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spk03: Ladies and gentlemen, thank you for standing by. My name is Desiree and I will be your conference operator today. At this time, I would like to welcome everyone to the Natera Inc. Fourth Quarter 2023 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press the star one. I would now like to turn the conference over to Michael Brophy, Chief Financial Officer. Please go ahead.
spk08: Thanks, Operator. Good afternoon. Thank you for joining our conference call to discuss the results of our fourth quarter of 2023. On the line, I'm joined by Steve Chapman, our CEO, Salman Moshavich, President, Clinical Diagnostics, and Alice Alessian, General Manager of Oncology and Chief Medical Officer. John Sesko, President and Chief Business Officer, is also on the line and will be available for Q&A. 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 posted to our IR site as soon as it's available. 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, and expected results, 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 filed 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 or suggested by the forward-looking statements. Forward-looking statements made during the call are being made as of today, February 28, 2024. If this call is replayed or reviewed after today, the information presented during the call may not contain current or accurate information. The charity claims 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?
spk10: Great. Thanks, Mike. Natera is focused on transforming the diagnosis and management of disease worldwide. Our growth is driven by combining our innovative technology with significant peer-reviewed clinical evidence that supports the utility of our products. We've had a lot of great news since our presentation at the JPMorgan Conference, and we're excited to get into the highlights. We finished Q4 with $311 million in revenue, which was $11 million ahead of the pre-announcement we made in January, and represents 43% growth over Q4 of 2022. Full year revenues were $1,080,000,000, an increase of more than 30% compared to 2022. On volumes, we processed 2,496,000 tests in 2023, which is roughly 6,000 units ahead of the pre-announcement. We processed 341,000 oncology tests in 2023, representing year-over-year growth of 73.5%. And we also saw strong growth metrics in women's health and organ health. Gross margins in Q4 came in at 51.4% compared to our Q1 margin of 39.9%. We finished the full year at 45.5% above the top end of the Q3 guide. As Mike will cover later in the call, we had some revenue true-ups and lab savings in Q4 that don't repeat every quarter. We estimate organic revenues in Q4 were roughly $306 million, and gross margins were roughly 49%, which still represents a significant improvement versus previous quarters. And as we discussed at the J.P. Morgan Conference, we also made great progress on cash burn throughout the course of the year, ultimately reducing our cash burn by roughly $193 million in 2023 compared to 2022. The guide for 2024 reflects the continued momentum in the business that generated these very strong results in 2023. We are guiding revenues of $1,320,000,000 to $1,350,000,000, gross margins of 50% to 53%, and cash burn for the full year of $50 million to $75 million. On cash, we estimate we will be cash flow breakeven by Q3 or sooner. What's most impressive is we will be achieving this cash flow breakeven quarter while still making very significant investments into our core business. You'll see later in the guidance that our investment in research and development and commercial operations remains robust in 2024. This includes major investments in core product enhancements and line extensions, plus potentially guideline-enabling clinical trials that we believe could benefit patients in the years to come. We can do this because our core fundamentals are so strong. We're in large expanding markets, our volume is growing rapidly, and our margin is expanding with ASP increasing and COGS going down. I'll now hit a few other highlights before we go into more details on each. First, we think our recent acquisition of Invitae's women's health assets is well-timed given the clinical value of expanded carrier screening and the strong trends we are seeing there, and we're feeling positive about our progress on the acquisition thus far. In organ health, we're building momentum as we complete enrollment and read out major innovative clinical trials. We'll be talking today about some big, first-of-their-kind prospective studies in donor-derived cell-free DNA and how they may positively impact patient care. Finally, in oncology, earlier this week, we were pleased to announce that the MoldDx has expanded coverage for signatera to neoadjuvant monitoring in breast cancer, and separately for MRD and recurrence monitoring in ovarian cancer. We've had a drumbeat of exciting clinical developments across a range of indications, including CRC, muscle invasive bladder cancer, and breast cancer. I'm excited for Alex to also talk about the modern study in bladder cancer, which just enrolled its first patient a few weeks ago. Finally, we've had a string of good results on the IP front that I think puts us in an excellent position in 2024 and beyond. Okay, great. Let's get into details of the results on the next slide. Revenues exceeded our expectations at $311 million, driven by continued strong volume growth and excellent ASP traction across the business, particularly in women's health and oncology. We previously had a goal to get oncology ASPs above $1,000 by the end of 2024, and we actually hit that level in Q4 of 2023. That's great news because we now think we can get a full year's benefit of higher ASPs in 2024, and we think there's still room to drive Signatura clinical ASPs another $50 to $75 higher just by continuing to execute on currently covered indications. Of course, this week's announcement on new Medicare coverage will help us as well. The commentary on women's health ASPs is broadly similar, We saw encouraging sequential quarterly progress throughout the course of 2023, and preliminary analysis of Q1 trends suggest that we are on track for continued improvement so far in 2024. Volume was a strong driver of Q4 performance as well, and you can see the annual volume trend on the next slide. As mentioned earlier, we came in 6,000 units ahead of our pre-announcement in January. I have a separate slide on ecology coming up, so I'll focus on women's health and organ health here, where we saw strong growth in the full year 2023. As the year ended, we saw an acceleration of women's health, including hitting a record units per receiving day in December. This strong momentum carried into January as well, and that was prior to the acquisition of Invitae's women's health assets, where we're just now starting to see volume come in. In Oregon Health, as the year progressed, we saw a return to growth in the donor-derived cell-free DNA business after the initial pullback in early 2023 due to the coverage changes. We think we're well positioned going forward in donor-derived cell-free DNA to compete, given the significant body of peer-reviewed evidence that we generated and the unique features of our tests. Also, we continue to see strong interest in Renacyte after the Renacare publication. This momentum is great, and we're off to a fast start across women's health, organ health, and oncology. On the next slide, we're showing the ramp of our oncology business, which continues to outperform. In Q4, we did 98,000 units, another strong sequential quarter, increasing by 9,000 clinical units over Q3 of 2023. For the full year of 2023, the growth rate was 73.5% over 2022. We're continuing to see strong growth across the core indications, including colorectal cancer, breast cancer, muscle invasive bladder cancer, and immunotherapy monitoring, even as we add new indications. Roughly 40% of oncologists use Signotera in Q4, which shows the strong clinical utility of the test, and we have strong momentum going into 2024. Just as critical as revenue and volume growth is the gross margin traction we are seeing. I think this slide is a good snapshot of the business maturing. Over the course of the year, our ASP and COGT initiatives delivered above our expectations particularly in signature asp and cogs both of which improved over the course of 2023 as i mentioned at the top of the call we think the underlying repeatable gross margin the quarter was roughly 49 our 2024 guide implies meaningful continued gross margin improvements based on asps and college drivers that are within our control in addition We've also got a number of potential upside drivers to both revenue and gross margins that we'll discuss later in the call that aren't included in our guide. So the net result of strong revenue growth and expanding margins on stable operating expenses is a dramatic reduction in cash burn we achieved in 2023. This is essentially in line with the data we released in January. As discussed previously, we accelerated a chunk of 2024 scheduled CapEx in December to take advantage of some large year-end discounts, which has helped us set up for an efficient year in 2024. Two years ago, we set a long-term target to get a cash flow breakeven quarter this year, and based on these results, plus the early data we are seeing so far in Q1, we are confident that we can reach that milestone by Q3 of this year, if not sooner. Of course, cash flows are dependent in part on payer response times to submitted claims, and so are inherently difficult to forecast with precision on a quarterly basis. But the point is that we're continuing to build momentum, and our confidence in achieving this goal is stronger than ever. Finally, I think anyone that follows this space has taken note of our results on the IP front. Since we created the category of tumor-informed MRD in 2017, we've had two companies attempt to follow us into the space, requiring us to enforce our IP against them. The good news is that they've now both been enjoined for violating RIP. The permanent injunction against Archer and Nogite was ordered after the conclusion of a jury trial, and then subsequently a preliminary injunction was entered against Neogenomics. One notable point about these results is that different sets of patents and different judges are at issue in each of these cases, which I think demonstrates the strength of the IP estate that protects our core technology. The CARE DSIP litigation offers another case in point, which generated a sizable jury verdict for damages based only on past infringement of our patents. The process is still ongoing to determine whether future royalties will be awarded. And on the Rabjan trial, we were found to not willfully infringe, and the damages awarded were obviously much lower than what Rabjan was requesting. but we still respectfully disagree with the outcomes of the trial, and we plan to appeal certain of the rulings. Okay, now let me hand it over to Solomon to discuss updates in women's health and organ health. Solomon?
spk09: Thanks, Steve. Let's start with the Invitae deal. First, recall we secured a judgment on past damages in our Archer IP litigation of roughly $20 million. We anticipated that it could be difficult to collect that amount from Invitae given their financial issues. So we applied that judgment amount as part of the consideration in this deal. We also paid Invitae $10 million upfront. And if we have excellent retention of Invitae's accounts, there's a potential milestone payment that we can make of up to $22.5 million. We would be very happy to make that payment because it would mean that the deal is working extremely well for us. As a reminder, we did not take on any of Invitae's products, its lab operations, nor its physical assets. We did hire roughly 30 of their women's health sales reps, and our goal is to provide a seamless transition of those Invitae accounts to Natera's Panorama and Horizon products. Our team is working hard to retain as much volume as we can, and we're doing well. We expect to retain at least $20 to $25 million in high-quality recurring revenue per year, but we think there's a potential to increase that up to $50 to $60 million, depending on how things go, especially if we see clinical practice guidelines for expanded carrier screening or 22Q, which we think could come as soon as this spring and would provide upside to these numbers. So we think the deal rationale is strong, and we look forward to providing more updates as the year progresses. One of the keys to our offering in women's health is our highly differentiated screening test for the 22Q microdeletion. As 22Q goes into societal guidelines and becomes commonplace, as we believe it will, the differentiation that Matera has in its 22Q test is going to become increasingly valuable. When we run our test, we're using our core SNP-based technology that allows us to target this very small region of the genome, which is around 2.5 to 3 megabases. This allows us to get over 25 times more observations in this particular region of interest than companies doing massively parallel shotgun sequencing, which creates a significant technical advantage that has translated into excellent clinical performance as demonstrated in the SMART trial. We think the SMART trial represents the gold standard in clinical validation that would be very hard to repeat. As a reminder, SMART was a seven-year multicenter prospective trial that enrolled more than 20,000 patients and collected genetic outcomes from prenatal specimens and newborn blood spots. In this trial, Panorama demonstrated overall clinical sensitivity of 83% and specificity of 99.95%, which translates to PPV of 52.6% overall and a PPV of 100% in cases with ultrasound anomalies. As 22Q has gotten more attention in the wake of a strong guideline from ACMG and anticipated guidelines from ACOG, we have noticed competitors starting to present data sets with PPV metrics that look high, but with screen positive rates that are low or completely unreported. In one report from a lab doing shotgun sequencing, the screen positive rate was approximately 1 in 6,500. which is three or four times lower than the expected population incidence, suggesting that they might be missing a significant number of affected pregnancies. In addition, other labs are making comparative claims based on patient cohorts that had very high rates of ultrasound findings, where we saw PPV of 100% in the SMART trial, as I mentioned previously. In our view, a test is not appropriate for population screening if you don't know the clinical sensitivity and specificity. These are typical marketing tactics that we've seen before, and we do think physicians will see through it. Moving now into carrier screening, we've seen really strong adoption in the past year, and we believe we're the number one ordered next-gen sequencing-based carrier screening test in the United States. Our mix of broader panels increased after the exit of Semaphore from the market in late 2022, and we are finding that quite a few of the new transitioning Invitae accounts also have a strong mix of broad panels. So in addition to our existing portfolio, we are really pleased to be launching a new 613 gene panel and a totally flexible custom panel option to serve these customers. Horizon provides high detection across all genes, including the challenging ones where other labs may struggle. With these new panels, together with our investments in variants curation, our genetic counselor team, and lab automation, We think Horizon is well-positioned to remain a leader in the field. Broad panel carrier screening is also a hot topic for ACOG, where we expect to see an expanded guideline in 2024. Turning now to Oregon Health, where we are excited about the prospects for 2024 and beyond. We think the strength of our clinical data, our commercial execution, and our intellectual property estate enables us to compete for the leadership position in this space. Our clinical data generation in organ health has been prodigious in the last five years, where we now have 39 papers published or accepted in top journals. In the heart indication, we recently had our third paper accepted for publication, the Trifecta Heart Study, which demonstrated strong correlation between PROSPERA and endomyocardial biopsy assessed with a molecular microscope. reporting an area under the ROC curve of 0.9. You can see in these three high-quality data sets on the page the consistent performance across the Trifecta, VTRT, and the DEUCE trials, including in adults and pediatrics. This performance laid the foundation for us to start the randomized controlled ACES trial, which aims to show the non-inferiority of using surveillance with Prospera compared to surveillance biopsies that most centers do on a monthly basis in the first year after a heart transplant. Sites are preparing for their first enrollment this summer. Now, in the kidney transplant space, we have finished enrollment of three major trials, proactive, pedal, and motor. Our first paper from the proactive study has now been accepted, showing that Prospera can detect active rejection up to four months ahead of biopsy. No other cell-free DNA lab has lead time data like this, and we think this data might support payer coverage in the surveillance setting. We look forward to this publication, and we're already working on additional readouts from this study. Moving on to the PETL trial, with over 500 patients enrolled from 28 different sites, this is an important prospective utility study aiming to show how Prospera can be used serially after a rejection event. to predict therapeutic response and outcomes. We believe this study can bring significant value to the field for this important indication. Finally, the motor study is generating novel clinical validity data, showing the performance of PROSPERA in cases of multi-organ transplantation, including kidney heart, kidney pancreas, and kidney liver. We expect these key trials to extend our data leadership in a meaningful way, so we're excited about 2024. Moving now to oncology. Second Terra continues to benefit from a significant first mover advantage across multiple areas. The first is our significant leadership in technology and innovation, as exemplified by our strong IP portfolio and two recent favorable injunction decisions. We continue to invest in new innovation projects with multiple MRD related products that we plan to launch in 2024 and 2025. We also continue to invest in expanding our market-leading clinical portfolio. Now with 70 peer-reviewed oncology publications to date and multiple prospective randomized trials ongoing, many of which were designed several years ago, we believe this pipeline will continue generating data over the coming years that can become practice-changing. In market access and reimbursement, today the Signatera test is covered by Medicare and a growing number of private payers colorectal cancer, bladder cancer, breast cancer, and pan-cancer immunotherapy monitoring. We have now added ovarian cancer to that list, which Alice will cover in greater detail in a moment. This broad coverage allows oncologists to use Signatera across the majority of their patients. Finally, I want to highlight the operational capabilities that we've developed over nearly half a decade of experience. I believe many in the field discount the complexity of delivering tumor informed and personalized MRD results back to physicians and patients in a timely manner and at scale. There is a real experience curve here, which is not easy to replicate. We continue to expand and refine these capabilities through improvements to the turnaround time, expansion of our mobile phlebotomy services, integration into electronic medical records, and the launch of industry leading digital solutions for patients and physicians. Now I want to hand the call over to Alex to cover recent clinical updates. Alex?
spk11: Great. Thanks, Solomon. Turning now to key indications. In colorectal cancer, there are multiple events worth noting. We reported the first data from our bespoke CRC registry study, which enrolled patients across more than 100 centers in the United States. The study's initial results were presented at ASCO GI this year, and showed exceptional assay performance consistent with prior readouts. Additionally, for the first time, it was shown that Signatera testing markedly reduced patient anxiety in over 73% of respondents. Additionally, 96% of participants reported that they wanted to continue using Signatera going forward. The next study I wanted to highlight is the Intercept trial that was done by Andy Anderson Cancer Center with over 1,100 patients tested using commercial Signatera. The observational component of this study was able to characterize the impact of Signatera testing on a routine clinical practice and showed a median DFS of approximately 5.6 months between Signatera positivity and clinical relapse. Interestingly, the investigators also presented preliminary results from the Phase II TAS-102 substudy, which enrolled 13 patients to receive TAS-102 based on a positive signatera result. Despite the small sample size, the study is notable since TAS-102 is the same drug being used in the randomized prospective Altair study. The exciting finding was that 54% of patients had CTA clearance at three months, suggesting high single-agent activity of TASC-102 in this patient population, compared to an untreated signetaripositive population, where our data suggests a spontaneous clearance rate should be around 3% to 4%. Additionally, this study reported a median disease-free survival of 9.4 months, which compares favorably to the 5.6 months I presented a moment ago from the broader observational cohort. Though we know the study was not randomized, we believe this all provides a positive signal for the Altair study. We expect a top line readout from the Altair trial in Q3 of this year, with full results being presented and perhaps concomitantly published in Q4. If the study is positive, we expect it to be practice changing in the US, in Japan, and likely many other countries. Next, let us review our progress towards key catalysts in bladder cancer. Just to remind everyone, we currently have Medicare reimbursement, both in the neoadjuvant and recurrence monitoring settings. While we do not talk about bladder cancer often, with around 35,000 new patients being diagnosed every year, we believe this indication could become highly penetrated and well reimbursed pending the readout of the two studies highlighted on this slide. We have previously discussed the randomized placebo-controlled global Invigor 011 study that is being done in collaboration with Genentech. The study continues to enroll well And if the readout is positive, it would form the basis for our first Signatera FDA submission, likely in the second half of 2025. We believe the advanced status of our work with the FDA gives us an advantage. We also want to flag that the prospective non-randomized DFS data from the Signatera negative arm of this study will be presented in oral format at the European Association of Urology Conference later this year. And it may create an interim commercial tailwind if it shows convincing data that signatera-negative patients have good outcomes, especially if an improvement is noted beyond the great results we already saw in the INVIGOR-010 dataset published in 2021. We are also pleased to announce the modern study being done in collaboration with the NCI-funded Alliance Group The lead PI of the study is Dr. Matthew Golski, a leading expert in this space. And the study design is a testament to his and Alliance's leadership and forward thinking, with the study incorporating both an escalation and a de-escalation cohort, similar to design of the CIRCULATE trial in colorectal cancer. The de-escalation cohort has multiple similarities to the VEGA study, and if it meets its primary endpoint, could have significant implications for patient management, making it possible to reduce unnecessary and expensive treatment in the MRD-negative patient population. Moving on to the next slide, we were excited this week to announce expansion of Medicare's coverage of Signatera to include ovarian cancer, as well as the neoadjuvant setting in breast cancer. Ovarian cancer affects close to 20,000 women per year in the United States. has a median age of diagnosis of 63 years, and is the fifth leading cause of cancer death in women. Current tools, including imaging and biomarkers, such as CA-125, are inadequate to guide adjuvant and surveillance decisions in stage two to four disease. Based on the TARES perspective, multi-center study evaluating 69 patients across over 160 time points we reported longitudinal sensitivity and specificity of 100% to detect recurrence with an average lead time of around 10 months. In breast cancer, as a reminder, Signatera has already been reimbursed in the post-operative setting for stage 2b and higher patients, regardless of disease subtype. What's interesting is that up to 50% of all resectable stage 2 to 4 breast cancer patients currently receive neoadjuvant therapy, which is any treatment prior to surgery, both to improve surgical outcomes and to assess the tumor sensitivity to systemic therapy. However, as the NCCM guidelines themselves note, current tools available for assessing neoadjuvant treatment response are not perfect. Signatare has been extensively validated in this setting, particularly through our collaboration with the I-SPY2 Consortium. which is a leading group we have now been working with for over half a decade to study how bespoke CTA dynamics in the neoadjuvant setting can further improve on existing methods. In a study of over 280 patients and over 1,000 time points, we have shown that early signatera clearance was highly predictive of therapy response, and persistent ctDNA detection was associated with poor surgical response. as well as a very poor distant relapse-free survival. We believe this expanded coverage can help inform care for tens of thousands of patients every single year. These coverage determinations are a great way to start the year, especially as biomarker legislation kicks in across multiple states. We look forward to additional indications from Moldex in 2024 based on our published clinical data. Now, let me hand the call over to Mike to cover the financials. Mike?
spk08: Great. Thanks, Alex. The first slide here is just a summary of our Q4 results compared to Q4 last year. Steve hit some of the highlights already. Revenues were up 43% and gross margins expanded by almost 10 full percentage points. On revenues, we estimate that we had roughly 5 million in true ups beyond what we typically get in a quarter that contributed to the $311 million in total revenues. So I would estimate the organic revenue number to be roughly $306 million. Steve also mentioned some lab-related savings that helped gross margins in the quarter. The way the holidays landed this year with the entire last week of December bracketed by Christmas and New Year's meant that we had fewer cases coming in from customers that last week of the quarter and so didn't experience the typical COGS-related expenditures we would normally expect in a week. It takes about a week for us to report out most of our tests, so this resulted in slightly lower COGS expenses, but did not significantly impact revenue, which is only accrued on reported units. Netting all of that benefit out from our Q4 gross margin of 51.4% gives you our estimate of roughly 49% repeatable gross margins which of course still represents a huge sequential step up from Q3 of 23. We were able to drive these results on operating expenses that were stable compared to 2022. As Steve described, we've invested heavily to build the critical infrastructure needed to rapidly scale the business. And we believe we're in position to drive significant future innovation with relatively modest increases in operating expenses from our current levels. This combination of expanding revenues and improving margins on stable expenses fits precisely with the multiyear strategy we've laid out in the past. The net result of that is that we cut our Q4 loss per share by more than half compared to Q4 2022 and now have clear line of sight to a cash flow breakeven quarter as Steve described. Okay, that's a good segue to the guidance on the next slide. We're excited to be initiating the revenue guide at $1.32 billion to $1.35 billion, gross margins at 50% to 53%, with relatively stable operating expenses leading to another dramatic reduction in our cash flow. While there are a lot of variables that will cause cash flow to fluctuate from quarter to quarter, we now believe we can get to a cash flow breakeven quarter by Q3, if not sooner. This guide presumes a steady continuation of the strong underlying trends in volumes, ASPs, and COGs we've seen over the past year, but does not rely on upside drivers from potential guideline changes, any spike in volumes from further signatera data, or any meaningful benefit from the biomarker legislation of the calendar year. And it's just a modest contribution from the recent Moldy X covers decisions. That approach leads to a fairly cautious guide on further margin expansion. I would expect to start the year in the high 40s consistent with our organic estimate for Q4 with the goal of getting gross margins to the top end of the range and possibly beyond that by Q4 of 2024. We have also assumed a relatively modest volume contribution from Invitae accounts we are picking up now consistent with Steve's base case described earlier. but hope to be raising that forecast as we get more clarity on account retention in the coming months. In our R&D organization, the team has a steady drumbeat of product launches, clinical trial work, and COGS initiatives slated to launch this year. Once those initiatives are complete, we anticipate having bandwidth to keep driving innovation in future years without large increases in spending. The SG&A guide includes the pickup of the Invitae sales reps, and several other product launch initiatives we have slated for this year. So, at the midpoint of the guide, we are forecasting revenue growth well above 20%, about 650 basis points expansion in the gross margin against annual 2023 full-year actual margins, and operating expense growth of about 4%. Those of you that have followed us for a few years know that we prefer to start the year with a guide that feels challenging but achievable to us, And I think there are several sources of upside that could allow us to outperform once again this year. And that's, you know, another good segue to the next slide, which just summarizes those catalysts. We are making great progress on ASPs, volume growth, and COGS in our core business, as I just described. And I'm looking forward to sharing our progress on earnings calls this year as we continue to just execute on the initiatives within our control. If we can do that, I think we are in position to outperform once again in 2024. Beyond that, we have some potentially significant catalysts on tap. Of course, we have the potential guideline expansion and carrier screening in 22Q that Steve described earlier in the call. The timing of those updates are always uncertain and subject to change, but tentatively you could see some society guideline updates as early as this spring. In oncology, we are working to expand Moldy X coverage to several additional tumor types, and the advent of biomarker legislation in a number of heavily populated states creates an opportunity to drive commercial coverage higher for Signatera in those states. We are excited about the Altair CRC escalation and treatment on molecular relapse study readout in colorectal cancer that Solomon touched on in his remarks, which we expect to get in the summer or early fall, as he described. And finally, we are really excited about a number of significant product launches in women's health and oncology we have planned for this year. Consistent with our typical practice, we will dive into each of those product launches in the first earnings call post the launch. So in summary, I don't think we've ever been in a stronger position to start the year, and we are very pleased to be sharing these updates with you. So let me now hand the call over to the operator for questions. Operator? Operator?
spk03: The floor is now open for your questions. To ask a question this time, please press star followed by the number one on your telephone keypad. You'll be provided the opportunity to ask one question and one further follow-up question. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Subbu Nambi with Guggenheim. Your line is open.
spk00: Hey guys, thank you for taking my question. You guide it to 1.32 to 1.35 billion in 2024 revenue. This is well above street expectations. That said, as you noted on your last slide, there are still a lot of sources of upside. To unpack this a little bit, can you talk more about the key assumptions for things that are not in the guidance? Specifically, how are you thinking about the potential for NVIDIA upside, potential ASP increases for Signature, biomarker bill 22Q, potentially genocide. What I'm trying to get at is essentially the magnitude of upside for each of these in 2024. I can easily see a path to 50 to 75 million in upside. To your guide, when I look at these components, does that seem reasonable?
spk10: Yeah, thanks for the question. This is Steve. So, you know, maybe I'll just make a couple of comments on these different things. And then, Mike, you know, you can sort of talk about the magnitude. I mean, certainly there's a lot of opportunities for for upside you know you you've listed a couple of them um i think you know within vitae we're working hard to uh you know move as many of those accounts over as we can and we think that it's going well um as we said in the prepared remarks you know we'll have a little more visibility as time goes on so from a guideline standpoint you know all we can really do on guidelines is produce the peer-reviewed evidence And we feel incredibly good about the evidence that's been produced, particularly on 22Q and on broad panel carrier screening. And now I think it's really up to the societies and the physicians to decide what they want to do. But certainly that would provide a lot of upside as we're the market leader in non-invasive prenatal testing. We have a high attachment rate of microdeletion testing. And as we said here, we believe we're the market leader as well in next-gen sequencing-based broad panel testing. When you look at Cignitera and ASP, you know, certainly there's a lot of opportunities for upside, you know, the same with biomarker bills. So, Mike, do you want to comment further?
spk08: I mean, I think those are really the kind of the key drivers as you kind of think about catalysts and beyond. I mean, I would just reiterate what we said in the prepared remarks, which are You know, the underlying trends in the core business that we've been seeing these last couple quarters have been quite strong. And if we can just continue to see those, continue to hit our marks as best we can, I think we're in a good position for 24.
spk00: Thank you, guys. I'll get back in the queue.
spk03: Our next question comes from the line of Punitsuda with Learing Partners. Your line is open.
spk04: Hey, guys. First of all, congrats on the quarter beyond the pre-announced numbers and really great momentum you're seeing in the business. Maybe just wanted to follow up on the guide. You know, Steve or Mike, maybe can you elaborate a bit more just putting together the pieces here? I mean, if I look at where you have guided to versus the consensus and our expectations, I mean, You're obviously increasing the ASP on the MRD side. You have recent indication expansion that you're seeing here. Obviously, there's momentum on Panorama, ASP on Panorama from last year, carrier screening. I mean, the list is fairly long. And then we have Invitae's volumes adding on top of it. So maybe just walk me through sort of why this prudent guide still. just given sort of the momentum you have, and also maybe if you can talk a little bit about the 22Q microdeletion timing. I know you mentioned that briefly, but what else needs to happen there? And I have a follow-up. Yeah, Mike, you want to take that?
spk08: Yeah, sure. Yeah, I mean, I think, like, so, Camille, I think that's a good summary of, you know, a lot of drivers we have going for us in 24, as Steve covered in the prior question. And I would just go back to, in each of these drivers, you're going to take some judgment around setting the guide for the year. We want to set something that clearly, as you referenced, requires really good execution. It's going to require good volume execution. It's going to require continued momentum in ASPs and COGs. We think we can deliver that. And it's just a matter of kind of setting the level of what's challenging but achievable for the beginning of your guide. So really no change in philosophy from what you've seen from us in prior years. On the 22Q front, you know, I think really it's the same commentary that we've provided previously. The SMART trial, as we covered in our prepared remarks, we really feel like, you know, is the landmark trial. uh in the space uh those results were excellent they've now had time uh uh to you know kind of get those data out get them published they've been presented at multiple conferences i think we've got four or five publications that have now come out uh of that study uh and so you know we we think that uh merits further guideline consideration of course the the guideline committees uh you know run their own show and we don't have perfect visibility into the timing of those things, and hence you never include benefit from guideline inclusions in a guide to start the year, but we remain very optimistic about our prospects.
spk04: Got it. And then if I could cover on the MRD side, you had ovarian cancer and as well as neoadjuvant breast cancer expansion. When do you think that starts to come in into the volumes? I just wanted to confirm they should also benefit from the ADLT rate that you have currently. And also, maybe Alex can talk about it. Within the framework of the clinical trials that you have with Altair and the new trial that you announced today, can you maybe just, you know, sort of stack them? Because this does look like a series of, you know, sort of data sets that enhance your position in the marketplace. but also maybe just how does all of this play into the NCCN guideline update when we do hear that? And if you have any updates on that front, that would be great as well. Thank you.
spk10: Yeah, thanks. So, you know, first I'll just say on ovarian and neoadjuvant breast, you know, we're really excited about those indications. We've got some great data and more data coming out. I think generally, you know, once we get coverage in place, You know, that's really when, um, the, you know, the, the medical liaison team and, and commercial team can, can start, you know, going out and educating physicians really about the benefits. So, you know, that will take a little bit of time to come in, but you know, certainly there's volume there today that we'll benefit from. Um, Alex, you want to talk about Altair? Um, and you know, the potential there for, um, you know, upside opportunity and guidelines.
spk11: Yeah, absolutely. Steve and Puneet, thanks for the question. I think as we presented in our prepared remarks, we're expecting a readout, a top-line readout, kind of in Q3 for the Altair study. And we do believe that this study, if positive, may be one of the largest events in how early-stage cancer is managed in quite a while. Just to put this in perspective, the last study that truly changed how early stage colon cancer is managed was the Mosaic study published in 2004. So I think there's a lot of pent-up interest in approving new treatment modalities for these patients. We believe that any positive, statistically significant result will be significantly impactful for how patients are treated. And, you know, we were frequently asked, like, what are some of the you know, numbers that would be even more significant. And I would kind of guide folks to look at the Mosaic study, which showed a hazard ratio of 0.77 and an absolute risk reduction of 5%. So we strongly feel that if we meet one or both of these metrics, the study would be even more significant. And then in terms of the other readouts, the Invigor 011 study, you know, we're expecting top line readout for that. in Q1 of 2025. And again, if that study is positive, we also believe that would significantly not just change the guidelines, but really fundamentally alter how early stage bladder cancer is managed. So I think these are the two most kind of immediate binary events to look forward to. And, you know, we have many other studies currently ongoing that we'll be reading out next year or two.
spk04: Super. All right, congrats, guys. Thanks.
spk03: Next question comes from the line of David Westenberg with Piper Sander. Your line is open.
spk06: Hi. Thank you for taking the question, and congrats on an extremely strong quarter. So I'm going to dig into, again, the guidance. I'm really happy with the guidance, but I do want to look into the upside as well. So just in terms of the MBTA acquisition, I mean, I would assume your ASPs are higher than there is in a lot of the reproductive health areas. And, you know, you're calling for 25% or 25 million and I think $100 million business. So can you talk, I mean, that would imply a little bit even less than maybe say 25%. So can you just make, walk me through, you know, your 50% share, kind of why you would anticipate just maybe that low of picking up with that share. And if it's share you don't really want, I would assume other companies in the space would also not want it, and we maybe see a melt up in pricing. Is a melt up in pricing and kind of those kind of accounts contemplated in the guide? And then finally on that one, a lot of those OB Salesforce sell BRCA too. I know BRCA is not that big of a business for you, but is BRCA cross-selling also something to contemplate in that? Sorry, that was a long question. One follow up, it'll be shorter.
spk10: Yeah, no, no, that makes sense. And that's a good question. So, you know, we said we're thinking somewhere in this sort of 20 to 30 million range is a conservative number. But we also said that we think that can get up to, you know, 50 to 60 million. So we really have to see how things come in as we look into this sort of post-acquisition window. A couple of things to note that I think are important. You know, I think the first thing is that, you know, the volume that we started with you know, at the end of January after the acquisition was, you know, I think a decent amount less than maybe where Invitae was in the last time they reported out their volume in Q3. And, you know, that makes sense because they had announced some initiatives to reduce some of their low margin business. So, for example, some of their low cash pay business. So, you know, I think the starting point for us is different maybe than what your expectations were. Now, with that said, you know, we're working hard now to transition over as many of the accounts, you know, which is generally the high margin accounts, because those were the ones that were remaining, you know, over to Natera. And we think we're doing really well. You know, generally, when you look at these things, you know, you go back and you look at Semaphore. You know, I know this is a little bit different than that situation, but Natera has generally done very, very well in these settings, retaining you know, the vast majority of the business, you know, certainly, you know, 50% plus of the business. And I think that's what we'll see here. Got it. And I guess last question. Oh, sorry, I'm bracketing. I forgot the answer. Yeah, we do think there's an opportunity there on hereditary cancer testing. We have a very good product that we think is competitive. We've actually, you know, done quite well there. through the OB channel, and we think there's some opportunities there as well on the oncology side. So, you know, certainly with the disruption happening, there will be some upside opportunity there.
spk06: I appreciate it. I forgot I asked that part. So just in terms of expectation, now you have neoadjuvant breast, adjuvant breast, bladder, CRC, IO. Um, can you talk about your expectation for lung and, you know, just given that you have all these tissue types and I'm asking you to predict a, um, uh, uh, uh, you know, uh, a bureaucratic agency, but have you had any conversations with moldy acts or expectations on moldy acts and just saying, you know what, this science works in every tumor type. So, um, you know, when does that get coverage? Thank you. And thank you for taking my question.
spk10: Yeah, that's a good question. So I think this question of pan cancer is something that I think a lot of people have asked over time. And certainly, as you start to look at the long tail of cancers getting covered, I think at some point in the future, there may be an opportunity for just kind of an across-the-board pan cancer coverage. But we haven't set up to be dependent on that. What we're doing is we're doing very thoughtful, detailed clinical validations on all the different tumor types, and we're generating the data that's needed to obtain coverage. And we think that's, you know, I think one of the reasons why we're in a leadership position today is because we've done that hard work, we generated these studies, we spent now five or six years working on some of these trials, you know, and other companies, they may come in and, you know, not put that work in, and then they end up not getting coverage. So, you know, we think we're a great opportunity. Obviously, there's more Tumor types that are in submission, you know, we're excited about ovarian and neoadjuvant breast, but you mentioned lung, you mentioned, or I guess you didn't mention, you know, gastroesophageal, we think is a big opportunity for us, you know, that fits nicely with the colorectal indication. So, lots of upside. We're continuing to focus here and generate data.
spk03: Next question comes from the line of Deja Savant with Morgan Stanley. Your line is open.
spk01: Hey, guys. Good evening. Steve, Mike, I'll spare you the question why you've decided to be prudent with the guide and take a slightly different tack here. What I want to know is, you know, what would carrier screening and ACOG guideline inclusion, you know, for 22Q mean in terms of, you know, gross margin upside? I know it's not baked in. But were those two guidelines to fall in place in the spring? What does that look like? And Steve, on the exit of some of these, you know, lower margin Invitae accounts over the course of the year, is that something that we should be thinking about in terms of just the phasing of the gross margins through 24?
spk10: Yeah, that's a good question. So let me just comment on Invitae first. And so what I mentioned there is that Invitae themselves had actually taken steps I believe in Q3 timeframe the last year to exit some of their lower margin accounts or maybe move away from some of that business. And so that's why the starting point of where we took over in January was maybe a little bit different than what you might have seen from Avita in Q3. From the Daterra side, when we bring this business on, it's obviously through the Natera contracts and insurance contracts and the Natera products. And so we think the margin should be in line with, you know, what is currently now kind of an accelerating and expanding Natera gross margin. Hopefully that makes sense. From the, you know, from the upside opportunity, obviously there's an enormous amount of upside in the guidance. You know, we didn't include anything for 22 coverage. We didn't include anything for broad panel carrier screening, you know, so obviously there's upside as these things come in. You know, if you just think about the clinical impact and the data that we generated, we really think that that's the most important piece. You know, 22Q is a very severe disorder. It's a leading cause of congenital heart defects. It causes hypocalcemia, which can lead to seizures and brain damage at birth if it's not treated. So this is a very serious disorder. We test for it with, I think, a very well-validated test that was prospectively done over a seven-year period. We think we've checked all the boxes for society guidelines. If you look at the very high attachment rate that we have, I think 75% plus of our NIPTs get a 22Q. Obviously, there's upside opportunity, but we think it's really important that Patients get access to this test and then it's covered by their insurance company. The same thing for expanded panel carrier screening. As we said today, we believe we're the market leader in next-gen sequencing-based expanded panel testing, but there's still a lot of opportunity there as guidelines come in place, both to extend the volume. Today, there are still customers and OB offices around the country that are ordering smaller panels. As the guidelines come in, we think that they will transition to broader panels, which will put Natera in a good position. And there's also a lot of business today that we're just not reimbursed on where the payers maybe have a negative coverage policy where there's an opportunity to get paid and get coverage for testing that the physicians want and that we think are important for patients.
spk01: Got it. That's helpful. And then switching gears to oncology, Steve, Just curious as to, you know, what's your thought process in terms of, you know, timelines to reimbursement in the breast recurrence monitoring indication? I mean, that's clearly the big prize. Second, can you comment on the Foundation One tracker progress? I mean, given the broader launch in Medicare coverage here, where you expect that to be in terms of perhaps an attached rate by year-end 24th? And then finally, the data on early detection, I believe the first readout there is relatively imminent. But just curious as to how you're sort of, you know, perhaps you've updated your thought process there in terms of the go, no-go decision, in terms of the performance specs you'd like to see from that data. That would be helpful. Thank you.
spk10: Yeah, thanks. So maybe I'll comment quickly on early cancer detection and then hand it over to Solomon to talk about breast cancer recurrence monitoring and some of the exciting data potentially coming around treatment on molecular recurrence. So on early cancer detection, we are planning probably Q2 to read out a case control study that's going to include both colorectal and advanced adenoma patients. And we're excited about that readout. The vast majority of those samples were prospectively collected and matched with colonoscopy. You know, not all of them, but the vast majority were. So then after that, you know, depending, we're going to take a look at how that data looks. Obviously, we're excited about it. After that, in October timeframe, maybe sometime September, October, we're going to be reading out roughly a 1,000 patient prospective study that will be 100% colonoscopy matched. That's already recruiting patients today. And then depending on the readout of there, we'll make a decision about what we do going forward as far as the FDA enabling trial. But the way that we've set this up is that the 1000 patient study that's going to read out Q3, that's actually, you know, the exact same protocol that would be used for the FDA enabling trial. So if we do want to go ahead with the FDA, We just continue enrolling into that study. So, you know, it's not like there's going to be a delay to take off the trial. Now, as we said before, the decision for us is going to depend on what the performance of the test looks like. And everything that we're doing this year is included in our budget. It's not any additional cost. We said we're moving rapidly to cash flow breakeven. We're going to hit that, you know, in Q3 or sooner. So, you know, all of the expenses on early cancer detection will be included in that. We'll still be getting the cash flow breakdown of the same schedule. You know, if we do decide to move forward and, you know, do an FDA-enabling trial, that would be based on us seeing market-leading performance. You know, and that needs to be, I think, better than anything else out there from a blood standpoint for both, you know, colorectal and advanced adenoma. So, Solomon, you want to talk about breast cancer?
spk09: Sure. Yeah, I think the question was specifically about coverage in breast cancer recurrence monitoring. And we do have that already. Cignatera was covered for recurrence monitoring in all subtypes of breast cancer. That decision came out early last year. That's been a very high demand. area for Signatera. So, you know, as a reminder, almost 300,000 new breast cancer diagnoses per year in the U.S. We estimate over 100,000 of those are eligible under the Medicare coverage, which is stage 2B and above. And that's for both adjuvant decision-making and recurrence monitoring. And then for many of those patients, especially in the hormone receptor positive disease, Recurrence monitoring is something people do not just for a few years after surgery, but five to 10 years after surgery. So that's a very important area for us to be helping our patients. And we've been doing that.
spk01: Got it. Thanks, guys. Appreciate the color.
spk03: Our next question comes from the line of Doug Shankle with Wolf Research. Your line is open.
spk07: Hey, guys. Good afternoon. Thanks for taking the questions. First, let me just start with, I guess, a clarification on Altair. In terms of defining success and getting NCCN guideline inclusion and driving broader commercial reimbursement, if you get five to nine months of disease-free survival, is that enough? Is that a win? I picked this range because I think that's the range of DFS demonstrated in the two intercept sub-studies. So as we think about the readout this summer, is that kind of the goalpost that we should be setting?
spk10: Alex, why don't you take that?
spk11: Yeah, absolutely. So I would think instead of the hazard ratio for DFS, and if the mosaic study is any comparator, the hazard ratio there was 0.1%. And then the second thing that's usually pretty important is the absolute risk reduction. So what percentage of patients do you prevent from recurring with a new therapy? And, you know, for that study, I think, you know, the event rate went down from 26.1% to something like 21.1% with addition of exhaled platin. So I would use those two as benchmarks. I think the median DFS improvement in absolute terms That may be a little bit difficult, and I would not extrapolate those numbers from Intercept to Altair. Instead, I would focus on the hazard ratio as well as the absolute risk reduction.
spk07: Okay, that is super helpful. The next topic I wanted to touch on is MRD competition. So you guys have had a tremendous amount of success thwarting competition, defending your intellectual property estate. That said, there's been a ton of focus out there on how this landscape is going to evolve, even with those wins by Matera. There's a potential bevy of companies intending to launch new products over the next couple of years. So two questions. One, can you talk about what you expect in terms of stickiness associated with existing accounts and really a material first mover advantage that you have and what can be gleaned from your experience in NIPT, which is a It's a competitive market where you have what I think is a very, you know, fair to say, sticky and stable leading share position. And then the second question is, if you were another company and you were trying to move forward with studies in MRD today, how much time and how much money would you need to invest to catch up with Natera, a company that's still doing more studies, including one that you announced for the first time today? Thank you.
spk10: Yeah, that's a great question. I'll make a couple comments, and then maybe, Solomon, you can talk a little bit more about, you know, all the things that we've done, you know, as we look toward the future. You know, first I'll say there is competition. You know, we think the tumor-informed MRD companies are the real competitors here, and, you know, particularly I think Neogenomics is a strong competitor. You know, of course, they've been enjoyed right now, but, you know, they have a very strong footprint. And, you know, although I think when you look at the performance of the Neogenomics product, you know, from an analytical standpoint, they've made some very significant claims. But if you dig into the details, they've really increased the amount of plasma input to make it seem like the test analytically performs, you know, potentially better than it does. And I think that hurts us when you look at comparative claims that they're making based on different levels of plasma input. Now, when you look at the clinical validation, what we see on the radar product is that the performance doesn't really hold up. And we see this where analytical validation maybe looks good, but then you look at the clinical validation and it doesn't quite look as good. So you just have to be careful of that with you know, any competitors that are making claims about the performance of their tests. Solomon, do you want to talk about some of the stuff that we've done, you know, I think in the investments that we've made into clinical data and clinical trials? Sure.
spk09: I spoke about this in the prepared remarks as well. I would say that one of the most fundamental pieces here is that once a Signatera patient you know, always a Signatera patient. So once you've got a personalized assay designed for a particular patient, it's extremely unlikely that they would go design a new personalized assay with some other lab. And there's ripple effects to that, right? So that means, you know, a physician's office that's testing a bunch of Signatera patients quarterly or every six months, you know, that creates its own level of, you know, switching costs for that practice to bring on another lab. Now, that being said, we are not resting on our heels from that perspective. It's always been a part of Natera's core recipe to be on the cutting edge with test performance and to continue pushing the boundaries with clinical validity and utility. And I think that's where you see us continuing to invest. and following that strategy. So as we pointed out on the call, you know, we're planning to put out multiple new features and enhancements and MRD-related products over the next 12 to 24 months. And we've got a ton invested in clinical trials. So, you know, I don't think I can give you a specific number that you asked for. You know, the number, how many hundreds of millions of dollars would you need to be able to catch up? But, you know, it's definitely in the hundreds of millions of dollars.
spk10: Doug, maybe I'll just add to that a little bit. I mean, if you look at the different areas Solomon broke out, you know, you look at data. I mean, we now have a significant number of peer-reviewed studies that have been published. But not only that, we have multiple randomized trials that are ongoing that have been underway, you know, some now for kind of five years or something in that timeframe. And I think the key thing is with these randomized trials, that the data really is only applicable to the test that was used in the trial you know so i think we're seeing you know some groups now are coming um you know doing clinical validations whether they're looking just at the performance of their tests you know as you go forward that's that's really not going to be good enough you have to have a randomized study that shows how how patient outcomes were impacted based on using your test in the randomized study And that's where we're going to be, and that's where we think things are going as we move forward and moving away from analytical validations and from clinical validations.
spk07: Thank you very much.
spk03: Next question comes from the line of Matt Sykes with Goldman Sachs. Your line is open.
spk05: Hey, good afternoon. Thanks for my questions. Congrats on the quarter and the year last year. Um, maybe just, just given the importance of the gross profit line, could you maybe just talk about your expectations for ASP trends for women's health kind of X central guideline inclusion? Like what do you kind of envision in terms of, uh, ASPs, um, for, for this year? And then I have one quick follow-up.
spk10: Yeah, Mike, you want to take that?
spk08: Yeah, sure. Yeah. Thanks Matt for the question. Yeah. I mean, I think the, you know, we expect to see, uh, you know, stable trends in the, um, in the women's health ASPs that we saw toward the end of last year. So as folks that follow us for some time will recall, we saw really strong kind of sequential movements upward in the ASPs, particularly for carers training, but also for the NIPT product through the course of the year. And that was a big driver, along with obviously signatory ASPs of the margin expansion you saw in the calendar year 23 results. And now in 24, what the guide implies is that, you know, you get the full year benefit of the ASPs that we saw in Q4. So, you know, that obviously that does leave room for there to be continued improvement, and we're working every day to continue to do what we can operationally to make sure that the, you know, that we get the reimbursement for the covered services that we think we deserve. So, um, you know, there's room for that to continue to approve above the expectations we've set this year, but I think that's a good kind of starting point for the guys. Got it.
spk05: And thank you for that. And then just on Mike, again, just on COGS reduction, you guys have done a good job. It's always been a key gross margin driver. As you kind of look across your businesses, where do you see the most upside for, for, for reduction in COGS, whether it's in women's health, you know, signature organ health, et cetera, like where do you think the biggest levers are for COGS reduction this year that could actually drive those gross margins? you know, to the top end of the guide like you talked about.
spk08: Yeah, I mean, I think the first, yeah, the first project that comes to mind there obviously is the in-house project for Signatera Exome in Austin. So as a reminder, we launched our Exome capability in San Carlos last year. We've driven a significant portion of the volumes to the in-house Exome. And then launching in Austin unlocks another project another wave of cost efficiencies just because, you know, you've got more space, you can deploy more automation, so on and so forth in that Austin lab. So we're very excited about that. We'd like to have that launched in the, you know, the summer or early fall. In addition to that, though, I mean, I think we've got across each of the major products, I mean, Panorama, Carrier Screening, and Signaterra, we've got workflow launches and improvements coming this year that can drive COGS lower across the business. And those COGS projects, because Matt, like as you mentioned, like we have a long track record of putting those COGS projects on the board, scheduling them, investing in them, and then hitting our marks in terms of actually yielding the savings. Those COGS projects are in the guide. So there's not a lot of hedge in the guide for those. But again, you know, we're excited to deploy those and we think they can help us this year. Thank you.
spk03: Ladies and gentlemen, this concludes the base conference call. You may now disconnect.
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