Exact Sciences Corp (EXAS) 2014 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Exact Sciences second quarter 2014 earnings conference call.

At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time.

(Operator Instructions)

As a reminder, this call may be recorded. Now I would like to turn the call over to Rod Hise. Mr. Hise, you may begin.

Thank you for joining us for Exact Sciences second quarter 2014 conference call.

On the call today are Kevin Conroy, the Company's Chairman, President and Chief Executive Officer; Maneesh Arora, our Chief Operating Officer; and Bill Megan, Senior Vice President of Finance. Exact Sciences issued a news release earlier this morning detailing our second quarter 2014 financial results. If you have not seen it, please go to our website at www.exactsciences.com or call 608-807-4607, and I'll send it to you. Following the Safe Harbor statement, Bill will provide a summary of our second-quarter financial results. Next, Kevin will provide an update on our corporate 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 financial -- 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 recently filed annual report on Form 10K, and our subsequently filed quarterly reports on Form 10Q; and three, 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, or to any change in events, conditions, or circumstances on which any such statement is based.

It is now my pleasure to introduce our Senior Vice President of Finance, Bill Megan.

Thank you, Rod, and good morning, everyone. I will provide just a brief update on our cash utilization, and then Kevin will describe the progress we've made in our regulatory and commercialization efforts.

For the quarter, we used $18.9 million in cash, up from $17.2 million in the first quarter, with increased spending in sales and marketing, as well as G&A, reflecting our intensifying preparation for launch.

In April, we raised $138 million in cash from a follow-on equity offering, and so we ended the quarter with $234.8 million in cash.

Capital expenditures were $2.4 million for the quarter, about half of the investment we made in the first quarter, reflecting the progress we have made in equipping our lab and our IT systems.

At quarter end, our staff help was 199. And last week, we brought in our Direct Sales Force adding 80 more staff to our headcount.

Now Kevin will elaborate on our launch preparations.

Thanks, Bill, and good morning, everyone. Thanks for joining the call. I'm pleased to report this morning that we have taken critical, additional steps towards FDA approval, made our reimbursement proposal to CMS and hired and trained our field sales force.

I'd like to give a brief update on our FDA progress. I'm pleased to report that our FDA facility inspection was completed on July 11. The inspection was successful. The inspector spent the week on-site and found no deficiencies, and no observations.

Preparing for and working through this important step in the FDA process was another example of the outstanding team we have here at Exact. I want to congratulate everyone involved.

We also are working with the agency on the final decision of the post-approval study. We expect final approval within 30 to 45 days. I want to thank the FDA staff for their work on our application. Let's turn now to CMS and reimbursement.

Last Monday we presented our crosswalk analysis and proposed reimbursement level at CMS's annual clinical laboratory public meeting. We will review the analysis we presented at that meeting in a moment.

Outside of the pricing meeting, we continued to work with CMS through the parallel review process on the national coverage decision. We expect a preliminary national coverage decision to be issued upon or shortly after FDA approval. There is a 30-day public comment period, after which CMS has 60 days to issue a national coverage decision. As a result, we expect a final Medicare coverage decision in the fourth quarter.

We also are continuing to build the resources we need to actively pursue reimbursement from private payors after FDA approval.

Now let's review our crosswalk analysis. Most diagnostic tests have a code that corresponds to a reimbursement break. When a code doesn't exist for a new test like Cologuard, a new code can be crosswalked or linked to existing codes to establish payment for a new test. Through extensive consultation with CMS, we decided to use the crosswalk approach.

We were invited to present our crosswalk reimbursement proposal to CMS's Hospital and Ambulatory Policy Group, or HAPG, at its annual reimbursement review last week. Our crosswalk proposal is based on codes in the 2014 clinical laboratory fee schedule. Shown here are the three Tier 1 codes that we presented in our crosswalk analysis. These include a code that corresponds directly to our KRAS mutation markers, and another that corresponds directly to our Fecal Hemoglobin test.

Our DNA vassalation markers are crosswalked to an (inaudible) with a workflow similar to us. These codes total to a proposed reimbursement for Cologuard of $502. CMS does not provide feedback on these proposals at these meetings. The next step is a preliminary pricing decision by HAPG, which will be publicly announced in either late August or September, followed by a public comment period and a final decision in November.

Let's now turn to Cologuard Watch Readiness. Let me first describe the make-up of our sales force. We have three regions, West, Central, and East, each headed by a director. In the last few weeks, we have completed the hiring of our approximately 120-member sales force, including, ten reps who call on large systems and group practices. We also have 80 reps who call directly on primary care physicians, and 10 area managers who oversee these reps. We have six clinical liaisons who are responsible for medical education.

Last week we held our national sales meeting. At the meeting, we conducted intensive training on Cologuard, and I had the opportunity to meet our new sales force. I can say without reservation, after meeting the sales force, that this is an outstanding, driven group, that's passionate about our mission of eradicating colorectal cancer.

Our team was chosen from nearly 10,000 applicants. They have deep experience in pharma, device, and diagnostics in the hospital, system, primary care, and specialty settings. An average of approximately 10 years of experience in selling healthcare.

Let's discuss other components of our launch readiness. We also are ready to create brand awareness for Cologuard among our indicated patient population through a marketing program that includes public relations, print ads, and targeted digital efforts.

Our mission is to motivate patients who are not getting screened today to have a conversation with their doctor, while we spread the word that Cologuard is a new non-invasive screening option. We have a 20-member marketing and managed-care team to do just that.

Just as our sales marketing teams are ready, we know that our lab and customer support center are ready too. We are nearing completion of an observational study, whose aim is to assess our readiness through the entire order test and result delivery process, both internally, and externally with providers and patients who participated.

All of our assistants, including our physician ordering and lab information management systems, ran smoothly, and our customer support center took calls from patients, and made reminder calls to encourage compliance, a key component of our long-term mission to increase screening for medicals.

Let's turn now to our product pipeline. We have developed a technology platform that is applicable to the screening and diagnosis of other cancers. We intend to develop novel, clinically important diagnostic screening tests for GI tract cancers.

We have a broad, exclusive collaboration with Mayo Clinic on GI tract cancers. The collaboration is unique, and together, we're developing two new kinds of tests. As a reminder, GI cancers comprise 25% of all cancer deaths in the United States.

First, we're working together on tests that can screen general, asymptomatic populations for pre-cancers and cancer across the entire GI tract. Second, we are developing new applied diagnostic tests for specific GI cancers that would potentially be used with high risk and symptomatic patients. Within those two general kinds of tests, we're focusing on colorectal, pancreatic, esophageal, and stomach cancers.

At DDW or Digestive Disease Week in May, some very interesting data was presented that resulted from our collaboration with the Mayo Clinic. Our technology platform demonstrated 88% sensitivity for pancreatic cancer by testing pancreatic juice for certain DNA mutations and methylations. The technology also demonstrated 100% sensitivity for detecting veritas esophagus, the precursor to the vast majority of esophageal cancers. We are continuing to make progress with our pipeline, and look forward to updating you on the pipeline by early next year.

In conclusion, we are in a strong financial position to launch Cologuard. After FDA's inspection of our facility, we expect an approval decision within 30 to 45 days.

We recently presented our reimbursement proposal with CMS and remain on-track with our reimbursement timeline. Our sales team is in place, was trained at our recent national sales meeting, and is ready for launch.

In addition, our lab and customer support center are ready for launch. We are pleased with the progress we're making with our product pipeline, particularly with pancreatic and esophageal cancers.

We are now happy to take your questions.

(Operator Instructions)

Jeff Elliott, William Baird.

Good morning. Thanks for the question and congrats on all the progress. Can you give us a little clarity on what steps do you have left to do to get FDA approval and CMS coverage? Is everything in those agency's hands, or do you need to do anything else?

Sure. The first thing that has to occur is the inspector, as we in understand it, has completed the report that he prepares and his supervisors have to sign-off on that report. Afterwards, that goes from the Minneapolis district to the office of [deeper] diagnostics that will take the final steps to issue a approval.

During that time, we are working to finalize the post-approval study with the office of in-vitro diagnostics, and as a result, that whole time period is about 30 days to 45 days from today, we would estimate to FDA approval.

We have general agreement of the design of the post-approval study, and we really just have a few details to work through. Including the final language of the intended use of the test. So the passage insert is also being finalized.

That will all come together again in about 30 days to 45 days, Jeff.

The post-approval study, is that so much would you presented back at the panel, or has there been major changes to it?

There have not been major changes to it. So it is very similar to what we proposed at the panel. The goal of the post-approval study is to shed light on the efficacy of Cologuard with a three-year interval.

So we expect the study to be a three to five year study from start to completion and publication. That data will again, shed some light on the efficacy of Cologuard being used in patients every three years.

Got it. I think this is a timeframe where a lot of the [self] side will update their models for the next few quarters. I don't know if you want to give guidance now, but I think it would be helpful, given the time frames that we know, if you could provide some commentary on when you expect revenue to actually start, both from CMS, and from the commercial payers.

Because I think there is a lot of logistics around getting the product into the market in order to get any samples back, the revenue recognition policies, I just want to make sure we have all that into consideration in our model. Is there any commentary you could give on when we should start thinking about additional revenue coming in?

Sure. First of all, let me say, as we said before, we don't intend to provide guidance until we have more visibility into the launch trajectory.

As we said, we don't expect the national coverage decision to occur until the fourth quarter. That will be padded off the timing of the preliminary coverage decision, which we expect to occur around the time of FDA approval, and then there is a 60 day to 90 day period following the preliminary coverage decision until that becomes final.

The Medicare --the test in the Medicare population cannot be processed until Medicare -- the final national coverage decision occurs. That's in the fourth quarter.

The time period between FDA approval and the national coverage decision, the focus will be on the segments of the market including commercial pay patients, and also cash pay patients. But first, part of the launch will really be focused there.

In terms of revenue expectations, I think your model is a model others should probably look to. Again I don't want to provide guidance, but this year the revenue trajectory should be considered to be modest, and the focus on Medicare patients will occur very late towards the end of this year.

Does that answer your question Jeff?

It does. It's very helpful. I think I'm at about a $1 million worth of revenue this year. So pretty modest there.

Just on the commercial payers side, correct me if I'm wrong, but that will be on a cash pay basis, correct? So there could be some delay in terms of rev-rac, and then CMS side, will that be on accrual or a cash basis?

I will let Bill answer that question.

You're absolutely right, Jeff, on the private-pay side, the commercial pay-side it will be cash-rec. Cash received, we recognized the revenue for CMS will be working with our audit team to determine what the communication is from CMS, as to when we can recognize that revenue. So that is still to be determined.

Okay, at this point do you think you'll be able to recognize CMS revenue this year, or if not, I'm mistaken, I think that the reimbursement rate won't go into affect until January 1, 2015. So can you recognize CMS revenue this year, or will you have to wait until next year?

I think that is the operative question, it is retroactive to the final coverage decision, and can we use that as a basis for accrual? That is still to be determined.

Okay. Thanks so much.

And I think your question there deserves a little bit explanation so it is perfectly clear. Under the CMS pricing process, there is a huge [offer] of this open meeting that occurred last week. Followed by a preliminary pricing in late August or September, followed by a 30 day public comment period in November, a final price being listed on the CMS website.

It's not until January 1 that payments would be made. Under CMS rules, those payments would be retroactive back to the date of the national coverage decision as we understand it.

So the question becomes, from an accounting standpoint, would that revenue for tasks that are performed between, let's say, if November was the date of the national coverage decision, would the revenue be recognized in November and December for the test-run, or not until the first quarter once cash is received.

That is the common question that would have to be answered at a later point in time, and that will be clarified in the future.

Okay. Thank you.

Brian Weinstein of William Blair.

-- the questions. Perhaps you can dig a little bit deeper into the initial uptake. Can you guys talk at all about productivity per rep expectations at launch, versus steady-state. I know you've given some numbers in public meetings about what type of productivity you expect at the steady-state. But how does that sort of ramp-up?

And also, how should we think about the primary care physician versus the group practices health systems approach? Where do you expect to see initial volume coming from between those two? Thanks.

Brian as I said earlier, we don't want to provide guidance until we have greater visibility. And we also don't want to provide our expected productivity by rep in any clear fashion that we already have until we have greater visibility.

Your second question relating to where do we expect to see more uptake with the large systems, or the primary care physicians, and I think time will tell that answer. Initially, we think that primary care physicians will be the initial, greatest drivers of Cologuard utilization. However, we do have a number of large primary care physicians that have expressed interest in Cologuard. Obviously, this test has been publicized and we have had conversations with large systems in response to their questions about it.

So we think there is going to be demand there, but that will typically take more time to get those systems up and running, and the vast majority of their physicians educated.

Let me make note of the fact that about 50% of primary care physicians in the US work for a group practice. Be it small, medium, or large.

More and more primary care physicians, their groups are being acquired by larger groups, and those groups typically provide incentives to primary care physicians for quality, scores. They also set guidelines from the top down, not uniformly, but many of them are really focused on quality, and they have guidelines for how they expect primary care physicians to screen patients. Not only for colon cancer, but for other things.

So we think there is a huge opportunity to convert the market away from the FIT and FOBT test, and away from doing nothing at all, to Cologuard. That we think will take a little bit more time than going after the primary care physicians who we know today, use noninvasive approaches to screen for colon cancer.

Great. Thanks for that.

Another question on expenses, specifically related to sales and marketing, with the kind of broad set of people you've brought on and the emphasis around brand awareness. How should we be thinking about spending levels as we look towards the initial parts of the launch? Thanks.

Brian this is Bill. If you look at the sales and marketing expense, we ramped up in the quarter from $4.5 million in Q1 to a little more than $6 million in Q2. We expect that spending to continue to ramp as we head into commercial launch.

So consistent with the comments we made following Q1, and repeated today, we talk about sales forces of 120 at launch, and that includes the 80 sales reps, calling on the high prescribing FIT [phobic] primary care physicians. It includes the key account executives, that sales support, sales management team, plus, if you add the 20 staff in marketing, at launch we will have 140 staff -- we have 140 staff in sales and marketing. So we are ready with that.

We also said that we would hire 20 additional direct sales force by the end of the year. If you take that number and average it out across the back half of the year, you're looking at 150 people. If we use an average compensation all-up of $200,000, that would give us a quarterly expense of about $7.5 million. That is a pretty clean way to think about this.

On the non-comp side in marketing, the content development, executing the advertising campaign, building awareness, if you use a one-to-one ratio, that is probably a fair way to think about all up-sales and marketing expense. Does that help?

So you think $15 million a quarter is your run-rate in 2015?

That is a good estimate. If I may, just to round out the expense side, on G&A, we increased spending to just over $6 million in Q2, and at first, it's about 4.5 in the first quarter. Again, reflecting the rapids we built towards commercialization.

And remember in G&A, we have all the expenses that are foundational to the commercialization including the IT, the customer support for the compliance engine we talked about, we're doing our own billings, we are building a billing team. As we expand our overall team, we're expanding HR, and of course we have a leadership team. So a way to think about G&A is we expect to continue to ramp it about the same pace for the rest of the year, as we ramp from Q1 to Q2.

With R&D, a good way to think about that, is that we invested about $28 million in all of last year, and we have every intention of continuing to invest in R&D, we don't intend to cut it back. In fact, it might increase, just modestly in 2014.

So we are investing to support Cologuard, we're incurring cost as we, through the first half of the year, as we are preparing the analysis contributing to our FDA review of Cologuard. And as Kevin went through in the prepared remarks, we are supporting all of our pipeline activities. So R&D, roughly in line with, or a little bit trend-up with where we were in 2013.

Does that help?

Great, that's very helpful, thank you.

Thank you. Isaac Ro of Goldman Sachs.

Good morning guys thanks for taking the question. Kevin first off, I'm wondering if you talk a little bit about when we might see publication of cost-benefit analyses for the purpose of driving clinical commercial adoption?

Did you say our cost-benefit to help economics?

Yes, exactly.

We would expect that publication to occur sometime in the next six to nine months. So following CMS decisions, and as we get into the process of talking with commercial payers, that full-blown analysis would be published.

And there are really two components of that. The first component is looking at Cologuard on a interval between every year, to every five years over a range of prices.

The second component is looking at a comparison -- using a differential analysis comparing a Cologuard and the FIT test and other types of screening tests. There will be multiple publications that ensue over time. We don't expect that to happen within the next six months.

Okay. That is helpful. Maybe just a general question on commercialization.

Could you just walk us through, conceptually, your biggest area focus here going forward over the next three to four months? Where you see the most potential risk, and how you're managing for that?

Clearly, the most potential risk to date has been around FDA, CMS, the test perform in itself. And moving forward, the risk profile is up around execution, commercial execution. I'd actually like to refer this to Maneesh who will be running the whole sales and marketing organization in the US to provide a little bit more color.

Sure. Thanks Kevin.

As Kevin said, the risk is going to be execution and the over-arching comment is, this is what we've been told, we have done a lot of market research with all segments, physicians, payor systems, patients. The risk is going to be the fact that this is a disruptive technology.

So the promise is terrific, but the real focus and emphasis needs to be on how successfully getting out, and educating physicians, making sure patients are aware that there is another option. Educating physicians that this is an easy test for them to order, and easy test for patients to perform, and educating the payors that this is something that makes a lot of sense. Because we clearly know, and this is one of the key reasons we believe that Medicare has been so supportive, we know that Medicare represents somewhere between 40% and 45% of all patients for this product.

And Medicare helps taxpayer to pay $14 billion going to $17 billion for colon cancer in this country. The best expense that any one could invest in, is early screening and diagnostics. We think that is why Medicare has been supportive, and that we will get coverage, with the real risk I think, is around us getting that message out, because this is a change to the way people practice medicine, and doing that is not the easiest. It is going to be challenging.

We think we are making the right investments. We are continuing to focus, and we will focus continuously on what is working. Will additional sales reps make sense, and that is why we have a plan for adding to that sales force later this year. Hopefully that is more color for you.

Yes. That is great. Thanks so much guys.

Brandon Couillard of Jefferies.

Thanks, good morning. Kevin, with respect to your comment on the preliminary price from CMS in August, September timeframe, under what circumstances would that change between the initial pricing indication and the final coverage decision?

As of the public meeting last week, the HAPG group said they would expect to announce the pricing decisions in late August. This is a process that they follow on an annual basis. I don't think that there is immense risk to the August, September timeframe because there were a lot of other tests, I think around 100 tests that pricing was requested for at that meeting.

We're pretty confident in that timeline. It's not just about Cologuard, it is about a lot of other tests as well.

Would you perceive any risk in that change in between then and the final coverage decision actually following?

I think there are always changes that can occur and that is entirely up to the HAPG group. Our involvement to date has been to have multiple matings with the HAPG group face-to-face. So we've been able to educate HAPG over time about the value of the test, the clinical function of the test, the purpose of the test, as well as deep conversations around our approach to the crosswalk analysis.

We have a lot of feedback from the HAPG group. We're pretty confident that the approach we are taking is correct.

One of the interesting things that came up at the meeting is that other groups requesting crosswalk for codes, kind of meandered off into the [gap-fill] territory asking for certain amounts that weren't directly crosswalk to another code. We made sure that we didn't do that -- take that approach, instead we did what HAPG asked us to do, which is a simple crosswalk analysis. We're pretty confident in the approach that we are taking, but HAPG gets the final say.

Just want to make I'm clear, if I understand your comments right. Will the sales reps begin calling on primary care and the large networks upon FDA approval, or will you potentially hold off that effort until the final NCD is in place?

No, Brandon we have brought the sales team forward, and have been trained to go out into --begin that effort, calling on primary care docs at FDA approval.

Okay, super. And the last one, has there been any incremental progress on your international efforts that you are willing to share today?

Yes. And first let me address as a follow-up to Maneesh's comment. The early focus is going to be on patients who either pay out-of-pocket, or are covered by commercial insurance.

Initially, those pairs will not have a coverage decision in place. So we will be billing those payors out-of-network. We will be collecting a modest amount from the patient's up front. And that process, it will take time to get to those payors to issue coverage decisions, and to bring us into their networks.

You can expected that it will take some time to actually collect on the tests that are initially run. Our group that is focused on those commercial payors will be focused on getting those coverage decisions. And we're focusing on the largest and --payors and regional payors first with a very experienced, capable team, with an awfully powerful message. That here is a relatively inexpensive way to screen for colon cancer with a highly sensitive test.

But make sure that as you think about this, that there is going to be a time period between running a test for a commercial-pay patient and actually collecting revenue from that patient.

In terms of international expansion, we have a hired a very experienced Head of Europe was been on-board now for a couple quarters. We have a plan in place, we're working on CE marking, and most importantly, our strategy for entering Europe.

We would start in a modest way, focused on cash-pay patients in Germany, Switzerland, Austria, potentially the UK as well. And we would expect to begin to offer those tests in the first quarter of 2015.

We're really pleased with the quality of the team that is being developed in Europe. We are a little bit further behind in Asia, and the regulatory hurdles will be higher in Asia. But we're focused too, on addressing that market. Both of those markets are very large markets, together the potential to equal the US market.

Super. Thank you.

Thank you.

Peter Lawson of Mizuho Securities

The modest delay in the FDA approval, is that driven by a backlog from the FDA with them requiring more details from you?

Let me first preface this by saying the FDA has done a great job all along. And the inspection took a little bit longer to get scheduled than we originally anticipated, but the FDA is awfully busy with a lot of on their plate, and resources that aren't as extensive as maybe they should be. That is probably why we are looking at FDA approval within 30 days to 45 days. We still think that there is a lot that can be done this year to make up for that.

Thank you. The first approval study, has that led to any delays from the FDA or CMS decisions?

No, we have had very good discussions with the office of in-vitro diagnostics regarding the post-approval study, and we think we've ended up in a good place in a timely way.

Got you. And then product pay, could potentially come before final CMS pricing? Or do you think that really requires that healthcare economic study?

No, we don't think it requires the published healthcare economic study. Payors have very sophisticated groups, they are already reading the New England Journal of Medicine paper so the first question they ask is a clinical question.

They do ask the question of how would the adoption or the coverage of Cologuard affect their budgets. So they do budget impact modeling first and foremost.

They secondarily look at the cost effectiveness. You have to understand these payors by and large don't pay for the cost of treating colon cancer, although it is a factor in their consideration. There are 3,000 payors in the world. A very small percentage of them account for about 80% of all patients in the US, and that is the group that we'll be focused on. And it will take some time.

Remember Peter, that under the Affordable Care Act we would expect, that with a positive coverage decision by the United States Preventative Services Task Force, that Cologuard would be mandatorily covered by all payors in the US. And we would expect USPSTF to rule on, or come out with their revised colon cancer screening guidelines. And we would also expect Cologuard to be included in them as either as A or B rated by the end of 2015. So after the next six quarters, we would expect that all payors would, under the Affordable Care Act, be obligated to cover Cologuard.

Just finally, around the preliminary pricing decision from CMS, will that just be a yes or no for payment coverage, we wouldn't get a price point?

The pricing group actually will issue a proposed price. We would expect that to occur in August or September. The coverage and analysis group, CAG, we would expect would issue their preliminary coverage decision around the time of that date of approval.

Got you. Thank you very much.

Which is around the same timeframe, Peter.

Mark Mazzaro of Canaccord.

Good morning, thanks for taking the question. First question, not to split hairs, the 30 days to 45 days, is that after the date the FDA completed its inspection, or is that from today?

That's from today.

Okay, great. And second question if you could just, Kevin, maybe elaborate a little bit on the progress in your dialogue with commercial payors. How are those conversations progressing, and one thing that you mentioned about cost effectiveness, do you anticipate commercial payors looking at potentially the cost of a colonoscopy in their cost analysis?

Let me first start by saying the work that we have done to date with commercial payors was to do a lot of research, interviews, focus groups, quantitative and qualitative research to help us understand their willingness to adopt Cologuard, and the thought process and business processes that they undergo to adopt a new screening test.

In terms of the factors that they consider, they will consider all of their current screening costs including colonoscopy, as they look at Cologuard. And they have both medical people, their Chief Medical Officer look at that, they have their cost effectiveness people and their budget people looking at those analysis. Everybody does it a little bit differently.

We are prepared now, and expect to have meetings with these payors upon FDA approval. We are not doing the face-to-face meetings until we have FDA approval. We continue to do some research, but face-to-face meetings with those payors would occur after FDA approval.

Again, we will start with a very small list. We have a team partially that we have contracted with, and partially, internally to get out there and intensively meet with the larger payors first.

Great. Thanks. And maybe just a final question, of the 90 sites enrolled in the pivotal trials, can you walk me through your expectation for initial adoptions from these enrollment sites? And kind of help us understand adoption from these sites versus PCP's.

We don't want to provide that level of color, Mark. Suffice it to say, those 90 sites really know Cologuard, the GI's there know Cologuard, and there are a lot of champions within those sites. They feel that they did something of import, and they want to see Cologuard adopted within their systems. I think I've provided a fair amount of color on the PCP versus system approach. And where you're going to see more uptake, so we'll see as time goes on, how that plays out.

Let me say that may change, and we may see some systems really drive Cologuard. Because systematically, and this is an important point, Cologuard now provides systems the opportunity to go out and screen an entire population quickly. That is hard to do with any other screening test. UPS delivers a kit to people who today haven't been screened. You can find those patients and get them screened.

So we'll see whether it is the systems that generate more Cologuard demand, or the primary care docs, or a combination of the two. And we look forward to having those conversations as time goes on.

Great. Thank you.

Thanks Mark.

Zarak Khurshid.

Thanks for taking the questions. In terms of the payor conversations, are you progressively looking to an in-network contract right out of the gate? Or would you maybe give up a little bit on price, or how are you thinking about just operating out-of-network for a while, or feeling things out before going in-network?

Zarak, this is Maneesh. At the end of the day, our goal is to have everybody in-network, eventually, over time, and we know, and Kevin alluded to this earlier, that our expectation is with a positive A or B rating at the United States Preventative Services Task Force that will mandate coverage.

So the launch, to getting to those contracts, we think it is going to be out-of-network initially, and it is going to take time. The one thing we don't want to do is, we've invested, and we think, developed something that is innovative. We want to make sure that whatever we do, Cologuard gets priced fairly, and we expect to hold to that. So our expectation today is not to go in to try to get secure massive discounts or -- we do have an effective plan in place to go drive to these contracts, but not at any price.

Great. Thanks for that.

I had a question on the compliance engine. It sounds like most of that will be, sort of, a calling approach initially. When you plan to implement some of the other bells and whistles, like the text messaging reminders and other features?

Zarak we have built all of that into the system now. Those are things that we have been testing.

So If you were a patient, when you enroll after that first interaction where you verify your shipping address, our first interaction with you, you can tell us how you want us to communicate, whether it's email, whether is text, whether it is phone. We can do that right now. That is what we have been testing.

Understood. Thanks.

Raymond Myers of Alere.

Thanks for taking the questions. On the call here that you're working on the case for cancer test (technical difficulties) can you describe what research you are doing as far as cancer?

You were cutting in and out. In terms of stomach cancer, is that your question?

Yes. I'm asking, can you elaborate more on what your research projects are involving stomach cancer?

Let me say that our order of priority is most likely going to be pancreatic and esophageal cancers. With stomach cancer being a tremendous opportunity in a limited part of the world, initially. And Korea has a huge stomach cancer screening program, national screening program that already exists. China, stomach cancer is a big problem, Japan, stomach cancer is a big problem, in fact, number one cancer killer in some of those regions.

Our current platform technology, and markers that we have identified in our collaboration with the Mayo Clinic would potentially be utilized, and readily adopted to the platform. In terms of the real, the greater opportunity both in the US and globally, pancreatic cancer screening and diagnostic is a high priority. And esophageal screening and varus esophagus screening and diagnostic is the second high priority.

We will talk a little lot more about that as we go forward. But remember that we invested millions of dollars into a automated platform, and millions altogether, tens of millions of dollars in the technology platform, the chemistry platform, the DNA extraction platform, the marker development, we haven't talked about that much over the last 5.5 years. It's there, it's real, and it is applicable to other disease states and we think we are way ahead of where other people are.

We will start to talk about our plans a little bit more as time goes on. We have a dedicated team that is focused on this, from marketing, project management, and most importantly, R&D and clinical, being the Mayo Clinic. So we thing we have some exciting things to talk about, just not right now.

That's great. If I could ask one follow-up question, that would be around the pancreatic cancer. You mentioned getting the 88% pancreatic cancer sensitivity from pancreatic juice. Will you need to be sampling pancreatic juice in a pancreatic diagnostic, or do believe that the same Cologuard testing kit could be used in that?

When we take a look at the pancreatic market by itself, we see about a dozen potential applications for our technology and our markers. One of them happens to be in pancreatic juice and that can help identify pancreatic cancer patients early.

Today it is very difficult to diagnose early pancreatic cancer because imaging doesn't do a very good job. And doing biopsies frequently misses, pancreas is a big organ, and frequently misses the site of the cancer. Pancreatic juice is a good representative sample of the entire pancreas, and even with a really early crude test, we've been able to show nearly 90% sensitivity.

We think that is higher than doing a needle biopsy today, which has risks associated with it. It is higher than ultrasound, it is higher than MRI, It is higher than CT scans.

That is just one example of many potential tests, and we're excited about that. So I would rather not get into too many details, but you'll see that -- see more information over time about what our strategy is, and how we intend to pursue those opportunities.

Okay. Thank you very much.

We have a follow-up question Jeff Elliott of Robert Baird.

Thanks for letting me back in. Kevin, how certain are you that you will get an NCD for Cologuard? And the reason I'm asking is that if there is not a tracking sheet on the FEMA's website and also Metronic recently made a comment about their parallel review that CMS may not even give an NCD. Instead CMS might just signal the data is good enough for coverage.

Jeff, we're very confident that this parallel review process will lead to a preliminary coverage decision and we would expect it will lead to a national coverage decision. There are no certainties in life, but they -- the CAD has spoken very positively about Cologuard publicly. There is a strong rationale for Cologuard for there to be a national coverage decision. Unlike the Metronic product, a colon cancer screening test cannot be paid for by the Max without a national coverage decision.

Okay.

There has to be national coverage decision for Cologuard to be paid for, and I would believe, based on interactions to-date, that Cologuard will be covered by Medicare.

Okay. Thank you.

Jan Wald of Benchmark Capital.

Good morning. Congratulations, it looks like you're making some good progress. I just have one question, most of my questions have been answered.

In terms of commercialization of the product, it sounds like you have a strong message to take to prospective buyers of the screening test. How receptive do think people are to it and what kind of market are you walking into, in the sense that whether or not (technical difficulties) to accept the test? And then what tools are you going in to really make the sale, application, presentations, and how are you approaching the market?

Let me answer the first part of the question, Maneesh will answer the second part. Yesterday, I visited primary care physician to get an annual checkup and was talking to the nurse on the way in. I was asking her bunch of questions about how their healthcare IT system flagged colon cancer screening, she asked why I wanted to know, and I told her what we were up to. She said, oh, my mother heard about that test from CBS News and is waiting, is putting off her colon cancer screening until your test gets FDA approved.

We hear those stories all the time. The fact that Mayo Clinic has been behind the development of this test has been in fact, impactful, and the news coverage around the test to date over the last several years has been pretty broad. So a lot of people know about this test, but our job is to drive that further.

When you talk to primary care physicians, they say a lot of patients are aware of Cologuard and are asking for it. So basically our message to those patients will be, come out from hiding and get screened. If you've been avoiding screening for a long time, there is a new way to get screened.

I'll let Maneesh answer the second part of the question.

As Kevin said, we think there is a fertile market. We've been preparing for a long time and we talked to lots and lots of physicians. The one message that is --that really resonates is the fact that the test has 94% cancer detection of Stage I and Stage II cancers. The ones that are most likely to progress.

While it has lots of great features and statistics people have read about in the New England Journal, the one thing that we know is we need to keep the message very simple. The message that has resonated most with primary care physicians has been the extremely high sensitivity for early stage cancer.

So, what we have done is transformed that message into a very specific and simple training materials that we shared with the sales team last week. A core visual aid that states clearly the message is around early cancer detection, manifestation in digital media, social media, plans to be able to communicate that to the physicians, systems, and patients. It is going to be a robust and broad communication, digitally, as well as with in-office materials and medical education.

Just think about it as a very coordinated approach around a very simple message that was really impactful with our sales team, and had been in our market research.

Just a follow-up to the question, in terms of your going out and doing a lot of focus groups and market analysis, are you finding a certain segment of the population more receptive like younger folks versus older folks, are you fighting anything like that in your analysis?

That is a terrific ask, and yes, the answer is yes. There are characteristics or attributes of physicians that make them more or less likely for Cologuard. Specialty, we know that OB/GYN are more likely, why, because very used to screening with women.

So there are a whole host of things. I don't want to go through all of the list, but yes, demographics do matter, age does matter. So what we have done is plugged that in to our algorithm to make sure that we are targeting the right physicians. Yes, we have looked at that, and we've spent a long time doing the analytic work.

Thank you very much.

Chris Lewis of Roth Capital Partners.

Thanks for taking the question. I had two quick one on a follow-up for the task force discussion earlier.

First, I may have missed it, but when do expect those guidelines to be finalized? And then second, assuming in A or B rating for Cologuard, understood there would be a coverage mandate, can the task force also require or recommend a minimum pricing level for the test?

We would expect the USPSTF guidelines to come out in the back half of 2015, we would expect an A or B rating, and no, USPSTF does not recommend a price.

Is there a difference in your eyes between an A or B rating, or are they basically the same?

Under the Affordable Care Act, no. Colonoscopy and the Fecal Hemoglobin tests are both rated A.

Thanks.

Thank you.

Drew Jones of Stephens Inc.

Good morning guys, just one quick one. You touched on interval of the test, can you give us some color around your conversations with CMS, and whether or not you have any visibility into how they are taking that into account in their decision-making process?

Sure. Both in private meetings and public meetings, the conversation has focused on an interval of every three years, which based on the cost effectiveness data that they have. So the coverage and analysis group has the research done by an outside party that we funded, and that indicates that three years is probably the most reasonable screening interval.

And that was also discussed at the panel meeting by world renowned colon cancer screening experts who said they thought that initially three years made the most sense, but the guideline committees will ultimately make that decision. CMS was in the audience for that FDA panel meeting, and so that is very public that they also heard the testimony of those experts.

Thanks guys.

We have a follow up question from Zarak Khurshid of Wedbush Securities.

Thanks guys. Just had a quick one around the accounting around USPSTF, would that not only shift a lot of the business to accrual? How should we think about that?

Eventually. So if their ruling comes out at the end of 2015, and there's mandatory coverage, then over time, we would expect the accounting to go to accrual, but that wouldn't be until 2016.

Got it. Thanks.

I'm not showing any further questions. I'd like to turn back over to Kevin Conroy for any final remarks.

Again, everybody thanks. Things are really coming together, obviously with FDA approval, hopefully right around the corner, CMS coverage, pricing, we're really excited about launching Cologuard.

I would first like to thank all of those investors who had been supporters of the company over the last 5.5 years. Thank the analysts who have done a lot of hard work in digging in critical analysis around our plans. And last but not least, the team here at Exact have devoted nights and weekends and the better part of their last five years to this mission. We can't wait to get started, and we look forward to talking to you again one quarter from now. Thank you.

Ladies and gentlemen thanks for participating in today's conference. This does conclude the programming you may now disconnect. Everyone have a great day.