Exact Sciences Corp (EXAS) 2022 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Exact Sciences Corp. First Quarter 2022 Earnings Call. (Operator Instructions). Thank you. Megan Jones, Senior Director of Investor Relations, you may begin your conference.

Thanks, Josh. Thank you for joining us for Exact Sciences' First 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 first 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. 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 Exact Sciences' mission is to eradicate cancer by making earlier detection a routine part of medical care. The entire team at Exact Sciences helped us move towards achieving that mission with a strong start to 2022. Highlights from the first quarter include testing more than 1 million people globally, growing revenue 24%, excluding our COVID testing, partnering with Katie Couric on an exciting new campaign to get more people screened with Cologuard. Optimizing our sales force structure to reach primary care doctors more effectively and more efficiently, guiding a record number of patients to more effective cancer treatments with Oncotype DX, generating evidence to support our next-generation Cologuard and multi-cancer early detection test, focusing intently on prioritization and growing our company efficiently and beginning to integrate prevention genetics into our foundation.

Jeff Elliott will now review our financial results.

Thanks, Kevin. Good afternoon. First quarter revenue was $487 million, an increase of 21% or 24% excluding COVID testing. Screening revenue was $307 million, an increase of 28%. Excluding prevention Genetics, screening revenue was $297 million, an increase of 24%, driven by Cologuard volume. 9,000, new health care providers ordered Cologuard during the quarter and nearly 273,000 have ordered since launch.

Precision Oncology revenue was $153 million, an increase of 18% and driven by Oncotype DX breast volume. Precision Oncology included 8 points from our Cheyenne acquisition, which annualized in April. Covid testing revenue increased -- sorry, decreased 15% and to $27 million, in line with our expectations.

First quarter GAAP gross margin was 68%. Non-GAAP gross margin, which excludes amortization of acquired intangibles, was 72%. We expect margins to gradually improve throughout the year as we absorb the additional lab capacity brought online for Cologuard and COVID testing. Sales and marketing expense was $232 million. G&A expense was $170 million, including a $26 million gain related to the Thrive acquisition.

R&D expense was $102 million. Net loss was $181 million adjusted EBITDA was a loss of $90 million. We ended the quarter with cash and securities of $817 million, and we have about $150 million available on our credit facility. Additionally, we're exploring other nondilutive asset-backed financing options. We expect our quarterly cash use to be lower over the balance of the year, and we're confident in being profitable in 2024 on an adjusted EBITDA basis.

Turning to guidance. We expect total revenue between $485 million and $505 million during the second quarter and between $1.85 billion and $2.032 billion for the year. We expect screening revenue between $335 million and $345 million for the second quarter between $1.35 billion and $1.372 billion for the year. This includes prevention genetics revenue of approximately $10 million during the second quarter and between $40 million and $42 million for the year. We expect Precision Oncology revenue between $145 million and $150 million for the second quarter between $595 million and $610 million for the year. We expect COVID testing revenue between $5 million and $10 million for the second quarter and between $40 million and $50 million for the year.

We saw modest improvement in sales force access during the quarter. Guidance assumes continued gradual improvement throughout the year. As we said last quarter, we expect screening revenue to be more front-loaded than current consensus. In Precision Oncology, we expect mid- to high single-digit percent growth in the U.S. and internationally. We reduced our international growth expectations due to a delay in our Oncotype DX press launch in Japan. This is related to requirements for our ordering and resulting portal, which we expect to complete by year-end.

I'll now turn the call back to Kevin.

Thanks, Jeff. Our sales and marketing teams are fueling Cologuard growth by reaching more physicians and their staff in person, redesigning territories to improve health care provider targets and reduce overlap after completing our co-promotion agreement and creating urgency around the importance of screening through our mission to screen partnership with Katie Couric. These efforts are increasing Cologuard adoption in the core 50 to 85 age group, and they're supporting 2 of Cologuard's biggest growth drivers, the 45 to 49 age group and the 3-year rescreens. Screening-eligible people earlier, starting at age 45 and keeping them screened every 3 years will help address the staggering increase in colorectal cancer incidents in this age group. .

When compared to a 65-year-old, keeping a 45-year-old screened until their 85 provides twice as much lifetime Cologuard usage. Since Cologuard was made available, we have invested heavily in our teams, brand development, IT systems and customer experience. This provides a head start in capturing eligible unscreened patients at every age and our goal is to make screening for life automatic.

Our experienced team, trusted Oncotype brand and strong evidence generation capabilities are supporting our core oncology business and creating new growth opportunities. Our precision oncology team tested a record number of patients with our Oncotype DX Breast test in the first quarter, providing life-changing information to more than 40,000 people.

We're partnering with a leading breast cancer research institution to conduct a study using our Oncotype DX Breast and minimum residual disease tests. The trial, which we plan to initiate in the coming weeks, demonstrates our unique ability to predict recurrence and help patients navigate their breast cancer treatment. Our Oncotype DX test guides about 70% of U.S. patients diagnosed with HR-positive HER2-negative breast cancer to the most effective treatment based on the risk of recurrence, knowing which patients are at the highest risk, puts us in the best position to monitor them and detect recurrent cancer earlier. We're in a breakthrough period for our pipeline as we generate evidence for the 3 largest patient impact opportunities in diagnostics.

In colorectal cancer screening, we've made great progress in rolling cases to power our prospective BLUE-C study, and we remain on track to complete stool enrollment midyear. We expect BLUE-C results to support FDA submissions for our next-generation Cologuard and colon blood tests. In multi-cancer early detection, we presented data confirming our strong results using methylation and protein markers, which we'll discuss on the next slide.

We're also initiating studies for our minimum residual disease test with a large trial enrolling in colorectal cancer in a breast cancer study starting soon. We expect to have validation data supporting our tumor-informed approach by the end of the year. We believe combining multiple classes of markers will provide the most accurate multi-cancer test for patients, and we're building off the promising methylation and protein data presented at AACR.

Our markers detected 88% of cancers at 97% specificity across 6 cancer types, including 5 with no screening option available today. We expect to have additional data later this year, combining methylation protein mutation and other marker classes. We'll also present validation data and expect to begin enrolling our prospective FDA registrational trials shortly thereafter. We recently agreed to acquire (inaudible) Diagnostics, an emerging leader in proteomics, biomarker discovery located in Germany. This highly skilled team will deepen our podium profiling capabilities, helping uncover the best biomarkers to include in our advanced cancer tests.

Our deep relationships with over 300,000 health care providers and more than 9 million patients, put us in an ideal position to help detect cancer -- most cancers earlier before symptoms appear. We have built the infrastructure and capabilities to support this large customer base. We also offer multi-cancer and hereditary testing to the same patient population as Cologuard. Those relationships will deepen in primary care where cancer can be prevented. -- when cancer is detected, we'll also have the data, test and relationships to support the patient at every step of their treatment. We look forward to providing updates on our progress throughout the year. And we're now happy to take your questions.

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

Can you hear me? .

Yes.

I appreciate the question, and I'm going to tell you upfront, I'm going to probably break the rule here and ask you 2 things. So First, if we could get a question in on the sales structure and the optimization that you're going on and give a little bit more detail about kind of how that's playing out? And then second, if I could, just want to ask the question on blood-based testing and screening for colon cancer. Just with a lot of companies now going to be putting out data here, you guys and others. I just wanted to get your updated thoughts on the opportunities and challenges that you see to that space as that data starts to come out. So sales force structure and kind of how that's going and impact on Cologuard and then blood-based. Sorry for sneaking two in.

Jeff, why don't you take the -- or why don't you start with the first 1 and Everett, you follow up.

Brian, it's Jeff. So on the sales force, I mean, I think you're starting to see it in the results. We're pleased with the results the team delivered in Q1. Notably, we started to see incremental productivity out of this expanded sales team, which we're really pleased at. When you dive into the numbers here, we had a really strong quarter when it comes to rescreens and 45. An area of the business that we are working to address is that, that 50 and over age group, first-time users. And that's right where the sales force restructure that ever can fill in more detail. So that's where the sales force is focused now, making sure that, that population, which is over 25 million people who need to be screened right now, is educated on the benefits of Cologuard and that we're reaching these physicians frequently. So Everett, maybe you could provide more details on that.

Yes. Thanks, Jeff. And Brian, as Kevin said, we brought over a really experienced team in our Pfizer colleagues. We brought over 400 Pfizer colleagues towards the end of last year. And 1 of the good things we've done is we've integrated the Pfizer colleagues with our outstanding legacy Exact Sciences sales force.

So now we're 1 Exact team. So that's the first most important thing is we're now going to market as 1 aligned Exact sales and marketing team. The other thing we've done is around the redesigning of the territories, creating a single point of accountability, it's really important. We now have reps that are aligned, and they are the sole rep in that geography. So they have accountability to drive their growth number, and we measure that on a weekly, monthly and quarterly basis.

And then lastly, as we're giving our representatives more like detailed targeting data. They know where to go, when to go and what to say through data. So they're calling on the highest opportunity Cologuard physician. And like Jeff said, the metrics in Q1 have been very, very positive. We -- total number of in-person calls per rep has increased. The total number of health care providers that we've reached has increased. And then our orders per sales call has increased in Q1. So the key is to continue to do this throughout the year and make improvement.

Brian, answering your second question about how we see the blood testing market evolve. As you know, we have our own blood testing program. And at a high level, here's the way you should think about the opportunity. So there is an opportunity for additional testing. The path however, is a rigorous one as the path was very rigorous for Cologuard. So you should think about 5 different elements to this. The first is that we know that blood testing will be less accurate than Cologuard and certainly less accurate than colonoscopy. The second is that FDA approval and getting an equivalent claim to Cologuard is probably going to be challenging for all of those who are aspiring to enter the colon cancer screening market with a blood-based test. We'll get into those details.

Third, the bar for guideline inclusion is high, and there is no guarantee that blood test will meet that bar. We'll talk about that. Pricing is likely to be below $200, and we'll talk about that as well. And finally, and maybe most importantly is there is going to be a challenge in getting physicians to order a less sensitive or less accurate test for colorectal screening.

Let's take these up one at a time. And if we could bring up a slide with the model comparison between Cologuard and a theoretical blood test. As you see here, importantly, regulators guideline groups and also physicians and patients will look at performance difference in tests. At a high level, of course, overall cancer sensitivity is important. When you drill down those 75% of the cancers and the ones that you screen for are Stage I and II cancers. And we would expect Stage 1 sensitivity to be approximately 70% because there are so many more early-stage cancers in a screening study, like there were 45% of all the cancers found in the DeeP-C study were Stage 1, 75% were Stage 1 or 2. The overall cancer sensitivity is likely, we believe, to be in the 80% to maybe 85% range.

Advanced adenoma or pre-cancer sensitivity is very important for -- especially for guideline inclusion. We'll get into that and specificity is similar between, we believe, the 2 technologies. But overall, the performance difference is stark. And -- the FDA -- and this gets to the second point is that the FDA historically does not like to see performance degradation with new technologies that are subject to a PMA or de novo 510(k) approval. We've seen 2 examples of this in colon cancer screening in the recent past.

One is Septin9, which is a blood-based test with inferior performance for detecting cancer and precancerous polyps than Cologuard. The panel meeting for that was at the same time, actually the day before the Cologuard test. FDA Eventually approved Septin9, but they did it with a very -- with a limited label compared to Cologuard. Their label said it must be offered and refused to -- first patients must be offered and refused the range of other tests that were recommended by the main guideline group at that time.

The second example is the Pillcam, which has a 510(k) de novo clearance for screening, but only in instances when a colonoscopy can't be completed. So those are 2 examples of where you have performance degradation and as a result, the claim language was changed. The FDA's view on this hasn't changed. We don't think it will change, and we think there is a role for blood-based testing. But marketing a test with inferior claim language is certainly going to be a challenge.

Next, guideline inclusion. So as you know, I've been doing this for a long time and had been through the USPSTF process. You have to love modeling if you are going to dive into these details. But the USPSTF is the main guideline group and their guidelines are based on these rigorous statistical modeling approach that is largely dependent on advanced adenoma detection first. That's about 60% of all of the impact comes from advanced adenoma detection and then cancer sensitivity weighted towards earlier stage.

And this next slide shows that relative to Cologuard, a CRC blood test with a similar interval detects significantly fewer cancers and precancers and thus leads to a significant degradation in life years gained. It holds a number of colonoscopies constant or roughly constant and that ratio is important. But as you can see there, the ratio of life years gained to the number of colonoscopies, which is the main test that USPSTF looks at is significantly lower for a blood test at 3 years. So the only way a blood test really gets into guidelines is if it's an annual test.

And let me take a step back. This modeling assumes 100% adherence, that means everybody offered the test, gets it and they get it exactly when they should get it. We know that's not realistic, but that's the way the modeling is done. And that's why the FIT test outperforms Cologuard here is because it assumes that a FIT test has done every single year exactly on the anniversary. We know that's not remotely realistic but that's how you end up in the same ballpark.

As you can see, the FIT test Cologuard colon has to be all outperformed a blood test, even with this pretty decent performance of relatively high cancer detection. So if the test is not included in the guidelines at 3 years, which here it wouldn't be, then it would have to be every year. Now what is the implication of that? Medicare is going to look at this as they look at pricing a test. So you can think Cologuard at every 3 years was priced just under 1/3 of the Medicare average for colonoscopy screening, which was indicated for 10 years. So 10 divided by 3 roughly got you to $500 a test. $500 divided by 3, we believe, gets you into somewhere between $100 and $200 a test. That makes this very challenging with sequencing technology or for that matter, even PCR testing.

Finally, this performance difference, guideline challenges, FDA challenges also creates hurdles for customer adoption. Now we have been actively promoting Cologuard to primary care physicians for 8 years. We know this market well, even with a large commercial organization and a large marketing effort, there is still a bias towards colonoscopy. And we, obviously, and based on this last quarter, are showing our progress there. But that is with sensitivity for cancer, strong precancer and specificity data. We believe that our broadcast will be very challenged to -- and we regard blood test will perform very similar to others based on the data that we've seen today. But this is going to be a real challenge to get adoption. We believe this is the right way to look as the realistic way to look at blood cancer testing. We hear a lot about it. It's usually only small pieces of this complex puzzle. This is the whole puzzle.

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

Just help me understand this. I mean you beat the high end of your screening guide in Q1 by roughly $3 million, and yet you're lowering the high end of the range on screening for the full year by $5 million. I'm just curious what's driving that? And I have a follow-up.

Derik, we're raising and narrowing the rain share. I guess, check the press release there. But we're pleased with the first quarter results. Cologuard grew 24%, really across the board, broad-based strength. Importantly here, the main drivers, Cologuard rescreens, very good quarter on track for the full year guide. Cologuard 45 to 49, another very good quarter on track for the full year guide.

Sales force productivity, as ever talked about, we're seeing improvement there. So we're feeling good, which is why we did raise the guide even though it's only 1 quarter end. That said, it is 1 quarter end, when you -- when you dig into the business, as we've said before, sales force access remains muted. And where you see that primarily is in the 50 and over age group first-time users.

That group is growing. We have seen improvement there. It isn't growing as fast as we like, which is again, why Everett and team are pursuing some changes to go after that group. As we go through the year and we see improving sales force access, that should help that group grow even faster. So at this point, I've assumed gradual improvement to the extent that things open up more broadly, that could be a source of even greater growth. We know over time that segment of the market will open back up. But it sits in here after 1 quarter, I think this is the right thing to do, raising guidance yet not by the full month of the Q1 beat.

Great. So I'm just curious, you're taking a tumor-informed approach on MRD. I'm just curious on your thoughts on the tumor naive and particularly since you've got the Thrive multi-cancer detection test. I mean why can't -- why wouldn't it make more sense or like backward integrate that? And sort of use that since, obviously, it's -- you're going to have different -- I mean, for MRD, it's going to be different easier sensitivity and sort of flying with that. Is there something -- is this something about the multicancer test that wouldn't let you do it for MRD (inaudible)?

As we have mentioned in the past, on past calls, we intend to take a two-fold approach so that we will combine potentially all or elements of our multi-cancer screening approach and particularly the methylation aspect and combine it with our tumor-informed approach to be the only company that has both.

We believe that confers a significant advantage in those cases where a physician can't get tissue from a patient or chooses not to get tissue. We will have our tumor-naive approach based upon -- and driven by technology that is included. So your question is spot on, and that technology is being built into our MRD testing. We're really excited about this approach. Now lots of work needs to be done to validate that approach. So we don't want to get too far ahead of ourselves, but the fundamental technology investments we've made will pay off, we believe.

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

Thanks for the questions. I guess first, how would you characterize rep access and wellness visit volumes versus pre-COVID levels in the quarter? And then how did those trend so far in April?

Yes. Thanks, Catherine. We are still not from an access standpoint at pre-COVID levels what we've seen because I've spent time in the field, I spent time talking to my commercial colleagues, but we see modest improvement in access. What we feel really good about is the redesigning of our territories and the culture of we are having our reps then every day out in the field. So as we see that access seeing that modest improvement, we're going to be there consistently to get in. What I've seen, when I spent time in the field is, when our reps bring value to the physician and to the health system and the health system and physicians see us as a way that we can increase screening levels. we get access. And so we just have to continue to stay at it. It's about blocking and tackling, and it's about being consistent with a really good message to our customers.

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

Jeff, the leverage on the sales and marketing line in the first quarter was pretty impressive, down I think, $15 million or so sequentially if you exclude the Pfizer fee in the fourth quarter, even though volume growth was up sequentially. Can you just talk about kind of moving parts in that line that enabling you to get that leverage? And should we assume that your OpEx guidance for the year is consistent with your prior outlook you had probably updated?

Thanks, Brandon. This is Jeff. No change to the OpEx assumptions for the year. I feel good about the -- our ability to generate leverage over time because now Everett and team have built a world-class we believe, best-of-breed primary care sales team. And over time, that not only can we leverage that with Cologuard, but we'll continue to leverage that as we introduce other new products like (inaudible) cancer testing and multi-cancer testing.

So I feel good about that. Brandon, I would go back and check some of the moving pieces there Q-to-Q. In the fourth quarter, we did have as we amended the Pfizer agreement, there were some onetime things in there. But I don't think the math you did is quite right. Over the balance of this year, I think we'll see some really good leverage on that line. If you look at what we implied in the guide originally for the year was a step down from the Q4 run rate for the entire year. So I feel good about that. Some of the new marketing things that ever talked about, Katie Couric and some new TV ads are really helping drive awareness that over time, we'll see a really good return on the investment.

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

It sounds like you've gotten some pretty good momentum in rescreenings and Cologuard 45 in Q1. I know on the last call, you had mentioned you're baking about $220 million in rescreening revenues within this year's full year guide and about $100 million for Cologuard $45 million. Are those numbers still good to use? If so, do you see additional upside just given the momentum you've seen in Q1? Or have you adjusted those numbers?

Matt, I still feel very good about those numbers. Is there a potential for upside, sure, when you look at the opportunity, let's take rescreens to start with. Today, there's over 1 million people do right now for 3-year repeat testing. Over time, that number will grow. In fact, if you look as a percent of revenue, is going to continue to grow. I think in about 3 years, this will be a $500 million per year business for us. But what really excites me as CFO is that this is essentially recurring revenue. It's higher margin revenue, and it keeps going as a percent of our mix.

On the 45 to 49 side, Kevin talked a bit in his prepared remarks about this. If you look at the average value to exact of a typical 45-year-old, it's over twice as high. In fact, really close to 3x as high as somebody who is 65 or 70 because of 45-year-old, we could keep screened for 30 to 40 years. So the lifetime value of that customer is significant. That's what really gets me excited about the opportunity here between 45 and rescreens, they work hand-in-hand, and we're off to a really good start this year.

Your next question comes from the line of Dan Arias with Siebel.

Jeff, just to push a little bit more on the outlook. I think last quarter, the view was that the market and the environment around doc visits and wellness wouldn't necessarily normalize this year. I'm just wondering if that's still how you would characterize the way that you're thinking about the full year, is the assumption still that you're kind of at a suboptimal level 3 quarters from now?

Yes, Dan, that is the assumption. As Edward said, we saw some modest improvement in sales rep access. One that's important is that Cologuard is still a relatively new product. And what we know is that physicians are promotionally responsive. They respond to that face-to-face access from our sales force. When you dive in deep and look at the order insurance here, that group of doctors on the top, when I talked about this in prior quarters. The doctors that represented the top 40% of orders before the pandemic, that group is still down.

And what's driving the growth is the doctors at the bottom. The ones that we historically didn't call on and hadn't ordered Cologuard frequently. They're growing, that group was up 60% in Q1 versus the start of the pandemic. So as we come out of this and sales force access improves, the doctors at the top, their order rate will recover. These are the true believers, and we're seeing some early good signs there. doctors at the bottom, the exciting thing here is that, that group of doctors who, again, we typically do not call on that group is accelerating quarter-to-quarter-to-quarter. And so I believe we'll hold on to that. What that means is a significant broadening and deepening of the ordering base. So -- and guidance to have to assume, I have assumed continued muted access to doctors. We're still probably in the 50% to 60% range relative to before the pandemic. From a wellness visit standpoint, things are pretty flat when you look during the quarter. So I've assumed modest improvement there, but we're probably in the 85% range, 85% of pre-COVID levels.

Yes. If I could just add longer-term outlook, which we're all obviously focused on as well. Over the next 5 years, about 30% of GIs are expected to retire. Now obviously, some of those will be replenished with new physicians, but the trend is towards fewer GIs, not more. That means a greater need to focus on higher-value colonoscopies rather than screening colonoscopy. And this is happening just as the millennials start to hit the age of 45 and start screening. And we know that today in the 45 to 49 population, we already lead colonoscopy as the preferred screening approach. They want accuracy they want ease and they want something that is inexpensive. They know it's going to be covered by their insurer. So we are tremendously excited not only about the near term, the long-term opportunities for Cologuard, and we're just getting started. We believe we can not only achieve that 40% share goal but exceed it. And I think this quarter demonstrates that.

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

Kevin and Jeff and Everett. I have a 3-parter, if you don't mind. I guess the first 1 is, could you elaborate a bit on the specific changes to the sales force that you made? Number two, on blood-based competition. Kevin, you gave your view on what you thought the cancer sensitivity would be. What are your expectations for precancerous (inaudible) detection in particular, given how important that is for modeling? And then finally, on your own blood-based test, historically, I believe you've talked about being superior to what's on the market, maybe it's just a subtle change, but I think you talked about being in line with what's on the market. Just wanted to get some clarification there.

Okay. But Tell me the first question, those 3 came at me really quick.

Let me double-click on the sales force and give it a little bit more color I'll start with the sales force, the representatives that are out there calling on physicians. The territory design to me is so important. When you have individual accountability in your area to drive growth for Cologuard. And you're the one that's responsible for that position and really calling on a position, to me, what we've seen is we've seen momentum with our sales reps because of that empowerment that they have to drive their individual growth.

But let me go up a level. We also made a change to our management structure. Before our management structure was responsible for vertical lines of our business. Now we've designed our management structure across geographies. So they own a geography, and they own all the call points, primary care, specialty and health systems. So our managers out there feel like, man, they are empowered to again, own that business and to drive it.

And then lastly, the partnerships that we have with the rest of our commercial organization, the way our sales organization is working with our marketing organization, the way in which Katie Couric campaign is launched in the month of March during colorectal cancer awareness month, the amount of hits from a social media standpoint.

Our commercial organization, again, while it just started in the month of January, the progress that we're making throughout the quarter, is very, very positive. And I just want to pause and thank our sales team, our marketing team for the focus that they've had in the quarter and also thank Katie Couric for her partnership around the campaign around the mission of the screen.

Part 2 of your question, Dan, the advanced adenoma or precancer sensitivity that we're assuming here is 15% -- that's the modeling data that we showed was based upon 15% precancer detection. It's interesting because if you model 100% cancer sensitivity, at 100% specificity. The model is a border line inclusion for -- on a 1-year basis for a blood test.

Again, if we had a 100% sensitive blood-based test that was 100% specific under the USPSTF modeling approach -- it has a very difficult time with -- or it's on the border line for making a 1-year interval. It probably would make a 1-year interval, but it's on the border line. In terms of our test performance relative to other aspiring entrants, I think the way we've characterized that in the past is that we expect equivalent or better performance because our test because of our approach, we don't know how anybody is going to perform. I've seen studies out there with South Korean cases matched with U.S. controls.

We've never seen -- certainly, that's not the approach that we or our clinical partners would ever encourage us to take in a case-control study. So we have seen all different approaches to case control studies. It's hard to understand what their performance is going to be. We know that we take a really rigorous approach to matching cases with controls and having a normalized distribution of precancers, early cancers and later cancers, which also significantly affects that top line performance.

There's going to be a day when everybody who has these programs has to flip over a card and show their data. And that day is going to be an interesting day. I'm telling you, I think these the performance. Having been down this road before is going to suffer degradation in that prospective setting where you have no idea what patients are involved in whether that matches your case control data. So -- that's our view on this space. We have said it over and over again, and we think that this is the right way to have a framework for assessing the role of a blood test.

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

Congrats on 1Q, I did have a 3-parter, apologies in advance. One maybe on the guidance here. Given the Q1 beat, the annual guide raise for Cologuard, the raise was -- it was raised by the magnitude of Q1. So any reason why the productivity gains shouldn't sustain through the back half? And again, sticking with guidance, Jeff, I know last time we spoke about the orders versus revenue lag given Omicron impact here in Q1, any implications for 2Q? And 1 for Kevin here on the clinical trial. Kevin, maybe from a big picture perspective, is there any in clinical trial differences in how -- what patients were enrolled or how these trials are being run when you look at your BLUE-C versus your main competitor on the blood side?

Why don't I start with that clinical trials are done all over the country, and we focus on ours rather than there's what we are -- we're enrolling a group of patients very similar to the DeeP-C study. These are all comers people of from age 45 through 85 predominantly. And you -- with these large studies, it's a broad sampling of the U.S. population. And what that means in impact in reality is that you get people who are fit, their immune systems are all over the place. They have all different types of comorbidities. And what we saw in our DeeP-C study was that, that impacted specificity. And when your specificity degrades, sensitivity also can be impacted depending on where you step back cut off.

So that's how we look at the clinical trial, our enrollment, we believe we'll be able to -- and this is important. I don't think anybody has asked this question, our BLUE-C clinical trial enrollment has had a tremendous performance in the first quarter. We expect that study to complete enrollment for the stool portion of our test by midyear and not long after that, the blood component. So that is fully back on track and we're excited by that.

Vijay, this is Jeff. I'll take the other 2. Starting with your second one, Omicron. Look, I think that was primarily a Q1 thing. It happened relatively early -- late last year, earlier this year. and we can track it fairly closely. So I don't expect the second quarter impact from Omicron. The team did light through a little bit of a headwind in Q1 and still deliver good results.

On the first 1 on the annual raise. Look, I'd just say, again, look, we're pleased with the results. We've raised guidance. And to Derik's point, we did raise the high end of screen revenue by $5 million. even though it's early in the year. It's early in the year, there's a lot of unknowns. The biggest 1 is around sales force access. Sales force access impacts us primarily in that 50-plus first-time user group.

So Everett and team are doing everything they can to increase their productivity, the reps, we're seeing some early good signs there. But at this point in the year, I think it's important to stay sober considering we're 3 months in. And we still have some work to do to execute on the rest of the year.

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

Jeff, probably a couple for you here. Maybe on the cash side, you guys burned I think around $200 million this quarter. As you mentioned, you have $800 million or so on hand. How should we think about the burn rate this year? Is this a decent run rate?

And at what level would you look to shore up the balance sheet, maybe feeling more urgency on that front? You've done equity raises in the past. You mentioned you would look more for nondilutive options in the future. Can you just expand on that? Is that just market volatility, what would those options look like? And then a second 1 just on Cologuard ASPs, if you could just talk about the trends there, what you're seeing.

Thanks, Patrick. This is Jeff. On the cash use rate, I think Q1 will be the high watermark for the year. I expect the average rate to step down throughout the year. There's some seasonal things that caused Q1 to typically be higher. When I think over the next several years about our balance sheet, it really starts with revenue and revenue growth. We are a growth company. So the focus is on making sure we execute on Cologuard and Oncotype and bringing these massive pipeline opportunities to market.

That will allow us to generate this year alone, nearly $1.5 billion of gross profit. That's unique in this space. That's a significant amount of gross profit we can use to self-finance most of our investments. Over time, I expect gross margin improvement as we leverage that fixed cost investment in our lab and capabilities so that gross margin will improve.

I also expect very good leverage across the OpEx lines. We talked a bit about sales and marketing. I expect very strong leverage in G&A over time as well. When you think of the balance sheet as of Q1, as you mentioned, we have over $800 million of cash. We also have $150 million available on our credit facility that we could draw on any time. At the same time, we're looking at additional nondilutive financing sources.

A prime example of that would be our real estate facilities. We have over $300 million invested in those facilities that we can unlock through various sorts of financing mechanism. So -- and we will do that. That provides a great source of nondilutive financing. So when I think of that, I think we're in very good shape. We are very committed to being profitable for the full year on an adjusted EBITDA basis in 2024. And I think the balance sheet we have in hand will else to get there without using any sort of equity financing.

And then your last question was on Cologuard revenue per test it's still in about the $480 range. There's a few different things that are opposing forces that work here. The team has done a really nice job improving our internal capabilities and systems to drive that rate higher over time. So longer term, I still feel very good about our ability to raise the overall revenue per test or ASP.

On the flip side, the rapid growth we're seeing in this younger population, 45 to 49, temporarily puts a little bit of downward pressure on that revenue per test. There's also been a higher mix of Medicaid, which is absolutely the right thing to do. that puts a little downward pressure. When you look at the overall mix of Medicare and Medicare Advantage, it's 38% in Q1. For perspective, it was 42% a year ago, Q1 of last year, I raised that because that group right now given the well-established coverage, that group carries the highest revenue per test.

Let me reemphasize what Jeff just said that we will not do another equity raise because we don't have to. We are in a very strong position with our revenue growth and all the drivers and our ability to control our which we've taken steps to do. So that is -- I want to make sure that, that is very clear to everybody who listens to this call or reads this transcript.

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

I wanted to focus on multi-cancer testing. First for Kevin, we've seen regulators like NCI last week focused on survival and mortality is the gold standard for multi-cancer test. So I was curious, do you think the FDA is going to use that as the bar? And can you talk about the implications for the size of your pivotal study? And any updated thoughts on time line for FDA approval? And then for Jeff, what was the gain related to Thrive in the quarter?

So the first question is what will the endpoints be -- how does NCI, how do others look at this if it's a mortality endpoint? That is a way of saying we don't want a blood-based test that could have a greater impact on cancer mortality than most therapies combined. There is no therapy as impactful as earlier detection.

So I've been part of many conversations with key opinion leaders, regulators, the NCI individuals that work for NCI, and there are a lot of different opinions. We know that with every cancer screening test that has been adopted, colon cancer screening, cervical cancer screening, breast cancer screening, a mortality endpoint was not required. I do not believe, we do not believe that one will be required here.

We believe that sensitivity specificity positive predictive value, negative predictive value, like with Cologuard, like with the Pap smear, like with HPV testing, like within prep, all will be the main thing that FDA looks at. The guideline groups are surely going to look at modeling. You can look at proxy endpoints such as a stage shift, which occurs sooner than mortality. And so we think that this path needs to be clarified, but the power of the test and the number of high-quality companies who are actively pursuing this opportunity will lead the federal government -- and you can see this with the cancer moonshot to be very supportive of high-quality clinical studies and tests that move the needle. How is the FDA going to look at this? I mentioned that already. Jeff?

Jack, on the gain related to Thrive. What this is, is related to the acquisition, there are some earn-out payments really tied to some milestones of FDA approval and Medicare coverage. And our expectations for timing have not changed at all for those. The discount rate we use, however, has changed given the increase in interest rates. So solely related to a different discount rate. It changed the current value of that the contingent payment, which resulted in a $26 million gain. We -- from an adjusted EBITDA standpoint, we do kind of exclude that, so there's no impact on adjusted EBITDA.

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

So a lot has been asked. So maybe I'll mix it up a little bit and give you something that's not precisely Cologuard-related. So maybe just first, if you could dive in a little bit to a little bit of a delay in the Japan launch for Oncotype, what hurdles you need to cross to be able to get that launched and how it's maybe shifted a little bit? And then secondly, I know it hasn't been too long that it's been in your hands, but any kind of incremental thoughts or initial thoughts on prevention and what's going on in the HCT space is in your hands would be great.

Well, I'll take the high-level Japan question, Jeff, you can talk maybe about the impact there. There were requirements -- there are requirements on an order entry and resulting portal that are mandated by the Japanese Ministry of Health, we did not do as good of a job as we should have done in terms of delivering on that portal and all of the requirements associated with that. The team is working very hard to deliver exactly what the Ministry of Health is asking for, we're confident that, that will be complete by the end of this year. We expected that to be complete in the first quarter. The difference is -- Jeff, you can describe that.

Yes. The difference in timing there had an impact of about $15 million on the year. We did not change guidance for Precision Oncology because the base business, the U.S. business and international outside of Japan performed very well in the quarter, and we expect that strong performance to continue, But we did take out of our internal expectations for the year any Japan revenue. Second question was on PG and thoughts on HCT?

Yes. So the prevention genetics team has really been amazing. It's such a high-quality group focused on hereditary testing. And our teams are working fast and furious to very thoughtfully bring a complete hereditary cancer testing solution to our customer base, both health care providers and patients, we haven't provided a lot of color on exactly when that will launch with reimbursement other than that the teams are working on making that a seamless solution. I expect that is end of year, beginning of next year in terms of when we start to introduce that.

Your next question comes from the line of Mark Casero with BTIG.

Maybe on just M&A. Recently, you've been doing some small tuck-ins, notably this proteomic biomarker provider in Germany. But I wanted to sort of test multiples in the space have contracted significantly. And so some of the assets that may be available in the space would actually help you get to adjusted EBITDA sooner in my opinion, for 2024. So looking at companies where you could maybe strip out costs or leverage your best-in-class health channel. Can you just speak about any of your activities as it relates to doing larger M&A? .

Well, now that Twitter is off the table. I will -- our premier focus has been on Cologuard, Oncotype and our 3 key pipeline programs. And our philosophy on M&A hasn't changed. If it's a long -- if it contributes to our long-term strategy of participating in helping patients and physicians all along that cancer continuum. It's a good culture fit. It creates shareholder value, we'll look at it. We have -- everybody on the team is hyper focused, and that is the model for 2022.

Prevention genetics added incredibly strong team and $40 million of profitable revenue. (inaudible) provides incredibly some of the world's best protein analysis and detection capabilities. So that's our framework for looking at things, and that hasn't changed.

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

Kevin, Jeff, I won't have a 3 parter, but just if I could ask just 2 simple ones. First 1 on the sales force. You were north of 1,000 sales reps after the Pfizer additions since September. So I'm wondering if you can provide us an exact count as part of this restructuring? And then just the second one, maybe Kevin, at a high level, I just want to clarify, I appreciate all the comments that you made on blood-based assays.

Technology for Exact Sciences and for the diagnostic industry has continued to improve. So when you look at Thrive Cancer Seek and the methylation technology that you've been involved with, those have continued to improve. So do you think that CRC screening would be amenable to success in liquid biopsy at a certain point or just not today? Because obviously, you're working towards technology and driving the success towards liquid biopsy in multicancer obviously. So I just want to clarify that point. Do you think it's possible with blood one day? Or is it just that today's trials you don't think it's possible with the trials that are in the market right now? .

Yes, that's a good question. So the first question, we're no longer going to provide clarity on the number of primary care sales reps. We're in a position to do that. We have an amazing team. I will leave it at that and it's large and it's impactful.

On the second question, so I'll go back to my -- the first meaningful meeting that I had as CEO of Exact Sciences with Bert Goldstein and Johns Hopkins in 2009, and I walked into his office and Bert is a giant in the field. And I said, Bert, I know you were involved in the early part of Exact Sciences, and we think that a blood test makes more sense.

And he -- Bert said you obviously haven't read my paper, and he referred me to a paper from a few years before. And in that paper, what they did is they went and they found patients with stage 1, stage 2, stage 3, stage 4 cancer and also adenomas. And within the tissue, they found a particular mutation. And they used digital PCR that could detect even 1 copy of mutated DNA and they were looking then in the blood with digital PCR for that patient's mutation, which they knew was in tissue. And what they showed was an exponential amount of DNA going from precancer all the way to late-stage cancer. I mean hardly any DNA.

And I think what we're down to is that limit of detection that it's either a molecule is there or it's not there in many of those smaller tumors and certainly adenomas. And so there is just this biological barrier that you're limited to proteins help, no doubt. But the world hasn't found a magic bullet protein that is prevalent in blood and will that change? It could at some point.

But the biomarker class of methylation or the BraDT Mentomix approach, we have expertise in all of those areas, and I wish there were a magic bullet. There is not. So I believe that the world hasn't changed a lot. We can provide the reference to that paper, if you call back I recently did a leadership connection video conference with Bert for our leadership team.

And we had a conversation about that meeting we had years ago. And I said Bert has anything substantially changed. And the answer is, yes, technologies have gotten better, more marker classes, but still here we are. It's tough to detect stage 1 and 2 cancers in blood at the same level as you can in stool or with the colonoscopy or visually or otherwise. Nothing has really changed there.

There are no further questions at this time. This does conclude today's conference call. Thank you for participating. You may now disconnect.