Exact Sciences Corp (EXAS) 2022 Q4 法說會逐字稿

Good morning. My name is Rob, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Exact Sciences Fourth Quarter 2022 Earnings Conference Call. (Operator Instructions)

Megan Jones, Senior Director, Investor Relations. You may begin your conference.

Thanks, Rob. Thank you for joining us for Exact Sciences Fourth Quarter 2022 Conference Call. On the call today are Kevin Conroy, the company's Chairman and CEO; and Jeff Elliott, our Chief Financial Officer and Chief Operating Officer; Everett Cunningham, our Chief Commercial Officer, will also be available for questions.

Exact Sciences issued a news release earlier this afternoon detailing our fourth quarter financial results. This news release and today's presentation are available on our website at exactsciences.com.

During today's call, we will make forward-looking statements based on current expectations. Our actual results may have material differences from such statements. Discussions of non-GAAP figures and reconciliations to GAAP figures are available in our earnings press release and descriptions of the risks and uncertainties associated with Exact Sciences are included in our SEC filings. Both can be accessed through our website.

I'll now turn the call over to Kevin.

The strength of our foundation supporting the best brands in cancer diagnostics puts us in a leading position to continue delivering innovative cancer tests, consistent revenue growth and profitability. We are using this platform to help prevent cancer, detect it earlier and guide treatment for more patients globally. Achievements in 2022 that helped strengthen our leadership include surpassing 12 million cumulative people tested for cancer, including 10 million with Cologuard, expanding our global network of ordering health care professionals to more than 350,000, growing core revenue of $380 million year-over-year, becoming adjusted EBITDA profitable in the fourth quarter, completing enrollment of BLUE-C, our pivotal study to support our next-generation Cologuard and colon cancer blood tests, and generating evidence for our multi-cancer early detection and molecular residual disease tests.

Over the past decade, we've built a high-quality platform to deliver advanced cancer tests at scale. We've invested heavily in our people, lab infrastructure, technology systems, clinical evidence, brands and customer experience. This platform is fueling the efficient growth for our current tests and over time, it will fuel the next wave of novel cancer diagnostics.

Our health system customers employ most U.S. health care professionals and seek to improve the quality of care while reducing costs. They are incentivized to focus on preventive care, including cancer screenings. Today, many faces staff shortages, leading to a trend of more in-home services such as Cologuard.

Advanced cancer testing -- in advanced cancer testing, health systems continue to ask for fewer partners to meet their needs. A complete range of high-quality, impactful tests, broad insurance coverage, EMR integration and data-sharing capabilities. Exact Sciences is uniquely positioned to deliver on these needs because we have the broadest offering of innovative cancer tests, patient-focused services, EMR integration capabilities and payer relationships.

This year, we'll increase adoption of Cologuard and Oncotype DX, create an even better customer experience and advance our key pipeline programs in colorectal cancer, multi-cancer early detection and molecular residual disease. Jeff will now discuss our financial results and outlook for 2023.

Thanks, Kevin. Good afternoon. Fourth quarter revenue of $553 million grew 17% or 28% excluding COVID testing. Screening revenue of $404 million increased 45%, including 3 points of growth from PreventionGenetics. For the year, screening revenue increased 30% organically. During the quarter, 10,000 new health care professionals ordered Cologuard, bringing the total to more than 302,000 since launch. Precision Oncology revenue decreased 4% to $143 million, excluding the sale of our prostate business and a $2 million FX headwind growth of 1%.

COVID testing revenue decreased 87% to $6 million. Fourth quarter GAAP gross margin was 70%. Non-GAAP gross margin, excluding the amortization of acquired intangibles was 73%. Net loss was $128 million. Adjusted EBITDA was $5 million, an improvement of $120 million, demonstrating the power of the Exact Sciences platform.

We ended the year with cash and securities of about $630 million. Our total liquidity is about $840 million, included available credit facilities.

Turning to guidance. We expect total revenue between $536 million and $551 million during the first quarter and $2.265 billion and $2.315 billion for the year. This assumes screening revenue between $390 million and $400 million for the first quarter and $1.66 billion to $1.69 billion for the year. Precision Oncology revenue between $143 million and $148 million for the first quarter and $600 million to $620 million for the year and COVID revenue of $3 million for the first quarter and $5 million for the year.

For the year, this implies 18% growth for screening, 5% growth for Precision Oncology, excluding the sale of our prostate business and 14% overall growth, excluding COVID testing and the prostate sale.

We exited last year with broad momentum, which has driven a strong first quarter. This is especially through our screening business, where we're seeing the benefits of past investments and great execution from our team. We expect to generate up to $25 million of adjusted EBITDA for the year. This assumes non-GAAP gross margin of about 73% for the year. Our industry-leading gross margins are powering positive adjusted EBITDA and a clear path to free cash flow as we continue investing in growth and efficiencies.

We expect total GAAP OpEx to increase mid-single digits for the year. This includes an absolute decrease in sales and marketing, offset by increased G&A and R&D. Last year, G&A was reduced by $57 million, primarily from a noncash gain related to the Thrive acquisition earn-out. In addition to cycling against that in this year, we expect $19 million in noncash expense as we accrue for the earn-out payments.

R&D is increasing this quarter multi-cancer, MRD programs. And we expect CapEx this year to be about $120 million.

I'll now turn the call back to Kevin.

Thanks, Jeff. Cologuard is becoming the preferred colorectal cancer screening choice. During the fourth quarter, nearly 160,000 health care professionals ordered Cologuard, a new record, and the rate of people we screen at an all-time high. We are starting 2023 with tailwinds, including stronger health care professional conviction in Cologuard as our frontline screening test, increased consumer awareness, improved electronic ordering and an enhanced digital patient experience.

Also reached 0.5 million people screened with Cologuard between ages 45 and 49. As of the fourth quarter, we estimate Cologuard grew to 9% penetration of the more than 90 million people ages 50 to 85 in the colon cancer screening market. For the nearly 20 million 45- to 49-year olds, penetration grew to more than 8%. Just 18 months after it was included of that age group was included in USPSTF guidelines.

Screening people in the mid- to late 40s will provide recurring revenue for decades as we work to keep them screening every 3 years until they're 85. Cologuard growth is supported by the most powerful sales and marketing team in cancer diagnostic. We engage with health care professionals more than 1 million times each year and have more than doubled the revenue generated per interaction in the past year.

We build brand recognition and loyalty by generating more than 15 billion impressions annually. Our commercial team, supported by rigorous analytics, will get even more efficient over time and help decrease sales and marketing costs as a percent of revenue while supporting growth. Our Precision Oncology team has guided treatment physicians for more than 1.75 million cancer patients around the world, including a record 220,000 people last year.

Oncotype DX will revolutionize breast cancer care. It is internationally recognized as standard of care for patients with early-stage HR-positive HER2-negative breast cancer, which represents about half of breast cancer cases. We have an opportunity to impact even more lives by making Oncotype DX easily accessible to more women globally, offering OncoExTra, our enhanced therapy selection test with DNA and RNA analysis and working with our biopharma partners to develop new targeted cancer therapeutics.

Thanks to our team, trusted Oncotype DX brand and deep oncology relationships, we can power better treatment decisions that are specific to each patient's disease. Our advanced R&D expertise and platform screening and Precision Oncology will help get our pipeline test to more patients quickly. We made meaningful progress in each of our key pipeline programs last year by completing the enrollment of our BLUE-C pivotal trial, which included more than 26,000 people. Presenting 2 studies, including 4,200 samples showing the power of our multi-cancer early detection test and initiating and enrolling studies that will answer key questions clinicians and payers have when evaluating our molecular residual disease tests. We are completing the final steps of our BLUE-C trial and expect to have top line next-generation Cologuard data mid-2023 before submitting to the FDA for approval.

We expect to have 2 additional sets of multi-cancer early detection data this year, further validating our multi-market class approach before we move to a larger prospective trial. We also plan to validate and make our tumor-informed molecular residual disease test available to colon cancer patients later this year.

Our mission is to make an earlier detection a routine part of medical care to help eradicate cancer. Our platform, deeply embedded standard of care test and pipeline of life-changing diagnostics will power years of growth and continued profitability, helping us to achieve our mission. Thank you.

We're happy to open the line for questions.

(Operator Instructions) Your first question comes from the line of Derik De Bruin from Bank of America.

It's Derik. So can you just -- so a couple of points, a couple of questions. I think the first one is, I guess, what were the key market changes that drove some of the increased momentum in Q4? And the guide was better than expected, particularly for Cologuard for 2023. And that's one.

And then just -- I've gotten a bunch of questions from investors lately about the competitive landscape outside of liquid biopsy. There's a couple of companies that are advancing some of their stool-based colon cancer screening test and also just sort of the landscape for Oncotype as it sort of goes OUS, there's a little bit more competitive opportunities out there. Can you just sort of talk through the couple of questions?

Let's first address the momentum that we saw throughout the fourth quarter and the start of the year. A lot of this is just the result of the investments that we have made over time. The strong need for noninvasive screening -- colon cancer screening tool.

So you have some structural tailwinds, including the ease of electronic ordering that has taken a significant amount of effort, time engagement with large health systems to deliver electronic ordering through our Epic and EMR capabilities, increased brand awareness around Cologuard, health systems are highly incented to drive their colon cancer screening scores, and they're frequently now reaching out to us to ask for a partner who can help them improve their quality measures, care gaps, et cetera.

We're seeing GIs have a staff shortage and there's a greater focus in the endoscopy suite on diagnostic colonoscopies, and GIs are ordering our Cologuard at a higher rate as primary care physicians are certainly. Our sales and marketing team, I just can't tell you how proud we are of the work that they have done and continue to do, be it their efficiency, their engagement is turning the tide and really making Cologuard our first-line screening choice.

Also, of course, the 45- to 49-year-old age group. 18 months ago, the guidelines changed to lower from age 50 to 45. And we believe Cologuard is leading in terms of market share today, and the penetration is impressive. If you take the fourth quarter number of tests and extrapolate that, we believe we're -- the penetration is about 8% as I mentioned. Jeff, I don't know if you want to add any color to that.

Just to add to what Kevin said, electronic order just a huge, huge year last year. Recall, when we started the pandemic back in early '20, 30% of Cologuard orders were electronic. In Q4, that was up to 63%. So that has implications not only for Cologuard. You make it easier to get orders. It has implications down the road. As we launch new products, we'll launch right into that foundation. So overall, a deeper connection to health systems.

In Q4, I think as we talked before, Derik, we picked up a little bit of extra upside from enhancements we made pulled to our patient compliance engine and our billing systems. So again, these added to the upside, they weren't the sole cause of it.

The reason I bring those up is because when we added these enhancements, which will benefit on a run rate basis, we'll get better compliance and better -- kind of better ASPs going forward. On the end of those enhancements, we typically pulled forward a bit of revenue from Q2 to Q3. So consider that catch-up revenue that added a little bit more in Q4. So you really can't take Q4 to extrapolate that.

Now I've got half of Q1 in the books now. I think a little bit of that catch-up revenue, again, from the billing enhancements patient compliance enhancements is [spilling] into Q1. That's part of the strength in Q1. And then as everything Kevin said, should continue. I know there's questions on competition.

Yes. In terms of competitive dynamics, when you look at Cologuard, Cologuard set a standard of care at a very high bar in colon cancer screening. Cologuard 2.0 or what we call the next-generation Cologuard will raise that bar. And we just haven't seen data indicating any other testing modality that approaches that high level of performance for detecting cancer or detecting precancerous polyps and having a high specificity rate. And you have to be careful when you take a look at data, is it apples-to-apples, what are the underlying drivers, how large is the study, how well powered, et cetera, et cetera. So we feel great about the competitive positioning. There's so much more to Cologuard than the test. There's enormous investment altogether, about $1 billion invested in an IT infrastructure, a commercial team, a lab team and capability that is -- requires a multibillion-dollar investment to be able to reach the hundreds of thousands of ordering health care providers and the tens of millions of patients.

Oncotype DX is in a class of its own. It's the only test with the level of evidence that you've seen with TAILORx and RxPONDER. As a result, it has a leading position in the U.S. and globally.

So these are the 2 best brands in diagnostics. We will keep investing in them, and they have become standard of care without peer in terms of that Cologuard and its sample type and Oncotype DX, it would be very difficult to replicate that level of [evidence]. So we're probably on these programs and continue to expect big things in the future.

Your next question comes from the line of Andrew Brackmann from William Blair.

Kevin, maybe one for you and sort of building off some of that stool-based commentary there. Just sort of recognizing 2.0 data is going to come. I think you said around midyear. Can you just sort of give us an update on where you expect those data to come in? Anything in particular you'd point to as we put together those scorecards for that data and sort of the longer-term benefits of the model?

We expect Cologuard 2.0 to have improved specificity, so a more false positive rate. And we would -- on a secondary basis, we hope to see some improvement in the advanced adenoma detection rate. The main goal is to lower the false positive rate.

We have designed Cologuard with more specific markers. We also expect to see improved cost efficiencies and other aspects of Cologuard testing. So that is where we -- that's what we expect. Of course, we won't know until we complete all of the validation testing, and we expect that to occur midyear.

Your next question comes from the line of Dan Brennan from Cowen.

Great. Maybe first one, just on the rescreening in the 45 to 49 and then just one question on the EBITDA guidance for '23. So Jeff, can you just clarify, so 8% penetration run rate in 4Q? It seems like a really big number. We're coming up with like 130,000 tests. Is that in the ZIP code? It's, what, 20 million people in total and you divide that by 3 to get the addressable for Cologuard, that's like 6.6 million. And then you got -- you had 8% penetration in 4Q. So we just took 1/4 of that and 8% of that. So maybe a little clarity on the math there and how we -- and kind of how we think about -- I know you guys don't want to disclose too much on these. But since they are material, it'd be great to understand how you're thinking about the impact of rescreening, 45 to 49 in 2023.

And then the second one would just be on the $25 million-plus of adjusted EBITDA, I guess, dollars ex stock comp in 2023. So if you exited 4Q with $5 million, just wondering if that's a conservative number since I would expect you guys to have some nice momentum despite all the investments that you're doing. So I would have thought it'd be a high number in '23. Maybe you could just speak through some of the drivers there.

Sure. A lot there. Obviously, Kevin talked about 45 in rescreening just being significant growth drivers, and that will continue for a long time. Last year, we have put out guidance for 45 of at least $100 million of revenue. We beat that nicely. And for rescreening, we said at least $220 million, we beat that nicely. So both have really good momentum.

This year, we expect rescreening to about 20% of revenue in total, and that should grow from there. Eventually, this becomes half of our revenue and 45% should have a pretty similar trajectory as rescreenings. So huge drivers there.

In Q4, you kind of talked about the overall penetration rate for 45. And just to be clear on the definition here, we're looking at the pool of patients, which is nearly 20 million people and saying that Q4 run rate, call it roughly 125,000 people tested. If you adjust that for the interval and the -- annualize it, we were at about 8% penetration into that younger age group.

The reason we highlighted that is because Cologuard got there in about 18 months after USPSTF guideline inclusion for the younger age group. You contrast that to the 50 and above age group, which is that's been the biggest diagnostic client in history. We're at 9% there today. So the point there is really 45 is growing very, very quickly.

The question on adjusted EBITDA. What we're guiding to is flat to $25 million adjusted EBITDA for the year. This really speaks to the power of the platform. You'll recall that we had accelerated the path to profitability. It was going to be '24, the mid-'23. It eventually got there and then in '22.

For the year now, what we're guiding to is over $150 million of adjusted EBITDA growth. On an incremental adjusted EBITDA margin basis, we're talking of over 75% incremental. So the guidance is the most likely outcome. I'm proud of what the team has delivered here. These are -- I'm very proud of these numbers. It's a significant improvement year-on-year, and it puts us in a position to really continue investing in growth and efficiencies and delivering profitability to investors.

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

Jeff, one in your -- I guess I had a 2-part question. The 2.0, Cologuard 2.0 results, I know you mentioned increased specificity you, and you expect an increase in advanced adenoma sensitivity. Is there any risk as you take up that specificity that the sensitivity for cancer perhaps, it drops? I know given AA sensitivity going up, perhaps that's not the case. But maybe just talk to us, is there any risk here from a sensitivity perspective heading into these results? And on adjusted EBITDA, Jeff, how should we think about those leverage levels going forward? The incremental leverage math that you just laid out, should that hold true when we think about '24 and '25?

Why don't I take the first part, Jeff and you take the second part. So we would expect the cancer sensitivity to be at or above 90%. We would expect somewhere in the neighborhood of 100 cancer samples in the study. So it's in the -- if you recall in the DeeP-C study, we had 65 samples.

So what have we done to improve the likelihood of success? We, number one, increase the powering of the study. Number two, we've done a significant amount of work to compare the current version of Cologuard with the next-generation version of Cologuard in samples, including samples from the DeeP-C study. So we have a head-to-head comparison which gives us confidence that Cologuard 2.0 performs better than Cologuard 1.0.

You can never control all of the risk because the fundamental population has changed or for example, you see a lot more smaller cancers, harder-to-detect cancers. You don't know that and you can't control [them for it]. So what we have done is developed the very best test with the best markers, the most efficient and powerful DNA capture technologies and deploy that into the study. And we look forward to opening the results of the study and sharing them with you, and that's our thinking on that. Jeff, maybe you take the second one.

This is Jeff. On the leverage question, look, this model has been built to scale, to scale efficiently, ultimately deliver positive free cash flow, which we expect to reach in '24. Can we sustain 75% plus incrementals? I hope so, but that's a pretty tall order, Vijay.

When I think about leverage going forward, the best way to do it is to drive a really strong top line. I know every team are going to do that. We've got some nice levers to pull when I walk through the P&L, thinking of gross margin. We're targeting over 80% gross margin for the 2 key products here, Cologuard and Oncotype. Oncotype is there, I'm confident Cologuard will get there over time. So I expect some good gross margin improvement.

The G&A, this year, I talked about that Thrive earn-out payment is driving higher G&A growth on a GAAP basis, but you adjust for that it's mid-single-digit growth. Over time, the G&A leverage will improve. Sales and marketing. The [minute], there is really to make sure we're always investing in the smart growth and everyone saw a nice drop there. So we're seeing a really good leverage within sales and marketing.

R&D, the way we'll get leverage there is to focus on the highest impact opportunities, and Kevin has talked about those today. Over time, as we get the benefit, Cologuard to the MRD programs, multi-cancer as we get the benefit from those programs, that will help drive additional leverage through the P&L.

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

And thanks for showing that slide on rep productivity. It's great to see Cologuard revenue per field continuing to trend upwards. But I'm curious what's that number? What it looks like pre-COVID? And if you can talk to where you think that number should go over time?

Catherine, this is Jeff. Pre-COVID, I think there's a lot of moving pieces there. When you think of the Pfizer relationship. It's a great partnership. It just does change the dynamic as well, which is why we focused on the quarters that we did display on the slide deck.

Going forward, where can it go? I would like start but Everett please chime in. And there's a long ways to grow when you think of that market penetration number at 9% in that 50-plus age group. Longer term, I'm confident we can get to at least 40%. And I think we've already got a strong team in place. So I expect that productivity to go way up all the time, but Everett?

No, thanks, Jeff, and thanks, Catherine, for the question. I'm really proud of what the commercial team has done over the past years since we've launched Cologuard, and we continue to evolve the commercial team. There's many things that are contributing to the productivity. I'll just highlight a couple of things. Number one is the way in which we've evolved our territories. We've cleaned up the overlap in territories, which have driven deeper customer relations. And I think that's driving a lot of the acceptance of why now Cologuard is a preferred choice for screening.

Number two, we use data and analytics now in terms of who to call on, when to call on, how often we call on those customers. And we're just much better now in looking and knowing exactly who to call on for the growth, and we review those analytics and who we're calling on a weekly and monthly, very rigorous process in our commercial organization. We just don't do it centrally, but we're now doing it as a market and area level of where that execution is happening.

And then Jeff and Kevin mentioned in terms of we're going to always invest for growth. We're really focused on health systems. That's where a lot of our customers and patients are. We've increased our amount of account executives at the health systems level, and the conversations now that we're having around the screening is our health systems are now coming to us and how can we partner for those hard to screen patients where they need to close the care gaps. We saw a lot of that at the tail end of 2022, and that's going to continue in 2023. I feel bullish that our productivity will continue to improve.

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

Just a 2-part question in terms of the guide for the year. Jeff, what's embedded for the stock comp expense? And then, Kevin, conceptually speaking, if the top line is, let's say, running ahead of plan as we move through the year, would it be your preference to reinvest some of those dollars but still deliver on the profitability target or would you let that drop down?

Brandon, this is Jeff. The first one, it's on comp. I think we've given you the -- kind of all the pieces between when you look at the gap, the deal that have grown in OpEx, adjusted EBITDA. So I think you can -- stock comp is probably the biggest piece between there. If you look at last year, which you have that you'll have in the case, if you do already, it's going to grow from there as if you look back at the head count growth over time. But I think that's enough to give you the math between the GAAP number and adjusted EBITDA number. Second question on reinvestment.

So in terms of investment, we're still making enormous investments in new product programs. We've touched upon the 3 big ones, colon cancer, multi-cancer early detection and the MRD program. So we also have some minor programs that we're working on in liver, esophageal cancer and endometrial cancer. We're making those investments today. We're making significant investments in our IT infrastructure.

So would we selectively reinvest some of those profits? Yes. Are we bias towards and leaning towards letting that fall through? The answer is, yes. The whole company is on board with that. They're driving to it. We're all rolling together as one team to show the profitability engine that we have, and that's very important to us.

Your next question comes from the line of Matt Sykes from Goldman Sachs.

Maybe the first one just on compliance. Jeff, you mentioned some of the enhancements you were making to compliance. And if we add in the rescreen opportunity over time. Could you maybe help us frame where you think compliance can go to for Cologuard over the next year or 2?

And then -- and just secondly, I'll ask them both upfront. But secondly, just on Oncotype outside of the U.S., I think you mentioned that sort of the main growth area for you. Could you maybe talk about what you see as sort of the growth rate for ex U.S. within Oncotype for this year?

Yes, this is Jeff. I think I'll handle both of those. Cologuard patient compliance, the way we typically report this out is looking at test conducted 12 to 18 months prior. That rate is in the mid-60s percent, so about 2 of the 3 patients comply with Cologuard. Over time, I expect that to go above 70, possibly to 75. The reason why I'm confident we'll get there is that on rescreening patients, the overall patient compliance rate is 15 to 20 points higher than first line patients.

So over time, that's going to be a big driver of overall lift in the patient's compliance rate. And we're making significant investments to enhance that customer experience, better ways for outreach, better ways to make it even simpler to Cologuard. And over time, that will naturally bring that patient compliance rate up.

The second question on Oncotype DX international growth. There's a significant runway ahead, thanks to the strength of the team there, the strength of the evidence that Kevin alluded to, Oncotype globally is opening up in new markets through reimbursement and access. What we've baked into this year is in the U.S., growth there is approaching prevalence plus a point or so.

So I think kind of low to mid-single digits. International will grow faster. It can be easily into the double digits depending on new markets that launched within a given year. This year, we expect Japan, which could eventually be the biggest market outside the U.S., we expect Japan to come on potentially midyear, and that can be a big driver starting midyear and into next year.

Your next question comes from the line of Jack Meehan from Nephron Research.

My questions for Kevin are on the blood screening programs. First, can you give an update on the blood portion of Blue-C? When you expect that to read out? And then second, on MCED, talked about validating additional markers. Can you just talk about how that might be similar or different to what you presented at ESMO and what that might mean for time line for the SOAR study?

Sure. On the first program, we haven't given specific guidance as to when the colon cancer blood program will read out. The team that is focused on our colon cancer programs are focused both on stool, Cologuard 2.0 and blood. There's a huge amount of effort that is required to -- prior to testing samples.

So there is a rigorous analytical validation studies that are required verification studies, software development and validation. And so there is an enormous amount of rigor that goes into that and preparing the automation entire program and submission that goes to the FDA. You don't make changes easily. So you need to make sure that, that -- the manufacturing capability and all the studies are locked down.

So the Cologuard 2.0, next-generation Cologuard is first, and then that team will shift its focus to the validation and verification studies for CRC blood afterwards. In the coming quarters, we'll provide more clarity as to when that pivotal study from the blood portion of the CRC program will be complete.

In terms of the MCED marker validation study, we have interim and full [trials] of the test designed kind of a lockdown study prior to moving into the large prospective study. That study, we expect to read out this year. So 2 different studies will read out during the year, and that is a much larger version of the data that you saw at ESMO last year.

That is -- that will lock down our final marker classes. And then we expect SOAR to start next year. We would expect that to start in the first half of next year. And all of -- the team right now is working on perfecting the test, making sure that, that test and the automation surrounding it is locked down before we start that study.

Again, once you start a prospective study or a cancer screening test, you don't make changes to that product. So it's totally lockdown.

Your next question comes from the line of Mark Massaro from BTIG.

Congrats on the progress. My first one is on MRD. So it's great to see your planned LDT launch later this year in colorectal cancer. When can we expect to see additional data, which would support reimbursement? And have you had discussions with any Medicare contractors?

And then my second question is on the Thrive multi-cancer initiative. I appreciate that additional data will be rolling out this year. But maybe, Kevin, can you just give us a sense, this is not like you're rolling out an LDT. This is kind of a higher risk, bigger opportunity. What types of factors do you think might change in the landscape over the next few years that could perhaps increase the probability of success? And then can you give us a sense for the size of the patient enrollment? Is it somewhere near the 80,000 to 100,000-plus mark?

Okay. So the first question in terms of what are the things that are going to change to make a multi-cancer early detection this whole category of testing more likely to be successful. Certainly, congress creating Medicare benefit category is one. That's important. And we expect that legislation to be reintroduced in this congress.

Remember, last year, there were more than 50% of congress were cosponsors, equal number of Democrats and Republicans. So we're working hard right now to make sure that Medicare beneficiaries will have access to this incredible new category of testing.

The evidence that is being built by exact like others in this field shows great promise for the ability to shift the stage of cancer detection broadly across many, many different types of cancers. From later stage, more difficult-to-treat cancer to earlier cancers where the therapy frequently is surgery with an intent to cure. That's a big shift. And the more evidence that is generated that we -- there is more excitement that is being built in this space.

We believe that we have a significant advantage because of the strength of our Cologuard screening team, infrastructure, lab capability, et cetera, perfectly positions us for success. This is going to play out over a long period of time. We believe there are well north of 100 million people in the U.S. alone, many more outside the U.S. that are going to benefit from the test.

And the key takeaway here is that there is no therapy as effective as earlier detection. Earlier detection means your therapy plan is going to be very different. And that's the goal of program. We're excited about it. We're committed to making this happen. And we're doing the work to -- the rigorous scientific work to develop the best test.

Mark, you want to also ask on MRD. So we plan to publish data on upcoming scientific conference in the tumor-informed version of our tests, recall working on both tumor-informed and tumor-naive. That tumor-informed in colon cancer puts us one step closer to bring that test to market, which we plan to do later this year versus an LDT.

Next year, we'll submit retrospective prospective data to MolDX, hoping to secure [reverse] with that. Behind the scenes, we've been working on pivotal studies for both colon and breast that eventually what helps that -- we think the standard for evidence in this space.

We feel good. Same thing with multi-cancer and leveraging the foundation we built in primary care, MRD, given our positioning with oncologists, whatever the team has done there, building deep, deep relationships. As you know, 98% of oncologists have ordered Oncotype DX from us. So we think we can leverage the same strength of the commercial foundation into MRD.

Your next question comes from the line of Dan Arias from Stifel.

Kevin, back on the pipeline. Just any update on the thoughts around commercialization for Cologuard 2.0? I think at one point, that was a potential '23 event. So just curious if that's still a possibility. And then how dependent on that, would commercialization be on just performance and data around the test versus other factors like sales training, reimbursement, et cetera?

Sure. We expect, Dan, to submit this year, and it's at least 6 months with the FDA before approval. So that puts us into next year with the launch. A lot of prelaunch activity will go on. Certainly, that launch will incorporate the new and different sensitivity and specificity.

And then some of the long mundane aspects of launch would include the billing code for the new version of Cologuard, does it change, doesn't it change, payer relationships, Medicare, et cetera, you need to do a lot of work there before you switch over to a new test lab automation changes, et cetera. So that will be a very thoughtful transition from the great current version of Cologuard to an even better version of Cologuard. The nice thing is we have a great test in Cologuard today, and it's all upside for patients, health systems and Exact Sciences' shareholders when we bring the new innovation to patients.

And just to add to that, recall that late last year, we pulled ahead. One of the key benefits of Cologuard 2.0. We pulled ahead internally what we call Cologuard 1.5. What Cologuard 1.5 did is it extended the stability of that patient sample by 1/3. That's important because it helps to get more of those tests back to our lab with the sample that we can still use [if that] expired.

So to date, this new version of the kit, this new Cologuard 1.5 has helped over 45,000 samples that come back to our lab without expiring. Now some of those we could have gone on to recollect before. But it creates an overall better patient experience, more revenue for us, better gross margins for us. So the team is not standing by idly by any means, they're pulling ahead this big benefit. Overall this year, that will increase completed test by at least a point.

And then commercially, we're already there. We know our targets, obviously, as Kevin said, with Cologuard on the market now, it will be a seamless transition from a selling and marketing standpoint.

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

So first one is you mentioned the 8% penetration for 45 to 49 year old. What's the ceiling for that penetration given the momentum you're seeing here? And then on the MCED data, I mean, should we be expecting that at AACR or ASCO or later in the year at ESMO?

I'll take the first part. Jeff, you can take the second part. In terms of the ceiling, we think that the ceiling is higher than the 40% penetration that we've long guided to for Cologuard in that earlier age group because people who are 45 to 49 typically are busier than retirees, and it's more of a challenge for them to schedule a screening colonoscopy, which can take 1.5 days of your life. Typically, you're -- a portion of your week that you're normally working.

So we also have been able to educate and reach people digitally, our digital investments and social media marketing will increase over time. So Cologuard is a test that fits within their lifestyle. Do we get to 50% to 60% penetration? That wouldn't surprise me over time in that age group. And what you're seeing is you're seeing the endoscopy suite are very, very busy today.

Any notion that Cologuard was going to slow down the business of gastroenterologists endoscopy suite is just not going to be accurate, in fact, it helped them to focus. But the -- and there is an opportunity for Cologuard, and is being ordered more frequently in that patient population because the risk of colon cancer is lower and GIs are -- and health systems are focusing on getting those people screened, it goes into their colon cancer quality ratings through Cologuard, visiting last week with primary care physicians who have very busy practices, they are focused on Cologuard.

One office I met switched 100% to Cologuard. Why? Because the GIs are so busy in that part of the country that they don't want to see more average risk patients. So we see that Cologuard will continue to grow because it's easy, it's at home, it's accurate. Jeff, I think there was a second part of that question.

Puneet, this is Jeff. The -- Everett's team has done a really good job generating a wealth of evidence to help build out this new category. As Kevin talked about, there's 2 sets of data coming this year. The first one, I don't think we'll get AACR. I don't know the conference for sure, but I would think midyear on the first set and then a full timing for the second set. When we know what conference, though, we'll let you know.

Your next question comes from the line of Patrick Donnelly from Citi.

Jeff, maybe one for you just on kind of the cadence of the year coming out of the strong 4Q. I know even going back to the conference in January, you were talking about 4Q had some benefits. I think you mentioned the billing enhancements on the call here. No surprise, 1Q down sequentially on Cologuard.

Can you just talk about, are we getting back to that normal seasonality? Obviously, again, 4Q had a great inflection. You talked about all the factors there. So how do we think about that going forward into '23? It's been a weird couple of years, obviously, in terms of the impacts you guys have seen. So how do you think about the cadence of this year both on the top line with Cologuard? And then also maybe on the EBITDA side, if there's anything we should be looking out for there in terms of expense timing?

So Patrick, the typical cadence of Cologuard hasn't changed. There -- it's really driven by primary care utilization trends. So what those are is that typically start the year if people are coming off the holidays, deductible just reset. So primary care use is typically lower in January.

Things build until Memorial Day at the end of May. And then over the summer that typically flatter as typical on vacations and our focus is much on primary care. At about mid-August or Labor Day, things pick back up and typically climb pretty steeply until Thanksgiving timing and then slow down over the holidays as people go on to get on to vacations.

And what that means for Cologuard, there's about a 30-day lag between a primary care visit, and we would recognize revenue. That's typically why you see a step down from Q4 to Q1. And I only expect that to change going forward. However, our business is becoming more predictable, more predictable. You got more stable growth drivers, as Everett's team have done a really nice job building out a whole wealth of different drivers. It's not just tied to one thing anymore.

From a Q1 this year standpoint, there's a couple of unique things that are happening. Everybody seeing the flu data. The flu is really mild this year. Relative to most years, flu is normally a headwind to us and others in early Q1, that headwind is really nonexistent this year.

So I think almost equal, Q1 a little stronger this year. Also some of the carryover benefits that I talked about earlier from enhancements to both our patient compliance engine and our billing systems, we're picking up a little bit of catch-up revenue on both those things.

So all told, Q1 seasonally stronger this year as you think about phasing throughout the year, don't expect that same sequential build Q1 to Q2 this year, as you would normally. From an adjusted EBITDA standpoint, Q1 typically has the lowest profitability of the year because of the top line being a little lighter seasonally, and expenses are a bit higher as you roll into a new year, and we've got some unique sales and marketing events in Q1 also. So lighter profitability in Q1, but overall strength to the year from a profit standpoint. Again, significant pickup year-on-year in adjusted EBITDA.

Your next question comes from the line of Andrew Cooper from Raymond James.

Maybe first, just, Jeff, you mentioned some of the prior period collections and some of the improvements in compliance. Can you give us a sense for precising of that in the fourth quarter?

And then I think it was about a year ago, maybe this call last year, you talked a little bit about a chance for pricing and ASP to continue to climb a little bit. So can you just give us an update, have you been able to capture a little bit more on sort of apples-to-apples ASP and what that looks like and how that impacts the move to profitability as well, assuming pretty steep drop down there?

Andrew, in Q4, the base business exceeded expectations. This is the things that Kevin and Everett have talked about. It's the strength of the relationships with health systems, the sales force productivity. Cologuard rescreenings, 45, all those things drove the upside.

The reason I called out some of these other items is because we didn't want people to take Q4 and then assume that's kind of the new base run rate going forward. I look at it as more sweetener. Sweetener in terms of a couple of things. Again, it's the enhancements to our billing systems, enhancements to patient compliance. What happened? Let's say, you turn those in early October. Well, because of those enhancements, we were able to capture patients and revenue that otherwise would have hit in Q2 and Q3, we pick on Q4.

So it's a good guide there on a go-forward basis now, our revenue per test or ASP is higher, and our patient compliance rate should improve on a go-forward basis. And you see it in other ways, you see things like our DSO improvement improved by 15 days year-on-year. So all that team has made done a really good job at enhancing our overall kind of billing systems in the processes.

On a run-rate basis, ASP for Cologuard, the right way to think of this is around $480 of revenue per test. There are some puts and takes there. And obviously, you've got this newer age group 45 to 49. For a while, that was -- it carried a lower revenue per test as we built up the insurance coverage. There's also some other classes like Medicaid that rightly so come in about 80% of the [Medicaid] often times. But again, to hear the team has done a nice job. And longer term, I think we can work that rate towards $500.

Your final question comes from the line of Dan Leonard from Crédit Suisse.

So I have a question on your Precision Oncology guide. It doesn't seem like you're expecting much from OncoExTra. Is that accurate? And could you walk through the past for some of these new products like OncoExTra and MRD to contribute to the sales ramp in Precision Oncology?

I can start and maybe Everett can jump in. So what's baked in the PO guide globally, U.S. and we've been talking about this for a long time, given the strong current market position, as a class, the penetration rate there is over 70%. We do a nice job within that. Given the strong position, the growth in the U.S. for the Oncotype DX business, I think of low single digits. This is prevalent plus maybe a point.

Now the strength of that foundation will allow us to launch other programs like OncoExTra, like MRD, like the Riskguard, which is the hereditary cancer product. Internationally, the growth there is that business think of kind of $150 million a year right now. Growth there over time should be double digits for many years to come.

Year-to-year, it can be a little different depending on which markets opened up that year. This year, the big new market that we expect to come online is Japan midyear. So what's baked in is stronger growth in the U.S., but it's not that we won't get the full year impact from Japan.

So it's not strong double-digit growth this year. It's probably high single or low double-digit baked in. OncoExTra, there, I think it's considered north of $10 million of revenue this year. It is the first year of launch. I know that Everett and the team are excited about the launch, but it's early. So we'll come back to you and look forward to providing an update as you unfold there.

Yes, I'll just add. We often talk about the productivity of our Cologuard sales and marketing team. My hats off to our Precision Oncology sales and marketing team. We had the launch of OncoExTra a couple of weeks ago. The training team and marketing team did a great job of preparing our sales organization to launch it day 1.

And again, the granularity of who we're focused on, on who we need to drive OncoExTra was really evident at our sales and market -- at our launch of OncoExTra, and we're already generating orders. So as Jeff said, we're going to look to hit, beat our target for OncoExTra in 2023.

Yes. And just to understand the differentiation of OncoExTra, this is an enhanced version of a therapy selection test, which is an ultra-comprehensive panel. It includes DNA and RNA. It detects the clinically actionable mutations infusions, including whole exome, whole transcriptome sequencing. It also includes patient matched tumor-normal sequencing, and it has an incredibly easy to interpret result -- reports for FDA-approved therapies, immuno-oncology signatures, et cetera.

And then one thing, Dan, you didn't ask this question, but I don't think we touched upon was around the follow-up colonoscopy approval changes. Everett, maybe you want to just touch on that?

Absolutely. Thanks, Kevin. One of the biggest objections from our customers around Cologuard was, hey, if they get a positive Cologuard test, that patient is burdened with paying for the follow-up colonoscopy. CMS and commercial last year made the positive development that there will be no co-pay, 0 co-pay for follow-up coloscopy.

Our organization is now focused on getting that message out. It takes time. We had to educate over 300,000 primary care physicians and health systems on that new ruling. But we're really excited about that new development legislation, and we're out every day talking about the positive development.

And this does conclude today's conference call. Thank you for your participation. You may now disconnect.