Exact Sciences Corp (EXAS) 2015 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Exact Sciences' second-quarter 2015 earnings call. (Operator Instructions). As a reminder, this conference is being recorded.

I will now turn the call over to your host, JP Fielder, Senior Director of Corporate Communications. Please go ahead.

Thank you, operator, and thank you all for joining us for Exact Sciences' second-quarter 2015 conference call. On the call today are Kevin Conroy, the Company's Chairman and CEO; 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 2015 financial results. If you have not seen it, please go to our website at ExactSciences.com or call 608-807-4607, and it will be sent to you.

Following the Safe Harbor statement, Kevin will provide an overview of today's call. Next, Bill will provide a summary of our second-quarter financial results; then Kevin will provide an update on our corporate priorities.

During today's call we will make forward-looking statements based on current expectations. Our actual results may differ materially from such statements. Descriptions of the risks and uncertainties associated with Exact Sciences are included in our SEC filings, which also can be accessed through our website.

It's my pleasure to now introduce the Company's Chairman and CEO, Kevin Conroy.

Thank you, JP, and good morning, everyone. On this morning's call we will cover the continued strength of the Company's financial performance. I will review how the trajectory of Cologuard's launch continues to be robust. I will also provide details about a presentation we recently made to CMS about reimbursement coding for Cologuard that will streamline the processing of claims. I will provide an overview of the valuable pipeline that builds on the success of Cologuard.

Let's begin with our Senior Vice President of Finance, Bill Megan, who will review our second-quarter financial performance.

Thank you and good morning. We continued our strong growth path in the second quarter. Revenue was $8.1 million for the quarter with completed Cologuard test volume of 21,000. Both revenue and test volume grew 90% over the prior quarter. Average recognized revenue per test was $386, in line with the average for Q1 and reflecting our revenue recognition policy with regard to Medicare and commercial payers.

Cost of sales was $5.1 million. Gross margin improved to 37%. Operating expense was $42.4 million, an increase of 18% from Q1. The primary driver of the increase was investment in our sales and marketing program. As we announced previously, we pulled forward the expansion of our field salesforce into the second quarter, increasing the team to 200. And our co-promote agreement with Ironwood Pharmaceuticals became effective in April, and their 160-person sales team began promoting Cologuard at the beginning of May.

The quarter-end cash balance was $210.8 million, with cash utilization of $34.3 million for the quarter.

I will now turn the call back to Kevin.

Thank you, Bill. The second quarter was another quarter of strong performance for Cologuard. We are very pleased with the rate of growth. As Bill said, the number of completed Cologuard tests during the quarter increased to over 21,000. We expect that number to grow to more than 32,000 during the third quarter. The number of ordering physicians increased 77% to approximately 15,000. The total number of orders we have received since launch increased to approximately 80,000 in the second quarter.

We ended the second quarter with a compliance rate of 73%, up from 71% in the first quarter. As a reminder, the patient compliance rate is derived from the number of valid test results generated from collection kits shipped to patients 60 or more days prior to June 30, 2015.

This strong performance is being driven by a number of factors, including our experienced team of 200 Exact Sciences sales professionals, combined with 160 professionals selling Cologuard as part of our co-promotional relationship with Ironwood Pharmaceuticals. Also, the broad public relations campaign is having a significant impact. And finally, our digital marketing campaign has generated 27,000 doctor discussion guide downloads, which continues to drive Cologuard growth.

Let's turn now to an update on the reimbursement coding for Cologuard. The American Medical Association maintains a permanent, uniform set of billing codes called CPT codes, which are used to process claims by both Medicare and commercial payers. Payers are accustomed to using CPT codes, and those codes enable the smooth processing of claims. At the request of CMS last Thursday, Exact Sciences presented a proposal at CMS's Clinical Laboratory Public Meeting to crosswalk Cologuard to a new, universal CPT code created by the AMA specifically for our test. We expect a decision from CMS in the fall, with a potential effective date of January 1, 2016. This code would replace the G code assigned to Cologuard as part of the national coverage decision last October.

CPT codes are difficult to obtain and represent a recognition by the AMA of the growing prevalence of Cologuard in medical practice. The CPT code for Cologuard will help facilitate more efficient claims processing by both Medicare Advantage plans and commercial payers.

Let's turn now to our promising product pipeline. At our Investor Day last month, we described the Company's pipeline and how we are aiming to make Exact Sciences synonymous with the early detection of cancer.

We are focused on four areas that combine to account for nearly half of the cancer deaths in US. The first is expanding the indication for Cologuard. There are 40 million Americans between the ages of 40 and 49, and 15% of all colon cancer cases involve patients who are under 50. In addition, there are 20 million Americans who are at higher risk for colon cancer and are recommended for surveillance with colonoscopy. We intend to explore expanding the indication of Cologuard to address both of these patient populations.

Lung cancer -- in June we announced a landmark partnership with the MD Anderson Cancer Center to develop a simple blood test for the diagnosis and screening of lung cancer, the number-one cancer killer in the US. It affects 220,000 people in the US every year, killing 160,000 people. Again, early detection is key. Three out of four people diagnosed with stage I lung cancer survive five years, but only two out of 100 diagnosed at stage IV survive five years.

Our goal with MD Anderson is to pair novel biomarkers and our technology with the low-dose CT scan, the current screening method, to accelerate and detect lung cancer in its most curable form. We believe this approach has the potential to overcome some of the limitations of low-dose CT scans alone, and offer a more reliable way of detecting lung cancer early.

Pancreatic cancer -- there are almost 50,000 people diagnosed with pancreatic cancer in the US every year, and 40,000 people will die from the disease. Early detection of pancreatic cancer is critical, as less than five out of 100 patients survive five years if they are diagnosed at stage II, III, or IV. As part of our ongoing partnership with the Mayo Clinic, we are developing a test to improve the diagnosis of pancreatic cancer and differentiate between malignant and benign cysts and masses. Current methods are not very accurate, leading to both over- and under-treatment of patients.

Esophageal cancer -- esophageal cancer represents 17,000 new cases of cancer and 15,000 cancer deaths each year in the United States. Like pancreatic cancer, its prevalence is also on the rise. This is a deadly disease for which early detection can improve survival rates. Together with Mayo Clinic, we are developing a test for the early detection of esophageal cancer through the monitoring of patients with pre-malignant (technical difficulty) in the lining of the esophagus, called Barrett's esophagus. Together, these tests would provide more than 18 million testing opportunities each year, with a multibillion-dollar US market opportunity.

We are now happy to answer your questions.

(Operator Instructions). Brian Weinstein, William Blair.

My first question is on spending. Can you talk a little bit about the operating expenses going forward? They have obviously ramped up into the launch, but how should we think about your spending levels on a go-forward basis? And mechanisms are you guys looking at to ensure that the way you are spending, your sales and marketing dollars in particular, are efficient?

Brian, this is Bill. We are a rapidly growing business and we really feel that we're managing our expenses well, and that were spending the money in the right places. And let me take it in order. For sales and marketing, as we said, there were a couple of things that drove the expanse higher in the quarter. We pulled forward hiring of additional field salesforce. We had said in February that we intended to go to 200, but that was deep into the third quarter. We determined it was better to pull those additions forward into Q2, so that's one piece.

The other piece is we started our co-promote agreement with Ironwood, and that cost is recorded to sales and marketing. So looking ahead into Q3, we will feel the full cost impact of the expanded field salesforce, with corresponding additions in sales, support, and marketing staff. The total sales and marketing staff, Brian, will go to about 300. And as you know, we've used $200,000 as the compensation analogue for each of those people. That works out to about $15 million per quarter in comp costs. Marketing, content, and campaign will add roughly $8 million per quarter, Brian. So that's sales and marketing.

On the R&D side, again, a really effective -- as Kevin has just outlined in detail -- a really effective use of funds. So, R&D expense was $8.1 million in the quarter. We laid out in detail at Investor Day how we're allocating those resources. We have an extended relationship with Mayo. We have our new partner with MD Anderson. And so in the quarter you see the modest impact of these new agreements, as well as our own commitment to the pipeline in terms of our own resources. Looking ahead for R&D, we expect R&D investment to increase about $1 million per quarter for the second half of this year, Brian.

And then lastly on G&A: it was $13.7 million. And remember, this reflects the cost of our customer care center, which we think is essential to our service. It also includes our sophisticated IT environment, our billing systems and staff, HR and leadership team, and so forth.

Looking ahead in G&A, we will continue to expand at about $1 million per quarter for the remainder of 2015. So we think it's very targeted and will support our growth in the back half of this year.

Right. And then let me (multiple speakers). Go ahead, Kevin.

Brian, just for clarity, let me drive home one point. The number of sales and marketing people -- that's different than the 200 PCP reps. The PCP reps are included in the number that Bill provided there of 300 looking out into the future. The others in that group would include marketing people, system sales reps, managed care reps, inside salespeople. But we do not presently expect an increase of the 200 primary care reps throughout the rest of this year.

Okay, that's fair. On the Ironwood arrangement, a couple of months in now, can you give any kind of commentary on how those reps perform relative to a direct -- Exact Sciences rep? You had talk about efficiency, I believe of an expected efficiency of around half of what the direct reps would have been. What are you hearing out of your partners at Ironwood on how they are perceiving the launch, and what their efficiency is? Thank you.

Brian, this is Maneesh. The thing that we have been -- as we said last month was that we're pleased. That's essentially what we've heard from our partners [as well]. It is still early days. But if we think back to the rationale for entering into the co-promotion agreement, it was to expand our reach into a really, really large market. And what we have discovered early is that the reps that they have, high quality reps, adding Cologuard in P2 has done, early days, what we expected it to, in that we are reaching more physicians, and early returns are positive.

So we have heard that from their team. It is P2 in their bag, and so the efficiency is not as high as with our direct reps. One of the reasons we decided to pull forward the expansion was because obviously our sales efforts are working. But in response to your question, the Ironwood early returns are positive. We think it's a terrific organization, and that is consistent with what we've heard from them.

All right. Thanks for taking the questions, guys.

Mark Massaro, Canaccord Genuity.

Kevin, can you maybe describe your conversations with commercial payers? And given an interest from a number of prospective payers, could you maybe talk about how many folks -- how many payers might be waiting on the Task Force decision?

Sure. Well, let's first characterize the conversation that we're having with payers. The conversations with payers revolve around three key points. Number one is the effectiveness of Cologuard, going right back to the New England Journal of Medicine paper detailing the DeeP-C study, the pivotal study on Cologuard, back to 92% overall cancer detection; 94% curable stage cancer. That's the first element of conversation that we have.

The second element of conversation we have is around patient satisfaction. They care about the satisfaction level of their patients. And what you see with Cologuard is a 73% compliance rate, which is remarkable.

And the third piece is around cost. So, clearly Cologuard is something that can save payers money over time, and Cologuard is a very cost-efficient way to screen people with a highly effective screening approach. That's the real breakthrough part about Cologuard. Those conversations are going very well.

We see momentum building with payers. We expect to be able to announce additional payers that we have contracted with in the upcoming months. And the larger payers, we continue to have very productive conversations with. As you know, typically the largest payers are not the first to move. With that said, they are the ones that can benefit the most from the rapid adoption of Cologuard.

And as you know, that will accelerate our business even faster than the currently rapid growth rate of Cologuard. So we're excited to be able to announce new wins with commercial payers. And we believe that it is good for everybody in the ecosystem of colon cancer screening.

Great. And with respect to the new CPT code, can you maybe discuss how you think the new CPT code might facilitate greater efficiency with both the Medicare Advantage and commercial payers, relative to the G code?

Yes, so a G code typically -- or a miscellaneous code typically triggers a manual review, which slows down the process of reimbursement and also becomes a series of one-off discussions, appeals, et cetera, working with those payers.

A CPT code is a seal of approval, in many respects, in working with the commercial payers, that now you have AMA firmly behind Cologuard and it is no longer -- it will slowly not be considered something to be experimental or unusual. So having a CPT code over time represents a real positive to the business; and, again, is a sign of momentum with Cologuard in all respects -- with payers, with providers, and most importantly with patients.

Great, thank you.

Isaac Ro, Goldman Sachs.

I had just two questions this morning. One on the 3Q [going] guidance, and then the second one on the operational execution side. On the first one, I know you guys reiterated the volume guidance you gave us at the analyst meeting. Hoping you could maybe talk a little bit more about the assumptions you are making. If we look at the sequential trend there, it's a pretty big total volume number. But if we look at a percentage increase it does imply a little bit of a deceleration. So I appreciate that you guys want to be conservative, but just want to get a sense of the assumption that you are making. What are some of the swing factors that could lead to upside or downside to that volume?

Other than the guidance that we've provided, in terms of adding more clarity there, I think that's something that we can do on our call next quarter. We don't want to provide too much clarity until all of the assumptions that go into our internal modeling. It represents a significant amount of growth quarter-over-quarter. And it also reflects our optimism based upon the productivity that we see every day. As you know, Isaac, with our IT infrastructure, we are able to see the results on a sales rep by sales rep and territory by territory basis, and physician by physician basis, because all of those orders flow through our system.

It gives us confidence that we are able to deploy resources as needed in a very efficient way, and to modulate where we and how we apply those resources. So we're confident in that growth. We're happy to provide more clarity in the future.

Great, thanks. And then just a follow-up on the operational side. I think if I just look back at the facility tour that you guys hosted for us at the analyst meeting, it certainly seemed like the facility is up and running pretty much exactly as you planned. That said, obviously it's early in the product's lifecycle.

Can you talk a little bit about some of the processes you have in place to deal with -- whether it's a surge in volume or maybe some hiccups with your supply, either your suppliers and vendors? What are some of the controls you have in place to ensure that, from an execution perspective, you can generate all the volume that you guys have building up in the demand side?

Isaac, it's Maneesh. So, the biggest thing we do is make sure that we are ready for that explosive growth. Hopefully, for many of you that were able to see on the webcast our lab operation, we have expanded to three full shifts. So we've got someone on staff at all times. And we have continued to efficiently and modestly scale, and we are ready to very, very quickly. So the biggest area that we would need to scale quickly would be our lab preprocessing, which we are able to do very, very quickly.

So we're comfortable that with dramatic growth in the business -- which we're seeing; please remember, this is a rapidly growing business. We have the capital needs, and we also have safety stocks of reagents built to make sure we can meet any demand that comes. So, we feel good about that, Isaac, and are planning appropriately.

Got it. Appreciate it, guys. Thanks very much.

Catherine Ramsey, Robert W. Baird.

I had a question on Europe; saw the UK and Italy sites are up and running. Just wondering if you could quantify what you are collecting over there and what the timeline would be for other countries.

Sure. So, our -- let me first start by addressing our goals with our introduction of Cologuard into Europe, and then eventually Asia. Our goal in Europe this year was to get Cologuard implemented and available through partnerships with multiple labs in Europe. The ultimate testing will be done back in the US; so operationally make Cologuard available, one.

Two is to run the right studies. For example, we're starting a study in Italy to show the performance of Cologuard in the Italian population. We will likely run one or two additional studies, and then over time probably more than that. The goal is to build a consensus of evidence in the European population. Cologuard is a test that will likely be targeted in the European population among people at higher risk for colon cancer, who need to be followed on a regular basis. And as you are probably aware, colonoscopy is not as frequently used in Europe as it is in the US. And as a result, it is not used as much as it should be in the patient population that's at the highest risk.

Cologuard there represents a significant opportunity to have an impact on this disease among people who are at the highest risk. In Asia, our goal is to begin a clinical design and begin a clinical trial that will get Cologuard included in the pan-Asian guidelines and make it available in China. So the work that we're doing this year outside of the US is preparatory, but the market opportunity is massive.

Okay. So as far as ordering physicians goes, I see you have some, but are they performing orders now?

They are. We do not expect that they will have a material impact on our results for this year.

Okay. And then one follow-up question; saw recently Medicare proposed to cut colonoscopy reimbursement. We were just wondering if that has had any impact on your discussions with payers.

That does not directly impact. As you know, commercial payers pay significantly more than Medicare does for colonoscopy and ancillary procedures. One of the great things that is valuable about Cologuard is where it is priced, both from a Medicare perspective and commercial payers. So that is not having any impact on our discussion with commercial payers at the present time.

Okay, perfect. Thank you.

Peter Lawson, Mizuho Securities.

Just wondered if (technical difficulty) any more thoughts around the Task Force decision? How business would change if you get a B or lower rating? That would be great, thank you.

We believe that, should Cologuard receive an A or B rating, it's a real opportunity for Cologuard utilization to accelerate. Because USPSTF A or B rating drives HEDIS guideline inclusion and STARS guideline inclusions, which are quality measures. And those quality measures are measures that primary care physicians in large systems and Medicare Advantage payers care about. So it will provide a real economic incentive for the adoption of Cologuard, which has been shown to increase compliance. That's one of the critical things about an A or B decision.

It also helps drive commercial coverage because commercial payers care about USPSTF guidelines. And it also will have an impact on large systems. Because again, the payers that pay the large systems track the larger systems' colon cancer screening rates, and make bonus payments based upon increased -- or achieving certain goals in those -- or metrics in those screening rates.

If there is a less than an A or B rating, that would make it more challenging to secure the large systems and commercial coverage. But we think that there is obviously a significant opportunity because Cologuard has such strong patient friendliness, and that so many patients prefer -- and are willing to get screened with Cologuard that have never been screened before.

What's the likelihood of a price change as you move from a G code onto a CPT code, Kevin?

So, I don't think that the implementation of a CPT code will have a material effect on value. I think it will have more of an impact on the efficiency of collecting. The value of Cologuard stands on its own, and is not likely to be impacted by the CPT code, per se.

Perfect. Thank you so much. Take care.

Jose Haresco, JMP Securities.

First, just on a logistical matter: of the 200 reps that you now have, how many of those are -- would you call fully active?

Jose, we cannot hear you.

Can you hear me okay? Is that better? All right, thanks. Of the 200 reps that you now have, about how many of those are active, and when would we expect all 200 to be active?

They are active right now. They were trained a month or two months ago, the last group of about 60. They are already starting to have an impact. We expect that impact to grow. That is something that we track very closely, and we are seeing an increase of the effectiveness. Still, the most effective group of reps are the reps that started late last year. The second most effective group is the group that started earlier this year. And then the last group that started in June is starting to have a significant impact.

Okay, thanks. With regard to the impact of Web traffic, I know that a substantial number of the orders that you get in a quarter come unsolicited. Would you expect that percentage to change going forward? Or is that a fairly good number to work with, as we think about the business?

Well, I think it will change. Right now we are investing less than we were a quarter ago in direct to consumer, digital advertising. We are still investing, just at a slower rate, and as we have invested more in the direct salesforce. Because as the data indicates, the most impactful use of dollars is in training and bringing highly capable sales professionals on board and having them have discussions with primary care physicians. That, by far and away, is the most effective use of dollars, so we continue to invest.

I think as time goes on and you see broader commercial coverage, that you might see an increase again in the marketing spend that we're making. But right now the majority of the spend is with primary care reps and the training of those reps in the field.

Okay. Thank you very much.

Zarak Khurshid, Wedbush Securities.

Thanks for taking the questions. First one on gross margins. They look like they are tracking pretty solidly. Do you have a sense for where they are headed over the next couple of quarters and year?

Hi, Zarak, it's Bill. Gross margin improved to 37%. We had reported $384 in terms of cost per test last quarter, and it moved down smartly this quarter. And it's a function of capacity utilization. Maneesh outlined earlier that we're building up our capacity. We are prepared for higher volumes. That number gets rolled into cost of goods sold. So as we move through the year, we expect that number to continue to move down as we get higher volumes.

Glad to hear it. Then a follow-up question just on the ordering patterns. Kevin, any new color on how many ordering customers are regular customers and how many are fully penetrated at this point? Thanks.

So, Zarak, it's Maneesh. You know from looking at our information we actually do know exactly how many are regular, how many order more than one, more than two, more than three. And so, what I would just point out is something Kevin said, is there are a whole host of people -- 80% plus of the orders are Medicare, because it goes back to coverage.

The first question they are asking is, is this covered? And then do I get my HEDIS credit for it? We know those are headwinds for us today, but we are confident that they are not going to be headwinds. And as we continue to get commercial coverage wins, there is a direct correlation between increased penetration and higher ordering with coverage.

So, that's what we have to look forward to. It's growing really rapidly despite those headwinds today, which we are working to get addressed.

Makes sense. Thanks.

Zarak, one of the exciting things about the business is that -- and makes us excited, not only about our performance this year, but as you look into 2016 and 2017 -- is we know that primary care physicians, the number-one thing that they care about in terms of ordering Cologuard, is commercial insurance coverage. They love the fact that Medicare covers it. We expect to see a bump in the use of Cologuard by primary care physicians among patients insured by commercial insurers once we get stronger commercial coverage.

But we also expect to see a bump in Medicare utilization because there are many primary care physicians who won't order Cologuard until it's covered by both, or who will only order Cologuard in a more frequent way once it's covered by both.

So, what you'll see is, as we start to get payers in particular states, large payers in particular states, we'll be able to devote more marketing efforts in those states to educate primary care physicians, drive utilization; and at the end of the day, hopefully have an impact on the people that benefit from Cologuard.

Thank you.

Chris Lewis, ROTH Capital Partners.

Wanted to start on ASPs, relatively flat over the previous quarter. Can you just talk about how we should think about ASPs trending going forward?

Chris, this is Bill. I think in light of Kevin's response, you look at the prescribers' behavior; it has been, in the majority, Medicare-related. So there's a piece of Medicare that's traditional fee-for-service, and a piece of Medicare that is Medicare Advantage. We said at Investor Day that Medicare represents 80% of the order volume. If you look at the split between those two, it's probably a little bit lighter than the traditional 70/30 split between traditional fee-for-service and Medicare Advantage.

But for the near term, I think that's kind of the calculation that you're going to be looking at. I think it is going to be in line with what you've seen for the first six months of this year.

Great. And then for the Cologuard market expansion opportunities, both the 40- to 49-year-old and the high-risk populations, can you talk about the types of clinical trials you expect you need to perform there, and potential timing expectations on those two fronts? Thanks.

Yes. As we discussed at our Investor Day, Chris, these are big, huge market opportunities, but they require a couple of things. They require FDA to help us or to work with us on the design of the clinical trial. For example, in the 40- to 49-year-old group, the incidence rate is much lower. So to repeat the DeeP-C study, you would need a much, much larger study than the DeeP-C study unless you were able to have maybe a partial prospective study with a case control study. And those are discussions that we need to have with FDA.

The second thing is to work with the key guideline groups to get the support for a noninvasive way to screen both the 40- to 49-year-old group and the high-risk group. We won't know what those clinical trial timelines and costs would be until we get through those two sets of discussions.

So, that's something that I think will probably take the better part of a year. And I don't think we'll be in a position to provide a great deal more of clarity. But just standing alone, this opportunity is the largest opportunity, in addition to the use of Cologuard in the average risk population, for Cologuard to impact a broader array of people.

And we think it's well suited for people in the 40- to 49-year-old category. We also think it could be well suited for people who are in the high-risk category, but of course we will not market Cologuard to those groups until and unless we achieve FDA approval.

Got it. Thank you, Kevin.

Bruce Jackson, Lake Street Capital.

Just a couple questions on the doctors. We had 14,700 ordering. How many are currently enrolled?

Bruce, this is Maneesh. We have more than that enrolled. We started tracking enrolled back before we had even the Medicare coverage decision. And it was the best measure for us, in the absence of any coverage, to gauge interest. What we have done since then is we really haven't emphasized it, tracked it, because it's not meaningful to us to have someone enrolled but not ordering. So that's why we think the most valuable measure is how many people are ordering and using, versus enrolled.

Okay. And then with the completed test, I think Bill said that the Medicare mix was lighter than the traditional 70/30. Is it closer to 50/50 on the traditional Medicare Advantage? What's the mix over there?

Yes, Bruce, let me be more precise. This is Bill. If you look at the generalized breakdown, it would be 70% traditional fee-for-service. We are less than that -- I'm sorry; we're the other way around. Our fee-for-service is higher than that. The Medicare Advantage is lower than that.

Is that helpful? I'm sorry I confused --.

Yes, that's clear now. Okay, thank you. And then last question on the lung cancer test that you're working on. I think you said something about pairing up the biomarkers with the CT test? Is that right?

Yes. So, there would be two utilizations of a blood-based lung cancer test. One is as a broad screening test. The world needs a simple, accurate way to detect lung cancer at stage I. Low-dose CT has a number of challenges; mainly it's a high false positive rate leading to expensive procedures that lead to patient complications. So having an up-front test that would -- only the positives from a blood-based test would go to, would be [reflex] to a CT examination, looking for a nodule, is something that is beneficial.

But also there are about 30 million patients a year that are screened with a chest CT or a chest x-ray. And there's a significant number of nodules found every year that have to be -- today, the typical approach is to go in and do a biopsy of those nodules, and then to take a look at that nodule, leading to a very high rate of collapsed lungs. And with a simple blood test, you would be able to rule out the presence of lung cancer in patients with a nodule found incidentally through an imaging modality.

And we think that's a second application of a blood-based test that could have a real impact on finding the people with cancer early so they can be treated, and ruling out patients. As you can imagine, most likely with a blood-based test following an incidentally found nodule, you probably wouldn't rely on just one negative test. You might have that test repeated over and period of time, and only stop testing after it has been negative for a period of time. Those are things that will evolve in guideline.

It is clear that the medical community wants a simple, blood-based test to help in both of those situations. We have done an immense amount of market research, and it is very clear. Key opinion leaders are calling out for a biomarker -- a blood-based approach, and so are physicians in the community setting.

Okay, got it. Thank you very much.

Jan Wald, Benchmark.

Congratulations on the quarter. I guess we knew what was coming, but it's still good to see. (multiple speakers). I have one question to ask, because a lot of mine have been answered, and it goes back to your O-US strategy. It sounds good that you're going after high risk patients in Europe, for example, but one of the things about Europe is it is sort of cost-sensitive. So, are you going after high risk patients? Are you going after high risk patients with private insurance? What kind of focus are you putting on the European market effort?

Yes, so long-term that will evolve, of course, work to get payers to cover; very broadly speaking, both the national providers and also the commercial insurers throughout Europe, and addressing, first and foremost, that category of high risk patients. That will occur over time. Again, we're in an evidentiary gathering phase so that we are in a position to influence both payers and providers in Europe.

And pricing you don't believe will be an issue?

We don't. We think Cologuard provides a tremendous value proposition relative to colonoscopy, in part because you get higher compliance, which drives cost effectiveness.

Okay. Thank you very much.

Thank you. I'm showing no further questions.

I will now turn the call back over to Kevin Conroy, Chairman and CEO, for closing remarks.

Thank you again for participating in this morning's call. In closing, the second quarter was one of strong financial performance, with revenues of $8.1 million. We saw an increased demand of Cologuard during the quarter, including a 77% quarter-over-quarter increase in the number of ordering physicians, and a 90% quarter-over-quarter increase in the number of completed Cologuard tests.

Drivers of continued growth include the increased size of the salesforce, and the salesforce effectiveness; also the increase in commercial coverage, and the large system adoption. One thing that we didn't mention is there have been 30 large systems that have adopted Cologuard, and there are about 15 that are in the process of being implemented. We are very pleased with the increase in the compliance rate, from 71% to 73%.

We also have a very valuable product pipeline that we are advancing with world-leading partners in the Mayo Clinic and MD Anderson. Finally, we ended the quarter with $210 million in cash.

I want to thank everybody on the Exact Sciences team who have been so helpful in driving the rapid growth of Cologuard. Thank you all for joining us today, and we look forward to updating you at our annual meeting on Thursday and as we move forward.

Thank you. Ladies and gentlemen, that does conclude today's conference. You may all disconnect, and everyone have a great day.