Exact Sciences Corp (EXAS) 2020 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Exact Sciences Agreement to Acquire Thrive and Third Quarter Earnings Results. (Operator Instructions) I would now like to turn the call over to your speaker today, Megan Jones, Director of Investor Relations. Please go ahead.

Thank you, and good morning. Welcome to our conference call to discuss Exact Sciences' acquisition of Thrive, which we announced earlier this morning. In conjunction with today's announcement, Exact Sciences issued financial results for the third quarter of 2020, which are available on our website.

During today's call, we will make forward-looking statements based on current expectations. Our actual results may be materially different 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. These forward-looking statements are not guarantees of future performance or events, and actual results or events could differ materially. I encourage you to take a look at Slide 2 of the presentation and our filings with the SEC for a discussion of forward-looking statements and the risks and uncertainties that could impact actual results or events.

On the call today are Kevin Conroy, our Chairman and CEO; Jeff Elliott, our Chief Financial Officer; and Dave Daly, CEO of Thrive. After the prepared remarks, we'll open it up for Q&A. (Operator Instructions)

With that, I'll now turn the call over to Kevin Conroy, Exact Sciences' CEO.

Thank you, Megan. Welcome, everyone, and thank you for joining us this morning. I'm thrilled to discuss our acquisition of Thrive, which we see as a giant leap forward towards ensuring blood-based multi-cancer screening becomes a reality and eventually, the standard of care. This supports our mission to detect more cancers earlier, and it puts us at the forefront of an incredible opportunity to serve patients.

We have long respected the Thrive team for their rigorous scientific approach. We participated in both funding rounds as an investor, and we are proud to take our partnership to the next level.

There are 3 powerful benefits of this acquisition that I'll walk through today. First, the combination creates a premier R&D team specializing in methylation, next-generation sequencing and bioinformatics in liquid biopsy with robust clinical and evidence-generation capabilities. We believe that this combined team can transform the future of cancer diagnostics.

Second, we believe Exact Sciences is uniquely equipped to accelerate the approval, availability and widespread adoption of multi-cancer screening. Third, the addition of Thrive advances Exact Sciences' role as a leader in a $25 billion market and demonstrates our capabilities as a research and commercialization partner of choice.

As you've heard us discuss, the need to detect the deadliest cancers at earlier, more treatable stages is urgent. We believe multi-cancer screening will have a powerful impact on outcomes.

Cancer is the #2 cause of death in the U.S. For people under the age 85, it is the #1 cause of death, even though it's often treatable in early stages.

Because cancer is so prevalent, the promise of screening for many cancers in one test is even more powerful than screening for individual cancers as we do today. This is especially true when combining the prevalence of rare cancers. With a multi-cancer screening test, you could screen as few as 30 people to detect one cancer compared to hundreds or thousands for single cancers.

The potential impact of that vision is remarkable. That is why we are so committed to making it a reality, together with Thrive, as rapidly as possible.

I'll now turn the call over to David Daly, CEO of Thrive, to provide you with some background on Thrive and why it fits perfectly within our company and mission.

Thanks, Kevin. I'm thrilled to be with you here today on this call. This is an exciting day for Thrive and Exact Sciences and for the future of cancer care. Together, we envision a future where earlier cancer detection is integrated into routine medical care, empowering people to live longer, healthier lives.

By way of background, our company was founded to advance CancerSEEK, a blood test to screen for multiple types of cancer. CancerSEEK is based on diagnostic innovation and established cancer biology curated by Dr. Bert Vogelstein, Dr. Ken Kinzler, and Dr. Nick Papadopoulos at Johns Hopkins University, with whom we continue to partner. It is designed to find multiple cancer types from a single blood draw, including many cancers that lack effective screening tools such as ovarian, pancreatic and liver cancers.

By building a right-sized test that combines analysis of focused set of DNA mutations and protein abnormalities associated with cancer growth, CancerSEEK is designed to be highly specific and give physicians confidence in next steps. Thrive's complete -- Thrive completed a large prospective interventional study in a real-world clinical setting. The results demonstrated that our blood test could detect 10 different cancer types, including 7 with no recommended screening guidelines.

Importantly, our test maintained high specificity, and there were no adverse event. As I know Kevin will discuss with you in a moment, we believe that Exact Sciences is uniquely positioned to support the development of CancerSEEK and facilitate its success. We're enthusiastic and energized about joining the team.

I'll now turn the call back to Kevin, who will discuss the benefits of this combination in greater detail. Kevin?

Thanks, Dave. We believe, together, we'll transform the future of cancer diagnostics with this combined and premier R&D organization. We are bringing together 2 diagnostic pioneers with unique and complementary strengths. Specifically, Exact Sciences' talented team, focused on methylation markers with robust clinical and evidence generation capabilities will be complemented and enhanced by the addition of Thrive's strong, specialized R&D team, focused on next-generation sequencing and bioinformatics in liquid biopsy.

This group of experienced scientists will be supported by Exact Sciences' proprietary biomarkers, extensive blood sample bio repository, financial strength and each company's established partnerships with leading institutions, including Mayo Clinic and Johns Hopkins University. Exact Sciences is uniquely positioned to support the development of Thrive's CancerSEEK product and facilitate its success.

We've shown we can successfully bring screening tests all way from marker identification to patients and physicians. We have teams with experience partnering with the FDA and navigating Medicare coverage and the United States Preventive Services Task Force and other guideline and quality measure groups.

We have invested nearly $400 million in scaled IT capabilities and have more than 230,000 square feet of clinical lab space, not including research and development labs. We also have established payer relationships and unmatched health care sales teams and direct-to-consumer marketing experience. These unique advantages will support the development of CancerSEEK and help maximize its impact on patients and ultimate success.

Lastly, this combination advances our mission to serve patients throughout their cancer journey. We believe it also demonstrates our leadership as a partner of choice for R&D organizations and companies seeking to commercialize tests that positively impact patient care.

Thrive's combination with Johns -- Thrive's collaboration with Johns Hopkins adds to our established and successful partnerships with leading institutions, including Mayo Clinic and Pfizer, which are key to advancing our mission. With Thrive, Exact Sciences would gain additional scientific capabilities necessary to bring tests to patients at every step of their cancer journey: from screening to minimum residual disease testing, recurrence monitoring and therapy selection.

We believe the-multi cancer opportunity is significant with at least a $25 billion total addressable market. We'll work relentlessly to bring the potentially life-saving benefits of CancerSEEK to patients.

The data Thrive presented from DETECT-A were impressive. We plan to improve the test by adding methylation markers with the goal of improving sensitivity. We then plan to conduct a robust pivotal trial to demonstrate the clinical value of CancerSEEK and obtain FDA approval, allowing us to offer CancerSEEK through our well-established health care sales teams.

And now I'll turn the call over to Jeff Elliott to discuss the transaction terms and our quarterly results.

Thanks, Kevin, and good morning. I'll start with the transaction and then cover our results. Thrive will receive total consideration of up to $2.15 billion. Of that, $1.7 billion is due at closing, subject to the Thrive maintaining and agreed-upon net cash balance comprised of 65% in Exact Sciences common stock and 35% in cash. An additional $450 million is payable based on performance milestones to cover FDA approval and Medicare coverage and pricing.

The transaction is expected to close in the first quarter of 2021, subject to customary closing conditions and regulatory approvals. We've also raised approximately $870 million through a registered direct equity offering with 10 existing institutional investors, including some of our largest shareholders. Proceeds will help fund the acquisition of Thrive and allow Exact Sciences to maintain a strong balance sheet.

Turning to our results. We're pleased with the performance of the business. Highlights from the quarter include significant broad-based growth compared to the second quarter, significantly improved profitability and robust free cash flow generation of nearly $70 million.

Total revenue was $408 million, up 52% compared to the second quarter. Screening revenue was $215 million, down 2% compared to the prior year on COVID-related headwinds.

Cologuard orders grew modestly year-over-year during the quarter, which is significantly better than the prior quarter pace. About 8,000 new health care providers ordered Cologuard during the quarter as preventative care utilization improved broadly. Nearly 220,000 providers have ordered Cologuard since launch.

Looking at the fourth quarter, we're cautious about the recent increase in COVID cases and its impact on patient visits and sales force access to primary care physician offices. Relative to September, October weekly Cologuard orders have grown less quickly than in prior Octobers.

As we look ahead to next year, we're optimistic about several growth drivers. They include capturing the colon cancer screening backlog, the Epic conversion and expected increase in electronic ordering and improved productivity from the combined Exact Sciences and Pfizer sales forces. Over the long term, we're extremely confident in the Cologuard growth outlook.

Moving to Precision Oncology. As we previewed on our last earnings call, the business was impacted in the third quarter by a temporary decrease in screening mammograms and cancer diagnoses due to COVID. Precision Oncology revenue was $92 million.

During the quarter, mammogram volumes started to recover, which should help drive slightly higher revenue in the fourth quarter on a sequential basis. The long-term outlook for Oncotype is very strong.

COVID testing revenue was $102 million, nearly triple the prior quarter level. Due to widespread uncertainty about the path of COVID and related supply chain and capacity constraints, you should expect COVID revenue to be flat to down in the fourth quarter.

Third quarter gross margin, including amortization of acquired intangibles, was 72%. Non-GAAP gross margin, which excludes amortization of acquired intangibles, was 77%.

Sales and marketing expense was $136 million. G&A expense was $116 million. R&D expense was $31 million.

In April, we implemented cost-reduction actions to provide flexibility given COVID uncertainties. Since then, we've lowered total spending by $191 million relative to our initial plan, with $77 million of savings in the third quarter. Because the business has recovered significantly, we're restarting growth investments to create value for the long term.

Net loss was $220 million, including $210 million in noncash impairment charges. Adjusted EBITDA was $94 million. CapEx was $14 million. We finished the quarter with cash and securities of $1.3 billion. The pro forma cash balance at the end of the third quarter would have been nearly $1.4 billion, assuming the acquisitions of Thrive and Base Genomics were both closed and including the registered direct offering.

I will now turn the call back to Kevin.

Thanks, Jeff. We believe this acquisition significantly advances our goal of making blood-based multi-cancer testing a reality, so we can detect cancer earlier. We are bringing together 2 prominent scientific teams and 2 highly complementary scientific approaches. This acquisition puts CancerSEEK into the hands of one of the leading advanced cancer diagnostics companies in the world.

Before we turn the call over for your questions, I also want to touch upon the acquisition of Base Genomics that we also announced today. This acquisition will allow us to enhance our efforts in cancer diagnostics across our product portfolio.

Base Genomics is an epigenetics company working to set a new standard in DNA methylation analysis. As shown by Cologuard, DNA methylation is one of the most promising approaches to detecting cancer in its earliest stages.

Base Genomics has a talented team and an amazing innovative technology that it enables highly accurate DNA methylation analysis. It also allows for the analysis of methylation and mutations in a single reaction. Base Genomics' differentiated technology is highly complementary to our existing methylation expertise, and I am excited to welcome their team to the Exact Sciences family.

Thank you for joining us today. We're now happy to take your questions.

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

You talk about how the combination here allows you to build a more accurate test. Can you be a little bit more specific on what you think the addition of your methylation capabilities can add here? And relative to the DETECT-A data, where do you think that you need to be -- where does your data need to be overall on, on things like specificity and PPV relative to what we've seen already? And then the addition of your methylation data, where do you think you need to be in terms of getting that sensitivity up a little bit?

Yes. Thanks, Brian. As you know, we've been looking at this space for a very long time in our partnership with the Mayo Clinic. And we are convinced that a multi-cancer screening test has the potential to have a greater impact on human health than any diagnostic test ever developed.

Cancer is a huge problem, and it's a growing problem globally. By combining the Thrive approach, which has been focused on mutations, coupled with proteins, with the Exact Sciences and Mayo Clinic approach, which has been focused on the power of DNA methylation, we believe that by holding specificity constant at around 99%, we -- in adding methylation markers to the CancerSEEK test, we can significantly improve sensitivity.

And that's what the teams are so excited to start working on. It goes back to the data that our team generated in partnership with Mayo Clinic that we presented at the Cowen conference about 6 weeks ago. That data, those data showed 83% sensitivity with only 6 methylation markers across 6 different cancer types.

Imagine now combining highly curated methylation markers with highly curated mutation markers and protein capabilities into a single test. I'm not going to go into the details of where we think we can drive that sensitivity to. I would point to you that the amazing innovation of Cologuard being able to get to a high level of cancer detection, in that case, 90% for stage 1 colon cancers was done because of the combination of methylation, mutations and protein. And it's this multi-analyte approach that we think will serve patients in the most powerful way. We can't wait to get started.

Great. That was very thorough. As far as the barriers here, they've been discussed by many over the last several years. But your -- what are your thoughts on the various barriers to overcome nonscientific, so regulatory reimbursement, commercialization? Obviously, you guys are very uniquely positioned here. But can you talk about your view on those barriers to start to eventually get the reality of this test into the market? And what is the cost that you guys expect in order to get to that point?

Well, I'll take the first part, Brian, and ask Jeff to answer the second part. This is no small undertaking. It -- developing a multi-cancer screening test and bringing it all the way to patients and physicians globally is a large effort.

Of course, you need to start with a great test. So the product development effort and the research and development, the combination of the Johns Hopkins approach and the Mayo Clinic technology is paramount.

You need to run a large clinical trial. And one of the awesome things about the Thrive team is they had the guts and the foresight and the execution capabilities to run a complete DETECT-A, a 10,000-patient prospective study, that showed that this approach could double the number of cancers detected in a screening setting, really powerful. So that clinical trial is the next large hurdle, and we're talking about potentially an 80,000-patient prospective study.

Navigating FDA approval, Medicare coverage, guideline inclusion, these things are all critical to be able to bring the test to physicians and patients that have maximum impact. We think that Exact Sciences is in a unique position, having built a company around Cologuard, which had to navigate each of these hurdles and did so successfully coupled with our global organization through our combination with Genomic Health, gives us the reach to be able to have maximum impact on patients.

So it's a -- this will be a long journey. It will be an exciting one and fun one and, ultimately, impactful. Jeff?

So Brian, the question is on investment. This opportunity will require investment. But as we look ahead to the opportunity here, it's a very high-return investment.

And what's really exciting about this combination is how well the 2 companies fit together. When you look at the foundation we've established with Cologuard, things like our primary care sales team. Since we launched Cologuard, we've invested over $1.3 billion in sales and marketing. Well, that team can be leveraged. It's the best team, I guarantee right now, is I'm very excited at the prospects of bringing a multi-cancer test to market.

The IT infrastructure that we've talked so much about, we've invested nearly $400 million on that. And that, too, can be leveraged for this test. And also through in the lab, we've got multiple highly talented, highly capable labs that will be able to help process and facilitate the eventual launch of a multi-cancer test.

So we're really excited about this high-return investment opportunity. This will require time and investment. That is clear.

As Kevin mentioned, one of the next big steps is running the large pivotal study. When you look back to DeeP-C, which we ran for Cologuard, that prospective study was north of $50 million. You can safely assume that this one will be more. We'll share more details on the investment as we move forward.

Great. Can I actually hone in on Base Genomics real quick? Can you just talk real quickly about what you're doing with that outset, and how it complements what you're doing in screening in MRD and go out with a little bit more detail?

Base Genomics has developed a method of converting DNAs that is methylated so that you can read the information embedded within that DNA and detect exactly where that methylation existed. And there are 2 big benefits. Number one is the preservation of virtually all of the DNA in that sample. That's critical, especially when you're looking for a needle in a haystack, and you start with a very small amount of DNA.

The second benefit is that you preserve the content of that information so that you can read both mutations and methylation in that analysis. There's been a vexing problem in methylation, and this team came at it from a different approach and that solved a real problem. So we're excited to welcome that team to the Exact Sciences family and get to work in taking this technology and infusing it throughout our product portfolio.

Your next question comes from the line of Doug Schenkel with Cowen.

Let me just start with what I think is a quick one. Kevin, just to be clear, and this follows up, I think, on Brian's first question. The thinking here is that the combination of your stand-alone multi-cancer effort, combined with what Thrive has done and then also layering in Base Genomics' technology, in combination, is going to lead to an assay that has better performance than what Exact and Thrive have presented independently. Is that the thinking?

Doug, very well and succinctly stated. I would add in one other thing is our LBgard, one; and DNA preservation, two, preserves 10% to 15% more DNA. And the whole key here, Doug, is to be able to preserve as much of that -- the tiny amount of DNA that is present in a single-blood draw for analysis.

And that's especially true for early-stage cancers, the ones that you are really seeking to detect in a screening test and that are the hardest to detect because there's so little DNA material in that blood drawn. So you put all of these things together and our capabilities, we think it is a terrific approach that will positively impact patient outcomes.

Okay. And let me build off of that to just ask a multi-parter that I think will hopefully help us all be able to model this a little bit better.

So the first is on launch timing. Based on what you just described, Kevin, it does seem like there's still some assay optimization work that needs to be done. So keeping that in mind, first, when would you potentially launch a new version of CancerSEEK that incorporates everything that we just talked about?

Second, would pricing be similar to what we've heard from GRAIL, which is around $500 per test? Third, in terms of when you would launch that 80,000-patient study, when would you expect that to happen? And should we just extrapolate from the fact that to do a 10,000- to 15,000-patient CRC study that it costs around $100 million?

And then I guess the final one is, from a commercial standpoint, based on what Jeff described, it sounds like while there may be some incremental investment required, that you feel like you have the infrastructure in place to support this type of assay, both in the oncology as well as the PCP channel?

Well, thanks, Doug. At this time, providing the clarity around time to launch and time to start the clinical trial, we're going to not comment today. We're going to get together with the Thrive team. We're going to really do the fundamental work so that when we provide you that time line, it's one that you can really take to the bank.

And in terms of the pricing of an eventual test too, there's a lot of work that has to go into that before we can ultimately share that. Suffice it to say is we are set to move fast here to work in a very collaborative way with the Thrive team. And the number of methylation markers to be incorporated into the test is limited in number, and that leads us to believe that we can move awfully quickly here.

In terms of the infrastructure question, we do have the infrastructure today with over 1,000 people in sales and marketing, with already being on the Epic platform, with integrations with health care systems across the U.S., with a large team outside of the U.S., with FDA and clinical trial capabilities, all of those, the infrastructure that is built is one that is very well suited to bring CancerSEEK all the way to patients. Jeff, do you have any other color that you'd want to add there?

No. Just, Doug, you asked on the cost of the study. It's too early to say. Ultimately, that depends on the design of the study and the performance characteristics of the test. So we'll share color as we progress. It's too early to do that now.

Okay. And maybe if I could just sneak in one last one. Base Genomics' technology would seem to lend itself to things like MRD and determination of unclear cancer diagnoses. So I'm wondering if Base serves to really boost your pipeline in other liquid biopsy areas. And along those lines, they seem to also have aspirations to collaborate in areas like NIPT and infectious disease. Does this technology potentially open the door to Exact moving into noncancer adjacencies?

So we made a decision a long time to focus on being the best cancer diagnostics company in the world, and I think we'll stay focused on that. This technology, though, in methylation implicates virtually all human diseases. And so we want to make sure that, that Base Genomics technology is available to positively impact human health in all areas of diagnostics. So we'll develop a plan to make sure that, that happens.

We do believe that both Base Genomics and Thrive together will help us in minimum residual disease, to be a leader there. And we're excited to expand the technology that Thrive has developed, that Base Genomics has developed and take it all the way through our product portfolio.

So I think this touches everything that we do. It gets us awfully excited about being a leader in liquid biopsy. And really, we just can't wait to get started with both teams.

Your next question comes from the line of Derik De Bruin with Bank of America.

It's Derik De Bruin. So a couple of questions. I guess the first one is, roll forward in, how do you sort of see the split going out in terms of looking at it like where is Cologuard in the future versus your own blood test versus now launching and [combining] the Thrive test? I guess how should we think about potential cannibalization of Cologuard? I think that's the first question. I've got a follow-up to that.

Yes. This is an important topic. So a multi-cancer screening test is not going to replace mammography for breast cancer screening. It's not going to replace Cologuard or colonoscopy for colon cancer screening.

The sensitivity of a multi-cancer screening test is not going to achieve -- we don't believe it will reach the levels of mammography or Cologuard. So the important aspect of a multi-cancer screening test is that you're, for the first time ever, able to screen for cancers that today aren't screened for. And instead of -- you're screening a whole person rather than individual organ. So think of this as a patient would get a mammogram, a patient would get Cologuard and the patient would get a multi-cancer screening test. These would all become regular parts of your health checkup.

In terms of how this technology would help a blood-based colon cancer screening test, we think that the Base Genomics technology and, potentially, the Thrive technology would enhance our approach to colorectal cancer screening from a blood drop. Ultimately, though, we still believe the most sensitive and accurate way to screen is from a stool test because you just end up with more DNA in that sample with cells shedding directly from a precancerous polyp or an early cancer, providing a much higher quantity and quality of DNA to analyze. So that's why we're excited that these 2 acquisitions help us throughout our product portfolio and will not replace what we're doing today with Cologuard.

I mean just as a follow-up to that. I mean do you think that the reimbursement opportunity or -- health cares reimburse that? I mean would they support all these different screening modalities? I mean that's a lot to go after. It sounds like it's actually more additional cost in the system versus what potentially could be saved. I guess how do you think about adding all these multiple screenings out [would return later]?

Yes. It's actually -- if you take a look at cancer screening today with mammography, with colon cancer screening, you're talking about thousands of dollars per quality adjusted life years gained cost. So screening does cost money. There's no doubt about it.

A multi-cancer screening test, if you model it, actually could be cost saving. And that's the point that we made earlier that the number that you need to screen to detect one cancer when you're screening for a whole range of cancers. And 3% to 4% of the population has cancer and doesn't know it.

If you can detect those cancers earlier with only 30 -- potentially 30 tests to get to find one early cancer, you have the ability to actually save the health care system money. And that's transformative. We're excited to do the modeling work with key opinion leaders and external groups that can help lay out what that costs.

But suffice it to say, we think long term, this is actually a cost-savings approach because the approach that we're on today is just very, very expensive to find and detect late-stage cancer and treat it. The costs there are astounding and probably not sustainable for the long haul. We intend to play a big impact in improving outcomes and reducing costs.

Great. And then just one final one, if I can. GRAIL is planning on launching an LDT version. I mean what are your thoughts on doing an LDT versus going through the whole regulatory process?

Yes. Well, first, let me comment on GRAIL and its approach. GRAIL is the team that we have a tremendous amount of respect for. Their evidence is clear, it's good, it's strong. And so having GRAIL as a participant in solving this problem in this space, we think, is a net huge benefit.

And it's important as you think about going through the guideline process that there are multiple clinical trials, prospective studies and multiple approaches to solving this problem to get the guideline groups and payers comfortable with opening up this new way of reaching patients. As for any decision about launching a screening test as a lab-developed test, we -- that is something that I think has to be carefully evaluated. You have to have discussions with the FDA and be very thoughtful about doing -- taking that approach. That's our view of the world, and we haven't made any decisions one way or the other yet.

Your next question comes from the line of Brandon Couillard with Jefferies.

Kevin, 2-part question on Thrive. And sort of given your previous experience with Cologuard, would you expect to be able to pursue a dual path review process with CMS and FDA at the same time? And secondly, maybe a better question for Jeff is what do you perceive as kind of the long-term COGS per test for CancerSEEK?

Thanks, Brandon. The dual pathway is probably not available as the rules are set today. And that is because Medicare -- Medicare's authority to cover a multi-cancer screening test is dependent on, first, a USPSTF guideline inclusion as an ARB-rated preventive service. If and when that occurs, then Medicare has the ability to issue a national coverage decision. So that is something that we will work very hard to ensure guideline inclusion and ultimately work with Medicare.

Late last year, Mayo Clinic convened multi-cancer screening symposium at which USPSTF representatives and Medicare and FDA, along with thought leaders from all over the globe, advocacy groups, all joined to look at the opportunity and the challenges around multi-cancer screening. It was really a tremendous conversation. And we're confident that if the evidence is there that a test such as CancerSEEK or GRAIL's test could positively impact cancer outcomes that ultimately, there is a pathway towards Medicare coverage and broader commercial coverage.

Brandon, on the cost of goods, it's really too early to say. Ultimately, that depends on the design of the test, what markers are used, what technology's used.

What I can tell you today is, though, this team is very good at scaling the business and driving efficiencies. You've seen them with Cologuard. We're confident we can get the cost of goods for this new multi-cancer test down to an appropriate level, given that we have a very strong foundation already laid. As I mentioned before, we can use that foundation. We can use the combined expertise of Thrive and Exact Sciences to bring to market a cost-effective test that will help serve patients.

Then just one quick follow-up for Jeff. Any color you can share with us on kind of the sequential monthly trend, some of the Cologuard orders, particularly in October? And has there been any change in the expected rollout time lines for Epic integration by the end of the year?

Yes. First on Cologuard. If you take a step back and look to where we were back in April. In that month, that's when COVID really first came to be a big pandemic. People were social distancing, staying at home. At that point, because of the pandemic, Cologuard orders were down over 60% year-on-year. That really marked the bottom.

What we had initially expected was to hit that bottom and stay down there for a prolonged period of time. However, because the team at Exact responded very quickly with measures such as adapting our sales activity to virtual calls and bringing out an online ordering capability, the business recovered very quickly to the point where we returned to year-on-year growth in June, with modest growth in the month of July year-on-year.

When you look at the entire quarter of September, you normally see a seasonal improvement during the quarter, which we did see. As I said in my remarks, we saw year-on-year growth in orders during the entire third quarter.

When you look at October, we said when you look at the pacing of the weeks in October, we saw growth versus September. The reason I mentioned there's some caution is because we've seen a steep rise in COVID cases in the U.S. and globally, and that creates some uncertainty. Over the longer term, the outlook is extremely robust for Cologuard.

What COVID has done, it has created a significant backlog of over 1 million people who need to be screened. Cologuard fits into that environment very well. In fact, we did another survey just last week that showed physicians, by and large, say Cologuard will play a far more important role going forward because it's accurate, noninvasive, can be done at home.

When you look at the alternatives, the primary one being colonoscopy, those levels are still down. Colonoscopy volumes are still down over 20%. So Cologuard is helping clear this backlog and getting more patients screened.

The second question on Epic, things are still on track. In fact, this is one thing that has continued to move forward at a rapid pace. In fact, really accelerated during the pandemic is our connections with the health systems of Medtronic connections. We're in a very good spot now. Our electronic ordering rates are in the high 30% range, around 37%, 38%, and that's even before this large, big rollout. That is on track to start next month.

The next step then is, as Epic released their software, then we and all the other health systems on that platform have to install it. So we expect the benefits from that rollout to start over the first half of next year. And why that's so important is that we see this time and time again, when physicians order electronically, they order far more Cologuard, over 50% more Cologuard than when they order via fax. It's just -- it's easier. It's a lot fast to become part of their standard of care when they can order through the same electronic platform that they order other tests through or they record documentation when they see the patient.

So we're extremely excited about that platform. That platform has advantages beyond Cologuard. An example of that is our COVID test. Our COVID electronic ordering rate is north of 80%. So as we bring other tests to market, that Epic foundation provides extreme efficiencies that will help physicians, patients and our team launch new tests more quickly.

Your next question comes from the line of Patrick Donnelly with Citigroup.

Kevin, maybe just one for you. When you think about the competitive landscape here for liquid biopsy Thrive, I guess, how do you weigh the different factors, first to market data, sensitivity, specificity, commercial reach, getting in guidelines, reimbursement, et cetera? How do you weigh all those things as you kind of approach the next multi-years here kind of getting towards the market and hopefully grabbing a good piece of it?

Yes. Well, the thing that we have always focused on is not what other aspiring entrants are doing but rather, what is the best scientific approach? And that's where we're so excited about the Johns Hopkins and Thrive approach of an incredible mutation panels proven in a prospective study, coupled with the methylation approach that we have developed with Mayo Clinic and putting them together. So it just has to start with data and a great test and then the ability to execute.

And none of these things are easy, and I think that we've shown, over time, the ability to deliver on really big, complicated, complex things. We're in a very strong position to deliver a great service. And this -- you have to think of a multi-cancer screening test as a service that is not just a simple test. So we're excited about what our broad capabilities can do in this space. And we also wish others well here.

We think that guideline groups are much more likely to create a new category of screening if they see that it is a category of more than one. And ultimately, we believe that is great for patients as well.

Okay. And then maybe just one on kind of prioritizing R&D dollars pipeline going forward. And obviously, you guys had a lot going internally in the pipeline, things like Cologuard 2.0. I guess now you bring in this significant opportunity, obviously, requires a big commitment on the spend side. How do you balance over the next few years that internally, kind of that spend between CancerSEEK clinical trials there and then again, what you had planned internally for the next few years?

Well, our efforts around improving Cologuard and developing a liquid-based colon cancer screening test, we believe, are augmented and enhanced by bringing Thrive and Base Genomics into the R&D organization. So we have a bigger, stronger, more capable R&D organization. I think that's the fundamental answer to the question, and we're capable of doing more than one thing because of the size and strength of that organization, which today now will be over 300 people.

Couple that with our strong clinical teams, and I think that we're able to execute broadly on this vision of being the company with the very best cancer diagnostics test available. From a cost perspective, I'll turn that to Jeff.

Sure, Patrick. As Kevin mentioned, this team could do multiple big things at the same time. We've demonstrated that time and time again. All these investments have to pass return-on-investment hurdles. And the important thing here is that they are all very attractive markets. We think we're very well positioned to succeed, looking at the team we have, looking at the foundation we've laid. So I'm confident that all these things we're talking about today, whether it's Cologuard or Cologuard 2, our multi-cancer opportunity, they're all high-return investments. If for some reason that were to change, then we'd look -- we'd rethink the investment, but they all look like to be very attractive value-creative investments.

Your next question comes from the line of Catherine Schulte with Baird.

I guess just first in the DETECT-A study, I believe CancerSEEK identified 10 different cancer types. You presented data on 6 last month. And for your commercial product, what's your goal in terms of the number of cancer types that your test will be able to detect?

Simply put, as many as possible. The power of a multi-cancer screening test comes from the aggregated prevalence of multiple cancers and especially to be able to detect rare cancers. Through our partnership with the Mayo Clinic, we have discovered unique methylation markers that would power the detection of -- in 16 different cancers.

Ultimately, this is a product design choice that we need to nail down here in the near term and then move forward into the clinical trial. So we'll do that work now, Catherine, and have more discussions on this topic later. Thank you.

Okay. And next one, for the 80,000-patient clinical trial, will the workflow there mirror detecting in terms of the full-body PET follow-up when necessary? And is that clinical trial design something that you and/or Thrive have already discussed with the FDA in terms of what they'd be looking for?

Thrive has had extensive discussions with FDA and expansive input by FDA in the study design for the 80,000-patient pivotal study. And we'll be able to talk more about that as we go forward. Suffice it to say, we're very impressed with the design that they have put forward, and we're excited to get to the point where we can initiate that study.

Okay. If I can sneak in one more on the proposed NCD for colorectal blood test issued earlier this month by Medicare. What was your take on the proposed coverage criteria? And how do you think it impacts the CRC blood test that you have in development?

It was a very thoughtful guidance document draft. We'll be providing input. So I won't go into great detail.

I would note that it would offer to pay -- or it would limit payment for a test every 3 years. Today, the data from aspiring entrants into this space are generating data that would probably only support a 1-year interval. So that probably limits the opportunity unless Medicare would be willing to pay more frequently than every 3 years.

So that is a challenge with the current draft guidance. But it is perhaps today, and we'll see what happens in the future, and we'll be able to talk about it more at that point.

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

Great, and congrats on the acquisition, Kevin. The DETECT-A study was really impressive. I mean this is the only real-world truly prevalence-reflecting study with more than 10,000 patients among all the liquid biopsy companies and add to interventional. So as you -- you're adding your markers to this assay, should we expect another large validation trial, a 10,000-patient trial or so, before approaching the next FDA registrational trial in taking all of those markers for a multi-cancer indication?

I don't think so. I wouldn't rule it out, but I don't think so. We have collected samples from 3,400 patients with cancer across about a dozen different cancer types.

So we have a sufficient body of samples to conduct case -- rigorous case-control studies with a combined methylation and mutation approach, this multi-analyte approach in protein to be able to lock down the assay ahead of a larger prospective study. That's probably the approach. It could change, but that's probably the approach that we would expect.

Okay. Great. And on the implication from a recent colorectal cancer NCD, I just wanted to get a sense of -- and you have significant experience here with colorectal cancer and Cologuard. It's generally thought that CRC and prostate can get Medicare reimbursement prior to USPSTF, whereas other cancers will require USPSTF in order to get Medicare reimbursement. So just wondering if -- what's your thought there? And does that push the time line for the potential launch of the assay longer term? And again, in that context, I know it's hard for you to say right now, but is there anything you can provide in terms of launching this powerful assay in -- as an LDT?

So launching a screening assay as an LDT requires thought, as I mentioned previously, in conversations with FDA. In terms of reimbursement for a multi-cancer screening test, you are right. As I mentioned earlier, Medicare authority to pay for a new screening modality not -- that is not colon or breast, which are specifically allowed that an NCD alone can -- or that Medicare has the authority there. With multi-cancer screening tests, their authority hinges upon ARB rating by the United States Preventive Services Task Force before Medicare can issue a national coverage decision.

So there are 2 different pathways for colon cancer and multi-cancer screening. And I believe we're adept at navigating both pathways.

Your next question comes from the line of Dan Brennan with UBS.

Maybe, Kevin, just on the deal itself. So Cologuard, obviously, you've talked about the market opportunity and the ability to capture 40% share ultimately. And when we think about the ROI on this deal, while clearly this is a long-term bet, is there any way you could help us think through -- versus the price you're paying and the ROI you might expect to achieve, like what type of share or what time frame? Any color that you can provide to us here that will help us think through kind of the return on this $2 billion investment?

Dan, this is Jeff. I'll take that one. I would just go back to -- this is a huge market, $25 billion at least in the U.S. alone, with a significant impact -- potential impact on patient outcomes. So we look forward to competing in that.

We've done the math on the range of investments required. And across that range, it appears to be a very attractive return on investment. We'll share more details on investment and what the return looks like over time.

Base Genomics, that has applications across our entire portfolio from Cologuard, multi-cancer testing and even more importantly, other tests like our liver cancer test possibly or pancreatic cancer test down the road. So we're confident that also provides an attractive return on investment.

There's also possible applications for that in the academic research setting. So we've done the math. We're confident, very attractive return on investment. I don't want to get into possible market share right now. It's too early to do that. We do look forward to being in both of these markets.

Okay. And listen, the price tag here, $2 billion. Kevin spoke, obviously, very constructively about GRAIL's profile and what they've achieved to date. But obviously, there, the price paid was meaningfully higher, and you didn't do that deal. So this is your deal.

But any way to help us think about as we try to put our heads together and think through like how your business is being -- how Thrive's being valued? Any way to -- again, it's a very large market. I'm sure there's significant opportunity for many players. But given the delta in price paid, any way they think through maybe some of the different approaches that Thrive and GRAIL are taking? Or just how do you think we should compare and contrast these 2 companies and their approaches?

We'll let you compare and contrast. I'll go back to saying the deep respect that we have for the GRAIL team. We've known that team, and you know I've been inspired by both GRAIL and Thrive over the course of their history [into the fold] and really focused on improving the impact on patients. And that's the big story here.

And I really believe that 5 years from now and 10 years from now, you're going to see a very different world of cancer, cancer where it's detected much earlier instead of late stage. That has implications throughout oncology. It has global implications, and we want to be a leader.

And then from a valuation perspective, one way to think about both of these combinations together is the power of what their technologies and importantly, the scientists can do in developing, helping us develop a minimum residual disease test and bringing that to physicians and patients, helping us to improve the other portfolio test that we're working on right now. So I think it helps us in everything that we do, and we just can't wait to get started. I know I've said that a few times, but that's where we are today, tremendously excited.

Great. And maybe just one quick question on Cologuard over 4Q. So should we be expecting Cologuard revenues to grow sequentially in 4Q? Any way to help us think through what the possible range of outcomes is?

My comments were based on October, what we've seen so far. We have seen growth in September. As I mentioned, there's underlying very positive trends here with the backlog and the really exciting things our team is doing. I'm not having to give specific guidance on Q4. But just to say that, again, really strong underlying momentum. We're very optimistic on the long term here.

Your final question comes from the line of Vijay Kumar with Evercore ISI.

Kevin, maybe two quick ones for you, and I'll ask them together. The colorectal cancer NCA guidelines, which came out, right, CMS was pretty specific in terms of a point estimate on sensitivity and specificity. I'm curious, just given pan cancer, these numbers can move around, whether you're looking at 5 cancers, 10 cancers or 50 cancers. I'm just curious on how CMS is going to look at offsetting guidelines or standards for pan cancer?

And I just want to clarify, do you say we won't need another validation study before starting the pivotal trial for pan cancer? And the reason I ask is I think I heard you comment that you would be adding methylation markers along with Thrive's current methodology. So does that mean you don't need to validate, perhaps a change in algorithm here?

Yes. I'll take each of those questions. So the first question relates to the Medicare's guidance document of 74% sensitivity at a 94% specificity for blood-based colon cancer tests. Those numbers were chosen for colon cancer specifically and we don't believe would relate to a multi-cancer test, 2 very different things.

That 74% comes from the fecal immunochemical test, a protein test for colon cancer screening. And so they're just setting a lower bar at the current FIT test that has been in the market for a long time. For multi-cancer, it's just going to be a totally different analysis.

In terms of validation studies, just to be clear, we will do validation studies, training test sets, most likely large case-control studies, just like we did with Cologuard before we went into the prospective study.

The amazing work that was done in DETECT-A gives you great confidence that, ultimately, an interventional study, a test, a multi-cancer screening test has a positive impact on finding new cancers. That gives you the belief now that -- an evidence that developing a multi-cancer screening test with improved performance would find even more cancers. So we -- we'll talk about that more in the future, but probably large case-control studies would be sufficient to lock down an algorithm heading into a larger prospective study.

Ladies and gentlemen, this concludes today's conference call. On behalf of Exact Sciences, thank you for participating. You may now disconnect.