Exact Sciences Corp (EXAS) 2018 Q1 法說會逐字稿

Good afternoon.

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

At this time, I would like to welcome everyone to the Exact Sciences Corporation's First Quarter 2018 Earnings Call.

(Operator Instructions) Thank you.

Megan Jones, Exact Sciences Corporation's Associate Manager Investor Relations, you may begin your conference.

Thank you, Kim, and thank all of you for joining us for Exact Sciences' First Quarter 2018 Conference Call.

Making prepared remarks on the call today are Kevin Conroy, the company's Chairman and CEO; and Jeff Elliott, our Chief Financial Officer.

Maneesh Arora and Mark Stenhouse will be available during Q&A.

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

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

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

Thank you for joining us this afternoon.

We're excited to share our first quarter results with you and answer your questions.

Our 2018 priorities are to command the core Cologuard business, prepare for future demand and advance our pipeline.

We kicked off the year with some creative new marketing efforts, continued to make progress on our lab expansion and pipeline development and bolster the management team with key hires.

The Exact Sciences team took steps to respond to the unusually severe flu season.

Their dedication helped an additional 186,000 people get screened with Cologuard during the first quarter.

We're happy to report that the impact from the strong flu season is over, and we have returned to robust growth in test orders, leaving us well positioned to achieve our goals for 2018.

We remain confident in our ability to reach our long-term market share goal of at least 40% and in accomplishing our mission of playing a role in the eradication of colon cancer.

Today, we'll discuss our first quarter financial results and provide an update on our progress towards our 3 priorities.

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

Thank you, Kevin, and good afternoon, everyone.

Please note that when discussing financial results, I'll refer to changes compared to the first quarter of 2017, unless otherwise stated.

First quarter revenue increased 87% to $90.3 million, and completed Cologuard test volume was 186,000, also up 87%.

As Kevin mentioned, the Exact Sciences team overcame challenges presented by the severe flu season and weather to deliver upside to our guidance.

First quarter average recognized revenue per test was $485, slightly higher than guidance, but a strong collections from both patients and payers.

When looking at the year-over-year comparison, average revenue per test was flat.

Note that during the first quarter of 2017, additional payers met our criteria for accrual basis revenue recognition.

The one-time impact of this shift contributed about $4.3 million of revenue or $43 per test in the first quarter of 2017.

On a time lagged basis, our average recognized revenue per test was $452 at the end of the first quarter of 2018, an increase of $34.

First quarter cost of sales totaled $123 per completed test, an improvement of 28% and better than expected due to some temporary timing differences and continued efficiencies in our manufacturing operations.

We expect our second quarter cost per test to be in the mid-$130 range.

First quarter gross margin improved 970 basis points to 75% on better-than-expected revenue and cost per test.

We expect the efficiency gains we've achieved to continue and see additional improvements from ongoing enhancements we're making at our labs.

With those enhancements in mind, we see a path to 80% gross margin over the long term.

As we scale our capacity to support Cologuard's growth, our cost per test will have some temporary upward pressure until our volumes increase to leverage those investments.

First quarter operating expense totaled $104 million, an increase of $17 million from the fourth quarter and slightly below our expectations.

Selling and marketing increased through our sales force expansion and additional media and public relations activities.

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

R&D increased primarily to support pipeline development and medical affairs.

First quarter cash use totaled $53.7 million.

Cash use increased by $16 million from the fourth quarter, primarily due to growth investments.

We ended the quarter with cash and securities of $1 billion.

Now that Cologuard has been on the market for a few years, we're shifting how we define our patient compliance rates to become more consistent with how other screening tests are measured.

Going forward, we'll report the compliance rates for kits shipped out in the prior 12- to 18-month period.

Historically, we started measuring compliance after just 60 days, while colonoscopy compliance is often measured at 12 months.

We're also shortening the measurement period to 6 months down from 12 months.

This should help investors see underlying trends in the rate.

Using the new definition, the compliance rate was 68% at the end of the first quarter.

Turning to our guidance.

We reaffirmed our full year revenue of $420 million to $430 million and volume of 900,000 to 920,000 completed Cologuard tests.

For the second quarter, we expect volume of 200 -- 220,000 to 230,000 completed tests.

I'll now turn the call back to Kevin.

Thanks, Jeff.

Our first priority for 2018 is to command the core Cologuard business.

We enhanced our marketing and PR efforts during the first quarter with the inaugural Cologuard Classic, a PGA TOUR Champions event televised on the golf channel.

The event was incredibly successful and an efficient way to reach Cologuard users and prescribers.

Google searches for Cologuard and visits to Cologuardtest.com significantly increased during the tournament.

We also launched the New 50 campaign, a partnership with Grammy Award winner Harry Connick, Jr.

and his wife, Jill.

The launch included a robust media campaign to engage patients, discuss the importance of colon cancer screening starting at age 50 and highlight that Cologuard is an easy accurate screening option.

This led to 33 unique national articles and broadcast segments highlighting this message.

The New 50 campaign transitioned to a satellite media tour, where Harry has appeared in nearly 30 local TV markets around the country.

We continue to promote the campaign on social media.

This is driving deeper customer engagement, with more than 5.6 million views of campaign videos on social media today.

The campaign will continue throughout 2018.

There are 6 other events planned throughout the country with Harry and Jill this year, with the first scheduled for mid-May in Austin, Texas.

Each market was carefully selected to maximize awareness among our target population.

We know that our direct-to-consumer advertising is highly effective in increasing the number of health care providers who order Cologuard.

We plan to release new television ads this summer to support the continued success of our national television campaign.

We see a tremendous opportunity to grow Cologuard and create value for shareholders by continuing to invest in our sales and marketing activities.

We are in the process of hiring the previously announced additions to our sales team.

Access to Cologuard as a covered and in-network service continues to improve.

We signed multiple new payer contracts during the first quarter, including 4 Blue Cross Blue Shield plans within the top 20 U.S. commercial payers.

Our lab is now a participating provider in Blue Cross Blue Shield of Illinois, Tennessee, Alabama and CareFirst networks, representing about 17 million total lives.

We are working diligently to educate health care providers of this progress.

We are also investing in our medical affairs team and will generate additional studies to support the clinical phase for Cologuard.

The recently launched Cologuard White paper is one example of many efforts underway to highlight Cologuard as an ideal screening choice for health care providers, patients and payers.

We are also working to educate health care providers health systems and payers about the value of the compliance engine surrounding Cologuard.

We have been able to achieve a compliance rate of 68%, and we are continually enhancing our compliance service and how we engage with patients and health care providers.

Our lab is leveraging the compliance service to support patients due for rescreening and their ordering providers.

The high compliance rate of Cologuard differentiates it from other screening modalities, presenting an opportunity for payers and health systems to close care gap and improve their colon cancer screening rates.

Our team is working diligently to develop thoughtful and effective programs to work with payers and systems to get more people screened and improve their performance with both Star Rating and HEDIS quality measure programs.

We continue to invest in our people, processes, technology and systems to prepare for future demand.

The expansion projects currently underway at our lab have successfully increased our annual capacity to 2 million tests and construction at our new lab continues to progress on schedule.

Based on this progress, we now expect annual capacity to reach 3 million tests by the end of this year and up to 5 million tests at both lab sites combined by the end of 2019.

In addition to expanding processing capacity, we are working to strengthen our operating supply chain and implement automation and efficiency enhancements.

The investments we've made in automation have helped fuel the improvement we've seen in gross margin.

Over the last year, we've strengthened the leadership team by adding Mark Stenhouse as our President of Cologuard, David Harding as our head of Business Development and Strategy and Dr. Paul Limburg as our Chief Medical Officer.

After the end of this year and almost 10 years with the team, our Chief Operating Officer, Maneesh Arora, will transition to a life outside of Exact Sciences.

Maneesh has done a tremendous job helping us build our company.

Over the balance of this year, he will focus his operational and strategic rigor on the priority of advancing our pipeline plans to fuel our future success.

Working in collaboration with Mayo Clinic, we have discovered DNA biomarkers for 10 of the top cancer killers and are systematically validating those markers in blood.

Our development program continues to make progress, and we have the right team, platform technologies, resources, proprietary markers and experience to be the leader in the field of cancer diagnostics, particularly in the early accurate detection of cancer.

Our collaboration with Mayo Clinic and our commercial infrastructure, which have facilitated Cologuard's impressive launch, will help fuel our success, which is laser focused on improving cancer outcomes.

We're excited to be presenting additional data from our second case control study in our liver program at the Digestive Disease Week conference in Washington, D.C. on June 4.

Our research and development team is also working to identify additional markers to improve the performance of the lung test.

We are excited about the progress we've made.

We are now happy to answer your questions.

(Operator Instructions) Your first question comes from the line of Brian Weinstein from William Blair.

First, Maneesh, I'm sure we'll see you multiple times before now and the end of the year, but wish you all the best as you think about what you're going to be doing outside of the company.

And I'm curious just to ask you as you embark on a transition, just your thoughts in general on Cologuard and where you've come and where you think this product can go over time?

And kind of just your thoughts on the prospects for the product at this point.

Thanks, Brian, for the question.

And yes, I will absolutely be around after devoting a good portion of my life to this opportunity.

The promise was always hey, gosh this is a really tremendous opportunity and it's a big market.

I think 10 years later, what we're finding is we're still in the very, very early innings.

And you can see, from the increasing levers, the financial performance and the very massive penetration, we still haven't started making sure all physicians in the world know what Cologuard is, that all patients know what Cologuard is and have access to it.

We now have a place where 85% of patients don't get -- that are taking Cologuard, don't have any patient co-pay or patient responsibility.

This is really dramatic, and it's an exciting time.

So I see a really bright future, the same thing that we saw in the past, I see here for a really long run.

And I'm excited about being able to watch that.

All right.

Second question to the whole team here, big opportunity within the IDNs in large practices and you've talked a little bit about that in the past.

But curious about any progress there, the resource commitments, and if you have any large expectations built into your guidance and if you can just reframe us on the opportunity within kind of that large practice and IDN network, I'd appreciate that.

Yes, before I hand that over to Mark, I would just like to take the opportunity to impress that there would be no Cologuard today without Maneesh, and the really incredible Herculean efforts to bring Cologuard to where it is today.

So thank you, Maneesh.

Mark?

Yes.

So thank you for the question about the health system opportunity.

Clearly, it's a huge growth lever for the brand.

Over 50% of our affiliated physicians are connected to a health system, and we are seeing growth in this channel.

And that growth is really driven by the level of integration that the system has itself with Cologuard.

We know that adoption at the highest level in the organization and placement into the system's electronic ordering process is a signal of integration, as well as outbound communication within the health system to their provider network and some level of training of why Cologuard should be a first line treatment option.

We are seeing that level of integration across multiple systems and feel very good about this as a growth lever for the company.

So just on the guidance question that Brian -- clearly, this is a huge opportunity for the company for years to come.

We're really excited about what we can do there.

I'm not going get into what we've baked in the guidance, but certainly, this is a huge area of growth potential for us.

And the last thing for me, you talked about electronic ordering being about -- I think, it was 27% at the end of the year.

I'm not looking for an update necessarily just after a quarter, but where do you think that needs to be as you start to penetrate towards that 5 million test capacity that you're at now?

So just to update that number, it's 30% in the first quarter, so we've made some really nice progress in the quarter.

There's certainly a long ways to go.

Ideally, we get as many of these people ordering Cologuard as possible electronically.

Because when you see that, you statistically see a much higher reorder rate from physicians, it's easier for them, it's easier for us.

It's a big effort underway, and I don't know if maybe Mark has something to add there in terms of the health systems.

It's just clear that when we see integration into the electronic ordering, we see incremental growth.

So I think it's part of the process, the buying process for our field organization to really [properly] connect that to the system.

Your next question comes from Doug Schenkel from Cowen.

Clearly, there was a lot of investor focus on the flu impact in the quarter.

Part of that was a function of investors trying to assess the trajectory of the business coming out of a great 2017, but was a largely solid but not completely pristine Q4.

With this in mind, I have 3 questions.

First, at this point, can you more specifically quantify the flu impact on Q1 volume and new practice additions?

Maybe just to anchor this, do you think volumes would have been 10%, 20% higher, if not for flu and that physician additions would have been, say, around 1,000 higher over the course of the quarter?

My second question is are you assuming any catch-up of volumes and practices additions lost in Q1 in either Q2 or full year guidance?

And my third question is, you indicated that the flu headwinds are behind you at this point, and that you're chugging along.

That said, given the timing from an order to revenue rec, how are you reflecting in guidance the impact of flu from early March and, for that matter, the March blizzards in the Northeast?

Let me first begin by saying, when we provided the guidance relative to flu on our last call, this was that -- that data at that time was the peak of the flu season.

And I want to emphasize something that this was a unusually strong flu season, but it's our job as managers to learn from that experience and to be prepared for that in the future.

And we don't want to give the impression that this business is seasonable -- seasonal based on the flu because the flu happens to everyone.

What happened here was that you had so -- you had a crush of people going into offices and the offices actually changed their behavior during that time of the year, including shutting down many of their wellness visits or pushing them into later quarters.

So we don't think that there's going to be a catch-up.

A lot of those people just get pushed out a quarter and that will not be picked up.

And the other thing that's really important to any of those folks who may be our sales people listening into the call, our job is to make sure that we learn from these things and just continually improve.

There's so much growth and growth opportunity I think, in the future, we'll be better positioned to drive right through that growth.

Yes, just to add to that, there's really no way for us to tell exactly what the impact would be because, as Kevin mentioned, the team really rallied around some of that early season softness we saw.

The team rallied, we put some new programs in place to make sure that we could try to offset as much of that flu as possible.

As far as the question on the second quarter, certainly, when you think about the timing delay between an order and a completed test, there's about a 30-day lag.

So in March you still saw some flu, and Doug as you mentioned and I'm sure, sitting in Boston, you personally felt weather was a big impact.

I believe that Boston has seen about a 50% increase in snow on the first quarter versus the prior year.

But like with the flu, we can't just sit back, we need to do what we can to offset that.

The team has done a really nice job of offsetting that.

I can't tell you what the impact is, but certainly, there was some impact.

We have reflected that in the guidance though that we delivered today, for 220,000 to 230,000 tests in the second quarter.

That's great.

I appreciate all the color and for all the Exact folks listening on the line, clearly, a great job in a really tough environment.

I in part asked the question because, in what actually turned out to be a pretty good quarter, all things considered, if you actually adjust up volumes by 10%, 20% and hold all other things being equal, it's actually a monster quarter.

It really sets the base of comparison at a pretty high level moving forward.

So I'd say great job, but also if you actually adjust flu out and make some assumptions there, it's worth noting that, yes, this would have been a really, really solid quarter by all historical standards.

Your next question comes from Anne Edelstein from Bank of America.

So I guess first -- I don't know if I missed this, but did you provide an update on where you stand in terms of the sales force additions?

And then I have a gross margin question.

Yes.

Happy to provide some context to the sales force.

We expect to have 350 field sales rep and 200 inside sales reps fully hired by the third quarter.

And as we provided guidance historically, we expect to get that group of representatives fully operational within 6 to 12 months.

Okay.

And where you stand at this point in time towards that goal?

We are on track to hire that team by the third quarter.

We have hiring plans in place.

We're in the process of -- in the post positions, you'll see those postings go live within our website within the next several weeks and are fully committed to the timeline.

Okay, got it.

And then the second question on gross margin.

So in the last 3 years since you launched the test, you've raised your long-term gross margin guidance 3 times, this is the third time, to 80%.

Is that kind of a ceiling that we should be thinking about or is it possible to flex beyond that?

We'll certainly -- thanks for the question, Anne.

we'll certainly try to improve that as much as possible.

But right now, we're focused on scaling the business.

So in the near term, what you'll see is some near-term negative impact as we bring on new capacity.

And getting to 80% is certainly will require a lot of work across the entire company.

So 80% would be a really nice target to get to.

Certainly, if we get there, we'll try to get beyond that, though.

Your next question comes from Catherine Schulte from Baird.

Just curious what portion of your doctor ordering base was called on by field reps at the end of 2017 and where you think that goes once you've scaled up to the 350 field reps?

Yes.

Thanks, Catherine.

So yes, I think that's a number that we just historically haven't broken out.

We do have a nice balance between the inside sales force and the field force.

Historically, the field force has been assigned targeted accounts, and the inside sales force has -- really geared at blanketing the rest of the country.

As far as who we've actually called on, that is not a number we've historically broken out.

Okay.

Any anecdotal commentaries you can give on the difference between ordering behavior from docs who get called on by a field rep versus an inside rep?

Just trying to get a sense of what impact adding a field rep has on ordering patterns.

Mark, why don't you take that?

Yes, what I could say is that we have a very smart targeting strategy based on a provider's and account's ability to write the product based on their affiliation to payer opportunity.

Medicare, obviously, is an opportunity driver for us.

And as we develop our promotional response curves which direct a representative to achieve a certain level of call threshold to an account, we see commensurate growth.

The mix of inside sales rep versus field sales rep right now are targeting strategies to overlap those efforts on our highest prescribers.

I don't have exact numbers to give you, but I would suggest that we're directing our reps against our biggest opportunities.

Catherine, I think I misunderstood your question.

Is the question on the new doctors, what percent we had called on previously?

No, just in terms of the overall ordering base, as the 20% get called on by field reps.

Okay, got it.

But yes, that's just not a number we've broken out.

Your next question comes from Brandon Couillard from Jefferies.

Jeff, I guess, a question around guidance.

So if I look at the 2Q volume guidance number implies a step-up in tests of about 39,000.

And then based on the full year expectation, I mean at the midpoint, that would imply a pretty sizable deceleration in the quarter-over-quarter volume growth.

Can you help us reconcile that setup, especially in the context of the new reps coming online in the second half of the year?

Sure, Brandon.

Thanks for the question.

When you look at the first quarter, I think the team did a really fantastic job of rallying through some flu and some bad weather.

In the second quarter, certainly, we've put up some numbers that we think represent some really nice sequential growth.

And that's the focus right now is to deliver the second quarter numbers.

And when you look at the whole year, what we're guiding to for the year in total is more incremental growth for the year than we generated in all of 2017.

So the guidance is the guidance, we think it represents some very nice growth.

Right now, the focus is on delivering the second quarter.

And as far as 2Q goes, can you share with us the -- your expectations for OpEx spend?

Sure, yes.

sequentially, we'd expect to spend about $8 million in total, more than we did in the first quarter.

So keep in mind, in the first quarter, we saw a step-up of about $17 million, that's the biggest step-up we would expect in OpEx for the entire year.

In the first quarter, remember, we kicked off, as Kevin mentioned, the New 50 campaign.

We have the Cologuard Classic event, we started expanding the sales force.

So there was a lot of front end-loaded investments in the first quarter.

But when you look out over the rest of the year, we'll continue to see step-ups in OpEx because of the sales force and the marketing investments that we're making.

When you look at CapEx for the second quarter, we'd expect to spend around $40 million.

And then for the year, we still expect to spend around $150 million to $175 million of CapEx for the year.

One more for Mark.

Curious given your time with AbbVie, how you think the playbook in terms of sales and marketing strategy might vary from a pharma company with that of a diagnostic test?

And then curious if there are specific ways or areas or opportunities that you see to really amp up the productivity or activity?

Yes, so I appreciate that question.

So obviously, Cologuard is a very large consumer brand, it sits in the molecular diagnostic business.

And therefore, some of the channels of investment, frankly, are very similar to a large pharmaceutical brand.

And I have an opportunity to build upon what has been the tremendous growth of this product.

And certainly, that's been leveraged through TV, direct-to-consumer efforts as well as scaled sales force and PR efforts has really built tremendous brand awareness.

I think our opportunities are really about optimization of investment across all other channels, social, digital, direct to physician efforts, how do we amplify that message in terms of nonpersonal promotion.

I think all of those provide us growth levers going forward and as well as generating additional scientific and health economic data to reinforce the value proposition of the brand.

I think those really constellation of opportunities really get me excited about the future of Cologuard.

Your next question comes from Mark Massaro from Canaccord Genuity.

And I'll also reiterate, Maneesh, congratulations on the outstanding impact you had on Cologuard and continue to have near term.

Thank you, Mark.

I do want to ask, Kevin, a question for you, are you looking to bring in a Chief Operating Officer when Maneesh leaves?

And can you just speak to any other potential areas of talent that you may contemplate bringing into Exact Sciences?

As the business has grown 3 years ago from no revenue to the guidance that we've provided this year and what we think the opportunity is in the future, a multibillion-dollar opportunity, significant talent is required to fuel that kind of growth and manage that growth.

We don't anticipate bringing in a Chief Operating Officer at this point.

But who knows what the future holds for that.

I guess the thing that I would emphasize is we've added key people, Jeff Elliott, being one of them who's really stepped up and done a great job as our Chief Financial Officer, Ana Hooker who runs not only our lab operations, but our manufacturing operations, and our customer care team and our IT team.

So we've seen tremendous growth among the leaders on our team.

And we'll keep adding.

We are -- we'll be adding somebody with senior marketing experience.

We will be adding additional leaders in medical affairs.

Last year, we added a Senior Vice President of Research and Development.

So we will continue to add as we grow and we're -- it's one of the things we feel really good about, I think Maneesh and I together feel good about that this transition is a transition that is well thought out well in advance, and it's backed up by a strong team of people who have been on board and who have recently joined.

Great.

And I think you increased your lab capacity goal to 5 million up from 4.5 million.

And can you just speak to whether or not there -- that was a deliberate planning or maybe you just found more space in the second lab.

Yes, so the change there is on our existing lab, and that team has done a phenomenal job at expanding the capacity of that lab.

They've added automation equipment, conveyor belts.

And they've really done a really nice job.

So that's where you see the step-ups.

We had previously said the capacity of that would be around 2.5 million.

So today, we're stepping that up to about 3 million by the end of the year.

Your next question comes from Patrick Donnelly from Goldman Sachs.

Maybe just 1 on the full year guide.

1Q, you came in, beat guidance by 7,000 or 8,000 tests.

2Q guided nicely above the Street.

I'm just kind of wondering, I guess, why not adjust full year higher, you showed the ability to do it 1Q last year, kind of a different magnitude of beat the share, but with our conversation about doing that, are we edging towards maybe the higher end of that range?

Just kind of wondering your thoughts on that.

Yes, thanks, Patrick.

So yes, the guidance for the year is the guidance, and as I said to Brandon's question, that, that guidance does represent what we believe to be very attractive growth.

In the first quarter, remember, when we gave guidance at the time of the fourth quarter call.

As Kevin mentioned, flu was really at the peak intensity.

And at that point, we had to assume the, a range of different outcomes in terms of the flu receding.

I think it ended up receding in the earlier end of that range.

When you look ahead, our intent is to give guidance ranges the people respect, that is the goal of giving the range.

So we've given guidance for the second quarter.

The focus on that is to just deliver within that range, and longer term, continue to drive the business.

We see many opportunities to grow.

We've talked about the market share today, it's just 2.6% so there's a long ways to go.

So clearly, we'll keep pushing the business forward and look forward to updating you on the next call.

Okay.

And then one on reorder rate, appreciate the bit of color you gave from the prepared remarks, but how much of a focus is that for the sales force that number starts to get meaningful over the next couple of quarters as the [3 year] anniversary of people.

And then also what's baked in the guidance for 2018 relative to the reorder rate?

So I think, Patrick, is the question on repeat patient testing, so people from 3 years ago?

Yes, exactly.

Yes.

Okay, I'll just say, keep in mind that when you look 3 years back, back in say 2014, the early 2015, the numbers of patients that did Cologuard then were relatively small.

It was around 4,000 people from 2014.

Relative to the guidance for the year, that suggested a relatively small number.

So clearly, that's a huge part of this business as we look forward.

When you look ahead another year, there's over 100,000 people who could be potentially screened when you look back to 2015.

So a big part of the business going forward, it's something that we're very focused on, making sure we get that.

All these efforts around there designed properly and implemented properly.

Anything else to add to that?

The one thing I would add is I see this as, yes, there is some level of sales force effort, but it's really our compliance engine that's really going to drive a connection to the brand.

And as that 3-year repeat comes up, making sure that they show up at a physician's office.

It's really our unique compliance and engagement to our marketing channels that are going to keep patients connected to us.

Okay, great if I can sneak one more in, just on the sales reps you guys hired in mid-2017, can you just talk about the traction you're seeing there relative to internal expectations?

I know you had, Kevin, ROI planned out for those guys, so curious as to how they're trending relative to the timelines you're thinking for them to be productive?

We have said over time, that it's 6 to 12 months for those reps to become efficient.

And we don't think there will be anything different about this group of reps than past groups, which have shown the ability to get up to speed in that 6 to 12 months' time frame.

Your next question comes from the line of Puneet Souda from Leerink Partners.

First of all, Maneesh, it's sad to see you leave.

Obviously, a great work here that you've done, but best wishes for the next endeavor.

Mark, great to have you on board and I had a question specifically, obviously, getting a number of sales reps question.

It's actually my question is more on the DTC end.

It has significance in the -- for the drug, so I'm just trying to understand, should we expect the DTC spend here to increase.

And I think you mentioned something around new TV ads.

Should we expect a spend increase later in the year for that?

So first of all, I appreciate your question, and it's very clear to all of us, in the room and on the call, the value of our direct-to-consumer efforts.

We have taken advantage of upfront buy in our media, so we've gotten efficiencies in our acquisition of media for the full calendar year of '18.

We have shot new TV commercials that we expect to air in June, as Kevin mentioned.

We are going to do a test control analysis above and beyond our current rates of spend to better understand the answer to your question.

I mean, it will guide us on does incremental consumer investment in the TV space really drive the values we'd like.

And I think that the by-product of that test will really inform the answer to my question that we might give guidance on the future calls.

Okay, great.

And this question is maybe for -- just for Jeff, maybe.

Just help us understand, where do we stand currently with coverage and contracting, I don't know if you gave that during the call.

So coverage, we're around 87%.

From a contracting standpoint, on the call last quarter, we had mentioned, at that point we're at 64% in network contracted.

Kevin talked about some really nice wins we had.

I think the broader theme here is really clear.

You're seeing increase in engagement, some coverage by the payers, you're seeing increase in demand from physicians and from patients.

That is the broader trend.

Long term, we're very optimistic that we'll continue to see that in our contracting rate rise, but that's not a number we plan to give on the call each quarter.

Okay, great.

And just last one on the 9,000 doc adds that you had, you traditionally have had 10,000 to 11,000.

I was just trying to understand with the large hospital systems that are underway here, the electronic contracting that's already happening and the DTC efforts that are underway, I was just trying to understand, are there any puts and takes to this number?

Obviously, it's nothing meaningfully below or anything compared to what you had done in the past, but just wanted to understand a little bit better.

Sure.

So [even] in the first quarter, we had 9,000 providers order their first Cologuard.

You're right, that was probably below what we have seen in the back half of last year.

So keep in mind, the flu did have a negative impact on the number of new order rate providers.

We shared some survey data on the call last quarter about the number of canceled wellness visits, the number of rescheduled visits, so that had a big impact.

But when you take a step back and look at this market, we're only about 30% penetrated into the total primary care physician opportunity.

So there's a long ways to go.

We're very optimistic about our ability to drive more and more physicians to Cologuard.

Your next question comes from the line of [Perr Osland] from Craig-Hallum Capital.

Wanted to follow up on Puneet's question regarding TV and the new ads that are coming in June.

Just wanted to see if we could get a sense as to -- if you can characterize if there's any change in the messaging or how you might be changing the messaging and/or changing formats if you're utilizing different lengths of ad time and network focuses as well, just curious.

So it's a great question.

I think what I would provide guidance is that yes, we have a mix of 30- and 60-second spots that we plan on airing as I think we have historically.

We also are integrating incremental clinical messaging into our spots, so the sensitivity story will ring true in our ad.

Beyond that, in terms of where we place the ads, I think you will see us continue to be very consistent with our historical placements.

The hypothesis of this test to control analysis of trying to determine incremental investment will actually be a really good guidance for us on the go-forward basis of not only how much we would spend but where we would place that spend.

Great.

I appreciate that.

And then just one other one.

Kevin, you referred to the forthcoming liver data presentation at Digestive Disease Week.

Is there anything else from a pipeline standpoint, from a data standpoint, presentation standpoint that we should be thinking about for the second half of this year?

Well, there will be other posters and abstracts available relating to the technology platform and other cancers and Barrett's esophagus, esophageal cancer at DDW that I think will inform the power of the technology and the biomarker platform that we have developed and the power of our relationship in collaboration with the Mayo Clinic.

As you look out over the year, we will kick off a third case control, well powered liver cancer study.

And we're doing work on other cancers so I think there will be announcements.

Maneesh is going to be focused on that part of the business over the next 6 months, so I assure you we'll have more to announce before the end of the year.

Your next question comes from the line of Bruce Jackson from Lake Street capital.

If we could get back to the sales force hiring statistics.

So I assume that you're above the 250 that you've started at, but that it sounds like most of the hiring is going to take place in Q2 and Q3.

Is that a good assumption?

Yes.

So 250 was the number of field reps we started the year with.

The plans we announced in the beginning of January were to add 100 more.

We had started the year with 100 inside sales reps and also announced an expansion of 100 there.

We've made some really nice progress on those additions.

I don't think we want to get into how many exactly we have today.

But the plans now calls for finishing up that hiring in the third quarter.

Okay.

And then in terms of the new lab capacity coming online and maybe overhead absorption, how do you think the cost of goods sold per test plays out over the rest of the year?

What I foresee for the second quarter is a cost per test in the mid-130s.

And what's going to happen there is we expect continued efficiencies in the lab and manufacturing operations.

As we invest in the facility and the people to scale for the demand we see, we'll see some temporary upward pressure on the number.

There are no further questions in the queue.

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

Thanks, everyone, for joining us today as we reviewed our first quarter financial results and discuss progress towards our 2018 priorities.

Exact Sciences is uniquely positioned to create value in the early accurate detection of cancer.

We remain intensely focused on increasing awareness and adoption of Cologuard to succeed in our mission of playing a role in the eradication of colon cancer.

We look forward to providing you with updates as we work to get more people screened and advanced our pipeline.

Thank you.

This concludes today's conference call.

You may now disconnect.