EXACT SCIENCES CORP Q4 FY2021 Earnings Call

Ladies and gentlemen, good afternoon. My name is Abby and I will be your conference operator today. I would like to welcome everyone to the Exact Sciences Corporation Fourth Quarter 2021 Earnings Conference Call. Today’s conference is being recorded. Thank you. And I would like to introduce Megan Jones, Senior Director of Investor Relations. Ms. Jones, you may begin your conference.

Thanks, Abby, and thank all of you for joining us for Exact Sciences’ fourth quarter 2021 conference call. On the call today are Kevin Conroy, the company’s Chairman and CEO, and Jeff Elliott, our Chief Financial Officer and Chief Operating Officer. Exact Sciences issued a news release earlier this afternoon detailing our fourth quarter financial results. This news release and today’s presentation are available on our website at exactsciences.com. During today’s call, we will make forward-looking statements based on current expectations. Our actual results may have material differences from such statements. Reconciliations to GAAP figures are available in our earnings press release, and descriptions of the risks and uncertainties associated with Exact Sciences are included in our SEC filings. Both can be accessed through our website. I will now turn the call over to Kevin.

Thanks, Megan. Our mission is to eradicate cancer by making earlier detection a routine part of medical care. We have brought together a talented team dedicated to making that goal a reality. Highlights from 2021 include being Great Place to Work certified for our third year in a row, testing nearly 4 million people and growing our core business by 29%, generating over $1 billion in Cologuard revenue, the first diagnostic test to reach that milestone, exceeding $500 million in our Precision Oncology business for the first time ever, adding new tests to support hereditary cancer testing, liver cancer surveillance, and comprehensive tumor profiling for advanced cancer, strengthening our commercial engine by welcoming a talented sales team from Pfizer, and generating evidence to support tests solving real patient needs. We are the leader in advanced cancer diagnostics because of our scientific capabilities, commercial engine, and focus on screening and early detection, and we are just getting started. Jeff will now review our financial results.

Thanks, Kevin. Good afternoon. Fourth quarter revenue was $474 million, an increase of 2%, or 16% excluding COVID testing. Screening revenue was $278 million, up 11%, driven by Cologuard volumes. 10,000 new healthcare providers ordered Cologuard during the quarter and more than 263,000 have ordered since launch. Precision Oncology revenue was $149 million, an increase of 27%, driven by Oncotype DX Breast volume. Our acquisition of Ashion added 7 points of growth in the quarter. COVID testing revenue decreased 52% to $47 million, which was above our expectations due to increased testing for the Omicron variant. Fourth quarter GAAP gross margin was 70%. Non-GAAP gross margin, which excludes amortization of acquired intangibles, was 75%. Sales and marketing expense was $284 million, above our guidance due to a $36 million payment to Pfizer related to our co-promotion agreement, which ended in November. G&A expense was $179 million and R&D expense was $88 million, both consistent with our guidance. Net loss was $221 million and adjusted EBITDA was a loss of $122 million, weighting the quarter with cash and securities of over $1 billion. Turning to our guidance, we expect total revenue between $449 million and $469 million during the first quarter and between $1.975 billion and $2.027 billion for the year. We expect screening revenue between $284 million and $294 million for the first quarter and between $1.34 billion and $1.367 billion for the year. This includes PreventionGenetics revenue of approximately $9 million for the first quarter and between $40 million and $42 million for the year. We expect Precision Oncology revenue between $140 million and $145 million for the first quarter and between $595 million and $610 million for the year. We expect COVID testing revenue between $25 million and $30 million for the first quarter and between $40 million and $50 million for the year. Guidance assumes that the pandemic continues to abate and sales force access and wellness visits gradually improve throughout 2022. We expect screening revenue to be slightly less back-end loaded than current consensus estimates. For Precision Oncology, we expect continued momentum from Oncotype DX Breast globally. We are expecting the total U.S. business to grow in the mid-single-digit percent range and international to grow over 20%. We expect the Ashion acquisition to contribute similar growth in the first quarter as the fourth quarter, and then it will annualize in April. We expect our COVID testing revenue to continue decreasing following a rapid decline in the business during February. We expect about a 1-point decrease in non-GAAP gross margins this year to approximately 73%. This is due to unfavorable mix and negative leverage as COVID testing volumes declined. We had added capacity to our lab to support the fight against COVID and prepare for accelerating Cologuard growth. We expect strong Cologuard gross margin improvement as we absorb this capacity and benefit from automation enhancements. Long-term, we remain confident Cologuard gross margins will reach at least 80%. Moving to OpEx, we are invested in growth, given our confidence in the long-term outlook for Cologuard, Oncotype, and our pipeline of innovative cancer diagnostics. For the full year, we expect sales and marketing expense of $900 million to $920 million. This includes the full year impact of the sales team we hired from Pfizer last year and expanded advertising for Cologuard, with a new campaign to reach the 46 million unscreened Americans. We expect our sales team to drive strong incremental profitability as we grow the business and launch new products, such as our hereditary cancer tests.

Thanks, Jeff. We exceeded our goals for several Cologuard growth initiatives last year, providing lasting benefits and advancing our leadership in colorectal cancer screening. We achieved more than $100 million in revenue from patients being rescreened with Cologuard, more than $40 million from patients in the 45 to 49 age group, and a 10-point improvement in the electronic ordering rate to 15%, making it much easier to order Cologuard. These initiatives and our strengthened commercial team will fuel Cologuard growth for years to come. We plan to build on the momentum we created during 2021 by educating more providers and health systems on the benefits of Cologuard through our expanded sales reach, enhancing our customer experience to make repeat Cologuard testing easier for both healthcare providers and patients, screening more people earlier, starting at age 45, and releasing a new exciting advertising campaign in March to encourage the 46 million unscreened Americans to take action. Our Precision Oncology team delivered outstanding results last year by testing a record number of people with Oncotype DX, supporting the publication of the responder study in the New England Journal of Medicine, and adding a new test to support comprehensive tumor profiling for advanced cancer, OncoMAP ExTra. The Oncotype DX Breast test has answered the important questions of chemotherapy benefit and risk of recurrence for 1.3 million women diagnosed with early-stage breast cancer, and we have an opportunity to continue to impact even more lives. The responder study quickly led our Oncotype DX test to become the standard of care for women with early-stage node-positive breast cancer, just as the original Oncotype did for node-negative. We are making our Oncotype DX Breast test available to more women globally, focusing this year on the two countries with the largest incremental growth opportunities, Japan and Italy. We are also successfully integrating our Ashion acquisition, which provides the foundation necessary to extend our leadership in precision oncology. Ashion gives us additional sequencing and bioinformatics capabilities, a differentiated, comprehensive tumor profiling test, the foundation of our tumor-informed minimum residual disease test, and biopharma partnership opportunities like our recently announced license agreement with OncXerna Therapeutics. Helping more people understand their inherited risk of cancer can motivate them to undergo screening, detect their cancer earlier, and also guide more effective treatment. We provide an Oncotype DX test to more than 70% of all women diagnosed with ER-positive HER2-negative early-stage breast cancer each year in the U.S. Oncologists order hereditary testing only 40% of these women. Offering the hereditary cancer and Oncotype DX test for all of them could provide the full picture necessary to understand and treat their cancer. We have relationships with 98% of oncologists in the U.S. Our team can reach most of the 290,000 patients diagnosed with breast cancer, not just those eligible for Oncotype DX, and the nearly 2 million people diagnosed with cancer each year. We plan to expand hereditary cancer testing beyond oncology into primary care to engage people in proactive care earlier. We have established relationships with more than 200,000 primary care providers. They can help their patients understand their germline risk of cancer, leading to risk-reducing actions like more frequent screenings with our multi-cancer early detection test. The team at PreventionGenetics provides a customizable test, a high-quality lab, and experienced PhD genetics. Combined with our sales, marketing, and insurance coverage expertise, we are positioned to make this vision a reality with minimal incremental investment. We are off to a good start generating evidence for our test within the three largest patient impact opportunities in diagnostics with more data coming. Our pipeline goals over the next 18 months are to present colon cancer blood data and announce top-line results from our prospective BLUE-C study to support FDA submissions for Cologuard 2.0, our next generation version of Cologuard, and our colon blood test; present multi-cancer feasibility and validation data; finalize the design of our multi-cancer test before beginning our prospective study; and launch lab development and share data in colorectal cancer for our tumor-informed and tumor-naive minimum residual disease in recurrence monitoring. Our pipeline of cancer tests could transform how patients are treated and contribute billions of dollars of growth on top of Cologuard and Oncotype DX. We are pleased with recent progress from our multi-cancer team on test development and plans for lab-developed test and commercial launch. Our hereditary cancer, Cologuard 2.0, colon cancer blood, and multi-cancer test will create the most broad and compelling screening offerings available. Combining this with our precision oncology efforts, we have tests, technologies, and teams supporting a cancer patient every step. This will make Exact Sciences unique in the value we provide and how we serve providers, health systems, and most importantly, patients. We are now happy to take your questions.

Thank you. And we will take our first question from Matt Sykes with Goldman Sachs.

Hi, good afternoon everyone. Thanks for taking my questions. Maybe just starting on the ‘22 guide first and I would love to get maybe a little bit more on how you are thinking about the cadence of recovery. I know you guys talked about probably less back-end loaded than what consensus expects for screening, but just would love to hear how you are thinking about physician access and wellness visits as we move through the first quarter and the second quarter of this year and what you guys are baking in for the overall guide?

Hi, Matt. This is Jeff. I’ll take that one. If you look at IQVIA’s data, what IQVIA talked about in November was that physician office access in primary care was somewhere between 50% and 60% of where it was before the pandemic started. Since then, obviously, we had the holidays and the Omicron variant to contend with. I think access hasn’t changed a whole lot. The good news is now that Omicron cases are way down, which means fewer people are calling in sick and it’s having less of an impact on this country. Going forward, I expect continued improvement in both physician office access and wellness visits. That said, we are in a highly uncertain environment with the pandemic, and there could be other variants that emerge. Over time, I think our reps are finding even better ways to access physicians and educate them on Cologuard and Oncotype. So, the team has done a nice job of working to overcome these headwinds, but they still exist. I don’t think things will fully normalize this year.

Got it. Thanks for that, Jeff. And then maybe one more question, just on the gross margin impact for ‘22, which is understandable given the COVID capacity build-out. But you talked about the potential for Cologuard to hit around 80%. As we think about your path to profitability and the importance of Cologuard within that, is 2024 when we should be thinking about that potential? And then you mentioned adding automation; do you think you could accelerate that gross margin expansion for Cologuard specifically to 80% prior to that or is that your current timeline?

80% is the long-term target, Matt, but I do expect to make some very nice progress towards that. Recall before the pandemic, we opened a new lab ahead of the anticipated growth of Cologuard. We have been approaching and actually reaching the high 70% range for Cologuard gross margin, bringing on that new lab added about $10 of cost per test. Again, this was because of expected long-term growth, and now with the pandemic, that added some additional leverage. Going forward, though, as we absorb that additional fixed cost, I am very confident not only we will get back to where we were pre-pandemic, but we will reach new highs. It’s going to be a combination of both automation, which the team has done a very nice job of automating these labs, leveraging that fixed cost, and also improvement in our Cologuard revenue per test. Longer-term, there is an expected clear path through this $500 per test, given the value that Cologuard provides. So, when you do the math on that, I think there is a third path to longer-term 80% gross margins for Cologuard.

And we will take our next question from Brandon Couillard with Jefferies.

Hi, thanks. Good morning or good afternoon. I think, Jeff, you mentioned 10,000 new docs added in the fourth quarter, which is pretty good given seasonality. I would just like to talk about your outlook over the course of ‘22 and just how the integration with the Pfizer reps has gone so far, and whether you are happy with the productivity you are seeing from that?

Hey, Brandon. I can start on the outlook for new docs and then maybe Kevin can chime in on the sales force outlook. As for the new providers, I was very excited to see the 10,000 new in the quarter. That’s a very good number, especially in light of the pandemic. Going forward, I think the number can probably be in the 35,000-plus range this year, maybe up to 40,000. There is a significant number of new providers out there that we still have to reach with Cologuard and through our innovative marketing campaign. The bigger opportunity is to continue lifting the order rate, the number of orders per provider, which will be the biggest driver of growth this year. When you look at the number of new drivers we have, things like Cologuard rescreens and Cologuard 45, this expanded sales force we expect additional productivity from this year. We are fortunate to have a wide variety of growth drivers.

Yes. We are really proud of the work that sales force did to integrate 450 new team members. We have an amazing commercial organization both on the screening side and the precision oncology side. On the screening side with Cologuard, the team has just done a remarkable job through Omicron forming together as one team organized into four large teams across the country, being very thoughtful about how we approach health systems. We are bullish on what additional upside there will be this year with this really focused effort to bring more digital tools to physicians through our instance of Epic and the investments that we are making in IT. There is an intense focus on the 45 to 49-year-old group. We saw a lot of progress there last year, even with half a year of effort. The team is jumping at the bit to grow that more and to make Cologuard the standard of care for people 45 and older, and we believe that the new campaign will provoke action.

That’s helpful. Thanks. And then on the hereditary cancer launch, could we talk about the timeline of bringing that into primary care? And is there any embedded in the revenue outlook for this year? Would that be precision oncology or screening? It's not really clear to me.

Brandon, I will start with the hereditary cancer test. We do not have any hereditary cancer testing revenue baked into the outlook this year. So that is a potential source of upside. I did, however, bake in the PreventionGenetics base business. As I said in my remarks, $40 million to $42 million this year is baked into the guidance. As for timing, do you want to cover that, Kevin?

Yes. And I want to encourage nobody to bake in hereditary cancer testing revenue this year, but there is that upside. The step one in that process is to talk with the payers and to get contracts with the major payers for hereditary testing to add some digital services to the test to make it easier for our physicians to order it through our instance of Epic and to result in a strong connection to the medical genetics that are part of that team. That’s going to take some time and we expect that will start to kick in in the second half. But again, we want to express caution there about the timing while building it into expectations.

And we will take our next question from Derik De Bruin with Bank of America.

Hey, good afternoon. Just to clarify, PreventionGenetics is in the screening segment, that $40 million?

That’s correct, Derik.

Okay. So with that being said and given all the new sales force additions and sort of the rebound, the implied Cologuard growth is still a little bit below, I think, for some that are looking. And so it sort of begs the question on what’s the level of conservatism that you have in that number? And is that driven more by the fact that the markets are still recovering from COVID? Just as I said, with that embedded $40 million in the number, the revenue number was a little bit below where people were looking?

Yes. What’s implied for Cologuard is $1.3 billion to $1.325 billion. That equates to about 24% growth. We are fortunate to have a significant number of growth drivers. You think of things like 3-year rescreening; we have baked in $220 million of revenue there. Obviously, when you look at the opportunity there, today, there is already 1 million people available for re-screening, and another 1.2 million will become eligible this year. So obviously, if we go out and hit the bottom of the park, there’s room to deliver a lot more revenue than $220 million. When you look at Cologuard 45, that’s another big driver. This year we’ve baked in about $100 million of revenue. Obviously, the size of that market, there are 19 million people in the age group 45 to 49 who essentially all need to be screened right now, so there’s again a huge opportunity there. Things are trending very well on that driver. The sales force is, as Kevin said, that’s where it all starts. The sales force is out there educating doctors on prescreens and 45-year-olds on electronic ordering. So it all starts there. And now with this expanded team, we’re expecting some great things from that sales force this year. That’s what I see. I mean, you turn on the news at night, we’re still in the middle of COVID. There’s a lot of uncertainty there. It’s important, as a company, we stay sober about the reality that there are some headwinds out there that we have to account for in the early part of the year when we provide guidance for the rest of the year.

Yes. I think that we don’t have perfect visibility into how quickly offices will start to open up again and how quickly patients will return to wellness visits, which over the last two years dipped measurably. There is tremendous upside if our face-to-face office visits return to the pre-pandemic rate. We missed about 3 million office visits during the pandemic. The good news here, and I want to go back to the first earnings call into the pandemic. Someone asked what the impact would be, and we said we believe that marginal users of Cologuard will start using Cologuard more. We have seen that. Now the key is to focus again on the top half of our customers by ordering volume that we haven’t been able to reach as frequently as we previously did. So, we want to be sober about how we look at this year, not knowing how quickly those offices will open up. Personally, I’m pretty optimistic just seeing the dynamic around the country and how quickly Omicron has abated. That’s the color on our guidance.

Great. Thanks for that great color. That’s actually what I was looking for in that response. And can we just go back and talk a little bit about the ASCO GI data release and sort of the 57% sensitivity for advanced adenomas and being obviously up from the 42% for Cologuard 1.0? With some investors, we've had a little bit of difficulty in trying to ascertain what that level of improved sensitivity means for staying above the 50% threshold. And really, that was an incremental driver to get more doctors to prescribe the test. Can you help us think about that a little bit more in terms of what that ultimately means when that stays above 50% level when the BLUE-C data comes in?

The biggest disappointment with the original data in Cologuard was the 42% sensitivity. We improved the markers and our team from our Redwood City R&D team used advanced machine learning techniques to help us refine the way that we looked at the data coming off of our Cologuard 2.0 markers. These new and more specific and sensitive markers bump that sensitivity for advanced adenomas up to 57%. I want to emphasize that the data is apples-to-apples; we believe, with the DeeP-C study. So these are not case-control samples. They were prospectively collected adenomas of similar size as we saw in DeeP-C. Commercially, what does that do for us? 42% current and 57% with the next generation of Cologuard is a big deal because doctors really want to see that we’re going to detect about 60% of precancerous polyps. That’s about where colonoscopy is because there is so much variability with the detection of precancerous polyps, depending upon your GI, the time of day you get your scope, etcetera. So now we can be a lot more aggressive in how we market Cologuard for precancer detection. Feeding that 57% detection rate into the models will have a big impact on life years gained. The data that the USPSTF will look at will show that Cologuard’s performance, the life years gained compared to the number of unnecessary colonoscopies or harms is vastly superior to the fit and is approaching that of colonoscopy. So it’s a big deal. It will take a little bit of time to play out, but it’s a path to making Cologuard a coequal standard of care, even though it is presently in the guidelines, in the minds of physicians and patients.

And we will take our next question from Brian Weinstein with William Blair.

Hi, guys. Thanks for taking the questions. So you have often talked about that 40% penetration for Cologuard. I don’t recall the exact time frame; I think it’s something like by the end of the decade. That would take you for about 3 million tests and about $1.3 billion in revenue this year to about 14 million tests or $7 billion in revenue. I’m curious as you think about that trajectory, where does that really come from? Have your thoughts advanced at all between the difference between driving that from colonoscopy conversion and unscreened individuals and how you target each differently? Jeff, I think you talked about a new sales and marketing campaign going after the unscreened. So as part of that answer, can you address that campaign and why you think that could be successful?

Brian, this is Jeff. I’ll take that one. So today, if you look at overall screening rates, they are somewhere in the 55% range, including ages 45 and above. Longer term, we and many others are targeting 80%. We know that’s possible with options like Cologuard. It’s possible because that’s where you see screening rates for breast and cervical cancer screening. So longer term, to your question of how Cologuard gets more than today to 40% or higher, it’s from a mix of lifting overall screen rates, which there is documented evidence that Cologuard is already lifting screening rates in this country, but a mixture of that and taking share in the market, which we know we’re doing. When you look at who is using Cologuard, we ask our patients if they have been screened before, and if so, with what? About 50% of patients had never been screened before. The 40% previously had gotten screening with a colonoscopy, and about 10% previously were screened with fecal blood tests. So we know we’re increasing screening in this market. We know we’re also importantly expanding it and getting more people tested. Another way to get there, Brian, is to get more physicians to order Cologuard. To Kevin’s point earlier, the pandemic has helped to accelerate that. We do a decile analysis. So we look at different ordering trends and different doctors. What stands out to me is when you look at the doctors representing the top 40% of orders before the pandemic, those doctors' order trends are down about 15% compared to the start of the pandemic. They’ve been down because they have fewer patients coming through their doors because of the pandemic, and our sales force access has been limited because of the pandemic. However, what is exciting is that as we come out of the pandemic, reps will get back in there, patients will come back for appointments, and those doctors will return. They are the true believers. The doctors representing the bottom 60% of orders before the pandemic, those factors were ordering nearly 60% more than they did at the start of the pandemic. So we’re seeing broadening of the order base, a deepening of that penetration amongst the doctors near the bottom of the scale, all of which bodes well for future growth. That’s how we’re going to get there. This new marketing campaign, stay tuned, it rolls out very soon. I’m confident that will help increase the urgency to get more people screened and lift screening rates in this country overall.

Okay. And then just a follow-up on timing for data readouts. Just want to make sure there’s been no change in things. Would you mind running through the timing on when you expect various readouts over the next year or so to take place?

Yes, I’d be happy to take that, Brian. For the next-generation Cologuard, the BLUE-C top line we expect to read out in the second half, probably the fourth quarter of this year, with our FDA submission in the first half of next year. For the colon cancer blood, we expect to have data this year that will lead to our BLUE-C study top line pivotal data in the first half of 2023. With our multi-cancer early detection, we expect to have combined feasibility data in mid-2022, with clinical validation in the second half of 2022. Our prospective study starts in late 2022, and our MRD test clinical validation will be in the second half of this year. Also worth noting is that our Oncoguard liver test reimbursement study will take about 18 months to complete. We will continue to offer that as a cash pay out-of-pocket and continue to build real-world evidence with key partners.

And we will take our next question from Vijay Kumar with Evercore.

Hi, guys. Thanks for taking my question. Jeff, maybe one on the guidance here, the screening revenue guidance here, $1.34 billion acquisition; it’s about around $1.3 billion at the low end. I think last year you noted about pre-screening perhaps being $100 million, and you expect that to double up in ‘22, screening in 40 to 45 a perhaps 40 in fiscal ‘21, doubling up in fiscal ‘22. If I back out some impact for that, it still looks like the core screening business is expected to be flat to slightly up sequentially despite having your typical holiday seasonality, Omicron, and I would imagine some weather impact. So can you just talk through some of the positive drivers that you’re seeing for that business that would drive that sequential increase?

In Q1, Catherine, I mentioned in my remarks that we expect $9 million from PreventionGenetics. In the transcript, you’ll see that we have the full amount for screening and then break out for prevention. The typical seasonal trend is that around the holidays, starting with Thanksgiving and Christmas and New Year’s means fewer patients go out and seek primary care, and Cologuard is often ordered during a primary care visit. So that does have a negative impact. All else being equal, you’d expect a significant step down when moving from Q4 to Q1 in our Cologuard business. This year, what we’re implying is a better trend, better trend for the reasons we’ve talked about, things like the incremental sales force productivity, 3-year rescreening Cologuard 45, all very positive drivers. Yes, there has been some impact from Omicron; more people, both patients and physicians, have been getting sick, and that did have an impact. But the good news is cases have fallen dramatically. As we move forward, sales force access should improve, and wellness visits should improve as well.

Right. Got it. And then you talked about achieving a 10-point improvement in the electronic ordering rate in 2021. Are there any goals or targets for further improving that this year?

Since we looked over the past couple of years, we went from 30% of Cologuard orders electronically to 40%, and now to 50%. We expect continued improvement each year; however, it gets harder to keep going up at 10 points. While we’ll aim for that, I don’t know if we’ll get there this year. Longer-term, I’m confident that number will keep working higher. When physicians order electronically, as you know, they order far more; it’s a better overall experience for the patient and a lower-cost order to us.

We will take our next question from Dan Brennan with Cowen.

Great. Thanks for taking the questions. If I could start off with a question on the blood-based competition as it is a key focus. Kevin, can you just remind us if that 85% is still the number that you think kind of above which, maybe their share gains and below which there would be share loss? And how does precancerous adenoma detection fit into how the blood-based competition will do? Lastly, should we be looking for other bodies, whether NCCN or AMA, that could come in and make decisions or recommendations that could have an impact on the paradigm for screening once the blood-based data is out there?

Yes. The most important guidelines by far are USPSTF guidelines; the American Cancer Society also weighs in, but the guidelines that payers follow are the USPSTF. Those are obviously the most important ones and they are also the most recommended. Regarding what level of performance we think is the minimum required to have a positive impact on overall screening, well, 85% is the threshold we think just isn’t going to produce much uptake by the blood-based test. It will likely be a test of last resort. This will still be an important test in a patient population of over 100 million people, but you need to remember where the FIT test is today. The FIT test has about 75% sensitivity, detects 24% of precancerous polyps with a 5% false positive rate, and it reimburses $15. So as a blood test that detects 85% of cancers with a smaller percentage of precancerous polyps with a higher false positive, it’s unlikely to have much impact; that cost some people are touting multi-hundreds of dollars. No, it’s not going to have a significant impact. Also, take a look at the Medicare guidelines; they will only pay every 3 years but at that level of sensitivity and specificity, it would need to be used every year to have an impact, but they aren’t going to pay for it.

Just to clarify, the survey data shows that only one in seven doctors would order a test if the cancer sensitivity were below 85%, and the pre-cancer sensitivity were below 40%.

Got it. Thanks, Kevin. And then as a kind of different question for Jeff. Just as we think about the long-term path for the company towards turning profitable and turning self-financing, so free cash flow positive, what are the markers as we look ahead in the coming years to think about that would enable you to achieve that? Is it all else equal, a certain revenue base at which we should expect those things to occur? Any helpful thinking along those lines would be great.

Look, if you go back a few years, I think we showed what this business model can do. Back when the pandemic hit, we quickly pivoted and adjusted the cost structure, pulling back on some of the pipeline investments. And we generated over $70 million in free cash flow in 2020. That shows what this business can do. Cologuard consistently generates significant cash flow that over time funds growth in areas like IT and R&D. Over time, that will flow through and we’ll share that with investors. As far as the roadmap forward, we are confident in delivering adjusted EBITDA profitability in 2024. How do we get there? It starts with the top line; we know the opportunity is significant, so we will keep growing that top line. That will generate additional gross profit. Between now and the next few years, I expect substantial gross margin improvement as we leverage that fixed cost structure and automate our labs further. When you walk down the P&L, you look at things like sales and marketing; we have a broad sales and marketing team spanning primary care, GI, women’s health, oncology, and surgeons. That sales team will over time add more products to their bag, which will help drive incremental profitability. For G&A, we have to put in the investment here upfront because that will provide a strong foundation for growth. I’ll give some color on specific investments we’re making, such as IT systems and billing systems, which will drive significant savings and leverage over time. You’ll see that unfold even this year. We will do a good job of holding the line in the coming years, and you will see good leverage for G&A. R&D, as I said in my remarks, nearly 75% of R&D is focused on new growth opportunities. I think that’s the right thing for investors to keep driving forward, things like multi-cancer, MRD, and Cologuard 2 are key areas of investment. Over time, that will open up new sources of growth that will enable us to drive even more cash flow to investors. So, there’s not one single point on this, but there are a series of factors we have lined up in our internal plan that will get us to profitability in 2024 and allow for continued steady gross margin and cash flow improvement thereafter.

And we will take our next question from Jack Meehan with Nephron Research.

Thank you and good afternoon. I wanted to focus on multi-cancer screening. So NCI recently announced an RFI for a large-scale RCT. I was wondering if you plan to respond to that RFI and participate, and just talk about how this impacts your development plans versus the pivotal study that you’ve talked about launching.

We are responding to the NCI request for proposal, and we are excited about that. The good news with what the NCI is doing is showing just how badly our Federal government wants to change how cancer is treated. Today, cancer is largely treated as a late-stage metastatic disease because 70% of cancers lack screening. A multi-cancer screening test changes everything because over time you could go from 15% to 20% of cancers found through screening to more than 50%. That is a monumental change for oncology, and that time is not far away. NCI’s involvement is a positive step. We will continue to conduct our pivotal study. Others will have their own too, which is needed because getting a new screening modality into USPSTF guidelines will take more than one study, and it may require multiple studies. So, NCI's study provides another way for us and others to generate evidence.

Great. As a follow-up, I was wondering if you could discuss the FDA review timeline for colon blood and for a multi-cancer test. On the latter, does NCI's involvement change your view on the timeline for when the FDA might review the multi-cancer test?

Let’s start with multi-cancer, then take colon cancer. Multi-cancer studies will take years to complete. The FDA typically holds a panel meeting before the submission of all the data. With the approval for Cologuard, it was about a six-month to nine-month process from submission to approval. For the multi-cancer test, I expect something similar. The colon cancer approval process will be the same; since there are multiple aspiring entrants into that space, I suspect there will be one big panel meeting. That depends on how many submissions there are. That’s about a six- to nine-month process. It also needs to be kept in mind that the office of in vitro diagnostics has been overwhelmed by COVID testing submissions, and that hasn’t abated, so that will impact timelines as well.

And we will take our next question from Andrew Cooper with Raymond James.

Hello everybody. Thanks for the questions. A lot has been asked, but maybe to follow up on that last one. And I think you talked or mentioned already that multi-cancer is a priority for you. I just wanted to get the latest and greatest on how things like the NCI RFI and what we’re hearing about one player out on the market might be impacting your view of what the best pathway is, how you kind of go down the dual pathway for FDA and LDT, as well as the latest thoughts there.

Yes. I think the other aspiring entrants here have done a great job. They are the type of company you want to see enter a new space like this because they are serious about the data they generate. More than one company with a product is needed to get Congress to act and cover a test. We are really pleased to work with Grail in the way that we have over the last year with advocacy groups, etc. Regarding the LDT perspective, we expect to have a lab-developed test of our own next year. There are over 100 million people, we think, that will ultimately be screened, and it’s going to be different than Cologuard. Remember, with Cologuard, there was colorectal cancer screening for a quarter of a century before Cologuard showed up, and perceptions existed about which tests were used. We had to change how people were screened; however, no multi-cancer screening exists today, so there will be considerable growth opportunities ahead. The question is how many people get screened in that first year of FDA approval and Medicare coverage. The lab-developed tests will contribute significantly. This is going to be a medical innovation that changes everything; as we go from 15% to 20% of screening-detected cancers to over 50%, that will fundamentally change how we think about cancer treatment and outcomes.

Okay, great. Helpful. Then kind of in the nitty-gritty, you mentioned that MolDX wanted some different data for Oncoguard. Can you give us more flavor on what that means for timelines, and is there anything for MolDX to take away in terms of what they may be looking for concerning some of the other pipeline items or any changes to your approaches because of the additional requests they are looking for?

Sure. Let me come back to multi-cancer screening. We are very enthusiastic about our lab-developed test because we can leverage that with over 1,000 people on our commercial team. We will be able to put that on our instance of Epic, making ordering and results availability tremendously easier. That’s a huge advantage we have. Regarding Oncoguard liver, it’s just a different study approach that without getting into all the details that MolDX requested further study. That unfortunately extends the time since we have to start that study and complete it before we submit. The read-through on our other products, MRD already has categories for that well established; liver is just a different case. There won’t be a lab-developed test for multiple cancers because the law doesn’t permit that. So, I don’t think there are implications from liver to any of our other pipeline programs.