Exact Sciences - Q2 2024

Transcript

Operator (participant)

Thank you for standing by. At this time, I would like to welcome everyone to today's Exact Sciences second quarter 2024 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you'd like to ask a question during this time, simply press star one on your telephone keypad. Once again, star one. In the interest of time, we ask that you limit questions to one per caller. Thank you. I would now like to turn the call over to Erik Holznecht, Manager of Investor Relations. Erik, please go ahead.

Erik Holznecht (Manager of Investor Relations)

Thanks, Operator. Thank you for joining us for Exact Sciences second quarter 2024 conference call. On the call today are Kevin Conroy, the company's Chairman and CEO, and Aaron Bloomer, our Chief Financial Officer. Exact Sciences issued a news release earlier this afternoon detailing our second 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 be materially different from such statements. Discussions of non-GAAP figures and reconciliations to GAAP figures are available in our earnings press release, and descriptions of the risks and uncertainties associated with Exact Sciences are included in our SEC filings. Both can be accessed through our website. I'll now turn the call over to Kevin.

Kevin Conroy (Chairman and CEO)

Thanks, Erik. Our second quarter results show the power of Exact Sciences' platform and dedication of our world-class team. For the first time, we screened over 1 million people in a quarter with Cologuard for colon cancer, the number 2 deadliest cancer in the U.S. We tested more patients globally with Oncotype DX than ever before. Expanding and leveraging our platform led to record customer engagement. During the second quarter, more than 190,000 healthcare providers ordered our preeminent cancer tests. Over 350 health systems and oncology centers utilized Exact Nexus, our proprietary technology platform. We made significant progress toward launching Cologuard Plus, our next-generation Cologuard test, and OncoDetect, our molecular residual disease test. Our team also advanced several other key pipeline programs, including our blood-based colon cancer screening test and multi-cancer screening test.

The strength of our infrastructure, commercial reach, payer relationships, and Exact Nexus allows us to offer these tests to millions of people around the world. We delivered year-over-year core revenue growth of 13% with a slight decline in operating expenses, leading to a record Adjusted EBITDA of $110 million. Other highlights from the second quarter include producing $71 million of Free Cash Flow, a $5 million improvement, being recognized as a great place to work for the sixth consecutive year, and securing an exclusive license with rights to sublicense TwinStrand's patented sequencing technologies. These achievements reflect our dedication to helping eradicate cancer, and we're well-positioned to achieve our goals for the year. Aaron will now review our second quarter results.

Aaron Bloomer (CFO)

Thanks, Kevin, and good afternoon, everyone. Second quarter results highlight strong operational execution, and we're pleased with the progress we made. Second quarter revenue of $699 million grew 12% year-over-year, or 13% on a core basis, excluding COVID testing, FX, and M&A. Growth was led by momentum and increased penetration of Cologuard, along with accelerated Oncotype DX growth internationally. Adjusted EBITDA margin expanded 500 basis points to a record 15.7%, and we generated $71 million in free cash flow. Screening revenue increased 15% to $532 million. We continue to see Cologuard orders consistently grow as health systems, healthcare professionals, and payers increasingly embed the test into their practices. We're proud of our sales and marketing teams and the work they are doing to drive adoption, especially within rescreens and care gap programs. Care gap programs generated more revenue in the first half of 2024 than all of 2023.

Precision oncology revenue grew 7% to $168 million, or 6% on a core basis. Growth was led by Oncotype DX, which expanded 31% internationally. Our team has done significant work driving leverage and operational execution across the P&L. We generated $110 million in adjusted EBITDA, an increase of $43 million year-over-year, or 65% growth. Adjusted EBITDA margin expansion was driven by volume growth, productivity, and expense controls, especially within G&A, and we are pleased with this progress. This more than offset a decline in non-GAAP gross margin of about 190 basis points. Recall, gross margin in the second quarter of 2023 benefited from better cash collections due to improvements made to our billing systems that allowed us to correct claims from prior periods. To simplify modeling and increase clarity, we introduced a new reconciliation within our press release that presents operating income or loss on a GAAP and adjusted basis.

Using both methodologies, total operating expenses declined slightly year-over-year during the second quarter. We continue to see opportunities to optimize costs and increase operational efficiency, creating the capacity to reinvest back into growth areas while still expanding margins. For example, during the second quarter, we reinvested some of our cost savings back into high-growth initiatives, including within sales and marketing. Free cash flow was $71 million, an increase of $5 million year-over-year, and up $191 million sequentially. We ended the quarter with cash and securities of $947 million. Our strong balance sheet and positive free cash flow outlook allowed us to repay the full $50 million outstanding balance of our AR securitization facility and secure an exclusive license with TwinStrand Biosciences. Turning to guidance, we're maintaining our full-year revenue guidance and raising our Adjusted EBITDA guidance.

We continue to expect full-year revenue between $2.81-$2.85 billion and now expect Adjusted EBITDA between $335 million-$355 million, or 12.2% margin rate at midpoint. During the third quarter, we expect total revenue between $705 million-$725 million, or year-over-year growth of 14% at midpoint. This assumes screening revenue between $545 million-$555 million, or growth of 17% at midpoint, and precision oncology revenue between $160 million-$170 million, or growth of 6% at midpoint. Guidance implies 17% revenue growth year-over-year at midpoint in the second half of 2024, with 21% growth in screening and 6% growth in precision oncology. We expect second-half screening revenue to be about 54% of full-year revenue, consistent with the historical average. Several key factors give us confidence in achieving guidance.

First, the number of people eligible for the next Cologuard test grows by more than 10% sequentially, and our rescreen success rate continues to improve. We're making progress by sending patients digital reminders and educating providers about the option to order Cologuard in advance of a patient's three-year Cologuard anniversary. Once a rescreen test is ordered, more than 80% of second-time Cologuard users and 90% of third-time users go on to complete the test again, demonstrating a high level of patient preference and satisfaction. Second, we have more than 100 opportunities with payers and health systems to close care gaps with Cologuard through large, organized screening programs. We also expect recent sales and marketing investments will support growth in the second half of the year, with a greater impact expected in the fourth quarter and the coming years. Back to you, Kevin.

Kevin Conroy (Chairman and CEO)

Thanks, Aaron. Over the past decade, Cologuard has revolutionized colon cancer screening, and momentum continues to build. According to the CDC, Cologuard is the primary reason colon cancer screening rates have increased 13 percentage points. We've delivered more than 16 million Cologuard test results to patients, and we're just getting started. For example, we've screened more than 1.5 million people ages 45 to 49 since the screening age was lowered three years ago. Keeping these people screened until they're 85 provides up to 20 million Cologuard testing opportunities. Cologuard has become an embedded standard of care among patients, healthcare providers, health systems, and payers. We're using our unparalleled commercial capabilities and powerful Exact Nexus platform to engage patients through personalized experiences. This is resulting in more patients completing Cologuard every three years, helping us achieve our goal of making screening routine.

It's also playing a key role in our new approach to closing the screening gap. Let me give you an example. One of our customers, a major payer, asked us to help screen 90,000 of their members with a goal of providing better care and improving their quality measure scores. Exact Sciences' state-of-the-art patient engagement tools in Exact Nexus guided and supported patients throughout the screening process, promoting adherence. Our customer was thrilled with the outcome, and we're already in discussions with them and many others about future care gap programs. Our precision oncology team is doing an outstanding job expanding the impact of Oncotype DX internationally. We still have a major opportunity to provide important answers to eligible patients outside the U.S. because about 70% aren't currently being tested. Healthcare professionals, hospitals, and health systems trust Oncotype DX because it's supported by unmatched evidence.

Oncotype DX is globally recognized as standard of care and included in all major guidelines. Thanks to our team's commitment, we've increased Oncotype DX adoption internationally by about 10 percentage points over the past year. We're making strong progress internationally, and our goal is to make sure all people eligible for Oncotype DX have access around the world. Expanding our presence globally also provides opportunities across our portfolio, which we're working towards. The second quarter was a hallmark period for our pipeline as we advanced our most impactful programs: colon cancer screening, molecular residual disease testing, and multi-cancer screening. We plan to share performance data from each of these programs by the end of the year. Cologuard Plus will be the most efficient non-invasive way to screen for colon cancer, and we anticipate FDA approval in the coming months.

Cologuard Plus sets a new performance standard with 94% overall cancer sensitivity, 43% sensitivity for advanced precancerous lesions, 91% specificity when including patients with small polyps and other incidental findings, and 93% specificity with no findings on colonoscopy. This means the test achieved a 30% lower false positive rate relative to current Cologuard, with cancer and precancerous lesion detection improving as well. Cologuard Plus could save the healthcare system billions of dollars for two reasons. One, Cologuard Plus presents an opportunity to further reduce colon cancer incidence and mortality, moving us one step closer towards helping eradicate this disease. Two, fewer patients will be sent to unnecessary follow-up colonoscopies. We recently ran our blood-based colon cancer screening test on more than 3,000 samples. The study consisted of 2,900 prospectively collected samples from healthy individuals, 90 advanced adenomas, the majority of which were collected prospectively, and 60 retrospectively collected cancer samples.

The results give us confidence our test will be at least comparable to others and will meet the Medicare requirements. We plan on presenting these data before sharing top-line results from our pivotal BLUE-C study in the fourth quarter of 2024. Our blood-based colon cancer screening test will have an unrivaled cost profile. Once available, it will be supported by our commercial infrastructure, patient navigation engine, and Exact Nexus technology platform, making ordering and resulting seamless for more than 350 health systems and available to our broad and deep customer base of healthcare providers. Oncodetect, our molecular residual disease test, will significantly impact decision-making, and we're supporting it with high-quality clinical evidence. Our team recently generated impressive study results demonstrating Oncodetect is highly accurate at detecting residual disease in colon cancer patients.

These findings will be published in a scientific journal later this year, and we're on track to launch Oncodetect with reimbursement next year, 2025. We also strengthened our patent portfolio by signing an exclusive license to TwinStrand's cell-free nucleic acid sequencing technologies. This license provides near and long-term opportunities across multiple areas of cancer diagnostics while complementing our existing IP, including Thrive's, Safe-SeqS, and SaferSeqS technologies. Our multi-cancer screening test was recently authorized by the FDA to be used within a real-world evidence study, providing an opportunity to test 25,000 people over the next three years. Generating real-world evidence in a clinical setting will help optimize clinical workflows and support discussions with regulatory agencies, payers, and guideline groups. Our data presentation at the AACR meeting in April showed our multi-cancer screening test detected 51% of cancers at 98.5% specificity across 21 types of cancer in a large, well-designed study.

16 of those cancer types have no standard of care screening option available today. Next, we plan to present improved performance data at a scientific conference later this year, highlighting the benefits of combining this approach with Thrive's technology. Our focus on helping eradicate cancer powers the Exact Sciences team, creating momentum within our business and allowing us to extend our platform. Continued execution, our growing portfolio of tests, and a leading presence in cancer screening and precision oncology put us in a prime position to achieve our purpose. We're now happy to take your questions.

Operator (participant)

Thank you. And at this time, I would like to remind everyone that in order to ask a question, press star then the number one on your telephone keypad. Again, star one. And once again, in the interest of time, we ask that you limit your questions to one per caller. And we'll pause just a moment to compile the Q&A roster. And it looks like our first question today comes from the line of Patrick Donnelly with Citi. Patrick, please go ahead.

Patrick Donnelly (Managing Director)

Hey, thanks, guys. Thanks for taking the questions. Kevin, maybe on the cost side, you know, obviously last quarter, the increase in rep hires got a lot of attention. Profitability is nice to see here, nice to see the EBITDA move higher. Can you just talk through the key drivers there? And if anything has changed here on your confidence and long-term expectations, just that trend line on the profitability piece. And then second, you know, certainly appreciate the update on your internal blood program. You know, that market continues to get a lot of attention given the FDA approval last week for a competitor. Just how you think about your approach there on the cost commercialization side. Sounds like you're confident your data stacks up with anything out there. And the TwinStrand agreement, it doesn't seem like it changed anything on that front.

I guess that's just M&A-related. Just want to confirm that. Thank you, guys.

Kevin Conroy (Chairman and CEO)

Yeah. Why don't I start with the first one? Really excited about the growth that we're seeing. 15% screening growth, record 16% adjusted EBITDA margins. Thrilled across the board with what the team is doing to grow screening, to grow precision oncology. That is leading to tremendous growth in EBITDA, and we expect that to continue. Looking at the driver of growth, really focusing in on the screening, there are three things. The increasing brand awareness of Cologuard, that it's the best non-invasive approach to screening. It is now at parity with colonoscopy in terms of consumer awareness. Really remarkable. We're pleased to see that our commercial engine is doing great work. We expect even better performance in the back half of the year moving into next year. Our deepening relationship with health systems, primary care physicians, payers just across the board, strength there.

Also we're extending and leveraging our Exact Nexus platform. That platform allows us to reach electronically 350 health systems in the U.S., making ordering easier. That will continue to grow and deepen over the years. As we add our portfolio to that platform, that allows us to deliver even greater cost economics as we grow. Aaron, you probably have more in-depth analysis there.

Aaron Bloomer (CFO)

Yeah, great. Thanks, Kevin. First of all, really pleased with the progress that the team delivered. In the second quarter, as Kevin mentioned, record levels of adjusted EBITDA, both on a dollar basis as well as, you know, 16% on a margin basis. And kind of unpacking that a little bit, you know, it starts with growth. Double-digit revenue growth, 15% growth from screening. And you couple that with just outstanding strong operational execution, especially within G&A. And that kind of then, you know, informs, you know, from a full-year guide perspective as well as long-term. You know, this allowed us, the execution we delivered in the second quarter allowed us to raise our full-year adjusted EBITDA guidance. And if you look at that, that implies about a 500 basis point margin expansion in the back half of the year.

A majority of that leverage is going to come from G&A. The exciting thing for us about this is it creates the capacity for us to reinvest back into our highest ROI areas, notably MRD and marketing in the back half of 2024. We feel great. I think we're in a great position to exceed our 2027 adjusted EBITDA target of 20%+.

Kevin Conroy (Chairman and CEO)

Patrick, I'll also address the CRC blood question. We're, as you know, our test Cologuard Plus sets a whole new standard of care. On top of Cologuard, we set a new standard of care. And Cologuard Plus, 94% CRC sensitivity, 93% what we call Category 6 specificity, and 43% adenoma sensitivity. So incredible test. We think that blood tests face some real challenges, namely performance. And to net out the performance, sensitivity, and specificity, just look at light years gained. And when you take a look at Cologuard compared to blood test performance, and you can see this in one of the publications or poster that was presented at DDW, blood tests have 30% fewer light years gained relative to Cologuard or Cologuard Plus. That's a huge step down in screening, and it's actually inferior to a $25 FIT test. So we think there are real challenges.

One of the challenges is the challenge of getting into guidelines, which is looking like it's at best late 2026, but probably more likely 2027. 2027 is when the next guideline update would be, not included in HEDIS measures, et cetera. There are really limitations here because of that performance difference. It matters. I mean, you're talking about people's lives and how they're screened. The way that Exact Sciences thinks about the appropriate role for a blood test, our own blood test, is for people who refuse colonoscopy or refuse Cologuard or even for that matter, refuse a FIT test. An expensive blood test that is basically blind to precancerous polyps, we don't believe is going to be widely adopted by guideline groups, by payers, and ultimately by primary care physicians. Our blood test is, as we referenced in the comments, we ran a 3,000-patient study.

We really liked the performance that we see. That study helped us define the final algorithm that will be used when we process the BLUE-C samples that will be used to submit to the FDA. That algorithm is important because you want to run it on as many samples as possible to narrow any fluctuation in performance that you will see in the pivotal study. Now, we don't know what those results will be. We can't guarantee it. That's science. But this large study gives us a tremendous amount of confidence going into what we expect to see in the fourth quarter, is the pivotal study results. So more to share. We'll share the results of this study, this more recent study, sometime before we release the results of the pivotal study. Finally, I think you asked the third question.

Please, I know somebody else would probably ask this question about TwinStrand. TwinStrand IP complements the portfolio that we have. It essentially, at a high level, covers Duplex Sequencing and reducing error rates and Next-Generation Sequencing for cell-free DNA. It strengthens our portfolio. It's proven intellectual property, and we're excited to be the new owners.

Operator (participant)

Thanks, Patrick, for the question. And our next question comes from the line of Tycho Peterson with Jefferies. Tycho, please go ahead.

Patrick Donnelly (Managing Director)

Hey, thanks. A couple on Cologuard Plus, Kevin. Just thinking about the phasing process, you know, how you'll handle the transition, when you'll be fully transitioned, and, you know, just practically, how does that work? Do doctors offer, you know, patients one test based on coverage and another, you know, based on their coverage? And then any feedback on pricing, you know, versus the 25%, you know, ask as you've been out having more conversations? And are you still thinking crosswalk? And then I think you said you only need to add 100, 150 reps for MRD. So switching over to MRD, you know, why is that the case given that, you know, genomic health was, you know, didn't, it was mostly OB-GYNs? So, and then two other quick ones. Just on blood, why not release the study results now? Why wait till later in the fall?

Then can you address the issue of drawbacks of, you know, a PCR-based test versus sequencing? Obviously, there's a view that sequencing, you know, can get better over time with algorithms. Thanks.

Kevin Conroy (Chairman and CEO)

Tycho, it's great to have you on board. Keeping track of all those questions, I can't promise you I'll do that perfectly. Let me start with blood. We'll release that data. We're looking at the appropriate scientific conference to have that data. We'll release the, you know, top-line data as soon as we can. In terms of Cologuard Plus, we're still working through exactly what the commercial deployment will be. At a high level, what we're trying to achieve is to make sure that the transition in insurance coverage, which will take some time, will map to the transition in utilization. Our lab team and our commercial team are working through plans to do that. It probably takes 12-24 months before all of the contracts we have with payers convert from Cologuard to Cologuard Plus.

The first part of that journey is setting a new rate with Medicare. There are multiple paths that we can go down to do that. One is the public process that you're seeing, which actually takes a while to play out. So I'd caution against any, you know, public information that either we release or was released by Medicare. Ultimately, towards the end of this year, there's a final decision on that current path. There are other paths to pursue as well. Bottom line is Cologuard Plus delivers real value to people getting screened because of a lower false positive rate, because of a higher rate of detection of cancer and precancerous polyps. It's a better test. That leads to better outcomes. It also leads to cost savings.

For example, a 30% lower false positive rate leads to fewer people going to unnecessary colonoscopies while keeping sensitivity actually slightly higher than with Cologuard. And that's the magic of the technology that this team has worked. And that's our proprietary modification, kind of a super advanced PCR technology that helps us deliver those results with just a few DNA methylation markers and a protein. So hopefully touched upon that. In terms of MRD reps, I'm not sure that I understood that question, but maybe we can come back to that later.

Operator (participant)

Okay. Thank you, Tycho. And our next question comes from the, oh, go ahead. And our next question comes from the line of Andrew Brackmann with William Blair. Andrew, please go ahead.

Andrew Brackmann (Healthcare Research Analyst)

Hi guys. Good afternoon. Thanks for taking the questions. Maybe just on rescreens, Aaron, you outlined the opportunity here increasing in the second half and gave some compelling compliance numbers as well. So I guess it sounds like the main hurdle is actually getting those repeat tests ordered. So can you maybe just level set us on the initiatives that you have to get those ordered by docs and anything incremental that we should expect in terms of investment to that in the second half of this year? Thanks.

Aaron Bloomer (CFO)

Hey, Andrew. Great to hear from you. Yeah. So rescreens is an important part of our growth story. You know, the number of patients eligible for rescreen grows this year from 1.2 million to 1.6 million for the full year. And we saw strong growth from rescreens coming in the second quarter. And as we cited, the back half of the year is actually up sequentially versus the first half of the year by roughly 10%. And we're getting better and better at engaging with these patients via MyChart, our advanced ordering portal, bringing them into the Exact Nexus platform. And, you know, once the patient orders the test, the second time it's at 80% adherence rate, and the third time is now north of 90%. So again, we're finding new and creative ways to engage with our patients.

Operator (participant)

All right. Thanks, Andrew. And our next question comes from the line of Catherine Schulte with Baird. Catherine, please go ahead.

Patrick Donnelly (Managing Director)

Hey, guys. Thanks for the question. Maybe first, you mentioned care gap programs a few times. So I guess, what are care gap assumptions and guidance? How's that weighted between the third and fourth quarter? And then just going back to your blood program, do you have a timeline for when you expect to run those pivotal samples? You know, walk us through the steps that you need to complete before you run those. Thanks.

Kevin Conroy (Chairman and CEO)

I'll start. You know, the care gap program is an important program. What you're seeing, and this has been a 10-year, decade-long change in the way healthcare is consumed in the U.S., that you're seeing a decline in office visits where many wellness visits or wellness visits are primarily conducted and screenings are conducted. And what we're seeing is health systems and payers are coming to us and saying, "Hey, can you help us with this dynamic? And can we get colon cancer screening done remotely in the privacy of people's home?" And that what we call care gap program drives quality measures, which are really important to help large health systems and to payers across the country.

What we're doing here to help them is to engage with them to deliver directly to their members, to their patients, the Cologuard test in the privacy of their own home so that can be completed. And so our Exact Nexus platform, our customer care capability, our digital capabilities are allowing us to serve these patients as they consume healthcare in a very different way. And we're seeing strong growth. An interesting dynamic here is that the growth tends to occur in a significant way from the early part of the year to towards the end of the year. One of the drivers is that health systems and payers see a sneak preview of their quality measure scores in the middle of the year, driving to a lot of activity to improve their scores by the end of the year.

That's an awfully busy time for us in care gap programs. We expect the step-up to be Q3, a real step-up from Q2, and Q4 the biggest step-up. That's what we saw last year. Aaron?

Aaron Bloomer (CFO)

Yeah. No, you hit on it. It's going to be more for Q8, consistent with what we saw in 2023. I would just reiterate, we have a lot of confidence and visibility into the pipeline. We've already done more revenue in the first half of 2024 than we did in all of 2023.

Kevin Conroy (Chairman and CEO)

Then you asked a question about what we need to do before running the pivotal samples. You do have to do a lot of software work to validate all the algorithms so that they work perfectly. You have to process between 10,000 and 20,000 samples that are frozen and banked. The automation, all of the lab, reagent QC, kind of, the list goes on and on. You have one shot at doing this, and you want to do it perfectly. So the team, so proud of the team and what they have done here in developing the test, the clinical affairs team that has run the clinical trial, and it's the largest and we think broadest clinical trial in this field, both stool and blood, comparing to the FIT test, which is one thing that we insisted on doing.

We're really looking forward to doing that and announcing the results in the fourth quarter. Just to be clear, we have not processed those samples yet. When we process the samples, we will, and we see the data, it'll be a quick turnaround to announcing top-line results and then presenting the data at a scientific conference and getting them into a publication.

Operator (participant)

All right. Thanks, Catherine. Our next question comes from the line of Matt Sykes with Goldman Sachs. Matt, please go ahead.

Patrick Donnelly (Managing Director)

Hey, good afternoon. Thanks for taking my questions. Congrats on the quarter. I just wanted to ask on the Q3 guide, Aaron, it just came in a little bit below our expectations. Is that sort of reflecting some of the seasonality plus care gap in Q4 and that's where that revenue goes in terms of making that full-year guide? And then just secondly, on modeling, is there any way you can break out the PreventionGenetics from the overall screening revenue in the quarter? Thanks.

Aaron Bloomer (CFO)

Yeah. So again, rescreens is going to drive more growth in Q3 and Q4. That's going to be more Q4-weighted. Care gap programs, as we just talked about, will be more Q4-weighted, although it is a sequential step-up from Q2 to Q3. And the other thing I would just say is we know this market very well. We've seen consistently the steepest part of the growth curve really occurs from mid-August through November as wellness visits accelerate coming out of the summer. And that kind of informed then what we put into our back half of the year guide as well as our sequential step-up Q2 to Q3 and then into Q4, consistent with prior averages.

Operator (participant)

All right. Thank you, Matt. Our next question comes from the line of Dan Arias with Stifel. Dan, please go ahead.

Dan Arias (Managing Director)

Afternoon, guys. Thanks for the questions. Kevin, I just wanted to go back to the USPSTF process if I could. When those guys updated the guidelines in 2021, how far before that, I believe it was May of that year, how much before that did you hear from them first in terms of their data collection efforts? And do you think that it's any sooner or later than that this time around? Essentially, when are you expecting to first hear them reach out to you on this process?

Kevin Conroy (Chairman and CEO)

Here's how the USPSTF process basically works. And let me tell you what USPSTF is first. So USPSTF, the United States Preventive Services Task Force, is a group of volunteer primary care physicians, nurses, preeminent leaders who think about prevention and ultimately opine on dozens and dozens of different topics from vaccines to screening. And what they typically do is start with a research plan that gets published. They look at the research plan. Two things are generated: a modeling report and a literature review. So a deep survey of studies and the literature, the evidence that has been generated since the last update. They then issue a draft guidance. And then usually within about six months after that, they issue final guidance. That whole process is about a 2.5- to 3-year process.

They meet on any of the individual topics about every 5 years with colon cancer screening. They shoot for every 5 years with colon cancer screening. It has ranged between 5 years and 8 years. So it's not like clockwork every 5 years. It varies based upon how busy the task force is, the resources they have, and the extent of that research plan. So what you would expect next is to see the research plan. We were kind of expecting that to be in the first quarter of this year. It looks like it's going to be a little bit later. So the whole process gets shifted. And it will be approximately 2.5-3 years from the time that research plan gets initiated or published until the final guidance. So it's looking more like 2027 based upon that timeline. We've obviously been through 2 of these cycles, so we're awfully familiar with it.

Operator (participant)

Great. Thanks for the question. Our next question comes from the line of Doug Schenkel with Wolfe Research. Doug, please go ahead.

Doug Schenkel (Managing Director, Senior Research Analyst, and Head of Life Science and Diagnostic Tool)

Hey, guys. So I want to talk about two things: Cologuard momentum, and then I want to take another angle on Cologuard blood. So on Cologuard momentum, it seems like first-time orders grew double digits sequentially, assuming I'm doing the math right. That's impressive. I'm just wondering how much of that's seasonality versus new hires and maybe some of it's streamlining of commercial leadership. So that's the first topic. The second topic is on Cologuard blood. So you've talked about the clear cost advantages of using PCR versus sequencing. What's unclear is if there are structural disadvantages from a performance standpoint, either because of things like limitations in terms of number of markers or CpG islands you can query in detail or GC bias, just to name a couple of things. Last quarter, you talked about processing 3,000 samples.

I bring that up because you said specifically you were doing that to collect more data on specificity. I just want to give you an opportunity to address the question of NGS versus PCR trade-offs. Specifically, are there any structural disadvantages such as lower specificity? And then related to that, Kevin, there's a long history of attenuation in this industry when companies lock down their assays and actually run them for the first time on samples in a large randomized, prospectively collected sample study. You saw this with Cologuard. We saw it with Guardant. We've seen it almost every time. Why is this not a concern? Thank you.

Kevin Conroy (Chairman and CEO)

Hey, Doug, can you answer? There was a piece that I missed after the structural differences between PCR and next-generation sequencing. I missed that part of your question.

Doug Schenkel (Managing Director, Senior Research Analyst, and Head of Life Science and Diagnostic Tool)

It's really the attenuation, Kevin. As you know, and you and I have talked about a bunch of times over the years, attenuation occurs almost every time you take an assay, lock it down, and run it on prospectively randomized collected samples. Why is that not a concern here?

Kevin Conroy (Chairman and CEO)

You know, it's interesting. In the last study we did, there wasn't attenuation. The reason was we have gotten a lot better at algorithm-setting studies. The more samples that you study, and especially normals, actually, I shouldn't be giving away inside knowledge here. So what I will say is we have gotten better at setting the algorithm. And by getting better in the study, the algorithm-setting study, from the algorithm-setting study for Cologuard Plus to the final readout, we saw performance improvement, which was very different than the algorithm-setting study for the original Cologuard to the release of the DeeP-C data. Why? We have gotten better at doing those studies. The team is world-class. So there are pros and cons of PCR versus sequencing.

I would say that, remember, we used sequencing to discover the markers that we use in both Cologuard Plus and also our blood-based colon cancer screening test. And think of it this way: the fewer markers you use, there's less noise. The more markers you use, there can be more noise. Now, that's not a rule because there's also noise generated from PCR. There's noise generated from sequencing. And so these things tend to balance themselves out. The Exact Sciences R&D team is world-class at figuring out a way to make that trade-off between sensitivity and specificity. I think we're the only ones who have figured out how to do it with PCR. And it's a huge advantage. People often say, "Well, yeah, but you're not using next-generation sequencing. It's not state-of-the-art." It's actually the opposite is true.

It's scientifically harder to do what we have done, which is to focus on cost of goods and performance and to deliver on both. And so the data's going to show the results, right? And so in the fourth quarter, we'll know. Again, we don't know what the results are. It's science. Anything can happen. We're confident, but we don't have a crystal ball as to what will result. But the beautiful part of our advanced proprietary PCR platform, coupled with our deep knowledge of DNA methylation biomarkers and the regions within the best biomarkers, is a unit cost advantage. So that if we deliver comparable data with our platform, with our cost advantage, we can deliver an appropriately priced test to patients who may benefit.

And then with our system and data and knowledge and relationships with payers and providers, we can actually get a blood test to the right people. And so that's why we think we win. This will obviously take time. I would bet on the Exact Sciences team.

Aaron Bloomer (CFO)

Doug, then just on the Cologuard momentum, yeah, 15% growth for screening in the quarter. We saw growth actually across all three segments. So rescreen 45-49 and 50+. We highlighted rescreens last year were roughly 20% of total revenue. And we're on track to grow that by at least a couple of percentage points this year. I'd also just call out in the 45-49, solid growth from that. This remains one of our leading growth opportunities. Recall, there's still 19 million Americans in this cohort, and there's less than 20% of those that have been screened. If we're able to keep them screened for 30+ years, this is an even bigger recurring revenue opportunity for us. And we're really excited about all the new ways that we can reach this patient population.

They don't see their primary care provider as often as some of the other age groups. And so we're leveraging digital, our social marketing, unique ways to target them, as well as part of our care gap programs. And we've seen a nice uptick in 45-49 coming through the care gap programs as well.

Operator (participant)

Thanks, Doug. Our next question comes from the line of Vijay Kumar with Evercore ISI. Vijay, please go ahead.

Vijay Kumar (Senior Managing Director)

Hey, guys. Thanks for taking my question. And congrats on a good quarter. Kevin, I had a two-parter. One on OpEx here, down sequentially 7%. Were there any one-offs in the quarter from a timing perspective? Should OpEx be consistent at current levels? Or how should we think about OpEx ramp in the back half? And the second part was, how are you thinking about you mentioned the price advantage on your blood-based test. I'm curious, how are payers going to look at if there are two blood-based tests at different price points? How do you think payers will react to different tests? Thank you.

Aaron Bloomer (CFO)

Hey, Vijay. Good afternoon. I'll take this there. I'll take the first part of the question just as it relates to OpEx. So no specific one-timers, especially we broke out GAAP versus adjusted OpEx. And so on an adjusted OpEx basis, obviously, all the one-timers would be excluded. On a GAAP basis, there was one item that sat within the G&A line. But on an adjusted basis, you can expect kind of consistency on the G&A line, Q2 into the back half of the year. I would expect a sequential step-up implied in both sales and marketing as well as in R&D as we move into the back half of the year. R&D largely tied to our MRD program. And then marketing just typically tied to higher viewership in the back half of the year.

Kevin Conroy (Chairman and CEO)

In terms of how the payers are going to look at a lower-priced test, I think that the way that payers tend to look at any type of service is they are adept at finding a way to deliver best performance at the best cost to the plan. And that means they have a range of tools from prior authorization to step edits to tools that allow them to make sure that the right test is performed. One key opinion leader yesterday said she was excited, and this is public, Dr. Fola May. She said, "Look, I'm excited about the blood test FDA approval. There is a highly resistant population that will always refuse colonoscopy and stool tests. It gives them another option." Here's the important part. But I hope to God that everyone understands that these are not the same thing.

I think payers understand that a test that is not part of the quality measures, a test whose performance is not as good in terms of like years gained as a FIT test, is there's going to be an appropriate role that is going to be determined likely by USPSTF, payers, and then health systems and primary care physicians. That's going to be a long road.

Operator (participant)

Okay. Thank you for the question. Our next question comes from Dan Brennan with TD Cowen. Dan, please go ahead.

Dan Arias (Managing Director)

Great. Thanks, guys. Thanks for taking the questions. Maybe first one, I know there's been a few questions on care gap. Could you just potentially quantify how big care gap is in the second half since there's a lot of consternation about the expected Cologuard ramp second half, first half? And is there any sales force expansion baked in the second half? And then, Kevin, on blood, I know previously you talked about getting the data in October. Now it seems like we'll get the case control data at some point and then the pivotal data after that. Can you just speak to kind of maybe when we might see the case control data? And then finally, on Cologuard Plus and the clinical FDA schedule, can you just discuss the rationale for the 1.25 times crosswalk? Is that just based upon cost of goods sold or maybe lab costs? Any color on that?

Thank you.

Aaron Bloomer (CFO)

Yeah. Dan, so I'll take the care gap piece first. So no, we haven't sized it other than just to say, again, that we did more in the first half of this year than all of 2023. We're excited about what care gap is and new ways to help close the screening gap. Just based on looking at our pipeline and what we saw play out in Q2, we know there'll be a sequential step-up Q2 to Q3, Q3 to Q4. With respect to the sales force expansion, so there's not an embedded increased cost baked into that. We brought the reps on in May. So we'll see a little bit just a full quarter impact of that in Q3 and Q4. Then the total impact from sales and marketing investments from a revenue perspective, we would expect to see some impact. And that would be more 4Q-weighted.

It typically takes the average rep about 6 months to get up to productivity.

Kevin Conroy (Chairman and CEO)

Dan, in terms of the release of the prospective algorithm-setting study and that data, we're looking for the best conference to share that data at. We do not want to do it on an earnings call. So we're looking sometime in the fall to present that data in advance of the pivotal study date. In terms of the question about the 1.25x price, again, there is the process for getting a price from Medicare is relatively complex. We're not going to go into the details of that process. That is going to take some time to play out. And we have multiple different options there. So we're just not going to get into all of those details.

Other than to say an increase in price is predicated on an increase of value that is delivered to the people who are going to get this test and to the healthcare system and overall costs.

Operator (participant)

All right. Thanks, Dan. And our next question comes from Jack Meehan with Nephron Research. Jack, please go ahead.

Jack Meehan (Equity Research Analyst)

Thank you. Good afternoon. So wanted to ask about what your expectation is around marketing and screening when Shield comes to market. So in fairness to Guardant, they got a primary screening label from the FDA that was better than I was expecting. There's obviously some precautionary language in there. So I was just curious what your plan is to counter detail and how do you see that playing out with PCPs?

Kevin Conroy (Chairman and CEO)

We've built deep relationships with healthcare providers. Over 300,000 have ordered Cologuard with health systems. Virtually every health system in the U.S. utilizes Cologuard on a regular basis to drive increase in screenings. We mentioned, according to the CDC, the main reason for over a 10 percentage point increase in colon cancer screening is Cologuard. These are deep relationships. We think the best commercial team, sales, and marketing team in the country, a part of that leadership team is here in the office today. It's an amazing group. The Exact Nexus platform making electronic ordering easy, the ability to work with payers and large health systems to meet the patient where they want to be screened in the privacy of their own home. It's really a rich and deep infrastructure that we built. And that is we actually look forward to competition. I really believe that competition makes people better.

It makes them better individually. It makes you better as a team. It makes you sharper. It makes you hungrier. And here, we start from the point that the data, the difference between Cologuard Plus, the difference between Cologuard and any of the blood data is night and day. And so there's a passion behind what we do, getting the best test to the people who need to get screened. And I think we're going to compete. And I happen to think that the competition is going to make us better. It's going to actually drive growth. We're a trusted source of information to providers. And they're going to ask us. And we are going to strive to be truthful and accurate. And we're able to do that because of the data.

Operator (participant)

All right. Thank you for that question. And our next question comes from the line of Michael Ryskin with Bank of America. Michael, please go ahead.

Michael Ryskin (Managing Director)

Hey, just one quick one from me in the interest of time. Following up on an earlier point, something you said a number of times, Kevin, is that when it comes to CG Plus, you think it's going to be comparable or at least comparable to other blood tests. Just what do you mean by comparable? Are you talking about sensitivity, specificity? What specific metrics? Are you talking about AA or stage one? Just sort of how do we assess that? Because there are a number of different ways you can look at these tests, obviously. Thanks.

Kevin Conroy (Chairman and CEO)

Yeah, sure. So the specificity that we are targeting is 90%, which is the Medicare minimum to get paid. The Medicare minimum for sensitivity is 74%. What we have seen from others is in the 80% to very low 80% sensitivity. And what we have seen from others is in the 11%-13%, I think, pre-cancer detection. Now, remember that pre-cancer detection, you get 10 points of pre-cancer detection just because of the 10% false positive rate. So with tests in the blood and liquid biopsy test for colon cancer screening, they're essentially blind to precancerous polyps above the false positive rate. You have to take that into account. What we're seeing is a very similar cancer detection, better precancer detection. And again, we don't know how that is going to play out in the BLUE-C study.

But we have a scientific team that has done an amazing job of, I think altogether, we've done 7, 8, or 9 case-control studies leading up to where we are now heading into the pivotal. So this wasn't just a couple of case-control studies. This is rigorous science. But that's how we're looking at it. The 90% specificity minimum we're shooting for in that low 80 range. But the key is Medicare minimum is 74% and the precancer. Now, remember, this nets out in terms of modeling of life years gained. And the greater the precancer sensitivity detection, the more life years gained you get. So probably a key indicator would be a comparison of life years gained.

Operator (participant)

All right. Thanks, Michael. And our next question comes from the line of Puneet Souda with Leerink Partners. Puneet, please go ahead.

Puneet Souda (Senior Research Analyst)

Yeah, hi, Kevin. Just following up on that question, another question that we've been getting is, do you think FDA would be open to approving an assay if it is slightly lower or maybe a bit more lower than the current test that's in the market that was just recently approved? And then a broader question on Cologuard Plus. Could you refresh us on your thinking about the type of or the extent of pickup that you would see from the primary care physicians when Cologuard Plus does launch into the market next year?

Kevin Conroy (Chairman and CEO)

Repeat the first question.

Puneet Souda (Senior Research Analyst)

Yeah. The first question is simply that, in your thinking, would FDA be willing to approve a test if it is lower than the competitor blood-based test that was recently just approved in terms of performance? And by that, I mean sensitivity and/or specificity.

Kevin Conroy (Chairman and CEO)

So when you run a study, you run that study based upon endpoints that are set in the study. Our endpoints have already been established. We are confident that any test, not just ours, that achieves certainly the Medicare minimum of 74% is likely to get FDA approval. From a precancer detection standpoint, I think that's probably less likely given the limited label that the blood tests are seeking. In terms of Cologuard Plus adoption after launch, two out of three docs say they will order more frequently because of the lower false positive rate. We've said this in the past. One of the challenges with Cologuard was a 10% false positive rate. The false positive rate is now 7% with Cologuard Plus.

That is very important because when you look at it at a population level, if you screen, let's say, 1 million people, you're talking about tens of thousands of fewer people going to colonoscopy because Cologuard Plus is available. And again, that goes back to the science that lowered the false positive rate. Fewer markers, lower false positive rate. Same essential PCR platform that we're using in CRC blood.

Operator (participant)

All right. Thanks, Puneet. Our final question today comes from the line of Subbu Nambi with Guggenheim. Subbu, please go ahead.

Subbu Nambi (Managing Director)

Hey, thank you, guys. Thank you for taking my question. Two questions. What does the TGen discontinuation mean for MRD? And second, regarding Oncotype and MRD, it seems like there could be an opportunity and also a threat. On one hand, with Oncotype, you have the tumor tissue, which would seemingly give you an advantage in that you can create a bespoke assay. But on the other hand, bespoke MRD assays could conceivably cannibalize Oncotype or even lead to some share loss. Am I thinking about this the right way, or can you share your thoughts on opportunity versus risk?

Kevin Conroy (Chairman and CEO)

Yeah. So in terms of the TGen question, no. We attempted to develop an MRD test with that technology. We opted for our own internally developed technology coupled with technology that we licensed from the Broad Institute. In terms of the advantage that we have because of our Oncotype DX, we see an enormous percentage of all U.S. breast cancer tissue samples. Having that tissue sample as a starting point for breast MRD is a huge advantage. Oncotype DX has about 90% share. As a result, we have a deep relationship with almost every health system in the U.S. We think that is going to confer a real advantage for us over time. So these tests are really complementary. The Oncotype DX test and the MRD test Oncodetect that we're developing. We're looking forward to sharing the Oncodetect data later this year.

We look forward to our next earnings call and having future conversations with you all in between. Thank you all. Just one more shout-out to the Exact Sciences team. So dedicated to the mission. So dedicated to delivering on our goals for the year. Thank you very much.

Operator (participant)

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.