Exact Sciences Corp (EXAS) 2015 Q3 法說會逐字稿

Good day, ladies and gentlemen. And welcome to your Exact Sciences Corporation third quarter 2015 earnings conference call. At this time, all participants are in a listen only mode. Later we'll have a question and answer session and instructions will be given at that time. If anyone should require assistance during the conference, please press * then zero on your touchtone telephone to reach an operator.

As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. JP Fielder, Senior Director of Corporate Communication. Sir, you may begin.

Thank you, Nova. And thank all of you for joining Exact Sciences' third 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 third quarter 2015 financial results. If you've not seen it, please go to our website, exactsciences.com, or call us at area code 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 third quarter financial results. And then Kevin will provide an update on our corporate priorities.

During today's call, we'll 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 now to 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 company's strong revenue growth, driven by Cologuard's increasing adoption by physicians and patients. I will discuss the comments we will provide to USPSTF about its draft recommendations. We will also discuss the strength of Cologuard's compliance rate. And we'll continue -- we'll conclude with the keys to our commercial success.

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

Thank you, and good morning. We continued our strong growth path in the third quarter. Revenue was $12.6 million for the quarter, with completed Cologuard test volume of 34,000. Revenue and test volume grew 55% and 60% respectively over the prior quarter.

Average recognized revenue per test was $374.00, reflecting a greater commercial payer mix and our revenue recognition policy with regard to Medicare and commercial payers.

Cost of sales was $7.5 million, with gross margin improving to 40%. Operating expense was $48.4 million, an increase of 14% from Q2. This reflects our continuing investment in sales and marketing, customer care, and research and development.

Cash utilization was $41.5 million, and our quarter end cash balance was $343.5 million.

I'll now turn the call back to Kevin.

Thank you, Bill. Cologuard, our non-invasive, patient friendly colon cancer screening test, addresses a large and growing market opportunity. Colon cancer is the number two cancer killer in the United States. It results in roughly 50,000 deaths each year.

The most recent census data indicates that there are more than 80 million potential Cologuard users, those Americans who make up the screening population because they are at average risk for colon cancer, and are between the ages of 50 and 84. Four out of 10 people in the screening population remain unscreened, or non-compliant with screening guidelines. Cologuard is well positioned to meet an important need for this population. Both commercial and scientific data continue to confirm Cologuard's strengths.

Let's start with the growing physician awareness of Cologuard. We have made, and are continuing to make, substantial investments in marketing and medical education. These investments are aimed at both physicians and patients, with the goal of increasing awareness about the unique benefits of Cologuard. As a result of these investments, unaided physician awareness of Cologuard has increased rapidly since before its launch. A percentage of physicians saying they are familiar with Cologuard increased from 8% to 28%. And most recently nearly half of primary care physicians expressed awareness of Cologuard without prompting. The strong awareness of Cologuard provides a solid foundation for engagement with physicians by our sales force.

The total number of physicians who have ordered Cologuard increased from 14,700 at the end of the second quarter to 21,000 at the end of the third quarter. We continue to add new physicians at a rate of about 500 per week. Our sales team includes 200 primary care physician representatives, with an average of 10 years of experience. We also have 30 inside sales representatives who support our outreach to physician offices. We also have a team of professionals calling on a large group -- on large group practices and health systems.

These sales professionals, along with our marketing programs, medical education, and PR activities are driving these increases in physicians ordering Cologuard. There is a growing base of physicians who make Cologuard a routine part of their practices. Our sales team is increasing its focus on these physicians and their offices. The goal throughout this year and next is to engage with the entire staff of ordering physicians to further increase screening rates in their practices.

Let's turn now to an update on our progress with insurance coverage. As I mentioned before, there are more than 80 million Americans, ages 50 to 84, in the colon cancer screening population. Medicare patients represent 46% of the screening population. Combined with positive coverage decisions by commercial payers, which now cover 9% of the screening population, Cologuard is covered for 44 million people ages 50 to 84, or 55% of the screening population.

Cologuard is a contracted, in network lab test for approximately 35% of the screening population. We are focused on entering into contracts with Medicare Advantage plans and commercial insurers that presently cover Cologuard. Doing so will help facilitate the growth in test volumes and increase the rate at which our testing service is reimbursed. We are working to secure coverage from additional commercial payers and to execute contracts with those that have agreed to cover Cologuard. Our strategy for doing both is built on a strong value proposition.

Our value proposition to payers has three components. First, quality of care. Cologuard is a high quality test that is covered by Medicare, and is the only colon cancer screening test approved by the FDA. Second, member satisfaction. Cologuard is non-invasive, patient friendly, and has a high compliance rate driven by the support of our customer care center. These and other characteristics present the opportunity for a health plan to significantly increase member satisfaction with colon cancer screening. Third, cost savings. Cologuard is already delivering a positive budget impact to those plans that cover it.

Let's turn to completed Cologuard tests. The number of completed Cologuard tests in the quarter increased 60% to 34,000 tests. We expect that number to grow to more than 42,000 during the fourth quarter. This total would represent 108,000 Cologuard tests completed during 2015. Achieving this volume of completed tests, while delivering a high quality patient experience, would be a significant accomplishment, earned through the efforts of our people who are dedicated to our mission of getting more people screened.

Based on colon cancer prevalence seen in the DeeP-C study, by the end of the year approximately 700 people who don't realize they have colon cancer will have received a Cologuard test. Cologuard is the first step in getting people the right follow up and treatment if they are diagnosed with the disease. The majority of the screening population diagnosed with colon cancer will be diagnosed in the early curable stages. We expect to achieve more than 240,000 completed tests in 2016, with revenue in the range of $90 million to $100 million.

Let's turn to how our compliance rate is driven by comprehensive screening program. Our current patient compliance rate is 73%, above our stated goal of 70%. Our compliance rate is the result of a comprehensive program that addresses stagnant screening rates. It relieves physicians of the patient follow up that is critical to ensuring that people actually get screened.

Let's turn now to the US Preventive Services Task Force draft recommendations. The task force draft statement assigns an A grade to colorectal cancer screening for individuals ages 50 to 75, indicating that the risks and benefits of different screening methods vary. But appropriately, the draft statement does not distinguish among these screening methods for purposes of the A grade, recognizing that any of the identified tests may be useful in a given clinical circumstance.

Unlike the task force's 2008 colorectal cancer screening recommendations, the draft statement does not assign specific grades to individual tests. The 2008 recommendations assign an A grade to fecal occult blood testing, sigmoidoscopy, and colonoscopy in adults ages 50 to 75 years, and an I rating to stool DNA testing. In the latest draft statement, stool DNA is no longer I rated. The 2015 draft statement takes a different approach, simply assigning an A grade to colorectal cancer screening for that age bracket. The draft statement goes on to identify select recommended screening tests and alternative tests, but without distinguishing among them for purposes of letter grades.

Along with a number of our stakeholders, we're asking the task force to clarify the standing of Cologuard as a routine screening test, placing it on par with the other recommended tests. Our comments to the task force will highlight three key points.

There has been a significant amount of new evidence supporting Cologuard since the task force completed its review. New studies have been published since the task force began its review process. The recently published Alaska study corroborates the results of our pivotal DeeP-C study and confirms Cologuard's performance advantages for cancer and pre-cancer detection. Another study highlights patients' preference for Cologuard over other screening methods.

Second, we'll demonstrate why the task force should consider a three-year interval for Cologuard. Modeling shows that testing with Cologuard every three years is a superior colon cancer screening strategy when evaluated in terms of benefits to harms.

Third, Cologuard is the only colon cancer screening test with FDA approval, a uniform guarantee of quality. Cologuard is the only colon cancer screening test to have undergone the rigors of the premarket approval or [PMA] process. Yet placing Cologuard on the alternative list, despite passing the FDA's most stringent review, could create some confusion among physicians and patients. To clarify this potential confusion, we're asking that Cologuard be included as a recommended test in the final guidelines, or alternatively, removing the recommended label from all listed testing strategies.

Let's turn now to the Alaska native study. A 661 person study of Cologuard was conducted in the Alaska native population by researchers at the Mayo Clinic. The results of this study were published yesterday. This study is similar in design to the 10,000 patient prospective DeeP-C clinical study for Cologuard. Patients underwent both Cologuard and fecal immunochemical testing prior to a prescheduled screening colonoscopy. The results of this most recent study, published in the peer reviewed Mayo Clinic proceedings, confirmed the high cancer and pre-cancer sensitivity demonstrated by Cologuard in the DeeP-C study. Cologuard detected 100% of colorectal cancers, and 52% of significant premalignant lesions, adenomas that were one centimeter or larger.

In the Alaska native study, Cologuard demonstrated a specificity of 93%, 6 percentage points higher than the DeeP-C specificity at 87%. The P-values for pre-cancer detection in specificity are statistically significant. The Alaska native population suffers from a colon cancer incidence more than twice that of the US population. Because of the difficulty of providing colonoscopy to this population, Cologuard, a non-invasive, at-home method, may increase screening rates. Other underserved populations may also benefit from the ease of use and performance of Cologuard.

Another study conducted in the Netherlands by (inaudible) further confirmed the results of the DeeP-C study. It showed that Cologuard detected 49% of pre-cancers at a specificity of 89%. While Cologuard's performance is being confirmed, studies of patient preference also are highlighting its strengths. In an independent study conducted by Case Western, 75% of patients preferred Cologuard testing over colonoscopy, and 84% of those patients would take another Cologuard test if recommended. We believe these results are another indication that Cologuard can play a significant role in expanding the screening population.

Another 2015 study published in the American Journal of Gastroenterology, involving 675 patients, showed that when screen naive patients were educated about screening alternatives, they preferred Cologuard to the fecal immunochemical test three to one.

Let's turn now to how Cologuard is helping to expand the screening population. Our mission at Exact Sciences is simple, to get more people screened. A recently published survey of approximately 3,000 Cologuard users found that 4 out of 10 had never been screened before. This study confirms that one of the biggest problems in fighting colon cancer is that nearly half of those who should be screened are not. Our survey data tell a compelling story of the role Cologuard is playing in raising screening rates.

Let's conclude with the keys to Cologuard's commercial success. Cologuard's success is driven by these and other factors which are within our control. First, sales execution. Our sales team is focused on securing repeat orders from the 21,000 physicians who have already ordered Cologuard. Our experienced sales team is a core strength. Second, insurance. Our team will focus on insurance coverage and contracting, particularly with large commercial insurance plans. These efforts will be founded on the three-part value proposition that we discussed earlier, quality of care, member satisfaction, and cost savings. Third, ease of ordering. We intend to make ordering more efficient through electronic connections that allow a physician to place an order from his or her EMR to our lab and customer care center.

We're now happy to answer your questions.

(Operator instructions). Our first question comes from the line of Drew Jones of Stephens Inc. Your line is open.

Thanks, guys. Good morning.

Good morning, Drew.

Thinking out to PAMA and maybe pricing in 2017, can you give us a feel for where Medicare Advantage volumes stack up versus other commercial payers at this point?

Well Medicare Advantage represents about a third of all Medicare patients, and today Medicare patients represent just shy of 80% of all of the completed tests. From a PAMA perspective, what's important to remember is that there is a measurement period that occurs from July of this year through December of this year. We are confident that the median price, which is the measuring stick, of those tests will be at or above the Medicare rate. And that's important to note.

It is also important to note that then that price becomes the effective price starting in 2017, as we understand the PAMA regulations that are proposed, they haven't been finally implemented yet. And that that price would be in effect for either one year or three years depending on what type of test we are considered. We believe that we would be an advanced diagnostic test that's run out of one lab. And as a result of that, we would -- Cologuard price would be good for three years from that point forward. I'm sure there will be more clarity as comments are made to the PAMA regulations before they're finally adopted, but that's where we see things sitting today.

And then one follow up. As far as Anthem is concerned, what's the ASP you guys are getting from that payer right now? And where do we stand as far as reaching a broad pricing agreement with them?

Okay. It's our policy not to talk about any discussions with any individual payer or provider. Suffice it to say that we are engaged with a number of large, small, medium sized payers. And we believe that there is reason to be cautious, but that our future discussions with insurance companies is within our control. We have a strong value proposition and we are actively engaged across the board with payers to lay out this three-point value proposition that we discussed earlier.

Thanks, guys.

Thank you. Our next question comes from the line of Jeff Elliott of Robert W. Baird. Your line is open.

Yeah, good morning. Thanks for the question and congrats on continuing your streak of always beating your guidance. When you look ahead to the fourth quarter guidance in 2016, I wonder if you can share some of the underlying assumptions. For the fourth quarter, I'm assuming there's some sort of assumptions baked into for seasonality around the holidays and I guess can you confirm that? And then on 2016, is there color you can share on what you're assuming as far as commercial payer coverage? Are you assuming that you don't gain any additional coverage or what are your assumptions there?

Thank you, Jeff. And I think that's right. We have to be cautious about what the holiday season looks like heading into Thanksgiving and the December shopping month, about how that will affect visits to physician offices. And I think that is an important consideration. We do not expect that increased insurance coverage will be a part of what is driving volumes in the fourth quarter. We would like to emphasize that we continue to make progress, but there is a reason to be cautious about the impact of busy people during the holiday period.

Okay. That's helpful. It sounds like another conservative set up, which I think is appropriate given where the stock is at. Another question here for you on the compliance rate. Again, a really solid number. And I'm wondering, you know is the 73%, does that signal an even stronger underlying trend? And the reason I ask that is because I think that you recently stopped charging the patient copay, which I would think would put downward pressure on the compliance rate. But, you know, since you maintained the 73% compliance rate, does that suggest the underlying trend is actually much more positive?

Well, so I think that the compliance rate will move around. It has been consistent over the last couple of quarters. We did not see a big down draft when we removed the $50 collection, or the patient copay charge that we were collecting from people who were commercially insured upfront. Again, our goal is to get as many people screened as possible. So we're cautious in the short term about where this rate may end up, but we think over time here are the two factors that we hope will help increase this rate even further.

One is that people who are insured typically will have a higher compliance rate. And so as we see greater commercial insurance coverage, we hope to see a greater compliance rate, which is one of the core values that we're delivering here. And then the other thing is our team continues to get better and more efficient at engaging with patients. And we think over time we will get yet even better at that, which should increase the compliance rate. But in the short term, we want to be, you know, as cautious as possible about where that rate could go.

Great. The last one for me is really on some recent data that came out of (inaudible) and I think this looked at the Medicare population. And what the data showed is that guideline recommendations over the past 15 years have actually hurt colon cancer screening rates, which is obviously contrary to what everybody in the world is hoping for. I guess what are your thoughts on that? And, you know, how do -- if you're an insurance company, how do you look at these guidelines in light of the fact that recommendations have been shown to actually hurt the screening compliance rates?

Well I'm not sure that that's the way that insurers will look at things. And as you know, that guidelines are guidelines. There are some people who follow guidelines. There are other people who are physicians who look at the pressing need to get more people screened.

And I'll take you back to the fact that this guideline committee got something really, really right, and that is to give an A rating to colon cancer screening. Colon cancer screening, unlike other types of cancer screening, cause very few harms. And the guideline committee also got it exactly right to list Cologuard among the screening tests. And then finally, to emphasize, in their other considerations, that it's up to the physician and the patient to consider the pros and cons of each screening method.

So I think that over time that payers will recognize the value of colon cancer screening on the cost associated with treating colon cancer and the human impact. And this is something that is within our control to convey that message. Again, our goal is to clarify the current guidelines and then to just drive home the message, over the next few years, to payers across the country that Cologuard is a very effective way at addressing a much needed problem. Or a pressing problem.

Great. Thanks for that.

And Jeff, just to come back to your question about the fourth quarter. Another thing that is going on right now that I think will be a short-term dynamic is a conversion in the Medicare system of requiring ICD-10 codes from ICD-9 codes. And this is causing physicians who order a test result and put in an ICD-9 code when an ICD-10 code in fact when reverse is required, that requires more work on our team's part to go back to the physician and make sure that the test order comes in with the correct code. That is the team is working on that. We think that that is going to occur for the next quarter or so before we really work this out. And, you know, maybe even longer. But over time, we're confident that the ICD-10 code will be an easy fix and something that our sales force -- it actually gives them an opportunity to engage yet again with the physician office.

Great. That's helpful. Thanks.

Our next question comes from the line of Brian Weinstein of William Blair. Your line is open.

Hi guys. Good morning. Thanks for taking the questions. To follow up a little bit on what Jeff was talking about. Kevin, can you talk a little bit about why is now the appropriate time to be giving 2016 volume guidance? You typically wanted to have a little bit more visibility when you're giving your guidance, and so what type of visibility do you think you have at this point? And can you go through some of the key assumptions that are baked into that in terms of additional co-promotes that might be coming up, the number of doctors that you're expecting to add or order? Just any kind of comfort that you can give us around the 240,000 and why that's the right number.

Sure. Well, thanks, Brian. I think it's important to note that as you look into next year, we are living in a world today with draft guidance that won't become final until next year. And there is some lack of clarity as to where Cologuard sits in that. But we also see a strong growing base of ordering physicians. We have an immense amount of data available to us about the ordering patterns of each and every physician who has ordered today. That allows us to look at the number of sales people we have that are calling on the physicians that are ordering the Cologuard test today, knowing what the rate is from a test order to a completed test, and knowing what the volume increases are for those primary care physicians.

So with assumptions around how many tests physicians order today, what that rate of increase is on a quarter-over-quarter basis, we have a reasonable line of sight into where this trajectory line leads us in 2016. We want to be cautious about where that line can go next year and beyond. We feel very confident in the strong sales team that we have and the current base of physicians that have ordered Cologuard and are beginning to make it a regular part of their practice. So with those assumptions, that's the clarity that we have as we sit here today. And we think that it's important to provide that guidance so that it makes it easier for you to do your job, and it also makes it easier for us to be able to talk about the business as we look forward into 2016 and beyond.

Got it. And while we're talking about 2016, your cash burn continues to be something that everybody's obviously watching. Can you talk a little bit about what the assumption then would be for your spending in 2016 and where some other spending is going to take place?

Brian, this is Bill. Let me provide some color on OpEx and cash utilization. But I'm going to focus my comments on 2015, Brian. Then for 2016, we're still building our plan and budgets. And when we have those worked out, we'll have more to say about 2016. But let me give some color with OpEx and cash utilization for where we are in third quarter and where we'll go in fourth quarter.

So beginning with sales and marketing. In Q3 there were a couple of things that drove that expense higher. First was the full impact of the additional sales force. Remember that we added about another 100 field sales people. We drove it to 200, and we pulled that forward into Q2. The full impact of that is felt in Q3. Our Ironwood co-promote also ramped up in the quarter. And that is recorded through sales and marketing.

As we look out into Q4, we're going to continue to invest in our team and our marketing program. We'll make some additions to our sales and our sales support -- sales team and sales support staff. The total sales and marketing staff will go to about 310. And let me emphasize, that includes marketing staff, sales support and inside sales, assistant sales reps, the management team. Using $200,000 as an average cost per individual, that means $15.5 million for the quarter. Marketing content and campaigns will be an additional roughly $10 million, and that includes the cost of the co-promote with Ironwood.

On to R&D. The key driver of the increase in R&D spending in the third quarter was our post-approval study for Cologuard, and particularly as we ramped up enrollment. Looking ahead for R&D in the fourth quarter, we expect investment to increase about $0.5 million. That's in line with our guidance from Q2 where we said we expected R&D expenditures to increase about $1 million per quarter for the second half of this year.

Then on to G&A. Remember this reflects the cost of our customer care center, which Kevin just described in detail. And we think that's essential to our service. It also includes our IT environment, our billing systems and staff, our HR leadership team and so forth. Looking ahead on G&A, we expect it to increase modestly by about $0.5 million in Q4. Again in line with our guidance from Q2.

On cash utilization, that was $41.5 million in Q3, and that was driven primarily by the increase in OpEx. Looking at Q4, we anticipate cash use in the range of $43 million to $46 million, with where we land dependent upon a number of variables, including the payer mix for Cologuard users and our ability to collect cash.

That's how we think about finishing this year, and we'll have more to say on the cost in investment side as we develop our plans for 2016.

And just contextually, given that this cash burn continues to increase on a sequential basis, does it sort of stop and it's sort of this kind of $40 million, low $40 million range a quarter? Does it -- do you anticipate additional spending, additional, you know, large amounts of hiring going on going forward? Just anything contextually that you can give us on that would be helpful. Thanks.

Sure. Brian, we want to be prudent as we take a look at our very strong cash position today and ensure that we have the appropriate resources to focus on our number one priority, which is to grow the Cologuard business. So in context of how we look at our plans for 2016, that's how we're doing it. We're looking at it to make sure that we appropriately resource our number one priority and other priorities will be secondary to that number one priority. Again, we will provide more clarity but we are looking at 2016 in a sober way, because we think it is wise to be cautious as we look forward into 2016 and beyond.

Okay. Thanks.

Thanks.

Our next question comes from the line of Brandon Couillard of Jefferies. Your line is open.

Thanks. Good morning. Kevin or Maneesh, I'd be curious if you could speak to just the reaction of the sales force, if there has been any, to the USPSTF initial ruling and the reaction of the stock price.

Sure Brandon. Happy to talk to that. And realistically it's created, as any time you're an employee and you see a move like that, it's created some of the confusion, some of the comments that Kevin made earlier. Initially it was, hey great, you know it's really positive that Cologuard is included in the guidelines but this lack of clarity that we're going to ask for is really the same reaction we've had in the sales force. The realities that they see though are they go into physicians' offices and what we have seen even since the several weeks in between has been not a whole lot of change from, you know from physicians that continue to order Cologuard on the trajectory. This speaks to what keeps them really focused and motivated.

So we did a call and said okay, so what are customers saying and how are you -- what are you seeing and hearing? And we're not hearing and seeing a bunch from primary care physicians on this topic. Primary care physicians see the need. They see the Medicare reimbursement and they continue to order. So in a nutshell, it's the variability and the externalities of the move has created a question around clarity, but they also see that doctors continue to order and the business continues to grow. And that keeps them pretty focused. So we're -- you know, not a lot is changing from their focus.

Thanks. That's helpful. And then as far as the third quarter goes, could you give us a sense of the contribution from Ironwood in terms of number of docs that are ordering or number of tests completed?

Yes, so it has been -- it has met expectations. We are pleased with it. The vast majority of the contributions are on our sales force -- are from our sales force. But Ironwood is meeting expectations. And that's something we'll continue to evaluate as we speak with them in the coming year. But it's performing as expected.

Super. Thank you.

Our next question comes from the line of Bill Bonello of Craig-Hallum. Your line is open.

Yes, good morning. I've got a couple of questions here. Have you since, and I know it's not been a super long time, but since the guidelines have come out, have you had the opportunity to have discussions with any large payers since this draft recommendations? And if you have had those discussions, can you give us some sense of what you're hearing how important they're seeing those recommendations, if the tone of discussions has changed from where it was before the recommendations came out, et cetera?

Yeah, sure. Well as you can imagine, we've had a number of conversations with payers over a period since the draft recommendations have come out. And it's a mixed bag. Some payers don't bring it up at all because they -- it's something that is not of critical importance to them. There are other payers who look to USPSTF as a guide for making coverage decisions. And with those payers, there is more caution and need for further evaluation.

I think it's really too early to tell. And the way that we like to set expectations for investors is that there will be an impact at the rate at which commercial payers will begin to cover the Cologuard service. And we -- but if in terms of affecting the business long term, we still believe that the core value proposition of quality, member satisfaction, and cost savings will, at the end of the day, determine our relationship as a contracted service provider to those large payers. I think it's those three things that over the long term will rule not the listing of Cologuard as an alternative test in the guideline.

Okay. That's helpful. And then just this is -- you know, you touched on this in an answer to a previous question a little bit, but I know you guys are extremely metric driven, so you probably have more precision than you provided. Just in terms of physician reaction since the draft recommendation was published, I mean have you seen any negative impact? And I don't mean anecdotal, but have you seen any negative change in the, you know, in the rate of orders, or new orders, or test per doctor, or at the rate at which you continue to add new doctors?

We have not. What we have seen is an increase since that time in the rate of test orders. And one rep put it to us this way. Look, the docs who are ordering Cologuard today are ordering Cologuard despite an I rating. Now that Cologuard is a listed test, it's actually an improvement. Also, a lot of the docs who are ordering Cologuard today just don't look to the USPSTF guidelines in determining how they treat patients. We have 21,000 docs who have ordered the test.

It seems that the few docs that we have heard from that are upset about the draft guideline are physicians who happen to be Exact Sciences shareholders. And as a result are -- were more concerned about the short-term performance of the stock than the true value of Cologuard. So we haven't heard any negative comments that have come up to us. Instead what we're seeing is a continued strong trajectory of Cologuard ordering, and we're pleased with that.

Okay. That's great. And then just, you know, on the sort of recommendation front or endorsement front, however you want to think about it, you know we've seen some organizations come out with commentary, you know not being just thrilled with where the recommendations ended up. In terms of sort of major cancer organizations, you know do you have any expectation of commentary on these guidelines, support for Cologuard either sort of beyond the guidelines that it's already in, et cetera?

I think it's fair to say that there are a number of really influential organizations that will weigh in in this 30-day public comment period, and have already weighed in. The public comments are -- or the comments to USPSTF, as we understand them, are confidential. And so I think that many organizations and highly regarded individuals in the gastroenterology community may choose not to make their comments public. But it's fair to say that there's strong support for asking for more clarity in the current guidelines.

Okay. Great. And then if I can just one last sort of technical question. But did I read in the Alaska native study, did I read that correctly that when you do Cologuard on a three-year basis you actually have a lower rate of false positives that if you did FIT in the recommended protocol?

On a three-year basis, well that wasn't laid out in that study but 93% versus 96%, yes that would equal a lower false positive rate and a lower rate of referrals to colonoscopy. And this is important. In the USPSTF modeling that was done, the modelers correctly used 89.8% specificity. That is the false positive rate in people with clean colons, with no polyps or advanced adenomas or cancer.

And when you look at that modeling, and you look at Cologuard every three years, which the task force didn't. This is important to know that the modeling group excluded Cologuard every three years. By excluding Cologuard every three years, they only looked at Cologuard every year, which had a higher referral rate to colonoscopy. But when you look at Cologuard every three years, which we, the American Cancer Society and Medicare think is the appropriate way to look at it, that screening strategy results in the fewest number of unnecessary colonoscopies, the burden that they look at, than any other screening strategy. And that also results in the highest rate of life years saved divided by number of unnecessary colonoscopies. And also the lowest number of the additional burden that they identified of stool tests.

So we think there's a really compelling value proposition, one thing that we love about seeing the data from SISNeT from these three modeling groups is that there is very compelling data that shows Cologuard is actually at the very top of screening strategies if you measure it based on benefits in terms of life years saved, the harms measured in terms of adverse events or complications.

Excellent. Thank you very much.

Thank you, Bill.

Our next question comes from the line of Mark Massaro of Canaccord Genuity. Your line is open.

Hey guys. Congrats on a good quarter and thanks for taking the question. Kevin, did you see any increase in bulk ordering in Q3? And can you maybe comment on your expectations for the trajectory into Q4 and how that may impact the compliance rate?

So let me first describe what bulk ordering is. We call then program orders where there is a group practice or a physician office that looks to Cologuard and the compliance engine and they say look, we have X number of patients who we just can't get screened, so we're going to send a test order to all of those patients, send a letter to them. This would be the ordering physician would send a letter to 1,000 or more patients all at once. And by doing so, you're really going after the screening population who are the most reluctant people to get screened.

That is occurring. We haven't provided color as to on a monthly or quarterly basis what percentage of the test orders and completed tests come from within that population. But I will say that when a program order is made, the compliance rate is lower. These are people who have consistently refused any form of colon cancer screening. The positive thing about this is that that does impact our compliance rate in a negative way. But it is getting people screened who otherwise wouldn't get screened.

We don't want to provide that level of detail because we think this is going to change quarter to quarter and it's way too early to kind of build that into models. But this is a modest part of our overall completed tests and we're pleased with that. We're getting to the population that needs to be screened but previously has refused.

Great. And you commented about how it's been sort of a mixed bag with commercial payers, some that look to the guidelines and others that maybe use some of their own internal metrics. Can you maybe share with us some of the metrics that some of these so called progressive payers might be using? And can you comment on your strategy to go after maybe the most likely payers to adopt and share with us some of the thought processes these payers have as they think about potentially adopting Cologuard?

Well I think the most progressive payers are payers with strong resources internally to evaluate Cologuard and how it can positively impact their populations in terms of colon cancer screening, reducing incidence and mortality. Those that have come onboard early clearly recognize the value of Cologuard, and they know the problem that we face.

We know the CDC data from 2010 to 2013 shows a flattening, a stagnation in the percentage of people being screened for colon cancer. We see a flat lining of the decrease in the colon cancer mortality rate. In other words, what we're doing today, as a society, for colon cancer screening isn't working. We have seen significant gains over the last decade or two, and they've come to a halt. So these payers recognize this fact and want to provide a service to their members.

They also recognize that Cologuard has the opportunity to save money. And more and more payers are taking a deeper look at Cologuard, and of course they have a lot of things on their plate so getting their attention requires a really focused strategy and clear communications. But getting them onboard requires that effort. One thing that we know is working is that in regions where certain payers start to cover, other payers take note and also follow. And we think this is a dynamic that will play out over time.

You know, one final thing is that payers I think are -- will recognize the reality that as an A rated screening service, Cologuard being listed in USPSTF draft guidelines eventually it will impact how they think about coverage because under the Affordable Care Act all services that are A rated, and Cologuard is one of those services now, have to be covered under the Affordable Care Act.

Great. At this time are you willing to maybe share some type of view on the likelihood that the task force may clarify what they mean by colorectal cancer screening by test modality? And the second part of that is, if they do keep it as is, and keep stool DNA as an alternative test, can you provide your view, or your confidence level on continuing to add commercial payers at a rate above Medicare?

Well, I think it's just important when you think about USPSTF and what they're tasked with, they look at a lot of different things, they all have full-time jobs, other than being on the task force. So it's a really busy group. Their history shows that they don't change from the draft to final. Now this rule of putting a draft guidance out before they make it final has only been in place since 2009 or 2010. And we've only seen one major change from draft to final during that time period. So I think that the assumption on our part, and your part as well, should be that it's unlikely that USPSTF will clarify their position. That may be unfortunate, but it's reality.

And to answer your second question, we believe that winning over payers may take longer than we otherwise would have expected with clearer guidelines. But our goal, and we believe this is in our control, is to win them over on the facts and the science and the benefits compared to the harms of including Cologuard as one of the screening methods that they cover. We think that this will occur over time. The dynamics are already moving in that direction, but it may take longer for that to occur.

Great. And can you give us an update on -- or remind us when the Ironwood deal is set to reach the end of its contract? And share with us maybe at a high level what you think the right size of your all-in sales force might look like by the end of 2016 or 2017. Thank you.

Yeah. So the Ironwood agreement expires in April of next year. And I just want to emphasize that Ironwood has been a very solid partner. They have a tremendously high quality sales force. We're not ready to talk publicly about whether or not that would review, but I would like to emphasize they have been a really good partner and have made a positive impact on adoption. Do you have a second part to that question, Mark?

Yeah. Maybe the -- how are you thinking -- I mean right now you're at 360 reps combined. If you could maybe help us frame the possibility of getting to a level above 360 as we move into the back half of 2016 and into 2017 and beyond.

Yeah. I think it's fair to say that in the back half of 2016 and 2017 there will be more people out there in the field talking about Cologuard to physicians. Whether that's a larger co-promote partner combined with more people on our part, the details of that will be worked on throughout the rest of the year. But suffice it to say one thing we know is that when people talk to docs, docs order Cologuard. And more people that order Cologuard allows us to get the message out further. So we have a lot of options here. We're excited about that part of our future. And we know the math behind the physician rep activity and test orders.

Okay. Thank you.

Thank you.

Our next question comes from the line of Eric Criscuolo of Mizuho Securities. Your line is open.

Thanks. Good morning. Just a clarification on the 2016 test volume guidance you provided. Does that include any increase in commercial payers?

That contemplates a modest increase in commercial payers between now and the end of 2016.

Got you. Thanks for the clarification there. And what was the -- I think you said commercial payers were 9% of the total screening population now. But what was that last quarter?

That was around 9%. The largest part of that 9% is Anthem's coverage decision. As you know, Anthem is the second largest payer in the US. They issued a coverage decision early this year. And cover about close to 40 million Americans.

Okay. Thanks. And then one final one here. Just was wondering if you can provide any insight thoughts that you have on when you look at the uptake between the public and the private payers for the tests. Is one performing above expectations and one below? Or any kind of thoughts you could provide on where those two kind of payer groups are lining up as far as where you thought they would be with the initial test. Thanks.

Yes. Thanks, Eric. With Medicare issuing a national coverage decision upon FDA approval, we couldn't be more pleased with the result of the public payers. Medicaid payers are slowly starting to bring Cologuard in. It hasn't been a big part. In fact it's been a very minor part of our focus. That could change in the coming years. In terms of commercial payers, we expect to see continued progress, but again we're cautious in what that pace of growth will be as we look out over the next several quarters.

Thank you. Our next question comes from the line of Isaac Ro of Goldman Sachs. Your line is open.

Good morning. Thanks for taking the question. Kevin, wanted to ask a couple of questions about the assumptions behind the 2016 volume guidance that you gave us. Any color there would be super helpful. First off, if you mentioned it I missed it. I'm curious how much contribution from the international markets might be baked in. And (inaudible) there was another question earlier regarding how Ironwood contributed this quarter. I'm wondering if you can give any color around how much contribution from Ironwood you expect next year just given the terms of the current relationship.

Well it is -- I think the best approach to thinking about the international markets is at present that they would have only a slight, a very modest impact on revenues for 2016. Those are markets that need to be built and studies need to be conducted and infrastructure put in place to have an impact. So that is -- it will not have a significant impact.

In terms of Ironwood's impact, again they have had a small impact relative to the Exact Sciences sales force in terms of test volumes and completed tests. And given that that agreement as it stands today expires in April, it could be extended but that will probably have a minor impact next year.

In terms of the overall growth, as I said previously, if you take a look at how Cologuard has progressed this year and you make assumptions around the full sales force coming onboard about mid-year and then being trained throughout this year, and new physicians coming onboard, you can start to draw a line throughout the next five quarters and get to a -- you can start to see how we came up with our underlying assumptions here. But that's probably as far as we'll go in terms of providing clarity in terms of our math behind that guidance.

That's helpful. Thank you. And just a follow up. I know a few other questions have been asked around the assumptions here and trying to handicap, you know, how to think about market adoption next year as you work through the USPSTF process. And I'm curious if you could maybe give, maybe from another angle, a view into how your guidance would have differed had you entered 2016 with an A or B rating. I know it's very speculative, but just trying to get a sense of, you know on a net basis, how much more conservative a stance you're taking on the adoption rate on volume. That would be very helpful. Thank you.

Yeah, well you know it's hard to say in an alternative world where the insurance coverage rate would be. I think that it certainly would have been higher had USPSTF just kept with its former grading system and rated Cologuard -- very clearly rated Cologuard either an A or a B. But even if that were the case, Isaac, it does take time to engage with payers and get them to update their policies. You have to remember some of these insurers only update their policies at certain times every year. So that there is a pacing to insurance coverage which is -- it does take time for any new diagnostic test or screening test.

Fair enough. Thanks so much, guys. Appreciate it.

Thank you, Isaac.

Our next question comes from the line of Zarak Khurshid of Wedbush Securities. Your line is open.

Hi there, guys. Good morning. Thanks for taking the questions. I was curious how your volume trended intra-quarter. Was every week up week over week? And if not, what are the factors behind that. Any color on volume trends around Labor Day, fourth of July weekends?

So there was a slow down during the August time period when there are many patients who are on vacation. There are physicians who are on vacation. And our incredibly strong sales team also they have families and they also took vacations. So there's a slowdown. That's good information to have as we go into next year. There is week to week variability in terms of whether the -- you know, does the trend line go up every single week? No, it does not. But the trend line is really clear when you draw a line from the first week of last year until where we are today, that trend line has consistently headed in a positive direction.

Super. And just a follow up on the 2016 guidance. I was curious if you had any kind of assumption there around the number of doctors effectively serviced per rep that you could share with us.

Our reps today have a universe of 200 physicians but they're really focused on 75. And then within that 75, there's a greater focus on the physicians that have already ordered a Cologuard test. And that probably won't change, and in fact there will be -- the change that is occurring right now is in an intense focus on physicians who have already ordered Cologuard.

And that is -- you know I think the sales force over the past several months has just done a tremendous job of recognizing where the greatest impact can be. And that is clearly in expanding the footprint of Cologuard within an office at which a physician is currently ordering Cologuard. And that's really two-fold. Number one, the office staff who's tasked with the process of actually ordering Cologuard for one of their patients. And then secondly, reaching the physician partners of the ordering physician who may be unaware of Cologuard today. So that is going to be the first priority in our commercial focus as we head into 2016.

Sounds good. Thanks, Kevin.

Thank you, Zarak.

Our next question comes from the line of Chris Lewis of Roth Capital Partners. Your line is open.

Hey, guys. Thanks for taking the questions. In the past you've talked about the quality metrics inclusion and how important those are to drive physician adoption and utilization over time. I was wondering if you could talk about how an alternative versus recommended task force designation impacts Cologuard's potential to be included within these quality measures.

Sure, Chris. This is Maneesh. And I think that this is really similar to the response that Kevin provided around the task force. The task force guidelines being unclear have to leave us with the expectation that it's going to take time for those quality metrics to change as well. So it's something we're going to continue to push on, but don't have an expectation of changing here in the near term. But we'll continue to make that effort.

We think that it makes sense given the FDA approval and the fact that there's, you know, coverage already for 55% of people in the screening population. We think it doesn't not make sense. But that's not, you know, what counts. We're going to continue to make the ask.

Got you. And on the Alaska study, what do you think accounts for the better performance in the study versus DeeP-C about the terms of sensitivity and specificity? And will this be included in the task force's review before final guidance is provided?

Yeah. So one great thing about Cologuard, and I think it distinguishes itself from other screening methods, is Cologuard performs the same way consistently over time. And the difference in the specificity in this study is probably primarily accounted for by a younger population in that study. And we know that specificity of Cologuard is higher in a younger population. So you can take a look at the specificity on an age basis from the DeeP-C study and it matched pretty closely to the Alaska study. Cologuard is run by robots in a lab. And so the performance, the variability is very small compared to other screening methods. And that's important.

When you look at Alaska, I don't think you can draw up significant conclusions from the cancer sensitivity because there were only 10 cancers. But you can draw a really important conclusion from the Alaska study. The specificity of Cologuard is high. The pre-cancer detection of Cologuard is high. And this is the fundamental failure, along with the compliance rate, that physicians who are ordering Cologuard today see. And it's those two things. It's the evidence and the impact on patient compliance that is driving the utilization of Cologuard. And we believe over a long period of time, will drive us to success. Again, I want to emphasize that that success is within our control, and not in anybody else's control.

Understood. And is that going to be included in the task force consideration I guess before the final guidance is [out]?

The task force will have this in hand along with the other studies that we referenced when they consider whether they should modify the draft guidelines before making them final.

Got you. And just one more for me. ASP's down sequentially in the quarter guidance for next year and probably just ticking back up to I think around the $395 range, if my math is correct. So can you just walk us through maybe first the sequential down tick in ASPs? And then second, what are the key assumptions that drives that implied tick up in ASPs next year? Thanks.

Chris, this is Bill. In the quarter the down tick was, as we said, due to the payer mix. Medicare had been running about 81% in Q2. It moved down to about 76% of the total orders in Q3. In going forward into our guidance, we don't anticipate a lot of movement. You know the mix is going to change. Kevin had mentioned that the addition of commercial payers will be modest in 2016. But that would reflect sort of a consistent path on ASP into Q4 and then into next year as well.

Thank you.

Thank you, Chris.

And I'm showing no further questions in the queue. I'd like to turn the call back to Kevin Conroy for closing remarks.

Thank you again for joining us this morning. We continued our solid commercial performance during the third quarter. We are requesting clarity about Cologuard from the USPSTF in its final recommendations. Our compliance rate remains strong through the third quarter. And our ongoing commercial success is within our strong team's control. Thank you again. We look forward to updating you next quarter.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a great day.