Megan Jones - EXACT Sciences Corp. Kevin T. Conroy - EXACT Sciences Corp. Jeff T. Elliott - EXACT Sciences Corp. Maneesh K. Arora - EXACT Sciences Corp..

Brian D. Weinstein - William Blair & Co. LLC Doug Schenkel - Cowen & Co. LLC Catherine Ramsey Schulte - Robert W. Baird & Co., Inc. Brandon Couillard - Jefferies LLC Anne Edelstein - Bank of America Merrill Lynch Kevin Ellich - Craig-Hallum Capital Group LLC Puneet Souda - Leerink Partners LLC Mark Anthony Massaro - Canaccord Genuity, Inc.

Raymond Myers - The Benchmark Co. LLC.

Good afternoon. My name is Mike, and I will be your conference operator today. At this time, I would like to welcome everyone to the Exact Sciences Corp. Third Quarter 2017 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there'll be a question-and-answer session. Thank you.

I will now turn the call over to Megan Jones, Investor Relations Analyst. You may begin your conference..

Thank you, operator. And thank all of you for joining us for Exact Sciences third quarter 2017 conference call. On the call today are Kevin Conroy, the company's Chairman and CEO; Maneesh Arora, our Chief Operating Officer; and Jeff Elliott, our Chief Financial Officer.

Exact Sciences issued a news release earlier this afternoon, detailing our third quarter financial results. If you have not seen it, please go to our website at exactsciences.com. Following the safe harbor statement, Kevin will provide an overview of the company's third quarter performance.

Next, Jeff will provide a summary of our third quarter 2017 financial results. Then, Kevin will provide an overview on our corporate priorities. During today's call, we will make forward-looking statements based on current expectations. Our actual results may differ materially from such statements.

Descriptions of the risks and uncertainties associated with Exact Sciences are included in our SEC filings, which can be accessed through our website. It is now my pleasure to introduce the company's Chairman and CEO, Kevin Conroy..

Thank you for joining us this afternoon. The Exact Sciences team delivered another strong quarter with $73 million in revenue, 161,000 completed Cologuard tests and more than 10,000 new ordering physicians and other healthcare providers.

The growth and enthusiasm of our patient and physician customer bases are helping us begin to achieve our goal of making Cologuard the standard of care in colon cancer screening.

As the second leading cancer killer in the U.S., we know that our team is helping us to make a major impact on the lives of those who choose to use Cologuard, half of whom have never been screened before. There are three key topics we'll discuss today.

Cologuard's momentum continues as patient demand for an easy to use colon cancer screening test increases, physician adoption grows and our sales and marketing efforts continue to be effective. We believe that Cologuard can achieve at least 40% market share of the 80 million eligible Americans over time.

We are investing for the long-term sustainable growth of Cologuard. The investments we've made and continue to make will provide a solid foundation for this growth. Exact Sciences is uniquely positioned to transform the way cancer is diagnosed and treated.

We have a proprietary differentiated technology, the proven experience of our team and a unique collaboration with Mayo Clinic. Our CFO, Jeff Elliot, will now review our third quarter financial results..

Thank you, Kevin, and good afternoon, everyone. Please note that when discussing financial results, I will refer to changes compared to the second quarter unless otherwise stated. Third quarter results exceeded our expectations with revenue of $72.6 million, up 26%; and completed Cologuard test volume of 161,000, up 19%.

Third quarter average recognized revenue per test was $451. The $23 increase was primarily due to fluctuations in cash collections. Please be aware that our blended accrual rate closely mirrors our time lagged average collections.

On a time lagged basis, our average recognized revenue per test was $428 at the end of the third quarter, an increase of $5. Third quarter cost of sales totaled $129 per completed test, down slightly from $133. This improvement came from better-than-expected volume leverage and continued efficiencies in our lab and manufacturing operations.

We expect an increase in our cost per test in the fourth quarter because of the growth investments we're making in our lab, manufacturing capacity and personnel. Third quarter gross margin improved 260 basis points on increased revenue per test and decreased cost per test.

Third quarter operating expense totaled $80.3 million, an increase of $9.2 million, slightly below our expectations. The growth in G&A included investments in IT and personnel to support our expansion. R&D increased primarily to support pipeline development and selling and marketing increased due to the addition of sales personnel.

Third quarter cash use totaled $21.7 million. Adjusting for the MDxHealth payment in the second quarter, cash use improved by $7.1 million on better-than-expected operating results and some working capital benefits. We ended the quarter with cash and marketable securities of $462.5 million.

Cologuard's compliance rate at the end of the third quarter was 66%. We continue to expect a decline near-term due to payer mix shift from Medicare towards commercial insurers. We remain optimistic about the rate increasing over the long term.

Turning to our guidance, based on our strong results through the end of the third quarter, we are raising our full-year revenue and test volume outlook. We now expect revenue of $254 million to $257 million, and Cologuard volume of 568,000 to 572,000 completed tests.

With 395,000 completed tests through the first three quarters, we expect Cologuard volume of 173,000 to 177,000 completed tests in the fourth quarter. With just two months left in the year and the major holiday still in front of us, you should focus on the midpoint of guidance as the most likely view of how we see results playing out.

I will now turn the call back to Kevin..

Thanks, Jeff. More than 91,000 physicians and other healthcare providers have ordered Cologuard, since its launch. About 800 healthcare providers placed their initial order each week during the third quarter.

This pace has been relatively consistent since we initiated our television advertising campaign about 18 months ago, giving us confidence to invest in television advertising at a similar level next year. Approximately 55,000 primary care physicians have ordered Cologuard since its launch.

As we capture an increasing share of the over 200,000 active primary care physicians in the U.S., the rate at which we add new physicians will at some point begin to decline. Our goal is to continue to increase penetration of the target primary care customer base and Cologuard utilization within this customer base.

We are investing across our business to achieve our long-term market share and profitability targets. During the last two years, we expanded our sales force by about 100 professionals and increased the size of our team focused on large health systems.

We are also expanding our medical affairs team to help educate physicians and key opinion leaders about Cologuard. To complement these investments in our commercial team and ensure that growing Cologuard demand can be fulfilled, we are investing in support functions and facilities.

During the fourth quarter, we plan to purchase additional real estate near our headquarters in Madison to make room for our growing team. To process a steadily growing number of Cologuard tests, we are expanding our existing lab capacity and plan to break ground on a new lab soon.

At the same time, we continue to strengthen our operational infrastructure and take steps to secure our supply chain. An effective and scalable IT backbone is critical to Cologuard success. During the third quarter, we acquired Sampleminded, an information technology solutions company based in Salt Lake City.

Sampleminded has been an Exact Sciences partner for several years, and was instrumental in developing and supporting our lab information system. The unique insight and skills of the Sampleminded team strengthened our IT capabilities, an area that is key to our success.

Exact Sciences vision is to help win the war against cancer through early detection. Each year more than 14 million people are diagnosed with cancer globally, and nearly 9 million die from the disease. 600,000 of these deaths occur in the United States alone.

Globally cancer incidence is expected to increase by 70% during the next two decades, and most cancers today are diagnosed in late stages resulting in lower chances for long-term survival. We believe we are uniquely positioned to have a major impact in the war on cancer.

We have a unique and long collaboration with male clinic and have the proven experience to take a product from development to successful commercialization. Exact Sciences proprietary testing platform coupled with our unique multi-marker approach enables us to develop highly accurate screening and diagnostic tests.

Our differentiated platform combines a proprietary detection chemistry and specific cancer markers providing a highly scalable cost effective foundation for growth. During the past five years, we have identified markers with Mayo Clinic researchers for many of the most deadly cancers and made numerous enhancements to our capabilities.

These efforts provide a significant flexibility in prioritizing our robust pipeline of products. As we continue to expand Cologuard's market penetration, the next opportunity we see to use the power of our platform is a test that helps to differentiate between benign lung nodules and lung cancer.

The current diagnostic options are often invasive and expensive, and the potential for a new blood-based biomarker test is significant. Our early performance data demonstrate specificity and sensitivity for lung cancer of over 90% per a study presented at AACR in April of this year.

We look forward to updating you on our lung nodule test in the first half of 2018. We're now happy to answer your questions..

Your first question is from Brian Weinstein from William Blair..

Hey, guys. How are you? Thanks for taking the questions. You had another quarter with very good results here even with some things potentially holding you back a little bit.

So, can you talk about any impact that you saw from the hurricanes? Can you talk about any progress with electronic orderings and also any comments and thoughts on how prior authorizations, while probably not impacting your third quarter but the changes that we're seeing with some of the payers there, how that's impacting the way you're thinking about the fourth quarter and going forward?.

Sure, Brian. It's Maneesh. So, first part of the question was on the storms. And what we'll say is, the team did an excellent job managing through the storms. We haven't publicly quantified the impact, but it wasn't material to the quarter. And our thoughts go out to our team members and those affected by the hurricanes.

So, as it relates to the question on electronic ordering, we've continued to see steady progress. As you remember, from the beginning of launch when 95% of the orders came in via fax, we're now at a point where a little over a quarter of all orders are coming in electronically.

And that's just steady focus and investment, and we expect to see continued momentum in that direction over time. And then finally, the last question, the last portion of the question on prior auth, it's a fact of life in the industry, it's something that we've dealt with but it has not been a material driver.

We've dealt with it for some time since launch. And as we continue to see inclusion in guidelines and we continue to see progress with payer coverage that's really helped us with our momentum..

Okay. And then second question, as I look at the guidance for the fourth quarter, the 14,000 sequential increase in test volume, can you talk about maybe breaking that down in a little bit of detail for us on new doctor contribution utilization.

Kevin, I wasn't sure if you were trying to signal that you were maybe thinking that maybe doctor adds maybe a little bit slower going forward or not. And I just want to be clear about what your comment was on that. Thanks..

Brian, that comment doesn't relate to the fourth quarter. We're just trying to make expectations known that over the long-term you can't add 10,000 primary care physicians forever, given that there are only 200,000 target primary care physicians and we already have about 55,000 of them.

So that is the – the key thing to remember is that at some point down the road whether it's 2018 or 2019 or beyond that pace is going to decrease and that's why the focus is so important for our entire team, the entire company to increase to work with physicians and their office staff to increase the utilization of Cologuard within those offices.

It is a really important part of what we're trying to achieve as a company..

Okay. Thanks..

Thank you..

The next question is from Doug Schenkel from Cowen..

Good afternoon. On the second quarter call, you said that around 30% of the eligible market is open for you to capture. You might have said 30% plus. On this call and at your July shareholder meeting, I think you've changed that to be officially 40%.

What's changed here? Obviously that's a move in the right direction, but I'm just wondering what's evolved over the last few months in your thinking..

I think you can see, Doug, with the results that we've had and the continued increase in access to the primary care physician base with inclusion in the quality measures, we have a rosier outlook over the long-haul about where Cologuard will fit as a colon cancer screening test. And a lot of that is just driven by the consumer reaction to Cologuard.

It's been incredibly positive, people like it as we hope and expected they would relative to colonoscopy.

And the feedback that we're getting from the customer research that we do continues to be positive and point into a direction that at some point in time Cologuard will be on par with colonoscopy and maybe as a frontline screening test, be the go-to test. That's certainly what we are trying to achieve.

One of the data points that supports this belief is that about half of all of the people who have used Cologuard have never previously been screened. That includes patients who have been in the screening population for 20-plus years, but it also increasingly includes people who are in their early 50s and it's their very first screening event.

So, that's why we believe that over the long-haul, we will get to over 40% of the 80 million Americans using Cologuard on a regular basis..

Okay. That's great, Kevin. Thank you for that. Regarding Q4 guidance, I'm having a hard time getting to 77,000 tests or below, and that's factoring in assumptions for compliance of around 65%, another 9,000 to 10,000 doctor additions and no change in orders per physician relative to keep the rate.

I actually kind of need to take that down to get to 77,000 or below. Obviously, there's a mix of assumptions we could make here.

But just relative to recent trends, is the biggest thing that you're just assuming some seasonal impact in the quarter as you pull together guidance for Q4?.

around the holidays, people do not respond to returning their samples at the same pace that you do throughout the year. So, we have the holiday dynamic to deal with when we think about guidance..

Okay. And last one, another one for you, Jeff, I believe. Cost per test I believe dropped to $129 in the quarter. You've talked about a long-term goal of $125 per test.

Is there now a scenario based on the progress you've made over the last few quarters where you can see actually beating that goal and getting to a much lower level over the coming quarters?.

Well, certainly we'll work to achieve a number lower than that, Doug. But when you look out over the next few years, we have significant investments to make in capacity.

So, Kevin talked in the call about breaking ground on a new lab relatively near-term, there'll be investments associated with that, there'll be investments associated with scaling up our existing lab. We're investing in personnel. We're investing in our supply chain.

So, there are a lot of investments we plan to make over the next few years to meet the demand that we see. So that will cause some temporary upwards movement in the cost per test. But long-term, we're very confident of getting it to $125 or lower, and we will work to bring that down even more..

Okay. Thank you very much..

The next question is from Catherine Schulte from Baird..

Hey, guys. Thanks for the questions. You've seen some nice increases in tests per doc over the last few quarters.

And as we look out into 2018, how do you think about that number trending? Is there any reason to think that shouldn't keep going up aside from seasonality?.

Yeah. Thanks, Catherine. What we've seen over the past five quarters is a nice, steady, gradual increase in the number of orders per doc. We do look at the numbers slightly different than the Street looks at it. I think the way that most of you calculate it, we saw 1.77 tests per doc in the quarter. We look at orders though.

And we're looking at orders, we've seen a nice steady increase. We're not going to guide to what we see in for 2018, but I think it's safe to say that long-term there's significant room to increase that penetration per doctor..

Okay. Great. Thank you. And you mentioned the acquisition that you made in the quarter to bring some lab IT technology in-house.

Can you just walk through how that should impact costs going forward and then any updated thoughts on additional M&A or co-promotes?.

So, just on how it affect the financials. The acquisition was not material. It does help us scale up our IT capabilities. So, we're very pleased with the team that we brought on board. This was the team we had worked with for several years helping build our lab information system. So, it's a very high quality team.

We're pleased to have them on board, but right now it is not material to our results on M&A more broadly. More broadly on M&A, we're not commenting on any M&A as haven't in the past..

Great. Thank you..

The next question is from Brandon Couillard from Jefferies..

Thanks. Good afternoon. Question for Maneesh. Would be curious if you could give us an update on the new sales force additions potentially the contribution from those in the third quarter.

And really where we stand today in terms of the penetration into some of the larger systems versus individual group practices and whether some of those new reps might be targeted a little bit differently perhaps sort of the larger opportunities?.

Yeah, sure. So, first off, really excited about the caliber and the quality of the existing reps and the new reps. It's been really energizing for the entire team and you can see that in the sales teams' execution in the third quarter. The reality, as we've said before, is it does take time.

And so, we do expect that it's going to take 6 to 12 months, we were joking a little before the call for all of our reps that are listening, that the best ones will be, we'll see the impact in three to six months, but to be really honest, it's going to take time. And we're pleased that we made the investments that we did to really impact 2018.

As it relates to your....

If I can just interject..

Yeah..

We actually weren't joking about it..

As it relates to the systems, you bring up a really important point. And that is, we are starting to see much more interest as we see the support both in guidelines, payer coverage and really importantly quality credit, which is something really important to the systems.

As we see these different elements come together, the value proposition for a system is really going up. And so, it's going to be an important area of investment.

We have just recently increased our account management resources and plan to, in 2018 and 2019, really expand our focus with the account resources and medical affairs resources to engage and drive the system adoptions because that's going to be the next level of growth for us.

So, it is continuing to focus with our rep investments, but then also our account investments on systems and worked at very early innings of that, Brandon..

Thanks. And then one follow up for Jeff.

First, could you give us the mix between Medicare and commercial in the third quarter? And then secondly, as we look out to the fourth quarter, how you see OpEx trending exiting the year?.

Sure. Happy to. So, in the third quarter, Medicare was about 59%. So, we've seen that was down about 3 points versus the second quarter. Let me run through the whole P&L, you asked on OpEx, but when you look at fourth quarter cost per test, we expect that to trend towards the mid-140s.

There we're investing in additional infrastructure and personnel to scale the existing lab. We're also adding some automation that will help us become more efficient in the lab. When you look at OpEx, we expect an $8 million to $10 million sequential increase from the third quarter.

Some of the (24:37) marketing will likely be the biggest driver with an increase in marketing spending and head count, you'll see the full quarter impact of the additions from the summer. R&D, we expect an increase from related to our sample collection studies for lung and some other cancers as well as some medical affairs hiring.

Within G&A, we expect an increase due to hiring to support the growth that we're seeing. In the fourth quarter CapEx, we expect that to be in the high 30s millions to low $40 million, there we're increasing lab and manufacturing capacity. And we're also, as Kevin said, we're adding some office space in real estate in the fourth quarter..

Very good. Thank you..

The next question is from Anne Edelstein from Bank of America..

Hi. Thanks for the question. So, I guess the first one is on Q4, I had to jump off, so I maybe missed this.

But can you quantify any impact from the hurricanes in Q4? Just – I'm trying to reconcile the fact that it seems like you signed a few or solidified a few contracts during Q3 that should hit in Q4, and you have the sales force, which I think should be getting close to higher levels of productivity in Q4.

So, just any help there on kind of reconciling those factors..

Yeah. Thanks, Anne. So, the hurricanes Maneesh said earlier, were not material. The team did a fantastic job of managing through the storms. The sales force additions, we're very optimistic long-term, we'll see nice productivity, but recall we just hired these reps. It will take time to on-board them and get them productive in their territories.

So, I think of that as more of a 2018 event. I don't want to get into the impact of any specific contract, but historically we've talked about contracts especially bigger ones taking maybe 9 to 12 months to fully educate our sales force, and the providers and ultimately patients about the change.

So, these contracts that you mentioned will take time before they really come into the numbers..

Okay.

And then just on R&D longer term, I mean where does Cologuard as a percent of overall R&D consumption stand today, and how do you see that trending going forward?.

Yeah. So, this year I'd think of Cologuard R&D is about 60%, last year it was about 70%. So, we continue to invest-in in Cologuard, obviously it's a very important product for us. Over time, I think more of the growth in R&D will come from our pipeline given the number of opportunities there. But we're comfortable investing in Cologuard.

We have things like our post-approval study and some minor enhancements we're doing that are certainly worth the investment there..

Okay. I'll jump back in the queue..

Yeah..

The next question is from Kevin Ellich from Craig-Hallum..

Good afternoon. A lot of my questions have been answered. But I guess just wanted to start-off, Jeff, with the working capital changes and cash flow, accounts payable and accrued liabilities look to be nice source of cash this quarter.

Is that sustainable or how should that trend over the next couple quarters?.

I do think those improvements are sustainable. What we saw from an accounts receivable standpoint is the team did an excellent job of working to collect more quickly and more fully. So, there's some benefit there.

When you look at the other side of the balance sheet, this is just part of a growing, maturing company finding ways to optimize our working capital. So, I do think those improvements are sustainable..

Okay. That's fantastic.

And then, I guess, thinking big picture with all the commercial payers and major payers that you guys have signed contracts with, who's left? Can you remind us if there is any other contracts or any other payers you need to get signed on?.

Yeah. So, Kevin, the question is on contracts. We haven't gotten into all the contracting activity. From a coverage standpoint, today, we're up to 87% of lives covered or 239 million people. We just haven't gotten into the percent of contracted lives before..

Okay. Okay. Great.

And then, I guess, going back to the big health systems, and I guess strategically, are you breaking up your sales forces or stratifying them to go after certain systems and working with them or is it all just kind of broken out geographically?.

So, from a coordination standpoint, it's an important focus for us in 2018. And some of the reasons for the recent investments that we have made is to gear up for a coordinated response to some of the systems that are showing interest. It is a longer term perspective.

We don't want to send folks out with targets and territories and then all of a sudden have them make a left-hand turn to call on physicians that are at a system. So, we need to be really measured. The good news and the bad news with health systems is, it does take time and it is a longer lead time.

As we make the investments at a senior level in implementation, we will also be able to have a tight coordination with our reps in the field to work with those systems once access is granted at a senior level. So, it's going to be a coordinated investment and it's going to be over the next couple of years..

Great. Thank you..

The next question is from Puneet Souda from Leerink Partners..

Hi. Thanks. Congrats on the quarter. So, Kevin, I mean, it appears to me you have a number of levers here that you can pull at your disposal to drive things, despite having a solid ramp here. Maybe if we could touch on medical affairs team expansion, just wanted to understand maybe Maneesh can cover those.

Where does that team stand now, and what's your expectation there? And also on the large hospital systems, what's the team size and what should we expect there in the next couple of quarters?.

Yeah. Sure. So, medical affairs, we have been really prudent and we have an appropriate team inside and outside. What we're doing now is, we're planning to scale it materially. And so, those are expansion – that expansion is going to happen I would say beginning this quarter and into the first quarter.

As it relates to – what was the second part of your question? National accounts?.

Large accounts and what's the numbers there in medical affairs team as well as numbers in large account if you can provide that, large hospital systems..

Yeah. So that's not something that we've talked about in the past. And so, what we can say is that these are areas that we're investing in, and we want to make sure that we are prudent with our investments and we scale them. If you remember, historically, we haven't had the benefit of the guidelines, the coverage and the quality measures.

As those come together, we are beginning to make those investments, and we'll continue to both in the account team and in medical affairs..

Okay. Got it.

And Jeff, with the inclusion of the Cologuard in the Star Ratings, could you give us a number here? Have you quantified in terms of, as these reps are going out and educating the folks on – or the physicians on the benefits of the test, getting into Star Ratings for that practice, can you help us quantify what that benefit could be here and how to think about that?.

Yeah. I mean, good question, Puneet. It is really difficult to quantify that. I think the positioning in the quality measures and the guidelines are really part of the broader picture. It's really impossible to tease out what one component on its own means for Cologuard. So, I can't do that right now..

Sure. And coming back to capacity expansion. Kevin, help me understand, so you're looking at a facility expansion that's happening currently, then you're adding another facility that's going to add potentially 6 million tests or potentially 8 million tests over the longer run.

Help us just understand, I mean, in terms of the test cadence that you're thinking about, is it potentially utilizing 50% of that capacity in the next two years? What's the best way to think about that, because you're putting in quite a bit of effort as you've highlighted on the call in expansion..

Well, so today, we can process approximately 1 million tests at our current lab facility and are in the process of expanding that capacity to about 2.5 million tests per year or so.

We will add a new lab at a new site to give us another additional 2 million tests annually with the initial build there, and then we'll be able to increase that total capacity to approximately 4.5 million tests annually with the ability to expand that location further on a long-term basis.

We don't want to provide obviously color as to where we expect that utilization to be at any particular point in time.

Suffice it to say, we're bullish about the long-term business, I want to make sure that we make the investments as Jeff and Maneesh said – as Maneesh said, as it relates to the commercial organization and has Jeff had said along the lines of IT and other investments.

The team has done a remarkable job of continuing to think way ahead and that has enabled us to have quarters like the team delivered this quarter..

Okay. Got it.

And last one on ad refresh, any updates there with a 30-second ad? And how that's getting out there and the number of hits or maybe not even number of hits, but essentially in your expectations, how is that working compared to the prior setup?.

We continue to see really steady increases of new physicians ordering each week. The vast majority of them, 85-plus-percent have never been called on by a salesperson. And so, we did introduce the 30-second spots to the DTC campaign. They've got a great ROI. Kevin mentioned we plan to continue that in 2018. It's too difficult.

We don't have a test market to tell and it's too early to tell the impact of the 30-second spots, but we know it's working and we intend to continue to refresh the campaign with the 30-second strategy in 2018..

Okay. Thanks guys. Thanks. Very helpful..

The next question is from Mark Massaro from Canaccord Genuity..

Hey, guys. Thanks for the questions. The first one is on the new payers.

You had some new payers come on in Q3, you had a strong revenue quarter, can you just speak to any contribution you might have saw from some of the new payers coming on?.

Yeah. Thanks, Mark. So, we can't get into the details around any specific payer, but when you look at the quarter broadly, we saw improvement from traditional Medicare, Medicare Advantage and commercial insurers. And we continue to see a path towards at least $500 a test long-term. I just can't get into the specifics.

I did call out during my prepared remarks, we saw favorable cash collections. This is both from the payer and patient side..

Great. And Kevin you indicated that we'll have an update on liquid biopsy in the first half of 2018. Jeff you indicated you're doing sample collection for lung and some other cancers.

Would you be willing to comment on some of the other areas outside of lung in the liquid biopsy sample collection front?.

I think that it's best that we provide that update at a different time given that we haven't yet provided much color other than our lung cancer test other than to say that there is a significant need to detect cancer earlier via simple blood draw across the board, and we're excited about the early data that we're seeing in the number of cancers with a low cost approach that it's highly sensitive and specific.

So, we'll provide more color, Mark, as time goes on. Right now, the focus is on our lung program..

Great. And one other question. I know that your intention is to drive patients to reorder Cologuard every three years. I know you just hired a number of folks.

Maybe for Maneesh perhaps or Kevin, can you speak to whether or not you have some folks internally focusing on this and maybe just speak to generally how you're thinking about getting some folks that ordered three years ago to adopt both on the physician and the patient front?.

So, Mark, we do have a dedicated team and this is the topic we've been thinking about for some time. We are just now, as you know, coming up on that. And 2015 orders will really be the first hallmark, so 2018, there'll be about 100,000 people, of which the rough math about 80,000 of whom would be eligible for a repeat Cologuard test.

So, we have an entire program that we'll be reaching out to both the patient as well as the ordering physician in an integrated way very similar to how we get patient screened. We follow up, we follow up on the phone, we can follow up via the mail and we know who they are. We know who the physician is.

So, we are optimistic that we will be able to get them rescreen. We have been thinking about it. We have active resources on it, and look forward to providing updates on our progress..

Great. Thanks very much..

The next question is from Raymond Myers from Benchmark..

Thanks for taking the questions. Kevin, the SG&A expense in the quarter increased it's about $6 million sequentially.

Can you talk about what drove that and where do you see SG&A expense trending long-term?.

Yeah. Thanks, Ray. This is Jeff. Selling and marketing was up primarily due to the additional head count, we had talked before about adding approximately 100 new sales reps over the summer. G&A was up, that growth includes investments in IT and personnel to support our expansion.

What I said for total OpEx, so also including R&D was another $8 million to $10 million increase in the fourth quarter. And I didn't hear the second part of your question, Ray..

What should we expect for the long-term trend in operating expense, say over the next year or two? And the reason for my question is, should we think about these initial expense ramps as a launch phase and then it flattens out or do we continue to ramp expenses in a step function with revenue?.

You know, Ray, I'd rather hold off on the future guidance until another call, but needless to say, we're making the investments now, we think are appropriate to help achieve our long-term market share and profitability targets..

Okay. Thanks.

Let me move onto one more question about, did Q3 benefit from any revenue catch up payments or prior period adjustments?.

Yeah. Ray, let me make sure I understand the question. Are you talking about accrual shift like in the first quarter, if so there were none of those. During the third quarter, I called out some benefit from timing of cash collections. This is in part due to the team doing a fantastic job at collecting and collecting more fully.

But there was no, I'm not sure what you're asking about in terms of catch-up payments..

Sometimes when there is new reimbursement for a payer, they will pay you for prior period claims, particularly managed care, Medicare will do this. I don't know if some of your new payers will pay you for prior claims now that you're contracted..

Yeah. So, Ray, I prefer not to getting into all this level of detail on the call. I think needless to say the team did an excellent job of collecting. And what we've seen, if you look at the time-lagged revenue per test, you've seen a nice steady increase in that. It was up another $5 at the end of the third quarter.

And so, we're very confident long-term, we can continue to push that rate higher..

Okay. Sounds great. Thank you..

And I will now turn the call over to Kevin Conroy, Chairman and CEO for concluding remarks..

Again, thank you for joining us today. We discussed three key topics. First, patient and physician demand combined with our sales force and marketing efforts are powering Cologuard's continued momentum. Second, we are investing for the long-term sustainable growth of Cologuard.

And third, Exact Sciences is uniquely positioned to transform the way cancer is diagnosed and their influence how cancer is treated. We look forward to providing you with updates as we work to get more people screened for colon cancer with Cologuard and make progress on our pipeline.

Finally, we thank the entire Exact Sciences team for delivering another great quarter and importantly, taking care of the customers, primary care physicians and importantly the patients who are enthused about Cologuard as a new colon cancer screening standard of care. Thank you very much..

This concludes today's conference call. You may now disconnect..