Exact Sciences Corp (EXAS) 2005 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third quarter 2005 EXACT Sciences Corporation earnings conference call. My name is Minutia (ph), and I will be your coordinator for today. (Operator Instructions). I would now like to turn the presentation over to your host for today's call, Mr. Harry Wilcox, CFO. You may go ahead, sir.

Thank you. Before we start, I'd 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-K and subsequent filings. Now, I'll turn the call over to Don Hardison.

Thanks, Harry. Thanks for joining us this morning. We're pleased with the progress we made in the third quarter on a number of fronts, particularly in our scientific efforts and some of the marketing programs that were introduced during the quarter. I will spend a few minutes talking about that progress and update you on some of the other important catalysts that are in front of us.

During the quarter, 954 PreGen-Plus tests were accessioned by LabCorp. While I'm obviously not satisfied with this accession number, I'm pleased that it's the second quarter-over-quarter growth we have seen this year. This quarter was affected by the hurricanes, and that had a negative effect on accessions. With that being said, I would caution you that I do not expect to see significant growth in sales prior to our realizing the market catalysts that I will talk about in a minute.

On the scientific front, I would first like to mention our paper that was published in the September issue of the journal, "Diagnostic Molecular Pathology." This paper documented that DNA stabilization is critical for optimizing the performance of stool-based DNA colorectal cancer tests. This paper was informed by the lessons we learned from the multi-center and Mayo NCI studies regarding sample handling.

This published paper shows that the previous sample handling techniques prevented an important marker, BIA, from performing as it should have in a multi-center study and the MCI-sponsored study run by the Mayo Clinic. The DIA marker had contributed about 10 to 15 points to total assay sensitivity in all studies prior to the MCS (ph) and NCI studies and in all studies since.

The good news now is that we know what caused the limitation on test performance in the MCS and the NCI studies, and the basis for this limitation has now been published. This important publication regarding DNA degradation explains the sample degradation problem that was caused by the less advanced sample collection and transport procedures in place at the time several years ago that were employed during those studies, but which have long since been phased out of clinical use and have never been used commercially.

To be more specific, we and LabCorp know that DIA is working in the commercial test on the market today, as LabCorp employs rigorous sample handling protocols, and the DIA marker is producing positive results at the level we would expect from the most informative marker in the panel being offered. The performance of the commercial assay is also described in an abstract that has been accepted for the upcoming meeting of the American College of Gastroenterology that I will describe in a minute.

In addition to this publication, we're excited that all four of the abstracts we submitted to the upcoming American College of Gastroenterology meeting were accepted and will be presented at that important meeting later this month. In fact, one of the abstracts that described our progress on our next-generation assay for adenomas won a Presidential Award, an award that only 5% of the abstracts receive. More on that exciting new adenoma work in a minute.

The other three abstracts relate to the commercial assay that LabCorp is offering in the market today. One is a review of the early clinical experience with PreGen-Plus, which was principally designed to detect early-stage cancer. The bottom line is that the commercial assay has been shown to be picking up cancer, as confirmed by colonoscopy, at a rate that would be expected from an assay with 65 to 70% sensitivity.

The second is a review of patient acceptance data, which shows patient acceptance of stool DNA testing is very high and the likelihood of reuse very strong, and concludes that more than half of those being screened with PreGen-Plus had never been screened before by any method. This means that PreGen-Plus is resulting in people being screened who would not be screened by other means.

The third abstract accepted for the ACG is a description of the early result of a patient education and adherence program that resulted in improved colorectal cancer screening adherence rates. This abstract shows that a patient education program actually increases the number of people, who actually get screened after their doctors recommend screening. As a result of this information, LabCorp has rolled out nationally a medical services organization patterned after this program.

The fourth abstract that I referred to earlier is a description of marker results of abnormal tissue to identify potential new -- potential stool marker configurations that yield higher sensitivities for advanced adenomas or pre-cancerous lesions than in previous configurations of the assay. As you may know, the prototype assay and the assay used in commercial operations was not designed to detect adenomas but rather to detect cancer.

In addition to adenomas, however, we have applied various combinations of this next-generation marker panel to the detection of cancer and have observed a similar increase in detection of cancer in tissue. We already have a stool-based study ongoing with this new marker panel, and we expect to submit results from that project for presentation at the upcoming Digestive Disease Week meeting in May 2006.

The next step in this process is to take what was learned from the tissue study and what we expect to learn from the ongoing stool study and to develop and validate the next version of the technology for commercial use. Our short-term objective is to have technologies that yield higher sensitivity for colorectal cancer. Longer-term, our objective is to develop and validate technologies to also detect pre-cancer at a high rate. We believe that both of these opportunities can help to change the rules of colorectal cancer screening.

There were also some important marketing-related events in the quarter. LabCorp decreased the price of the assay by approximately 40%, as they are finding ways to lower the cost of running the assay. As that price decrease is not fully implemented until September, it is too early to determine its results. I can tell you that it has been well received by a number of the thought leaders as well as certain payers and self-insured employers. This price decrease makes our cost-effectiveness arguments even more compelling.

Additionally, I previously mentioned the national rollout by LabCorp of the medical services organization, which is called PreGen Cares. There has been a recent publicity detailing the poor colorectal cancer screening rates achieved by a number of major payers. We believe that winning the war against colorectal cancer will require a good test option like stool-based DNA testing as well as innovative service programs like PreGen Cares that offer the kind of innovative systems to track whether a screening has taken place and to provide reminders if it has not.

These types of systems were specifically noted as important by the GI Consortium for Screening Guidelines in 2003. At that time, the GI Consortium wrote, the successful screening programs will be those that include systems to track whether a screening was taken -- has taken place and provide reminders if it has not. We're hoping that innovative programs, such as PreGen Cares, will not only enhance our chance for guideline inclusion but also will get more people adequately screened.

We were also pleased with yesterday's announcement that reviewed the impressive screening rates and results achieved by Crown Cork & Seal, a 27,000-employee manufacturing firm. We know that Dr. David Spratt, CROWN's Vice President of Medical Administration, and Ken Wright, Vice President of Medical Benefits, are pleased with the number of early-stage cancers and even late-stage adenomas that have been caught as a result of this innovative program.

We believe that by offering a simple, safe, non-invasive DNA screening option, more people will get screened and more companies, like CROWN, will save money, but more importantly improve the quality of life of the employees of CROWN and their families through early detection of cancer.

I would like to conclude my comments by discussing a subject that we have brought up in these calls repeatedly over the past year or so. That is, the importance of the inclusion of stool-based DNA testing into the guidelines of the American Cancer Society and into the guidelines of the appropriate medical societies. We've had some people question the importance we have placed on that event or a series of events, and I would like to explain why we and LabCorp feel so strongly about the importance of guideline inclusion.

Let me be clear -- I do not believe that guideline inclusion alone will lead to immediate sales growth, but I do believe it is an essential pre-condition to our being successful long-term. Given our business model, guideline inclusion by representatives of the American Cancer Society, the American College of Gastroenterology, the American Gastroenterological Association and various primary care physician societies is essential a Good Housekeeping seal of approval that is equivalent to a regulatory approval for therapeutics. Since homebrew tests do not require FDA approval, like diagnostic product inclusion -- like diagnostic products, inclusion in guidelines provides important third-party validation that is currently not available to us.

Second, if you look at successful tests offered by LabCorp, Cytyc and Digene and others in the diagnostic world, you know that a series of catalysts served as inflexion points for the most successful products.

In nearly all cases, inclusion into the appropriate medical guidelines as a standard-of-care served as one of the most important event in the trajectory of these products. In some cases, even when there was FDA approval, guideline inclusion still served as an important follow-on catalyst. The lessons are obvious for EXACT and help explain why we remain so laser-focused on this goal.

Third is the fact that several states mandate coverage by the payers licensed in those states for certain tests that are included in the screening guidelines. You can imagine how much easier discussions with payers could be with guideline inclusion and statutory mandates on our side.

Fourth, the Health Plan Employer Data and Information Set, or HEDIS -- these are measures for colorectal cancer screening that have been promulgated on managed care organizations by the National Committee for Quality Assurance as a measure of quality of these organizations, is driven by inclusion into screening guidelines. In other words, if the test is not in guidelines, it's not a HEDIS measure, and, therefore, it is not a measure that has the importance with a managed care company that a test included in HEDIS measures would.

Fifth, we have found that some of the very large self-insured employers and important unions we have met with have expressed serious interest in offering stool-based DNA testing for their constituents, but want to see it endorsed by the proper medical societies before offering it as a benefit.

And finally, even though we passed a very rigorous California Technology Assessment Forum process, a process that has rejected other technologies, such as virtual colonoscopy, we were told that a necessary step for inclusion into Blue Shield of California Policy for Payment was acceptance into screening guidelines. While receiving formal payer policy approval from California Blue Shield is not assured, even with guideline inclusion, we're obviously encouraged by what guideline inclusion could mean for us in California.

We are pursuing numerous strategies designed to inform the key influences on each of these guideline groups. The message in many respects is quite simple. Stool DNA testing for colorectal cancer has been shown to work and to work well. It has been shown to be better than certain methods already in the screening guidelines and, in the view of many, meets all the important criteria set out for new technologies in the first Multisociety Task Force guidelines publication in 1997 that was published in gastroenterology and entitled "Colorectal Cancer Screening -- Clinical Guidelines and Rationale."

Additionally, in my opinion, in order for the American Cancer Society to meet its targeted goal of increasing the proportion of people over the age of 50 who are screened to 75% from the present percentage that is 40% at best by the year 2000, I believe it is essential for the American Cancer Society to include tests like stool-based DNA screening for colorectal cancer in order to have any chance to meet their goal.

We believe that we're making progress toward our objective of being included in guidelines, And I believe we will eventually be included in those guidelines, although we are as frustrated as many of you in not being able to give you concise information regarding the timing of that guideline inclusion. Now I'd like to turn it over to Harry for an update on our financials.

Thanks, Don. For Q3 and the nine months ended September 30, the Company generated a net loss of 3.3 million and 11.8 million, respectively, compared to a net loss of 4.4 million and 14 million for the comparable period last year. This translates into a loss of $0.13 per share for the current quarter compared to a loss of $0.17 for the same quarter last year.

The loss for the first nine months of this year was $0.45 compared to a loss of $0.56 last year. The decline in the net loss for the quarter reflects lower operating expenses attributable to lower spending in both research and marketing, which are only partially offset by an increase in the cost of goods sold due to an inventory write-off, which amounted to $297,000 in the third quarter.

Our cash and marketable securities balance at the end of the quarter was 37.2 million. We are acutely aware of the need to be prudent with the way we manage the Company's cash and aggressively manage our cash. We continue to believe that the cash on hand is sufficient to fund the Company at the current level through 2007. Our spending priorities are determined by the objectives of improving the sensitivity of our assay and doing everything possible to achieve a positive guidelines decision.

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

(Operator Instructions). Your first question comes from the line of Michael Manschot (ph) of MRM Capital. You may proceed, sir.

Was the CROWN deal that just announced where there was 400 tests or something done -- was that included in part of that 954 number?

Yes.

Was it all included?

Not all. We haven't --

Well, the 400 from CROWN was over a period of a couple of quarters.

Okay.

It's a cumulative number.

I got you. Okay. Just wanted a clarification. Thanks, guys.

(Operator Instructions). Gentlemen, you have no further questions at this time.

Well, thanks for joining us. And if you have any questions, do give us a call.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.