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spk10: Welcome to Natera's 2022 First Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode. Following management's prepared remarks, we will hold a Q&A session. To ask a question at that time, please press star followed by one on your touchtone phone. If anyone has difficulty hearing the conference, please press star zero for operator assistance. As a reminder, this conference call is being recorded today, May 5th, 2022. I would now like to turn the conference call over to Michael Brophy, Chief Financial Officer. Please go ahead.
spk07: Thanks, operator. Good afternoon. Thank you for joining our conference call to discuss the results of our first quarter of 2022. On the line, I'm joined by Steve Chapman, our CEO, and Solomon Moskovich, General Manager of Oncology. Today's conference call is being broadcast live via webcast. We will be referring to a slide presentation that has been posted to investor.natera.com. A replay of the call will also be available at investor.natera.com. Starting on slide two, during the course of this conference call, we will make forward-looking statements regarding future events and our anticipated future performance. such as our operational and financial outlook and projections, our assumptions for that outlook, market size, partnerships, clinical studies, opportunities, and strategies, and expectations for various current and future products, including product capabilities, expected release dates, reimbursement coverage, and related effects on our financial and operating results. We caution you that such statements reflect our best judgment based on factors currently known to us and that actual events or results could differ materially. Please refer to the documents we file from time to time with the SEC, including our most recent Form 10-K or 10-Q and the Form 8-K file with today's press release. Those documents identify important risks and other factors that may cause our actual results to differ materially from those contained in or suggested by the forward-looking statements. Forward-looking statements made during the call are being made as of today, May 5, 2022. If this call is replayed or reviewed after today, the information presented during this call may not contain current or accurate information. The Territory disclaims any obligation to update or revise any forward-looking statements. We will provide guidance on today's call, but will not provide any further guidance or updates on our performance during the quarter unless we do so in a public forum. We will quote a number of numeric or growth changes as we discuss our financial performance. And unless otherwise noted, each such reference represents a year-on-year comparison. And now I'd like to turn the call over to Steve. Steve?
spk05: Great. Thanks, Mike. Let's get into the highlights on slide three. As you can all see from the press release, we had another stellar growth quarter in Q1. Total revenue came in at $194 million, driven by strong volume in ASPs. Year-on-year product revenues increased by roughly 58% and 14% sequentially from Q4. Proforma, for the one-time $28 million QIAGEN benefit in Q1 of last year, Total revenues were also up 57%. Test process grew north of 40% year-on-year and more than 10% sequentially versus Q4 of last year. Keep in mind, these should be tough comparisons. 2021 was a breakout year for Natera, and yet the business continues to accelerate. We'll get into the driver shortly, but we are seeing excellent growth across the business, especially in oncology with our Signatera clinical volumes. Given the traction we are seeing in late Q1 and so far in Q2, we are able to raise our revenue guidance for the year. We started the year at $770 to $790 million, and we are now forecasting total revenue of $790 to $810 million for the year. We are rapidly getting operating leverage on the investments we've been making in R&D and commercial channels, which has given us more clarity on when we can get to cash flow breakeven. Mike will spend more time on this later in the call. As a reflection of our confidence in the company and the substantial upside value creation we believe is achievable, the board executive leadership and I opted to take our compensation in stock for the balance of the year. Our lead independent director also bought $5 million in shares on the open market. On the heels of a strong 2021, our first quarter results show we are firing on all cylinders and our increased guidance shows we are confident in our ability to maintain the momentum. Turning to a few notable highlights from the quarter, we've had a slew of exciting milestones in our transplant business, which has seen record volume levels on the back of 10 peer-reviewed papers published in the past roughly six months. We've recently announced the publication of Valid Study, a prospective clinical validation of Prospera Lung. We announced a 1,000-patient real-world study with Renocyte, And we announced a multi-site clinical validation of Prospera Heart was published in the Journal of Heart and Lung Transplantation, a leading journal in the space. A few weeks ago, we were also very pleased to announce that Dr. Sangeeta Bharad joined us as Vice President of Organ Health Medical Affairs. Dr. Bharad is a leading academic physician in the lung transplant space, having founded the Lung Transplant Program at the University of Chicago, and separately at Northwestern. Dr. Barad joins the Terra as the latest addition among other recent notable medical leadership hires, including Dr. Michael Olympias, Medical Director of Heart Transplantation, and Dr. David Ross, Medical Director of Lung Transplantation. Dr. Olympias was previously a member of the Heart Transplant Program at Cedars-Sinai and the author of many peer-reviewed publications in heart transplant. Dr. David Ross is an academic transplant pulmonologist credited with starting one of the first lung transplant programs at Cedars-Sinai in 1989, and has served as a medical director of the Lung Transplant Program and Professor of Medicine at UCLA. We also continue to make excellent progress in oncology. We were very pleased to see an update in the landmark circulate data in an oral presentation at the Society of Surgical Oncology 2022. The key update there was Signatera is now showing a 75% detection of recurrence in stage 2 and 3 patients with a single time point MRD blood draw at four weeks post-surgery versus the previous analysis from ASTHO-GI in January, which showed a single time point detection of 68%. Also, the Circulate paper is now in submission to a top-tier medical journal, which is incredibly exciting. As we said before, getting the paper published was a key step on the path to NCCM guidelines. So I'm really proud of our collaborators and the Natera team for moving so quickly to get the paper submitted. In addition, we've had some good breast cancer data presented recently at AACR, further validating signatera performance in triple negative in HR-positive diseases in collaboration with Genentech and the iSpy2 Consortium. And we also have an exciting lineup coming to ASCO this June. On the signatera reimbursement front, We completed the first pricing measurement period for our ADLT rate since the price was initially established at $3,500 last year. As of April 1st, 2022, the ADLT rate for Signaterra has now been revised upward to $3,920. Obviously, that gives an immediate boost to Medicare reimbursed volumes, but I think it also strengthens our position with commercial payers over time. Moving to slide four, let's get into some of the trends. The next slide is a longer run view of our quarterly volume progression. I think this view gives helpful context to the rapid progress we've made. For example, you can see the volumes are more than twice of what they were as recently as Q1 of 2020. Of course, a big reason why we've been outperforming is the product launches in oncology and organ health are progressing well above our expectations. For Signatera, we've seen tremendous growth, particularly in the clinical volumes. We've gotten a significant boost from the ASCO GI circulate presentation colorectal cancer, and we are still seeing significant organic uptake across a broader range of cancer types as word of mouth spreads. Clinical ASPs are also ahead of plan. We had a hypothesis that our Medicare mix might increase as we got further into our launch and receive more community-based units. That appears to be happening. We are rapidly getting scale on the investment that we made in our oncology commercial channel, and Mike will spend more time on this later in the call. We had a great quarter for the organ health products as well, particularly in kidney transplant, and we are just starting to see the benefit from our efforts in the other organ types as well. That strength has continued, and we are currently seeing record prospero volume levels over the past several weeks. These results clearly demonstrate that we're on track, and more broadly, I think the concept of cell-free DNA as a tool for monitoring graft health is taking hold. On the next slide, you can see how the revenue trajectory has outpaced the volume trends as we benefited from positive overall ASP trends over the past few years. The left-hand side of the slide shows the year-on-year revenue growth we've seen in Q1 versus prior years, and clearly Q1 of 2022 was very strong. The right-hand side puts into perspective the revenue trajectory the business has been on just the last four quarters. As these new products have started to ramp, we are very encouraged to see that we are quickly getting leverage on the channels we build in transplant and ecology, and Mike will talk more about that later in the call. Okay, let me cover a few slides on our recent progress in organ health. We are now seeing the fruits of our labor with data generation in organ health, having published 10 peer-reviewed papers in roughly the past six months. On the next slide, our DEDU study in heart transplant was published in the Journal of Heart and Lung Transplantation, a premier high-impact journal in this space. This multi-site clinical validation study of Prospera Heart demonstrated the test's ability to identify acute rejection in heart transplant patients with an AUC of 0.87 in the perspectives arm of the study, which included more than 700 samples. We are continuing to build robust medical evidence with our ongoing NIH-supported DTRT study and the Natera-sponsored DETECT randomized controlled trial. I want to spend a bit more time on renocyte, which is a test we haven't spent a lot of time on in the past. Renocyte is a hereditary gene panel that addresses the large market opportunity in chronic kidney disease. There are approximately 37 million patients in the United States living with chronic kidney disease, And about 750,000 patients are newly diagnosed per year. In 2019, a large-scale validation study of multi-gene testing was published in the New England Journal of Medicine and showed that about 10% of chronic kidney disease patients have a genetic etiology. And of those, 89% would have had a change in clinical care as a result of their genetic test. This is exceptionally high clinical utility in a very large area of healthcare. To date, testing has been mostly offered on a limited basis within academic centers. We introduced Renocyte to the nephrology and transplant community because we thought we could make a big impact on patient care by making genetic testing accessible at scale. Our first study for Renocyte was published in the American Journal of Nephrology, analyzing the commercial experience of the first 1,000 tests with positive findings found in 21% of patients tested. We also had previously invested into a large-scale definitive multi-site perspective trial called Renacare and are excited to say that we're almost finished with enrollment. Renacare will access the clinical utility of Renacyte and we actually expect to submit the results of the study for publication in late 2022. I want to make one other comment about our financials before I turn the call over. The Renacare study is a good example of a larger trend in our overall business where, in many cases, we've pre-invested them to a big future opportunity. While this impacts our near-term operating expenses, many of these are one-time expenses, like Renicare, where the trial cost goes away once the study is over, but the longer-term upside opportunity remains. Another example of this is the randomized controlled trials we're doing in heart and lung transplant. Once those are done, you don't have to do them again. Or similarly, we've invested in a very talented nationwide oncology sales force, despite them being very under-penetrated in their geographies. This creates leverage because now operating expenses can stay relatively stable as volumes grow and we can chart a path to cash flow breakeven. Mike will give more details on this in his section later in the call. With that, let me now hand the call over to Solomon to provide an update on oncology. Solomon?
spk01: Thanks, Steve. We have made significant commercial progress so far this year in oncology. as more physicians adopt Signatera, and as each physician gains experience and then starts to apply the test across more and more of their patients. We've laid the groundwork over the past five years to be in the position that we are in now, where we are also presenting high-quality clinical data at nearly every major academic oncology conference on the calendar and expecting to publish over 20 peer-reviewed publications this year. One case in point is the Circulate Japan trial that Steve mentioned earlier. The latest presentation at the SSO conference this year updated the analysis to show recurrence detection in stage 2 and 3 CRC at a single time point four weeks post-op of 75%, compared to the 68% that was presented earlier in January. This was in addition to the groundbreaking predictive data where MRD-positive patients clearly benefit from adjuvant chemotherapy, while MRD-negative patients saw no significant benefits. Getting this data submitted for publication is an important milestone because we think a publication will improve the odds of NCCN guideline inclusion, which in turn could drive another inflection point in test adoption and coverage. We were also pleased to announce the launch of the prospective randomized Circulate US trial, which is now open for enrollment across the country. If successful, the study will add further evidence on top of the Japanese trial to definitively prove that stage three CRC patients who test Signatera negative will not benefit from additional treatment. In Q1, we also announced a key milestone in our bespoke CRC registry trial, which now has more than 1,000 patients enrolled at over 100 sites. The pace of enrollment in this study has been strong, which reflects the excitement in the field from both physicians and patients incorporating Signatera into their care. The study will enroll roughly 2,000 patients who have undergone surgery from stage one all the way up through stage four CRC. The study is designed to measure real-world clinical impact, how the test results impact clinical treatment decisions, as well as clinical outcomes. We believe this study will help drive positive signatera coverage among private payers, and we plan to be in position to start analyzing interim data in the fall this year, with a potential readout expected in the first half of 23. Many of you will recall that we initiated these efforts back in 2020. So this is a great example of how our first mover advantage can yield prospective clinical data that will be difficult for others to replicate upon entering the field. Moving on, at AACR this past April, we had two presentations for signatera in breast cancer. The studies, again, demonstrated the strong prognostic value of ctDNA in triple negative and HR positive breast cancer. In the Beatrice study of 186 patients conducted in partnership with Genentech, we showed that Signatera can detect recurrence in triple negative breast cancer, this time with lead times up to 30 months ahead of imaging. In the report from the iSpy2 consortium, we analyzed over 700 time points from over 200 patients, showing early clearance of ctDNA after just three weeks of neoadjuvant therapy is a significant predictor of pathologic complete response. This adds to the utility of Signatera in the neoadjuvant setting in breast cancer in conjunction with imaging to help identify patients who are not responding to treatment and may benefit from an earlier change in strategy. We're also looking forward to a productive ASCO conference this June where we will have seven posters presented. More information to come once the data embargo is lifted But right now, I can highlight that we will present data in lung cancer, breast cancer, Merkel cell carcinoma, soft tissue sarcoma, and renal cell. In the context of this strong clinical pipeline, I want to touch on a new industry draft guidance statement issued by FDA earlier this week on the use of ctDNA for early-stage solid tumor drug development. The FDA draft guidance document is a positive step for the industry and for Natera because it lays out a pathway for for drug developers to incorporate MRD testing into their clinical trials for early stage solid tumors, both to enrich the intent to treat populations and to accelerate the trial readouts using ctDNA. The document specifically references the potential for using multiple ctDNA time points or serial testing to establish patient eligibility and the potential for ctDNA to be used as an early endpoint to support drug approval. This written statement is in line with guidance that the FDA has previously communicated to Natera and to our drug development partners, which really helps solidify our vision of a world where Signatera will be used regularly across all phases of drug development to accelerate the approval of life-saving therapies. We are still just at the beginning of that adoption curve, but I'm pleased to say that our pharma pipeline continues to gain strength and diversity in addition to the Phase III trials, Vigor 011 and Zest, that are currently enrolling. We have been engaged with the FDA on multiple fronts, including pre-submission meetings associated with our breakthrough device designations, the investigational device exemption that we just received to enable the circulate U.S. trial, and active participation in regulatory and industry consortia, including BloodPak and the Friends of Cancer Research. Finally, let's take a look at the coverage roadmap for Signatera. Nothing significant has changed on this slide since our last update. We have multiple submissions into Medicare for additional indications, to be covered under the LCD, and we're on track for our plan to get additional tumor types covered this year and next year. Meanwhile, we are making good progress towards gaining initial private pay coverage. Private payers are evaluating their own populations and starting to realize the benefits of covering Signatera, both to improve clinical outcomes and to improve health economics. Again, we believe that the publication of the Circulate Japan data and potential inclusion into the NCCN guidelines can really help move the needle on that front. Now I'm going to hand the call over to Mike to review the financials.
spk07: Mike. Thanks, Solomon. The first slide here is just a financial detail also contained in the press release. Steve covered the major growth in revenues we've seen over the last year as we stood up the commercial teams for the transplant and oncology call points. The drop in licensing and other revenue just reflects the one-timer from Tyogen in Q1 last year. So pro forma for that result, the licensing and other line also grew meaningfully year over year. It's the same story for gross margins. Note this comparison is pro forma for Kyogen, so you can see gross margins on a repeatable basis improved year on year. I think that's important to note because the gross margins are temporarily weighed down by all the Signatera volumes we are running, which implies continued strong gross margin leverage from the products in the transplant and women's health call points. A lot of patients are getting their first Signatera test compared to where we will be as the launch matures. This means currently a relatively high mix of people are getting that expensive upfront exome, which should level out over time. One positive note is that we are already ahead of schedule this year on our ASP forecast for Signaterra. Last year, you'll recall, Signaterra ASPs were in the low 500s. We've seen it jump up into roughly the mid-600s so far this year, driven by expanded reimbursement, and our Medicare mix in colorectal cancer continues to expand as we reach further into the community setting. As we've talked about in the past, that is still an extremely immature ASP for this product, particularly in light of our new ADLT rate that Steve described. The future evolution of Signatera is clear to us. We see volume mix moving toward repeat plasma tests, the upfront setup costs going down, and of course, we think there's a lot of progress to be made on ASPs as coverage expands and our patient mix reflects a higher mix of Medicare patients. The R&D and SG&A lines reflect key investments for the launch of large clinical trials and commercial channel expansion. I'll spend more time on that in the next few slides. I'll note that cash burn was elevated in the quarter largely due to timing dynamics. Q1 is usually a larger cash usage quarter for us, but that seasonal dynamic was amplified this year because of the large increase of volumes we processed in March. So we experienced the cost of those tests and we booked the revenue, but it takes more than a couple of weeks for that testing volume increase to translate into cash. The overall cash burn guide for the year remains the same as I'll cover on the next slide. Okay, great. Let's get to the revised guide. On revenues previously, we were at $770 million to $790 million. We are resetting that range upward to $790 to $810 million. We continue to see very strong sequential quarterly progress on Panorama and Horizon. In addition, we are very encouraged by the rapid volume uptake for Signaterra and Prospera. Given that Signatera volume is ramping this quickly, you might expect this growth to result in near-term pressure on gross margins and cash. However, we feel comfortable holding these targets steady given the positive ASP trend for Signatera and the continued traction we are getting on the rest of the products. We are keeping the expense line guide flat despite the higher revenues and volumes because we are getting scale on these investments as Steve described. And as a reminder, we expect to see the normal seasonality in the women's health business where Q2 is stable versus Q1 and then Q3 and Q4 grow nicely. On the next slide, we've learned a lot in the last five quarters or so as we've built out the commercial teams and grown the business dramatically. With those results in hand, we can now apply a lot of the forecasting rigor we've developed over the last decade in growing NIPT. While we still have a lot to learn, we can now build the volume forecast bottoms up from sales territories based on our own experience. I think the recent results demonstrate that our existing products and commercial team can drive very significant volume growth for years to come. That means we should only need to grow SCNA in the low double digits over the next few years to support bigger territories and gain even more scale on the lab and shared functions of the business. This also means we can focus our R&D efforts on high ROAC projects, including versioning the existing products, expanding the lab, and investing in prospective clinical trials. While these projects require sizable initial investments, particularly in 2022, The results of these projects tend to be reasonably predictable, low technical risk, and high ROIC endeavors. Those of you that followed us in the years from 2017 to 2019 know that similar R&D projects helped us drive gross margins from the low 30s to the high 40s that we are at today, and we think we can do that again. So that's the background that informs the path to cash flow breakeven. Stable commercial teams poised to drive further growth in large, underpenetrated market opportunities where we have already built a leadership position. We think we have a very clear path to get the cash flow breakeven between $1.3 to $1.5 billion in revenues over the next few years, even with relatively minor improvements to our ASP and COGS. Our cash usage should go down steadily as we get closer to breakeven, and we expect cash usage to go down meaningfully from 2022 to 2023. Over the longer term, we think there's substantially more revenue growth in our future, and we believe long-term gross margins above 70% and operating margins above 25% are very achievable. So I think that lines up really well with our existing balance sheet, and we feel like we're in a very good position to execute that plan. So with that, we're very excited about this quarter, happy to share it with you. I'll hand it to the operator for questions. Operator?
spk10: As a reminder, to ask a question, you will need to press star one on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from the line of Teja Savant from Morgan Stanley. Your line is now open.
spk00: Hey guys, good evening and congrats on the strong start to the year. Mike, maybe to kick things off, just a couple of points of clarification on the guide. Given that ADLT code bump that you mentioned for Signaterra, Is that sort of fully factored into the increase here, or are there any offsets that we should be thinking about in terms of perhaps, you know, supply chain disruptions or, you know, sample shipping delays, et cetera, as we look at phasing through the year? And then the second part was on the cash burn reduction commentary that you just mentioned for 23 and beyond. Can you just lay out sort of what's included there for perhaps, you know, building out that primary care channel for cancer screening and so on?
spk07: Yeah, sure. Thanks for the question. So, first, on the ADLT rate, that's a fantastic update to the business. That is incorporated in the guide for this year, but I'll just remind you that you don't really get to feel the full benefit of that ADLT rate in the volumes really even this year because that is for the recurrence monitoring indication. So, you know, first you start with Signatera in this adjuvant treatment window, which is the first six months. That's kind of the bundled payment. And once you graduate from that and you're in remission, then you're going to move to that recurrence monitoring time point. So as the business progresses over the next couple of years, an increasing percent of our volume is going to qualify for that ADLT rate. So, yes, it is incorporated in the guide. But I think the business needs to mature a little bit in order for you to see the full effect of that. So that's on the ASP. On the cash burn guide and the OPEX, what this contemplates is kind of the current sales teams in place and just growing kind of modestly and not in relation to how fast the revenues have been growing. This does not contemplate a full build-out of like a separate primary care call point, nor would we anticipate that we would need to do that. So with regards to expanded care screening, a lot of wood to chop there, a lot of technical work, a lot of technical hurdles to clear. But I would just remind you that we feel very strongly we've got a fantastic primary care call point right now. We feel like we've got the best OBGYN channel in the United States. And I think longer term, we would hope to leverage that channel in, you know, in the service of an expanded carrier screen. But again, need to produce some data first. I need to make progress there before we make commitments on that front.
spk00: Got it. That's very helpful. And then on the base business here, one of the questions that I recently got was just around implications of this Roe versus Wade debate of the decision were to be overturned by the Supreme Court and every state starts making its own laws. How do you see that impacting first the slope and also the eventual penetration that you can get to for average risk NIPT adoption? And then a quick follow-up on NIPT as well. Any updates on that MGML partnership and how that's evolved since the news came out a couple of months ago?
spk05: Yes, let me comment quickly on the Roe versus Wade, and then maybe, Mike, you can talk about, you know, things on the billing side. You know, so on the Roe versus Wade, I think there are already states that have, you know, more restrictive policies, and, you know, we haven't really seen any impacts on our NIPT testing overall. And, you know, a reminder, you know, there's a significant amount of benefits that people can get to improve care. you know, from getting NIPT. You know, for example, with the George syndrome, you know, treating the baby at birth with calcium can prevent hypocalcemia and prevent seizures. You know, so, you know, I think that the Roe versus Wade really doesn't factor in in the vast majority of cases. But even in states where, you know, they are more restrictive, we haven't seen an impact. Mike, you want to take a comment about billing?
spk07: Yeah, just on the billing side, I mean, you know, we talked at length on the March call in terms of, you know, the PA volume flowing to the vendor really has becoming easy. We turned the page into 2022 because prior authorization is largely receding as a variable in the women's health business now that there's kind of full ACOG support for NIPT in all risk categories. So I expect that to just continue to evolve to a smaller and smaller piece of the business.
spk00: Got it. Very helpful. Thanks for the time, guys.
spk10: Thank you. Our next question comes from the line of Max Masucci from Cowan. Your line is now open.
spk08: Hi, this is Stephanie on for Max Masucci. Thanks for taking the questions and congrats on a great quarter. To start off, can you give us some detail about the volume and demand trends you've seen for your Empower offering, and any cross-selling trends you've seen, and more generally, how some of the newer, more targeted women's health offerings are being received?
spk05: Yeah, sure. I'll take that. So, you know, Empower is hereditary cancer testing. You know, we're seeing there is interest from physicians to order that test from Matera. You know, we did a pilot, I think, in the kind of 2020 timeframe, and then we did a full launch of that in 2021. And we're seeing good uptake, particularly in the women's health sector, which I think is an area where, you know, we're poised to do well just given our commercial footprint. And then, you know, on the remaining of the women's health side, I mean, the vast majority of volume that we perform is panorama, non-invasive prenatal testing. and then Horizon carrier screening testing. And we're still seeing the demand there be very, very solid, you know, because we've continued to support the products with a very significant amount of peer-reviewed data. One of the key highlights on the peer-reviewed data side was the publication of the SMART study for non-invasive prenatal testing. So that was actually published in the Gray Journal in January. And as I think everyone knows, the SMART study was the largest multi-site prospective study that's ever been done in the field of non-invasive prenatal testing, and the results were really just incredible. And, you know, we think that publishing peer-reviewed evidence is exceptionally important, and that is a driving uptick amongst the base.
spk08: Got it. Super helpful. And also, as we see new draft and final coverage determination for the new cancer types in oncology and the new organs and transplant applications you're pursuing, can you give us a refresher around how long it takes to earn coverage under an umbrella LCD and what that implies or how quickly you can start getting paid on some of the new indications in oncology and transplants, too? Yes.
spk05: A couple of things. I think, you know, both transplant and oncology now do have these umbrella coverages in place. And so, you know, in transplants today, we have coverage for kidney donor-derived cell-free DNA testing. And then in oncology today, we have coverage for colorectal testing and then also immunotherapy monitoring. But with that said, we've done several additional submissions, both across the organ health business and the oncology business. And generally... you hear back in this sort of roughly, you know, 8- to 12-week timeframe, and then many times there's questions or additional information that they want, and we follow through and submit that. You know, I think that that's sort of where we are right now, either having just submitted or having just gotten feedback and kind of responded to questions. So ultimately, to my knowledge, I'm not sure if there's any recent information of coverage decisions that have come out under the umbrella LCD, but I think we're sort of in the same boat with others where, you know, we're sort of interacting very positively and waiting for the additional coverage to come in.
spk08: Got it. Thanks for that, Collar, and thanks for taking my questions.
spk10: Thank you. Our next question goes to the line of Catherine Schultz from Bayard. Your line is now open.
spk09: Hey, guys. Thanks for the question. I guess first, you know, there's been a lot of noise around NIPT this year in the media between the New York Times report and on the short report. Are your reps hearing any doctors bring up either of those in the field, or is this something that's largely insulated from your commercial work?
spk05: Yeah, I think, you know, the physicians are largely very supportive of screening, and, you know, screening for aneuploidies has been a part of OBGYN care for the past 40 years. So when you look at, you know, biochemical screening, that really started in the 80s and unfortunately had a very low positive predicted value and, you know, an okay, decent sensitivity. But the positive predicted value was only about 5%. So with, you know, non-invasive prenatal testing, because the positive predicted value is much higher, you know, like we've published 95%, for trisomy 21, for example. You know, there's other microdeletion orders where it's lower, like in the kind of 3% to 50% range in line with biochemical, you know, but it's sort of right in there with what doctors have been experiencing. And so there's a strong support among the physician base for screening. The American Congress of Obstetrics and Gynecology recommends non-invasive prenatal testing, and I think that the doctor's follow that and feel very supportive of what they're doing. We did notice that the volume has actually gone up quite significantly in the past four or five months as we've continued to publish data and process orders from physicians. But in addition, I think some physicians were frustrated about the way non-invasive testing and screening in general was characterized in the media. And I think largely they disagree with how it was characterized.
spk09: All right. Very helpful. And then you mentioned seeing record prosper volumes in recent weeks. It sounds like that business is going well, but any commercial repercussions from the recent news around the lawsuit with your competitor? And then how should we think about, you know, volume growth for your newer transplant indications this year?
spk05: Yeah, I mean, we're feeling really positive right now because we've published 10 peer-reviewed papers in the last six months. And I think largely, you know, that was the thing that was, you know, I think kind of holding us back in some ways was that, you know, we had come in, you know, slightly later than others and we had, you know, less peer-reviewed data. But we're really closing that gap now and putting ourselves in a great position to I mean, these are some of the most significant studies that have ever been done in the field. And I think what we're seeing, you know, as a result of the innovation and the peer review data is that physicians want to order the test. And, you know, we're now, as we said, you know, at record levels, and we're starting to see a nice initial utilization in both heart and lung. We just published the two clinical validation studies there in kind of the last two months roughly, and those were received very, very well by leading physicians, and we've had a lot of great interactions. So we're feeling good about things. As far as pacing, with lung, I think everybody's very early in lung, although there's a big opportunity there. It's a very unpenetrated market overall, not just for Natera. And I think for heart, you know, there's a large, very deeply penetrated incumbent. And, you know, we're trying to convince doctors to send us where we can. But, you know, I think there's an uphill battle there. But, you know, I think we're pleased with what we're seeing here in the early days.
spk09: All right, great. Thank you.
spk10: Thank you. Thank you. Our next question comes from the line of Matt Sykes from Goldman Sachs. Your line is now open.
spk04: Great. Thank you. Thanks for taking my questions. Just, you know, two quick ones from me. I'll leave them both up front and then hop back into queue. But just, Mike, maybe, and apologies if you cover some of this in prepared remarks, but maybe just on the OPEX spend as you look forward, understanding that R&D is probably a little bit less flexible than SG&A. But as you think about some of the levers that that you can pull over the next one to two years in terms of spend, where do you see some of the best levers? Is it given your commercial bet out that you've already done? Is it on the SG&A side? And how much flexibility do you think you have within the model? And then, sorry, this is a question just on organ health. I know you've had a couple of data releases. Just a reminder again about I know it's supposed to be a big year for organ health data points, just how should we think about future data releases as we go through the course of this year? Thanks.
spk07: Yes, I'll just hit the tops of the webs, and Steve, I'll hand it to you for any additional commentary. I mean, I actually do think that there's some levers on the operating expense lines, both for SG&A and an R&D. I mean, the one that comes immediately to mind is the clinical trial spend. So Steve just touched on very briefly in the preparing remarks, there's kind of a bubble cost going on, uh, for, uh, large randomized control trial. Make sure that business is well established and set up for the next 10 years. Uh, Steve mentioned arena side as the example, but I think there are, there, there are many others where you run that study and it's not necessarily study. I mean, the smart trial in the non-invasive needle testing space is a good historical example for us where that was, uh, that was a pretty expensive trial that we had to run for five years, but we don't have to run another trial like that. So a lot of that, those types of trials can start to roll off as soon as next year. I think there's a lot of, a lot of leverage we can get from the work we've already done. And I think, look, there's, you know, this is the same team that executed a growth strategy from, you know, 2015 to 2019. A lot of that time, the shares were eight bucks and we had to, um, You know, we had to be selective in the way that we managed the team. Kind of small things that you can do on the commercial side that add up to when it is needed. So, Steve, do you have any other comments on that? And I'll let you take the second one as well.
spk05: No, I think you covered it. And then on the Oregon Health side, I mean, we said there were going to be three really big data readouts this year. You know, one on heart, you know, one on lung, and we've had both of those, and I think they were both very positive. And then, you know, the next is one of the most significant trials ever done in donor-derived cell-free DNA testing in kidney, and that's the TRIPECTA study, and that's in submission. You know, that's going to be a very significant trial when it reads out, so we look forward to reporting that out later this year.
spk04: Great. Thanks very much.
spk10: Thank you. Our next question comes from the line of Puneet Puda from SVB Securities. Your line is now open.
spk06: Okay, great. Thanks, guys. Thanks for taking my question. And congrats on a strong quarter here. So maybe for Steve first, I think an important question we've been getting from investors is what steps have you taken around You know, prior authorization overall, what can you provide us on that end that sort of gives us confidence how those are being handled? And then maybe also any changes that you're taking across the company in terms of, you know, the sales approach or how you are approaching, you know, both, you know, sales and marketing on the NIPTN and the signature end.
spk05: Yeah, sure. So, you know, I guess I'll comment briefly on the sales and marketing side. I think things are going very well. You know, we mentioned the signature of clinical volumes are up. You know, I think doctors are ordering the test at record levels. In fact, we're seeing that, you know, across oncology, across women's health, and across organ health. You know, so I think there's not really any changes there necessarily in I think it's largely, you know, sort of status quo. You know, I think, you know, if the context of the question was, are we doing anything differently, you know, with regards to, you know, some of the sort of negative media attention, I would say, you know, as we've mentioned previously, in the Oregon Health space, you know, we've removed any of the sort of referenced materials that were part of the lawsuit. We don't expect those materials or the removal to have any impact on our ability to sell the product in any way. In fact, as you're seeing, we're seeing record numbers. Mike, do you want to talk about prior auths for a minute?
spk07: Yeah, and just in the interest of time, I did get a chance to cover it a little bit earlier in the queue. I mean, prior auth just as a piece of the business was already a small part of our lines, and that's getting even smaller just as we roll into 2022 because there are a lot fewer prior authorization requirements out there just given the broad ACOT support for the products.
spk06: Okay, got it. No, thanks for clarifying that, guys. When we speak with a number of KOLs that are utilizing your test and as well as across the field as it goes into the community setting, there appears to be an off-label use for the product, and obviously physicians are excited. But maybe just can you give us a sense of where that stands today, and how should we think about the progress from a signatory perspective How should we think about the progress of indication expansion here? Because it seems like the physicians are excited about the product, but they're obviously utilizing it in labels where it's beyond the current indication labels.
spk05: Yeah, I'll just say, you know, there's a difference between where the test is validated and where it's reimbursed. And so, you know, we are validated today for a pan-cancer offering, and we're seeing physicians order the test in a pan-cancer way, which is, you know, I think an indication of, you know, their excitement about the product. You know, there are limited areas of reimbursement, but, you know, we've published now more than 15 peer-reviewed papers recently, across, I think, more than 15 different cancer types, 3,000 different patients and so forth. So we're not surprised to see physicians using it in line with a lot of the data that's out there on the performance of the test. Solomon, do you want to talk a little bit about the pipeline and kind of what we're doing to generate more data and to get additional reimbursement?
spk01: Sure. Just before I do that, I want to emphasize how much continued growth and adoption we're seeing in the core covered indications in early stage CRC, stage 2, 3, and resectable stage 4 in pan-cancer immunotherapy monitoring, in addition to, as you mentioned, growth that we're seeing in other indications where physicians who have already experienced the test, let's say in early stage CRC if you're a community physician, and then a a breast cancer patient comes along where you're facing a similar, you know, challenging decision where you're, you know, you're thinking through different treatment options and trying to evaluate a patient's risk, in that position, it's really easy now for the physician to think about signatera and order that test. And in terms of our pipeline, you know, we mentioned this in the prepared remarks, we're continuing to produce a significant amount of clinical validation data much of which is being shared with MoldyX and packaged up for reimbursement with Medicare, but also being shared increasingly with private payers. And, you know, we've always said that guideline inclusion we think will be the most important inflection point for coverage with private payers, and we think we have a good opportunity to see that first one later this year or early next year, as we discussed in CRC.
spk06: Okay, got it. And then just last question, in terms of ASCO, I don't know if you provided updates, but should we be expecting anything in ASCO? Thanks, guys.
spk01: Yeah, we showed in the prepared remarks we've got ten abstracts and seven posters, and we look forward to sharing more data on those when the embargo is lifted.
spk06: Great. Thanks, guys.
spk10: Thank you. Our next question comes from the line of Kyle Mikeson from Canaccord. Your line is now open.
spk03: Hi, guys. Congratulations on the great quarter. Just in case, I'm on for Kyle Mikeson. Quick question. So in mid-April, the FDA published a safety communication titled Genetic Noninvasive Prenatal Screening Tests May Have False Results. Do you believe that things may progress in such a way that the FDA starts to regulate LDTs in this space? And my second question is, I recently read some publications that suggest a growing trend of first-time mothers age 35 or older coupled with a higher incidence rate of Down syndrome. I guess the first question on that would be, is this also what you're seeing, older first-time mothers? And do you feel that the changing demographic could drive material growth of the NIPT market as a whole in the near term? Thank you so much.
spk05: Yeah, so on the FDA, I would say we strongly support the information shared recently by the FDA with regards to NIPT. We've always believed that education and transparency and peer-reviewed evidence are very important, and that's why we've published 26 peer-reviewed papers on NIPT, including the SMART study, which is the largest study ever performed. And we employ over 100 genetic counselors and offer complementary genetic counseling sessions pre and post test to all patients. We also put the negative predictive value and the positive predictive value of each disorder directly on each report. So because of that, we're in a great position to work more closely with the FDA given the breadth of our data and the depth of our validation studies. So again, we really support the information shared by the FDA. With regards to changing demographics, things are sort of evolving. It does appear over the past many years towards a slightly older birth rate, and I don't know if that's an advantage or a disadvantage, but it hasn't impacted us in a negative way, and we continue to grow. NIPT is still underpenetrated. We think only about 40% roughly of pregnancies today are getting pregnant. NIPT testing, whereas the vast majority of patients still get biochemical screening, which has a positive predicted value that is significantly less than that of NIPT.
spk10: Thank you. This concludes today's conference call. Thanks for participating. You may now disconnect.
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