Rod Hise - IR Bill Megan - SVP, Finance Kevin Conroy - Chairman and CEO Maneesh Arora - COO.

Matt Larew - William Blair Jeff Elliott - Robert W. Baird Isaac Ro - Goldman Sachs Brandon Couillard - Jefferies Mark Massaro - Canaccord Genuity Peter Lawson - Mizuho Securities Jan Wald - Benchmark Jose Haresco - JMP Securities Chris Lewis - Roth Capital Partners LLC Zarak Khurshid - Wedbush Raymond Myers - Alere Financial.

Good day ladies and gentlemen and thank you for standing-by. Welcome to the EXACT Sciences Corp. Third Quarter 2014 Earnings Call. At this time, all participants are in a listen-only mode. Later, we’ll conduct a question-and-answer session and instructions will be given at that time.

(Operator instructions) Please note today's conference is being recorded. I’d now hand the conference over to Rod Hise. Sir, please go ahead..

Thank you and thank all of you for joining us for EXACT Sciences’ third quarter 2014 conference call. On the call today , are Kevin Conroy, the Company’s Chairman and Chief Executive Officer; Maneesh Arora, our Chief Operating Officer; and Bill Megan, Senior Vice President of Finance.

EXACT Sciences issued a news release earlier this morning detailing our third quarter 2014 financial results. If you’ve not seen it, please go to our Web site at exactsciences.com or call 608-807-4607 and I’ll send it to you.

Following the Safe Harbor statement, Kevin will provide a summary of our third quarter financial results and provide an update on our corporate priorities. We will be happy to answer your questions following Kevin's remarks.

Please take note of the Safe Harbor paragraph that appears at the end of this morning's news release that covered 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 or to any change in events, conditions or circumstances on which any such statement is based.

It is now my pleasure to introduce the Company’s Chairman and CEO, Kevin Conroy..

Thank you, Rod, and good morning everyone. Our mission at EXACT Sciences is to help eradicate colorectal cancer, the second leading cancer cure in the United States. Each year there are 50,000 deaths and 137,000 new cases of colon cancer. Colon cancer is one of the most preventable cancers but it is one of the least prevented of all cancers.

60% of colon cancers are detected in stage 3 or 4 when outcomes are poor. By detecting early, we may be able to prevent cancer and stabilize. Cologuard, which a large clinical trial data show detected 92% of cancers and 69% of the most advanced pre-cancers, can change that.

It offers people 50 years and older who are at average risk for colon cancer and easy-to-use screening method, it’s more than a test because it’s part of the service that our lab provides to the patients and physician that actively helps people gets screened. In the U.S. alone, the screening population of average risk patients is more than 80 million.

Colorectal cancers screening is a multibillion dollar opportunity in the U.S. and abroad. Our field sales team is working actively with primary care physicians to educate them about Cologuard to make it a routine part of their patient care. Let’s discuss our third quarter highlights and financial results.

The third quarter was a transformational quarter for EXACT. Cologuard won FDA approval on August 11th. CMS made its final National Coverage decision on October 9th and Cologuard is covered for all Medicare beneficiaries as of that day. CMS also announced its preliminary reimbursement amount the same day. We launched our test with 120 person sales team.

The feedback that we have been receiving from physicians has been excellent. Cologuard has broad appeal across the range of primary care physicians and well beyond the appeal it has to the highest FIT and FOBT prescribers.

Primary care physician see colorectal screening as a pain point in their practice because many of their patients will not undergo regular screening. They love the accuracy of Cologuard and it’s of ease-of-use as they order it and patients use it. Simply put, Cologuard makes everyone’s life easier.

Our lab and customer support center are fully operational, processing physician orders and patient centers. Our ability to provide 24/7 support and follow-up is one of the most important ways we made Cologuard so easy to order and use. It’s a significant part of Cologuard’s value proposition.

We will describe each of these highlights in more detail in just a moment. First I’d like to discuss how we will recognize revenue, for Medicare patients we plan to recognize revenue on an accrual basis.

For tests bill to commercial payers and individuals, we expect to recognize revenue on a cash basis until we have contracts in place and some amount of history to demonstrate collectability. Accordingly, because CMS did not issue its final National Coverage decision until October 9th, we have not recognized revenue for the third quarter.

Operating expense for the quarter was 32.2 million, cash utilization for the quarter was 23.7 million and we ended the quarter with a cash balance of 211 million. Let’s turn now to the FDA and CMS actions. The FDA approved Cologuard on August 11th. CMS announced simultaneously that it proposed to cover Cologuard.

It was the first time the two agencies made such a joint announcement. The announcement was the outcome of the FDA and CMS parallel review program which the agencies launched three years ago to shorten the time it takes to bring innovative, new medical products to patients.

We believe this is a very valuable program that we may seek to use in the future as we develop our pipeline. We are very pleased with the broad label that FDA provided for Cologuard’s use in average risk patients between the ages of 50 and 84.

We will spend most of today’s call providing an update on the progress we’ve made bringing Cologuard to patients and physicians. Before I do, let’s discuss CMS’ recent decision on coverage and pricing. We are pleased that on October 9th, the CMS Coverage and Analysis Group issued a final National Coverage decision on Cologuard.

Medicare Part B will cover Cologuard onetime every three years for its beneficiaries age 50 to 85 where at average risk for colon cancer. Medicare patients represent 43% of the screening population launching a new diagnostic test with 43% of covered lives is unusual and positions us for success.

Also on October 9th, CMS’ Hospital and Ambulatory Policy Group proposed that Cologuard be reimbursed based on a crosswalk methodology relying on three existing codes. Crosswalking is the linking of existing codes to a new test to establish payment for it.

The codes in CMS’ preliminary payment decision are consistent with those proposed by the company in July. They add up to $502. CMS also created a specific G code for Cologuard which we will use to build for Medicare covered tests. We expect a final decision on pricing by the end of the year. Let’s turn now to our Cologuard marketing efforts.

Our Cologuard launch strategy is to create demand among physicians, promote awareness among patients and secure payment from both Medicare and private payers. The strategy includes PR activities, advocacy, Cologuard marketing campaigns and a strong presence on the Web. Our 120% sales team has been our biggest commercial investment to-date.

We have three sales regions, West, Central and East, each headed by a director. Our field sales team consists of approximately 120 people, including 10 reps who call on large systems and group practices. There are 80 reps who call on primary care physicians and 10 area managers.

We have six clinical reagents, who are responsible for medical education, to balance our sales management and support this is a deep and talented team. Our team is again leading with physicians and health system officials immediately after FDA approval.

We also have an experienced implementation team that works collaboratively with each healthcare system to support their electronic medical record integration, physician staff education and patient education initiatives. We have an active physician marketing program aimed at educating appropriate health professionals about Cologuard.

The goals of this strategic program are to increase physician awareness, support the sales team’s efforts to drive physician adoption and differentiate Cologuard from other screening options.

Our physician outreach includes a digital ad campaign that’s focused on primary care physicians, GIs, physician’s assistants, nurses and other medical professionals. The campaign uses highly targeted digital ads and emails generating more than 6.5 million impressions to-date.

The campaign also includes materials that our sales team can use and leave behind during office visit. We also had an active presence at medical conferences. Our medical education program is an important component of these efforts.

This program provides physician speakers to groups of other health professionals to educate them about Cologuard helping to raise awareness and adoption. By the end of the year, we expect to have completed 15 meetings, during which physicians present on Cologuard direct to their peers in locations throughout the United States.

As a result of all of these initiatives, Cologuard was the third most searched term on Medscape during the month of September. Medscape is the leading online medical information and educational tool most used by physicians and other health professionals. Let’s look at what physician’s reactions have been to Cologuard.

Our research indicated that over 90% of primary care physicians found Cologuard compelling. Our actual experience is consistent with this research. PCP’s know that there is an acute need for a new and different way to screen for colorectal cancer.

They see far too many of their patients being diagnosed with colon cancer many who chose not to undergo colonoscopy as a frontline screen test. Most physicians are frustrated with the number of their patients who do not undergo colonoscopy even after repeated requests.

Many also find that the non-invasive tests available before Cologuard’s launch, the FIT and FOBT tests are simply not accurate enough and that too many patients to take home those tests and never return them. Physicians love the fact that Cologuard is an at-home, patient-friendly screening method that is highly accurate.

They are also won over by the data, 92% cancer detection established in a well-designed 10,000 patient clinical trial the results of which were published in the New England Journal of Medicine. This has simply been highly impactful.

Physicians also appreciate the service that we offered them and their patients backed up with a 24/7 call center aimed at getting their patients to follow-up on the Cologuard test. They love that we are removing the burden of colorectal cancer screening from the doctor and making it easy for their patients to get screened.

Now let's take a closer look at our robust directed consumer digital advertising campaign. Our digital advertising campaign is highly focused on creating a strong digital presence for Cologuard exposing people to the Cologuard message on high profile news and healthcare sites like the New York Times and WebMD.

Clicking on these ads sends you to cologuardtest.com which I’ll show you in a moment. We also have customized our digital advertising, so that it reaches physicians and patients who match our target profile’s reach.

Finally we’re maximizing a patient’s ability to find Cologuard through paid search that puts Cologuard at the top of the results for certain search terms. Since the campaign began there have been more than 90 million impressions through digital ads and search. Let me briefly show you cologuardtest.com.

This is a screen shot of cologuardtest.com our consumer Web site. Here a patient can find detailed information about colorectal cancer, Cologuard and getting screened with our tests. It also has a unique feature that we’re very excited about. If you look in the lower left hand corner you can see a link that says talk to your doctor.

If you click on it, you can do two things. First you can download a discussion guide that you can take with you to the doctor to see if screening with Cologuard is right for you. On an average of 50 discussion guidelines are downloaded each day. Second, you can chat live with a healthcare professional about Cologuard.

Since approval we’ve had nearly a 0.5 million visits to the Web site. Public Relations also is a major component of our effort to raise awareness about Cologuard. Our PR efforts to raise Cologuard’s profile with patients and physicians have generated more than 3 billion impressions since we launched Cologuard.

Cologuard has been featured in more than 1,000 unique news outlets. Top-tier media outlets have run stories about our tests, including the Wall Street Journal and the New York Times. Cologuard also was featured on the national TV program The Doctors.

Just this morning Cologuard was featured on the Today’s Show, the second time it has been featured there. We also have a focused strategy aimed at educating commercial insurers about Cologuard. Our strategy is aimed at securing coverage of Cologuard by the top national plans.

Medicare covers 43% of the population and another 40% is covered by commercial insurance. The largest commercial insurance plans represent the vast majority if this segment. We have a team actively engaged with these health plans to obtain coverage. We believe our strategy will help secure coverage from among the largest payers in the country.

Securing that coverage takes time however and our expectations are reasonable in the near-term. Medical practice guidelines also play an important role in coverage and adoption of Cologuard. As of 2008 the American Cancer Society recommends stool DNA testing in its screening guidelines.

Stool DNA also is included in guidelines developed by the American College of Gastroenterology with a testing interval recommendation of three years. Presently the United States Preventive Services Task Force is conducting a review of its colorectal cancer screening guidelines.

We anticipate that they will complete that review towards the end of 2015 or beginning of 2016. If stool-based DNA testing is included and gets an A or B rating, the Affordable Care Act requires all commercial pay0rs to cover the test, without co-pay, co-insurance or a deductible.

Now let’s turn our attention to the results of our sales and marketing efforts today. We have been very pleased with the interest level of our target physician, primary care doctors and their staffs. In the short times since FDA approval thousands of doctors have signed up to be able to order Cologuard.

With the official launch following the National Coverage decision on October 9, test orders had accelerated. We’re extremely pleased with the number of physicians ordering Cologuard. Our strategy of focusing on large group practices that employ about half of PCP’s in the United States is also paying off.

We’ve announced four systems to-date that have begun to offer Cologuard to patients. These systems employ more than a 1,000 primary care physicians. To-date we have had one commercial health plan covered, Cologuard and we’re in the contracting process with others.

Our clinical laboratory is an important part of the value that we provide to physicians and patients. Our operational capabilities are a strategic advantage for us. We built a state-of-the-art clear certified lab and customer support center capable of processing 1 million patient samples per year.

We have achieved both College of American Pathology certification and New York State approval for our lab. We have invested in manufacturing capacity and built significant inventories and we have hired and trained staff so that we’re prepared to process the written tests.

One of the unique operational advantages we have built is our IT system architecture. This intelligent business system ties together our entire business enabling us to provide a very high level of customer service. It also enables us to track our business growth in real time and make strategic decisions rapidly. Let's now turn to our favorite.

We've developed a technology platform that is applicable to the screening and diagnosis of other cancers. We're developing novel, clinically important diagnostic screening tests for GI tract cancers, through a highly productive collaboration with the Mayo Clinic.

We've a focused R&D effort underway both in collaboration with the Mayo Clinic and independently. In the near-term, we expect to provide more clarity on what we believe to be this valuable asset of EXACT Sciences. To reiterate what I've said at the start of the call this past quarter was a great one for Exact Sciences.

It is very gratifying to see five years of focused work culminate with a broad launch of Cologuard across the United States. As is always with the case of EXACT it was a team effort.

Cologuard could not have been launched without everyone in the Company starting with our product development team and now including those who're selling, marketing and seeking reimbursement for Cologuard. All of us are totally focused on our mission of helping to eradicate colorectal cancer. We're now happy to answer your questions..

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

Hi good morning this is Matt Larew in for Brian. Thanks for taking my question.

Kevin you mentioned that sort of several thousand of docs have signed up and I just want to maybe hone in specifically on the 2,500 high prescribing FIT and FOBT physicians you've spoken about and just wonder based on the, obviously early feedback here what sort of progression you expect towards that 2,500 and sort of what the feedback has been on those high prescribing doc?.

Hi good morning this is Matt Larew in for Brian. Thanks for taking my question.

Kevin you mentioned that sort of several thousand of docs have signed up and I just want to maybe hone in specifically on the 2,500 high prescribing FIT and FOBT physicians you've spoken about and just wonder based on the, obviously early feedback here what sort of progression you expect towards that 2,500 and sort of what the feedback has been on those high prescribing doc?.

Sure thanks Matt for the question. There were early reports that by people who logged onto our Web site and started looking up the number of physicians who've been enrolled and that I think the early numbers were around 1,300. Let me say that we have exceeded the 5,000 number and the trajectory of enrollment continues to go physicians want this test.

And it's more than just high prescribing FIT and FOBT physicians. It's all the physicians that we've been able to connect with they see the value of Cologuard. Another thing that is important to note is that our research indicated that although FIT and FOBT high prescribers were great targets because there was a very concentrated number of them.

Their willingness to order Cologuard there was no difference in the research between high prescribers and people who didn’t believe in using the FIT and FOBT test.

Although with that said, we've had -- we're very happy with the conversion of those very targeted FIT and FOBT physicians we don't want to provide that specific breakdown and create whole new sets of information for others to track but we're very pleased with the conversion of those top FIT and FOBT physicians. They see the value of Cologuard..

Okay thanks for that detail Kevin and then just on the USPSTF process could you just review for us how you expect the day will evaluate Cologuard and what if any information you think might be available to the public throughout that process?.

Okay thanks for that detail Kevin and then just on the USPSTF process could you just review for us how you expect the day will evaluate Cologuard and what if any information you think might be available to the public throughout that process?.

The USPSTF outlined in January of this year the process that they would undergo to update their colon cancer screening guidelines and they look at a lot of different factors. The main thing that they tend to look at and you can see this from their A ratings for colonoscopy and eye sensitivity occult blood tests.

That they look at the sensitivity of the test, the positive predictive value, the negative predictive value, they also take a look at the adverse events associated with screening.

So those are the most important things it's obviously important to USPSTF the quality of the evidence that is used to generate those data and we believe that the starting published in the New England Journal of Medicine is among the highest quality studies in colon cancer screening and believe that that will be sufficient for the USPSTF to review Cologuard.

In terms of the timing again we expect it to be 2015 or early 2016. We understand that this time the USPSTF may make their findings public and available for public comment we've not received confirmation of that but we believe that may occur..

Okay, thanks for the comments and congrats on the milestones in the quarter..

Okay, thanks for the comments and congrats on the milestones in the quarter..

Thank you..

Thank you. Our next question comes from the line of Jeff Elliott from Robert W. Baird..

Good morning guys and congratulations on the progress on rolling off this test.

But my first question is on the conversations with commercial payers now obviously you're making some good progress there, but I'm curious that how've those conversations changed after you got the preliminary reimbursement figure from CMS? I'd assume at $502 the room for premium level reimbursement is a bit lower than had CMS come in at $300.

But I’m curious, how this conversation change and how should we think about the absolute level of reimbursement from the commercial payers?.

Good morning guys and congratulations on the progress on rolling off this test.

But my first question is on the conversations with commercial payers now obviously you're making some good progress there, but I'm curious that how've those conversations changed after you got the preliminary reimbursement figure from CMS? I'd assume at $502 the room for premium level reimbursement is a bit lower than had CMS come in at $300.

But I’m curious, how this conversation change and how should we think about the absolute level of reimbursement from the commercial payers?.

So the interest has always been high and we know from reviewing the commercial payers’ calendars, they’re doing and keeping an eye on this product. And so until two weeks ago they didn’t -- there is a fixed process for coverage and then coding and payment.

So while there is definite interest we have had its great conversions around the clinically utilization, we’re just now the very first beginning stages of having the payment contract and discussions.

We are initiating those with some payers as Kevin alluded too and we think that’s a situation that’s going to play out here, but it’s going to take time with the larger payers.

So the coverage decisions or the initial conversations we’re having with the medical directors and those are proceeding very-very nicely with the October 9th decision by Medicare that’s going to influence the future conversation that we’re having..

Got it. If I look at the coverage policies for lot of these top payers, the timing of their updates the policies are available online. You can see that they are updated on a rolling basis.

Should we be thinking that you could get coverage before kind of the annual uptake from these payers? Or should we just say, hey you’d at some point during the year next years when these policies would be updated?.

Got it. If I look at the coverage policies for lot of these top payers, the timing of their updates the policies are available online. You can see that they are updated on a rolling basis.

Should we be thinking that you could get coverage before kind of the annual uptake from these payers? Or should we just say, hey you’d at some point during the year next years when these policies would be updated?.

That’s exactly what we’re working on Jeff and so there are some payers that we suspect based on conversations may delay from their annual review cycles and that’s what our active engagement is with them is to pull those decisions forward if possible and we’re hopeful that we can do that, but at a minimum we know we’re engaged on their current annual review cycle..

Got it. And just noticed that the CMD side, you obviously you’ve got the coverage during and the end the preliminary pricing. Now I am curious.

Does that apply to everybody who is covered by Medicare or is that only people who are covered by the traditional fee-for-service plans?.

Jeff. It’s Kevin. The Medicare national coverage decision applies to both traditional Medicare patients that’s about 70% of the Medicare population and also to the Medicare advantage patients that represents the remaining 30%..

And with the 502 pricing would that apply to both as well?.

Yes, it does.

Initially, our advisors tell us that for the Medicare advantage patients most likely throughout 2015, those patients’ Cologuard test would actually be reimbursed by the regional MAP, that would pay for all of the patients and then once those Medicare advantage plans have an opportunity to put Cologuard into their budgets starting in 2016, we would be reimbursed directly by those Medicare advantage plan..

Thank you. Our next question comes from the line of Isaac Ro from Goldman Sachs..

I wanted to start off with a quick question about just the ramp for volume in revenue rec for 2015, you guys touched on a bunch of items but maybe specific one for me would be, how we should think about your expectations for the ability to recognize revenue from private payers between now and when you think the guidelines were actually obtained down the road? Is there any rule of thumb you can help us drive kind of this modeling?.

Thanks, Isaac. I think it’s too early to tell the timing of those coverage decisions. You can see the timing of the largest plans on their websites where they make it known to the public. We would expect that most of the major payers would cover Cologuard because of the stage of the conversations that we’re having with them.

It’s hard for us to say in 2015 how many of them will cover Cologuard and at what point of the year we will be under contract. And this is important to know is the two-step process, it’s a coverage decision and then it takes up to 90 days to have a contract with those payers.

And if we won’t expect to recognize revenue on an accrual basis into both of -- those things are completed..

Got it and just go be clear, you guys will be running tests for patients under those plans between now and then until there’d be more of a question of timing as to when you get paid for tests, is that how we should think about it is the actual process?.

Now we -- for commercially covered patients we will collect $50 from the patients before sending the collection kit out. And we will get an assignment of benefits from the patients so that we’re able to have a conversation and negotiate directly with the insurers and we expect that many of those payers will pay.

And it may take some time however to collect..

Thank you. Our next question comes from the line of Brandon Couillard from Jefferies. Your line is open..

Hi, this is [Kate] in for Brandon actually. Thanks for taking the questions. I was just wondering if possible can you share some additional detail on how these large systems such as Mayo are adopting Cologuard.

And specifically are they continuing to offer FIT and FOBT physicians testing and are they educating the doctors about the tests?.

First of all these systems that are coming online are actively educating their physicians.

And we are also helping the support data for the less really important, just offering Cologuard through their Web test ordering systems isn’t sufficient, you really have to educate the primary care physicians about this great through comprehensive screening test.

You also then, it's important to integrate our lab ordering system with their EMR system, so that you make it really easy for the physicians to order.

To-date we’re not aware of any system that is totally ceased ordering at FIT and FOBT test, we do believe that given the data around Cologuard, that Cologuard will be the dominant way of colon cancer screening within those systems overtime. The data is just too strong..

Okay. Good. Thanks.

And is there anything, any updates on the international effort and do you still expect a 1Q ’15 introductions to those markets?.

Yes, I just got back from the UEG Conference which is the big gastro conference in Europe last week, met with the European team and, again, the idea is to launch in Germany, Switzerland, Austria, Italy and the UK on a cash basis.

We don’t have significant expectations around volumes and revenues but it's very important for us to be in those markets and to start to run additional studies in those markets to help make Cologuard to be a compelling colon cancer screening method, in Europe like we expected to be in the U.S..

Thank you. Our next question comes from the line of Mark Massaro from Canaccord Genuity..

Hey guys. Thanks for taking the question and congrats on your progress to date.

I wanted to maybe just discuss your first health plan that you pin coverage on in Wisconsin obviously a regional plan, but could you comment on some of the terms that you negotiated with them and from a pricing perspective? And would it be fair to for any conclusions on pricing to other plans based on that one?.

Thanks Mark for the question. We will not provide any detail on a plan-by-plan basis regarding price or any of those terms. Let me say though that Cologuard is a highly valuable test, it is a very cost effective way of screening for colon cancer.

We had invested as you know significant amount of money to bring Cologuard to market and we believe that the price that we are offering Cologuard at is a very fair and reasonable one. So, we have no incentive to lower up price and we will continue to strive to maintain that fair and reasonable and prices we go forward..

Great and just as a follow-up our second question, of the items in your pipeline is there one or two that may have a higher priority over the others and or when would you feel more comfortable providing additional data or information on your pipeline? Thanks..

Mark, we are doing a great deal of work on the prioritization process right now. It is a, it's incredible that number of opportunities that we have to improve, the early detection of other GI cancers and potentially other cancers outside of GI track.

We’re acutely aware that our success has been formed by focus and so it's important for us to make that decision in the near-term and focus on one or two key test as we go forward at least in the near-term.

We have not made that decision yet, we hope to make that decision before the end of the year that prioritization decision and then have an Investor Day in the first-half of next year where we talk about among other things to pipeline..

Thank you. Our next question comes from the line of Peter Lawson from Mizuho..

Kevin is there any telling give around volume you’ve seen in 3Q level below expectations any early issues you have seen?.

In terms of the number of physicians that have enrolled, we have exceeded our expectations for this year-to-date. We’re very pleased with where that is going. In terms of test orders, we’re also really pleased with the trajectory because we got FDA approval in a proposed Medicare coverage decision at the same time.

Most physicians wanted to wait to order Cologuard until the national covers decision became final which occurred at the beginning of the fourth quarter. What we saw was in the weeks before the National Coverage decision or seven weeks between FDA approval and the National Coverage decision they are about 1,000 quarters.

And in the two weeks since the National Coverage decision there have been about 1,150 quarters. So we’ve more than doubled and just on a week-to-week basis we’ve gone from the last three weeks from 300 tests to 450 tests to 715 tests last week.

We don’t know where this is going to go, we can do some math and make a rough guess that where this leads to but we’re very pleased to, but we’re very pleased with the initial trajectory. I want to caution it’s only the first two weeks since we’ve had a National Coverage decision and that’s really what we always considered our official launch.

We expect this to continue to accelerate and we will and we can talk about this more but we will add resources to help make sure that this accelerates because our goal is not to stop at 5,000 primary care physicians.

Our goal is to eventually exceed 100,000 primary care physicians or even 200,000 primary care physicians that have signed up and are a part of our network of physicians in our lab IT system.

We think that that is achievable and so I want to keep people focused on the long-term value creation opportunity here from the start it looks like with just a couple of months that we’ve had since launch that we will get to a very significant number of physicians.

That also by itself having a huge number of primary care physicians in your network is a strategic asset as we look at our pipeline and look at other tests that these same physicians may order. Hopefully, that provides more color. We want to keep people focused in the long-term here on, number of test order and revenue.

And we’re pleased with the start but we have a lot of work to do..

The other question I wonder if you could help us around the amount of history you need for payers to start recognizing revenue on this rule basis versus cash?.

This is Bill. So what we said is that under accounting rules revenue recognition will follow demonstrated relationships in history. So it is very simple Peter. Until we have a contract and then some demonstrated history of collegiality will be on a cash basis. Once we have that we’ll go to accrual.

And it will depend upon the payer, if it is prompt and in line with the contract it will be very quickly, we won’t need to see months and months, we just need to demonstrate collectability in compliance with the contract..

You’re thinking in some of these you can essentially get it within one quarter and then others it maybe four quarters..

Yes..

Peter let me come back to one thing that I want to make clear. I don’t want to set an expectation that we’re going to provide the number of physicians that are enrolled every quarter.

I want to make sure that investors are focused on what we think as a most important thing and that is the testing order and the revenue being generated on an ongoing basis..

Thank you. Our next question comes from the line of Jan Wald from Benchmark..

So I have a couple of questions. And I realized this is early and I am asking probably ahead of when I should. But just in case, you would like to say something. In terms of adoption it sounds to me as if what you’re saying to us is that CMS is going to come on pretty quickly and you’ll have that bolus of patients and opportunity, covered lives.

And the private payers, you expect to come on fairly quickly as well. So where other companies would expect health insurance coverage to come over let’s say three to five years you’re expecting something to happen earlier than later in that more typical process.

Am I right about that?.

I think that the third characterization, the question is does that occur fully or do you achieve 90% penetration of the commercial heal plans in 18 months, 2 years or 2.5 years? We don’t know. We’ll have a better idea of that over the next quarter or two.

We do believe that the Medicare decision to cover this test and a decision by USPSTF will provide big motivations for the commercial payers to cover Cologuard. The other thing to note is that Cologuard is reasonably priced and it is a highly effective way to screen for colon cancer with some real advantages over the current methods.

So this isn’t a real hard- sell and it is not a really high priced test..

And I guess just in terms of the doctors are ordering the test now or I guess the doctors are ordering the test now expecting reimbursement. So they're probably ordering it for their Medicare patients.

Is that a presumption?.

They're actually ordering it for both their Medicare patients and their commercially insured patients in a similar fashion..

And how do they expect to be paid by the commercial payer until they could -- on a one-time basis?.

What we have -- the primary care physician is that we will bill up their patient $50, collect $50 from their patient before shipping out our collection kit, and that we will work with -- we will bill the payer directly, appeal the claims if the claims are rejected and work very hard to collect the balance on the patient's behalf.

We also are upfront with the patient that they may be on the hook for the balance. We however will exhaust the appeal process before asking the patient to pay the remaining balance.

So far many physicians are comfortable with that and they've seen this happen before and as a result, we're seeing many, many patients with commercial insurance being willing to pay $50 upfront. We're really happy with the way this is progressing..

Okay and one last question and I realize this is very early to ask you this but the amount of analytics you've done you probably have something to remind about this but the compliance rate for colonoscopy is pretty horrible.

What can you say to compliance rate or what should we kind of assume the compliance rate the reuse rate would be every three years for this test.

What's a good way to get a handle on that?.

Well the way that we talk about the compliance rate is that the patient receives the collection kit what percentage of those kits are returned and turn into a completed Cologuard test. And based upon the work that Kaiser did with an active compliance program they were able to achieve over 70% compliance with the FIT test.

We expect with our even more robust patient focused effort we will exceed 70% compliance of people who receive a collection kit. .

Okay, and should we assume reuse with the excess 70% level for you know the second time..

I think that is probably too early to tell and we'll figure that out shortly. It's a pretty easy test and you don't hear too many complaints about the ease of use so we think it's a test that we'd be able to get people to do it second time..

Okay, thank you very much..

Just as a note we've already heard about patients who have received Cologuard had a positive test result went to colonoscopy and had significant lesions found and that's really gratifying and we think those people are going to tell their friends and family members go and get screened because it could save your life..

Thank you and our next question comes from the line of Jose Haresco from JMP Securities..

Could you give us a better sense for which types of patients are getting the test, I mean are the doctors ordering it for everybody who's eligible or are they looking at high risk I'm just trying to understand currently kind of what the early adoption behavior looks like and are there any difference between the high prescribers the 2,500 high prescribing FIT doctors and the ones who aren't the other 2,500..

On Cologuard has been ordered mainly for patients who are average risk for colon cancer, we're very clear that the label is for average risk patients between the age of 50 and 85 and that is excludes high risk patient. Now there maybe some physicians who're ordering the test for high risk patients we're not aware of that today.

And I'm sorry your second the second part of that question..

Are there any difference at all between the high prescribers and the not high prescribers?.

To date we haven't noticed it, what we see is physicians broadly speaking like Cologuard. Let Maneesh jump into it too..

Yeah so that's I think one of the biggest learnings we've had is that and I was just at AAFP a big family practice show last week and the big takeaway was the product really really resonated.

It really resonated with physicians so when you talk to physicians whether they're high FIT users or not they understand and recognize the problem and all of them recognize the problem colon cancer screening. And when you explain Cologuard to them and it's essentially right writing up prescriptions writing the order and that's it.

They're amazed that the fact that wait a minute you're going to follow up with the patient, you're going to handle the villain wait a minute this was covered by Medicare it becomes an unbelievably resonant you can see the light in their eyes flash and I'm really looking forward to continuity to get the message out there because this is about giving that message across.

To answer your question this resonates with anybody that is seeing patients over 50 because this is a big problem..

This is a really important point that Maneesh makes is that colon cancers screening is the real pinpoint for primary care physician when they have to cajole patients to undergo colonoscopy and the patients simply don’t show up to a scheduled colonoscopy that a patient repeatedly says no to current colon cancers agreement that there are a lot of those people out there and it’s a primary care physician who has to deal with it.

Primary care doctors have to deal with handling a best to a patient and the patient never returning. We take away those pinpoints with this very valuable compliance engine that Maneesh and his team created and are delivering to physicians..

When I think we often see that physicians will try to test their waters a little bit.

They order 1, 2, or 3 kits and see what happens after that, are you seeing that type of behaviors? Because I would doubt that the [ordering] for everybody is over 50 of average risk, so are seeing that type of testing the waters? And how should we think about that those early first two conversion days when something first starts with the order tests?.

As with anything, I think that’s an appropriate characterization. People need to comfortable with it, so what you have is you got a couple of different I would say two categories, you’ve got folks that see it get it, but we read away in early adaptors and they some of them have just gone whole hog and said, I believe in Cologuard.

And then you have a huge majority that want to try to this, want to try on some patients, and the phase they were in right is really too early to tell it’s only been a couple of weeks. But we’re pleased with the number of physicians that are ordering and the trajectory of that progression..

This is Kevin. We’re also in active discussions with some provider groups that wish to order Cologuard proactively for unscreened patients that they have simply been unable to get screening. And so we’re working with those groups to place a large number of orders for whole groups of patients that presently are unscreened..

Okay thank you very much. This last question is bit of housekeeping when how we should think about the SG&A spend and you gave some color on that last quarter.

But how should we think about it going forward during that year or two as you’re thinking about changed at all?.

It’s Bill. So let me provide a little color on the third quarter and then talk about how we will finish the year. I think it’s going to be too early to talk about 2015 and beyond, but we’re the third and we’ll finish the year.

As Kevin mentioned, we had operating expense of little over $32 million in the quarter and included R&D expense of $9 million, G&A also about $9 million and then sales and marketing a little over $13 million.

I want to point out that also in operating expense we included a cost of sales number of 900,000 and this despite lack of revenue, it reflects cost and material we used in the quarter but importantly it relates to spare production capacity and under accounting rule and cost of that capacity, that fair capacity is treated as period expense and not capitalized into inventory.

But with that let me get typically to sales and marketing, so is that little more than $13 million and this reflects the conversations we had after the second quarter where we said we would launch for the sales team of about 120 and then 20 more in marketing for 140 people.

We thought that it would be appropriate to use a multiplier but that $200,000 per person in annual cost for compensation. If you do that math, we would have experienced about $14 million in the quarter just passed and that’s about where we’ve landed. Spending will continue to ramp Jose in Q4.

In the second quarter, we indicated our intent to add another 20 sales that by year end and if you put into corresponding marketing in the same approach would yield about $16 million in the fourth quarter. With regard to R&D, R&D did ramp up a bit and we talked about it ramping a little over where we were in 2013, it was $9 million for the quarter.

But I want to point that that includes $2 million in expense related to onetime milestone payments that made to partner organization owed when Exact achieved FDA approval for Cologuard. So in Q4, we expect the run rate that established in Q1 and Q2 will be more than norm and that’s why we invested about $7 million a quarter in the first two quarters.

So it should be turned to that kind of run rate.

On the G&A side, a big increase in G&A to the quarter $9 million in Q3 and just to remind you that’s spending is foundational to our commercialization it includes sophisticated IT environment that Kevin and Maneesh have described that includes the customer support that we put a lot of emphasis on for our compliance engine it includes our billing system and billing staff HR and of course the leadership team.

In Q3, it is ramp up significantly and part of that is reflection of about decision to accelerate some of the commercialization development in Q3 that we would have previously put into Q4.

For Q4, we anticipated it at about the same when it was sort of inline if you will, does that help?.

Yep, it helps. Thank you very much. Congratulations again..

Thank you. Our next question comes from the line of Chris Lewis from Roth Capital Partners..

Yeah, guys. Thanks for taking the questions.

Can you hear me alright?.

Yes..

Great. Thanks for the color on the first few months here of the sales process.

In those sales calls can you elaborate that on the feedback perhaps are you getting and what you’re hearing about, what really is most compelling filling by two physicians is it the journal publication, is that the reimbursement the compliance or is it really just a combination of everything at this point?.

Chris, so it is, it's a really powerful message, we train our folks to talk a lot about clinical message and reality is the power of that New England Journal of Medicine publication addresses a lot of those question, the FDA approval, the CMS decision those are very, very difficult thing.

So, when we’re walking in now and having the conversation it is far less clinical in a lot more frankly operational.

And their question, their lead question, if you do your research is good set is going to be it might be addition going to get a bill, it does come back to that managed care of angle and it gives them a lot of comfort knowing that Medicare has made a decision already to nationally cover that.

So it is really very comforting to them to know that we will collect that what we’re calling the Cologuard assurance payment and follow-up with the insurer, but that is our way to cover one question and then secondarily the operations, it did okay.

So, how will I get this into my EMR, the logistical question, which were addressing as they come up? So, the feedback is overwhelmingly been supportive on clinical message they know this is the right thing to do, it's how do we do it, how do we implement and that’s the part that’s just going to take time, but the trajectory looks very positive..

Okay.

Thanks and as we go into 2015, how should we think about the slice of the sales force and when do you think it will be necessary to add more resources to that group if it’s better than expected adoption rates you’re seeing?.

Well, we’ve previously said that we will add 20 additional sales people by the end of this year and then we’ll evaluate the fourth quarter and make a determination for how many additional resources to add and specifically what kind of resources to add.

No doubt that that share, the sales force will grow beyond the numbers that we have at the end of this year, there is no doubt about that, the question is by how much and what types of resources..

Thanks for the time and congrats on the achievements..

Thank you. Our next question is follow-up from the line of Mark Massaro from Canaccord Genuity..

Hey, guys. Thanks.

Just real quick, could you comment on some of the anecdotes you’re getting from the 2,000 physicians that prescribes 20% of the testing, is there anything that may have change in the early going to lead you to believe you may not reach the majority of these folks? And then secondly based on the feedback you’re getting, how comfortable are you that some of these folks will refer to individual to or not in the high prescribing doc community?.

Let me try to answer it this way Mark, we had, I’ll tell you a story of one rep who had 90 consecutive primary care conversion wins for four, somebody said no and that person who said no was a high prescribing FIT FOBT doc who did in-office FOBT and this is just the way that I do it.

But there were 90 docs comprise both of high prescribing FIT and FOBT docs and docs who didn’t believe at FOBT or FIT test method in the first place who converted a four, she got to that one. We don’t think that there is going to be a significant hurdle in converting most of the high prescribing FIT and FOBT docs to Cologuard at this present time.

Again this very early in the process and we’ll learn more as time goes on, but presently physicians are willing to try Cologuard because they see the data is so compelling that’s right there in the New England Journal of Medicine..

Thanks.

And then maybe the likelihood that they will communicate the value with some of their peers?.

Yes, we think there is a network effect going on here and we have seen it. So, we have seen where one physician in a small office is on our target list and by the time our sales rep leads their office he or she has multiple people on the office timed up to order Cologuard.

We expect that, that will continue in part because of the ease of use of Cologuard. .

Thank you and our next question comes from the line of Zarak Khurshid from Wedbush..

Maybe a question for Bill to start.

How should we be thinking about the fixed costs of the lab on a quarterly go-forward basis?.

It can be reflected basically in cost of goods sold, so when you talk about a run rate number Zarak and at scale or thinking we had previously talked about numbers between $100 and $110 per tested scale, when you look at the price per test and our forecast for that now higher based upon the preliminary payment determination from Medicare, that will change our cost of goods sold.

And the reason for that is that a piece of cog is royalty payment and part of our royalty payments are linked to revenue numbers. So I think a fair way to think about COG is in the neighborhood of a $115 to $125 at scale. So again probably two years or so to get to that scale number on the way up, we are learning right now what that’s going to be.

But the ramp is going to be much lower margin to begin with and then into that run rate over the course of say the next 24 months..

Can you give us a sense just kind of what to expect on that COGs line over the next few quarters? I mean given the overhead sort of in the lab, currently I don’t know if there is 10 or 20 employees but what is sort of the carry in the near-term and to model out on the P&L?.

So you can sort of see it in the cost of sales number that is in the third quarter but that will continue to ramp there. So a lot of that is fair capacity, as Kevin said. We designed the facility for a million test capacity, we stacked up for that, we bought equipment and implemented equipment to meet that kind of future demand.

So what you saw in the quarter was just a partial, it is $900,000 which we included in the operating expense line and in the future that will move into COGs. So that gives you a sense of where it’s going to start and it will move up from there and partly depend upon volume of demand..

And then question for Kevin on the compliance, thanks for all the color there.

Do you have a rough sense for what the compliance level is today and how is your compliance engine kind of driving better compliance? Do you have a sense for how many reminders it takes for someone to finally do the deed?.

Yes, first of all it takes about a month from the time a doc orders a test until you get a result. The reason being is that it takes time for us to reach the patient and confirm their address; we do not want to send collection kits to incorrect addresses.

So that takes time, you ship the kit to the patient, the patient takes some time before they return the kit then we process it. So right now we don’t have a good handle on that question because there just has not been a sufficient number of patients who have received kits and having those test orders completed.

Within the next month though we’ll have a pretty good idea. And patients really like this call center being able to have any of their questions answered; I suspect right now that we’ll exceed our 70% goal. I want you to know and all investors to know we say that 70% goal we also tie our own compensation to that number internally.

So at the end of this year it’s going to be pretty clear whether we achieve our internal metrics is in part determined on whether we exceed 70%..

And then a quick follow up on the $50 collection.

How does that actually work? Do they take the customers or patients credit card information in the clinic and then bill right there or is there some paper work going back and forth between you and the customer?.

No there is nothing that happens at the physician’s office; we try to make this really, really easy not just for the physician but for the patients. So it can happen a couple of different ways. The patients can self-select on a portal but most frequently it’s occurring during that verification shipment address.

So we just need to make sure we’re shipping it to the right place that’s part of that interaction, whether it’s an electronic interaction or a voice interaction, that’s where we would collect the $50..

Upfront Zarak, when we’re talking to patients and confirming their address, that’s the junction when you’re able to collect the $50..

Thank you. And our final question for today comes from the line of Raymond Myers from Alere Financial..

You talked through most of them but I do have one more. Of the 924,000 of cost of sales recognized in the third quarter that you have assumed full reimbursement on an accrual basis.

What revenue would that represent it in the third quarter?.

Ray this is Bill. It’s just not a number that is worth talking about..

Can you tell me how many tests you did in the third quarter? How many tests were ordered in the third quarter total?.

Ray at this point in time we have provided all of the clarity that we will around the number of tests ordered. I appreciate where your desire to get more information there but that’s all we’re able to disclose at this point in time..

And then just to clarify the $50 co-payment in order to have a test sent to a patient.

I assume that is not refundable for patients who have not returned their test?.

That’s correct..

That’s a good incentive to only order that you intend on using it..

Thank you. And that concludes our question-and-answer session for today. I would like to turn the conference back to Kevin Conroy, Chairman and CEO for any closing comments..

Thank you all for joining today.

I just want to reiterate how excited we’re to be in a position to launch Cologuard with FDA approval, broad National Coverage decision by Medicare, preliminary pricing which we expect to become final before the end of the year and 120% sales team out there educating physicians and a broad marketing program ended educating patients and a massive amount of public awareness created by newspapers and television segments.

This has been a wonderful launch to Cologuard. We look forward to working really hard in the fourth quarter to making sure that all patients are able to have access to this in more and more primary care physicians are able to order.

I especially want to thank the whole team at EXACT Sciences who have been working nights and weekends to help deliver on this promise and we appreciate all the support of investors over the last five years. Thank you very much..

Ladies and gentleman thank you for your participation in today’s conference. This does conclude the program and you may now disconnect. Everyone have a good day..