Exact Sciences Corp (EXAS) 2005 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the EXACT Sciences Corporation first-quarter 2005 earnings conference call.

At this time, all participants are in a listen-only mode.

We will be conducting a question-and-answer session towards the end of today's conference. (OPERATOR INSTRUCTIONS).

As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's call, Ms. Amy Hedison, Director of Investor Relations.

Thank you.

Good morning, everyone, and welcome to EXACT Sciences' first-quarter 2005 conference call.

Today, we will have remarks from Don Hardison, our President and CEO, and Harry Wilcox, our Chief Financial Officer.

Prior to their remarks, 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 the Company's most recent Form 10-Q and subsequent filings.

Thank you.

Don?

Thanks, Amy, and good morning, everyone.

We had a busy first quarter, as we completed and evaluated the results of the sales pilot programs that I discussed on our January call, implemented the rollout of a new program that we called PreGen care, which is designed to increase patient compliance with doctors' orders for colorectal cancer screening, took steps to act upon the positive review of PreGen-Plus by the California Technology Assessment Forum, and made significant progress in creating an even better assay for both colorectal cancer detection as well as this section of important adenomas.

However, the initiative we undertook that could have the most positive short-term effect on our business was to conduct planning sessions with our partner LabCorp to increase sales, as we both want to see more efficient (ph) growth and believe that we can achieve higher numbers that we have in the most recent quarter.

Let me be very clear.

We still believe that the catalyst that we have consistently mentioned on these calls, guideline inclusion and positive payor policy decisions, including Medicare, will provide the best environment for the ultimate success of our PreGen-Plus assay.

However, we also believe that there are things that we can continue to do proactively to support sales.

LabCorp has expressed to us a firm commitment to these same goals.

As I mentioned, in the first quarter -- forth quarter of 2004, we instituted a number of sales pilots with LabCorp's support, which had at their core a direct selling effort by EXACT Sciences' salespeople.

At that time, we had 13 directors of strategic accounts who were spending most of their time working with various LabCorp salespeople as well as spending some time on both payors and self-insured employers.

With LabCorp's complete cooperation, we took three of our people and let them sell exclusively into selected LabCorp accounts.

Our people focused exclusively on selling PreGen-Plus to the selected accounts with the idea of seeing them repeatedly, much as a pharma company would.

We also started to hire a few more people in a couple of selected markets who would also focus on selling full-time.

We are pleased with the results of our efforts to date and have also learned a great deal about what we and LabCorp should do in the future as we prepare to take advantage of any catalysts that materialize.

A few observations related to where we are and to some of the things we learned or had reinforced as a result of the sales pilot -- number one, I believe it should clear to everyone that we had the full cooperation and support of our partner in working together to do the right things now to support sales.

For those of you who listened to the LabCorp call last week, the support we get from Tom McMahon (ph) and his management team is clear.

Number two, there's an incredible amount of noise in the primary-care physicians' office that requires a particular skill set from a salesperson to penetrate.

One of the major challenges to increasing PreGen-Plus sales, even with catalysts in place, is this idea of breaking through the noise and successfully competing for a physician's mind share.

This is particularly crucial and challenging in an environment that is not prevention-oriented.

The advantage that we believe that our own salespeople bring to the equation is their many years of selling high-value tests and the fact that they can focus on only one product at this point in time.

Number three -- despite the noise referenced above in the physicians' offices, our salespeople are able to get a considerable amount of time with the physicians, maybe because they're not representing me-too pharma products and physicians do appear to have a real interest in exciting products such as PreGen-Plus.

This will, I believe, help us to build better mind share with physician over time.

The goal is for us to become part of the physicians' ingrained practice regimen.

To do this takes repeated calls by high-quality salespeople, good penetration in key markets and growing support from the clinical and payor communities.

There is a great opportunity for our sales team and the LabCorp sales team to work together in more efficient and effective ways to help achieve these goals, particularly in terms of increasing the number of calls made that relate to PreGen-Plus.

Number four, you may have heard Tom mention on his earnings call that he believes, as do we, that there are more physician orders generated for PreGen-Plus than have been fulfilled.

We have some data to suggest that for every three orders generated by the physician, only one was completed by the patient.

We have instituted what we believe is a solution that can change that ratio into something much more positive.

We have created a medical service organization that we call PreGen Care.

As part of this program, patients agree to have representatives from the program call them to make sure that they follow through with their physician's orders.

While we've not rolled out the program to the entire country, the early results are encouraging, as compliance for patients in the program has increased.

As a result of what we learned from the sales pilot, all of our salespeople will now spend a much greater percentage of their time directly selling into LabCorp accounts.

We believe that having both our person and the LabCorp person calling on the targeted accounts, we have a much better possibility of cutting through all the noise that I mentioned.

A few more observations -- on the LabCorp earnings call last week, LabCorp announced that they're working on some cost-reduction programs with PreGen-Plus that, if they pan out, will increase their pricing flexibility.

On one hand, it is important to note that pricing has not been a big objection from the physicians as long as there is favorable reimbursement.

Said another way, the physician feels most concerned about whether his or her patient is going to take a large out-of-pocket expense, in which case the patient is likely to call the physician to complain.

From a payor perspective, of course, price is almost always the problem, since no payer I've ever met ever seemed to want to lead the way to pay for anything new.

That being said, the vast majority of claims that have been submitted have been paid with well over 200 payors having paid PreGen-Plus claims.

On the other hand, a lower price will make our cost-effectiveness models, which already show our assay can actually be cost-saving due to the introduction of costly treatments such as Erbitux and Avastin even more favorable.

While we believe that the unit price should not be one of the primary drivers for inclusion into guideline, it is something that we will not take for granted.

Also, it is likely that ultimately a lower price will make it easier for insurers, including Medicare, to consider writing positive policy for the tests.

One of the most important reimbursement events of the first quarter was the positive decision by the California Technology Assessment Forum.

This decision is important for at least three reasons.

Obviously, it is important from the perspective that Blue Shield of California covers about 3.5 million lives, a significant percentage of which -- perhaps a third -- our people over the age of 50 and thus are eligible for screening with PreGen-Plus.

Once the Blue Shield order directors accept CTAF's findings, PreGen-Plus will be a covered benefit for certain members of the Blue Shield family immediately.

Needless to say, we and LabCorp are gearing up to take advantage of this approval, since in the Blue Shield of California has usually accepted CTAF's findings.

Another important aspect is that CTAF is a very tough and very rigorous, independent review board that is completely evidence-based.

They reject a number of new technologies each year.

As an example, they rejected virtual colonoscopy last year.

That they found PreGen-Plus was safe, effective and improved health outcomes for the general population based on their five criteria is therefore an important accomplishment for us.

These criteria are essentially the same criteria used by other Blue Cross/Blue Shield technology assessment committees, so one has to believe that the positive review by the California group could be a positive indicator for other type assessment groups.

We know that some of these groups will convene throughout the remainder of the year, and we believe that the positive recommendation in California can have a favorable effect on other plans across the country.

Additionally, there are other technology assessment groups that certain insurers used to evaluate new technology.

We're working closely with those groups to ensure that they have the most up-to-date information and are aware of CTAF's findings.

Finally, the CTAF finding also should be helpful as we continue in our efforts to pursue guideline inclusion.

As you have heard us say many times in the past, there seems to be no set schedule for these reviews.

We have certainly made all of the thought leaders involved with the guidelines aware of the CTAF recommendation.

We continue to believe that PreGen-Plus has satisfied the requirements for inclusion into guideline.

As we have previously communicated to you, our application for a national coverage decision from CMS is in and we anxiously await the results of a process that we hope will be ultimately successful.

As a reminder, we're one of the first tests to go through this updated process that resulted from the Medicare Modernization Act, so there is little precedence for CMS' actions, although we continue to work aggressively with our contacts in Washington to move the process forward as fast as we can.

In the meantime, our R&D group continues to make important and impressive progress.

As an indication of that progress, we had an abstract accepted at the Digestive Disease Week meeting in May, describing the degradation phenomena that affected our multicenter study.

On our last call, Tony Shuber, our Chief Technology Officer, talked to you about the progress we're making on the next version of our assay, which will include additional markers as well as some enhanced chemistry.

We have now proven definitively in Tony's research lab that Version 2 of our assay has higher sensitivity in stool that does Version 1 for colorectal cancer detection.

We are now excited to announce that Tony and his team have now proven definitively in research studies that Version 2 also has a much higher sensitivity for important adenomas in tissue.

The next step is to prove this in stool samples.

We have reason to believe that we will also see higher sensitivity in stool for important adenomas when we complete those experiments.

To our knowledge, no one is making this kind of progress with a non-invasive DNA approach to early detection of cancer.

We have said repeatedly that using DNA as an analyte gives us the opportunity to continue to improve our assay as we seek to become the non-invasive standard of care for early detection of both colorectal cancer as well as important precancerous adenomas.

Despite some of the obstacles that we still face, I firmly believe that we're better prepared than ever to take advantage of the opportunity for PreGen-Plus.

We continue to hear and confirm stories from the field about patients who were screened with a PreGen-Plus test and had an early-stage cancer detected.

These were patients who had never been screened by any method.

The number of people who have never been screened for colorectal cancer remains an astounding number.

We know that we have a test that delivers a real solution to this continuing problem of patients not being screened.

Over half the patients who have used our test thus far had not been previously screened.

Most of those who had been previously screened had been screened with a fecal occult blood test.

We believe that the use of PreGen-Plus in those previously screened patients is indicative of a concern over the reliability of the fecal occult blood test.

For those who do use our test, the recent studies show a remarkable 90% of them are positive about the experience and indicate they would use the test again.

The number of patients tested to date may be small but clearly we're making a difference.

We believe that the plans we are implementing now will help us continue to make that difference faster.

I'd like to now turn the call over to Harry Wilcox, who will review our financials.

Following Harry's comments, we will be glad to take questions.

Thanks, Don.

Revenue for the first quarter of 2005 was 1.2 million and was essentially flat when compared to the first quarter of 2004.

The net loss for the quarter was $46 million or $0.17 per share this year, compared to 5.3 million or $0.23 per share in the same period last year.

The decline in net loss of $700,000 represents a 13% decrease.

The decline in loss per share is attributable to both -- both to a lower net loss and an increase in the number of shares outstanding.

The increase in the average number of shares outstanding reflects the impact of the financing we completed in February of 2004.

The decline in net loss reflects the fact that we lowered operating expenses by slightly more than $500,000 in the first quarter of this year when compared to last year.

The decline reflects decreases in R&D and administrative spending that were only partially offset by an increase in sales and marketing expenses.

Although we've reduced R&D spending, we have a significant commitment to Research and Development.

If we annualize this quarter's R&D expense, we will spend more than $9 million in an effort which is mainly directed at improving test sensitivity.

Our cash and marketable securities balance as of March 31, 2005 is $44 million.

We are continuing to look for additional ways to prudently manage our cash and as part of that program reduced headcount in the quarter by 10 people and reduced our lease space by 33%.

As you may recall, at the beginning of 2005 when we discussed our restructuring, our goal was to be in a position so that cash on hand would last for approximately three years without any additional significant inflows.

This is still our goal.

It is important to note that the restructuring was not taken solely as a cost-cutting move.

Our marketing programs are intended to generate PreGen-Plus sales while at the same time supporting inclusion in guidelines and positive payor decisions.

We believe that it is important to continue to spend judiciously on these marketing and sales programs and on our Focus research program.

The intent of the marketing programs, beyond generating short-term sales, is to increase awareness of PreGen-Plus among physicians and support our effort to achieve guideline and reimbursement inclusion.

The primary focus of the research programs is to increase the sensitivity of PreGen-Plus beyond the 65 to 70% sensitivity of the test on the market.

I will now turn the program back to Don.

We would like to take any questions you might have, so please ask away.

Thank you, sir. (OPERATOR INSTRUCTIONS).

Lee Brown (ph) of Merrill Lynch.

I just want to touch on the initiatives that you're putting in place in California to seize on the opportunity of the CTAF decision.

What we've been doing, Lee, is Blue Shield of California has a contract with LabCorp presently that has been paying for patients who have been screened with PreGen-Plus.

If we can get this decision in the next month or so from the Board of Directors of Blue Shield to put into effect a policy decision, we obviously think this can be a big plus in California, as does LabCorp.

So what we've been doing is working with the LabCorp managed care team in California to hopefully make that process go well when they have their meeting but also to be ready to take advantage of it with those doctors who use Blue Shield of California who are providers for that particular payor.

So we spend a good deal of time with the people in California at the managed care people, and we actually have a couple of people who work in California also, so we are obviously very excited about it and think it can be a plus for us and it actually came kind of out of the blue; we didn't expect it to happen as soon as it did, so we feel very positive about what the CTAF recommendation could do for us.

Thanks.

In terms of just one PreGen-Plus that has been completed out of three orders, what are your expectations or do you have any preliminary data, perhaps a pilot study on the medical service program?

Well, what we've seen -- and again, we haven't rolled this out around the country; we just rolled it out in a few areas that we typically -- we at least doubled the number of sessions, so for those patients who are in the program and are called, at least we doubled the number of sessions we had previously been seeing from those kind of patients.

So, it could have a good impact on what we're trying to do, and we are happy we had put into place -- I think we mentioned this several calls ago -- we had put into place a number of these tracking mechanisms that we thought somewhere along the way could pay off for us.

This is one of those things that it was bad news to get the news but it was really good that our team was ready to put into place something that could take advantage of this and turn it into what we think can be a positive as we roll it out into other parts of the country.

Okay.

Then just two more quick questions, if you will.

In terms of the decline in testing volumes, the third quarter in which testing volumes have declined, what is it going to take to turn this around?

You know, obviously the CTAF is going to help; the launch of the medical service program is going to help, but I'm just -- I'm concerned that we're going to see another sequential downtick.

Or what are your expectations for testing volumes for the rest of the year here?

Well, let me first of all say we're not pleased with the volume either in the first quarter.

Let me be very clear about that.

We don't like the fact that it went down from quarter-to-quarter.

The reason we put into place these sales pilots that we've talked about was that we believe that one of the answers to this, while we are waiting for these catalysts to occur and we're hoping some of these things will occur over the next 12 months, is to have a larger direct selling effort.

We've found, in areas where we've done that, we are seeing positive results.

We also believe that, by focusing our efforts on fewer LabCorp people -- in other words, our people working with fewer LabCorp people who are working on fewer targeted accounts with repeated calls -- is one of the answers that we think can make a difference in selling this product, even without the catalyst in place.

At the same time, if we're able to -- and by the way, our targeted areas are typically areas where we have good reimbursement history, so there's no obstacle around reimbursement in those areas.

So it's really a combination of a product-focused sales team making calls on a consistent basis.

We've spent a lot of time over the last two or three months with LabCorp to focus on this issue.

I mean, they are concerned about it; we are concerned about it.

The good news is we both are making changes to take advantage of a situation that we both don't like.

Okay.

Just lastly in terms of OpEx, it was about 500, 600 T (ph) below my expectations.

Are we to resume that OpEx for the full year is going to be around in the 20, $21 million range?

I think that you can use this quarter as a proxy to project the full year, just noting that the restructuring charge wouldn't be included in that.

Okay, of course.

Thank you very much.

Bob Parente of Leerink Swann.

A couple of quick questions -- one, on the PreGen program, when will it be rolled out nationally, Don?

That's a great question, Bob.

We don't know.

We're working with LabCorp on exactly that now but I suspect, over the next two or three months.

What we've done is we've started in three areas.

We've now rolled it out to a number of other areas, and our discussions with LabCorp -- they are very interested in rolling this out across the entire country.

We just haven't come to the precise date, but I would suspect sometime in the summer would be my guess right now.

Then regarding the American Cancer Society's guidelines, could you just walk we through -- let's say that, sometime this summer, they make it or have an opinion on the PreGen plus.

How quickly would it be included in guidelines, and what do you think the next steps are?

Well, typically what happens is, after one of these groups does make a decision like that, they publish a paper.

The good news is that the groups who typically do this are very -- for instance, if the gastroenterologists are involved, as they are with our particular assay, they have very close relationships with certain journals, so I would think the next step would be -- I don't think, I know the next step would be that the group would hopefully approve and then a paper would be published about the guidelines and appear in probably one of the gastroenterology journals.

Now, how fast that happens, I don't know, but our goal is to as much as we can try to get this done as quickly as we can.

Okay, because we are hearing, you know, over the next couple of months and sometime in the summer, there might be a decision on this.

Then if we can go one step further on the broad tech assessors for Blue Cross/Blue Shield, I know each one is independently operated and California had a positive view, but are you attacking the other ones individually?

Which one might be the next one that could offer some positive decision?

I don't know which would be the next one.

I can just tell you we are talking to any and all the tech assessment groups that are associated with Blue Cross/Blue Shield, including the National Tech Assessment Group that a number of the Blue Cross/Blue Shield plans subscribe to.

In addition to that, we're working with a number of other groups who advise other payors that are non-Blue Cross plans, so rest assured that we're trying to take this decision, which again I mentioned earlier, was something that happened actually a little bit faster than we thought and given CTAF's past history.

They don't accept a lot of new technologies; they don't recommend a lot of new technologies.

They are very, very rigorous.

There is very little bias involved and the fact they use the criteria they do and then invite in all the kind of the experts in the field and we still passed all five criteria makes us feel reasonably confident that we can have the same kind of approval from other technology assessment groups as it's been rolled out across the country.

I can't promise you that's going to happen but the same criteria typically is in place.

Last question -- sorry to do this.

If you had the genie's bottle, Don, what would you want if you had one wish?

Would it be the American Cancer Society guideline inclusion?

Would it be Medicare?

What would it be?

Well, the biggest one for us would be, in my opinion, would be Medicare, since they would be a customer.

That would be 40 million people, and it would just -- so many payors follow Medicare, so if you could get that one in place, it kind of starts a domino effect.

The thing I don't know, Bob, is we've always said guidelines, Medicare, other payors -- who knows which one of these things might be the thing that kind of trips this thing in a positive way?

But if I had to pick one and if I had one choice and I could get that one to happen tomorrow, it would actually be Medicare.

Perfect.

Thank you very much.

Benner Ulrich of UBS.

Good morning.

Just a follow-up question on the volumes, and obviously as you guys indicated, I mean, the two kind of key catalysts here are the Medicare coverage and the ACS guidelines, but do you have a sense on when you talked with LabCorp what you think you could see in the meantime, in terms of the potential volume growth or what level of sales do you think you could achieve while you are waiting for one of those two things to occur?

Benner, it's a good question.

I don't have -- we don't have a good feel for what it could be.

What I can tell you is, at least in the sales pilots we participated in, we were given a limited number of accounts to work on, which is good; we don't want to work on so many accounts.

Our close rate on those accounts was reasonably high, probably close to half of those accounts.

We got reorders from at least half those accounts.

So what we're trying to do is take that knowledge and, as we turn some of our people loose to work with LabCorp directly selling, all I can say is we are expecting a positive impact from that.

I just can't quantify it yet.

We just don't have enough history that makes me feel confident to do that.

Okay, fair enough.

The other question I had is, in terms of payment or collection, I assume that it is still being done obviously on a cash basis.

Is the lag between when LabCorp collects and they pay you or even the lag or the DSO on LabCorp's sales -- has that changed at all?

Is that fluctuating or have you seen that pretty steady?

Harry, do you want to --?

We don't have much insight to breaking out the DSOs out of LabCorp's total balance, but the amount collected is staying fairly consistent.

So, I think the issue for us is there just isn't a high enough volume to be able to develop those patterns to say that there's any change at all.

So in a sense, it's also just a function of payor mix and geography and it's going to bounce around from quarter-to-quarter until the volumes get to a higher level?

I think that's exactly right.

David Lewis with Thomas Weisel Partners.

Don, on the margins -- I'm sorry, on the volumes, I'm trying to assess one or two things here.

Either we are not adding new customers or new volumes, or the reorder rate is a lot lower than it should be.

So maybe you can discuss -- obviously we're not adding as many customers as you would like, so maybe just discuss the reorder rate and why you think that's not higher.

What we believe has happened, David, is if you think back to last year at this time, we had a number of physicians ordering that led up to a very strong bay (ph), as an example.

At the same time, we were having -- turnaround time for the product was probably not optimal at that time.

I think a number of those doctors, from the data we have, did not reorder.

The good news is we were able to get new doctors to start ordering in the second half of 2004 and to actually reorder.

What we're seeing now from our own pilots is we're going into accounts that previously some had ordered before, many had not ordered before and we've been successful with our salespeople and with the support of LabCorp's salespeople, getting, as I said a few minutes ago, about a 50% conversion rate, somewhere in that ballpark, and also getting reorders from about 50% of those accounts.

So I think the secret for this thing is, as I go out and work with salespeople and go into doctors' offices, is just trying to get this mind share against this background of so many pharmaceutical sales reps and other sales reps vying for time with the physician office.

What we are seeing is, at least on the calls I've been on, is a considerable amount of time with the doc.

In some cases, we were getting 10 to 20 minutes with the doctor.

As a former pharmaceutical rep, that's just unheard of.

We didn't expect that.

So what happens is, when we leave, they're so many other people trying to come in and the only way you can get through that is to continue to come back yourself on a regular basis.

I think, if we can do that and again work with the office staff the physician has and work with this compliance group that we put together called PreGen Cares, we have a chance to make some things happened while we are waiting for these catalysts.

In terms of this compliance issue, Don, right now where are patients actually getting the box?

Are they getting it from the PSC?

The office?

In what percentage are they getting those (indiscernible) those places?

I think, from the last data I saw, and if this is wrong, I will call you back and talk to you, but most of them are coming from physician offices.

I don't know the precise percentage off the top of my head right now, but we like for it to be that way because we feel like if the doctor gives somebody something, there's a higher likelihood that it might come back.

We know that if somebody is told to go to a patient service center to pick something up, once they leave that doctor's office without something in their hand, we don't have as much confidence that the box will come back.

Again, that's why we think this program that we've been testing out has been successful.

We've had a very high conversion rate as a result of that and we feel very good about it.

It took some work but we feel very good about our ability to get patients to comply with the doctors' wishes.

By the way, the doctor likes it, too.

They only have a few minutes with the patient; they don't have time to explain all the things around colorectal cancer.

Our group is doing that for them, so we are providing a valuable service to the doctor.

So the patient is being told to get the test, picks up a box from the physician's office, goes home and is simply not sending it back.

In your analysis, is that because they do not understand the directions of the box, just feel uncomfortable with the process, or don't want to ship the box back in?

Amy?

Hi, David.

There are a couple of keys.

Probably the biggest issue that we've encountered to date with the patients that we've called is that they simply don't understand what the box is for.

The Doctor hands it to them, does a brief explanation about this is for colon cancer screening and then that is it.

So once they understand what the test is for and how important it is, that's actually what helps them provide the sample and bring it in.

There's no problem with understanding what to do with the box.

In fact, I've done a couple of calls and had people say no, no, I can see what to do with it.

It's really related to just understanding what the test itself is all about sort of in a bigger context.

You know, with one particular client, David, we've actually seen upwards of 80% conversion of the tests from that client.

So it's a combination of what Amy's talking about and the doctor just flat out not having enough time to explain this.

It's the same phenomenon that's happened fecal occult blood testing for years and frankly, a lot of people who tell doctors they will go get a colonoscopy never show up for the colonoscopy.

So it's a trend that we have to -- we detect it and we think we found a way to turn it into a positive.

(technical difficulty) -- cost of the assay, how important is it for LabCorp to lower the cost of the assay fairly dramatically prior to Medicare reimbursement?

You're talking about the cost of them running the test or the price of the test?

Well, in my mind, they're kind of inextricably linked, correct?

So if they can lower the price of the test from a cost of goods perspective, they can lower the retail price of the test to potentially create a greater adoption at the same net margin to LabCorp.

Well, I believe that unit price, even when you look at our cost-effectiveness data, which is very supportive and as I mentioned earlier, if you actually look at it now, we are a cost-savings strategy, because of Erbitux and Avastin being used so widely now for colorectal cancer treatment.

In spite of that, I think unit price will get in the way and eventually the price will have to come down.

The encouraging thing that I heard from the LabCorp call last was they think they have found some efficiencies in running the tests that, if they do play out the way they want them to, gives them some flexibility to do some things with the price.

I would be very supportive of that.

The last question and I will jump back in queue -- you mentioned price does not seem to be an issue (indiscernible) this managed care coverage, but then there's not much managed care coverage, so price obviously remains an issue.

Why, post the peer reviewed study, are you not seeing more conversations with large payors or regional payors, and maybe give us a sense of the nature of those conversations and what are the major push-backs now that there is a fairly significant clinical study peer-reviewed out there?

I think that the biggest thing that we are seeing is a number of the big payors, Blue Cross being one example -- when you go -- and we're having many meetings with these people, so we're meeting with a lot of them, with and without LabCorp.

We've instituted some of these on our own.

What we hear from a number of them is they go by -- the first hurdle you have to pass is their tech assessment process.

The tech assessment process is very much like what the California Technology Assessment Forum was like.

It is totally evidence-based and now that we have the multicenter study publication, they can now consider it.

The problem with it is a lot of these groups don't meet but two or three times a year, so it's not as so as we want them to meet, they want to get together, have a tech assessment and say yeah or nay to it.

We're trying to get on their schedule and if we're not on their schedule, trying to make sure we get on their schedule over the next -- for the remainder of this year and early into next year, so we can at least pass that first hurdle.

What I will say is, back to the early part of your question, when LabCorp has a contract in place and bills the payor, the payor has been paying.

The challenge is, when the sales rep is standing there in front of the doctor and it's the payor that has not yet paid, although they do have a contract with LabCorp, the salesperson is probably not totally sure that the payor is going to pay.

Therefore, the doctor is reluctant to order because they do not want their patient to receive a bill for this test.

If that's clear to you -- but that's the phenomenon we see happening.

Okay, thank you very much.

(OPERATOR INSTRUCTIONS).

At this time, there are no further questions.

I'd like to turn it back to our management team for any closing remarks.

Yes, the last thing I'd like to say is that I do believe that we can make some progress on this in absence of these capitalists, and I think one of the answers is certainly more of a direct selling effort from our part to support the LabCorp effort.

I also believe this idea of a group that works on compliance with the patient is very important, given how busy the doctor is and how patients are not totally clear on what should be done about colorectal cancer screening, say compared to the cervical cancer or breast cancer screening.

I also believe that there's going to be some pricing movement on this product over the near term that can help with some of these negotiations that we will ultimately have with big payor groups, and I think it may even be influential to the guidelines people.

So although we're not pleased with the volume in the first quarter -- I don't want to lead anybody down that path at all -- we do feel comfortable that we have some things in place now that could have a positive effect, although in the end getting that Medicare coverage, getting into guidelines, getting some of these payors to break other than Blue Cross -- Blue Shield of California will be the ultimate driver of the test.

The last thing I will say is we feel very good about the progress we've made on the research side.

This idea of picking up adenomas as well as cancer is a big deal, we believe, because there is no non-invasive test that can do that today and Tony and his group have been able to prove in stool that we can develop a higher sensitivity test for cancer.

We believe the same thing is out there for important adenomas and we hope to make that happen as quickly as we possibly can.

Thanks a lot for listening to our call, and call us if you have any questions.

Ladies and gentlemen, thank you for your participation in today's conference.

This does conclude your presentation and you may now disconnect.

Have a wonderful day.

Thank you.