Exact Sciences - Earnings Call - Q2 2012
July 25, 2012
Transcript
Operator (participant)
As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Rod Hise. Please go ahead.
Rod Hise (Analyst)
Thank you, and thank all of you for joining us for Exact Sciences' second quarter 2012 conference call. On the call today are Kevin Conroy, the company's President and Chief Executive Officer, and Maneesh Arora, our Chief Operating and Financial Officer. Exact Sciences issued a news release earlier this morning detailing our second quarter 2012 financial results. If you've not seen the release, please go to our website at exactsciences.com or call 608-807-4607, and I'll provide it to you. Following the Safe Harbor statement, Maneesh will provide a summary of our second quarter financial results. Next, Kevin will provide an update on our DeepSea clinical study. Before we get underway, I'd like to ask everyone to take note of the Safe Harbor paragraph that appears at the end of the news release issued this morning covering the company's financial results.
This paragraph states that any forward-looking statements that we make, one, speak only as of the date made, two, are subject to inherent risks and uncertainties, including those described in our most recently filed annual report on Form 10-K and our subsequently filed quarterly reports on Form 10-Q, and three, should not be unduly relied upon. Except as otherwise required by the federal securities laws, we disclaim any obligation or undertaking to publicly release any updates or revisions to any forward-looking statement contained herein or elsewhere to reflect any change in our expectations with regard thereto, to any change in events, conditions, or circumstances on which any such statement is based. It is now my pleasure to introduce our Chief Operating and Financial Officer, Maneesh Arora.
Maneesh Arora (COO and CFO)
Thanks, Rod, and good morning, everyone. Our DeeP-C clinical trial is on track. Expenses related to the clinical trial also remain in line with our expectations. In the second quarter, we invested in expanding our Mayo collaboration, and in connection with this investment, the company took a non-cash charge of $1 million in the second quarter. Kevin will provide a full update on both the trial and the Mayo collaboration in just a moment. As we move towards completion of the trial, we're continuing to make investments in operations and in market development. These investments ensure that we will be ready to commercialize Cologuard after approval by the FDA. We also remain on track to meet our full-year cash utilization target of $41 million-$43 million. Our cash balance at the end of the second quarter was $70.9 million.
It's now my pleasure to introduce Exact's President and CEO, Kevin Conroy.
Kevin Conroy (President and CEO)
Thanks, Manish. We're very pleased to announce that we have enrolled 9,000 patients into the clinical trial. I want to compliment the entire team at Exact for keeping enrollment on track. Enrolling 9,000 patients into a colorectal cancer study is no small undertaking. Colonoscopy and pathology reports have been completed for approximately 6,000 patients. The pathology data for roughly 3,000 patients are in process. The final pathology report determines whether an enrolled patient has cancer. Our goal is to enroll 49-56 patients with colon cancer. To date, our cancer accrual in the study is in line with expectations. We have already enrolled more than 400 patients with advanced adenomas or precancers, which more than adequately powers the study for precancer sensitivity.
Assuming that our cancer incidence rate remains on par with the rate so far, we expect to complete the study and make our FDA submission per our guidance. The manufacturing module in the fourth quarter and the clinical and analytical modules together in the first quarter of 2013 per FDA's request. Let's turn to our recently completed cutoff study. The cutoff study, or our final DeeP-C training set, involved more than 900 patients, including more than 80 cancer patients and 70 precancer patients. We are very pleased with the results of the study. The results are in line with previously released data, and we look forward to presenting this new data at a Fall 2012 scientific meeting. These data are being used for final confirmation of the cutoff criteria for the assay. Two important things to note about the cutoff study.
First, the patient samples were processed on the automation system that will be part of the DeeP-C study and represents our commercial high-volume solution. The study validated the robust performance of our instrument. Second, this is the third set of data that meets or exceeds our expectations, which increases our confidence even further as we head towards testing the DeeP-C samples later this year. Let's turn to the expansion of our relationship with the Mayo Clinic. We're excited about the expansion and extension of this relationship. In May, we announced this extension, which goes to the core of the value that we think we can create for patients in the GI field.
By collaborating with the Mayo Clinic, an institution not only with a world-class clinical capability but also with world-class research capabilities, we are in a very strong position to be able to develop diagnostics that make a big impact on the patient population in this area. This collaboration will be focused on GI cancers and disease generally, including pancreatic cancer, esophageal cancer, inflammatory bowel disease, and other GI diseases. This relationship also gives us access to clinical samples, which, as you know, are not always easy to come by. Importantly, it gives us exclusive intellectual property rights flowing from this collaboration. In 2012, we have three priorities: making an FDA submission, preparing for manufacturing, and marketing development. We've just discussed the completion of the clinical trial and the FDA submission.
We remain on track for all of our manufacturing goals, including implementing the necessary quality system and the development of our automation equipment. We also continue to make strong progress on our market development priorities. They include securing routine optimal reimbursement, working with key opinion leaders, medical groups, and GI and primary care physician societies. I want to conclude by thanking all of the employees at Exact and our extended team of scientific collaborators. We're having a great year because of your commitment and hard work. All of us at Exact know the second half of the year will be very busy as we complete the DeeP-C study and begin making our submission. We look forward to updating you on our progress next quarter and in the quarters to come. Thank you, and we'll be happy to take your questions.
Operator (participant)
Ladies and gentlemen, if you have a question at this time, please press star then one on your touch-tone telephone. If your question has been answered and you wish to remove yourself from the queue, you may press the pound key. Our first question comes from Matt Notarianni from Baird. Your line is open.
Matt Notarianni (Analyst)
Good morning, everyone. Thanks for taking the questions and congratulations on the progress.
Kevin Conroy (President and CEO)
Thanks, Matt.
Matt Notarianni (Analyst)
Really quick, just kind of picking up after the last quarter's call, the enrollment here seems to suggest really good progress. I think there was some concern about or extra attention paid to a particular age group as you were enrolling patients. Is it fair to kind of assume that the steps that you took to kind of get that cohort went well?
Kevin Conroy (President and CEO)
Yes, Matt. Manish took the steps very early in this year, seeing that this could be an issue. As a result, we are enrolling the vast majority now of patients who are 65 or older. Obviously, the cancer incidence rate in that group is much higher than in the 50-65-year-old group. As a result, we're very confident that we will see a continued relatively high cancer accrual rate flowing from that group.
Matt Notarianni (Analyst)
Thanks for that. Just moving quickly to just the Mayo deal expansion. I mean, following that announcement in the quarter, we kind of saw some initial stuff on IBD at DDW. Just any kind of color on any milestones to pay attention to on pancreatic or esophageal, or is it better to stay tuned?
Kevin Conroy (President and CEO)
Let me take a step back and answer that by saying the value created at Exact Sciences over the last three years has largely come from the collaboration with the Mayo Clinic. The clinical and research capabilities that they've brought to bear and the IBD experience that Exact Sciences has brought to bear is largely responsible for the value creation. There are just many more diseases for us to tackle in this field. The truth is that it's not a field that, in molecular diagnostics, receives a lot of attention. Pancreatic cancer by itself, you could spend a long time developing diagnostics, screening diagnostics, diagnostics to determine whether a patient with a cyst should be removed. You could almost spend a career there.
Rather than talking about individual milestones, I'd really like to just focus today on the great opportunity that there is in this broad field of GI diagnostics. I'm not sure there's anybody, any institution better in the world at it than the Mayo Clinic. One additional thing, just the access to the samples that we've been able to gain, the velocity of access to the samples has given us the ability to run these studies, including the cutoff study that we just ran. There are so many benefits that flow from this that we think will inherit to the benefit of shareholders and, just as importantly, more importantly, patients.
Matt Notarianni (Analyst)
Thanks for that, Kevin. Last one for me, really for Maneesh, kind of on expense pacing. Presumably, that non-cash charge was kind of a one-timer here in the quarter. Just kind of wondering if there's anything special as we think about kind of R&D expense kind of tapering off still at the end of this year and any comments on SG&A. Thank you.
Maneesh Arora (COO and CFO)
Sure, Matt. So you're right. The expense was a non-cash one-time charge. So we don't expect it to be at these levels. We do expect them to not necessarily return to Q1, but definitely taper over the course of the year. F&M and G&A, I think, are right in line with what should be expected for the rest of the year.
Operator (participant)
Our next question comes from Brian Weinstein from William Blair. Your line is open.
Brian Weinstein (Managing Director of Investment Banking)
Hi, good morning, everybody. Question on just clarifying some of the timing here. Just want to make sure I'm clear. We're going to see the most recent study, the cutoff study, at a fall conference, presumably AMP, and then we would look to see data on the clinical trial itself on the full PMA trial sometime in early Q1. Is that correct?
Kevin Conroy (President and CEO)
Actually, the cutoff data we are targeting is the AHCR conference, October 16th through 19th in Anaheim. It is the 11th annual conference on frontiers in cancer research. That is where we are targeting. I guess there is a small possibility it could end up at AMP, but most likely not. In terms of seeing the top-line data for the FDA study, it could be in the fourth quarter still. We certainly expect, as previously guided, to announce the achievement of the endpoint and then to present that top-line data. We will either be at a conference in January, and again, this assumes that the clinical trial, that the cancer accrual continues at the current pace, in early January, or potentially by press release, assuming that the journal or journals that we are targeting for inclusion of this data goes along with that.
We just need to sort through some of that before we know whether it would be the end of fourth quarter or the beginning of the first quarter.
Brian Weinstein (Managing Director of Investment Banking)
Okay. Great. Thanks for the clarity on that. Was there anything about the patients in the cutoff study that was odd in any way, right side, left side, stage of cancer, anything like that that you can comment on at this point?
Kevin Conroy (President and CEO)
The best thing about the data from the cutoff study, it was very, very consistent with what we've seen in the past. As you look at the left and right side and the percent contribution by the individual markers, there was nothing out of line from what we saw in the past. What we get from this data, we have a significant number of normals. As you know, we set our cutoff based upon normal samples. That is the most important thing, is to set a cutoff with this particular specificity in mind. In our case, that's greater than 90%. It really gives us confirmation that this assay performs very, very well, and it performs in a robust fashion. There was an extremely, extremely low error rate on the instrument.
That gives us even more confidence going into this clinical study because to date, we've used manual pipetting as a means to generate results, and that has inherently higher error rates.
Brian Weinstein (Managing Director of Investment Banking)
Okay. A question for you on the parallel path. Just want to confirm some timing here. What do you get the sense on as far as what the potential timing could be for a code out of CMS? As I understand, you need the code for screening tests in that population, correct?
Kevin Conroy (President and CEO)
The goal is we've had discussions with CMS and FDA to time the NCD and the PMA decision awfully close to each other. The CMS decision, there are some statutory notice and comment provisions that could delay by a couple, maybe three months, a final NCD. The way that we'd expect this to come out is hopefully an FDA approval, assuming the data is good and the FDA likes it, an initial CMS coverage decision that will be put out for notice and comment, and then a final NCD. We hope to parallel path the pricing as well. Within a few months, we expect to have—and this is the great thing—is that we expect to have not only FDA approval, but also CMS coverage and pricing. We don't know yet whether this would be on the lab fee schedule or the physician fee schedule.
We do not think that it matters much to us. That timing should all occur in basically the quarter or one or two quarters of FDA approval.
Brian Weinstein (Managing Director of Investment Banking)
Okay. My last question is on any sense about if USPSTF would take this up because obviously, at that point, it would require it to be covered, I believe, under PPACA. Any idea if they would take this up? I believe, can you confirm if the FIT test is already considered in kind of that category B of that USPSTF recommendation? Thanks.
Kevin Conroy (President and CEO)
Yep. First of all, the USPSTF is the United States Preventive Services Task Force. Under the healthcare reform law, any screening test that is rated A or B by that task force must be covered by all private insurance companies. That is a real benefit to us. Fortunately for us, the timing is perfect that in 2013, USPSTF is scheduled to take up their every five-year review of colon cancer screening tests. Ours, we expect to have data in a good journal during that time period, and we will be submitting a lot of data to USPSTF. We will not know until next year the timing of all of that and what their schedule looks like. We are really pleased with the fact that our data coincides well with their colon cancer review. Anything else?
Operator (participant)
Our next question comes from Steve Unger from Lazard Capital Markets. Your line is open.
Steve Unger (Director of Capital Research)
Hi, good morning. Kevin, if you end up on the lab fee schedule, do you know whether you or what you would crosswalk to or whether you would pursue a gap fill?
Kevin Conroy (President and CEO)
We've done the analysis both ways, and we're prepared to have the discussion with CMS. Either way you do that, we think that we get to the value that we had talked about and that that value is in line with the cost-effectiveness and kind of the pharmacoeconomic studies that you've done. We're waiting to see what CMS does generally with molecular pricing and whether they put molecular tests on the lab fee schedule or the physician fee schedule. We think either way that ends up, we're in a very strong position to get the value that we think we deserve with this test.
Steve Unger (Director of Capital Research)
Okay. It's my understanding then that your price wouldn't be in effect until the first quarter of 2014. You would apply right in July and have that discussion for the crosswalk or the gap fill, and it would be determined for the fee schedule for 2014. Is that right?
Kevin Conroy (President and CEO)
I think that is generally right. Again, a lot remains to be seen, but I think that's probably a pretty good target.
Steve Unger (Director of Capital Research)
Good. Okay. You mentioned that you have at least 100, right, adenomas in the clinical trial at this moment. I was wondering, since you know that, do you know what your cancer accrual is? How come you're not telling us what the cancer accrual is right now?
Kevin Conroy (President and CEO)
Steve, we can't tell you everything. Actually, the precancer accrual is already at 400. And the cancer accrual is in line with where we expected it to be. We just don't want there to be a hyperfocus on one number. So we'd rather not discuss that at this time.
Steve Unger (Director of Capital Research)
Okay. So you at least know what the pathology reports are saying as far as cancer.
Kevin Conroy (President and CEO)
We have pathology reports from the first 6,000 patients enrolled in this study. And we're pleased with where we are so far.
Steve Unger (Director of Capital Research)
Got it. Okay. Lastly, I missed the first part of the discussion just regarding expenses. I noticed you mentioned something about a non-cash expense. Was that an R&D, and what is that related to?
Kevin Conroy (President and CEO)
Yes, that's an R&D. It's a $1 million non-cash charge related to the Mayo collaboration expansion that we did in May. It's not recurring. It went into R&D, and it's not expected to carry forward. The comment I made was related to R&D not returning to Q1 levels, but tapering from here through the balance of the year.
Steve Unger (Director of Capital Research)
Okay. I guess just to follow up on that, as far as are you signaling then, I guess, that with the Mayo collaboration, that you as a company are going to pursue additional tests in additional GI areas and that there will not be, I guess, a decline in R&D expenditure once this clinical trial is done, DC is done?
Kevin Conroy (President and CEO)
We're not signaling that we're going in the direction of developing other GI tests. We're actually telling you that. In terms of the actual R&D expenses, the R&D expenses now include a massive colon cancer screening trial, which we don't expect to replicate anytime soon. There will be continued investments in R&D with a major focus on Cologuard. There are a lot of other opportunities where we think we can create values. We'll be very selective in doing that. I think the track record is that we've been able to create value for the products that we focused on.
Matt Notarianni (Analyst)
Okay. So what do you think the R&D run rate would be, the expense run rate would be starting the first quarter of 2013?
Kevin Conroy (President and CEO)
You know, Steve, we're not ready to talk about that right now. If you take a look at the base costs, we know that the clinical trial is really driving the vast majority of our expenses this year. As we get through the clinical trial, we'll be prepared to discuss that when we provide guidance for 2013. Yeah. One way to look at it, look at what we're spending on the clinical trial and back that out. We have a significant and highly capable R&D team that have proven their ability to meet the R&D timelines that we've laid out. We're not laying those people off after we complete this clinical study. We're going to devote their attention to some other things. There is a base cost in R&D, which you can discern. We'll keep investing in those people and the collaboration with the Mayo Clinic.
We have already talked a little bit about the most likely next product after Cologuard, and that is an extension of Cologuard as a screening tool into the IBD population. There was data released at DDW, which showed the ability to detect at a very high rate cancers and high-grade dysplasia, so serious precancers in those patient populations, in that patient population, which today does not have a good means of being screened. There will certainly be an investment made there starting sometime after we complete the Cologuard study. We will provide more clarity later on.
Steve Unger (Director of Capital Research)
Got it. Okay. I'm with you. All right. Thank you.
Kevin Conroy (President and CEO)
Thank you.
Operator (participant)
Our next question comes from Charles Duncan from JMP Securities. Your line is open.
Charles Duncan (Managing Director and Senior Research Analyst)
Hi guys. Thanks for taking my question and congratulations on the progress. My first question, Kevin, may seem like kind of a naive one given that we've covered this story for a while and it's been well vetted. But I'm just kind of wondering what you think given some of the changes in the competitive environment, what clinical trial results are really needed to drive new standard of care for colon cancer and polyp screening? What would you like to see?
Kevin Conroy (President and CEO)
It's a great question, Charles. You have to look at the landscape today and over the next 10 years. Today, only about a third of patients will regularly go to colonoscopy. About a third. Yeah, there's data that shows 60% of people have had a colonoscopy. You need more than one. Many people go once and they never go back. The biggest challenge you have with colon cancer screening compared to breast cancer screening and cervical cancer screening is people will not do it. Why will they not do it? If I came to you with the notion of a test that required a bowel purge and a five-foot-long tube inserted and visual scoping and a day and a half off of work, you would not pick up coverage. Right? That is the best test we have.
It is a great test and it is the gold standard and it will be the gold standard. We have two-thirds of the patient population that is not being screened. They are not being screened for precancers. There is simply no way to prevent cancer by only looking for cancers, which is all the FIT tests and FOBT tests do. They just look for cancer. When you take a look at kind of the competitive landscape, the biggest competition is the fact that people do nothing. It is changing people's behavior. How do you address that? You would address that with a patient-friendly test that detects precancers. That is what we believe.
We believe that if you have a patient-friendly test that detects precancers and sends those patients to colonoscopy, you can start to do for colon cancer what the pap smear did for cervical cancer, which is basically eradicate the disease in a screened population. Now the question is, what level of sensitivity or what level of performance is needed to achieve that goal of prevention? With a test that detected even 40% of precancers on a non-invasive basis, screened frequently enough, the cumulative sensitivity is 40% and then 40% a year later or two years later or three years later. What is really important, and I think investors and some analysts spend too much time thinking about point sensitivity. This is not about point sensitivity. It is about programmatic or cumulative sensitivity. The conventional pap smear detects about 50% of precancers.
Before thin prep came along and before the HPV test came along, it had pretty much eradicated cervical cancer in a screened population. To answer, that is a long answer to your question, but it is an important question. With even 40% precancer sensitivity, you would get there. We think that will be somewhere between 50-60%. With that and frequent enough testing, you can actually make a massive difference in colon cancer prevention.
Charles Duncan (Managing Director and Senior Research Analyst)
Kevin, there was recently approved for distribution in New York a frequency-based blood test for colon cancer. I do not think they have any data for adenomas. Do you think that that approach has any merit in terms of being an effective screening paradigm?
Kevin Conroy (President and CEO)
It has some merit. First of all, that particular test has not gone through any clinical studies. It went through an analytical study. We do not know what the performance of that test is. The studies that have been done with an RNA approach show maybe 50% cancer sensitivity, no precancer sensitivity, and a huge false positive rate. It does not make sense. I will repeat that. That approach as a screening tool does not make sense. For an annual test that sends 20-30-40% of patients to colonoscopy, you are going to drive up costs and scare the heck out of patients. The FIT test detects 65% of cancers with only about a 5% false positive rate. If you want to just detect cancers, use that test. It is used 10-12 million times a year.
The problem with a blood test in general is that they have high false positive rates and they do not detect precancers. You can slightly affect the mortality rate by detecting cancers, but you have to detect them early, stage one or two. The blood tests are not very good at detecting stage one or two cancers.
Charles Duncan (Managing Director and Senior Research Analyst)
Okay. One last question on the conduct of DeeP-C. Let me ask you if you've discussed with the FDA what the target patient population should be. I'm sure you guys have a perspective on that. In terms of the number of patients or representation of patients that are 65 years and older versus younger and whether or not there's a chance that if you have mostly 65 years and older patients, the label may reflect that.
Kevin Conroy (President and CEO)
Great question. The intended population for this test will be patients between the ages of 50 and 84 who are at average risk for colon cancer. Think about patients who do not have a significant family history, who have not had cancer before, who have not had advanced adenomas taken out. Just the, call it 80 million out of the 100 million Americans over the age of 50 who are at average risk for colon cancer. That is the target population. Further studies will look at younger patient populations. We have not even begun to discuss that with FDA yet. There is a huge population that needs to be addressed between the ages of 50 and 84. I think you had a second question there too.
Charles Duncan (Managing Director and Senior Research Analyst)
The question really is, do you feel that if you had a lot of 65-year or older patient population, the FDA may see that as a certain population?
Kevin Conroy (President and CEO)
No. Okay. Remember that in the first, call it six months of enrollment, we enrolled a majority of patients who were between 50 and 65. We think that this will end up being within a stone's throw of 50/50 overall, probably maybe 60/40 overall, 65 and older to 50-65. One other note, Charles, we had extensive discussions with the agency about the potential for age enrichment or not. What we are doing is after thorough vetting and discussions with the FDA.
Charles Duncan (Managing Director and Senior Research Analyst)
That's perfect. That helps. Maneesh, one last question for you. I know that you guys aren't giving any guidance for 2013, but just maybe wax theoretically in terms of SG&A spending. What would you anticipate to occur in 2013 should you get the results that we're all anticipating? Would you invest in SG&A to launch the test? If you could provide some color on that.
Maneesh Arora (COO and CFO)
Sure. I think that where people and what people would typically expect is G&A is pretty consistent. We would expect to see a shift from R&D into sales and marketing. Do we expect to see a dramatic shift? Probably not a huge investment, but enough to make sure that we're prepared for launch. I know that's not a lot of information, but we'll be prepared to discuss this as we get closer to 2013 a little more.
Charles Duncan (Managing Director and Senior Research Analyst)
Thanks for the added color.
Operator (participant)
Our next question comes from John Wood from Jefferies. Your line is open.
Hi guys. Good morning. This is [Varun Diwan] for John Wood today. Just a couple of questions here. Firstly, on your commercialization plans, I know you've talked about having discussions with some commercial lab players with automated instruments. Wondering if you can update us on the discussions there.
Kevin Conroy (President and CEO)
We continue to have high-level discussions with institutions, large providers that want to learn more about the DPC study at this time. Those discussions are really conducted through our Chief Medical Officer. At this time, we're not prepared to really talk about any color on commercialization other than we've talked about today.
Okay. That's helpful. Secondly, on the cut-off study, can you comment on the protocol used in the study? Was it exactly the same that you plan to use for the DeeP-C study, or was it more kind of on the lines of what you've used in the previous studies? Secondly, on the patients, was this a totally new set of patients, or did you use some samples from the previous studies and some samples that you plan to use for the DeeP-C study?
Yeah. The patients were new patients, and that's important. You never want to go back to a population that you've previously sampled, that you've previously used before. In terms of the protocol, the difference was that the samples were run on the automation instrument. It was essentially the same processing other than the fact that the assay was run. Both the FIT assay and our internal FIT assay and the molecular assays were processed on the automation equipment. Varun, important to note, there were no DeeP-C specimens used, which I think was another one of your questions. That's something that will happen later this year.
Okay. Helpful. Lastly, on the DeeP-C study, there has been a bit of discussion on how the patient samples should be distributed equally between the Medicare population and the population and the age groups between 50 and 65. Now, when it comes to the cancer patients and the adenoma patients, is it also a requirement that those samples be distributed in a way that is statistically relevant, or can you have those 49-56 cancer samples just between the age of 50 and 65?
You would never expect to see perfect age distribution because the incidence of colorectal cancer changes by age. The incidence for a 50-year-old is about 0.1%, and the incidence rate for a 65-year-old is about 0.6%. Neither FDA nor CMS expect that to be equally distributed between those two age groups.
Okay. That's helpful. That's it from me. Thank you.
Thank you.
Operator (participant)
Our next question comes from Jeff Frolik from Canaccord. Your line is open.
Jeff Frolik (Analyst)
Great. Thanks. Good morning, Kevin and Maneesh. Just a couple of questions on the cut-off study. So the cut-off optimization, so are you satisfied with what you saw in this study, and do you still need to make some further adjustments before you are beginning on the patient samples on DeeP-C? The second part of that is the instrument performance. Was that as expected, or again, still some additional changes on instrumentation before locking that down?
Kevin Conroy (President and CEO)
I'm sorry. Can you repeat the first part of that question?
Jeff Frolik (Analyst)
Yeah. Just on where you are with the cut-off.
Kevin Conroy (President and CEO)
Oh, sure.
Matt Notarianni (Analyst)
Is that set, or you think you'll still continue to optimize the cut-off a little bit more?
Kevin Conroy (President and CEO)
The statisticians are pouring over that data to make sure that that cut-off is 100% where it should be. That will be complete within the next 5 or 10 business days. Those cut-offs, it's not just really one cut-off because, as you know, we have 11 markers, will be locked and applied to the DeeP-C study. In terms of the automation, the automation performed actually better than expected. It had an extremely low error rate, and we're really pleased with that. The automation team has really done an incredible job to develop this instrument. Remember, we pulled this instrument forward starting last year into this program. In about, I don't know, 16 months, they have built an instrument that is unbelievably robust, and it has a high throughput value proposition to our clinical lab partners going forward.
Jeff Frolik (Analyst)
Kevin, can you remind us what the throughput is on it?
Kevin Conroy (President and CEO)
It'll do roughly 100 samples a day, assuming that you have two shifts. So roughly 45+ samples per shift.
Jeff Frolik (Analyst)
Okay. Great. Just one quick follow-up on your comment earlier on the test extension for the IBD population. As you move that forward, will you need to optimize any markers, or do you think you just need to take the existing test into that IBD population?
Kevin Conroy (President and CEO)
There was an initial study, Jeff, that was performed by the Mayo Clinic. We are now collecting more patient samples, and we'll be doing more testing to determine whether we need to make any modifications. The initial study, which had a small N, detected 100% of cancers and 80% of high-grade dysplasias with a 90% specificity cut-off. Obviously, you never expect to be at 100%. That was with just two markers. We think that there may be some modifications, but probably not significant modifications. We know one thing is that the FIT assay will not be included because most of those patients are positive for hemoglobin.
Jeff Frolik (Analyst)
Great. Thanks, Kevin.
Kevin Conroy (President and CEO)
Thank you, Jeff.
Operator (participant)
Our next question comes from Zarak Khurshid from Wedbush Securities. Your line is open.
Zarak Khurshid (Analyst)
Good morning, guys. Thanks for taking the questions. I'm jumping around a few calls this morning. I apologize if you already addressed it. What is your thinking on targeting the ulcerative colitis and Crohn's disease patient groups? Would that require separate trials, a specific approval? How would the sales strategy or ordering position be different than the current product? Thanks.
Kevin Conroy (President and CEO)
Let's start with the second piece of that first. The target ordering position for the IBD screening test or the screening test for colon cancer in an IBD population is a small set of GI specialists who focus on Crohn's and colitis. Those physicians today screen using colonoscopy, but rather than using optical colonoscopy as the main screening method, they take biopsies and send those biopsies to a pathology. They do that because when you can Google a picture of Crohn's disease and look at an image, you can't tell the difference between a small cancer lesion and the raw inflammation. It looks like somebody has taken sandpaper to a colon. It is very hard visually, optically, with colonoscopy to see cancer. These patients have a 30+% lifetime chance of developing colon cancer. Screening among that patient population is critical.
We'll go to market with this test. After discussions with FDA, we need to make a determination of whether this would be a lab-developed test or whether we would take it through a clinical trial. That decision has not been made yet. The sales strategy around that would require a very small sales force calling into and educating these GI specialists.
Zarak Khurshid (Analyst)
Thanks.
Operator (participant)
Our next question comes from John Putnam from CapStone Investments. Your line is open.
John Putnam (Managing Director)
Yeah. Thanks very much. Kevin, just a clarification. Would you anticipate additional tests being run on the same automation system that Cologuard will run on, or would it require a separate instrument?
Kevin Conroy (President and CEO)
That remains to be determined. If this test ends up being KRAS plus NDRG4 plus BMP3, which we think it very well could, it could use the same automation system. You just would not use the FIT test. That is one of the beauties of this product. Really, back to the collaboration with the Mayo Clinic, we never would have thought about this product on our own. It was only because Dr. Alquist at the Mayo Clinic brought this to our attention and said, "This is something that could be of really high value." Being able to do it on this same automation system is a tremendous value proposition to a lab, which does not have to go out and buy a new instrument for a new high-value test.
John Putnam (Managing Director)
Yeah. I can appreciate that, certainly. One other question. Given the incidence of cancer that you're finding now with Cologuard, will the study top out at around 10,000 patients?
Kevin Conroy (President and CEO)
That is a good question, John. The fact of the matter is that we may have a sufficient number of cancers already enrolled in the study. We just do not know because these last 3,000 patients, you do not have the final reports on. A big chunk of them have had polyps removed, and then those polyps get sent to pathology, and some of them have cancer, and the pathologist makes that final determination. We need to keep enrolling until we see that we have hit at least 49 cancers. We know that once we see the 49 pathology report that denotes cancer, we will stop, and with the patients that are then enrolled that we are waiting for pathology reports on, that number statistically should increase. We do not know if we are going to be at 9,500 or 11,500, but we will know that in the coming months.
We're just pleased with where we are today, so we're in a good position to feel confident about completing the clinical trial on time.
John Putnam (Managing Director)
Thanks. That's great.
Operator (participant)
Our next question comes from Brian Brookmeyer from Maxim Group. Your line is open.
Brian Brookmeyer (Analyst)
Hi, Maneesh. Kevin, thanks for taking the questions. How many centers are you enrolling at? I checked out, and it looked like there was about 140, but it looks like a couple may have stopped or.
Kevin Conroy (President and CEO)
No. There are over 100 enrollment locations at over 80 sites. What you see in clinicaltrial.gov that you're looking at, if there's one office that has multiple sites or a doctor that has a satellite office, we're required to list all of them. That's what you're looking at.
Brian Brookmeyer (Analyst)
Okay. Correct me if I'm wrong, but the biggest cost of the clinical trial is enrolling the patients themselves, correct?
Kevin Conroy (President and CEO)
That's correct.
Brian Brookmeyer (Analyst)
Right now, you've got about 90% of enrollment depending on, as Kevin was just talking about, the 9,500-11,500. If you get a 10,000, you're about 90% of the way through that enrollment, correct?
Maneesh Arora (COO and CFO)
Yeah. I mean, I'll refer back to what Kevin just said. Depending upon where we need to end at, that's directionally correct.
Brian Brookmeyer (Analyst)
Okay. And that's as of today, or where were you as of the end of the second quarter for enrollments, just sort of in terms of understanding the expenses we're already seeing flowing through the income statement?
Kevin Conroy (President and CEO)
That's not something we've talked about, but that's not something that we're prepared to discuss today.
Brian Brookmeyer (Analyst)
Okay. Just another question on the R&D. Have you done much hiring in R&D over the last year or so? I think, as Kevin was talking about earlier, that there will be a decline in R&D, but you're not going to be laying anyone off once the clinical trials are complete.
Kevin Conroy (President and CEO)
Brian, some of these questions, why don't you come visit us, and we'll sit down, and we'll take you through the operations here. We obviously didn't have a chance to speak before you issued your recent report. I think there's a fair amount of education that could go on. Feel free to come visit, and we can talk about these things.
Brian Brookmeyer (Analyst)
Okay. Sorry. That was just a quick question on the employees. We did speak before, but okay. That's it for me. Thank you very much.
Kevin Conroy (President and CEO)
You're welcome, Brian.
Operator (participant)
Again, if you have a question, please press star then one on your TouchTone telephone. Our next question comes from James Hasselbeck at Private Investor. Your line is open. James, your line is open.
Kevin Conroy (President and CEO)
Let's move on to the next, please.
Operator (participant)
Our next question comes from Raymond Myers from Benchmark. Your line is open.
Raymond Myers (Analyst)
Thank you for taking the questions. You've answered most of my questions. One thing that came to mind during your talk was this automation system that's working better than you had expected. Does that possibly present a revenue opportunity in selling the equipment to laboratories?
Kevin Conroy (President and CEO)
No, Ray, mainly because the equipment will be approved for this particular test. One. Two, anybody who develops any lab that has a need for their own instrument typically has to tailor it, even slightly, but tailor it for the particular use. There aren't too many molecular tests. In fact, there aren't any that I can think of that use a stool sample other than maybe C. diff. We don't think that this equipment today will have broad applicability, but down the road, it may have future uses for our particular products, Ray.
Raymond Myers (Analyst)
Okay. Great. That sounds good. Maybe could you tell us an update of your progress of determining your marketing and distribution strategy and preparing for marketing and distribution?
Kevin Conroy (President and CEO)
Yes. We'll talk about that at a high level. Our focus is going to be in the first years of launch on converting the high-value, large providers, the Mayo Clinics and Kaisers, and I think the large systems that employ a large number of primary care physicians. Today, what you have seen is the FIT providers have gone into those big systems and convinced them to switch from the FOBT test to the FIT test. If you look into the Medicare codes, you can see that there has been a rapid acceleration between about 2005 and 2011 from about 3% of all non-invasive tests being FIT tests to 35-40% being FIT test labs of conversion in the market, mainly because the FIT test is about 65% sensitive for cancer, whereas the FOBT test was only 30-40% sensitive.
Our commercial strategy is to convert those that have already converted to FIT. We're going right after FIT and FOBT because the data we expect to be not a little bit better, but a lot better, both for cancer detection. And since FIT and FOBT largely do not detect precancers, we hope to have a superiority claim for precancer detection. Our strategy is to convert those big systems that employ hundreds of primary care docs where they can, from the top down, convert these tests that are being utilized, 10-12 million tests per year, and convert them to Cologuard.
Raymond Myers (Analyst)
Do you have a sense of what proportion of the patient population is tied to these large provider groups?
Kevin Conroy (President and CEO)
It is approaching 50%. It's hard to get a great number on that, but it's approaching 50%. Primary care physicians are having a very difficult time making a living with all of the pressures on their practices. We think you'll see an acceleration of GPs going to an employed model. We think that that helps us a lot as we're looking into a screening product and to a screening population.
Raymond Myers (Analyst)
Thanks. That makes a lot of sense. And then my final question is, have we talked any more about the possibility and timing of an advisory panel?
Kevin Conroy (President and CEO)
We have never talked about the timing of an advisory panel. We've had both discussions with the FDA. As soon as we know when that advisory panel is, we'll share that with investors.
Raymond Myers (Analyst)
Okay. Thank you very much.
Kevin Conroy (President and CEO)
Thank you, Ray.
Operator (participant)
Our next question is a follow-up from Zarak Khurshid from Wedbush Securities. Your line is open.
Zarak Khurshid (Analyst)
Great. Thanks for taking the follow-up. Can you talk a little bit, to the extent that you can, about FIT compliance at those large centers? Are they doing anything differently to get people to run the test? If it's not too tedious, sort of walk us through kind of the old FIT and the people that do not comply, who eats the costs, and then how you're thinking about kind of that dynamic with your test. Thanks.
Kevin Conroy (President and CEO)
Sure. Yeah. A lot of the larger centers that are intently focused on reducing colon cancer rates in their patient populations have taken aggressive FIT compliance steps. They do that using the electronic medical record with reminders. They actually have proactive programs where they send letters to patients. I think Kaiser has been at the forefront. Kaiser North has been at the forefront of this and basically given patients a choice because we know that when you give patients a choice between a stool test and colonoscopy, you see almost a doubling in the percentage of patients who are willing to undergo screening. About 35-40% of patients are willing to undergo colonoscopy screening. You get another 30+ points of participation if you offer a stool test. You do not see a huge decrease in colonoscopy rates. You see a slight decrease in colonoscopy rates.
These big systems can drive that because they have the systems, and they have the incentive now to do it because they know they need to bring their costs down. In terms of the FIT costs, these tests are pretty cheap. We think that the value is equal to the clinical value that they deliver. It is reimbursing at about $27. Today, it is easier to eat those costs where they can. There are some systems that will mail out a couple hundred thousand FIT tests just to get patients to comply. Our approach is fundamentally different than that. Our approach will be to hand a patient a kit or to have them pick up a kit and to comply with it that way. We are working on some means that we think will be fruitful to encourage people to utilize this test.
We're not ready yet, Zarak, to talk about those means, but prior to launch, I'm sure that we will.
Zarak Khurshid (Analyst)
Cool. Thanks.
Kevin Conroy (President and CEO)
Thank you.
Operator (participant)
I am showing no further questions at this time. I will now turn the call back over to Kevin Conroy, CEO, for closing remarks.
Kevin Conroy (President and CEO)
I’d just like to thank everybody for participating. In summary, we had a great quarter of enrollment into the DeeP-C study. We remain on track with the FDA submission timeline. I just want to thank all of the employees for their incredible focus on delivering the results that they’ve delivered over the last quarter. Thank you very much.
Operator (participant)
Ladies and gentlemen, that does conclude today's conference. You may all disconnect and have a wonderful day.