Exact Sciences - Earnings Call - Q2 2013
July 23, 2013
Transcript
Operator (participant)
Good day, ladies and gentlemen, and welcome to the Exact Sciences Second Quarter 2013 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session with instructions to be given at that time. Should anyone require operator assistance, you may press star and then zero on your touch-tone telephone. As a reminder, today's call is being recorded. Now, let's turn the conference over to your host for today, Ms. Cara Tucker. Ma'am, you may begin.
Cara Tucker (Manager of Corporate Communications)
Thank you, and thank you for joining us for Exact Sciences Second Quarter 2013 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 2013 financial results. If you have not seen it, please go to our website at exactsciences.com or call 608-284-5700, and I will send a copy 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 corporate priorities. Before we get underway, I'd 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)
Thank you, Cara, and good morning, everyone. During the second quarter, we were pleased to announce the completion of our PMA submission to the FDA for Cologuard. Our completed submission is the culmination of a massive effort by the entire Exact team and our collaborators that involved 90 sites and more than 10,000 patients. Our commercial and operations teams continue to focus on our readiness to launch Cologuard once it's approved by the FDA. These activities include not only scaling up our manufacturing and lab capacity but also ensuring that Cologuard will receive reimbursement from public and private payers that's valued appropriately. We ended the quarter with a strong cash balance of $157.7 million. We expect our cash balance at the end of the year to be approximately $130 million, which includes $5 million to build out our clinical lab, which Kevin will discuss in a moment.
Our final cash utilization total remains dependent on the timing of the FDA's review of our PMA submission and the potential approval of our test. It's now my pleasure to introduce Exact's President and CEO, Kevin Conroy. Kevin?
Kevin Conroy (President and CEO)
Thanks, Maneesh, and thanks, everyone, for joining us this morning. As a company, you know we are guided by our three clearly defined corporate priorities: launch readiness, operational excellence, and innovation. We are pleased to report that we are on track with each of these priorities and will now update you on our progress toward these priorities in the second quarter. As Maneesh said, our FDA submission was completed after an incredible effort by the team here at Exact and our collaborators across the country. We continue to have positive, productive interactions with the agency on the Cologuard submission. With the DeeP-C trial and submission completed, we have prepared our analysis of the trial's full data set in collaboration with principal investigators and submitted a manuscript in June to a premier peer-reviewed medical journal. We hope to have the paper published before the end of the year.
We continue to engage very positively with CMS on Medicare coverage and reimbursement for Cologuard. We believe Cologuard will provide physicians with a truly unique colon cancer screening test. As a result, Cologuard has the potential to reduce healthcare costs and increase the number of patients getting screened. It has the potential to detect colon cancer and precancer at its earliest stages. We further believe that CMS's recently updated approach to reimbursing molecular diagnostic tests will appropriately and fairly value Cologuard from a reimbursement perspective. We are pleased to report that we have made the decision to build our own CLIA lab facility, and we expect to have the lab operational by the end of this year. The lab facility will have an annual capacity of 1 million tests per year. We have also made strong progress in advancing the plan for the commercial launch of Cologuard.
We have hired an experienced Vice President of Sales, and we are beginning to build our field sales leadership team. We have segmented the market to target the physicians, systems, and commercial payers most likely to be first movers in the adoption and reimbursement of Cologuard. As you know, we successfully completed a capital raise in June that put us in a strong financial position to launch Cologuard. We have a two-pronged strategy for that launch and the early adoption of Cologuard. First, our strategy is focused on large healthcare systems and groups. These networks employ a high percentage of the physicians in the United States. The networks typically have a strong screening program that is driven by centralized, system-wide decisions. This concentration of physicians and strong, centrally controlled testing programs presents a great opportunity for Exact Sciences to drive significant adoption of Cologuard.
Another key element of our strategy is aimed at the highest prescribing physicians. Two thousand physicians, for example, account for 1.2 million FOBT and FIT tests per year. Our market research provides us with the names and locations of these high prescribing physicians who we intend to target upon approval. This clustering of the highest colon cancer screening test prescribers presents another robust early adoption opportunity similar to that of the largest healthcare networks. Let's now take a look at our strategy to improve compliance by implementing a high-touch, unique service offering that benefits primary care physicians and their patients. This service will include a call center, education for physicians and patients, automated reminders, and robust reports available to physicians, healthcare systems, and payers on the status of their colon cancer screening compliance. We know that currently, compliance with colon cancer screening is poor.
Our goal is to significantly increase the compliance rate through this robust and unique service offering. We're making it as easy as possible for a physician to order Cologuard. All a physician has to do is place an order with our lab, and we will do the rest of the work to ensure that the patient gets screened. The physician will not deal with sample collection or patient reminders. We'll do that for them. This alleviates a significant burden currently placed on physicians. Our market research tells us that the service offering is highly attractive to the physicians most likely to order our test. A further goal of this service is to make the screening process easy for the patient. We will send the sample collection kit to the patient, send automated reminders, and answer any follow-up questions through our call center and secure messaging.
Our robust reporting system will help provide the physician with the data needed to significantly increase patient compliance. Let's now turn to key company milestones. We completed the final component of our modular PMA submission to the FDA in June. We believe that this modular submission has already provided efficiencies in the agency's review of the submission. We have received agency comments on the first two modules of our submission, and we have fully responded to the comments on the first module and are in the process of completing our responses to the second module. The agency is now focused on the third clinical module of our submission. The agency has not yet set a date for the expected advisory panel hearing, and as soon as they do, we will inform investors. We are appreciative of the FDA's intense engagement on this submission.
We continue to work on our Medicare national coverage application, which will be reviewed in parallel with our PMA submission. Our discussions with CMS are ongoing, and we expect a potential national coverage decision within 90 days of a potential FDA approval of Cologuard. As I said earlier, we've submitted a manuscript on the DeeP-C data to a premier peer-reviewed medical journal for publication. We look forward to letting you know when it will be published. We believe the quality, size, and results of our clinical trial will make this publication one of the most important in the field. In conclusion, I would like to remind you that we will be updating our investors and looking back at our execution of our corporate priorities over the past year at our Annual Shareholders Meetings this Thursday morning.
I'd like to thank the dedicated efforts of the extended Exact Sciences team, including all of our employees and our scientific and medical collaborators. Thank you, and we'll be happy to take your questions.
Operator (participant)
Ladies and gentlemen on the phonelines, if you'd like to ask a question, please press star and then one now. If your question has been answered or you would like to remove yourself from the queue for any reason, you may press the pound key. Again, to ask a question, please press star and then one now. Our first question comes from a line of Jeff Elliott of Robert W. Baird. Your line is open. Please go ahead.
Jeff Elliott (Senior Research Analyst)
Good morning, guys, and thanks for the question. Kevin, I'm wondering if you can talk a little bit about reimbursement. Specifically, can you talk about how your thoughts have changed on the process over the past couple of months?
Kevin Conroy (President and CEO)
Over the past couple of months, our thoughts have not changed. The way that we see the process based upon our communication with CMS is that there are two different groups that make decisions around coverage, coding, and reimbursement within CMS. The coverage and analysis group makes the decision whether to cover a test. That is the first decision that is made in the process. Once that decision is made, the hospital ambulatory policy group, HAPG, makes a decision on issuing a temporary G code and also setting the reimbursement level. HAPG will further—they have indicated to us that they look at this as an opportunity to crosswalk to the new molecular diagnostic codes. Now, this is not set in stone, but based on our discussions with HAPG, we would expect that the agency would utilize the new CPT codes for molecular diagnostics and crosswalk to those codes.
Now, we expect that those national limitation amounts for those new molecular diagnostic codes would be set by HAPG before the end of this year. The timing works well for us, and if you crosswalk to those codes, you end up with what we think is a fair value for the overall reimbursed value for Cologuard. We remain deeply engaged with both the coverage and analysis group and the hospital ambulatory policy group, and we are also appreciative of the fact that those groups are working in parallel with the FDA and would expect a tight sequencing of events following a hopeful FDA approval in terms of, again, a coverage decision, a coding decision, and a reimbursement value.
Jeff Elliott (Senior Research Analyst)
Got it. Okay. Thanks for that. Just shifting gears, I realize you just raised some additional capital. Given that, I'd like to hear your updated thoughts on acquisitions, potentially your appetite for them, and what you may look at.
Kevin Conroy (President and CEO)
We're not looking at anything at this point in time. We're focused on preparing for the launch of Cologuard. It's not to rule out anything in the future, but it certainly hasn't been our focus in the past and isn't presently.
Jeff Elliott (Senior Research Analyst)
Got it. Just sneak one more in here. Can you talk about any of the feedback you've gotten from the FDA up until this point?
Kevin Conroy (President and CEO)
We've had a very positive set of interactions with them. In the comments that they've provided, there are no showstoppers, and the team here has been diligently responding to the request for additional information. They've been pretty routine from our perspective. I guess the one comment that I would make is that the timeliness of those responses and the engagement of the agency is faster than anything that we've experienced before. We sense a high level of commitment on the agency's part to review our submission in a timely way, and we are greatly appreciative of that.
Jeff Elliott (Senior Research Analyst)
Okay. Thank you.
Operator (participant)
Thank you. Our next question comes from a line of Brian Weinstein of William Blair. Your line is open. Please go ahead.
Brian Weinstein (Equity Research Analyst)
Hi. Thanks for taking the questions. Good morning. Wondering if you guys could talk a little bit about if you have an opinion on the likelihood of getting your NCD with a coverage with evidence development as part of that. And then secondly, if you do end up with a gap-filled process, can you talk about the mechanics that go around that and the timing difference and kind of what you expect to happen in the meantime as that process plays out? Thanks.
Kevin Conroy (President and CEO)
Yes. We do not expect, based on our discussions with the coverage and analysis group, we do not expect that there would be coverage with evidence development. It's not impossible that that would occur, but based upon our discussions, that does not appear to be the direction that the coverage application would go. It also does not fit well with this parallel review. Coverage with evidence development can include evidence development anywhere from very minor evidence development to very restrictive conditions upon which Medicare would cover a test, and neither of those options have been favored by CMS to date. Again, they can make ultimately their decision to make. Your second question, Brian, was on what?
Brian Weinstein (Equity Research Analyst)
Yeah. If you do end up going down the gap-filled process, can you just talk about the mechanics of that process and what would happen kind of as far as reimbursement goes in the meantime as that process plays out? Thanks.
Kevin Conroy (President and CEO)
Yeah. The gap-filled process is described right in the Code of Federal Regulations on reimbursement for new diagnostic tests. The framework for that process for paying for new diagnostic tests is to first look to a crosswalk process. By crosswalking, it means crosswalking to existing CPT codes, codes that already exist. As you know, CPT codes have been laid out. New CPT codes for molecular diagnostics have been laid out, and if you take a look at those codes, they fit the various components of our tests. When you put those together, you end up with a fair value for Cologuard. Should CMS decide not to utilize the crosswalk process, they would then utilize a gap-filled process. Gap-filled is used when you cannot crosswalk. Should they utilize the gap-filled process, they would look at all of the costs associated with running our tests.
In addition, typically, they would look at the value of any algorithm that is associated with the test and also the significant R&D investments made amortized over a five-year period of time, estimating the number of tests that would be offered or conducted in the first five years. You put that together, add in a profit margin, and that is how you get to a gap-filled process or to a gap-filled result. Our analysis of the crosswalk process and the gap-filled process ends up awfully close to the same place, which is theoretically how the system should work. We are comfortable going in either direction, and we will be prepared to work with the agency on either approach.
Brian Weinstein (Equity Research Analyst)
Okay. I'll just jump back into queue. Thanks.
Kevin Conroy (President and CEO)
Thank you, Brian.
Operator (participant)
Thank you. Our next question comes from a line of Brandon Couillard of Jefferies. Your line is open. Please go ahead.
Brandon Couillard (VP)
Thanks. Kevin, it sounds like you've decided to keep 100% of the testing volume in-house. First, is that correct? In terms of establishing the CLIA facility, will that be located in Wisconsin, and will you build that from scratch? Just some color around that plan.
Kevin Conroy (President and CEO)
Sure. The location of the facility is just a few miles from our headquarters in Madison, Wisconsin, and it is roughly a 40,000 sq ft facility that will be able to process about 1 million tests per year. In terms of handling all of the volume, I believe that there are going to be certain situations where large systems that are integrated in nature may want to take this test in-house, and we may consider that. We will also have a backup facility or an additional facility to handle additional volume and be an alternative facility to the Madison facility, which will be a partnered lab. We expect that the Madison lab will handle the majority of the volume, but not 100% of the volume.
Brandon Couillard (VP)
Thanks. And then Maneesh, how should we be thinking about the fully loaded COGS per test upon launch, including the effects of the internal testing capacity and the service offering? And should we expect some initial inefficiencies and for that COGS per test to decline as volume scales? Just any color you can give us on sort of the initial launch expectations.
Maneesh Arora (COO and CFO)
Yeah, Brandon, that's very, very consistent with how you should think about it and how we've thought about it. What we've always said is we expect gross margins of 65% or better at launch. Not at launch, excuse me, but at a run rate. You could expect over time us to get to that. Let's say by year three, us to be able to attain that 65% with some modest inefficiencies as we approach that. As we get closer to launch, we'll be discussing that in more detail, but the best way to think about it is still consistent with what we've said about that 65% gross margin once it is penetrated into year three. Approaching that, it would be modest inefficiencies, but not far from that.
Brandon Couillard (VP)
Thanks. Excuse me, health economic studies that I think you've been conducting. Have you completed these studies yet, and at what time do you feel like you'll be in a position to present some of that data?
Kevin Conroy (President and CEO)
Yeah. We have a draft manuscript. We continue to make tweaks to it, and we hope to have that economic study published by the end of the year. That study will focus on the cost-effectiveness of Cologuard, and I can confidently say that Cologuard is a cost-effective screening test, including at the price range we think that Medicare will reimburse the test at. I do not want to go into too many of the details of that paper, but I will say that Cologuard is significantly more cost-effective than, say, for example, Pap screening and also mammography. We are really enthusiastic about the impact that the paper will have.
Brandon Couillard (VP)
Great. Thank you.
Operator (participant)
Thank you. Our next question comes from a line of Peter Lawson of Mizuho Securities. Your line is open. Please go ahead.
Peter Lawson (Executive Director of Biotechnology and Senior Equity Analyst)
Just wondering if you could talk about the geographical focus of the initial sales force.
Maneesh Arora (COO and CFO)
Sure. Going back to the two-pronged strategy of the systems and the high-prescribing physicians, as we think about the territory managers that would be calling on those physicians, we have those addresses, those locations. That has been a relatively straightforward exercise, and as you can imagine, it is centered around population centers with focus on locations where the Medicare population is going to be. Florida, Texas, California, Arizona. You can expect to see the territory managers displayed that way. Similarly, if you think about the systems, the integrated systems, we have initiated with a couple of the industry associations, AMGA more broadly, as well as CAPG in California, to really start to better understand these integrated systems. The key account managers or folks that will be calling on those systems will be, again, in those major areas that have the integrated systems.
We have got a map of that, Peter, and we are well prepared at the appropriate time to hire the team necessary. Right now, as Kevin alluded to in his comments, we have brought in an experienced veteran Vice President of Sales. And beginning to hire the sales leadership team, we will expand on that as we progress through the year.
Peter Lawson (Executive Director of Biotechnology and Senior Equity Analyst)
Kevin, I just want to just look into the molecular codes. Does that make the new codes, are they more favorable for pricing for you?
Kevin Conroy (President and CEO)
As you know, we have a seven mutation KRAS assay as part of the Cologuard test, and there is a code for KRAS testing. The average MAC reimbursement of KRAS testing is about $235. There is a code for testing one methylated variant of DNA, and that code, the average is about $140 per variant. We have two methylation markers, and then also the FIT test. Those are, we believe, the most relevant codes to look at with pretty straightforward analysis if you look at those codes, which would reimburse the test in the range of $550. There could be variants from that. CMS has not yet applied those codes at the national level, but we think that is a fair way to look at the value of Cologuard.
Putting that in perspective, the cost of colonoscopy is, and we have recent data on this indicating the all-in cost of colonoscopy paid for by one of the largest health insurers in the country is $1,600, including the cost of pathology, including the cost of anesthesia. Around the country, it can exceed the $1,600 by a long shot. We think that this process that CMS went through is one that does rationalize how molecular tests are paid for. Not everybody is happy with those, and we think that they could evolve. We're pretty comfortable with where things are today.
Peter Lawson (Executive Director of Biotechnology and Senior Equity Analyst)
It does seem more favorable versus the rest of the industry for you.
Kevin Conroy (President and CEO)
I think that one thing that we focus on, Peter, is making sure that we provide a valuable test, a clinically valuable test at a reasonable price point. We know that if you want to save a lot of people's lives and move towards disease eradication, you need to have a test that's widely utilized. One of the problems today is that colonoscopy is a very expensive test, so it's not accessible to everybody. We see data now showing that in a population of over 100,000 people, 60% of people aren't being screened appropriately for colon cancer, which is worse than what the public data is. We think you have to price this fairly, and we think that the current codes do just that.
Peter Lawson (Executive Director of Biotechnology and Senior Equity Analyst)
Gotcha. And then just around the panel meeting, when are you expecting that? Any idea? And then around the trial data, when is that?
Kevin Conroy (President and CEO)
Our outlook for the panel hasn't changed, though we expect to have discussions with the agency soon on that, and we don't want to speak for the agency. We hope to have a solid date by our Q3 call. We look forward to the advisory panel. Some people have asked the question of whether are we really going to have an advisory panel. We think there will be an advisory panel. Right now, the agency and our clinical affairs team is focused on the various aspects of the submission, but we expect to have that conversation soon.
Peter Lawson (Executive Director of Biotechnology and Senior Equity Analyst)
Gotcha. And then just on the trial data, any likely venue for that to be presented? How's the publication going for that data?
Kevin Conroy (President and CEO)
The publication manuscript was submitted in June. Presently, we do not plan to highlight the data at a scientific conference, although we may. We have a couple of targeted later this year before publication, and we will let you know as soon as we make that decision. The data is really positive, as you know, and really highlights the stark improvement that Cologuard provides over fecal blood testing. We think that that data and the publication will be a really positive development for the launch of Cologuard.
Peter Lawson (Executive Director of Biotechnology and Senior Equity Analyst)
Gotcha. Thank you so much.
Operator (participant)
Thank you. Our next question comes from a line of Mark Massaro from Canaccord Genuity. Your line is open. Go ahead.
Mark Massaro (Senior Equity Research Analyst Associate)
Good morning, guys. This is Mark in for Jeff. Wanted to follow up on your comment, Kevin, about the partner lab. My question is, in the past, you talked about potentially a partner lab helping out on more of an operational front. If I understood correctly, this morning you mentioned that the lab may help out with manufacturing. Could you just provide a little more color around whether or not this is the same partner? Any additional color on that would be helpful. Thanks.
Kevin Conroy (President and CEO)
Okay. To clarify there, the partner lab will not play any role in manufacturing of Cologuard. They would simply provide testing services to Exact as an alternative lab and a second site to have testing performed. The manufacturing will be performed, and the kitting will occur here at our facility in Madison. Most of the components are manufactured by third parties, and then they go through a quality process, quality review, and check coming into Exact where they will be kitted.
Mark Massaro (Senior Equity Research Analyst Associate)
Got it. Thank you for the clarification. Have you identified who that partner lab is, and have you made that known?
Kevin Conroy (President and CEO)
We have identified two labs, and there could be more labs down the road that offer the test. Again, the majority of the testing volume will be conducted within the Exact Sciences Laboratory.
Mark Massaro (Senior Equity Research Analyst Associate)
Great. If you could—I know it's kind of far off down the road and not the primary focus, but could you offer any additional steps you might have taken with respect to developing your pancreatic cancer test?
Kevin Conroy (President and CEO)
The work that we have done in the pancreatic and esophageal cancer area is to identify the markers and apply for patent protection on those methylated—the process for detecting those methylated markers. I am very happy to report that the markers that we've identified are even better markers for those diseases than the markers we have for Cologuard. They are highly, highly specific for those diseases, and we think that there could be tremendous value created by the ability to screen from the same sample, screen for upper GI cancers. This, we believe, will take a lot of work, but it would revolutionize the screening of GI cancers. There is today no effective broad-based screening method for pancreatic cancer. Broad-based screening for esophageal cancer is done with an upper endoscopy, so something that is not widely available to the population.
We know that those two cancers, pancreatic cancer and esophageal cancer, rates continue to climb. If you take a look at the esophageal cancer numbers, pancreatic cancer numbers, and colon cancer numbers, you're looking at a significant percentage of all new cancer cases and cancer deaths in the U.S. and globally. This is a significant opportunity over the long haul. We have to stay focused on Cologuard, but our collaboration with the Mayo Clinic has just been tremendous because they have continued to churn out innovations in this area that we think will bear fruit for years to come.
Mark Massaro (Senior Equity Research Analyst Associate)
Great. Thank you.
Operator (participant)
Thank you. Our next question comes from Zarak Khurshid from Wedbush Securities. Your line is open. Please go ahead.
Zarak Khurshid (Analyst)
Good morning. Thanks for taking the questions, guys. With respect to just the R&D spend, any thoughts on the evolution of that run rate for next year?
Maneesh Arora (COO and CFO)
One of the things we've talked about historically is after the clinical trial is that it would return to, let's call it, right before the clinical trial, Q2 2010 levels. We would anticipate a base run rate of, call it, four to five for base R&D, and then on top of that, it would be based on our development programs. We'll provide more guidance as we get closer, Zarak, but it's really going to depend on the speed and additional trials that come into play for some of the pipeline products that Kevin alluded to. We're really focused on Cologuard, and we'll provide more visibility as we get closer to that point next year.
Zarak Khurshid (Analyst)
Great. Thanks for that. Then just curious, where do things stand with the IBD study that you were working on? Is that kind of deprioritized as part of the kind of initial commercial rollout?
Maneesh Arora (COO and CFO)
Actually, not at all. One of the things that we can stay focused on is Cologuard here at the company while that enrollment continues at these external sites. What we guided to was completing enrollment and really enrolling subjects. It is a very similar situation to Cologuard where most of the time is accruing and finding the patients and enrolling those subjects. That is the process that we are in right now with the Oceania study. We still expect to complete enrollment by the end of this year. As you know, it is a much smaller study. It is a much more controlled study. It is only 300 patients. We expect to complete that enrollment at the end of this year and provide a fuller update next year and hopefully report on that early next year.
Zarak Khurshid (Analyst)
Understood. Thanks for the clarity there. Lastly, just curious with respect to the current FIT tests out there, have any of these technology-driven tools been used to increase compliance? Any sense for how effective they've been with the other players out there? Perhaps they haven't been used. If you could comment on why that is, that'd be great. Thanks.
Kevin Conroy (President and CEO)
Yeah. So it's really interesting. There isn't a lot of data on what percentage of the fecal blood tests that are handed out actually come back. But if you survey physicians and anecdotally, when you talk to physicians, nobody believes that that rate is higher than 50%. And some physicians say the rate in their offices is down in the 30% range. Why is this? It is a pretty inexpensive and not very accurate test. There is a very fragmented market. The FIT players are not investing much in terms of sales and marketing, much less into an expensive compliance program. They are certainly not willing for a test that they may get $10 from a healthcare provider for. They are certainly not willing to invest in a compliance program.
Taking a look at the performance of those tests, those tests miss a significant percentage of cancers and the vast majority of precancers. If you could offer a nationwide screening program, the most rational way to do that is to do it with a test that detects the vast majority of cancers. That is why we think we are in such a unique position from a product standpoint, but also from a proprietary business standpoint. That is really unique about what we are doing with this model. We think that it will give us the ability to really provide incredibly valuable services to the healthcare system and to patients. Hopefully, someday it will lead to a significant reduction in the colon cancer incidence rate.
Zarak Khurshid (Analyst)
Great. Thank you.
Operator (participant)
Thank you. Our next question comes from a line of Raymond Myers of Alere Financial Partners. Your line is open. Go ahead.
Raymond Myers (Director of Research)
Thanks very much. For clarification, it's Alere Financial Partners. Maneesh, could you describe what is the reimbursement rate behind your 65% gross margin forecast?
Maneesh Arora (COO and CFO)
The reimbursement rate that we started at, really for conservatism that we plug in, is $300, which is far more conservative than the number that Kevin was alluding to. The way to think about cost all in is it's around $100. That's the best way that I can lay it out.
Raymond Myers (Director of Research)
Okay. That's very clear. Thank you. Kevin, I was hoping you might drill into a little bit more of your studies that you've done of these high-prescribing physicians. How much does the compliance engine save them time or other resources versus what they would have to expend if they were using FIT? Do you have any more qualitative data around that?
Kevin Conroy (President and CEO)
I'm sorry. The first part of that I missed.
Raymond Myers (Director of Research)
Oh, sorry. I'm not being clear. I was hoping you might give us a little more clarity around the resource savings to high-prescribing physicians of FIT that you would expect to be driven by your compliance engine.
Kevin Conroy (President and CEO)
Great question. Today, primary care physicians keep track of colon cancer screening in a variety of ways, from doing nothing at all, handing a patient a fecal blood test, asking them to take it home, and crossing their fingers and hoping that they return it, but not keeping track of it, which is, we think, the majority of primary care physicians, to having a spreadsheet that they keep track of patients who they've handed tests to to see whether they've returned them. Only a very few keep track of it in a more robust way. What they're doing is they're deploying resources, trying to keep track of this in a very, very manual way. The next time they get to interact with the patient is when the patient returns.
Now, anecdotally, some providers have said the way they get patients to do the FIT test is that they tell them if they do not get a returned FIT test, they are going to schedule them for colonoscopy, which is a motivator for some people to complete the FIT test. What you have is a very diverse set of ways that primary care physicians generate compliance, most of them cross their fingers and hope. That is why this service is so valuable because primary care physicians would like to document their compliance and the steps that they have taken. Colon cancer is one of the most highly litigated of all cancers, and the peace of mind that a primary care physician gets from knowing that this is all documented is an additional value that primary care docs have told us they see in the service offering.
Raymond Myers (Director of Research)
Great. Thank you, Kevin.
Kevin Conroy (President and CEO)
Thanks, Ray.
Raymond Myers (Director of Research)
That's all my questions.
Operator (participant)
Thank you. Our next question comes from a line of Chris Lewis of Ross Capital Partners. Your line is open. Please go ahead.
Chris Lewis (Analyst)
Hi, guys. Thanks for taking the questions. Can you first just remind us of the plans for the size of the Salesforce in the first year of commercial launch?
Maneesh Arora (COO and CFO)
Sure. What we talked about is a fully loaded sales and marketing commercial team of around 100. Think about that as three-quarters of that being the Salesforce. That is inclusive of the territory managers, the key account managers, as well as sales leadership. That is at launch. The way that is—excuse me—not at launch, but that is at the end of the first full year. As we scale through the first year, assume it will build gradually up to that.
Chris Lewis (Analyst)
Okay. Great. Thanks. Assuming the DeeP-C data publication in the peer-reviewed journal later this year, can you just talk about how that plays into the timing related to the Preventive Services Task Force review process next year?
Kevin Conroy (President and CEO)
The USPSTF process will kick off at the end of this year with the peer-reviewed public. They will review the peer-reviewed publication over the course of next year. Hopefully, by the end of next year or the beginning of 2015, we would have a USPSTF review of Cologuard. Presently, the fecal blood test is rated A, and we have no reason to believe that Cologuard would be rated anything other than that. What does that do for us? What does a USPSTF endorsement of Cologuard do? First of all, under the Affordable Care Act, it mandates that all payers in the U.S. cover our test and that there be no out-of-pocket costs imposed or co-pays imposed upon the patient. That is a significant benefit.
When you combine the fact that CMS coverage would cover almost 50% of the targeted patient population, combined with USPSTF coverage, you would get to 100% within the first 12 months of launch. That's unheard of in diagnostics to achieve that level of reimbursement that quickly. The other thing that USPSTF does is builds credibility with primary care physicians. We are very focused on making sure that the manuscript is published in a high-quality journal that will have an impact on that group.
Chris Lewis (Analyst)
Okay. Thank you.
Kevin Conroy (President and CEO)
Thank you.
Operator (participant)
Thank you. With no further questions, thank you. I'd like to turn the conference back over to Mr. Kevin Conroy for any closing remarks.
Kevin Conroy (President and CEO)
I would just once again like to thank the extended team at Exact Sciences, including all of our employees and our scientific and medical collaborators. We look forward to our annual shareholders meeting in two days, and we look forward to our Q3 earnings call in three months. Thank you very much.
Operator (participant)
Ladies and gentlemen, thank you for your attendance in today's conference. This does conclude the program, and you may all disconnect. Have a great rest.