Exact Sciences Corp (EXAS) 2011 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to your Exact Sciences first quarter 2011 earnings call. (Operator Instructions) As a reminder, today's conference call is being recorded. I would now like to introduce Miss Cara Tucker, Manager, Corporate Communication. You may begin.

Thank you and thank you for joining us this for Exact Sciences' first quarter 2011 conference call. On the call today are Kevin Conroy, the Company's President and Chief Executive Officer and Maneesh Arora, the Chief Financial Officer.

Exact Sciences issued a news release earlier this morning detailing our first quarter 2011 financial results. If you have not seen the release, please go to our website at exactsciences.com, or call 614-302-5622 and a release will be provided to you. Following the Safe Harbor statement, Maneesh will provide a summary of our first quarter financial results. Next, Kevin will provide a review and update of our 2011 priorities.

Before we get underway, I'd ask everyone to take note of the Safe Harbor paragraph that appears at the end of the news release issued this morning covering the Company's financial results. This paragraph states that any forward-looking statements that we make speak only as of the date made are subject to inherent risks and uncertainties, including those described in our most recently filed annual report on Form 10-K and our subsequently filed quarterly reports on Form 10-Q and should not be unduly relied upon, except as otherwise required by the Federal Securities laws. We disclaim any obligation or undertaking to publicly release any updates or revisions to any forward-looking statements contained herein or elsewhere to reflect any change in our expectations with regard, thereto to any changing events, conditions, or circumstances on which any such statement is based.

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

Thank you, Cara and good morning, everyone.

During the first quarter we continued to invest in our priorities, including the clinical trial that we expect to begin during the third quarter. Our chief investment has been in people. We now have an outstanding team of 50 employees, including 34 in research and development.

We ended the first quarter with cash, cash equivalents and marketable securities of just under $90 million. We're on track with our cash utilization target of no more than $29 million for 2011. As you know, we'll be making our largest investments - the FDA clinical trial - this year. We anticipate spending approximately $20 million on the trial between 2011 and 2012. In short, we advanced our priorities during the first quarter, while effectively utilizing our cash.

It's now my pleasure to introduce Exact's President and CEO, Kevin Conroy. Kevin?

Thanks, Maneesh. Let's start with a brief review of our 2011 priorities. We'll then provide a detailed update on each. During 2011, we are focused on three things - product development, clinical trial infrastructure and enrollment and market development.

Let's turn now to a more detailed discussion of our product development work during the first quarter. We've made great strides in enhancing the performance of Cologuard. We've optimized our magnetic bead DNA capture method. Since October of 2011 - that's the time of our validation study - we've improved DNA extraction by 200%; the more DNA that you capture, the greater the analytical performance of the test.

We've begun to automate Cologuard to make it easier to run and more reproducible. We have the instrument in-house now and our automation team is working towards the goal of delivering the easiest to use, most efficient automation solution.

We've solidified our detection assays and optimized our bisulfite conversion method, which is critical mass to DNA methylation detection. We've also optimized Cologuard for the quartz detection chemistry on FDA-cleared real time thermal cyclers.

Finally, we've improved our collection device, making it easier for patients to gather a sample at home and mail it to the lab.

We're proud of all of the efforts of our exceptionally strong team to solve a number of complex problems inherent in stool-based DNA detection. We are excited by the prospect of beginning the clinical trial and bringing this innovative product to market.

Let's talk now about DDW. Later this week our management team will attend, in Chicago, Digestive Disease Week, the world's largest gathering of GI physicians and researchers. We'll have a series of meetings with thought leaders. We'll also be exhibiting at the meeting with the goal of reintroducing Exact to the GI community. DDW always hosts some of the most important colon cancer screening scientific presentations and we expect to attend talks detailing developments in our field.

Let's review our second priority for 2011, the clinical trial. We're pleased to report that we remain on track to begin enrolling patients in the third quarter of this year. We've submitted our final study protocol to the FDA. All of the components our protocol have been completed and we're looking forward to beginning enrollment.

We are very pleased that there will be a parallel review of the trial by CMS for a national coverage determination regarding Cologuard. CMS coverage and reimbursement of Cologuard can have a significant influence on private payor reimbursement. We have received and incorporated CMS' comments into the final clinical trial protocol design.

We've qualified 42 enrollment sites, all of which we expect to participate in the trial enrollment. These are weighted towards high volume screening sites. We plan to implement a central call center to assist patients in their participation in the trial. We have an experienced external clinical affairs team, the same team that supported the successful third wave HPV clinical trial, which also was a PMA.

Let's turn now to a more detailed discussion on the clinical trial design. Our trial is a study of average-risk patients between the ages of 50 and 84 who have none of a series of well-defined risk factors for colon cancer. Every patient in the study will receive three tests - the Cologuard test, which includes an FIT assay, a separate commercially available FIT test, and a colonoscopy procedure. The primary end point of the trial is a comparison of Cologuard to colonoscopy. The secondary end point is a comparison of Cologuard to FIT.

Let's look in more detail at our clinical trial design. We expect to enroll between 10,000 and 12,000 patients for the study. We have now qualified more than 40 enrollment sites and we expect to qualify more. We anticipate enrolling between 50 and 60 cancer patients and 400 to 500 precancer patients. We'll begin enrollment during the third quarter of this year and expect to complete enrollment roughly a year later. About three months after enrollment has been completed, we'll prepare our PMA document and submit it to the FDA.

Let's turn now to more specific objectives of the clinical trial. The FDA is focusing on Cologuard's cancer detection ability and has set the lower bound of our confidence interval as the primary end point that must be exceeded in our trial. It is 65% at the lower bound of the 95% confidence interval. This means that with 85% point sensitivity we expect to be well above the 65% lower bound, even with approximately 55 cancer patients in the study. It's a very logical lower bound. The Morikawa study, which is a long-term study of FIT screening, showed 66% cancer sensitivity for the FIT test. We remain on track to begin enrollment during the third quarter.

While our market development efforts aren't as visible as the trial, we are preparing for the eventual launch of Cologuard.

As you probably saw, John Krayacich recently joined our management team as Senior Vice President of Sales and Marketing. John's a healthcare marketing professional, with more than 20 year of experience marketing to physicians. We warmly welcome John and are very excited to have him as an important teal leader. Under John's leadership we're ramping up our outreach and education efforts with thought leaders, primary care physicians, GI's, clinical labs, payors and patients. These efforts are critical mass to preparing the market of Cologuard's launch.

We'll undertake pharmacoeconomic studies this year. They are among the most important market developments in 2011. These studies will measure the cost effectiveness of Cologuard. They're important to achieving the desired reimbursement level for the test. We believe we can demonstrate significant cost effectiveness in the use of Cologuard in screening for colon cancer.

Finally, we're refining our go-to-market strategy, again under John's direction. Let's review the Company's key milestones. First, in the first half of this year, we're preparing for the clinical study and beginning the clinical trial in the third quarter of 2011, with the goal of submitting to the FDA in 2012 and launching the product after FDA approval.

In conclusion, Exact remains on track with each of our 2011 priorities. During the first quarter we optimized key components of our test and began to work on an exciting automation program.

Our clinical trial remains on track and we expect to begin enrollment during the third quarter. The parallel review by CMS is a boost to our reimbursement strategy that potentially saves us time and money while possibility delivering a positive national coverage decision. We're dedicated to entering the market as soon as our test is approved and our research shows that the market is a substantial $1.2 billion opportunity.

Thank you and we'll be happy to take your questions.

(Operator Instructions) Quintin Lai, Robert W. Baird & Co.

Maneesh, thanks for taking the question.

Thanks, Quintin.

When you do begin the clinical trial enrollment, how do you expect the enrollment to progress, throughout the -- as you start the trial and as it progresses from the rest of this year into next year?

Well, it will begin at a moderate pace and then, of course, increase significantly as with most clinical trials as time goes on and the key thing is to get the sites trained effectively. And we have a training day for all of the clinical trial enrollment that is set and we will be focused on making sure that the enrollment is done correctly, to do it right and make sure that protocol is followed and over time, we will see the enrollment numbers increase significantly.

And with respect to your automation, it sounds very positive that you've got kind of a prototype now. Do you anticipate that that will be used during the clinical trial?

Yes. That's our plan. We're really pleased about being able to pull this automation program into the study without affecting timelines.

As you recall, up until recently our goal was to deliver to the market a manual solution and follow up with an automated solution. What this does is brings a solution to market that would potentially be approved at the same time the test would be approved and that reduces risk at launch. It reduces risk down the road. So we're really pleased with this. It does not affect our timeline and we believe we'll be able to do it with a reasonable cost. This is an instrument that has been FDA-approved and in the market for some time and we're modifying, slightly, the instrument and also the software, and customizing it for our needs.

Okay. So, actually, if anything it sounds like a bit of an acceleration to your overall strategy then, with respect to what's going on with the progress you've made in instrumentation then.

I think that's right. This is a simple, elegant solution that is very achievable. It also has the potential to reduce variability. What you see, when you perform this test manually versus when you perform the test with a robot, is that, as you would expect, a robot has less variability and so we think that also reduces actual clinical trial performance risk.

Thank you. I'll jump back in the queue.

Thanks.

Brandon Couillard, Jefferies & Co.

Hi John.

Thanks, this is actually Brandon Couillard, actually, in for John this morning. Kevin, have you had any discussions with the FDA on whether to include stage four cancer patients in the trial or not?

Those discussions are ongoing and we'll provide more clarity as soon as we have it.

Okay and I believe Dr. Ahlquist is presenting data on detection of pancreatic cancer at DDW next week. Is that something you're actively exploring? Should we anticipate any notable developments, with respect to Cologuard, at DDW as well?

So the first question, are we exploring detecting pancreatic cancer with a test or in collaboration with the Mayo Clinic and the answer to that is we've been talking to the Mayo Clinic for the past two years about the concept. We still think that is some ways off, but it is an important area of future development and that's how we would look at that. What was your second question again, Brandon?

Just whether or not we should anticipate any notable developments, with respect to Cologuard, at the conference.

No. DDW will be an opportunity for us to provide incremental information about Cologuard. There will be information relating to how Cologuard performs, particularly for precancers, relative to one of the blood tests that is in market, but there won't be anything major or earth shattering at DDW. In other words, there's no new validation study or separate independent data point on a new set of samples in terms of Cologuard performance.

Great. Thank you.

Thanks.

Brian Weinstein, William Blair

Hey guys, good morning, a couple questions here. Maybe I missed it, but did you guys say anywhere that still expect to show additional data this year at some point?

We didn't say that, but, yes, we do intend to show additional data. That remains one of the goals for the second half of the year. We haven't provided clarity as to when we will present that data, but we do plan to run an additional study and present that data in the second half.

Okay and then you mentioned that, yes, you incorporated some CMS comments in the trial design. Are you willing to talk about what some of those comments were?

Well, the main thing that CMS is looking for is the performance of the test in Medicare-age population and so the changes that were made mainly had to do with the appropriate enrollment of patients in that age category.

Okay and then the last thing was you guys had sent out the slides from the Dr. Ahlquist presentation coming up here on Mother's Day. We all appreciate that, but maybe you can give us some preliminary thoughts on those slides and what conclusions were from that and your perspective on that?

You know I think its best -- these are -- Dave's talks will be -- and he has several talks at DDW. He'll be a busy guy there, but one of them will be a comparison of a blood test to our test, a stool DNA test, in the same set of patients and I think that will be important. Again, not earth shattering, nothing that I think wasn't already known, but there are a number of presentations at DDW and if people care to learn more they can contact Cara Tucker and she can provide more information as to when Dave and others will be speaking.

Okay. Thanks.

Dave Clair; Piper Jaffray & Co.

Good morning, Kevin and Maneesh, its Dave Clair here for Bill. How are you guys doing?

Great, you?

Good, good, thanks. The first question for me is just on the Dr. Ahlquist DDW presentation, but specifically the comparison of Cologuard versus the blood test. Can you tell us which versions of each assay are going to be included in the comparison?

Well, I can tell you for the test, the stool DNA test is a subset of the data from the validation study. So, as you know, the validation study in the fall had samples that came from multiple different sources, one of them being the Mayo Clinic. The Mayo Clinic samples also had matched blood samples for the same patients. Those blood samples were sent to a lab that runs a blood DNA test and those samples included precancers and cancers and so that is the focus in terms of the version. This was the version of our test, pre-improvements that we've made over the last six months.

Okay and then would you be willing to share how many methylation markers are in the test?

Not at this juncture, but, Dave --.

I thought I'd try.

No, that's okay. We haven't talked about what the final marker panel is, but at the approximately time this year we'll do that, probably in the near-term rather than longer-term, but we will lay out exactly what the final methylation marker composition is this year.

Okay, thank you.

Thanks, Dave.

William Hite, Lazard Capital Markets

How are you?

Hi, Will.

So I have a question about the pharmacoeconomics studies. You said that they would be conducted this year, but can we expect to see data from that? And then, on top of that, is this going to be sort of an incremental spend or is this already built in as sort of the guidance that you guys have given?

Well, we asked for more money out of Maneesh, but he's not prying loose from his --.

Will, it's built into this budget.

Yes.

In terms of seeing the data this year, probably not, because we'll probably have those studies or papers prepared, but they won't be published until next year.

And what sort of venue do you think you guys will look for to publish those papers?

As significant of a publication as possible. It's important and what you -- we've already run various models -- there are a lot colon cancer screening cost effectiveness models out there and taking a look at the modeling. Our test is one of the most cost effective tests because of its ability to detect precancers, which has the ability to avoid all of the cancer treatment costs.

There's no other noninvasive test, as you know, that eliminates those costs. You can see some of the most recent data on the cost of treating colon cancer is actually frightening. Those costs are skyrocketing from call it the mid-$100,000 to over $300,000 to treat a Medicare patient that has colon cancer.

So this is kind of a break-the-bank type of disease, particularly with the new drugs that are coming to market and we need to make sure that we have all of the right input into the model, because the world has changed. Namely, the costs of treatment have gone up so high and if we can help the world avoid treating people for colon cancer, our test becomes more cost effective. So we just need to make sure that we have it right, because when we launch we want to make sure that all of the right information is in the hands of the payors.

Now is this going to be some sort of a scenario analysis or what's going to be the baselines of the comp that you guys are going to use in the trial or in the study?

Well, as you can imagine, there will be a lot of different inputs, everything from the sensitivity of colonoscopy to the sensitivity of our test and so there will be a lot of modeling assumptions done. Probably right now is not the best time to get into all of those details, because many of those may change over time, but it's a pretty big project to do this right and we want to make sure that we bring in all of the key leaders in this area and get their thoughts over the upcoming months.

Great, guys, thanks a lot.

Thank you.

John Putnam, Capstone Investments

Thanks and good morning. I was wondering, Kevin, if you've completed the discussion with the FDA on the protocol, or are there still some issues that may be open?

We are still waiting for the FDA to respond to this final protocol design, but, as you imagine, we've had lots of discussions, so we're not expecting not expecting any surprises and we will hear back from the FDA in the upcoming weeks. So, yes there are still a couple of outstanding items but nothing that we would consider to be major.

Okay, that's great. Then, on the automation, is this automation also applicable to commercialization or would you have to do something to be able to use it for commercialization as well?

That's a great question. This automation program is focused on making life easy for our commercial lab customers and the automation will be focused on -- you'll insert 50 milliliter tubes with sample and it will go to a result.

Now there are multiple upfront processing steps that will not be automated, as we've explained in the past. We didn't want to try to have an all-encompassing automation, but the critical mass steps of DNA extraction, bisulfite conversion, plate setup, so mixing the reagents and the DNA, will all occur on the deck and then an operator would move that 96-well plate over to a real-time thermal cycler for the detection step.

So, really, we're focused on solving the most complicated analytical portions of the test to make life easier for our customers.

Great. Thanks very much.

(Operator Instructions) Scott Gleason, Stephens, Inc.

Thanks for taking my questions. I guess, going back to the automation issues, are you guys at liberty at this time to talk about some of the equipment that you're going to basically incorporate into the automation? And then, I guess, would a customer be locked in since the assay is going to be validated, on this automated system, to basically using that technology or could Quest or Lab Corp. make modifications? And then can you talk a little bit about what the overall cost of, I guess the complete package, might look like?

Good questions. So we are not talking about who the supplier is for the instrument. There are a limited number of liquid handling instrument suppliers in the world, so you could probably figure out this small universe.

What we -- in terms of pricing around this that has not been solidified. But I will tell you that if, assuming that we get the reimbursement that is our target of $300 per test and a lab runs 100 tests per shift, 200 to 250 days per year, in a matter of months a lab would generate the margin necessary to -- let me be conservative. In a short period of time, a lab could generate the margin to pay for the instrument and if you fold the instrument costs into a per-test basis, so through a reagent rental agreement, it becomes a de minimus portion of the overall cost to the lab.

We're excited about this. The numbers really work for this test, with the throughput that we're looking at making it a pretty easy decision for a commercial lab to want to bring this test onboard.

Great and then, Kevin, can you talk a little bit about the incorporation of the FIT test into the actual assay and I guess the steps that you guys are taking to make sure that doesn't have any impact of specificity, in terms of some of the lower sensitivity specificity profiles of FIT tests on the market that are commercially available today?

Sure. So the FIT test will be -- and you can see some of these online, v=but they're just a small tube about half the size of a pen, with a stick attached to the cap, so you unscrew the cap and you stick the stick into the stool and put it back into this small vial. So it's a small, separate collection that is processed separately from the DNA component of the test and it's a very easy immunoassay test, immunochemical test to run in the lab. You can run them in batches, so it is much easier to run than a DNA test and it's a very easy collection process, too.

And I guess, Kevin, just to look at specifically the specificity, are you guys making any changes, I guess, to the analytical cutoffs for that test and making sure that its not going to have any detrimental impact on the specificity of the overall assay?

Yes, we are setting a very high cutoff so that the specificity target will be nearly 100%, so 99.9% specific, so that the FIT test will not appreciably affect the specificity of the overall test result. That will have the effect of lowering the sensitivity slightly, by maybe, we expect maybe 10 percentage points, but the whole goal would the FIT test is to have a test that showed the DNA markers, for one reason or another, not pick up a cancer. The FIT test would have a reasonable chance of detecting that.

So, all of the data that you've seen to date is really driven mainly off of the DNA component of a test and let's take 85% sensitivity overall. If you add a FIT test that 50% sensitive, theoretically you should capture up to 7.5% of the 15% that you missed, or half of the 15% that you missed. We're not banking on it being able to detect that much, but to get another three-to-five percentage points of sensitivities, with no appreciable impact on specificity would be a very positive attribute of the test, clinically.

Great. Thanks for taking my questions, guys.

Thank you.

Thank you. I am not showing any other questions at this time. I would now like to turn the program over to Mr. Kevin Conroy for any additional remarks.

Well, I would just like to close in thanking the team internally here. They have really put up a strong quarter of effort in product development and preparing for the clinical trial and we're really looking forward to starting the clinical trial in the third quarter. Thank you very much and we'll talk to you in three months. Take care.

Ladies and gentlemen, this does conclude today's program. You may now disconnect and have a wonderful day.

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