Natera, Inc.

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.

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?

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?