity is not the only focus of their, efforts, there is work being done in our labs and with collaborators both on reducing the complexity of the test in order to lower its cost and on developing platforms that would allow the technology to be more widely distributed in the years to come.

We've spoken about some of these collaborations such as the ones we have with Bert Vogelstein at Johns Hopkins regarding digital PCR.

And some new collaborations are just getting underway, and we will be speaking about them in the future.

Although we do not expect the fruits of these efforts to be seen this year, we are confident that this assay can and will get better both in terms of performance and in terms of complexity and cost, and that these improvements will become part of the commercially available assay over time.

The final thing I'd want to address is the obvious importance of our partnership with LabCorp to our success over the next five years.

We're very pleased with the level of knowledge both companies have been able to gain to we signed our partnership agreement.

We have used that knowledge to put strategies in place that we believe help to set the stage for great success for both companies.

A number of important new or enhanced sales programs have been implemented as of January 1st with other improvements slated for February 1st, and we're already starting to see positive results from these changes.

I believe that together with LabCorp we are truly plowing new ground in the early detection of colorectal cancer.

As you know, PreGen-Plus is a screening test meant primarily for otherwise well people.

These asymptomatic average risk patients have had the primary screening tools of fecal occult blood testing, flexible sigmoidoscopy and colonoscopy available to them for over 20 years, yet most have not availed themselves of any of these tests.

Since 1997 colorectal cancer has been -- screening has been recommended by the medical experts, yet the actual number of annual deaths from the disease have stayed virtually the same over the past decade.

So into that basically stagnant market we introduced a brand-new way of attacking the problem, a DNA test.

A test capable of detecting mutations associated with colorectal cancer at it source.

A test that has the potential to increase compliance due to its ease-of-use and therefore negate one of the biggest obstacles to saving lives.

A test that we believe has been value priced in an industry that only in the past few years has recognized the importance of value pricing.

And a test with the potential to be a blockbuster as I described earlier.

I can tell you that the enthusiasm for making this product a success has never been higher than it is today.

As both companies have reviewed where we are, what we've learned since the launch of PreGen-Plus and where we need to go, we and LabCorp chose to amend our original agreement to, among other things, focus more specifically on the future and on issues important to our partnership, our growth targets and commercial success.

We are pleased with the results of this amendment as the total value of our partnership has not changed.

And we believe that it most appropriately aligns our interest with LabCorp's.

John will be providing additional information regarding this amendment in his talk.

Suffice it to say, over the course of the last six months we have worked very closely with the LabCorp team at all levels.

We learned much together and are jointly committed to the success of PreGen-Plus.

We both understand it's facing us as we take advantage of this opportunity, but we are confident that our preparation will make us successful.

This is not a sprint, it's a marathon.

It's a long, tough race, and frankly we are only at the beginning.

We know a great deal about what's up ahead and, although there will be inevitable surprises, we are confident in our ability to negotiate all that we will encounter and to make PreGen-Plus and EXACT Sciences Corporation a rousing success in the eyes of all of our constituents and stakeholders.

Now I'm going to turn the call over to John McCarthy, our CFO.

Thanks, Don.

For Q4 and full year ending December 31st, the Company generated a net loss of 5.7 million and 28.3 million respectively compared to a net loss of 7 million and 29.9 million for the comparable periods last year.

Pro forma net loss for Q4 and full year 2003, which excludes non-cash stock based compensation expense, totaled 5.6 million and 27.2 million respectively versus a pro forma net loss of 6.6 million and 27.8 million for the same periods last year.

Pro forma net loss per share for Q4 and full year 2003 total 29 cents and $1.44 per share respectively versus 36 cents and $1.51 per share last year.

On an operating basis, while the vast majority of revenue recognized by the Company in 2003 was associated with the amortization of upfront payments related to our LabCorp agreements, we also booked approximately $8000 of product royalty revenue and $22,000 of product revenue for the full year period.

As a reminder, product royalty revenue relates to the royalty revenue earned by EXACT based on LabCorp's PreGen-Plus test volume.

As I've discussed in prior calls, through December 31st, we recognized such revenue on the basis of cash collected by LabCorp for tests that had been reimbursed by the end of the period.

As such, LabCorp was reimbursed for nearly 100 tests by December 31st, upon which we recognized product royalty revenue which translated into an average royalty per test to EXACT in excess of $100.

It is possible for LabCorp and EXACT to collect additional revenue on these reimbursed tests as LabCorp builds patients for their contractual portion of certain tests and other claims adjudication initiatives that are completed.

As I mentioned in prior calls, starting in fiscal 2004 we expect to recognize product royalty revenue on a standard accrual basis as a function of the number of completed tests LabCorp submits for reimbursement during each quarterly period.

Since the commercial launch in August, LabCorp accessioned over 500 patient samples into their system and, as Don just mentioned, this figure continues to build weekly.

Despite the early stage of our commercial introduction, we are pleased with the reimbursement levels being received to date by LabCorp as we believe it validates our value based pricing model for PreGen-Plus.

Additionally, we're quite pleased with the new sales initiatives and organizational alignment made by LabCorp to maximize the success of PreGen-Plus and believe it lays the necessary groundwork for us to achieve our long-term goals for the product.

In addition to product royalty revenue we also generated approximately $19,000 of product revenue for the full year period which represents the sale of Effipure units to LabCorp for incorporation into their test processing system.

As a reminder, Effipure represents our novel sample prep system that allows for increased extraction of human DNA from a sample, thereby improving the performance characteristics of the assay versus our prior B-based technology.

From a gross margin perspective, as I described in prior calls, you'll notice that the product royalty revenue generates 90 percent plus gross margin, while at this time Effipure, which is incorporated into the product revenue line item, is being sold to LabCorp nominally at a breakeven to EXACT.

In terms of operating expense for the fourth-quarter and full year, the reductions in R&D spend in 2003 versus 2002 periods relate primarily to the completion of patient enrollment in our 5500 patient multicenter study on March 31st of this past year.

As Don mentioned in his comments, the top line results from the study were presented in October and we recently submitted the study data to a top tier medical journal for publication.

Sales and marketing spend increases in 2003 versus 2002 periods relate to our commercial launch of PreGen-Plus this past August.

Upon our achievement of the primary market acceptance catalysts Don described earlier, those being acceptance and publication of our MCS data in a peer review journal, inclusion into screening guidelines and policy level reimbursement approval from several payers including Medicare, we believe that we will be positioned to attain our three to four-year goal of a 1 percent market share penetration into the roughly 80 plus million people above the age of 50 who should be regularly screen for colorectal cancer.

If achieved, this goal would translate into the generation of almost one million tests performed on an annual basis.

More importantly however, market acceptance on this scale would begin to have an important impact on colorectal cancer mortality.

In order to optimize this long-term opportunity we recently executed a contract amendment with LabCorp that we both believe most appropriately aligns the technical, clinical and commercial interest of each company for success and recognizes the dynamic nature of an ever evolving and improving molecular test like PreGen-Plus.

From a financial perspective, the amendment resulted in the necessary reconstruction of a number of existing milestone payments to align our mutual objectives while retaining the remaining $45 million of potential milestone payments from LabCorp.

Of the $45 million, up to $15 million is related to the inclusion into certain clinical guidelines and policy level reimbursement from certain major third party payers, while the remaining 30 million of potential milestone payments is achievable upon the payment of certain significant revenue thresholds in the future.

Both we and LabCorp are pleased with the recent development and believe it allows us to best optimize the relationship for commercial success.

The other import announcement made this morning was our filing of a prospectus supplement with the SEC to raise additional capital with the issuance of up to 6 million shares of our common stock through Merrill Lynch and UBS Securities pursuant to our existing effective registration statement.

We believe the cash on hand, which totaled approximately $28 million at December 31st of last year, together with the commercial success of PreGen-Plus, and the additional capital expected to be raised from this offering will allow us to most prudently fund both ongoing and important R&D and sales and marketing initiatives designed to maximize the long-term commercial success of PreGen-Plus.

As a result of our proposed offering, we will not be providing any additional revenue or expense guidance beyond that which has been previously provided.

This concludes my formal comments, I'd like to now open the call to questions.

(OPERATOR INSTRUCTIONS) Stephan Meyer (ph) from Medical Strategy.

Just a quick question with regard to the state of the publication.

Have you received any response from that journal yet, whether they accept the data for review?

Just to give us a better grasp of the timeline when it could be published.

We don't have any comment about that right now.

We will certainly let people know when the -- when it's accepted into a journal.

Okay.

Only at the final stage.

And you think that will be in the first half of the year or the second half of the year?

Tough question.

It's hard to answer because all we could do is control the rate that we got the publication -- the manuscript submitted.

As far as the publication date or acceptance or publication date, that's really in the hands of someone else.

I can't predict that.

Okay, thank you.

Jessica Simpalippo (ph) from Thomas Weisel.

A couple quick questions on the LabCorp agreement.

Were there any changes made in the amended agreement regarding test pricing, royalty rate or revenue sharing?

No, not at all.

Okay, great.

And as far as timing on the milestone payment, I know that a lot of this is dependent on the prior question asked, on submission of the peer reviewed journal.

But can you give us any sort of rough timing on when some of these near-term milestone payments might be expected?

Jessica, it's very difficult to tell.

I think as Don said in his comments and I said in mine, several of the milestones are tied to events that are outside of our control.

So as we described, the (indiscernible) if you will of 15 million of the 45 million of remaining milestones tied to inclusion into certain guidelines and policy level approval from certain payers, those things have been well underway, as you know, for some period of time and we've made good progress.

But again, from a timing standpoint it's very difficult to tell.

I think as you look at the catalysts that we've laid out for you and we've talked about for some period of time, the first of which being -- is acceptance into a peer review journal, I think it's fair to assume that with that catalyst underway, or with that event being completed that everything else falls from there.

Again, I think the take away point is that these are not new initiatives.

We've actually been working these initiatives whether it's guidelines or payer reimbursement for some period of time, and so we're hoping to do that as quickly as possible.

Great.

And one more quick question.

You mentioned the new sales initiatives with LabCorp.

Can you provide just a little more information on the sales program?

You're better off talking to them about some of these, but let me give you just kind of a broad brush view.

What we and LabCorp learned over from August -- basically from Labor Day when we launched this test until the end of the year was what kind of things we really needed to do in the marketplace going forward.

And as a result of that, between their marketing and sales group and our marketing and sales group we've come up with some things that we think more closely align what we're doing.

And some of these are marketing programs that will become more apparent to you over time.

Others are just sales programs around quotas and things like that.

Just simple things like communications of success stories.

LabCorp is a wonderful company that has tremendous sales, and one of the things they're getting their arms around in a very positive way, which we're very happy about, is ways to deal more proactively with product launches as they have a number of them coming up in the future.

So, a lot of the things that they're doing have something to do with what we're doing, but they also have a lot to do with other products they plan to launch in the future.

Okay, great.

Thank you.

Bob Parente from Leerink Swann.

Just a couple --

Just a moment.

A couple quick follow-up questions.

On the sales program, any new incentives, any DTC -- incentives to the sales force to drive their focus on getting some higher utilization?

Is there a DTC campaign in the works?

Anything more that you can talk about, Don, regarding exactly what the elite sales reps have in their pockets to focus on this launch?

I don't want to address compensation programs and things like that, Bob.

LabCorp has always had compensation programs that address the breadth of what they're selling, but they're also launching several products, so they're taking a good look at everything they do around product launches which is not just around PreGen-Plus but other things they might be selling.

To support that, yes, we're looking at things like direct to consumer, but we haven't made a decision on what to do about that yet.

But part of our goal, obviously, is to set the stage from a marketing point of view for their sales organization.

So anything you can imagine that a product company would be doing on a marketing side, trust that we are thinking about those things.

More of that will become apparent as we go forward, but LabCorp should comment on their own programs.

Alright.

Just a couple quick additional questions.

Are there any additional trials in the works with the Effipure component so we can quantify what the increase in sensitivity is with the Effipure product and the additional upgrades to the test that you mentioned?

The things we're seeing -- I mean, we can't go back and duplicate the clinical study that we did where we spent the kind of money you know we spent on it.

What we're seeing is very encouraging right now is we've had reports from at least three patients who have been detected with this test that had previously refused to go get a colonoscopy and then they got a positive on our test and got a colonoscopy and polyps were found.

We're going to do -- certainly do a post marketing study with LabCorp that would use this commercial assay, and that will kick off sometime in the future.

Because we think that's the most real world thing that we can do, but as far as duplicating the extensive study we did in the past, we will not be doing that.

We do have a number of research studies that Tony and his group will have ongoing in the future that will support all these things, but as far as major big clinical studies, that's not something we're looking at right now.

The validation studies that we'll be doing to incorporate into the commercial assay will be done by us or maybe in conjunction with LabCorp but incorporated into the assay relatively efficiently.

And so, as Don said, we don't anticipate the need to do anything close to a multicenter study again.

And last one.

On the inclusion in cancer guidelines, did you mention it's based on acceptance or publication?

That's a great question.

What we think we can do is with the guideline setting organizations is that (technical difficulty) the data has been accepted we can take that data along with the other data that we've already given to these organization and submit a package.

We don't know how long that process takes, Bob, and it would be -- my guess would not be better than anybody else’s on this one, which I hate to say that but that's the way it is.

But we're hoping that -- and we've had some assurance from a couple of these organizations that they certainly would like to see that data upon acceptance.

Now what we don't want to do is in any way jeopardize the publication of that data.

So if we were told that we, by releasing that data to anybody prior to publication would jeopardize our publication we would certainly choose a different strategy.

Okay, thank you very much.

Dan Lemaitre from Merrill Lynch.

I want to follow up a little bit in terms of where the referrals for the tests are actually coming from, because I have to admit the guttural reaction of 500 tests is it seems awfully low in the sense that maybe a good day at a mall somewhere with a table advertising the test could've gotten you that many samples.

I'm just confused as to - are the requests for tests coming from doctors, is it patient driven?

I was on the LabCorp site this morning just trying to see if I was getting near 50 and wanting this how I'd go about it.

So, can you maybe characterize for us where in fact the referrals are coming from?

If there's any pattern that's regional or the like, and something that gives you some sense of some places where it's starting to get some traction and why we ought to think that 500 number ought to go up demonstrably here?

Let me give you some things to think about, Dan.

First of all, we are seeing week-to-week growth in accessions.

So the number that we have now is certainly above the 500, and that's growing by week.

We think these new initiatives that we and LabCorp have implemented as of January 1st will also be helpful to that.

What we're seeing in the very beginning was, just like you do with any product company that I've ever been around, there's certain people who go out and grab this thing and they find the early adopters and they get to those doctors and they start ordering the test.

What we're seeing most recently though is a more even distribution across the LabCorp organization as far as test ordering patterns.

In other words, they've got six divisions, and if you look across their six divisions, it's starting to even up a little bit more than it was in the very early stages about where the orders are coming from.

What we are seeing is we're seeing physicians out there who are making multiple orders.

So it's not like you have 10 physicians ordering one test, we're starting to see a few physicians order quite a few tests.

One of the biggest things that we and LabCorp wanted to make happen was we wanted to make sure that we had people writing policy for this, there would be big covered lives in that, and we're very comfortable with the number of covered lives we have around policy right now because that's going to only grow with all these catalysts in the future.

What's really encouraging to us is we're watching the number of plans who have actually paid for at least one test grow by a number every week.

It has gone from just a few to a few more every week.

And what that means is as a physician orders the test and submits it for reimbursement, it's being reimbursed and it's also being reimbursed at a pretty high rate.

We had always been told, and some of the folks on this call had always questioned whether the price we had out there was going to be an inhibitor to the growth of the product.

What we're seeing is payers are paying for this product in the value priced way we put it out there.

So, I think we'll be able to give you more information around patterns in the future.

What I will tell you is between Bob Rochelle and our staff has done and what LabCorp has done as far as tracking programs, we feel very comfortable that we can pinpoint very quickly where positive or negative trends are developing and make quick reactions to it.

And some of these programs that have been instituted at the first of the year are examples of that.

But, Don, it does sound then like this is more being physician driven right now versus patients walking in and asking their doctors for the test?

Yes, it is for the most part.

But what we're finding from some of our market research, Dan, is that when we get kit in that it's very encouraging that almost half of them are from patients who have never been screened before.

So that leads me to believe that some people are hearing about this and going into a physician and asking for the test, or they're patients that a physician has previously asked to get a colonoscopy or some other test, they've refused to do that but they're willing to do this test.

That actually is a surprising number to us.

We thought it would be in the beginning almost all people who were -- had been screened by some other way before.

But we're almost up to half of the people we've gotten feedback from are brand new patients who've never been screened by any way before.

So, soon we're going to be doing more research into that area and that's what I was referring to when I said we would have more data on where this is coming from in the near future.

Okay, and just one last follow-up.

Just when you have gotten samples and the like, no surprises in terms of the ability to have a useful sample, the processing time and the like, and the turnaround time, any issues at all from that perspective?

We haven't heard of major problems.

There certainly are samples that don't come in at the right weight or whatever, but it has not proven to be an inhibitor from what we've been told by LabCorp to date.

So that's one of the things that we track and they track every day to make sure that we're meeting turnaround time needs of the market and that if there are things that are getting in the way of making that turnaround time happen that we're able to react to that very quickly.

So I guess what I'd like to leave you with is the tracking mechanisms that they have put in place we are absolutely thrilled with because we think it gives us and them a very quick view into the market as to what's going on and a way to make -- take advantage of positive trends or take advantage of things that may not be going quite the way we want them to go.

Okay, thanks.

John Vorsaleri (ph) from (indiscernible) Capital.

As a follow-up to Dan's question, can you give me any sense of what proportion of the 400 tests that haven't been reimbursed yet you actually expect ultimately to be reimbursed?

And kind of along the lines of that is, what's the rationale behind going to this accrual for '04 versus just what actually gets paid for?

Well, let me answer the first part, I'll let John answer the second part.

To date LabCorp has had very few outright rejections.

And what happens in the process, John, is they submit it onetime and it may be rejected, but that's not the last time it's submitted.

They go through a regular process for this test just like they would any others.

And even on first pass through the system almost all of the tests have been paid so far.

I can't give you a percentage right now because it would probably be, given the numbers we're talking about it might not be illustrative of what would happen in the future.

But we and they are very excited about that, in fact they've told us that they've been more than pleased by the fact that they're getting paid most of the time, the vast majority of the time and the rate they're getting paid which seems to be even better than they have for other tests in the past.

John Okay.

The accrual question?

John, it's really just a better match.

The actual activity that's occurring at LabCorp with expected revenue.

The cash basis that we adopted for 2003 was purely a function of the fact that the test was brand-new, we had no operating history with LabCorp, and as a function of having no operating history we had no basis to book any revenue accruals as a function of completed tests.

So until you have history you can't book revenue accruals, and our belief is that going into 2004 we're going to have enough history to book revenue accruals as a function of completed tests, and therefore our revenue line item is going to more appropriately match the actual activity that's occurring at LabCorp.

That sounds fine, but don't you run the risk if the reimbursement rate remains at the ratio you've just reported that you'd have to backtrack from that and restate back if reimbursement doesn't improve?

Not if you have the appropriate algorithm as a function of the history.

And that's was we expect to have as we start this year.

All right, thank you.

(OPERATOR INSTRUCTIONS) Stephan Meyer from Medical Strategy.

I have a follow-up question with regards to the Mayo Clinic.

Maybe you can help me there when you think study is finished or when the data will be published?

And maybe you can put into the picture what importance the data will play in the overall situation and maybe perhaps with regards to reimbursement?

let me backup.

We actually considered way back combining with the Mayo Clinic to do a multicenter study rather than do what we did and have them do what they did in the spirit of collaboration and saving some money.

And what we figured out very quickly was that we could finish our test -- our clinical study much more quickly than they and that's exactly what's happened.

I believe they will finish their enrollment in that clinical study sometime in 2005, and therefore at the earliest date they would probably have publication from that data might be 2006.

Bear in mind, all we're going with them right now is processing the samples from that study, although the protocol is almost identical to the protocol we used in our multicenter study.

If you think about what we said earlier about 2006, if my timing there is correct, we hope by that time to be in -- hopefully to be in clinical guidelines, to have our multicenter study published, be in guidelines, hopefully be in the Medicare program, all the catalysts that John and I mentioned in our talk should have already occurred by the time that study would be published.

So, it's important that the Mayo Clinic is doing a study, but as far as our product, I don't think that's going to be a big help.

And in addition to that, in the research part of what I presented -- you have not met Tony Shuber yet, but the work that our applied research organization is doing under his direction will be pretty far down the road possibly with another iteration of this test by that time.

Not the test that Mayo is using in their clinical study.

I can't promise you that, but it's certainly one of the things we're looking at.

A lot of variables in play and so we're not counting on the Mayo Clinic study to have any big upside for us as we think about it right now.

That makes it very clear, thank you.

(OPERATOR INSTRUCTIONS) There are no questions at this time.

This concludes today's teleconference.

You may now disconnect.