Exact Sciences Corp (EXAS) 2017 Q3 法說會逐字稿

Good afternoon.

My name is Mike, and I will be your conference operator today.

At this time, I would like to welcome everyone to the Exact Sciences Corp.

Third Quarter 2017 Earnings Call.

(Operator Instructions) Thank you.

I will now turn the call over to Megan Jones, Investor Relations analyst.

You may begin your conference.

Thank you, operator, and thank all of you for joining us for Exact Sciences Third Quarter 2017 Earnings Conference Call.

On the call today are Kevin Conroy, the company's Chairman and CEO; Maneesh Arora, our Chief Operating Officer; and Jeff Elliott, our Chief Financial Officer.

Exact Sciences issued a news release earlier this afternoon detailing our third quarter financial results.

If you have not seen it, please go to our website at exactsciences.com.

Following the safe harbor statement, Kevin will provide an overview of the company's third quarter performance.

Next, Jeff will provide a summary of our third quarter 2017 financial results.

Then Kevin will provide an overview 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 can be accessed through our website.

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

Thank you for joining us this afternoon.

The Exact Sciences team delivered another strong quarter with $73 million in revenue, 161,000 completed Cologuard tests and more than 10,000 new ordering physicians and other health care providers.

The growth and enthusiasm of our patient and physician customer bases are helping us begin to achieve our goal of making Cologuard the standard of care in colon cancer screening.

As the second leading cancer killer in the U.S., we know that our team is helping us to make a major impact on the lives of those who choose to use Cologuard, half of whom have never been screened before.

There are 3 key topics we'll discuss today.

Cologuard's momentum continues as patient demand for an easy-to-use colon cancer screening test increases, physician adoption grows and our sales and marketing efforts continue to be effective.

We believe that Cologuard can achieve at least 40% market share of the 80 million eligible Americans over time.

We are investing for the long-term sustainable growth of Cologuard.

The investments we've made and continue to make will provide a solid foundation for this growth.

Exact Sciences is uniquely positioned to transform the way cancer is diagnosed and treated.

We have a proprietary differentiated technology, the proven experience of our team and a unique collaboration with Mayo Clinic.

Our CFO, Jeff Elliott, will now review our third quarter financial results.

Thank you, Kevin, and good afternoon, everyone.

Please note that when discussing financial results, I will refer to changes compared to the second quarter unless otherwise stated.

Third quarter results exceeded our expectations with revenue of $72.6 million, up 26%, and completed Cologuard test volume of 161,000, up 19%.

Third quarter average recognized revenue per test was $451.

The $23 increase was primarily due to fluctuations in cash collections.

Please be aware that our blended accrual rate closely mirrors our time-lagged average collections.

On a time-lagged basis, our average recognized revenue per test was $428 at the end of the third quarter, an increase of $5.

Third quarter cost of sales totaled $129 per completed test, down slightly from $133.

This improvement came from better-than-expected volume leverage and continued efficiencies in our lab and manufacturing operations.

We expect an increase in our cost per test in the fourth quarter because of the growth investments we're making in our lab, manufacturing capacity and personnel.

Third quarter gross margin improved 260 basis points on increased revenue per test and decreased cost per test.

Third quarter operating expense totaled $80.3 million, an increase of $9.2 million, slightly below our expectations.

The growth in G&A included investments in IT and personnel to support our expansion.

R&D increased primarily to support pipeline development, and selling and marketing increased due to the addition of sales personnel.

Third quarter cash used totaled $21.7 million.

Adjusting for the MDxHealth payment in the second quarter, cash used improved by $7.1 million on better-than-expected operating results and some working capital benefits.

We ended the quarter with cash and marketable securities of $462.5 million.

Cologuard's compliance rate at the end of the third quarter was 66%.

We continue to expect a decline near term due to payer mix shift from Medicare towards commercial insurers.

We remain optimistic about the rate increasing over the long term.

Turning to our guidance.

Based on our strong results through the end of the third quarter, we are raising our full year revenue and test volume outlook.

We now expect revenue of $254 million to $257 million and Cologuard volume of 568,000 to 572,000 completed tests.

With 395,000 completed tests through the first 3 quarters, we expect Cologuard volumes of 173,000 to 177,000 completed tests in the fourth quarter.

With just 2 months left in the year and the major holiday still in front of us, you should focus on the midpoint of guidance as the most likely view of how we see results playing out.

I will now turn the call back to Kevin.

Thanks, Jeff.

More than 91,000 physicians and other health care providers have ordered Cologuard since its launch.

About 800 health care providers placed their initial order each week during the third quarter.

This pace has been relatively consistent since we initiated our television advertising campaign about 18 months ago, giving us confidence to invest in television advertising at a similar level next year.

Approximately 55,000 primary care physicians have ordered Cologuard since its launch.

As we capture an increasing share of the over 200,000 active primary care physicians in the U.S., the rate at which we add new physicians will at some point begin to decline.

Our goal is to continue to increase penetration of the target primary care customer base and Cologuard utilization within this customer base.

We are investing across our business to achieve our long-term market share and profitability targets.

During the last 2 years, we expanded our sales force by about 100 professionals and increased the size of our team focused on large health systems.

We are also expanding our medical affairs team to help educate physicians and key opinion leaders about Cologuard.

To complement these investments in our commercial team and ensure that growing Cologuard demand can be fulfilled, we are investing in support functions and facilities.

During the fourth quarter, we plan to purchase additional real estate near our headquarters in Madison to make room for our growing team.

To process a steadily growing number of Cologuard tests, we are expanding our existing lab capacity and plan to break ground on a new lab soon.

At the same time, we continue to strengthen our operational infrastructure and take steps to secure our supply chain.

An effective and scalable IT backbone is critical to Cologuard's success.

During the third quarter, we acquired Sampleminded, an information technology solutions company based in Salt Lake City.

Sampleminded has been an Exact Sciences partner for several years and was instrumental in developing and supporting our lab information system.

The unique insights and skills of the Sampleminded team strengthened our IT capabilities, an area that is key to our success.

Exact Sciences' vision is to help win the war against cancer through early detection.

Each year, more than 14 million people are diagnosed with cancer globally and nearly 9 million die from the disease.

600,000 of these deaths occur in the United States alone.

Globally, cancer incidence is expected to increase by 70% during the next 2 decades.

And most cancers today are diagnosed in late stages, resulting in lower chances for long-term survival.

We believe we are uniquely positioned to have a major impact in the war on cancer.

We have a unique and long collaboration with Mayo Clinic and have the proven experience to take a product from development to successful commercialization.

Exact Sciences' proprietary testing platform, coupled with our unique multi-marker approach, enables us to develop highly accurate screening and diagnostic tests.

Our differentiated platform combines a proprietary detection chemistry and specific cancer markers, providing a highly scalable cost-effective foundation for growth.

During the past 5 years, we have identified markers with Mayo Clinic researchers for many of the most deadly cancers and made numerous enhancements to our capabilities.

These efforts provide us significant flexibility in prioritizing our robust pipeline of products.

As we continue to expand Cologuard's market penetration, the next opportunity we see to use the power of our platform is a test that helps to differentiate between benign lung nodules and lung cancer.

The current diagnostic options are often invasive and expensive, and the potential for a new blood-based biomarker test is significant.

Our early performance data demonstrates specificity and sensitivity for lung cancer of over 90% for a study presented at AACR in April this year.

We look forward to updating you on our lung nodule test in the first half of 2018.

We're now happy to answer your questions.

(Operator Instructions) Your first question is from Brian Weinstein from William Blair.

You had another quarter with very good results here, even with some things potentially holding it back a little bit.

So can you talk about any impact that you saw from the hurricanes?

Can you talk about any progress with electronic orderings?

And also, any comments and thoughts on how prior authorizations, while probably not impacting your third quarter but the changes that we're seeing with some of the payers there, how that's impacting the way you're thinking about the fourth quarter and going forward?

Sure, Brian.

It's Maneesh.

So first part of the question was on the storms.

And what we'll say is the team did an excellent job managing through the storms.

We haven't publicly quantified the impact, but it wasn't material for the quarter.

And our thoughts go out to our team members and those affected by the hurricanes.

So as it relates to the question on electronic ordering, we've continued to see steady progress.

As you'll remember from the beginning of launch when 95% of the orders came in via fax, we're now at a point where a little over 1/4 of all orders are coming in electronically.

And that's just steady focus and investment.

And we expect to see continued momentum in that direction over time.

And then finally, the last question -- the last portion of the question on prior auth, we -- it's a fact of life in the industry.

It's something that we've dealt with, but it has not been a material driver.

We've dealt with it for some time since launch.

And as we continue to see inclusion in guidelines and we continue to see progress with payer coverage, that has -- that's really helped us with our momentum.

Okay.

And then second question.

As I look at the guidance for the fourth quarter, the 14,000 sequential increase in test volume, can you talk about -- maybe breaking it down a little bit of detail -- in a little bit of detail for us on new doctor contribution, utilization?

Kevin, I wasn't sure if you were trying to signal that you were maybe thinking that maybe doctor adds may be a little bit slower going forward or not, and I just want to be clear about what your comment was on that.

Brian, that comment doesn't relate to the fourth quarter.

We're just trying to make expectations known that over the long term, you can't add 10,000 primary care physicians forever given that there are only 200,000 target primary care physicians and we already have about 55,000 of them.

So that is -- the key thing to remember is that at some point down the road, whether it's 2018 or 2019 or beyond, that pace is going to decrease.

And that's why the focus is so important for our entire team, the entire company to increase -- to work with physicians and their office staff to increase the utilization of Cologuard within those offices.

It is a really important part of what we're trying to achieve as a company.

The next question is from Doug Schenkel from Cowen.

On the second quarter call, you said that around 30% of the eligible market is open for you to capture.

You might have said 30% plus.

On this call and at your July shareholder meeting, I think you've changed that to be officially 40%.

What's changed here?

Obviously, that's a move in the right direction, but I'm just wondering, what's evolved over the last few months in your thinking?

I think you can see, Doug, with the results that we've had and the continued increase in access to the primary care physician base, with inclusion in the quality measures, we have a rosier outlook over the long haul about where Cologuard will fit as a colon cancer screening test.

And a lot of that is just driven by the consumer reaction to Cologuard.

It's been incredibly positive.

People like it, as we hoped and expected they would relative to colonoscopy.

And the feedback that we're getting from the customer research that we do continues to be positive and point into a direction that at some point in time, Cologuard will be on par with colonoscopy and maybe as a frontline screening test, be the go-to test.

That's certainly what we are trying to achieve.

One of the data points that supports this belief is that about half of all of the people who've used Cologuard have never previously been screened.

That includes patients who have been in the screening population for 20-plus years, but it also increasingly includes people who are in their early 50s and it's their very first screening event.

So that's why we believe that over the long haul, we will get to over 40% of the 80 million Americans using Cologuard on a regular basis.

That's great, Kevin.

Regarding Q4 guidance, I'm having a hard time getting to 77,000 tests or below.

And that's factoring in assumptions for compliance of around 65%, another 9,000 to 10,000 doctor additions and no change in orders per physician relative to Q3.

I actually kind of need to take that down to get to 77,000 or below.

Obviously, there's a mix of assumptions we could make here.

But just relative to recent trends, is the biggest thing that you're just assuming some seasonal impact in the quarter as you pull together guidance for Q4?

Yes.

Good question, Doug.

A couple of things to point out there.

When you look back over the last couple of quarters, what we're learning is that Q2 and Q3 are similarly the strongest quarters of the year for our business model.

And you correctly highlighted some of the things that we're working with in the fourth quarter, one of which is the compliance rate.

We do expect that to tick down to about 65% in the fourth quarter.

Potentially, it could tick down a little bit more from there before it returns to the positive direction over time.

Also in the fourth quarter, you have the holidays.

And we've seen this before.

Around the holidays, people do not respond to their -- return their samples at the same pace that you do throughout the year.

So we have the holiday dynamic to deal with when we think about guidance.

Okay.

And last one, another one for you, Jeff, I believe.

Cost per test, I believe, dropped to $129 in the quarter.

You talked about a long-term goal of $125 per test.

Is there now a scenario based on the progress you've made over the last few quarters where you can see you actually beating that goal and getting to a much lower level over the coming quarters?

Well, certainly, we'll achieve to -- we'll work to achieve a number lower than that, Doug.

But when you look out over the next few years, we have significant investments to make in capacity.

So we -- Kevin talked on the call about breaking ground on a new lab relatively near term.

There will be investments associated with that.

There will be investments associated with scaling up our existing lab.

We're investing in personnel.

We're investing in supply chain.

So there are a lot of investments we plan to make over the next few years to meet the demand that we see.

So that will cause some temporary upwards movement in the cost per test.

But long term, we're very confident of getting it to $125 or lower, and we will work to bring that down even more.

The next question is from Catherine Schulte from Baird.

You've seen some nice increases in test per doc over the last few quarters.

And as we look out into 2018, how do you think about that number trending?

Is there any reason to think that shouldn't keep going up aside from seasonality?

Yes.

Thanks, Catherine.

What we've seen over the past 5 quarters is a nice, steady, gradual increase in the number of orders per doc.

We do look at the number slightly different than The Street looks at it.

I think the way that most of you calculate it, we saw 1.77 test per doc in the quarter.

We look at orders though.

And when looking at orders, we've seen a nice, steady increase.

We're not going to guide to what we see for 2018, but I think it's safe to say that long term, there's significant room to increase that penetration per doctor.

Okay, great.

And you mentioned the acquisition that you made in the quarter to bring some lab IT technology in-house.

Can you just walk through how that should impact cost going forward?

And then any updated thoughts on additional M&A or co-promotes?

So just on how it will affect the financials, the acquisition was not material.

It does help us scale up our IT capabilities, so we're very pleased with the team that we brought on board.

This was a team we had worked with for several years, helping build our lab information system.

So it's a very high-quality team.

We're pleased to have them on board.

But right now, it is not material to our results.

On M&A more broadly.

More broadly on M&A.

We're not commenting on any M&A, as we haven't in the past.

(Operator Instructions) The next question is from Brandon Couillard from Jefferies.

A question for Maneesh.

Would be -- curious if you could give us an update on the new sales force additions, potentially the contribution from those in the third quarter and really where we stand today in terms of the penetration into some of the larger systems versus individual group practices and whether some of those new reps might be targeted a little bit differently, perhaps toward the larger opportunities.

Yes, sure.

So first off, really excited about the caliber, the quality of the existing reps and the new reps.

It's been really energizing for the entire team, and you can see that in the sales team's execution in the third quarter.

The reality, as we've said before, is it does take time.

And so we do expect that it's going to take 6 months to 12 months.

We were joking a little before the call for all of our reps that are listening that the best ones will be -- we'll see the impact in 3 months to 6 months.

But to be really honest, it's going to take time, and we're pleased that we made the investments that we did to really impact 2018.

As it relates to your...

If I can just interject, we actually weren't joking about that.

As it relates to the systems, you bring up a really important point, and that is we are starting to see much more interest as we see the support both in guidelines, payer coverage and really importantly, quality credit, which is something really important to the systems.

As we see these different elements come together, the value proposition per system is really going up.

And so it's going to be an important area of investment.

We have just recently increased our account management resources and plan to, in '18 and '19, really extend our focus with the account resources and medical affairs resources to engage and drive the system adoption because that's going to be the next level of growth for us.

So it is continuing to focus with our rep investments but then also our account investments on systems.

And we're at the very early innings of that, Brandon.

And one follow-up for Jeff.

First, could you give us the mix between Medicare and commercial in the third quarter?

And then secondly, as we look out to the fourth quarter, how you see OpEx trending exiting the year?

Sure, happy to.

So in the third quarter, Medicare was about 59%.

So we've seen -- that was down about 3 points versus the second quarter.

Let me run through the whole P&L.

You asked on OpEx, but when you look at fourth quarter cost per test, we expect that to trend towards the mid-$140s.

There, we're investing in additional infrastructure and personnel to scale the existing lab.

We're also adding some automation that will help us become more efficient in the lab.

When you look at OpEx, we expect an $8 million to $10 million sequential increase from the second quarter -- from the third quarter.

Sales and marketing will likely be the biggest driver with an increase in marketing spending and headcount.

You'll see the full quarter impact of the additions from the summer.

R&D, we expect an increase from (inaudible) our sample collection studies for lung and some other cancers as well as some medical affairs hiring.

Within G&A, we expect an increase due to hiring to support the growth that we're seeing.

And the fourth quarter CapEx, we expect that to be in the high 30s to low $40 million.

There, we're increasing the lab and manufacturing capacity.

And we're also -- as Kevin said, we're adding some office space and real estate in the fourth quarter.

The next question is from Anne Edelstein from Bank of America.

So I guess the first one is on Q4.

I had to jump off so maybe I missed this.

But can you quantify any impact from the hurricanes in Q4?

Just -- I'm trying to reconcile the facts, but it seems like you signed a few -- or solidified a few contracts during Q3 that should hit in Q4.

And you have the sales force, which I think should be getting close to higher levels of productivity in Q4.

So just any help there on kind of reconciling those factors?

Yes.

Thanks, Anne.

So the hurricanes, like we said earlier, were not material.

The team did a fantastic job of managing through the storms.

The sales force additions, we're very optimistic long term we'll see nice productivity.

But recall, we just hired these reps.

It will take time to on board them and get them productive in their territories.

So we think of that as more of a 2018 event.

I don't want to get into the impact of any specific contract.

But historically, we've talked about contracts, especially bigger ones, taking maybe 9 months to 12 months to fully educate our sales force and the providers and ultimately patients about the change.

So those will -- these contracts that you mentioned will take time before they really come into the numbers.

Okay.

And then just on R&D longer term, I mean, where does Cologuard as a percent of overall R&D consumption stand today?

And how do you see that trending going forward?

Yes.

So this year, I'd think of Cologuard R&D as about 60%.

Last year, it was about 70%.

So we continue to invest in Cologuard.

Obviously, it's a very important product for us.

Over time, I think more of the growth in R&D will come from our pipeline given the number of opportunities there.

But we're comfortable investing in Cologuard.

We have things like our post-approval study and some minor enhancements we're doing that are certainly worth the investment there.

The next question is from Kevin Ellich from Craig-Hallum.

A lot of my questions have been answered.

But I guess I just wanted to start off, Jeff, with the working capital changes and cash flow.

Accounts payable and accrued liabilities look to be nice sources of cash this quarter.

Is that sustainable?

Or how should that trend over the next couple quarters?

I do think those improvements are sustainable.

What we saw from an accounts receivable standpoint is the team did an excellent job of working to collect more quickly and more fully, so there's some benefit there.

When you look at the other side of the balance sheet, this is just part of a growing, maturing company, finding ways to optimize our working capital.

So I do think those improvements are sustainable.

Okay, that's fantastic.

And then I guess thinking big picture with all the commercial payers and major payers that you guys have signed contracts with, who's left?

Can you remind us if there is any other contracts or any other payers you need to get signed on?

So Kevin, the question is on contracts.

We haven't gotten into all the contracting activity.

From a coverage standpoint, today, we're up to 87% of lives covered or 239 million people.

We just haven't gotten into the percent of contracted lives before.

Okay, okay, great.

And then I guess going back to the big health systems and I guess strategically, are you breaking up your sales forces or I guess stratifying them to go after certain systems and working with them?

Or is it all just kind of broken out geographically?

Yes.

So from a coordination standpoint, it's an important focus for us in 2018.

And some of the reasons for the recent investments that we have made is to gear up for a coordinated response to some of the systems that are showing interest.

It is a longer-term perspective.

We don't want to send folks out with targets and territories and then all of a sudden have them make a left-hand turn to call on physicians that are at a system.

So we need to be really measured.

The good news and the bad news with health systems is it does take time and it is a longer lead time.

As we make the investments at a senior level in implementation, we will also be able to have a tight coordination with our reps in the field to work with those systems once access is granted at a senior level.

So it's going to be a coordinated investment and it's going to be over the next couple of years.

The next question is from Puneet Souda from Leerink Partners.

So Kevin, I mean, it appears to me you have a number of levers here that you can pull at your disposal to drive things despite having a solid ramp here.

Maybe if you could touch on medical affairs team expansion.

Just wanted to understand, maybe Maneesh can cover this, where does that team stand now?

And what's your expectation there?

And also on the large hospital systems, what's the team size?

And what should we expect there in the next couple quarters?

Yes, sure.

So medical affairs, we have been really prudent, and we have an appropriate team inside and outside.

What we're doing now is we're playing to scale it materially.

And so those are expansion -- that expansion is going to happen, I would say, beginning this quarter and into next -- into the first quarter.

As it relates to -- what was the second part of your question?

National accounts?

Large accounts and what's the numbers there in medical affairs team as well as numbers in large account, if you can provide that, large hospital systems.

Yes.

So it's not something that we've talked about in the past.

And so what we can say is that these are areas that we're investing in, and we want to make sure that we are prudent with our investments and we scale them.

If you remember, historically, we haven't had the benefit of the guidelines of the coverage and the quality measures.

As those come together, we are beginning to make those investments and we'll continue to both in the account team and in medical affairs.

Okay, got it.

And Jeff, with the inclusion of the Cologuard in the Star Ratings, could you give us a number here?

Have you quantified in terms of how these reps are going out and educating the folks on -- or the physicians on the benefits of the test, getting into Star Ratings for that practice?

Can you help us quantify what that benefit could be here and how to think about that?

Yes.

I mean, good question, Puneet.

It is really difficult to quantify that.

I think the positioning in the quality measures and the guidelines are really a part of the broader picture.

It's really impossible to tease out what one component on its own means for Cologuard, so I can't do that right now.

Sure.

And coming back to capacity expansion, Kevin, help me understand.

So you're looking at a facility expansion that's happening currently.

Then you're adding another facility that's going to add potentially 6 million tests or potentially 8 million tests over the longer run.

Help us just understand, I mean, in terms of the test cadence that you're thinking about.

Is it potentially utilizing 50% of that capacity in the next 2 years?

What's the best way to think about that?

Because you're putting in quite a bit of effort, as you've highlighted on the call, in expansion?

Well, so today, we can process approximately 1 million tests at our current lab facility and are in the process of expanding that capacity to about 2.5 million tests per year or so.

We will add a new lab at a new site to give us another additional 2 million tests annually with the initial build there.

And then we'll be able to increase that total capacity to approximately 4.5 million tests annually with the ability to expand that location further on a long-term basis.

We don't want to provide, obviously, color as to where we expect that utilization to be at any particular point in time.

Suffice it to say, we're bullish about the long-term business and want to make sure that we make the investments, as Jeff and Maneesh said as it relates to the commercial organization and as Jeff had said along the lines of IT and other investments.

The team has done a remarkable job of continuing to think way ahead, and that has enabled us to have quarters like the team delivered this quarter.

Okay, got it.

And last one on ad refresh.

Any updates there with the 30-second ad and how that's getting out there and the number of hits?

Or maybe not even the number of hits but essentially in your expectations, how is that working compared to the prior setup?

We continue to see really steady increases of new physicians ordering each week.

The vast majority of them, 85 plus percent, have never been called on by a salesperson.

So we did introduce the 30-second spot for the DTC campaign.

They've got a great ROI.

Kevin mentioned we plan to continue that in 2018.

It's too difficult.

We don't have a test market to tell and it's too early to tell the impact of the 30-second spot.

But we know it's working and we intend to continue to refresh the campaign with the 30-second strategy in 2018.

Your next question is from Mark Massaro from Canaccord Genuity.

The first one is on the new payers.

You had some new payers come on in Q3.

You had a strong revenue quarter.

Can you just speak to any contribution you might have -- saw from the new payers coming on?

Yes.

Thanks, Mark.

So we can't get into the details around any specific payer.

But when you look at the quarter broadly, we saw improvement from traditional Medicare, Medicare Advantage and commercial insurers.

And we continue to see a path towards at least $500 a test long term.

I just can't get into the specifics.

I did call out during my prepared remarks, we saw favorable cash collections.

This is both from the payer and patient side.

Great.

And Kevin, you indicated that we'll have an update on liquid biopsy in the first half of '18.

Jeff, you indicated you're doing sample collection for lung and some other cancers.

Would you be willing to comment on some of the other areas outside of lung in the liquid biopsy sample collection front?

I think that it's best that we provide that update at a different time given that we haven't yet provided much color other than our lung cancer test, other than to say that there is a significant need to detect cancer earlier via simple blood draw across the board.

And we're excited about the early data that we're seeing in the number of cancers with a low-cost approach that is highly sensitive and specific.

So we'll provide more color, Mark, as time goes on, right now, the focus is on our lung program.

Great.

And one other question.

I know that your intention is to drive patients to reorder Cologuard every 3 years.

I know you just hired a number of folks.

Maybe for Maneesh perhaps or Kevin, can you speak to whether or not you have some folks internally focusing on this?

And maybe just speak to generally how you're thinking about getting some folks that ordered 3 years ago to adopt both on the physician and the patient front?

So Mark, we do have a dedicated team, and this is a topic we've been thinking about for some time.

We are just now, as you know, coming up on that.

And 2015 orders will really be the first hallmark.

So in 2018, there will be about 100,000 people, of which, rough math, about 80,000 of whom would be eligible for a repeat Cologuard test.

So we have an entire program that will be reaching out to both the patient as well as the ordering physicians in an integrated way, very similar to how we get patients screened.

We follow up.

We follow up on the phone.

We can follow up via the mail.

And we know who they are.

We know who the physician is.

So we are optimistic that we will be able to get them rescreened.

We've been thinking about it.

We actually -- we have active resources on it and look forward to providing updates on our progress.

The next question is from Raymond Myers from Benchmark.

Kevin, the SG&A expense in the quarter increased about $6 million sequentially.

Can you talk about what drove that?

And where do you see SG&A expense trending long term?

Thanks, Ray.

This is Jeff.

[Some of the] marketing was up primarily due to the additional headcount.

We had talked before about adding approximately 100 new sales reps over the summer.

G&A was up.

That growth includes investments in IT and personnel to support our expansion.

What I said for total OpEx, so also including R&D, was another $8 million to $10 million increase in the fourth quarter.

And I didn't hear the second part of your question, Ray.

What should we expect for the long-term trend in operating expense, say, over the next year or 2?

And the reason for my question is, should we think about these initial expense ramps as a loss phase and then it flattens out?

Or do we continue to ramp expenses in a step function with revenues?

Ray, I'd rather hold off on the future guidance until another call, but needless to say we're making the investments now we think are appropriate to help us achieve our long-term market share and profitability targets.

Okay.

Let me move on to one more question about -- did Q3 benefit from any revenue catch-up payments or prior period adjustments?

Yes.

Ray, let me make sure I understand the question.

Are you talking about accrual shifts like in the first quarter?

So there were none of those.

During the third quarter, I called out some benefits from timing of cash collections.

This is in part due to the team doing a fantastic job at collecting and collecting more fully.

But there was no -- I'm not sure what you're asking about in terms of catch-up payments.

Sometimes when there's new reimbursement for a payer, they will pay you for prior period claims, particularly managed care -- Medicare will do this.

I don't know if some of your new payers will pay you for prior claims now that you're contracted.

Yes.

So Ray, I'd prefer not to get into this level of detail on the call.

I think needless to say the team did an excellent job of collecting.

And what we've seen -- if you look at the time-lagged revenue per test, you've seen a nice steady increase in that.

It was up another $5 at the end of the third quarter, and so we're very confident long term, we can continue to push that rate higher.

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

Again, thank you for joining us today.

We discussed 3 key topics.

First, patient and physician demand combined with our sales force and marketing efforts are powering Cologuard's continued momentum.

Second, we are investing for the long-term sustainable growth of Cologuard.

And third, Exact Sciences is uniquely positioned to transform the way cancer is diagnosed and there influence how cancer is treated.

We look forward to providing you with updates as we work to get more people screened for colon cancer with Cologuard and make progress on our pipeline.

Finally, we thank the entire Exact Sciences team for delivering another great quarter and importantly, taking care of the customers, primary care physicians and importantly, the patients who are enthused about Cologuard as the new colon cancer screening standard of care.

Thank you very much.

This concludes today's conference call.

You may now disconnect.