Exact Sciences Corp (EXAS) 2014 Q4 法說會逐字稿

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

(Operator Instructions)

Please note today's conference is being recorded. I would now like to hand the conference over to Rod Hise. Please go ahead.

Thank you for joining us for Exact Sciences fourth quarter 2014 conference call. On the call today are Kevin Conroy, the Company's President and Chief Executive Officer, in addition to Chairman, 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 fourth quarter 2014 financial results. If you've not seen it, please go to our website at ExactSciences.com or call 608-807-4607 and I'll send it to you. Following the Safe Harbor Statement, Kevin will provide an update on our corporate priorities. Then Bill will provide a summary of our fourth quarter financial results.

Before we get underway, I'd ask everyone to take note of the Safe Harbor paragraph that appears at the end of a 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 recently filed annual report on 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 Laws, 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 now my pleasure to introduce the Company's Chairman and CEO, Kevin Conroy.

Thank you, Rod and good morning, everyone. First, I'd like to provide some context for our discussion by outlining Exact Sciences strategy. Exact Sciences has a unique combination of competencies. First, we have the proven ability to develop and obtain regulatory approval for complex innovative cancer diagnostics that can positively impact millions of patients. Second, we have built a [Clinical Lab] and sophisticated technology platform that actively engages both physicians and patients and provides powerful analytical tools that powers our business. Third, we have a growing commercial organization focused on reaching a broad base of physicians.

Cologuard is our cornerstone with broad appeal to the 280,000 primary care physicians practicing today. In addition to Cologuard, we are developing a pipeline of valuable cancer diagnostics in collaboration with Mayo Clinic including tests for the early detection of pancreatic, esophageal and other cancers. We know that detecting cancer early is the key to better patient outcomes. This combination of competencies is unique and will enable us to continue to focus on creating value now and over the long run.

With this as background, let's review our 2014 milestones. At this time last year we outlined a number of ambitious milestones. This included publication of our clinical trial results in a peer-reviewed publication, FDA approval of Cologuard, the first DNA-based at home colon cancer screening test and coverage and reimbursement by Medicare. We delivered on each of these milestones securing publication in the New England Journal of Medicine last March, FDA approval for Cologuard in August, a final coverage decision from CMS in October and final pricing from CMS in November. The American Cancer Society included Cologuard in its new guidelines as well.

Our goals for 2015 are equally ambitious. We have three key priorities for the year ahead. One, expanding our Cologuard business. Two, continuing to provide world-class service to physicians and patients through our compliance engine. And three, developing our pipeline of products beyond Cologuard.

Let's review our key fourth quarter metrics. We are pleased with the launch trajectory of Cologuard during the fourth quarter. In the short time since FDA approval, and particularly following the Medicare coverage determination, our sales and marketing efforts generated strong interest in Cologuard from both physicians and patients. By the end of the year more than 4,000 physicians ordered at least one Cologuard test, over 40% of those physicians ordered two or more tests. Also by the end of the year, more than 4,000 Cologuard results were reported by the lab.

During the fourth quarter we achieved a patient compliance rate of 75%. We generated revenue during the quarter $1.5 million. Let's take a look at the reach of the sales force. To date, our sales team has reached approximately 16,000 primary care physicians or about 6% of the roughly 280,000 primary care physicians in the US. Our goal is to increase the reach of the sales force.

Due to this limited reach and the strong interest of physicians, we are expanding our sales force. At launch we had 80 sales professionals. By next week will we will have 140, all directly employed by Exact Sciences. By the end of this year, we expect to add 50 to 60 new sales professionals for a total of approximately 200. These additions will increase the reach of our sales force and allow us to better capitalize on the growing awareness of Cologuard in the medical community by visiting with targeted physicians more frequently.

Let's look at the breakdown of patients using the Cologuard test. As you can see on the right side of this chart, about half of the patients screened with Cologuard never had a colonoscopy. This demonstrates that we are increasing the number of people getting screened and reaffirms the importance of our compliance engine. It's important to note that one of the largest problems in the battle against colon cancer is that about half of people that should be regularly screened aren't. This early evidence proves that Cologuard is expanding the screening population.

Our compliance engine is important because it solves a major problem for physicians in getting patients to follow through with colon cancer screening. Our team actively engages with patients and physicians to answer their questions and contact patients proactively encouraging them to return their Cologuard test. As a result of our team's efforts, the lab reported more than 4,000 Cologuard tests by the end of last year. The real value of this team is clear when you review its ability to increase patient compliance.

During the fourth quarter, as noted in the goal graph, 31% of people who receive a Cologuard kit returned it within eight days without a follow-up call. With each successive call from our compliance team, you see that rate increase to more than 70% which is our goal. As this demonstrates, our compliance engine is an important part of solving the problem of colon cancer screening.

We continue to work to secure coverage and reimbursement for Cologuard. Medicare patients represent 43% of the target market of people in the average risk population over the age of 50. We have a team that's negotiating with commercial payers and educating them about clinical utility and cost effectiveness. We have a handful of commercial insurance covering Cologuard today. We believe our team's efforts will trigger more commercial insurers to cover Cologuard during the course of 2015 and we look forward to making announcements about those physicians. In addition to our discussions with large national and regional insurers, we are focused on health plans affiliated with health systems and states where coverage of colorectal cancer screening is mandated.

Let's turn now to our launch progress during the first quarter. By the end of 2014, there were nearly 10,000 physicians registered to order Cologuard with the Exact Sciences lab. Both enrollment and the percentage of physicians ordering Cologuard continue to grow. By mid-February, 2,000 additional physicians have enrolled to order Cologuard and the percentage of enrolled physicians were ordering increased 10 percentage points to 52%. We achieved these positive results with just 80 sales professionals.

Let's look at this progress in more detail. More than 6,300 physicians have ordered Cologuard at least once since FDA approval. Tests completed are growing. The Exact Sciences lab has generated more than 5,200 valid test results in the first seven weeks of the first quarter. We anticipate that more than 10,000 tests will be completed by the end of the quarter. This compares with approximately 4,000 tests completed during the full fourth quarter of 2014.

Let's take a look at the key factors that will drive Cologuard's success. First, we're providing our sales team reach and frequency with providers. Second, we are continuing to invest in medical education, engaging physicians and teaching them about Cologuard's value. Third, we are continuing to secure coverage and reimbursement of Cologuard from private payers. Finally, we're expecting the USPSTF, or the United States Preventative Services Task Force, to ensure its final guidance sometime towards the end of this year, possibly in early 2016.

This will have two effects. Positive USPSTF ratings drive inclusion in heated quality measures which large systems are incentivized by payers to follow. Under the Affordable Care Act, if Cologuard is included in the USPSTF guidelines, in time all US payers will have to cover. Bill Megan, our Senior Vice President of Finance will now provide more detail on financial results. Bill?

Thank you, Kevin. Our financial results include recognized revenue of $1.5 million on 4,024 completed tests. Our recognized revenue is based primarily on those completed tests covered by Medicare. Now at the early stages of establishing commercial relationships with private payers and have begun submitting claims and supporting documentation to them to obtain payment. Operating expense for the quarter was $30.7 million, roughly in line with the prior quarter. Sales and marketing grew with the expansion of the sales team and investment in our marketing program.

G&A grew with the expansion of our customer support and compliance team, billing and other core functions. These were offset by lower R&D spending and more costs for reported new cost of sales with the shift to commercialization in the fourth quarter and we did not incur the milestone payment that we reported in Q3 when we achieved FDA approval. We used $33.9 million in cash in the quarter offset by the proceeds of our follow-on equity offering in December. Our end-of-year cash balance was $283 million.

Also with respect to financing as announced yesterday, the State of Wisconsin will provide refundable tax credits of up to $9 million to Exact Sciences as part of the State's economic development initiative. The credit can be earned through a combination of hiring and spending in the state through 2020. We are grateful that the state of Wisconsin is partnering with us to grow our business and further our mission. We are now happy to answer your questions.

(Operator Instructions)

Jeff Elliott, Robert Baird

Good morning, guys. Thanks for the question and thanks for all the data, especially the Q1 data. That is helpful. I'm wondering, can you provide additional data on the order patient that you've seen during the quarter? Have you seen week-on-week growing?

And then, do you have any data on like a same store or kind of a same doc reorder rate? Any data that you could share?

Yes. To answer your first question Jeff, we have seen week-over-week increase, as you would expect as we continue to penetrate the physicians with our field force. Except for the weeks in which there were holidays then we have one or two fewer days, we have continued to see week-over-week increasing. That's good. We're pleased with that. Your second question was regarding?

If you have any reorder data or same store? Just to go back and look at the doctors who signed up early on. What their trends are, their order trends are?

So what you can see from the data that we show, we have a greater percentage of physicians that our ordering more than one. That continues with physicians who we track whether they've ordered more than five, more than 10 and more than 20. And in each of those categories you see an increase in steps per absolute percentage of physicians in each of those categories. So we're pleased with that.

We know though Jeff, that we can increase this in a more meaningful way with continued medical education as we referred to earlier. That the investment that we make in peer to peer marketing is an important one.

Great. I think that makes a lot of sense. And then, traipsing over to the coverage side. Can you give us an update on some of the commercial payer discussions? And I guess you don't have any of the major contracts in place but when you do have a test that you have billed to them, are you getting paid? And if so, how much are you getting paid?

I'll take both of those questions. One, the question about our conversations, and two, whether we're getting paid. We are focused on large national payers and regional payers. We're seeing more uptick from the regional payers. We have a handful right now. We have not announced all of the ones that we have under contract but altogether, we have between 5 and 10 payers that we have contracted with. Some of them are Medicare advantage payers.

The large players we think are going to take more time. We are in conversations with them because all of them have large Medicare Advantage plans, and as you're probably aware, Medicare Advantage plans are required to provide Cologuard and so we're in discussions with the right people. I just want investors to know that this is something that takes time.

Even once you get agreement on price, you still have to go through a one to two month credentialing process and then the actual contracting process sometimes can take one to two months as well. So we would like to see this move along faster and we have a team internally that's focused on it.

In terms of the payment, we are obviously billing commercial payers. It's not a huge end at this point but we are billing commercial payers and we are seeing commercial payers including some of those with positive coverage or negative coverage physicians actually paying for Cologuard. We expect this trend to continue. And we'll recognize the revenue as we receive payments from those payers.

Got it. One last quick one for me. When you add up the 43% of lines covered from Medicare, the states where coverage is mandated, if you add up all this in the contracts you have, where would you estimate that your current percent and partner marketer is from a coverage standpoint? What percentage is currently uncovered?

If you refer to the slide that we had earlier you see Medicare is 43%, commercial insurance is 40%, the remaining 10% uninsured, 2% military, 4% Medicaid, unfortunately not a huge part of the screening population. So Medicare you can look at as around half of the real target market.

When you include the states where because of Cologuard's inclusion in the American Cancer Society guidelines, there are eight states that trigger mandatory coverage. You're at least 50%, maybe much higher of the overall population. But I want to caution that in those eight states we don't have contracts with those payers and we're now starting to engage with them, let them know about the obligation on their part to cover Cologuard and we expect to be able to announce more good news on that front as the year progresses.

Got it. Okay, so over 50% even though you're just a few months into launch. I think that's a pretty good start. Great, thanks for all the data and congrats, guys.

Thanks. Jeff, that does speak to the point that we are in a unique position with the diagnostic launch in that because we received Medicare coverage around the same time as FDA approval, that puts us in a really strong position to continue to invest in the launch.

Good, thank you.

Thanks.

Brian Weinstein, William Blair

Hi, thanks for taking the question. I think you guys said that you expected 10,000 tests in the first quarter. Can you characterize how that is relative to your own internal expectations and what they were prior to the launch?

Brian, we haven't given any type of guidance as to where we expect to be and I don't want to start that now. I appreciate the question. But we're pleased that the launch continues, that patients want this test and doctors want to order the test. That's really clear. The reason that patients want it and doctors want it is because it's an option for colon cancer screening, an accurate test that's non-invasive and you can do it in the confines of your home.

The reason that doctors don't order the test when they don't order the test is by far and away a lack of commercial insurance coverage. So you'll see over time as we get more commercial payers and we focus in those regions you'll see an increase in test ordering. We're only seven weeks into the year. We'll have a better idea of where we expect to end up the year as we're further into the year.

Got it. I don't think you answered -- I don't know if Jeff's question really hit this part. But in the ACS states that are mandating the coverage, how do you think about pricing there? Will that be a proxy for how you think pricing could roll out if you get a positive review from USPSTF? And then also, how does ordering look in those eight states that mandate coverage due to the ACS cover inclusion versus the rest of the country?

So, there are eight states; Illinois, Georgia, Missouri, Maryland, Kentucky, Maine, Rhode Island, Arkansas. Altogether, we think it's less than 10 million of the 80 million in the screening population. There probably we'd guess in the 6 million to 8 million range. We think that -- Atlas prices $599, Medicare is $483 that we're going to end up in a good place with commercial insurers. Obviously the goal is to be at a premium to Medicare which we think is the right result.

In terms of the ordering patterns for these states, it's too early to tell. We just really kicked off this program at the beginning of the year with increased number of primary care physician reps in those states. And we'll be in a much better position to talk about the results of this initiative on the next quarter's call

Great, last question for me. You mentioned at a recent conference that there's a third study that you expect to be published soon with some data. Can you talk about what the study is and where we're going to see the data? Is this going to be published in the Journal or is it going to be presented somewhere like DDW? Thanks.

Yes, so interim results from this study were presented at DDW and are part of an abstract from last year's DDW. It's reference, SU1213 and this was a study in which Dr. Ahlquist from the Mayo Clinic was a lead investigator and our subject, Alaska native population which has a high rate of colon cancer. And what we saw there was, at a moment detection rate very similar to the deep sea study with deep specificity also similar, actually slightly better than in the deep sea study.

The final readout of that is being submitted now for peer-review publication and we would expect that it would be published before the end of the year. This confirms the deep sea study. The deep sea study was a very large study so we believe it was powered accurately and with a second peer-review publication this year, we think it really drives home the point that Cologuard is a very effective colon cancer screening tool.

Brandon Couillard, Jefferies

Hi, good morning. This is actually Kate in for Brandon. Thanks for the questions. First Kevin, of the 5,000 high volumes in forward doctors you proved for discuss, how many would you estimate are in the 6,000 doctors that your sales force has contacted to date? And if possible, could you give an estimate of how many are ordering or have ordered one test?

We've contacted, our sales force has reached 16,000 primary care physicians. Maneesh, why don't you finish.

And a little over half of those that we've contacted are the high prescribing fit and forward doctors of the 5,000 that we've talked to just because of the geographies that they're in. And so we do see a strong percentage of those and as we alluded to on our prior call, we do see that strategy working. That high fit and forward physicians are ordering more than the non high fit and forward. So, we've reached, of the 5,000, we've reached a little over half of it.

Great. And Bill, will you remind us how you're treating the recurring for the Medicare Advantage volumes and how do expect this next look over the coming quarters? Because really because our checks suggests doctors are not heavily ordering for patients with private pay yet.

So we talked about rev rec in this context, that for Medicare traditional we would recognize it as the rate that Kevin gave, 483. For Medicare Advantage because of Medicare Advantage rules, to make the patient participation rates to no more than 50% we're recognizing revenue at 50% of that 493. For commercial payers, it is on a cap basis until we have a contract and some history of collectibility. And in terms of mix it's probably majority Medicare is the easiest way to think about it right now.

Okay, great. Thanks.

Let me correct one thing. I think Bill and I both misspoke and said 483. It's 493.

Understood.

Isaac Ro, Goldman Sachs

Hi, good morning guys. Thank you. Just want to ask a question regarding compliance rates. You guys talked a little bit about your goal there of 70% and was curious if you could a little more color around the complexion of current compliance rates? How many of the samples your seeing require one call back, one follow-up call versus two? That kind of thing.

So we're right around 70% today as we increase the number of what we call -- see an increase in the number of what we call bulk orders or program orders where physician practice will order a multitude of Cologuard tests for their patients, for a group of their patients. And we move towards shipping to Medicare patients without first contacting them. What we see is a slight decrease in the compliance rate.

But on the flip side, I think we're also getting better at the engagement with patients and getting them to follow-up. So, we'll see how that pans out. It's something that we track and is really important company-wide is to keep that rate at or above 70%.

Great, and then just a follow-up on USPSTF. You guys reiterated your prior views on how you expect it to play out regarding A&D rating but there's been obviously some debate about how USPSTF evaluates these ratings. If you could maybe remind us how you guys arrived at your conclusions as to what was required to get those ratings and how you expect them to evaluate? Any color there would be great.

I think it's worth taking a little bit of time here and explaining the process. USPSTF is a group of volunteers that are mainly academic oriented thought leaders in primary care. And they currently are in their five-year review of colon cancer screening guidelines which means that they take the time to look at all of the evidence that has accrued to date for all of the various colon cancer screening modalities. Cologuard is explicitly part of the review which started in January of 2013.

There are two things that USPSTF looks at. First is, the test performance at a point in time. So the deep sea study provided a point in time look at Cologuard looking at sensitivities and specificity in one usage. The second thing that USPSTF looks at, is assessing how the test would impact both incidence and mortality. And HRQ recommends that virtual studies, or modeling studies, be utilized to look at how that point in time data translates into reducing incidence and mortality given differing screening intervals.

So that is an explicit part about how or the explicit approach that USPSTF takes. If you had to wait for outcome studies, you'd have to wait 20 years. It's only the GFOBT test that have solid long-term clinical studies empirically confirming a decrease in colon cancer incidence and mortality. Even the FIT test doesn't have that data.

So where does that leave us? We have done modeling using one of the models that is considered a well constructed model. And what you see there is if you use colonoscopy every 10 years there's 73% decrease in mortality, which Cologuard is similar to if Cologuard were used every year.

Cologuard used every three years the model mortality decrease drops into the high 60% which is identical, virtually identical to the FIT test every year. So let me repeat that, Cologuard every three years modeled is virtually identical to the FIT test performed every year.

The challenge with the FIT test is it rarely achieves the goal of annual performance because it's hard to get anybody to do something every single year. So we think that Cologuard is in a really good position given that its sensitivity is better than the FIT test, its specificity every three years is similar to the FIT test every year. And so we think that USPSTF will issue draft guidance this summer and final guidance towards the end of this year, maybe the beginning of next year, which then triggers good things for Cologuard and Exact Sciences.

Thanks so much. Appreciate the color.

Thanks, Isaac.

Mark Massaro, Canaccord Genuity

Hey guys. Thanks for taking the question and congratulations on your progress to date. Just for clarification, is the 5,200 tests in Q1, these are tests that you have completed so far in Q1 which obviously compares to the -- in other words, you're already greater than the sum that you've reported in Q4. Is that correct?

Yes. That's the number through last Friday. So yes, we're ahead of where we were for the fourth quarter of 2014.

Excellent. And maybe as a follow-on to the last question. With respect to the task force, do you think there may be a scenario where the volunteers on the task force request your model? And can you just kind of walk us through -- this is a model I think you may have had help with.

So in some respect, can you walk us through to what extent this model was internally developed versus a validated by third-party? And do you think the task force would want to see this model or potentially see another type of model?

So the task force engages HRQ which then engages with other models. The model they've used in the past and you can see this from their 2008 review included the MI scan, MI scan model and also the SIM CRC model and those models are very similar to the model that we used which was the Archimedes model.

And you're going to get a pretty similar results because those models look at well-characterized evolution of the disease, the biological evolution of the disease, and they don't end up in dramatically different places. I don't know which models they are using. We do know that they are using models as they have in the past.

Great. Then maybe a follow-up for me. Do you still anticipate potentially signing on commercial payers sometime in 2015 before a task force decision and you still believe you can derive appropriate value for your test from commercial payers?

The answer to that question is yes. We expect to see a continued increase in the number of payers that cover. We have a pipeline right now of payers that are in process and the thing -- the payers that are the early adopters of Cologuard look at the importance of increasing their colon cancer screening rates by providing them an additional option. And they all also recognize the economic value that Cologuard provides because it is -- because of two things.

It's priced in a fair way relative to other screening methods, and also, by detecting cancer at stage I and stage 2 which we know is what you do when you screen patients that 75% of them are going to be early cancers, they reduce their back end cost in treating colon cancer.

So we have seen payers adopt for these two reasons. Better for patients, it's better financially for them. And that's a message that we just need to keep driving home and the team internally is highly engaged in doing so. So we're positive about where this can go. We don't expect a tidal wave in the near-term but we do expect progress throughout the year.

Great, thanks very much.

Peter Lawson, Mizuho Securities

Hi, Kevin. Just thinking through 2015, what worries you the most? Is it reimbursement? Is it capitalized? Just if you could elaborate around that?

Thank you. Let me tell you. I've never been and I think the team can say this too, we've never been more enthused and engaged. As you know, for the last four or five years we've had these milestones that were kind of up or down, black or white. And now, we have a test that physicians want and patients want and a sales force that is working. You can see the results immediately when you put a sales rep into a new territory. Doctors start ordering the test. So we're excited about all of those things.

Clearly, the largest challenge is launching with only about 50%, or thereabouts, coverage from an insurance standpoint. But we're even positive over time to see those other payers start to come onboard and then importantly, the impact of USPSTF on their requirement to cover Cologuard under the Affordable Care Act. So, that's the biggest challenge as you look out over the year is commercial insurance coverage and we're attacking that squarely with a focused effort.

And I might've missed this. Did you actually break out the number of private lines covered?

No, we haven't done that yet. The private line coverage is pretty small right now.

And then, just finally for Bill. Could you just walk through the OpEx for the year, the timing and how we should think about R&D and SG&A?

Yes, happy to Peter. So, and as we've said, operating expense was just shy of $31 million in the fourth quarter. Let me walk you through the parts of that and what we anticipate into the first quarter of 2015.

So, starting with sales and marketing expense. It continues to ramp to just over $15 million in the fourth quarter. About $2 million more and as we've talked about and Kevin's alluded to in prepared remarks, that this additional investment is in sales and marketing that we've launched with the sales force of 120. Including 80 reps calling on doctors and their staff but then also the key con executives, the sales support staff, the management and then another 20 people in marketing. And so, the number that we've used is about 140. And we ended the year adding 20 more reps and that was in the neighborhood of 150.

The math we've done is we just applied about $200,000 as an average all up cost for that sales staff. And the we used a ratio in 2014 of about 1 to 1 between the compensation expense and the marketing content and campaign spending. And that would yield roughly $7.5 million in comp, $7.5 million in marketing and that's just about where we finished in Q4.

As Kevin described, we intend to make additional investment in 2015. We're going to add another 100 sales professionals, professional medical representatives and we're going to augment the corresponding sales support and marketing staff. We're going to hire 10 people in the sales force in Europe.

In total, we're going to effectively double, our plan is to double those total sales and marketing staff in 2015. If you do the same kind of math, the $200,000 per person as an approximation, we'll be adding about $2 million a quarter to sales and marketing. The marketing spend here, the ratio will change a little bit. I think Peter, that the contact creation in campaigns will stay in a range of about $6 million a quarter. That's sort of how we're thinking about it. So that helps our sales and marketing.

And on R&D, the expense was $5 million in Q4. That compared to $9 million in the prior quarter. And part of that is due to we had $2 million in one-time expense in Q3 that related to milestone payments that we made when we achieved FDA approval and we didn't repeat those.

The other half of the difference reflects the shift to commercialization and cost of renewing categorized and as cost of sales in the main and to a lesser extent we moved some costs into G&A. All up for the year, R&D costs were $29 million in 2014. As Kevin talked about, we have a very active research pipeline and we intend to continue to invest in it.

We're going to continue to invest to support Cologuard as we look to improve elements of our processes. We are going to find our post approval study as well as additional studies for new indications. And to enable as planned, we're going to invest in our product development staff and our clinical affairs staff.

One other thing is we announced two weeks ago, we extended our relationship with the Mayo Clinic. And one of the components of that agreement is we made milestone payments to Mayo as well as agreed to research funding on an ongoing basis. And that will all be reported to R&D.

In the end, we expect investment in R&D to be somewhat above our total spend in 2014, so above the $29 million. And lastly in G&A, it was $0.10 compared with $0.09 in Q3. We expect our G&A teams to continue to grow and is a key component of how we do customer support, how we do our internal support functions. We expect it to grow at about the same pace we saw from Q3 to Q4 and into Q1. So about $1.5 million a quarter. Does that help?

Yes. Thank you so much.

Raymond Myers, Alere Financial Partners

Thanks for taking the questions. Kevin, I was hoping you might run through some of the sales force metrics that you expect in terms of the number of physician visits per sales force representative? And help us to understand what happens when you basically double the sales force this year? What does that do to the number of visits they can make per physician as well as the increased reach per physician? And then explain why you're making these decisions?

So Ray, this is Maneesh. I'll get into that whereby saying we know that the sales force is effective. And what we saw early was we started targeting 200 and we realized that was too many. So we narrowed the focus to 75 at key targets. And we're seeing strong success with reach and frequency and responsiveness. When you put a PMR in a territory with a target of 75 they can be very effective.

What we know is that by increasing, essentially doubling the size of the sales force, that gets you to, with 75 targets each, about 5,000 high prescribing targets. And that is still a relatively small number but we also know if you go back to our prior comments, if you look at the noninvasive testing market, a small number of physicians drive a huge number of the colon cancer screening events noninvasively.

So we believe that by doubling the size of the sales force and getting to those 5,000 high prescribers we can drive a material increase in volume. It's not hey let's get the shotgun. It is taking a very focused rifle approach to be efficient with this investment.

Thank you. How to think about the number of physicians that are ordering versus the number that are signed up? And then the third tier, which is the number that are ordering on a repeat basis. So if more than 40% of the 4,000 physician orders were on a repeat basis, that means that over 50% of the tests are single orders where physicians are not ordering on a repeat basis. It would seem like there's a tremendous opportunity to increase that. And so, help us to understand how that's being done?

Sure Ray. Let me walk you through why we are -- why we're so bullish. Why I'm bullish and optimistic. Over the last four weeks somewhere between 300 and 450 new physicians have ordered Cologuard for the first time. Of the 6,000 doctors that are ordering, 50% of them have ordered more than one. So we're seeing a lot of new doctors come in and what we see is as a dynamic is a lot of the first orders qualitatively are sometimes on the physicians are ordering for themselves.

What they want to do is they want to try this experience and that takes about a month realistically. And so what we see is, as Kevin alluded to earlier, more physicians trying and more physicians repeating. Which for the long haul has really positive implications.

Our goal is to get more physicians trying and the repeat rates up. But yes, we have a large dull list that have tried just once but that's what it is. It's trial or it's a patient going in saying hey, I want this. By increasing our investment, we know that we can start to convert that and that is opportunity for us to get those increasing rates up.

Ray, one of the things that you see is that when physicians talk to their fellow physicians about the value of Cologuard and tell them the stories about a patient who is identified with a precancerous polyp because of Cologuard. That starts to increase the frequency with which physicians who have tried Cologuard once or twice to order more and more.

And we see that. That's why we're making the investment in the peer-to-peer marketing, the medical education, the continuing medical education because that's where you're going to get the biggest increase from the physicians who've already tried Cologuard.

Thanks for the color. And just one final question on this subject. Of the roughly half of the physicians that have ordered once but not more than once, in your opinion is it mostly an issue of this is too new and too short of time between the first order and any potential second order? Or is there any other reason, for example, maybe the first time that they order the test they ran into reimbursement problems and therefore, aren't making a second order? Do you have any speculation as to why physicians order once but not twice?

You know Ray, we think that is too early. I think part of it is just the time of getting that experience and then getting a reorder. Just to remind everyone that we are seeing that percentage rate go up. So part of it is just time and experience but I think it's still too early seven weeks into the year and just a couple months into the launch to be able to give a definitive answer on that. We know it's something we are actively looking at.

And to drive that home. Back in November the percentage of physicians who ordered of those that had signed up was about 20%. By the end of December, it was 40% and now it's 52%. That's pretty meaningful because the absolute number of physicians kept increasing during that time period.

So that's an increase of 12 percentage points in seven weeks time, right?

Correct.

Okay, thank you very much. It sounds like a good trend.

Thanks.

Bruce Jackson, Lake Street Capital

Hi, thank you for taking my question. Can you remind us what the payer mix was on the reported results in Q4? So how many tests were commercial payers and then what was the Medicare breakout?

So we have said that it's a majority of Medicare. We haven't provided that specific breakout because that's going to change from month to month and over time. I think the only thing that we've said is that Medicare Advantage is about 20% of all the Medicare patients.

Okay, so Medicare Advantage is about 20% of Medicare and Medicare is the majority of the units.

Correct.

Okay, and then when we look at what you've done so far during the first quarter, would you say that that mix is the same or has it changed any?

It's been pretty consistent over time so far. It'll start to change and obviously Medicare will go down as a percentage of overall volume as we see more commercial insurers come onboard.

So that's over time and then would you say Medicare has gone up during the first quarter?

No.

Okay. Then the second question I've got is just, I know you're out talking with commercial payers and it's a process that takes some time, but what is their reaction to the $599 price? A lot of these, especially the larger payers because they control so many units, will demand kind of a bulk discount from different people. So what's the reaction of the $599 price and what's their incentive to pay that?

Well let's start with their incentive to pay it is remember that $599 relative to another screening approach is a lot less expensive. In terms of how their response to that has been, the reality is that large payers are used to getting paid at a discount to the Medicare fee schedule. That world is going to change pretty rapidly here with the recent panel legislation that is Medicare is going to price its fee schedule or based off of the volume weighted average of what commercial payers pay. So I think you're going to see a fee change here in the way commercial payers and labs interact.

We have something that's unique. Cologuard is a really unique differentiated test that nobody else offers and there's no reason for us to offer Cologuard at a discount to the Medicare fee schedule. Under the panel legislation starting in January, 2017, the Cologuard Medicare rate will be a volume weighted average of what commercial payers are paying.

Now, there can be an increase or a decrease not to exceed 10% in any given year. So we have no incentive to take this really valuable colon cancer screening method that costs less than another valuable method and provide it at a discount to Medicare. That just doesn't really make sense to us.

That was very helpful. Thank you.

Thank you, Bruce.

Jan Wald, The Benchmark Company

Hi, sounds like things are going pretty well. Most of my questions in fact, just about all of them have been answered. But I just wanted to talk or ask a question about the sales force. My understanding had been that you were working with another group in terms of getting a sales team together.

Today you mentioned that you're directly hiring the sales people. Has there been a change in strategy or not? And if there has been, does it reflect anything in SG&A?

So yes, we went to market because we had to ramp up really quickly to -- with a contract sales force. It was dedicated to Cologuard. They were managed by our area managers and we have converted the majority of those sales professionals to direct employees as we had planned all along.

And now with this next group of sales -- increase in the sales team we have been able to do that directly because we had time to plan for that and bring those people on through recruiters and bringing them on directly. And a there's a real benefit to it.

But we know that our sales team really wanted to participate as employees of Exact Sciences and be part of a culture of Exact Sciences and get equity. And so we're really pleased with the fact that everybody is now full-time exec employee.

Thank you.

Zarak Khurshid, Wedbush Securities

Hey, good morning everybody. Thanks for taking the questions. What is your percent penetration look like within the Mayo system?

I think the way we can characterize -- we probably don't want to characterize any individual customer in any great detail, but we would say we are incredibly pleased with the relationship with Mayo and how widely they have educated their physicians about Cologuard and the uptick. It is -- we expect over time for other systems to take the same approach because this is such a powerful tool to get more people screened with an accurate method.

So we're really pleased with the approach but I don't want to give a specific breakdown of the penetration. There's a lot of room to grow even though they're doing well to start with. There are 600 primary care physicians employed by Mayo just in the Midwest region but there are also two other regions that we expect to see greater adoption in Arizona and Florida.

Understood. Thanks for the color there. And just curious on the GI channel, what sort of interest are using there?

So the GI channel hasn't been an intense focus for us because we don't have a group of doctors who are calling GIs. But it's been interesting. I think around somewhere between 5% and 10% of the orders are coming from GIs without an intense focus on them.

Recently, we had a system of about 60 GIs adopt Cologuard because they think that it's good medicine. And you know again, our focus has to continue to be on the primary care physicians because that's where the front-line screening is occurring.

Great, that sounds good. And then, a question for Bill. Given your experience to date, how are you thinking about cost of goods in gross margins over the next couple of years?

You can do the math on the fourth quarter. We recorded the $3.4 million in cost of sales against the roughly 4,000 tests. And that gives us a cost of sales calculation of about $850 per test.

Remember the test also includes all of the spare capacity. We talked about the build out of our lab our 30,000 square foot plus facility, the instrumentation, the equipment to get to 1 million test capacity. The overhead, gets applied and put it into cost of sales.

We've talked about a long-run target moving down. We expect over the course of 2015 that we would be able to move a per unit cost of sales down towards about $200. Over the longer-term, we anticipate that we'll be able to reach our target. Longer-term, we talked about that being packed scale and to get to scale is going to take us a couple of years.

Got it. Thanks for the clarity there. And then last one, just on the doctors that are reordering, just curious what fraction of them are all adopters or do most of them continue to use FIT tests in some capacity?

Zarak, what we're seeing is we do have some doctors -- it's a relatively small percentage that say okay, I'm going to be at all in adopter. And most physicians try it, increase their utilization, use it on certain types of patients.

And that's really the importance of this medical education that we're going to invest in to try and create more awareness to get a bigger share of that physicians potential patient population for screening. Right now, it's a small percentage that are all in but a large number of people that are using it on certain patient populations.

Great, thanks.

Chris Lewis, ROTH Capital Partners

Hey, guys. Thanks for fitting me in here. In terms of the revenue recognition and collectibility, I think the average revenue recognized per test in the fourth quarter was around $375. Given the different reimbursement and mix dynamics this year, how should we expect that metric to trend in 2015 from that fourth quarter level?

In terms of the average reimbursement, is that your question?

I guess the average recognized revenue per completed test.

So over time we obviously expect that to increase with the increase in the adoption rate. So it's totally dependent on the adoption rate by the insurers. What you'll also see is as we get paid by some of the commercial insurers that we have billed early in the year that we get billed, as you progress through the year, you'll see that average increase as well.

So is it safe to say you expect that to increase throughout 2015?

Yes.

Okay, great. And then, in Europe, you obtained CE mark there and you mentioned you expect to hire I think 10 reps. Can you just talk about the commercial strategy and expectations for the rollout there in 2015?

Let me first say that in Europe colon cancer is a big problem. In the US we're with 50,000 deaths, in Europe there are 160,000 deaths annually from colon cancer. Screening rates are about 20%. Colonoscopy capacity is low.

So Cologuard is nicely suited for Europe. The challenge is that a lot of payers don't want to pay much for screening. That is starting to change as they see the impact that you can have by actively screening a population and especially focusing on higher risk patients.

We launched Cologuard initially in the UK and we have a team, a really strong team, that worked together for 15 years launching ThinPrep into Europe. So they know the IBD market, they know the cancer screening market and they know the important decision-makers in each of the countries. So that is all positive. We have a very measured approach to Europe because we don't want to utilize too much cash as we launch into Europe.

So first we're focused on patients that will pay out-of-pocket. We're focused in the UK, Germany, Switzerland, Austria, Italy and then certain markets in the Middle East. The way that we're deploying Cologuard is with lab partners that will take the large sample down to small samples and tubes and ship them to the US lab for process. So we want to keep a very nimble organization and we want to make sure that the cost infrastructure is reasonable so that over time as we get large insurers and national systems to adopt Cologuard, we're really well positioned to see a profitable business.

Great. Thanks for all the color there.

Thanks, Chris.

That concludes our question-and-answer session for today. I would now like to turn the conference back to Kevin Conroy for closing remarks.

Well, thanks everybody for joining. In summary, we achieved significant milestones during 2014 including FDA approval of Cologuard and the subsequent CMS decisions on coverage and reimbursement. Exact Sciences has a distinct combination of competencies that puts the Company in a unique position to execute on our long-term strategy.

We are pleased with the trajectory of Cologuard and the launch with both physicians and patients including the continued progress we've made during the first seven weeks of this quarter. We are expanding our sales force from 100 to 200 sales professionals during 2015 to increase our reach with physicians.

During the fourth quarter, our compliance section doubled patient completion of Cologuard and many of those patients haven't been screened before. This is great news.

So we thank you for joining us and we look forward to updating you on our progress as we move forward.

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.