Exact Sciences Corp (EXAS) 2007 Q2 法說會逐字稿

Good day, ladies and gentlemen and welcome to the second-quarter 2007 EXACT Sciences Corporation earnings conference call.

My name is Twalisha and I will be your coordinator for today.

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

We will be facilitating a question and answer session towards the end of this conference.

(OPERATOR INSTRUCTIONS).

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

I would now like to turn the call over to your host for today, Mr.

Chuck Carelli, Chief Financial Officer.

Please proceed, sir.

Good morning everyone and thank you for joining us on today's call.

Certain matters we will discuss today other than historical information consist of forward-looking statements relating to, among other things, our expectation concerning our financial results, cash preservation and commercial and regulatory strategy.

These forward-looking statements are not guarantees of future performance and are subject to a variety of risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements.

These risks and uncertainties are described in our annual report on Form 10-K for the year ended December 31, 2006, and subsequent Forms 10-Q.

You are cautioned not to place undue reliance on these forward-looking statements which speak only as a today.

We undertake no obligation to update or revise the information provided in this call, whether as the result of new information, future events or circumstances, or otherwise.

I am now going to turn the call over to Don Hardison.

Thanks, Chuck, good morning everybody.

First, I wanted to mention that Pat Zenner, EXACT's Interim Chief Executive Officer, will be participating on future earnings calls after my last say at the Company on August 31.

I would like to take the opportunity at my last earnings call with EXACT Sciences to say just a few words about what I believe this Company is about why I believe so firmly and its very bright future.

I truly believe that EXACT's technology can save thousands of lives and will change the way we think about colorectal cancer screening in this country.

EXACT Sciences has obviously been a very important part of my life in the past seven years and in conjunction with the employees, the management team and the Board of Directors, we have established a strong foundation for success.

It's interesting as I look ahead for EXACT and many of the fundamentals of the Company that attracted me to it from the beginning remained in place.

This Company was created because there was a very large unmet market need in colorectal cancer screening in which a noninvasive approach could thrive.

Simply put, too many people were dying because of poor screening rates and because of underutilized or inadequate screening tools.

There is still the same very large unmet market need before us and I'm confident that the committee writing the updated national colorectal screening guidelines understands this.

As you know, EXACT Sciences has successfully developed and patented a noninvasive DNA-based technology that meets this need and the technology has been validated by some of the best collaborators in the field, including Johns Hopkins University, Mayo Clinic and many others.

EXACT also has a long-standing relationship with LabCorp, a very successful commercial laboratory company with great reach into the primary care physician market and importantly for EXACT, close relationships with key payers.

The relationship between EXACT and LabCorp has recently been reinforced with my new role at LabCorp.

A first-class management team remains at the helm of EXACT, complemented by a very strong and active independent Board of Directors.

And now, the primary catalysts in my view are on the near horizon -- inclusion into the national colorectal cancer screening guidelines and acceptance as a covered benefit by major payers, such as Medicare.

With the achievement of these catalysts, widespread adoption of stool DNA testing and great commercial success are clearly within reach.

Part of my new role at LabCorp is to put in place ways to organically grow the Company.

PreGen-Plus fits the bill, and this opportunity will allow me to continue to work toward getting PreGen-Plus to its rightful place to be the preferred noninvasive colorectal cancer screening option.

As many of you know, I've spent a number of years in the commercial lab industry and now have a deep understanding of how emerging startups like EXACT can work together with a strong commercial partner like LabCorp to bring innovative technologies to market.

Having worked closely with LabCorp throughout EXACT's multi-year partnership, I'm convinced that they are best positioned to lead in the area of oncology diagnostics, particularly in the emerging arena of molecular diagnostics which I think is a key to a successful future in the clinical laboratory industry.

I would like to take this opportunity to thank the employees of the EXACT Sciences, present and past, for their unyielding passion and commitment as well as the management team and the Board for their unwavering support.

EXACT's management team is strong, and Jeff, with whom I have worked for nearly five years, has the leadership qualities that can take this Company and its unique DNA screening technology forward.

I will continue to work closely with Jeff in my new role at EXACT -- at LabCorp and will celebrate the success that I know is just ahead for EXACT.

Now I will turn the call over to Jeff.

Thanks, Don.

Let me start by first congratulating Don on his joining the leadership team at LabCorp.

This key move comes at an exciting time for both companies as we near the key catalysts that we have all worked so hard over the last several years to put in place.

LabCorp has been a pioneer in the commercialization of new diagnostic technologies and has consistently been on the forefront of new molecular tests to diagnose disease.

Frankly, I'm not surprised by Don's decision to join LabCorp at this stage of EXACT's growth, given the foundation he has already established for PreGen-Plus.

Don has overseen the transition of stool DNA testing from early discovery through clinical validation and commercial launch.

The key elements are now in place I believe for us to realize the catalysts of guidelines inclusion and Medicare application acceptance.

Having worked with Don for nearly five years, I have great admiration for him personally and professionally and I look forward to continuing our strong relationship in his new role at LabCorp.

His transition to LabCorp establishes a formidable bridge between the companies that advances the spirit of the partnership that began several years ago.

This is a fortunate move at a fortunate time for both companies.

We are also pleased to have Pat Zenner as our Interim Chief Executive Officer.

Pat brings more than 32 years of experience to EXACT from the pharmaceutical industry, most recently as President and Chief Executive Officer of Hoffman-La Roche.

I have known Pat since 2003 when he joined our Board of Directors and he has a terrific understanding of both LabCorp's and EXACT's businesses.

I look forward to working with Pat as we seek to capitalize on key events to come.

The letter of intent that we announced last week speaks to LabCorp's full assumption of all sales, marketing, reimbursement and commercial activities related to PreGen-Plus.

The proposed terms clarify the roles and responsibilities for delivery of the test and describe an additional $2.5 million milestone payment to EXACT upon the achievement of a series of key events relating to be guidelines inclusion, Medicare approval and the achievement of certain sales thresholds.

This means that, in addition to the $30 million in milestone payments that we have received from LabCorp to date, another $42.5 million may become available to us as well.

Couple this with our double-digit royalty rate from LabCorp and a market of more than 87 million people, only a quarter of whom are getting adequately screened for colon cancer today and the value creation opportunity for our shareholders remains obvious.

We are at a stage in our development where this leadership transition makes a lot of sense as it is in the best interest of the product and helps to position PreGen-Plus for commercial success.

Don Hardison's move to LabCorp, coupled with the proposed expansion of our relationship with LabCorp that we announced last week, frames a logical synergy between the companies just ahead of key market catalysts.

Reserving the commercialization activities for LabCorp alone allows EXACT to begin cutting expenses without losing momentum on commercialization of the technology and not limiting the upside potential and the value of our Company for shareholders.

It also provides EXACT with the ability to maintain a resolute focus on four key objectives going forward -- guidelines inclusion, pursuit of Medicare approval, successful completion of our version 2 technical validation and broadly capitalizing on technology licensing and partnership opportunities for our DNA-based technologies.

We see this transition and leadership with within EXACT as an opportunity to immediately take more than $1 million out of our annual expenses, and perhaps more in the future, while being even better positioned to leverage the broad capabilities of LabCorp going forward.

The thinking quite frankly is that it is unnecessary for us to maintain a sales and marketing function at EXACT with our key champion overseeing the effort at LabCorp now with much broader resources at his disposal.

We will continue to seek ways to further reduce our expenses in the near term in order to extend our runway even further.

Once we complete the technical validations of our version 2 technologies later this year, for example, there will likely be other opportunities to reduce certain research and development expenses and to eliminate substantial facilities costs related to our current lease.

But remember, our business model at EXACT has always sought to complement our internal resources with the external support and innovation engines of key partners and collaborators.

This allows us to remain lean, while at the same time, leveraging the expertise and laboratories of world-class institutions.

For example, we continue to maintain a worldwide license with Johns Hopkins University that provides EXACT with exclusive rights to any stool-based innovations for colorectal cancer detection that is divided by Bert Vogelstein's lab at Johns Hopkins.

In essence, we've been able to view Johns Hopkins as an arm of our internal R&D effort.

Similarly, our version 2 technology, which was shown to have sensitivity near 90% in a study published earlier this year, rests on tremendous achievements of our internal R&D group, but also derived from the excellent work of researchers at Case Western Reserve University.

Again, it is through this external worldwide and exclusive arrangement with Case Western that we have been able to leverage the best research in the country for the benefit of EXACT and it shareholders.

Going forward, we will also seek ways to broadly capitalize on the value of EXACT's intellectual property, especially as we negotiate with other labs to expand the distribution base for stool-based DNA screening.

This model I'm describing allows us to keep costs contained without in my view limiting our opportunities.

We will continue to focus hard on the strategic imperative of expense reduction because we intend to plan our cash resources as if we will not have the opportunity or the desire to raise money in advance of substantial market uptake for PreGen-Plus.

Let me be clear -- we have no current plans to raise capital in the near term.

This mindset I believe is critical to our being able to fully realize the upside potential and value creation opportunity of our DNA-based technologies.

In taking stock of where we are as a Company, I firmly believe that we now have an even greater likelihood of commercial success going forward.

We have emerged as a leaner operation with a key champion for our technology who will soon be within the leadership ranks of LabCorp.

With our reduced cash burn rate, our energies will be narrowly focused along the lines I previously described.

The goal is quite simple -- focus on those things that we're good at, leverage LabCorp's broad commercial strengths with Don at the operational helm at LabCorp and prudently manage our cash while we focus on targeted licensing and key partnership opportunity.

We remain confident that stool DNA screening for colon cancer will be included in the guidelines at the American Cancer Society and US Multisociety Task Force.

We also believe that our Medicare application for a national coverage determination will soon be accepted.

Remember, with guidelines inclusion and Medicare approval in place, we and LabCorp will have the opportunity to substantially tap one of the largest diagnostics market in history -- 87 million people over the age of 50 who should be screened for colon cancer.

The opportunity to build shareholder value through the growth of our potentially lifesaving technology is a unique motivation for me personally and for the leadership team here at EXACT.

We have the privilege of working on a problem that can impact the health care of millions through our ability to bring a tool to market that people will actually use so that more cancers can be detected at an early curable stage.

Getting into screening guidelines represents the first step to making this vision a reality and being able to prevent thousands of unnecessary deaths from colon cancer each year.

As an investor in this Company, you know that colon cancer is 90% curable if detected early, but that only one-third of all colon cancers are detected early enough for treatment to do much good.

Current screening methods are simply not enough.

Stool-based DNA screening can finally be the solution that shifts this paradigm.

Following guidelines inclusion, we can continue to build value and market strength through receipt of Medicare approval and key policy approvals from major third-party payers.

Let me remind you that every colon cancer screening test that is currently recommended in the American Cancer Society screening guidelines is also currently reimbursed by Medicare.

Now I obviously cannot promise you that we will see the same results, but with guidelines inclusion, we have a good opportunity to continue to build value from there.

Similarly, 19 states currently mandate third-party payer coverage of colorectal cancer screening tests.

16 of these 19 states actually refer to the mandate as relating to those tests that are included in the American Cancer Society's screening guidelines.

It is probably obvious then why we remain as focused as we are guideline conclusion.

But remember, getting into guidelines is just step one.

Conversion of key payers and Medicare approval represents a future value creation opportunity that we will pursue from there.

But most importantly, with guidelines inclusion and broad reimbursement approval, we will have the opportunity to bring more people into the screening fold, catch more cancers at an early stage and save more lives.

I am now going to turn the call over to Chuck so he can walk you through the financials.

Thanks, Jeff.

For the quarter ended June 30, 2007, the Company generated a net loss of $1.8 million, or $0.07 per share, down from a net loss of $3.2 million, or $0.12 per share for the quarter ended June 30, 2006.

The decrease in net loss for Q2, 2007 when compared to Q2, 2006 was driven by lower sales and marketing and R&D costs resulting from the cost reduction plan that we implemented in October 2006.

Total revenues of $1.1 million for the quarter ended June 30, 2007 were slightly lower than total revenues of $1.2 million for the same quarter of 2006 and were made up primarily of the amortization of up-front license fee payments from LabCorp.

The cost of goods sold related to Effipure was zero during the quarter ended June 30, 2007, down from $89,000 for the quarter ended June 30, 2006.

As you may recall, it was during the first half of 2006 that we wrote off approximately $550,000 in excess Effipure inventory as a result of LabCorp's stated decision to discontinue using Effipure in processing PreGen-Plus tests on a long-term basis.

The effect of this write-down was to leave any remaining Effipure inventory with a zero carrying value on our balance sheet.

As a result of this write-off during 2006, the limited Effipure sales that we recorded through June 2007 were recorded at a 100% gross margin.

Total operating expenses were $3.2 million for the quarter ended June 30, 2007, including $721,000 in non-cash stock-based compensation compared to $4.7 million for the quarter ended June 30, 2006, which included $709,000 in non-cash stock-based compensation.

R&D expenses were $1.3 million for Q2 2007 which was $586,000 lower than in Q2 2006.

This decrease was the result of personnel related and other operating cost reductions realized by reducing our R&D headcount from 19 employees to eight employees during the period from Q4 2006 through June 30, 2007.

Our current expectation is that the R&D group will remain focused on validating version 2 of our technology through at least the end of 2007.

Sales and marketing expenses were $510,000 in Q2 2007 which was $762,000 lower than in Q2 2006.

Similar to the reduction in R&D expenses, sales and marketing expenses were down as a result of reducing headcount in those areas from 17 employees to five employees during the period from Q4 2006 through June 30, 2007.

We also lowered our external marketing and promotional spending in the quarter ended June 30, 2007 when compared to the same period of 2006.

Jeff has already discussed recent developments with LabCorp and how going forward, LabCorp is going to assume complete operational and financial responsibilities for the sales, marketing and commercial activities related to PreGen-Plus.

This strategic shift will result in the elimination of our sales and marketing functions effective September 1, 2007, which we expect will drive annualized savings ranging from $1 million to $1.5 million starting in 2008.

In connection with these recent developments, we reduced our headcount by five employees and expect to record restructuring charges during Q3 2007 of up to $800,000 related to contractual obligations for onetime termination benefits provided to terminated employees.

Our unrestricted cash, cash equivalents and marketable securities balance at the end of Q2 2007 was approximately $16.9 million.

We believe it's critical to manage our cash so that we can maximize the Company's cash balance when a guidelines decision is published.

With a lower cost structure in place resulting from the shift of sales and marketing costs to LabCorp, our expectation based on this revised cost structure is that our cash will last into the second quarter of 2009.

Remember, this projection assumes no milestone payments from LabCorp and no material outflows related to technology acquisition or third-party licensing rights.

Also, with fewer headcount, we're actively pursuing moving to a smaller, less expensive facility which could generate additional substantial savings.

Our currently and related facility costs are approximately $1.4 million annually and our goal is to reduce that cash expense by moving it into a smaller space to reflect the reduced size of our organization.

Moving into a new facility could result in onetime short-term costs, but those costs would be more than offset by the potential for longer-term savings.

We will continue to manage our spending levels and will adjust our operating plans as we complete the validation of version 2 of our technology and as the guideline status becomes clear.

I would like to finish my comments with a brief summary of the financial impact of the second amendment to our license agreement with LabCorp that was signed in June 2007.

First, effective with the signing of this amendment, we're no longer contingently liable to pay LabCorp for an approximate $3 million historical third-party royalty obligation.

Going forward, however, we will potentially be liable to pay LabCorp for certain a third-party royalty up to a maximum of $1 million annually through the end of our new exclusive period, December 31, 2010.

The ultimate amount of this potential liability is dependent on LabCorp's sales levels of PreGen-Plus.

A significant increase in PreGen-Plus sales could reduce this potential obligation possibly to zero, while PreGen-Plus sales consistent with historical levels could result in aggregate payments of $3.5 million to LabCorp over the exclusive license period through 2010.

Effective with the quarter ending September 2007, we intend to record this potential liability ratably in our financial statements as a reduction in the royalty revenue line item of our P&L as prescribed by accounting rules and will assess the potential liability each quarter based on LabCorp's sales of PreGen-Plus.

To the extent that we owe LabCorp any amount under this provision of our agreement, January 2009 would be the first time that a payment would be due to LabCorp.

Other payments would be due in January 2010 and January 2011 to the extent necessary.

The second impact of the June 2007 amendment is that, effective in Q3 2007, our royalty rate is now 15% of LabCorp's net revenues from PreGen-Plus with a potential to increase to 17% if PreGen-Plus sales increase significantly.

And under our agreement, LabCorp pays us this royalty on a monthly basis.

And third, as a result of extending the exclusive period of our license to LabCorp from August 2008 through December 2010, also effective in Q3 2007 we'll be amortizing the remaining $4.7 million of the $30 million upfront payment that we received from LabCorp over an additional 2.5 years.

This will result in a reduction when compared to historical amounts of the license fee revenue line item in our P&L, which as you know, is a non-cash revenue item for EXACT.

I'm now going to turn the call back over to Jeff.

Thanks, Chuck.

Now I would like to take you through our answers to four key questions, and then we will open up the call to your questions.

First -- do you have any news regarding the updated colorectal screening guidelines?

We believe that the guidelines are being wrapped up and will be issued very soon.

We have not been told a specific date.

Our understanding is that the section on stool DNA May have already been written and awaiting final issuance from the committee.

Of course, we do not know what position the task force has or will take on stool DNA testing, but we want it to be very clear on what we know at this point regarding the process.

We will obviously keep you apprised as we learn more.

Two -- can you provide an update on the status of the acceptance of your Medicare application?

We have been told that the application is likely to be accepted in the very near-term.

I'm not going to speculate on a specific date, but we remain very encouraged by recent meetings and discussions we've had with the leadership at the Centers for Medicare Services.

We obviously remain excited by the prospect of having our application accepted as it would mean that the process enters a series of statutory timelines which will generate a final decision on coverage within nine to 12 months, or earlier.

Also, if we received a positive guidelines decision in the near-term, I suspect that the timing of guidelines would dovetail nicely with the Medicare application acceptance.

Three -- what is the anticipated burn rate going forward once the restructuring charges have been accounted for?

Our recurring burn rate is approximately $8.5 million.

After this recent restructuring, our recurring burn rate will be approximately $7 million, down from about $12 million in 2006.

Our existing resources should therefore provide enough cash for us to reach Q2 2009, assuming no revenue, no milestones and no other inflows of cash.

We are also working hard to take additional costs out of our burn rate, like those relating to our facility, and we'll also be looking for other cost reduction opportunities across our operation.

For example, we believe there could be additional savings of up to $1 million on an annual basis relating to the exit of our existing space and move to a smaller facility.

And finally -- do you have any current intention to raise money in the near-term?

We are planning our cash as if we will have -- as if we will not have an opportunity or a desire to raise money in advance of market uptake for PreGen-Plus.

We want to have the most control possible over our financial future, and cutting expenses now to extend our cash runway provides us with this level of control.

We have no current plans to raise capital in the near-term.

We would now like to open up the call to your questions.

(OPERATOR INSTRUCTIONS).

Leah Hartman, CRTC.

Good morning, gentlemen, thanks for taking the call.

I have several questions.

First off, just on the restructuring charge of $800,000, you're taking that in the income statement in Q3.

Is the cash outlay also all happening in Q3, or is that over a protracted period of time?

Most of it should happen in Q3 and Q4, and a little bit might trickle into Q1 of next year.

Okay, that's helpful on the timing.

With respect to the amended LabCorp contract, as it permits you to engage in discussions with new partners, have you done so?

Secondly, your target for royalty rate from those partners, if you do enter into a contract.

And three, would that be based on version 2 of PreGen-Plus or a different version of the assay?

That's a good question, Leah.

First of all, yes, the discussions with other labs have begun.

I don't suspect we'll have answers or consummation of a deal with any labs before we get a guidelines answer and the targeted royalty rate is going to be pinned directly to what LabCorp was paying.

LabCorp has a most favored nation pricing arrangement.

So we want to keep those arrangements on equal par.

And your final piece of your question is whether it would relate to version 1 or version 2.

Assuming the guidelines answer comes in and is a broad enough answer to include stool DNA technologies as a category, which would sweep version 2 in, version 2 would be the technology that I suspect LabCorp and these other labs would want to adopt, given its simplicity and higher sensitivity.

Has there been conversations with respect to version 2 about a pricing differential relative to version 1?

No, that's really a question for LabCorp, Leah.

They set the price on version 2.

And does LabCorp have any right of first refusal for your -- or a right to negate your entering into a contract with another party?

So, did they have the right to pre-approve the list, or as you find prospective partners, do they have the right to say no?

The amendment we entered into with LabCorp specifically defines by name a series of labs, so there is -- approval has already been given for that set of labs.

For additional labs, we can always go back to LabCorp and talk to them about the market advantage of pursuing other labs, and we'd have those discussions.

So our second amendment with LabCorp contemplates that kind of arrangement.

Okay, that's helpful.

Again, to just the timing of the payment flow that may go back to LabCorp, it sounded, Chuck, like you were telling me there's a cap, so we would be $1 million per year through [12] 2010 if certain thresholds are met on sales.

Is that a cap of $3.5 million?

Is that what I understood you to say?

Yes, it is a cap.

And the first payment being Jan '09, if it's warranted?

Yes, exactly.

Okay.

And I was not clear on your statement about we would be reducing the royalty revenue in September of 2007.

Sure.

So, because this potential obligation that we have, it gets measured at the end of 2009, okay, and it's dependent on LabCorp's sales.

So what we're going to do, until we see an increase in sales, we're going to accrue this potential payment.

So we'll see that $3.5 million come on the balance sheet.

Is that what you're telling me?

No, we're going to accrue it ratably.

Okay, that's clear.

Thank you.

I will let someone else ask the questions.

(OPERATOR INSTRUCTIONS).

Anthony (inaudible), VSR Financial Services.

Question regarding the sales and marketing.

You're terminating efforts internally, and at the same time, LabCorp is picking up those responsibilities.

Any chance some of your key people that are very experienced in dealing with SDNA might be leaving EXACT as you downsize those functions and moving over to LabCorp?

If I understand your question correctly, the precise element of the arrangement was that LabCorp would offer employment to our existing sales and marketing folks.

They're evaluating offers and that kind of thing, and I suspect that one or more of them may end up going to LabCorp, which would bring over to LabCorp additional specialized expertise in addition to Don's joining the company.

So it's possible some your key people that have deep experience in the sales and marketing with SDNA may end up at LabCorp?

Sure.

Okay, great, that was my question.

Thank you.

(OPERATOR INSTRUCTIONS) Leah Hartman, CRTC.

Thanks for taking the follow-up.

Are there any scheduled conferences for this fall or into the fourth quarter at which EXACT will have a presence?

We may participate in the UBS conference in the fall, but we're finalizing details on that now, Leah.

And no scientific conferences, with the bigger ones being in the spring?

Nothing is confirmed at this point.

Okay.

But you would let us know via press release?

That is right.

Yes.

All right, thank you.

Stan [inaudible].

Thank you.

You indicate that the new strengthened and expanded relationship with LabCorp preserves the economic value of the prior relationship.

So when in fact did EXACT have to give up, give to LabCorp, in order to enter into this new relationship where in fact you receive additional, or the potential to receive additional milestone payments?

That's a great question.

Obviously, there's intrinsic value associated with our sales and marketing group.

These are folks who have in excess of five years of experience with one specific product in an evolving area of molecular diagnostics.

For LabCorp to be able to have the opportunity to access those kinds of folks in sort of one fell swoop is a particular advantage to LabCorp.

There are also various contractual restrictions that our folks, including Don were under, that could have prevented LabCorp from offering employment to some of these folks.

So, in connection with that, we agreed with LabCorp that we would release some of those folks from their obligations.

We would have an opportunity to sharpen our focus internally here at EXACT and allow LabCorp to focus on what they do best in terms of sales and marketing, and also have access for us potentially to an additional $2.5 million in milestones related to the achievement of key events going forward.

You mentioned that the royalty agreement is now 15% of net revenues with a potential of going to 70%.

What was the prior percentage?

20%.

So there's been a reduction then the royalty agreement?

Yes, that's exactly right.

Essentially what we said with LabCorp is we sat across the table and we said, look, we would be willing to take some reduction in royalty if it gives us a broader market advantage to possibly tap the market more deeply where we think the opportunity accrues to EXACT more by getting out of the exclusive early than it would by losing a point or two in royalty.

Remember, we now have the ability to access several additional labs beyond LabCorp in exchange for that reduced royalty, and that's the transaction we thought made sense.

You mentioned 15% of net revenue, so would that be after the additional marketing and sales costs that they're going to be assuming going forward?

No.

Then I have one question as it relates to Mr.

Hardison's departure.

Has he relinquished all of his options in EXACT Sciences?

He has not.

So, he will retain those options going forward?

Well, the ongoing compensation arrangements relating to Don have not yet been finalized.

If I can ask a philosophical question.

It's my understanding that options are granted to an employee to the purpose of rewarding their performance, and certainly he has been instrumental in bringing the Company to its present position; and also, to retain that person as an employee going forward, which will not be the case.

So, what is the rationale for extending those options beyond the time when he is leaving EXACT Sciences?

I didn't say they were going to be extended.

There hasn't been a final -- any final action on Don's compensation arrangement going forward.

But putting that aside, and that's really a question that would be for the compensation committee, not for me specifically.

But that being said, Don is and will continue to be a major equity holder in this Company and believes in what we're doing and can derive value from the going forward.

But his interest is in building organic growth for LabCorp and pursuing PreGen-Plus and helping to capitalize on that, and it will make sense for EXACT and for LabCorp going forward regardless of what the final compensation arrangement is.

Thank you.

Anthony [Gialoricci], VSR Financial Services.

Jeff, another quick question.

Are you aware of any other stool-based or non-stool based non-invasive high specificity tests for colorectal cancer?

High sensitivity?

High sensitivity specificity tests that are non-invasive.

Are you aware of any other tests that are currently available to the market besides SDNA?

No.

Okay.

Second question is -- have there been any models worked either outside of with research health or internally at EXACT Sciences as to what the uptake may be going forward as to the ramp?

You've mentioned that there's 80-some million people in the potential diagnostic market for testing for colorectal cancer.

What percentage of those population is Medicare?

What percentage is non-Medicare?

And do you have any idea how many kits need to be sold roughly based on your 2008 expense structure for the Company to become profitable?

Thank you.

It's a great question, Tony, I will answer it I guess this way.

There's 87 million folks out there over age 50 who should be screened for colon cancer.

Imagine three-quarters of them today are not getting adequately screened by any method.

So, about 42 million of those 87 million are Medicare folks.

We obviously have done a number of internal models for both management and the Board to help us think through what that ramp might look like, but that's not something we're going to talk about right now in terms of forecasting.

So let me understand.

If Medicare -- if the application is accepted and ultimately Medicare decides to approve this for pay, then in essence, in one fell swoop, 42 million people become covered in terms of the ability to provide this test to that group?

That is the potential, correct.

Thank you.

[Phil Kaborski]

Hello gentlemen.

I have a question regarding the Medicare application approval.

Is there a deadline by which they have to get back with you a decision on that?

There is not a deadline.

The statutory time lines only come into effect once the application is accepted.

Okay, and that's what we're waiting for?

Correct.

Okay, thank you, that answers my question.

There appears to be no additional questions at this time.

I would now like to turn the call over to Jeff Luber for any closing remarks.

Thanks very much for joining us on the call.

If you have any follow-up questions and you want to call Chuck or me directly, feel free.

Thanks very much.

This concludes your presentation.

You may now disconnect and have a wonderful day.