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Exact Sciences (NASDAQ:EXAS)

Q4 2012 Earnings Call

February 20, 2013 10:00 am ET

Executives

Rod Hise

Maneesh K. Arora - Chief Financial Officer, Chief Operating Officer, Principal Accounting Officer, Senior Vice President and Secretary

Kevin T. Conroy - Chief Executive Officer, President and Director

Analysts

Jeffrey T. Elliott - Robert W. Baird & Co. Incorporated, Research Division

Jon Davis Wood - Jefferies & Company, Inc., Research Division

Peter Lawson - Mizuho Securities USA Inc., Research Division

Jeffrey Frelick - Canaccord Genuity, Research Division

Raymond A. Myers - The Benchmark Company, LLC, Research Division

Yale I. Jen - Roth Capital Partners, LLC, Research Division

Zarak Khurshid - Wedbush Securities Inc., Research Division

Operator

Good day, ladies and gentlemen, and welcome to the Exact Sciences Corporation Fourth Quarter 2012 Earnings Call. [Operator Instructions] As a reminder, today's conference call is being recorded. I'd now like to turn the conference over to your host, Mr. Rod Hise. Please go ahead.

Rod Hise

Thank you for joining us for Exact Sciences' fourth quarter 2012 conference call. On the call today are Kevin Conroy, the company's President and Chief Executive Officer; and Maneesh Arora, our Chief Operating and Financial Officer.

Exact Sciences issued a news release earlier this morning detailing our fourth quarter 2012 financial results. If you've not seen it, please go to our website at exactsciences.com or call (608) 807-4607, and I'll send it to you.

Following the Safe Harbor Statement, Maneesh will provide a summary of our fourth quarter financial results. Next, Kevin will provide a corporate update.

Before we get underway, I'd like everyone to take note of the Safe Harbor paragraph that appears at the end of the news release issued this morning, covering the company's financial results.

This paragraph states that any forward-looking statements that we make: One, speak only as of the date made; two, are subject to inherent risks and uncertainties, including those described in our most recently filed annual report on Form 10-K, and our subsequently filed quarterly reports on Form 10-Q; and three, should not be unduly relied upon.

Except as otherwise required by the Federal Securities law, we disclaim any obligation or undertaking to publicly release any updates or revisions to any forward-looking statement contained herein or elsewhere to reflect any change in our expectations with regard thereto to any change in events, conditions or circumstances on which any such statement is based. It is my pleasure now to introduce our Chief Operating and Financial Officer, Maneesh Arora.

Maneesh K. Arora

Thank you, Rod, and good morning, everyone. As you know, patient enrollment for our DeeP-C clinical trial closed on November 15 of last year. Kevin will provide an update on the trial and on our FDA submission in just a moment.

We're continuing to prepare for a commercialization of the test once it's approved by the FDA. These efforts, including quality, manufacturing and marketing readiness, are on track and will intensify as we approach FDA approval.

We ended the year with $108 million of cash, meeting our 2012 cash utilization target. In 2013, expenses and cash utilization will be driven by the timing of the FDA's review of our PMA submission and its potential approval of our test. It's now my pleasure to introduce Exact's President and CEO, Kevin Conroy. Kevin?

Kevin T. Conroy

Thanks, Maneesh. Let's start by reviewing our 2012 accomplishments. The DeeP-C clinical trial was our most important priority last year. As Maneesh said, we closed patient enrollment in November with more than 12,700 patients. We submitted the first of 3 PMA modules to the FDA in December and initiated the analytical studies needed to complete our second FDA module, which was submitted last week.

On the operations side, we implemented a robust quality management system. With quality and other systems in place, we began manufacturing the reagents used to test patient samples in the clinical trial. We also continued to lay the foundation for both public and private coverage and reimbursement.

Let's now turn to our 2013 priorities. In 2013, we have 3 priorities: one, launch readiness, namely preparing to make our test available to patients; two, ensuring operational excellence; and three, continued innovation.

One of our top launch preparation priorities is to have the results of our DeeP-C study accepted for publication in a top peer-reviewed medical journal. This peer-reviewed publication will be a key part of our efforts to educate physicians in an important tool as we work with key medical societies to raise the profile of stool DNA testing in their screening guidelines. We'll also complete our Medicare coverage application and continue to engage with private payers to make sure we receive optimal reimbursement for our test. We'll also build and deploy our core market access team and put in place the infrastructure for both patient and provider education, service and support. These activities are critical to our efforts to maximize market adoption at launch.

Our operational activities will start with the completion of our FDA PMA submission. We'll complete validation of our manufacturing process in preparation for our FDA inspection and scale up manufacturing capacity in anticipation of launch.

We also are establishing a CLIA-certified clinical laboratory. The high touch approach at our lab will one, improve the patient experience and patient screening compliance. Two, assume the burden of compliance tracking from the physician's office and three, accelerate market penetration. We will establish our own CLIA lab of record and partner with an established lab to deliver test results.

During the past 6 months, we have evaluated a number of established, experienced, high complexity CLIA labs that we would potentially partner with. The key advantages for Exact entering into a partnership with an existing lab is the ability it gives us to leverage the existing infrastructure, systems and know-how without having to build all of it on our own. This is very attractive to potential lab partners because of the significant test volume potential. We have narrowed our partner discussions and will provide an update in the coming months.

Finally, we will work to establish the feasibility of pancreatic and esophageal cancer test. We will complete the clinical trial for our IBD-related screening test and make an assessment of improvements that could be made to Cologuard. Let's now turn to an update on our clinical trial.

Of the more than 12,700 patients who enrolled, approximately 10,800 were compliant with all 3 tests included in the trial: Cologuard, FIT and colonoscopy. The largest driver of noncompliance among enrollees was failure to undergo a colonoscopy.

There were 56 cancer patients identified in our study population. As a result, our study is very well powered. The study also has identified more than 800 patients with precancerous polyps. The trial also enrolled more than 9,000 patients with no cancer or precancerous polyps. Let's review the key milestones of our FDA submission.

Earlier this week, we were pleased to announce that we submitted our second PMA module to the FDA. This module included analytical studies that assess the analytical sensitivity and specificity, cross-reactivity and other similar characteristics of our test and instrument platform. We put a great emphasis on these studies and passed all of them.

We also are pleased to report that we remain on track with completing our PMA submission and we will submit the third module in May. All 3 of our clinical trial testing sites have passed proficiency testing. FDA-required reproducibility testing has begun at each of the sites.

Following reproducibility testing, we will begin testing clinical trial samples. When the testing of clinical specimens is complete, the date -- or the data will be unblinded. We won't have access to the data until it's unblinded. As soon as the data is unblinded, we will disclose the results in an 8-K and a news release.

As we move towards our final FDA submission and the submission of our Medicare national coverage application, we are very appreciative of the FDA and CMS's engagement and responsiveness. As soon as we receive an FDA panel date from the agency, we will share that news with investors.

We also continue to strive for publication of our clinical trial data in a peer-reviewed medical journal during the fourth quarter. Let's turn to how we anticipate presenting those top line results.

Let's review the performance targets we set for the test before starting the trial. These targets form the basis of a strong commercial product that will allow us to readily gain market penetration and significantly affect colorectal cancer screening rates.

Our target for cancer sensitivity is equal to or greater than 85%. While we would be pleased to achieve 98% cancer sensitivity in our clinical trial, we do not expect to do so. The target for detection of precancerous polyps is equal to or greater than 50%. Our target for the test specificity is equal to or greater than 90%.

We will release the top line cancer sensitivity, precancerous polyp sensitivity and overall specificity in both an 8-K and news release.

Our market research gives us confidence about the potential for widespread acceptance of our test once it's approved and launched.

This research includes interviews with a significant number of physicians and patients. 96% of the physicians we interviewed said they are likely to order Cologuard for some or all of their patients. 92% of patients said they are likely to use our test.

The research indicates the significant potential for adoption among the 80 million Americans who need to be screened and to significantly increase screening compliance rates, which is our goal. Let's turn to another opportunity we're pursuing, a test that detects cancer and precancerous polyps and those with inflammatory bowel disease.

Patients with IBD, both Crohn's disease and ulcerative colitis, have a significantly increased risk of colorectal cancer, and guidelines recommend annual screening for those patients.

However, inflammation associated with IBD makes detecting colon cancer by optical colonoscopy very difficult. Approximately 40 random biopsies are taken during a colonoscopy and sent to a pathologist to determine if a patient has cancer or dysplasia. This approach unfortunately misses far too many instances of disease. We're on track to provide a new, better solution to IBD patients and the physicians who treat them.

Data that was presented last year at DDW by our collaborator, Dr. David Ahlquist, suggests that with a modified version of our current test, there is a potential for a very high level of sensitivity for both cancer and high-grade dysplasia. We are running our Oceana study this year with 300 patients, targeting 30 cancer patients and 20 with high-grade dysplasia. The primary endpoint of the trial is the sensitivity and specificity of the test in the detection of colon cancer, while the secondary endpoint includes the test sensitivity and specificity in the detection of dysplasia. This represents a significant market opportunity. There are 1.5 million IBD patients in the U.S. alone who are supposed to be screened every year starting 10 years after initial diagnosis.

In conclusion, Exact has a unique, patient-friendly test that will address a valuable market underserved currently. The clinical trial and FDA submission for that test are on track and will be completed in the second quarter. Our lab strategy enables physicians to improve screening rates by helping to ensure patient compliance during outstanding, high touch experience.

Our commercialization efforts are focused on 2 segments. One, large health care providers that employ and set screening guidelines for a majority of primary care physicians. And two, the physicians who today are ordering the highest number of FIT and FOBT tests.

Our work to secure optimal public and private reimbursement is on track.

Before taking questions, I'd like to thank all of the employees and collaborators of Exact Sciences who have worked tirelessly to develop a great new product, and we look forward to the upcoming release of the results of our DeeP-C study. We're happy now to answer your questions. Thank you.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Jeff Elliott of Robert W. Baird.

Jeffrey T. Elliott - Robert W. Baird & Co. Incorporated, Research Division

First, a question on the timing of the FDA submission. I think, last update, you had mentioned that that was possible in either April or May. Today, you're saying May. Did anything change there or are just getting a better read on when you'll have that available?

Kevin T. Conroy

Well, we're getting a better read. We really wanted to make sure that we invested sufficient amount of time and energy to get the PMA module to submit it. And that took a little bit more time than we anticipated. People really have been working weekends and nights to make sure that we get that right. We're really pleased with those results. That probably pushed back the schedule a couple of weeks. So both the data release is now -- we're striving for March, but April is a possibility. That does not change, however, the May date. So we're targeting May for the full, complete PMA submission that will then trigger, of course, the FDA panel and potential FDA approval.

Jeffrey T. Elliott - Robert W. Baird & Co. Incorporated, Research Division

Got it. Okay, that's helpful. And then, just to be clear, the top line data that you're going to release, there's 3 data points we're looking for. Is that correct? It's the sensitivity and specificity for cancer, for precancer? I mean, it's 3 data points we're going to get, is that correct?

Kevin T. Conroy

That is correct.

Jeffrey T. Elliott - Robert W. Baird & Co. Incorporated, Research Division

Got it. And then the data that you submitted within the analytical module, is that data that you'll release separately?

Kevin T. Conroy

That data typically is not released publicly. So I don't think that that data would be released. It's typical that with a PMA submission that that data would not be released.

Operator

Our next question comes from the line of Jon Wood of Jefferies.

Jon Davis Wood - Jefferies & Company, Inc., Research Division

Kevin, just referencing some of the market perception survey work you've done. Obviously, strong response rates there. Have you guys learned anything incremental, say, over the last 3 months on the resources needed and kind of the allocation of those resources to kind of appropriately prepare the market for this launch? I guess I'm looking for is anything that is kind of changed in your head or incremental information that you have that gives us a sense on how you'll kind of go to market to prepare both the physician and the patient community for the launch?

Kevin T. Conroy

Nothing really material has changed in the last 3 months. We've learned a lot more as we have surveyed and engaged with and surveyed both patients and physicians. In terms of our approach, though, the approach is really clear and it's two-pronged. Number one, we will target and focus on the large systems that today employ at least half of primary care physicians. And they set their own screening guidelines. So we are targeting about 400 large employers of primary care physicians all over the country. Secondly, we will target the high prescribing FOBT, FIT prescribers -- those primary care physicians. And there are about a thousand of those primary care physicians who today order an average about 1,000 FIT and FOBT test per year. These are the physicians who really strongly believe in and get engaged with colon cancer screening. We know who these physicians are. And we -- in our study, we're comparing directly against the FIT test. And we believe that there will be a very powerful value proposition to both the physician and the patient that a better test that detects cancer at a higher rate, detects precancerous polyps at a significantly higher rate. We think that we will be able to get both the systems and those high prescribing PCPs to adopt our test. That's really the focus. We will keep that focus, we think, for at least the first couple of years into launch before we expand in a broader way.

Jon Davis Wood - Jefferies & Company, Inc., Research Division

Understood. Is there -- have you started formulating a plan around any money that will be spent going direct to patients? I guess I'm looking for, obviously, the focus being the physician community, completely understand that. But any work you guys are doing to see the feasibility of more of a DTC type of campaign, whether it's over the web or media? Is that something we should look for in the next, let's call it, 6 months or so?

Kevin T. Conroy

It's not something that you should expect. What we have learned to-date, and we've looked pretty closely at other diagnostic companies who have conducted DTC, that the effectiveness is limited, really, until you hit educated physicians in a broad way. So we don't want to -- we want to be wise about how we utilize cash. And our research indicates that there is a significant likelihood of uptake by large systems and the education that would occur for patients would be in those regions where large number of the systems have adopted our test as a primary means -- basically as a way to replace the FIT or FOBT test. Then there would be more engagement with patients, and a web strategy is clearly a part of our plan and it's a lot less expensive than conventional DTC.

Jon Davis Wood - Jefferies & Company, Inc., Research Division

Understood. So the follow-up for Maneesh. I mean, I understand there's a lot of moving parts on timing. But can you give us some parameters around operating expense targets for 2013? And I guess the flex, depending on the approval or the submission approval timelines, what can most significantly change over the course of the year?

Maneesh K. Arora

Sure. So I mean if you take a look at the 3 components. From an R&D perspective, we know that there's going to be a decline -- total R&D will decline at least $10 million from 2012, probably ramping down over time, returning in Q1 to more like Q1 2012 levels and then declining from there. You'll see as we grow the commercial infrastructure, the G&A side, there will be modest increases, but not huge increases in G&A. So the big flex comes in the sales and marketing and that's really where the dependencies around the FDA approval -- review and approval timeline. So if you think about it, we're going to be investing, as Kevin mentioned, modestly, but without a full-blown launch of a huge headcount until we have more clarity around that. So the big flex is going to come in the S&M line and we'll provide more clarity on that as the year progresses. Does that help, Jon?

Jon Davis Wood - Jefferies & Company, Inc., Research Division

Yes, great. Perfect.

Operator

Our next question comes from Brian Weinstein of William Blair.

Unknown Analyst

It's actually Matt [ph] in for Brian. Obviously, you've been very clear about your expectations for the sensitivity and specificity of the test, but as we think to the top line data that we're going to see here in a couple of months, which of those numbers do you think has the greatest risk of moving around a little bit relative to your expectations?

Kevin T. Conroy

Sure. Well, first, please let Brian know that I said congratulations on his college's victory over Michigan State last night. Secondly, so the number that is least powered, obviously, is the cancer detection number, which has 56 cancers. So that has the greatest error bars. The specificity number has 9,000 patients, so the error bars around that are approximately 0.6%. So that's going to be exceedingly tight and the precancerous polyp error bars are somewhere in between, but still pretty tight, in the low-single digits. So statistically speaking, the most room for flex would be in the cancer sensitivity number. And that's one of the reasons that we're just trying to make sure that people understand that the cancer sensitivity here we've set in every presentation, we've given over the last 3.5 years has been 85%, has been the target. We certainly hope to exceed that. We expect to exceed that, but the real value of this test and the reason people on this call would someday want to get this test is that it detects precancerous polyps. And with repeat testing, the cumulative sensitivity is what's really important.

Unknown Analyst

Okay, great. And just a quick follow-up here. If you could share anything about the manufacturing analytical modules. I know they've gone in 2 different divisions of the agency, but if there's anything that you can share that's come out of that, positive, negative spreads, as well the expectations or any feedback on the manufacturing module so far?

Kevin T. Conroy

The way the manufacturing submission works is that you submit to the agency and then they take that submission, make sure that it has all of its components. I think they have 45 days to reject that. But they send that -- in our case, it goes to the field office in Minneapolis. And then later this year, we would expect they would schedule an inspection of our facility. And then they would come along with this manufacturing submission, review the entire manufacturing submission, review our quality system here. And that is just kind of ordinary course as we go forward. So we're really pleased with the manufacturing package that we put together and would not expect to have problems with that going forward.

Operator

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

Peter Lawson - Mizuho Securities USA Inc., Research Division

Kevin, sorry to get into the sort of granular side of this, but what's the time gap between the date to be unblinded and then being released?

Kevin T. Conroy

Very, very short. There is a time gap in between the data being generated and the data being unblinded when biostatisticians review that data from a quality perspective and make sure that everything ties off. But then management and the investigators wouldn't see that until it's unblinded. And we would likely then immediately, the following day or even at the end of that day, issue the press release and file an 8-K, so 24 to 48 hours within.

Peter Lawson - Mizuho Securities USA Inc., Research Division

Great. And then the survey that was interesting, so the 96% of physicians that use the test, what kind of subset of patients was that?

Kevin T. Conroy

Well, it was actually statistically powered. There were 55 physicians and 161 patients. And the data was also interesting because there were 67% of the physicians were -- said they were very likely to utilize this test and 29% said moderately likely, and among patients, 73% said they were very likely, and 19% said moderately likely. It's obviously impressive and it's statistically significant. And another point there, Peter, was that on average, physicians would order this test for slightly over half of their average risk patients. So in their mind, and this came out of the research, there are patients that they know that simply won't undergo colonoscopy. And it's one of the big problems we have with colon cancer screening today is a lack of compliance. So patient with certain comorbidities or certain age or in the past has rejected colonoscopy as an idea, their primary care physicians know who these patients are and it's pretty clear that they would utilize the test that detected precancerous polyps among that subsection of their patients.

Peter Lawson - Mizuho Securities USA Inc., Research Division

Right. And so the patient themselves were open for colonoscopy, that they're eligible for colonoscopy? Was there a subset like that?

Kevin T. Conroy

Yes, so these are polled patients who are average risk --

Peter Lawson - Mizuho Securities USA Inc., Research Division

Such as?

Kevin T. Conroy

50 and older. So the same patients that were studied in our clinical trial and who will be the focus of our launch, obviously.

Peter Lawson - Mizuho Securities USA Inc., Research Division

Great. No, that's helps a lot. And just on sort of the new codes coming out from CMS, how does that change the outlook for you on pricing?

Kevin T. Conroy

So far, positively. As you know, we have a KRAS component in our test and KRAS, which has been reimbursed anywhere from $200 to $1200, depending on the technology used. Today that seems to be coalescing around $230 and that's just -- there are 7 KRAS mutations in our test and there are a total of 11 biomarkers in our test. So we think that things are playing out appropriately. Again, we're not one of those $2,000 to $4,000 molecular diagnostic test. We're going to provide a great value at, we think, a really good price point.

Peter Lawson - Mizuho Securities USA Inc., Research Division

Just one quick question for Maneesh. Just around the G&A. Is that going to be flat for the rest of the year and that R&D ramp down, that happens after Q1?

Maneesh K. Arora

So you're going to see from -- in Q1, probably a return to Q1 '12 levels and then lower from there ramp down. As far as G&A, you'll see a modest increase over the course of the year. Not huge, but as we continue to build out the infrastructure in the systems to be able to launch this, there will be modest increases. So it's not flat for G&A.

Operator

Our next question comes from Jeff Frelick of Canaccord.

Jeffrey Frelick - Canaccord Genuity, Research Division

Kevin, in the survey, the patients that you had collected info on, did you identify what they were currently doing for any type of screening, if at all?

Kevin T. Conroy

I have to look deeper into the research. I think it was a -- that data is probably there. I would have to take a look. We'll catch it.

Jeffrey Frelick - Canaccord Genuity, Research Division

Okay. And where do you stand now with the progress on society endorsements?

Kevin T. Conroy

Well, first of all, as you know, the American Cancer Society and the multi-society task force in 2008 recommended that stool DNA testing be one of the recommended means in the guidelines. So presently, we are working very hard with the societies to engage with them so that they're ready to take a look at the DeeP-C data, understand that data. And as their guideline committees form to further highlight or strengthen the position that stool DNA testing, or in particular, our test, has in those guidelines. But then there's also developing the relationships with the guidelines because you then have reached into the physicians who are going to ultimately help make this test a successful test. And so that has been an ongoing effort over the last 4 years and it's intensifying as we go forward. We're presenting at an AGA conference coming up in the next couple of months, and there just seems to be a lot of interest among the medical societies for something so new and differentiated as this test.

Jeffrey Frelick - Canaccord Genuity, Research Division

Okay, and then lastly, which advisory panel will you likely appear on?

Maneesh K. Arora

It will likely be immunology. That's what the agency has initially communicated, but that'll obviously be up to the agency.

Operator

Our next question comes from Raymond Myers of Benchmark Company.

Raymond A. Myers - The Benchmark Company, LLC, Research Division

Kevin and Maneesh, I'm curious if you could give us a little breakdown in your R&D spend. How much have you earmarked for applications other than colon cancer in 2013?

Kevin T. Conroy

So what we said publicly is that the Oceana trial is going to be $1 million to $2 million, and that's really what we've said. There will be some additional modest monies that we use to achieve the goal that Kevin outlined, the prototypes for esophageal and pancreatic cancer, but the vast majority will be on Cologuard.

Raymond A. Myers - The Benchmark Company, LLC, Research Division

Right and is the Oceania trial still due to be complete this -- by the end of this year?

Kevin T. Conroy

We're targeting completion by the end of this year.

Raymond A. Myers - The Benchmark Company, LLC, Research Division

Excellent. Have you determined whether Exact may be able to charge patients a nominal amount similar to a co-pay type amount for the test kit themselves?

Kevin T. Conroy

That's something that we're working through. Right now, we don't anticipate at launch doing that. But as we explore that, we will share more. But right now, we don't anticipate doing that.

Raymond A. Myers - The Benchmark Company, LLC, Research Division

Okay, good. And Maneesh, you talked about being the most flex in the sales and marketing line and so that's the area of my question. How high do you expect that to flex upward this year?

Maneesh K. Arora

Ray, until we see the data and get feedback from the agency and look at that timeline, I'm just not comfortable commenting on that until we know more.

Operator

Our next question comes from Yale Jen of Roth Capital.

Yale I. Jen - Roth Capital Partners, LLC, Research Division

Kevin, just a quick question in terms of the sensitivity that you mentioned that you're comfortable target exceeds 85% but not necessarily to 98%, but since the last 2 study, it's in that ballpark. Would you just be more conservative or there's more to it from that statement?

Kevin T. Conroy

Well, let me emphasize one thing first, Yale, is that, again, we have not seen data. We will not see data. Until shortly before we issue the 8-K release, we'll be totally blinded to the data. But this is a prospective study versus case-control study. And typically what you see in a prospective study is some falloff in sensitivity. I, again, don't have any reason to believe that the sensitivity will fall to 85% from 98%, but I want to make sure that we're setting expectations and driving home the point that the real value of this test is in the cumulative sensitivity like the Pap smear, which is -- which detects on average about 47% of precancerous lesions for cervical cancer. But the real value is in repeat testing and that increases the sensitivity over time.

Yale I. Jen - Roth Capital Partners, LLC, Research Division

Okay, great. And secondly, are you guys going to be presenting at ASCO this year or the AGA will be the meeting to present?

Kevin T. Conroy

We have not yet determined what scientific conference we would present this data at. That will be dependent upon the timing of the conference. Obviously, some of these are awfully tight between the submission of the abstracts and when those conferences are held relative to when our data is coming out, so we will let you know as soon as we know.

Yale I. Jen - Roth Capital Partners, LLC, Research Division

And the third one is that, for the CLIA lab that you informed us to what -- which partner you may choose later. Was there any parameter or criteria that you have set for the prospects? And also, do you have any color in terms of -- this will be a second -- first half or second half year of those decisions?

Kevin T. Conroy

So we do have well-established parameters for identifying lab that would be a good fit for us. Just to reiterate, Exact Sciences will be the lab of record. So it will be our CLIA lab and we'll be working with a partner to implement and using existing facilities and infrastructure. And that is something that we plan to do in the coming months. So that is a first half event, so that we can be adequately prepared for launch.

Yale I. Jen - Roth Capital Partners, LLC, Research Division

Okay, great. And the last question actually, Maneesh, in terms of sales and marketing budget, I know that timeline may be a little bit difficult to decide right now. But overall, would you have a sense what -- let's say the first or second year S&M budget might be for the launch?

Maneesh K. Arora

Again, Yale, until we see the data and understand timing and impact of that with discussions with FDA, we're not going to talk about that. What we can say is that in terms of size of sales force, we do expect that at the end of the first full year of launch, we expect to have a commercial organization of approximately 100. And that's consistent with what we've said in the past. That will help range find the right size for you at maturity or at first full year of launch, given our lack of visibility on the review and the timeline. That's really why we can't share more at this time about when it's going to happen.

Operator

Our next question comes from Zarak Khurshid of Wedbush Securities.

Zarak Khurshid - Wedbush Securities Inc., Research Division

Just curious on the economics of the lab partnership. How would that work? And then if you could clarify a little bit what exactly the partner would be doing? And if they would be educating physicians, that would be great.

Kevin T. Conroy

I think it's really important question. I want to make sure that we're crystal clear here. Again, Exact will be the lab of record. The partner lab -- think of it this way. Exact would most likely do the upfront stool processing at our facility and take that down to extracted DNA. The lab partner would provide a facility and capability and infrastructure and robotics and automation to process that sample. We would leverage their IT system, but it would be on our patient report and we would report out directly to the physician directly from the Exact Sciences' lab. So think of them as a real partner in this and their economics would reflect that the role that they play. I mean, basically, we look at the cost of us doing this ourself and compared it to the cost with a partner and the ability to quickly scale up and really to focus on our core competency. And so this is -- we're not comfortable sharing the breakdown there, but it has to be clear that we will be the lab of record and it will be -- we will be doing a -- taking on a significant amount of the overall expenses.

Zarak Khurshid - Wedbush Securities Inc., Research Division

Got it. And should we think about someone like a Quest or LabCorp or some type of a smaller entity closer in proximity?

Kevin T. Conroy

Well, at this point in time, we're not comfortable talking about this. But this company in the past has been down the road of partnering with large labs. And this isn't really their business model. They're focused on delivering test results themselves to their physician customers. We'll be able to provide more details in the coming quarters.

Zarak Khurshid - Wedbush Securities Inc., Research Division

Understood. And then on the doctor survey, just curious what types of docs were those? And have you done any more targeted surveys around the IBD specialists? And what are they saying about potential adoption and utility of the test?

Kevin T. Conroy

Yes, so the 55 docs were a mix of primary care physicians and GIs weighted in proportion to how they're represented out there in the real world. And I want to come back to one of Peter's earlier questions. He asked on the patient side what was the breakdown in the testing that those patients did. And there, it was about half of the -- 49% of the patients had never taken, had never undergone colon cancer screening, which is dead on to the data that we have seen reported. 51% had taken some type of a test. And of those that had taken some type of a test, 57% did both invasive and noninvasive, 23% did invasive only, 15% did noninvasive only and 5% were other. So -- and then to your question in terms of have we done work around IBD docs. And the answer to that is, yes, we've done a significant amount of more qualitative, but we have pulled several dozen GIs about what they perceive to be the need for a test that would augment their screening programs for IBD patients, their colon cancer screening programs for IBD patients. And it's really clear that the 2 most challenging issues that they face is noncompliance among the IBD population and the current tools' failure to identify dysplasia. This is a test that several of these doctors qualitatively have said, "Well, this is a test that I would potentially use every other year in between colonoscopies." They also indicated that patients are increasingly taking a role in helping set -- these IBD patients are taking a role in basically negotiating what their screening program is going to look like. So the GIs don't look at this test as something that is a threat. Rather, it would actually potentially bring more patients to be screened that are IBD patients that need to be screened. Hopefully that answers your question.

Zarak Khurshid - Wedbush Securities Inc., Research Division

Yes, very interesting. A couple of follow-ups. I think I might have missed it in the commentary, but when should we expect some of the data from the IBD study?

Kevin T. Conroy

Well, the study will complete in December and then I suspect shortly thereafter, so the beginning of next year, we would present that data publicly.

Zarak Khurshid - Wedbush Securities Inc., Research Division

Got it. And then maybe one last one for Maneesh. With respect to the manufacturing scale up and the clinical lab expansion, what sort of CapEx should one anticipate around that this year?

Maneesh K. Arora

So for the manufacturing scale up, we're anticipating about $4 million to make sure that the facility is scaled up and ready to handle a launch. And then for the lab, it's anticipated to be right around $3 million, so a total of $7 million from a CapEx perspective.

Operator

Our next question is a follow-up from Jeff Elliott of Robert W. Baird.

Jeffrey T. Elliott - Robert W. Baird & Co. Incorporated, Research Division

Just a question on the modeling. I want to make sure that I have this right. Because I know -- I'm using $300 a test today, split between Exact and the order doc. Under the CLIA lab model, my understanding is that you would keep the entire $300 and whatever the reimbursement would be. Could you just first verify that that's correct?

Kevin T. Conroy

Well, in terms of the number that you are using, I can't confirm that. What I can confirm is that with a direct lab approach, we will not, obviously, be sharing the economics with a partner lab. We will -- well, the partner lab that is doing some of the analytical testing for us will obviously share in a small portion of the overall economics. But overall, the economics will flow to Exact Sciences. And in terms of the actual price for the test, obviously that hasn't been set yet. We're very confident in our approach to this and we are not talking about what reimbursement level we would target. We do think that there is a strong rationale for private payers to pay more than Medicare for this test. Currently, private payers are paying nearly 2.5x premium to perform colonoscopy, relative to what Medicare pays. And we think that private payers will see this test, and our conversations to-date have indicated as much that they see this as valuable, relative to the current cost that they're paying for other screening model.

Jeffrey T. Elliott - Robert W. Baird & Co. Incorporated, Research Division

Great, that's helpful. And then just as a follow-up then: on Day 1, what sort of capacity do you expect to have available, both internally and through your lab partners? And then digging in a little deeper, what sort of kind of fixed cost or fixed cost of goods sold would you expect to go along with that, as far as running your own lab?

Kevin T. Conroy

I think that we'll provide more of that color as time goes on here. So we could wait a quarter or 2, I think that's what we would prefer to do. Maneesh, do you have any color to add to that?

Maneesh K. Arora

The only overarching comment is -- from our gross margin perspective, the long-term gross margin is, with this model, still in line with our guidance of 65%. So we'll provide more color, as Kevin said, as things roll out as to how long some of the questions you address, but at steady-state, this is still 65% gross margin or better.

Operator

With no further questions, I would now like to turn the conference over to Mr. Kevin Conroy for any closing remarks.

Kevin T. Conroy

Thank you very much for your participation on the call and we look forward to seeing you at conferences in the future and talking to you on our next earnings call. Thank you.

Operator

Ladies and gentlemen, this does conclude today's conference. You may all disconnect and have a wonderful day.

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