Exact Sciences Corp (EXAS) 2012 Q1 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Exact Sciences first quarter 2012 earnings conference call. (Operator instructions) As a reminder, this conference is being recorded. I would now like to introduce our host for today, Ms. Cara Tucker, Manager of Corporate Communications. Ma'am, please go ahead.

Thank you Karen and thank you for joining us for Exact Sciences' first quarter 2012 conference call. On the call today are Kevin Conroy, the Company's President and Chief Executive Officer; Maneesh Arora, the Chief Operating Officer and Chief Financial Officer; and Laura Stoltenberg, our Chief Commercial Officer.

Exact Sciences issued a news release earlier this morning detailing our first quarter 2012 financial results. If you have not seen it, please go to our website at ExactSciences.com or call 608-284-5735 and I will provide it to you.

Following the Safe Harbor statement, Maneesh will provide a summary of our first quarter and full year financial results. Next, Kevin will proceed on an update on our DeeP-C clinical study and recent scientific data.

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, one, speak only as of the date made; two, are subject to inherent risks and uncertainties, including those described in our most recent filed Annual Report Form or Form 10-K and our subsequently filed quarterly reports on Form 10-Q; and three, should not be unduly relied upon.

Except as otherwise required by the federal securities law, we disclaim any obligation or undertaking to publicly release any updates or revisions to any forward-looking statement contained herein, or elsewhere, to reflect any change in our expectations with regard thereto to any change in events, conditions, or circumstances on which any such statement is based.

It is my pleasure now to introduce our Chief Operating Officer and Chief Financial Officer, Maneesh Arora.

Thank you, Cara, and good morning, everyone. I'm pleased to report that patient enrollment in our DeeP-C clinical trial remains on track. We expect to complete enrollment during the third quarter. We continue to make significant investments in the trial to ensure its timely and successful completion.

We are increasing our cash utilization guidance to $41 million to $43 million. This additional cash utilization is being spent primarily on ensuring that we enroll the appropriate mix of subjects in the study. In the first quarter, we implemented a plan to increase payments to patient enrollment sites to recruit patients 65 and older. As a result, we are confident in the enrollment rates that we are seeing.

Our cash balance at the end of the first quarter of 2011 was $83.5 million.

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

Thanks, Maneesh. Let's start with an update on our DeeP-C clinical trial.

One of our objectives has been to bring more sites into the study to ensure that we maintain a high pace of patient enrollment. We have enrolled and shipped collection kits to more than 80 enrollment sites, which represent over 100 physician office locations.

Overall patient enrollment remains on track. The observed cancer incidence in our patient population also is on track. The number of cancer patients is important, because it determines the total number of patients we need to close enrollment. We remain confident that we will complete patient enrollment during the third quarter.

Now let's review the timeline for FDA submission. We are planning on a modular PMA submission. This approach allows us to submit and be reviewed by the FDA on a rolling basis. After completing patient enrollment in the third quarter, we plan to announce topline results of the study in a scientific form, during the fourth quarter. Our first PMA modules will be submitted doing the fourth quarter as well. We plan to submit our final clinical module in early 2013.

Let's turn to scientific data regarding Cologard and cancer screening compliance. Several recent and upcoming data presentations are worth calling your attention to.

At the American Association for Cancer Research annual meeting in Chicago, Dr. David Ahlquist of the Mayo Clinic presented data from a study using our validation study markers. This data demonstrated that patients do not have to adjust their diet, lifestyle, or medication before being screened with a noninvasive DNA stool test. Dr. Ahlquist believes these findings could benefit compliance.

On Saturday, May 19th, Dr. Ahlquist will present data at the Digestive Disease Week meeting in San Diego, detailing his work with methylation markers and the detection of colorectal cancer in patient with inflammatory bowel disease. He found that stool-based testing highly discriminated between cases of IBD where cancer and precancers were present and those where they were not.

Finally, we will be presenting a poster at DDW that highlights the performance of our fully optimized test. We presented these results for the first time at the Association for Molecular Pathology meeting last November. They demonstrate 98% cancer sensitivity, 59% precancer sensitivity, and 91% specificity.

Let's turn now to a study regarding screening compliance. A recent study published in the Archives of Internal Medicine explored colorectal cancer screening compliance, which remains lower than the methods of cancer screening like those for cervical and breast cancer. Study participants were randomized to receive a recommendation for screening by fecal occult blood testing, or FOBT, colonoscopy, or their choice of either FOBT or colonoscopy.

Only 38% of those who received a recommendation for a colonoscopy followed through and received that procedure within 12 months. On the other hand, 69% of those who were given a choice of FOBT or colonoscopy were screened within a year. It's important to note that FOBT requires patients to provide three samples over three days and follow a significantly restricted diet and the FOBT test does not significantly detect precancers and has less-than-optimal cancer detection.

This study shows that by offering patients a choice we can nearly double the compliance rate and this study demonstrated that colonoscopy rates are not significantly affected by providing that choice. 31% of those in the study who were given a choice, still chose the colonoscopy. This study drives home a point that we've been making. By offering patients a choice of colonoscopy or a noninvasive test, overall compliance will dramatically increase. Yet, overall colonoscopy utilization will likely grow, because more patients will need to have precancerous polyps removed.

Now let's review Exact's 2012 priorities. In 2012, Exact has three priorities - preparing and submitting our PMA application, getting our manufacturing facility ready, and developing the market for Cologard.

We just discuss our FDA submission in detail. We remain on track for all of our manufacturing goals, including having in place a fully implemented quality system. Our automation software validation also is on track. We look forward to being able to show off this system and the touch screen software later this year.

Likewise, we continue to make the progress we expected on our market development priorities. They include securing the appropriate level of reimbursement, working with key opinion leaders, medical groups and GI and primary care physician societies.

We are really excited to have Laura Stoltenberg onboard. She has made a very positive impact even in the short time that she's been with and is intently focused on implementing a plan and building a team to ensure successful commercialization.

In conclusion, our DeeP-C clinical trial is on track. We have a plan to complete the DeeP-C study and submit a PMA application to the FDA in 2012. Our manufacturing and market development goals are on track, and Cologard addresses a significant clinical need and a large global market opportunity.

I especially want to thank the team at Exact for keeping the DeeP-C study and product developments on track and we look forward to the back half of this year.

Thank you and we would be happy to take any questions.

(Operator instructions) Quintin Lai, R.W. Baird & Co.

Hi. Good morning.

Good morning.

Kevin, Maneesh, as I look at the quarterly expenses, the SG&A expense dropped a little bit from the fourth quarter to the first quarter. What should we expect for modeling going forward for the rest of the year?

Quintin, yes that was just a function of some of the timing of some of our activities, so you should not expect that to continue to trend and expect a return to fourth quarter levels.

Got it, thank you and then, a question maybe for Laura. Now that you've been there for a couple of months, a little bit longer, can you tell us a little bit about what you're seeing so far and kind of your plans in the development side?

Sure. First of all, I'm thrilled to be here and thanks for that question. Just as far as prioritization, my top priority is ensuring that we have all commercial initiatives online for Cologard to become a global standard of care for colorectal cancer screening. So, in addition, some market development priorities that you've seen before, I'm expanding those to include payor initiatives beyond CMS to private payor panels to ensure that we ultimately obtain optimal routine payments for our test.

As Kevin mentioned, we continue our outreach to physician to ensure we have the right market insights for product development, as well as working with providers and understanding their requirements to prescribe the test and also understanding patient requirements to ensure that they have a positive experience with Cologard.

Appreciate it. And I guess any updates that you or Kevin might have on your discussions with CMS?

We don't have any updates at this time. As you know, we've been working through this parallel review process, which is a pilot program, and we have had really kind of deep and active engagement with CMS and FDA as part of that process.

Alright. Thanks. I'll jump back into queue.

Biren Amin: Jefferies & Co.

Hey, guys, this is actually Biren Amin in for Jon Wood. I know you talked about some papers being presented at the DDW on May 18th regarding the methylation markers. Can you clarify? Is there something -- does that actually relate to the Cologard or is that a separate study evaluating the same methylation markers that are used in the Cologard assay?

Yes. It's the same markers that are used, the same methylation markers that are used in the Cologard product. So it directly implicates the product that we're launching and we think it is significant, because, as you know, the other noninvasive tests require dietary and mediation restrictions, which the data in this test indicate will not be required. So it really speaks directly to the patient experience and we think that's important in terms of compliance.

Okay and for the other study that you mentioned. Is that exactly the same study that was presented at AMP or do you have additional data there? Or is that a new study that you're going to present at DDW?

Which one are you speaking to? We've mentioned three posters or presentations altogether. One was the IBD and the other was a representation of the data that was presented late last year at AMP.

Okay, so that was the same as the one presented at AMP. And are you conducting any other validation studies with your final last biomarker panel? I know you said you are going to conduct a few more studies before submitting your PMA. Do you plan to present those studies at any other conferences in the near future?

Due to the timing of that work, it's most likely that we'll have the DeeP-C study data available for presentation around the same time that we have additional internal validation data. So we'll provide more clarity in the future, but I think the DeeP-C clinical data will be the highlight there.

Okay, that's helpful. Thank you.

Brian Weinstein, William Blair & Co.

Hi, good morning, guys. This officially the shortest call that I think I've been on during earnings season, so much appreciated there. A question for you. I think last quarter, even before, that you guys had talked a little bit about some additional revenue potential opportunities and things that you guys were thinking about doing in terms of maybe a processing center and then the potential of maybe even do a CLIA wrap. Can you just update us as to what your thoughts are on those two opportunities and Laura, now that you're onboard, if you have any thoughts on those in particular? Thanks.

So all along we've believed that it is very important for us to have our own lab, although that is not the core part of our model. Our model is that we're a kit Company and we want to have this test widely distributed to molecular diagnostics laboratories.

We also believe that having our own laboratory may help expedite the adoption of this test. For example, if you take a look at a particular healthcare system that wants to begin offering this test early on at launch, typically it takes three to sometimes even six months for a lab to get a test up and running. Well, we want to make sure that our test is available to that healthcare system in that intervening period, before their lab has the test up and running. So you could think of our lab as being the transition site to help customers start utilizing the test faster.

We also want to do everything possible to make the process of processing the stool sample as easy as possible. So we are likely, also, to offer to our customers - and this still has to be vetted more thoroughly - but offer a process to our customer whereby the sample could be processed down to a small tube with DNA that they could take from there forward. And obviously that would have to be at the appropriate price point for us to take on that work and that's where our thoughts are today.

Laura, do you have anything to add there?

I'd also say that taking a look at potential future pipeline opportunities and a broad portfolio that it provides us some flexibility for the future for additional product expansions or offerings.

Okay. Thank you, guys.

Thanks.

Charles Duncan, JMP Securities

Hi guys, thanks for taking my question and as well, thanks for a quick call. A couple of questions, Kevin, with regard to a pharmacoeconomic study you've talked about in the past. Have you started that or are you planning to start it soon and when will that data be available for Cologard?

Yes. So, yes, we have started that. A pretty significant project is underway right now. What we have decided to do, however, is to push out the submission of a paper. What we have been requested from payors is that they see our internal perspective and we want to vet that. Ultimately, we will expect to see a paper published.

What Laura has done, and she's come in and said let's take a step back and put together a plan for all of the things, not only a peer-reviewed paper, but all of the other things that are required to secure routine and optimal payment from private insurers. And so we've kind of expanded what we want to do this year in terms of reimbursement and as part of that, we've actually de-focused that presentation or that paper until sometime next year.

Okay, That makes sense and also, I wanted to ask you -- well, first of all, thanks for the update and the progress with the DeeP-C study on the cancer patients. But what about adenoma and perhaps the strategy around adenoma sensitivity? What would you consider to be too low of a sensitivity on adenomas to make it a viable test?

Well, because of cumulative sensitivity, you could have something in the 40s still be very effective as a colon cancer screening test. However, all along we have set guidance as that our test will be, at least, 50% sensitive for one centimeter and greater adenomas.

Now, Charles, the important thing to note is that a one centimeter precancerous polyp is about 10% likely to proceed to stage one cancer. Our test detects, in one study was shown to detect about 80% of two centimeter polyps. Those polyps are about 80% likely to go to stage one cancer.

So it's really important not only to think of this in terms of an absolute number of one centimeter and greater sensitivity, but also what is the sensitivity for the most dangerous precancerous polyps? Our test in that same study was shown to be 90% sensitive for three centimeter and greater polyps, which almost all go to cancer. So that's where we are in terms of our view of precancer sensitivity.

As you also know, in the clinical study with the significant number of patients that we expect to be enrolled in this study, up to 10,000 patients now we expect. The number of precancers will be significant, probably in the range of 500, and that significantly powers the study.

Okay, that's helpful, Kevin. With regard to DDW, you mentioned data on a potential use in IBD and frankly, that's somewhat intriguing to us because we've never considered IBD potential use in our market projections. I'm sure it's a little too early, but could you help us understand if that would be a different test and what the regulatory strategy would be around the potential use for Cologard, or a Cologard-like test, in IBD?

Sure. Well, first let me take a step back and emphasize that this particular data could have a huge impact in a population that does not today have a very good screening method and also, that this idea emanated from the Mayo Clinic and really, I think. speaks to the power of the collaboration between Exact Sciences and the Mayo Clinic. They really have brought a lot of different ideas to the table that we believe will have a big impact in our product pipeline in the future and really have a significant impact on patients.

Here, with the situation you have Crohn's Disease patients and ulcerative colitis patients, is that their colon -- go and Google Crohn's Disease and look at the images. It's nearly impossible to see a precancerous polyp or even cancer in one of these patient's colons when it's highly inflamed.

As a result, what GI's do when they screen - and you're supposed to be screened every year if you're an IBD patient after you've had the disease for a certain period of time - is they go into this five-and-a-half foot long cylinder and take random biopsies. Let's call it about 30 random biopsies, and then they look at those slides and they hope that they detected a precancerous polyp or cancer.

Obviously the odds of doing so aren't great. I've told the story many times that our Chief Medical Officer's brother died last year after having been scoped virtually every year and having been recently scoped and then he -- they missed Stage 4 cancer, because it's just really hard to see in a colon that is inflamed.

As a result, a stool-based test that is highly sensitive for cancer and precancer can help a GI who is screening these patients every year, so it speaks to the power of combining a still DNA test with colonoscopy to find more cancers.

And then you may ask, well, how could that potentially help you find the cancer? If you spray the colon with a particular die - its called chromoscopy - you are then able to better see either dysplasia or cancer and so we think that this is a potential pipeline product down the road and we look forward to seeing Dave's presentation in May.

And my last question is for Maneesh, perhaps, regarding R&D expenditures. This quarter it was about $9.0 million. I think you spent probably the vast majority on this particular DeeP-C study. What happened at the end of the year? Would you anticipate expenditures to drop off with the completion of this trial, or would you redeploy those expenditures into some of the pipeline programs?

We expect them to tail off a little bit in the fourth quarter, from an R&D perspective, but other than that, we don't expect a significant redeployment in the current level of R&D spending back into R&D, going forward in the out-years past Q4.

Okay. Thanks for the added color, guys.

Thanks, Charles.

Dave Clair, Piper Jaffray & Co.

Hi. Good morning, guys. It's actually Dave Clair here for Bill. The first question from me may be for Laura. Any comments on the initial discussion you're having with the private payors and then how big of a sales force do you think will be necessary to commercialize the assay?

Okay. So, on the first point with private payors, we're just starting to initiate some of the insights as far as their requirements on evidence-generation and how they're taking a look at establishing routine optimal payments. So we'll be able to provide some additional guidance as go through that process later this year. As Kevin mentioned, we're just expanding our scope as it comes to reimbursement, so it's a bit premature to give some details or guidance on that point.

As far as sales force, we won't be discussing at this time actual plans. What I can say, just to reiterate, is we're having those discussion with the different stakeholders, including physicians groups and group practices, as well as GI's, to help inform how we are going to launch the product. So, more to come there as we go through the year.

Okay and then, you mentioned that we should see the system sometime this year. Do you have any target conferences we should look for, like AMP or AACC?

We'll also provide those details later in the year, because we just have some planning to do there.

Okay, great. Thanks.

Thanks, Dave.

Raymond Myers, Benchmark Company LLC

Thank you. First I wanted to clarify with Laura a little more specifically around the receptivity that you're finding toward a proposed Cologard price that we have forecasted around $300. Have you talked about specific pricing potential with payors?

Let me take this one. We initially in the past couple of years have talked about a target price and more recently, based upon input that we've gotten from reimbursement experts that we have had analyze our product, we believe that there is potential upside to the pricing. We think that it wouldn't be prudent for you to change your models, but we do think that because of the value of this test that there is a path to us securing a greater reimbursement.

A lot of work has to be done, so, actually, I don't think that you should bake anything into your plans, but rest assured that we are intently focused on making sure that we secure the optimal reimbursement for the test.

Well, that's great news, thank you. Next, let me just discuss the pipeline with you. First, you mentioned the ulcerative colitis and Crohn's Disease as a potential pipeline product. Are there different markers in that test? Is that substantially different than Cologard?

Those markers are the same markers that are in the Cologard test, absent one marker. So, if you pull of the markers out -- and I'd rather not talk about at this point for intellectual property reasons, but we're really pleased to note that we happened to have picked the right combination of markers for the different patient population. And let me reemphasize there that that's a significant opportunity by itself in that there are about 1.5 million easily 1.5 million IBD patients who are recommended to be screened every year and this is an awfully high valued test for those patients.

Yes, it sure is, absolutely. What about some other pipeline products? I think some have been hinted at in the past. Are there some other pipeline products that you're working on and can you give us an update?

At the appropriate time we will lay out a more thorough pipeline. The real focus, obviously, has to be on Cologard, because of the significant opportunity here. What I will say is that we're focused on making sure that we deliver products that help GI's and that detect more cancers and the GI tract is just an area that we don't think a lot of people have spent a lot of time focusing on. And fortunately, the collaborators that we have worked with - Mayo Clinic and others - really are knowledgeable in that space. So we're going to keep building on the momentum that we have here and the relationships that we've development to enhance the value of the Company.

Thanks, Kevin. Maybe just one last clarification. We've targeted all along that we expected full enrollment in the third quarter and I think you said on the call that you're comfortable that you will achieve full enrollment in the third quarter. I just want to clarify. The third quarter begins in two months, so you're telling us you're comfortable you're going to finish in two months. You must by pretty close to full enrollment now. Is that a reasonable assumption?

Well, the third quarter has three months in it, first of all, but yes we are very comfortable. Now the risk is that the patients that are enrolling now none of them have cancer and that's obviously something that we can't control.

What Maneesh and the clinical affairs team have done is an incredible job of enrolling the appropriately-aged patients. As we said on the last call, it's awfully easy to enroll younger patients, because there's a requirement in the clinical study that a patient in the study not have had a colonoscopy in nine years. So that's pretty easy for a 50 or 55-year-old patient. It's easy to find those patients. It's harder to find 65-year and older patients that haven't had a colonoscopy in nine years and to convince them to be part of the study.

And the team has done a herculean job and it's been a little bit more expensive than we anticipated, but a herculean job of exceeding on a week-to-week basis our enrollment for that age group. So we're very confident that if we continue with the same cancer incidence rate and the current enrollment rate that this team is delivering.

And let me tell you, it just, it is not an easy thing to enroll at rates faster than you really ever anticipated, but if the cancer incidence rate remains the same and enrollment remains the same, we'll finish this in the third quarter.

That's great news. Thanks, Kevin.

Jeff Frelick, Canaccord Genuity

Well, good morning, folks. Hey, just a follow-up question for Laura. So do you expect to secure some of the private payors before you have the pharmacoeconomic study published?

Our private payor initiatives aren't necessarily tied to the health economics study and again, being fairly new to the team, this is a plan that we're just initiating, so I can't give any guidance on timing at this point.

Okay and then maybe for Kevin, with respect to manufacturing. So, if you submit your protocols in I think you said the fourth quarter, when do you think everything is locked on and ready to go to receive your sales forecast in hand? Is it fair to assume by midyear? Next year, I'm talking Kevin.

Well, you know we can't give guidance at this point in terms of when we would expect FDA approval. In fact, we haven't given guidance that its next year. I think it's reasonable to assume that if we submit late this year or early next year that it's within a 12-month process. But I think any assumption that there's a launch middle of year is a very aggressive assumption, knowing the realities of an FDA submission. It could happen, but I think it's important to be realistic for planning purposes.

Okay and then just one quick follow-up on the 80 sites. Are all those up and running?

Yes, all of those sites have received collection kits and are enrolling patients.

Great. Thank you.

Thank you, Jeff.

(Operator instructions) John Putnam, Capstone Investments

Yes, thanks. Kevin, I was wondering if you might talk a little bit about the automation process, where you are, what kind of capacity you need to have when, in fact, you do go to commercial launch?

Yes, so we have multiple instruments, more than half a dozen instruments that are being tested today. They are up and running here and the instrument program is on track. One thing I'd like to note is I don't know if a molecular diagnostics program has ever - and I think it's been about 14 months - progressed this far with an instrument program and it's remained on track.

The software is today being validated by an outside vendor who specializes in validating software for molecular diagnostics in clinical diagnostics companies, so we're just really pleased with where we are. It's a very scalable offering, because this is manufactured by a third party that manufactures instruments, the kind of bones of an instrument and the core underlying software for this instruments for clinical diagnostics companies.

It's not their first rodeo and so that has been a big part of the reason we've been successful, so far. So we're nearing the end of that process and we will then quickly be deploying those instruments to our two, possibly three, external clinical trial sites.

Okay and then, will you do all the manufacturing, though, in Madison, or will you do it regionally, or how will you go about doing that?

The manufacturing of the instruments? Is that your question?

No, the kits.

Well, the kits will be assembled here in Madison and they will be then shipped to the appropriate sites.

Thanks.

Thank you.

Thanks, Jon.

Laura McGuigan, B. Riley & Co. LLC

Okay, good morning, guys. Thanks for taking my call. I just have a quick question for Maneesh with regard to the cash utilization number. Just for clarification, that $41 million to $43 million, that's cash utilization for the year or for the execution of the trial?

No, that's full year cash utilization, so prior guidance was $36 million to $39 million and the new guidance is $41 million to $43 million.

Okay. that's great. That's all I needed. I just needed to clarify that. Thanks, guys.

Thank you and this concludes our question and answer session for today. I will now turn the conference back to Kevin Conroy, CEO, for any final comments.

Well, thank you very much and we look forward to talking to you in the near future.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program and you may now disconnect. Everyone, have a good day. 5