Exact Sciences Corp (EXAS) 2015 Q4 法說會逐字稿

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

(Operator Instructions)

As a reminder this conference may be recorded. I would now like to introduce your host for today's conference, Mr. J.P. Fielder, Senior Director of Corporate Communications. Mr. Fielder, you may begin.

Thank you, Andrea, and thank you all for joining us for Exact Sciences' fourth-quarter and full-year 2016 conference call.

On the call are Kevin Conroy, the company's Chairman and CEO, John Bakewell, our Chief Financial Officer, and Maneesh Arora, our Chief Operating Officer who is joining us from the road. Exact Sciences issued a news release earlier this morning detailing our fourth-quarter and full-year 2015 financial results. If you've not seen it, please go to our website, exactsciences.com.

Following the safe harbor statement, Kevin will provide an overview of today's call. Next, John will provide a summary of our fourth quarter and full year 2015 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 are also available via our website.

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

Thank you, J.P., and good morning, everyone.

This morning's call will cover our key accomplishments last year, the key factors shaping our business during 2016, new peer review data that strengthen the clinical and economic case for Cologuard, our product pipeline, the longer term opportunity presented by Cologuard.

I'd now like to welcome our new CFO, John Bakewell. John has more than two decades of experience in leadership roles in finance and operations with large corporations and emerging healthcare companies. We are delighted that John has joined the team. John will review our fourth-quarter and full-year 2015 financial performance.

Thank you, Kevin.

Overall our 2015 financial results reflect a strong first year of commercialization. Revenue was $39.4 million for the full year and $14.4 million for the fourth quarter, in line with the preliminary results we issued in early January.

Fourth quarter revenue increased 14% sequentially on volume of 38,000 completed tests. Average recognized revenue per test grew $3 to $377 during the fourth quarter, resulting primarily from improved cash collection from commercial insurers. Fourth-quarter gross margin expanded to 47%.

Q4 operating expenses totaled $47.2 million, and were $1.2 million lower sequentially than the third quarter, primarily the result of lower discretionary spending on marketing programs. Fourth quarter cash utilization totaled $36.6 million, an improvement of $4.9 million over Q3 utilization of $41.5 million. As a result we ended 2015 with cash and equivalents totaling $306.9 million.

I'll now turn our call back to Kevin.

Thanks, John.

2015 was a strong year for Exact Sciences and Cologuard. Let's review some of last year's accomplishments. 27,000 physicians have ordered Cologuard since launch. Three out of four ordering physicians reordered Cologuard during 2015. Our sales and marketing teams drove 12% month over month growth in order volume through direct engagement with physicians and our targeted digital and print marketing campaigns. The compliance rate remains steady, ending 2015 at 71%.

During 2015 Cologuard met or exceeded the expectations of 98% of physicians, and nearly 9 out of 10 patients were satisfied or very satisfied with their test experience.

The true impact of Cologuard can be measured by how it's changing lives. Last year we completed 104,000 Cologuard tests. Based on the detection rates of Cologuard in the DeeP-C trial, we believe we have the opportunity to identify about 600 people with cancer during 2015, including 500 people with early stage curable cancer.

We've begun to fulfill our mission. Looking ahead we see three key opportunities to continue driving growth in 2016. First, we are expanding commercial insurance coverage and reimbursement. As we previously announced, we had significant success in January when we structured a national agreement with Anthem, initially signing a contract with Anthem Blue Cross of California, to cover Cologuard as an in-network service. We are happy to announce that we recently finalized contracts with Anthem Blue Cross Blue Shield in Virginia and Georgia. Combined, nearly half of Anthem's members are in these three states - its three largest. Nationwide Anthem includes more than 37 million members across 14 states. We are working with Anthem to bring the remaining states under the same in-network contract status.

Currently more than 56% of the 80 million person addressable population is covered through Medicare, Medicare Advantage, and commercial plans. Once Anthem is fully implemented, 41% of them will have access to Cologuard as an in-network test.

Second, we are executing a strong marketing plan that includes digital and print campaigns, as well as a television test in five targeted markets.

Third, our sales force is using a new total office call approach to sell Cologuard, visiting multiple physicians in a single practice. We will describe this in greater detail later in this call. As our sales force introduces Cologuard to new physicians, they will have a comprehensive set of data at their disposal.

With the recent publication of new peer reviewed studies, the clinical and economic case for Cologuard continues to grow. Two prospective studies, including our 10,000-patient clinical trial, confirmed Cologuard's cancer detection capability of 92%.

A modeling study published earlier this year establishes Cologuard's use every three years as cost-effective, at roughly $11,000 per quality-adjusted life year saved. This compares to more than 15,000 for cervical cancer and 30,000 for breast cancer. A peer review analysis of the independent CISNET modeling data concluded that Cologuard used on a three-year interval is equal or superior to screening with fecal blood tests on a two- or three-year interval.

The compliance rate for Cologuard, which remained above 70% throughout 2015, is almost twice the rate of reported colonoscopy uptake in a given year, and significantly higher than FIT and FOBT testing. Three out of four patients surveyed in an independent study said Cologuard was more acceptable than colonoscopy, and 84% of patients said they would take another Cologuard test if recommended. New data published last week highlights the fallacy of annual fecal blood testing as an effective means of colon cancer screening.

Let's take a closer look at that adherence data. In a study of continuously insured individuals during a 10-year period, only 3 in 1,000 people were adherent with annual fecal blood testing. Three in 1,000. And people who used FIT or FOBT for screening completed on average only one test every four years. The effectiveness of fecal blood tests in reducing mortality comes from frequent testing.

This study demonstrates that in the real world, annual adherence is incredibly low. Without annual adherence, the modeling on effectiveness would demonstrate much lower benefits from either FIT or FOBT testing. It is much easier to achieve compliance every three years versus what is required by an annual test. The compliance service that wraps around Cologuard provides an opportunity to demonstrate significantly higher adherence with patients over time.

Let me take a moment now to discuss our outlook for 2016. We continue to anticipate completing more than 240,000 Cologuard tests this year, and generating between $90 million and $100 million of revenue. We expect that the initiatives we're outlining today will enable us to achieve our full year guidance for 2016. With respect to the first quarter of 2016, we expect test volume that is in line with, to slightly higher than, the 38,000 completed tests during the fourth quarter of 2015.

This is shaped by three factors. First, low ordering from the middle of December to mid January: during the holiday weeks of the fourth quarter, we experienced a downtick in orders and a drop in collection kit returns. This change in ordering behavior during that time period had a significant impact on the anticipated completed tests in the first quarter.

Second, most of the tests that we expected to be returned in late December, which we discussed in January, have not yet been returned by patients. We are taking steps to follow up with these patients to encourage their compliance with Cologuard.

Third, refocusing the sales force's targeting strategy: we introduced our new total office call sales strategy early this quarter. This is a significant shift in how our team calls on physician practices. We are confident that this strategy will meaningfully contribute to our growth in 2016. Together these factors had a major impact on our expectations for the quarter.

Let me offer further context to what our location-based strategy sales looks like. In 2015 our first objective was identifying and converting individual physicians into prescribers, which we did well. We also focused on training office staff to order Cologuard, and how that process works, outlining how the patient completes the test and highlighting how our compliance engine can relieve them of the burden for patient followup.

This year our sales force is focused on the total office call. This strategy leverages the time invested, building a base of Cologuard prescribing champions, and training their office staff to insure that multiple physicians in the same practice begin ordering Cologuard. We believe that this approach, combined with our reimbursement strategy, and the pull-through marketing efforts that are tied closely with it, will help us achieve our full year guidance.

Let's take a brief look at our product pipeline. These opportunities build on Cologuard's powerful technology platform and can be applied to address other problems in cancer screening and detection.

Our first priority is a simple blood test that will differentiate between lung nodules and lung cancer. Our second program focuses on a test that will discriminate between benign pancreatic masses and cysts and pancreatic cancer. We expect to have initial readouts on these programs in the second half of the year.

As part of our plan to manage operating expenses and prioritize our pipeline, we're terminating our agreement to develop a lung cancer screening test with MD Anderson Cancer Center. We appreciate MD Anderson's efforts to date.

Finally, we're focused on improving Cologuard by developing ways to optimize its performance and improve margins. We have begun a program to replace Cologuard's NDRG4 biomarker, which is licensed to Exact Sciences by MDxHealth. We expect this program will take 18 to 24 months to complete. Royalties for MDxHealth are in the low to mid single digits.

We are excited about these focused opportunities, as well as the platform that has been developed to drive them. It's important for us to continue growing the Cologuard franchise as a long term opportunity.

Looking ahead, we have barely begun to penetrate the overall opportunity for Cologuard, given the 80 million people between the ages of 50 and 84 in the United States. There is a high barrier for others who might want to enter the colon cancer screening market, including intellectual property, product development, and the regulatory approval processes.

Exact Sciences is the only company with a national network of professionals dedicated to driving colon cancer screening, including the team in our customer contact center and our lab. Cologuard's value makes it a significant opportunity to deliver quality to health plans.

Finally, Cologuard has extraordinarily high customer satisfaction ratings. This is helping drive current adoption and will shape reordering trends in the future.

I'm now happy to answer your questions.

(Operator Instructions)

Brian Weinstein, William Blair.

Thanks for taking the questions. Kevin, I wanted to go through that Q1 commentary, and you're expecting flat to up slightly. Can you give us some sort of confidence as to why the 240,000 is still good for the year? Because that's going to imply a pretty significant ramp. Can you help us with any kind of metrics that get us comfortable with why 240,000 is still the right number? Thanks.

We're confident when you take a look at the progression going back last year, Q2 was a big step up, and you saw -- and we see this in the data that there are fewer office visits in January and February. That's clearly having some impact now. It had an impact last year. Again, Q2 was a strong ramp up, and Q3 continued that trend.

We know that we have a great product. We have the right strategy to reach the physicians, and we have a very strong base of physicians who are Cologuard champions, and we have a great sales team.

So, we expect that -- internally, we expected about 45,000 tests to be completed this quarter. And if you take a look at what the delta is, it's the impact on the low ordering at the end of December had a larger impact on this quarter than the return kit issue had last quarter. We will be beyond that as you head into Q2 and beyond, and we expect to see robust growth.

So, for the ones that were not returned in Q1, do you have to send out a second kit to them if it's not returned by a certain date? So, it has to go back through an entire process on that, or is it just calling these guys and trying to understand what's going on? Structurally, what do you guys have to do to try and get some of these test kits that weren't returned in Q1 actually returned?

It's both. We sent out a significant shipment of kits to people who had received kits towards the end of last year, that we did not get a return kit, because of the timing around the holidays. And there is a dynamic that we saw, that if patients did not return a kit during that holiday period, we expected them to return it the beginning of January and into February. That did not occur. We have shipped replacement kits out to those patients, and we have made telephone calls.

At this juncture, we don't expect a significant percentage of those patients to complete those tests, but we will do everything in our power to get them screened because it's important for a whole host of reasons. So, the call center is committed to doing that. We will take this lesson that we learned from the end of the year, and build it into our plans for 2016, heading into 2017.

Okay. Last question for me -- anything on cash burn expectations for the year? That's it for me, thanks.

I'll turn this over to John Bakewell.

Brian, let me take a minute and provide some color. Let me just start with operating expense. I'm sure that's the first piece to this. First, with a focus on Q4, and then with some directional thinking on Q1.

As I noted earlier, Q4 op expenses were in aggregate improved by $1.2 million in comparison with Q3 levels. It was a moderation in selling and marketing expenses that accounts for that entire amount. It was mainly the result of lower discretionary spending on programs.

And note: During Q4 we were also really careful with our selling and marketing headcount. We actually saw it moderate downward just a little bit, and that contributed to that decrease sequentially in sales and marketing expenses, Q3 to Q4.

Within the rest of the op expense lines, during Q4, lower R&D expense was offset almost equally by slightly increased G&A spending. So, the R&D line was slightly lower by about $500,000, primarily due to the cost of our post-approval study moderating just a little bit.

G&A expense was slightly higher by an equal amount. And that was just the result of additional investment in the customer care center, as well as the IT environment and our billing function.

As we look into 2016, we plan to continue investing in our sizable market opportunity. And we're also going to remain quite mindful of the need to do it cost effectively.

With respect to sales and marketing, we'll continue to invest in the team and in our marketing programs. We'll make some additions to our sales and sales support staff, so that the headcount component of selling and marketing will end up totaling roughly $16 million for Q1.

The marketing content and campaigns component of selling and marketing will total an additional roughly $14 million. And that reflects the cost of our annual national sales meeting, which lands in Q1, as well as some incremental spending for the television ad programs that Kevin described earlier.

Looking ahead for R&D, we expect R&D investment to increase by about $2 million sequentially for Q1. We augmented our Med Affairs staff to support our messaging with KOLs, and we're also increasing our emphasis on research to support some future publications.

Within G&A, we're going to likewise increase that sequentially by about $2 million. That'll be driven by continued investment in our customer care center, our billing capabilities, again, IT environment, and also the leadership team.

As you bridge that into cash utilization, our cash utilization was $36.6 million in Q4. That was down from $41.5 million in Q3, net of the capital raise in July. That was driven in part by the lower op expense burn, which was $1.2 million lower, and also a little bit lower CapEx; that was down by $2.6 million.

Looking into Q1, we'd anticipate cash use of roughly $45 million to $49 million. And where we land is going to depend on quite a few different variables, including the payer mix for Cologuard, and our ability to collect cash, as well as the tempo of the program spend within selling and marketing. Again, the primary driver of that sequential increase is that additional investment in sales and marketing.

Jeff Elliott, Robert W. Baird.

Thanks for the question. First one for me is on the 4,000 people that didn't return the kits last year. Is there anything different about those 4,000 people?

I guess you said you don't expect a significant number to return their kits. Why don't you expect that? Is there something different about that group of people?

Well, they haven't returned it to date, and we've been tracking that cohort. We don't expect it, because they just haven't over 30 days out.

And we know that -- so, no, we don't think that there's anything different with that group of people. We think there's something different with that period of time.

And as you know, typically when you ship a collection kit, within about the first 10 days you get about a third of patients to return that collection kit right away. When you lose that group of patients returning collection kits because of something like busy holidays, they don't come back three or four weeks later.

And so, we'll have to work really hard to better understand the dynamic, and come up with creative, innovative ways to get people to return kits. We've been good at doing that in the past, and we'll figure out a way to do that as we look into December of 2016.

Got it, okay. I appreciate the color on the reorder rate. You said 75% of physicians have reordered during the year. I guess, can you talk about any trends you're seeing on reorder rates? I think that would help give us comfort in the future growth of the model.

Well, it's been pretty consistent, Jeff, as you take a look at it. You have the super high orders, the super users continuing to increase in size.

The typical user -- if you take a look at the typical user who orders Cologuard more than once, they start ordering it, and they order it at a very consistent rate. That's an interesting thing to look at, and we think there's upside from that. Once they order Cologuard a second time, they order it a third time and a fourth time and a fifth time on a consistent basis.

I don't think we've disclosed what that pace is. But when you take a look at the available patients today, largely Medicare patients in a practice who are coming in for a screening, it kind of tracks that group, as we get more commercial insurance coverage, as we're seeing that we're doing with Anthem. We expect that the number of super users to go up, and the ordering rate to go up of the physicians who are currently ordering Cologuard in a sporadic fashion.

So, there's been no fundamental shift as you look out over the last one or two quarters. The thing that will really trigger it, and all of our research shows this, which is, once we get broader commercial [re] insurance, physicians will order more tests, both for commercial and Medicare patients.

Got it. Last one for me -- I guess more of a philosophical question. When I look at your model, you have a lot of different levers you can pull, such as expanding the sales force, adding to the collections capabilities, investing internationally. How do you think about the trade-off between those levers and then the incremental burn required?

I think there's some concern over your ability to hit that guidance figure. And I think you could clearly hit it if you chose to, if you want to invest in these things. How do you think about that trade-off?

There's no doubt that the most important investment that we can make is in driving Cologuard. This has an opportunity to be an over a $1 billion diagnostic, have a major impact on health, and the best return on investment is investing in Cologuard commercialization. There's just no doubt about that.

As we mentioned, we are moderating our investment in some of the R&D programs that were going to require significant cash investments. And that will be reflected in our R&D expenses as time goes on.

And let me take one step back from our approach to our balance sheet. Our balance sheet, we recognize, is a very valuable asset of Exact Sciences. We will take all necessary steps to preserve that balance sheet, and focus on the increase in the pace of Cologuard ordering in the most cost efficient ways. So, that is our philosophical approach to spending as the year goes on, and we'll adhere to that.

All right, thanks, guys.

Isaac Ro, Goldman Sachs.

Hi, guys, thanks. It's actually Joel in for Isaac. Could you maybe help us understand how you guys are actually measuring the cost of doctor acquisition or retention, and then maybe how these specific metrics are actually informing how you plan to spend over the next couple quarters?

Yes, sure. We have the ability to track each of our different approaches to the market, whether it's our direct primary care sales force, our inside sales force, our marketing programs, our digital advertising, the television test -- and look and see what's the actual dollar cost per physician gained, and also test order and revenue dollar.

So, we have the ability to, in a way that really few companies in healthcare are able to, because we have the data from the beginning to the end of the process, because we are also, we're not only the device manufacturer but we're also the lab. That gives us the ability to make the various marketing investments, sales investments in different ways, as we look out over the next couple of years, based upon the efficiencies. We look at those very closely. And I suspect, as time goes on, we'll alter in some way, shape or form, how and where we're spending money.

Great. Another one maybe on R&D -- appreciate all the comments on the lung cancer project cancellation. Could you maybe parse out how much of the R&D spend today is actually going to pipeline development for products outside of Cologuard? And then to drill down a little bit further, what specific signposts are you guys looking for in the core business to determine whether or not to taper back even further until profitability may be more in sight?

So, first question, about two-thirds of our R&D spending is on Cologuard, and only about a third is on our pipeline programs.

In terms of how we think about cash utilization as this year, next year progress, is we, again, highly value our strong balance sheet. We are in a unique position, we believe, in molecular diagnostics because of that balance sheet. And we will take all prudent steps to ensure that we preserve that cash as we strive to achieve cash flow break even.

There are a lot of levers for us to pull. Obviously, a very important lever is to have a strong Q2. And we will look at Q2, and that will help us dictate how we make investments throughout the rest of the year.

Thanks.

Thanks, Joel.

Mark Massaro, Canaccord Genuity.

Thanks for the questions. Kevin, the first one for you, and I apologize, I missed some of the rationale for terminating the lung cancer collaboration with MD Anderson. Can you run through the principal reasons for this? And does it have anything to do with outlook for liquid biopsy from any other players in the industry?

No, we made that decision shortly after the task force came out with its colon cancer screening guidelines. Both MD Anderson and Exact Sciences realized -- to get a colon cancer screening test to market, the path led directly through the task force.

And the amount of evidence that the task force requires for a new screening modality is so incredibly high, that even one large study may not have been enough. And that one large study could have cost $50 million plus. So, at this juncture, maybe it would have even cost $100 million, depending on what the FDA required.

We think it's important, but we think it also highlights the significant barrier for anybody in the US to develop a screening test that Medicare actually would pay for. The path leads through USPSTF.

So, we believe that, for the fundamental industry to be altered, the regulatory pathway has to be altered, and you have to give Medicare the ability to cover some of these new tests without the task force first rating it A or B. Until that happens, I think that companies that spend hundreds of millions of dollars trying to develop blood-based screening tests are probably all in for a rude awakening when they get those tests through a clinical trial and try to commercialize it.

So, that's the overall approach. We are looking at our cash utilization and the best return on our investment.

Okay, great. And so, as we think about the remaining one-third of your R&D in the pipeline, how is that different? Is this focused more on launching lab developed tests, as opposed to building substantial piles of evidence to take certain products through the FDA?

Again, the targeted, focused opportunities that we have is, number one, with discriminating between benign lung nodules and lung cancer. We don't know if that would be a lab developed test or an FDA submission. Maybe it would initially be a lab developed test, followed shortly thereafter by an FDA approach.

There's a big, big need there. It could really alter the course of treatment and early detection for lung cancer.

Similarly for pancreatic cancer, distinguishing between these benign masses and actual pancreatic cancer, and detecting pancreatic cancer early. We think this technology from a simple upper endoscope collecting pancreatic juice can really change the way pancreatic cancer is diagnosed.

Those programs will read out in the second half. We're partnering with the Mayo Clinic on both of those programs.

And then importantly, the third investment that we're making is an investment to optimize the marker makeup, and change, in a significant way, our gross margin performance. So, those are the investments that we're making this year. They are focused, modest overall, and we expect to see significant payoffs from them.

Okay, great. And my last question relates to some of the earlier questions on the guidance. Can you confirm that your guidance for 240,000 tests assumes a constant number of sales people in 2016?

That guidance does assume a relatively fixed number of sales people. There's obviously -- we're adding inside sales people. We have been adding some PCP reps as well. But it assumes a pretty consistent number; that is correct.

Great, thank you.

Thank you, Mark.

Bill Bonello, Craig-Hallum.

Good morning, guys, and thanks for some of the color around the Q1 guidance. Just a couple of things -- first, I want to clarify something that I -- heard you correctly.

Did you say that, in addition to the orders being weaker than normal, or not growing as normal in December, that you also saw that trend continue in January and February? I just want to make sure I heard you right, and then I have my real question.

No, that trend continued for the first two weeks of January and then began to come back. Since then, we didn't provide color as to what occurred January, middle of January and beyond. But there were some other dynamics there.

There was a pretty significant storm on the east coast that had an impact on one of our strongest regions. Now, that's to be expected; it's wintertime, and you're going to get that every year. But that did have some impact.

And our national sales meeting takes our entire sales and marketing team out of the field -- our entire sales team out of the field for a full week in January. Again, that's something that is going to occur every year, but that does explain this quarter. And as you look into Q2, those dynamics obviously won't be there.

Okay. So, that's helpful. I guess I'm trying to reconcile some of the statements that you're giving.

You're consistently adding 500 new doctors a week. The number of doctors that have ordered is up 27% sequentially. The doctors -- 75% of them appear to be reordering.

All of that sounds great, but the volume isn't growing. There seems to be a disconnect. Are there big orders, big customers that have stopped ordering? I just can't reconcile the math there.

Well, that math, obviously, Bill, is math that applies to all of 2015, not to December 15 through January 15. And so, that math clearly does not apply to the start of our Q1, which really begins in December, as you can imagine, with a 30-day lag between test order and a completed test. That is the dynamic that is occurring.

Now, again, we expect that to return to normal levels. We have not seen a decrease in the number of orders per new physician or currently ordering physician in any meaningful way, other than during those time periods when fewer patients are coming in to the office. So, if you go back, Bill, and take a look at the chart that we showed at the JPMorgan conference, with the ordering volumes, you can see those orders really started to tick up in March, April, May, in a pretty significant way.

Okay, so, at this point, it's seasonality. There's no -- that you're aware of, there's no drop-off of big customers or in certain regions or anything along that line?

No. I mean, one of the great things about our Business, Bill, is that there isn't -- this is not driven by big customers. It's driven by thousands of ordering physicians.

And seasonality is going to come into play. We now have a better idea. Last year we didn't know what the seasonality would look like. Now we have a better idea of what that looks like.

But we also, Bill, and this is important, we have a high-quality sales force that has six months' to a year's worth of experience. And they're highly motivated. We had a great national sales meeting. And now that they're coming off of the national sales meeting with a new target list and sales approach, it's going to take a little bit of time for that to take hold.

Maneesh, why don't I hand this over to you to provide more color on that?

Absolutely, Kevin. So, one of the things I really want to emphasize that Kevin said earlier was, in addition to the seasonality, Kevin mentioned the total office call and our move to the total office call. That is really important because as we look back at the things that are driving our confidence in this year's full-year guidance, we know that the reception for the product has been very, very strong. So, it's a great product.

As we take a look at what the most successful reps were able to do in calendar 2015 that drove their success, it was not calling on just that doc, but rather the whole office. So, any time you change a strategy from a sales perspective, you are going to lose some momentum. But this isn't a question of something we think is going to work; we know this has worked. It has worked in 2015. And so, the mission is, is to expand that through a very capable sales team, and emphasize that through 2016.

It is a great product. It is, we are confident, the right strategy based on what we have seen from the reps that did it successfully in 2015, now expanding that through a great sales team to execute in 2016.

Okay. That's helpful. And then one last question and I'll hop back into the queue. And I hope you think this is a fair question.

Obviously, at the time that you pre-released Q4 and gave the 2016 guidance, you knew that December was a pretty weak month in terms of ordering. You knew that you had your sales meeting in January. Did you give any consideration to giving some sense that -- hey, it's a back-end loaded year? I'm just trying to think how we should think about communication going forward.

Well, the first premise of that is that we knew from last December what this December would look like, and that's not accurate, as we discussed at JPMorgan. But look, we try to be as transparent as we can possibly be, Bill. And I think we have a good track record of that. So, we will continue to do that.

As we learn the Business, and again, it's a consumer-driven business, it's a seasonally affected business. But we'll communicate that as well as we can.

With what we don't want to do is provide so many different bits of data that, regardless of the level of success we have, that we're constantly being measured by a creeping higher number of metrics that, to make a quarter, we need to achieve. And we'll continue to communicate in a transparent way towards these goals.

Perfect, totally agree with that. Thank you.

Thanks, Bill.

Bruce Jackson, Lake Street Capital Markets.

Hi. Thanks for taking my question. First a housekeeping question: Can we get the Medicare percentage of the test mix in the quarter?

Medicare percentage of test mix -- if you bear with me just a second.

We haven't provided that number on a quarterly basis. But I'll say that the Medicare percentage is, as you would expect, decreasing, and the commercial mix is increasing.

So, I think last time we reported it was around 70%. Now it is in the ballpark of 65% of the test orders.

Okay. That's helpful. Then I just wanted to go back to the comment about the Q2 uptake last year. If I recall correctly, that's when the Ironwood agreement started to contribute to the unit uptick.

So, a two-part question here: How much did the Ironwood agreement contribute to the unit uptake last year? And has that contribution been consistent for the remainder of 2015, or has it been trailing off a little bit?

Yes, so, that program launched April 20; there was a training after that. So, it really didn't start to have an impact until Q3. And that has been pretty consistent over the course of the year.

I think there are about 5,000 docs that Ironwood has called upon that have ordered at least one Cologuard test. And that has been fairly consistent throughout the year.

Okay. Thank you very much.

Thank you, Bruce.

Eric Criscuolo, Mizuho.

Good morning, everyone. Kevin, I think you said that 41% of the 80 million potential patients will be covered in network with the Anthem deal. Is that all of Anthem, or is that just the additional Blue Cross Blue Shield that you signed up in Virginia and Georgia?

That is all of Anthem. Actually, Eric, let me clarify that because that remaining gap is largely Medicare Advantage plans. And Medicare Advantage plans are, by Medicare, required to treat Cologuard as an in-network service.

So, when you really think about this, this 56% once Anthem is fully implemented -- we're about halfway there. And once we educate the Medicare Advantage plans of CMS's clear view on Medicare Advantage treatment of Cologuard, that 56% coverage and 56% in-network status will be awfully close. There may be Medicare Advantage plans that we don't have a contract with.

It is very clear that CMS is demanding that Cologuard be treated as an in-network test. And what that means is, for most of those Medicare Advantage plans, there's a $10, $20 or $30 co-pay associated with an in-network lab test. And that's good news for Cologuard.

We are driving that message home to Medicare Advantage plans. We expect that will help us enter into contracts with those MA plans. And it will have a nice impact on our overall ASP as we progress towards the end of this year.

Great, thank you. Thanks for that additional commentary there, and for clearing that up.

And quickly, back to the guidance and the 1Q guide -- the kind of flat growth -- is that being driven more by the tests not being returned? Or is it driven more by the slow demand in the beginning weeks of January?

Yes, so, the slow demand actually had a larger impact than the return kit issue.

For the 1Q flat growth, right?

Correct.

Okay, great, thank you for clearing that up.

If I could just squeeze in one more? Seen some recent news about some legal actions that you're taking. Is there any commentary that you can put behind that, as far as why it was triggered, and maybe how you balance between doing this and [try to] securing more coverage from payers?

Sure. So, we won't comment on the individual suits in Kentucky and North Carolina. But we will talk about our strategy here.

There are 18 states that have state laws, whereby health plans in those states, health insurers in those states, are required to cover any test that is included in the American Cancer Society colon cancer screening guidelines. These are what we call the mandate states.

There are 18 of those states. And in those states, those plans that are rejecting covering Cologuard, shouldn't be. And we, of course, start with conversations with those plans, and pointing out the law to those plans.

But we will be aggressive and assertive on behalf of patients who deserve to get screened. Look, 4 out of 10 people getting the Cologuard test have never been screened, despite being in the screening population for, call it, 15 to 20 years. We want to make sure that these patients -- we want to fight on behalf of these patients to make sure that their screening test is covered.

And we're not the least bit worried about -- we will do the right thing and let the consequences fall where they may. We think this is going to have a positive impact for patients for this year and next year.

And this is true as we look at other aspects of our Business. There are a lot of payers in the world who don't want to pay for anything new. And we will fight on behalf of the patients.

Thank you.

(Operator Instructions)

Brandon Couillard, Jefferies.

Thanks, good morning. Kevin or Maneesh, can you give us an update on whether you'll be looking to in-license or co-promote additional products to add to the internal PCP sales force bag this year?

Yes. So, we continue to look at that. We, at the JPMorgan conference, talked about our desire to add additional products to the bag over time.

I will that say that until we see a stronger uptake in Cologuard, we're going to stay really focused on the central goal of getting Cologuard to be used by as many physicians as possible, as frequently as possible, in the patients who need to be screened. And that will be the number-one priority.

But we will continue to look at these opportunities throughout the year. I think even if we found something today, it would take a couple of quarters probably to fully vet and implement a new test. So, we don't think there will be any material impact over the next two or three quarters from any additional product that we would put in the bag.

Super, that's it for me, thanks.

Jeff Elliott, Robert W. Baird.

Thanks for letting me back in. Kevin, I'm wondering, do you have any updated thoughts on USPSTF, either in terms of the timing or potential outcome, or perhaps more importantly, where do you think you stand in light of the guidelines?

Sure. Recently we've had some communication with CMS that indicates that the task force may -- and I want to emphasize may -- finalize their guidelines this summer. And we look forward to that.

If you take a look at where the recommendations are right now, that includes Cologuard, along with five other (inaudible) strategies: colonoscopy, fecal blood testing, flexible sigmoidoscopy, virtual colonoscopy. Chairman Albert Siu on October 25 had an interview published in the Congressional Quarterly. And there, he really drove home an important point, which is, there's no direct evidence showing the clear advantage for either the home-based test or direct examination, ie, flexible sigmoidoscopy and colonoscopy. He said, quote, the central message is that it's important to get screened; there are a variety of different ways to get screened; the important evidence and the best evidence is in the value of screening. And he stated that they were largely agnostic about which highlighted approach is chosen.

Then if you take a look at the task force's communication to the public of how they laid this out, there was not a significant distinction between colonoscopy, flex sig, stool test, and Cologuard, and virtual colonoscopy. The only thing it said is that there's more evidence for some of the tests, and less evidence from others. But they were all highlighted to the public in the understanding the task force draft recommendations. This is how they communicate the actual guidelines to the world.

Why is this important? Our view is that, going forward, Cologuard, along with all the other screening tests that are listed in the draft, and we expect to be final guidelines, we believe will be deemed A-rated. And over time, all payers will have to cover all of the different approaches on this test. This seems to be what Dr. Siu is driving home in his communications.

And then he also had an interview in November of last year, where he said it is rare that new evidence between draft and final recommendations emerge, and meets the task force's criteria for inclusion. So, we, A, don't think there will be a change, but we love the position that we will be in once these are finalized. That Cologuard, over time, will be something that all payers in the US under the Affordable Care Act will have to cover.

I want to emphasize that will take time; there won't be a light switch that will occur over a period of years. But we look forward to the task force finalizing their guidance.

Okay. Thank you.

Mark Massaro, Canaccord Genuity.

Hi, Kevin, thank you. Wanted to ask about the OPTiM study and try to understand how you think that might help you win additional regional commercial payers.

And secondly, related to that, do you think that studies like that can potentially impact physician behaviors? In other words, may not recommend FIT FOBT testing, as particularly younger physicians understand the shortcomings of FIT and FOBT testing.

And then if you don't mind, a third part of that is, do you expect to launch additional studies like that in 2016, some of which that may have an impact on commercial payer adoption?

Thanks, Mark. The OPTiM study is a really important study for a lot of different reasons, but the one that we really highlighted there is that only 3 in 1,000 patients are compliant with FIT FOBT testing on an annual basis. So, basically nobody is consistent; virtually nobody -- out of 150,000 patients, it was a few hundred that were compliant with FIT and FOBT tests.

What that study also drove home, if you read it carefully, is that virtually all compliance comes from colonoscopy; 99.6% of patients that are compliant with colon cancer screening are compliant because of colonoscopy. Well, what about everybody that isn't compliant? We know that 40% of patients aren't compliant.

This drives home the need for Cologuard. It was why Cologuard was designed as a test that wouldn't be used annually. Doing something annually is a lot harder than doing something every three years, or every five years, or every 10 years.

We now believe that we have this, coupled with the cost-effectiveness study, coupled with the CISNET modeling data, presents a complete package now that we have to drive home to payers. But there is more coming; budget impact modeling data, et cetera, that really will help accentuate the remarkable data that we already have.

Look, this is a big problem. You're not going to change behavior overnight. But you're not going to do it just by talking; you need to have the data.

Now, this data is coalescing in a powerful way, and I really want to give credit to our Medical Affairs team, Maneesh's team, that really delivered this. It took a lot of time; some of this work occurred three or even four years ago to get it put into the hands of policymakers at the payer level, and the groups of physician level to get them to change behavior.

We expect that [DBW] this year will have a number of publications or abstracts and presentations about how Cologuard is having an impact in the real world environment, and we're really excited for some of those abstracts to come out, too. I think they will be powerful.

Great. Thank you.

Thanks, Mark.

Thank you. And this does conclude our Q&A session for today. I would now like to turn the call back over to Kevin Conroy for any closing remarks.

Thanks, everybody.

In summary, 2015 provides a strong foundation for success in 2016 and beyond. Since launch, more than 27,000 physicians have begun ordering Cologuard. The majority of them are repeating their ordering behavior.

We believe that there are significant drivers of growth in 2016. We're expanding reimbursement coverage to increase ordering.

We are executing a strong marketing campaign aimed at both physicians and patients. Our sales force is focusing on the total office call to sell Cologuard. Finally, a large market, high hurdles to entry, and other important factors make Cologuard a unique long-term opportunity.

None of what we accomplished or any of what we'll achieve this year would be possible without the extraordinarily dedicated team at Exact Sciences. We all share the belief that, together, we will make a difference in helping to eradicate colon cancer.

Thank you for joining us this morning. We look forward to updating you as we move forward.

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