Exact Sciences Corp (EXAS) 2009 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the EXACT Sciences first quarter 2009 earnings conference call.

My name is Onika, and I will be your operator for today.

(Operator instructions.)

At this time, I would now like to turn the call over to Rod [Heist].

Please proceed.

Thank you, and good morning, everyone.

Thank you for joining us for EXACT Sciences first quarter 2009 conference call.

On today's call are Kevin Conroy, the company's President and Chief Executive Officer; Maneesh Arora, the company's Chief Financial Officer; and Barry Berger, the company's Chief Medical Officer.

They will be available to answer questions following our initial statements.

EXACT sciences issued a news release earlier this morning detailing our first quarter 2009 financial results.

If you've not seen the release, please go to our Web site at www.exactsciences.com, or call me at (608) 770-7850, and I can provide a copy of it to you.

Following the safe-harbor statement, Maneesh will provide a summary of our first quarter financial results.

Next, Kevin will provide comments about the company's priorities for 2009.

Immediately following our prepared comments, we would be happy to answer your questions.

Certain matters contained in this presentation other than historical information consists of forward-looking statements made pursuant to the safe-harbor provision of the Private Securities Litigation Reform Act of 1995 relating to, among other things, our expectations concerning the timing of potential commercial and clinical milestones, the efficacy of our technology, our commercial and FDA regulatory strategy, our available cash and cash equivalents, and our business and financial outlook.

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

Any forward-looking statements that we make should be considered in light of the risks and uncertainties that are contained in our filings with the Securities and Exchange Commission, including but not limited to those contained in our most recent Form 10-K and subsequent Form 10-Q.

We incorporate herein the discussion of those factors.

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

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

It is now my pleasure to introduce EXACT's Chief Financial Officer, Maneesh Arora.

Maneesh?

Thank you, Rod, and good morning, everyone.

On April 2nd, Kevin and I were appointed EXACT's CEO and CFO.

We are excited to be able to apply our experience in molecular diagnostics and clinical trials to the opportunities and challenges that lie ahead for EXACT Sciences.

Even in the short time since we joined the company, it's become clear that we have a truly unique opportunity to create value for both customers and shareholders.

As we execute on our plan to do that, investors and analysts should not hesitate to call Kevin or me directly with any questions.

There are three important highlights of the company's first quarter financial results.

First, revenue increased due to the first noncash quarterly allocation from the company's recently announced strategic relationship with Genzyme.

As you may know, in January EXACT entered into an intellectual property transaction with Genzyme that generated $17.2 million in cash.

The $17.2 million received from Genzyme will be recognized as revenue over 20 quarters as a noncash allocation.

Second, operating expenses and net loss were higher as a result of a one-time $3 million increase in general and administrative expense.

These expenses included costs related to the Genzyme transaction and severance and stock compensation expenses related to the recent management team transition.

Finally, we ended the first quarter with cash, cash equivalents, and marketable securities of $20.6 million, compared to $4.9 million at the end of 2008, again, as a result of the Genzyme transaction.

The company's most important financial priority for 2009 is controlling expenses and prudently investing in the company's priorities, which Kevin will lay out in a moment.

I would now like to introduce EXACT Sciences President and CEO, Kevin Conroy.

Kevin?

Thanks, Maneesh, and good morning.

Like Maneesh, I am delighted by the opportunity to lead EXACT Sciences at this important time in its history.

I'm pleased to be back in the molecular diagnostics industry following our success with Third Wave Technology.

Our experience includes successfully completing clinical trials for a major PMA cervical cancer screening test, as well as other genetic tests.

One of the reasons we were successful is the premium we put on focusing aggressively on achievable priorities.

We are excited by the chance to apply our experience to developing and gaining approval for a colon cancer screening test here at EXACT.

It's also my pleasure to introduce EXACT Sciences Chief Medical Officer, Barry Berger.

Barry received his MD from the University of Pennsylvania.

He has been on the faculty of the Harvard Medical School and on the staff of Brigham and Women's Hospital since 1982.

Barry joined EXACT in 1999.

Before joining EXACT, Barry spent 11 years as the Director of the Department of Pathology and Laboratory Medicine of Harvard Pilgrim Health Care.

Barry is an invaluable member of our management team.

He is playing a critical role in refining our product and developing our clinical trial plan.

Our mission at EXACT Sciences is to reduce colon cancer deaths through the early, patient-friendly detection of both precancer and cancer.

We believe that our focus on precancer detection presents a compelling value creation opportunity for five reasons.

First, we will launch our colon cancer screening product into a large market that will continue to grow as our product improves screening compliance.

Second, our technology is strong.

It has been validated through rigorous research at Johns Hopkins University.

Genzyme recently paid more than $17 million for rights to the same technology in fields outside of colon cancer.

Third, we exclusively own the intellectual property around stool-based DNA, or sDNA, screening for colon cancer.

We will be bringing a differentiated, well-protected product to market.

Fourth, sDNA testing was included in the 2008 American Cancer Society guidelines for colon cancer screening.

We believe our product will become the test of choice.

Fifth, we have a track record of successfully completing clinical trials, particularly trials of molecular oncology diagnostics.

We're going to pursue this great opportunity with values that we believe are the foundation for success.

Those values are quality, innovation, teamwork, accountability, and integrity.

They are at the heart of everything that we do and how we do it.

Our purpose is to remain focused on the diagnostics field.

Our first mission is to successfully launch a patient-friendly colon cancer test.

Let's turn now to a discussion of colon cancer and the opportunity that EXACT Sciences has to be the leader in colon cancer screening.

Colon cancer kills nearly 50,000 Americans every year.

It is the second-leading cause of death among cancers, killing more Americans annually than cervical, ovarian, and prostate cancers combined.

These deaths are preventable through early screening.

But there are significant compliance issues with current colon cancer-screening methods.

Less than a quarter of the 90 million Americans who should be screened comply with the current screening guidelines.

Half of the US population 50 and older have not been screened at all.

Traditional screening methods are invasive, inconvenient and costly.

As a result, there has been no successful matched screening for colon cancer.

The resulting deaths are staggering and preventable.

Sixty percent of colon cancer diagnoses are made in the late stages of the disease when the five-year survival rate declines to as low as 11%.

While survival rates decline through these late stages, treatment costs increase by as much as ten times from early-stage treatment.

Early detection saves lives and money.

Only 40% of the diagnoses today are made at stage 1 or 2.

These patients have a 70% to 90% five-year survival rate.

Treatment costs are as much as 85% lower than those diagnosed in stages 3 or 4.

While detecting cancer early is important, the most compelling screening test will detect precancerous lesions or polyps.

Between 5 million and 10 million Americans have precancerous polyps, known as advanced adenomas.

By detecting and removing these precancers, we will help save lives and reduce health-care costs.

We believe early detection presents a compelling market opportunity.

Noninvasive, sDNA screening could change the dynamics of the market quickly.

We believe that the market is conservatively valued at up to $1.6 billion in the United States alone depending on the adoption rate and screening interval.

Our test has the potential to increase patient compliance and, with it, the early detection of precancer and cancer.

There's a successful model for the kind of precancer and cancer screening that our sDNA tests enable.

The Pap test is the most widely used and successful cancer-screening technique in medical history with 55 million tests performed each year in the United States alone.

The test was developed in the '30s to screen for cervical cancer.

It gained wide acceptance in the '40s.

The test enables the examination of cells collected from the cervix to detect both precancer and cancer.

As a result of screening for both, cervical cancer mortality has -- was reduced 74% between 1955 and 1992.

It has continued to decline between 2% and 4% every year since.

Our sDNA screening test will enable a similar combination of precancer and cancer detection that the Pap test offers.

The screening model here is straightforward.

Detect precancers and cancers early and refer those patients to colonoscopy, where the polyp or lesion may be removed.

This model can significantly reduce colon cancer death.

You will hear us focus on early detection.

The earlier you detect, the greater the reduction in mortality.

Let's turn now to our strategic roadmap to commercialization and our 2009 priorities.

We are executing against a focused strategy that will guide us through the process of refining and developing our product, taking the product through a clinical trial, securing insurance coverage and reimbursement, and commercializing the FDA-cleared product.

During the balance of 2009, priority will be placed on product development and clinical trial planning.

There already has been significant progress made on insurance coverage and reimbursement.

In March 2008 sDNA testing was added to the American Cancer Society's guidelines as an accepted standard of care for colon cancer screening.

I'd like to recognize our collaborators, and especially Dr.

Berger, for their leadership in making this happen.

National and state coverage decisions followed the release of these guidelines.

Twelve states now mandate that insurance carriers reimburse for sDNA testing.

Let's turn now to our product design consideration.

Our most immediate priority is refining our product design.

Our first requirement is ensuring the test's clinical superiority.

Precancer and adenoma sensitivity is imperative because of the ability it gives us to dramatically reduce colon cancer mortality.

This product must be easily adopted by clinical reference labs and readily available for patients.

Cost, ease of use, throughput, and system footprint all must be balanced to ensure wide laboratory adoption of our test.

Our second priority is finalizing the plan for that clinical trial.

One of our chief objectives is to obtain broad screening claims for both precancer and cancer.

This combination, as we saw earlier, has the potential to reduce significantly colon cancer mortality.

We will develop the trial's budget, identify the principal investigators and clinical trail sites, and work with the FDA to finalize the trial protocol.

The FDA currently views our sDNA screening test as a de novo 510(k) submission.

As we finalize our clinical trial plan, we will be drawing on our experience with a prospective trial for a cancer screening test that resulted in a successful PMA submission.

There are always challenges with prospective clinical trials of this size and scope.

Rigorous trial management and continued preplanning are important factors in achieving success.

The product that we take through the clinical trial to commercialization will be well protected through a broad idea base.

This patent as stated includes protections for our platform technology, method, and content.

We have exclusively licensed JHU's digital PCR and BEAMing technologies for colon cancer detection.

We expect that our ongoing collaboration with Dr.

Bert Vogelstein's lab at Johns Hopkins will continue to generate valuable IP.

Our unique sample-processing methods are protected by our own [screening] patent.

Finally, we've exclusively and nonexclusively licensed the markers that form the foundation of our test.

We will be bringing a unique and well-protected product to market.

This network of patents will make it difficult for a competitor to come to market with a competitive sDNA test.

Let's turn to a review of our 2009 priorities.

In our view, the most common reason emerging companies fail is a lack of focus on a few well-defined priorities.

You can expect that we will clearly articulate our priorities and our progress towards achieving those priorities.

We've discussed our product development and clinical trial priorities in detail.

Another priority we have for 2009 is the creation of a culture of success at EXACT Sciences.

This culture will breed the kind of performance necessary to win.

In conclusion, if you remember nothing else about EXACT, we hope you will remember these three key takeaways.

First, we are targeting a significantly underpenetrated market of up to $1.6 billion.

We believe that our patient-friendly screening test has the potential to increase patient compliance and early detection.

Second, successful product development and clinical trial execution will enable us to enter the market with a precancer and cancer screening test.

Our completion of the trial and subsequent product commercialization will create significant value for shareholders.

Third, Barry, Maneesh, and I are very pleased to be leading EXACT Sciences.

We are energized by the chance to save lives and create shareholder value through our unique test that provides a powerful combination of precancer and cancer screening.

We are now happy to answer your questions.

(Operator instructions.)

Your first question comes from the line of Keay Nakae with Collins Stewart.

Please proceed.

Yes.

Good morning, gentlemen.

Morning, Keay.

I guess my first basic question is, if you go for the precancer -- the adenomas -- at what stage are you in your understanding of what that clinical trial might involve?

Well, we have been -- the company has spent a great deal of time with the FDA designing a clinical trial, and we're fairly far along in that planning, and there remains to be -- meetings to be had, and the protocol needs to be refined.

At this point in time, we'd rather not get too far into the details of that, Keay, other than to say that the basic structure of the clinical trial is to include roughly 8,000 to 10,000 subjects that would provide a -- most likely both a stool and blood sample and then -- before they go through a colonoscopy.

So the colonoscopy would be the end point, and you would need to get from those 8,000 to 10,000 subjects a sufficient number of both precancer and cancer subjects so that you could then use that as an end point as a comparative for the DNA test.

We'll get in to more details about the specific requirement for the precancer portion of the claim as we progress forward.

Okay.

Well, safe to say it's going to be a pretty substantial endeavor.

That being said, how much cash do you think it would take you to conduct a study of that size?

Keay, the one thing that we keep in mind as we've started on this process is this is a huge market.

And we start this process with a really strong capital base of over $20 million in cash and a relatively modest burn that we envision before we begin the clinical trial.

So should we need to raise capital, we feel we would be able to do that on favorable terms to investors, but we keep in mind the size of this market, and we're really enthused and excited about that.

Okay.

Switching gears here a little bit, the company at this point appears to have an understanding with the FDA that this is a de novo 510(k), but what's the risk that they switch gears on you and decide that this is a PMA?

And given that risk, when you design your study, will you design it with the intent that it could be filed -- or satisfy a PMA review?

That's a great question.

That is something that we need to be very careful of, but if you take a look at the fundamental design of this trial, it actually isn't all that different from an HPV screening clinical trial -- similar in terms of numbers, similar in terms of approach and structure.

So that is something that we will be very cautious about and err on the side of being conservative.

The real benefit of a de novo 510(k) is, after you get approval -- and part, I guess, the submission is significantly more complex, and it's tougher for competitors to get in to a market with a PMA, but the fundamental structure of this trial will be designed in such a way that, if it does become a PMA, we'll be prepared for that.

Okay.

Great.

And one final question, and this is really far down the road, but as you -- if you had a test like this and you went to launch it, how will you deal with the competition in the form of, let's call it, the Quest/LabCorp in terms of marketing the product?

Is that something where you would envision a collaboration with them, or is it something where you would envision -- you could derive more shareholder value by going it alone?

Okay.

Great question.

This will be a kit company.

So we will partner and collaborate with LabCorps and Quests and other major national reference labs in the future, but most likely not in the fashion that we have done to date.

I'd never say never, but we believe that the best way to widely disseminate this test is through broad access to labs, to physicians, and to patients, and really the best way to do that strategically is to develop a kit that labs around the country can implement.

Okay.

Well, very good.

We'll watch and see if you can repeat your success at Third Wave.

Thanks, Keay.

Your next question comes from the line of Quinton Lay with Robert W.

Baird.

Please proceed.

Good morning.

This is actually Matt in for Quinton.

Congratulations on joining the EXACT team, guys.

Thanks, Matt.

Thanks, Matt.

Hey, so kind of to the point -- just curious, kind of, what attracted the team to the company, and could you give a little color on, kind of, why now?

Sure.

I didn't expect to find myself -- and I don't think Maneesh did either -- back in the molecular diagnostics industry so quickly, but this opportunity -- probably the number-one reason that this opportunity was compelling was the chance to really make a difference.

And when you take a look at molecular diagnostics, it's hard to find giant markets where you can really begin to change health care.

This happens to be one of them.

And if you take a look at the history of the company, there were a lot of great things that were done, but there were also, realistically, some strategic directions that, in hindsight, maybe weren't the best approaches.

Based on the way that molecular diagnostics has evolved, we see that there is just a tremendous opportunity to get a patient-friendly test into the market, and if you do that, you're going to do two things.

You're going to save a lot of lives, and you're going to create a lot of shareholder value.

So that really was the thing that got us the most excited.

Certainly, the experience at Third Wave helped.

I mean, were young guys, we're in our early 40's, and selling Third Wave and leaving the industry wasn't, personally, maybe our first choice.

It was maybe the best thing for shareholders.

But it's just great to be back in an industry that we know, with deep relationships and great contacts, and people who can actually help us think through the obvious many challenges that we will face going forward.

Thanks for that.

Moving to the technology, just wondering, I mean, do you feel like you have all the pieces here, or are there maybe some other milestones we should be looking towards along the way for analyzing (inaudible) or things like that?

I don't think that we know all the answers.

First of all, we have only been here (inaudible) for 30 days, but in the last 30 days, we've made great progress at evaluating different technology platforms, and we have somebody externally who is really experienced in this field who has been helping us, along with Barry Berger's leadership.

We have evaluated a lot of different platforms and -- this is what I'll say: We're committed to going to market with the very best platform taking into account all of the factors that we laid out on the call.

Great.

And I guess in terms of a milestone, eventually we will talk to the world about what that platform is and start to release data as to how that platform works.

Okay.

Great.

And then maybe just for Maneesh, I mean, other than the kind of rev req on the Genzyme agreement, are there any other real milestones from that partnership to be watching for as we go forward?

There are really not.

You can take a look at what we've been doing -- or what we did in the first quarter from a revenue standpoint, and that will comprise the vast majority of the revenues is that noncash allocation.

Got it.

Well, thanks very much, and we look forward to watching this unfold.

Thanks, Matt.

Thanks, Matt.

Your next question comes from the line of Zarak Khurshid with Caris & Company.

Please proceed.

Good morning, guys.

Thanks for taking my question.

Was just curious, how much due diligence did you do on the company, and what did that diligence entail, and how did the IP factor in to your decision in joining the company?

Zarak, we spent about a month holed up in Boston really doing a deep dive on the intellectual property, the technology, the product configuration, on the various relationships that the company had had, talking to collaborators.

So it was a pretty thorough, focused effort before we made the decision to get involved here.

And one key takeaway is, when you talk to the key collaborators, the people who've been involved for a long period of time, they're enthusiasm was really like nothing we had seen before in our experience.

They -- it is very clear here that there aren't structural fundamental problems with the test or the potential for the test or the market.

It's really an execution game going forward.

So we spent a lot of time looking at this before we made the decision to commit, and we're pretty excited that -- now that we have committed.

Great.

And then, following up on, kind of, the limitations of the test, with HPV, I mean, there was an emphasis on the automated platform and throughput.

Can you talk to us about how that may be rate limiting for this opportunity, and what sort of throughput do you have currently with the test, and maybe what are your plans for, I guess, new platforms and automation, and how is that important to really successfully commercializing this test?

Thanks.

Zarak, it's critical.

So one of the things that we learned at Third Wave is you need to really think about automation when you're beginning to develop the product.

So we are going back through the product, as we see it today, to ensure that all of the components are superior components at a low cost, and all of the steps of the process can be automated in a fashion so that this test can be run in high-throughput labs.

There is no doubt that the current configuration today is a configuration that probably is not amenable to high-throughput automation.

But that's just something that the company hasn't historically focused on.

The way that we'll look at the clinical trial\ most likely is to take a manual method through the clinical trial but a manual method that can be automated in a straightforward manner with equipment -- hopefully -- with equipment that is currently used in high-throughput clinical labs.

Okay.

Sounds good.

And then, quickly, just remind us how many companies does the company have, and what sort of burn rate could we anticipate over the next year?

In terms of the number of employees, we have -- today we have five employees, and we are in the process of building an R&D team and a couple of regulatory and clinical affairs people.

One of the beautiful things about having a clean slate here is that we can control our burn, and we strongly believe that smaller and faster is better.

So we will leverage our very strong relationships with collaborators and with partners, like LabCorp and hopefully other significant labs, that -- to help us kick the tires on the test that we develop.

But the people piece of this is really important.

We found that out at Third Wave, where the people were just superior in their passion to win and to be successful with the priorities that we laid out was really what made the difference.

We're going to build a small team here.

We currently have a search for a VP of R&D or a CSO so, if you know any great candidates, Tom Kerry at Russell Reynolds is leading that search, and don't hesitate to send me a note or give me a call and recommend strong people with experience in developing IDD products and implementing them in a clinical lab environment.

Best of luck to you guys.

Thanks.

Thanks.

Thanks, Zarak.

Your next question comes from the line of Ken Luskin with Intrinsic Value Asset Management.

Please proceed.

Hi, guys.

Congratulations, again, on behalf of all my clients, shareholders.

I go two questions.

One's just pretty simple.

As far as the -- you outlined the deal that -- with Genzyme.

There was a 2 million -- 3 million shares at $2.00 which raised an additional $6 million.

It doesn't seem like that's accounted for in what you just announced.

Is -- am I right or-- ?

No.

That is -- we have taken account of that in what we announced.

There was a portion of the intellectual property, $1.8 million, that was held back as traditional -- would be traditional in intellectual property transfers, which will be recognized over the next 18 months.

Okay.

Just that your number said $17 million and it -- the number was the $24 million minus the $1.85 million, which is more like $22 million, and so that's why I was trying --

Right.

And that would not be -- that's not recognized as revenue.

Right.

Okay.

No -- just that -- just, when you outlined the transaction, you just said we've raised $17 million so basically --

You're right, Ken.

That -- I was just referring to the revenue portion --

Okay.

-- of intellectual property.

Okay.

Okay.

So you did get that minus the $1.85 million.

That all did come in.

Yes, it did.

So that was like $22 million -- so you actually -- there was a significant amount of cash that went out for severance and such in the quarter?

It was a $3 million increase in the first quarter.

That was both cash and noncash.

Okay.

Just a number of us had thought that the cash burn had been maybe $1.5 million a quarter or so and we -- the $22 million or so that came in plus the $5 million that was already there was $27 million, and we were kind of thinking it was going to be more down around the $25 million area.

So the fact that it's now -- I guess part of that money was paid off to LabCorp also?

Is it -- was that significant?

That's correct.

There was a payment that went to LabCorp as we disclosed.

It was significant.

Oh, okay.

Okay.

That's -- that kind of helps.

I mean, yeah, getting all these details out, I think, will be very helpful for sell-side analysts and, kind of, people like me who are -- do buy-side analysis.

So I appreciate you helping with some of those details.

And then -- and maybe, Kevin, you can help with this.

The $1.6 billion market size in the US, can you help with some of the assumptions that went in to that calculation?

Well, the one assumption that we didn't put down on that piece of paper was the price of the test, and we were extremely conservative there.

So I would rather not talk about that for competitive and strategic reasons.

Okay.

The main assumptions, Ken, were, number one, what is the population that would be screened?

We backed off for people who were uninsured in that population.

We assumed either a 30% or a -- both a 30% and a 40% penetration rate so that -- it was the adoption that we looked at, and then a three-year screening interval versus a five-year screening interval.

And when you look at that on a conservative basis with a price lower than we know -- significantly lower than this test would bill out for as currently configured, you end up with an enormous market.

And our fundamental perspective on these things is not to multiply the total number of people times an annual test times --

Right.

-- the highest price possible --

Right.

-- realistically --

Correct.

-- it's a $1.6 billion market.

And now let's compare that to the HPV market, which you really have to struggle to get to an $800 million to a $1 billion market.

You really have to make some wild assumptions here.

The other point to remember is this is a US number only.

Yes.

So this is a huge potential market.

And we want to be conservative about how we look at that market and how we articulate it but, directionally, this -- we know it's a big market.

So the -- what is key to this go forward, which I think for a lot of the doctors who kind of put EXACT in to the lower box on the ACS suggestion for screening was -- were they -- was that the upper box was for -- only for those tests that would find precancers.

And so what you're saying here is that you guys are very comfortable with what you found that the future test that you run through the FDA will include the markers that will find those precancers, rather than in the prior go it was more looking for actual existing cancers.

Yes.

And we have to get there.

That's where you're really going to make a huge difference, and it will justify people utilizing a sDNA test.

So that's really important.

How do you -- one of the -- I mean, I'm sure you know the answers to all these things, but, I mean, do -- couple questions regarding --

Ken, I'm sorry to interrupt.

I think that what we'd like to do, if it's okay, is we could follow up one on one.

Okay.

Great.

Great.

You want to call me or something.

-- let everybody else --

Okay.

Yeah.

Okay.

I'm sorry.

Pardon me.

Thank you very much.

Okay.

Thanks, Ken.

Thanks.

Your next question comes from the line of Ram Selvaraju with Hapoalim Securities.

Please proceed.

Hi.

Thanks very much for taking my question.

Couple of things with respect to the proceeding forward with the development of the test.

Could you say a little bit about what you think the sensitivity and specificity might need to be for the test to be viewed as competitive and widely adopted?

That is a very interesting question.

If you take a look at the Pap test, the best data around a Pap test is that the Pap test is 50% to, let's say, maybe 70% sensitive on the best day.

Yet that screening test has pretty much eradicated completely -- but almost eradicated cervical cancer.

So we know that programmatic sensitivity is really what's important in saving lives.

This test has shown sensitivity in the various publications anywhere between 50% sensitivity and 92% sensitivity for cancer.

What we're doing now, Ram, is to do research to help us answer that question in a more quantitative and fact-based qualitative manner.

And one thing we want to be careful -- very careful not to do -- we think it would be a disservice to shareholders -- is to set a bar too high that we can't achieve.

So we're going to be cautious.

We know that with various technologies you can get incredible sensitivity and specificity.

We need to be balanced in our approach to this and really make a decision based upon the facts.

Okay.

And then you mentioned with respect to the prospectively defined trial that you would be taking stool samples as well as blood samples from patients.

From your perspective right now, is there any potential strategic issue with pursuing a blood-based test versus a stool-based test given EXACT's predominant and, some might say, extremely difficult to combat IP position in the stool-based situation?

What are your perspectives on that, pursuing stool-based versus blood-based strategically?

Well, there's no doubt that detecting precancers out of blood is a very challenging thing.

When Bert Vogelstein looks at me and says, "Kevin, I just don't think it will ever be able to be achieved," you have to listen to him.

He is among the very best, and other key opinion leaders have said the same thing.

With that said, we want to deliver a total solution to the market that is best for patients, and we believe that value will flow from that.

So nothing is off the table, including a blood test.

Blood test isn't on the table either.

We are going to evaluate these things and make a decision based upon data and the ability, first and foremost, to deliver value to patients, and we'll see how that plays out.

And with respect to the IP situation on the different markers that you alluded to, this is effectively platform agnostic; right?

You can use whatever analysis method you wish.

If I understand your question right, that is absolutely correct.

Okay.

And then, finally, just a couple of very quick things.

Pricing -- we've heard a lot in the diagnostic space about value-based pricing approaches, as opposed to CPT code stacking, and that really seems to be gaining a great deal of traction.

Obviously, I wouldn't ask you to speculate specifically on the perspectives for the proposed test, but what are your general feelings on value-based pricing?

And then also if you could talk about the ex-US strategy.

Would you try to partner the test, and to what point would you do that, before the trial is completed, or at what point would you seek to try to find a commercialization partner, ex-US, if that's indeed the strategy?

Those are great questions, and if you don't mind, I'd rather hold back from going in to those in detail because I think it's just too early.

I will say, generally speaking, value-priced methodologies of reimbursement, we think, favor this test given the huge positive impact that this has.

And in terms of partnering, we have always said before we are very, very careful about partnering and giving up value in the long run for short-term impact.

So we always approach those things with great caution and a lot of (inaudible).

Thank you very much.

Thanks (inaudible).

Your next question comes from the line of Phil [Koborosky] with TCS Financial.

Please proceed.

Hi.

Good morning, gentlemen.

Thank you for taking my call.

Good morning.

You outlined to us your priorities moving forward.

Could you give us any kind of insight as far as what type of time frame that you might expect to achieve these milestones?

Well, we expected that question, and we will be able to lay out more clear milestones as we go forward, but we would ask for a little bit of time here before we lay those out.

I will say that we will not start a clinical trial until we have a very robust test that has been screened -- I'm sorry -- that has been validated externally by thought leaders and key laboratories.

That is imperative here for creating value over the long run is making sure that you have a robust product.

A clinical trial here is -- we'll be able to lay out what that clinical trial looks like more once we have finalized the protocol.

Okay.

If I could ask about the patents for a second.

Obviously, these patents protect the technology have been around for several years, and, obviously, they're all going to expire at sometime.

How long do you feel you can protect your technology?

Well, that was something that we looked at very closely and really is one of the exciting things going forward.

There are not very many good ways to conduct the analytics portion of this test.

So, if you just take a look at the digital PCR patents, they go out through 2024.

Some of the key patents around sample processing and some of the key markers go out that far as well.

And we're not going to rest here.

We will shore up our intellectual property estate, increase its [length], and I think we have a track record for doing that.

I think what you'll see in the long run is it's -- it'll be very difficult to compete directly in this market.

Okay.

Other question is EXACT Sciences has flown under the radar of a lot of investment community.

How much of a priority are you going to put going forward to trying to get the word out?

That's just something that we do.

We -- it's a part of our job, and it is something that we like doing, and it's an important part about this company ultimately being successful.

So we will get the word out.

We may be a little bit circumspect at first, but, trust us, we will get out and present at conferences and meet with investors and really make an impact among investors.

All right.

That's all my questions.

Thank you very much, and best of luck going forward.

Thanks a lot.

Thanks very much.

Your next question comes from the line of Michael [Moskoff] with MRM Capital.

Please proceed.

Welcome aboard, guys.

Can you break down first -- the operating expenses of $4.9 million, how much of that was the Genzyme transaction as well as the severance and stock-based expenses of that --

I mean, what we reported was that in total that was $3 million.

If you want to break it down, a little over $1 million of it was related to the Genzyme transaction, and then the balance was the separation payments and management changeover.

So the burn rate was about a little under $2 million?

That's correct.

Okay.

And going forward, because you're going to be now doing a clinical trial -- and someone asked this question before -- would you be able to just quantify what you envision the burn rate to be, I guess, in this year and next year?

And then there's a last question.

You had made a comment regarding the capital markets seemed to be inclined to help you if necessary is kind of what you said, in my words -- whatever --

Okay.

So when would you foresee doing that?

I would assume it would be a secondary offering unless it's going to be a dead offering -- I don't know.

Things are still, obviously, pretty uncertain even though the market's recovering -- when I mean the market, I mean the stock market.

Sure.

And I want to just qualify what I said or reiterate.

This is a huge market opportunity.

One thing that Kevin just laid out is that we will not begin -- and he just said we will not begin a clinical trial until we make sure that the product is externally validated, and that's really the focus of the company right now.

As part of that, we know we don't expect a very large burn.

We expect that we will be able to control the burn here in the near term, and given that we have over $20 million in cash, a very strong capital base, and a low burn, and a huge market, we feel very comfortable that down the road, when we do need to go to the market, if we need to go to the market, that we're going to do it in a way that is going to be as favorable for investors as possible.

And we've done that in the past, and we think it's going to be a win-win, but just pointing back to the fact that this is a huge market and we start from a position of a strong capital base.

Okay.

And you said that the discussions ongoing with the FDA have been very, let's say, copasetic or amenable or friendly or what have you.

They have been.

I've been through all the files, and we also have a meeting scheduled for June 15th.

It appears that the FDA is being very reasonable in their approach here.

And our experience with the FDA is the number-one thing you really need to do is listen to the FDA.

You can fight them and fight them and fight them, but at the end of the day, that's going to cause you pain, not them.

So it's really important to listen to what's important to them, and I think that has been done with Barry's leadership here.

One of the things that I want to emphasize is, when we ran a PMA clinical trial at Third Wave, we laid out what the external costs were -- in that case it was $20 million of external costs over three years -- and we managed to that number, we didn't surprise, Maneesh did a great job of articulating the timing of that flow, and I think that you can expect that out of us again here.

Right.

I will say the market seems to be, obviously, humongous, and with discussions I've had with partners who are gastroenterologists or whatever, we've always believed in this making sense.

So let's hope you guys can finally bring it to the table.

Good luck to you.

Thanks.

At this time there are no additional questions.

I would now like to turn the call back over to Mr.

Kevin Conroy for closing remarks.

I guess, in closing here, I would like to first thank all of the people who have brought the company to this point, the key collaborators, the former employees, the board, the -- LabCorp, Genzyme.

There have been a lot of people who have put this company in a position to be successful going forward.

And I want to drive home the point that we are incredibly energized by this opportunity, the opportunity to make a difference and to create value at EXACT, and we do not plan to rest until we're successful.

Thanks, everybody, and we look forward to future calls.

Ladies and gentlemen, this concludes the presentation.

You may now disconnect.