Natera, Inc.

Welcome to Natera's 2024 Third 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 1 on your touchtone phone. If anyone has difficulty hearing the conference, please press star 0 for operator assistance. As a reminder, this conference call is being recorded today, November 12, 2024. 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 third quarter of 2024. On the line, I am joined by Steve Chapman, our CEO, and Alex Aleshin, General Manager of Oncology and Chief Medical Officer. Salman Moscovich, President, Clinical Diagnostics, couldn't be here today, but will be joining us again next quarter. 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 in or suggested by the forward-looking statements. Forward-looking statements made during the call are being made as of today, November 12, 2024. If this call is replayed or reviewed after today, the information presented during the call may not contain current or accurate information. The terrorist 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?

Thanks, Mike. Let's get into the highlights on the next slide. 2024 has already been a transformational year for Natera. and I think Q3 represents our best quarter yet. We generated $439.8 million in revenue, up 64% from the third quarter of last year, which represents a record quarter for revenue growth. Volumes continue to grow rapidly, up 24% year over year. We performed about 137,000 oncology tests in the quarter, which is up 54% from last year. Pignatara Clinical Units posted another strong quarter, up 11.4 thousand units sequentially versus q2 this is the third fastest quarter over quarter growth we've had since launch we also grow record 48.4 thousand units year on year which is the best quarter we've ever had in terms of growth units our gross margins were 62 percent in the quarter again a record for us and after breaking even on cash for a couple quarters in a row we generated 34.5 million in cash this quarter which is of course another important milestone in our evolution. All of this puts us in a position to raise our guidance for the year with revenue expectations now at 1.61 billion to 1.64 billion. That implies about 50% revenue growth to the full year, which would be the fastest full year growth we've had as a public company and is significantly above our own internal expectations from the beginning of the year. Many of you saw the groundbreaking Galaxy data published in Nature Medicine and concurrently presented at ESMO in September, which delivered outstanding prospective overall survival data in MRD for the first time. We think this data is important because it strongly supports the core indication for MRD testing, adjuvant decision-making, and recurrence monitoring. In colorectal cancer, physicians have moved beyond analytical metrics and clinical validation studies and now expect to see prospective outcomes data like this. As a reminder, this took us over four years to generate, and we have a median of 24 months clinical follow-up with a good portion of patients having three years of follow-up. I'm also pleased to announce the completion of a study using Signatera from the CalGB SWAT 80702 trial, which is a randomized phase three study in CRC. These results have been accepted as a late-breaking abstract for the ASCO GI conference in January. As you saw from our press release, We see this trial as one of the most important in the space, given its size, randomized design, and indication. As a reminder, the trial is looking at whether Signatera can predict which patients will benefit from escalation of adjuvant therapy and will report on disease-free survival and overall survival, respectively. Similar to Altair, this will be another trial that is drug-dependent, and we look forward to sharing results in early 2025. We also expect results from the GSK ZEST trial in breast cancer will be presented at the San Antonio Breast Symposium next month. As a reminder, this trial was terminated in April of 2023 due to low trial enrollment, so it's underpowered, but we're still looking to see a trend towards improved disease-free survival in MRD-positive patients treated with niraparib versus placebo. Okay, let's get on to some of the business trends. The first slide shows Q3 volumes over time, and despite the scale of the business, our growth continues to be very strong. In women's health over the past year, we saw significant growth from our direct channel, augmented by the Invitae volume we added earlier this year. In addition, we launched our fetal RHD test at a time of critical need in the prenatal community. We are really seeing strong demand for this test, which can help physicians assess the need for medication traditionally given to RHD negative women to prevent potential complications in future pregnancies. As we've spoken about previously, having an RHD test and the timeliness of our launch was important given that OBGYNs were facing limited supplies of this medication. The launch is also a great example of the passion and commitment of the Natera team rallying to help patients in need. We're excited about the future of the women's health business and we are working hard to help as many patients as possible get access to our differentiated suite of testing. We also had another excellent quarter in organ health, with strong volume growth year on year. The strength of our peer-reviewed evidence and differentiated product pipeline is being received very well by physicians. We now have more than 45 peer-reviewed papers in organ health, including the largest prospective study published in the field to date. We look forward to continuing to serve physicians and patients as we move forward. On the next slide, we're double-clicking on the signatory clinical volumes. We processed 137,000 units in Q3, which includes 130,000 signatory clinical volumes. This represents growth of about 11,400 units in the quarter, well above our average of between 8 and 10,000 units. The volume was one of our best quarters of growth ever. Given sequential quarters tend to have some variability in terms of holidays and number of receiving days, It's also useful to look at the trend year on year. Q3 clinical units were 48.4 thousand higher this year compared to Q3 of last year, a record for the company. We're off to a great start in Q4 despite the impact of the hurricane and the trends are continuing to be very positive. Okay, the next slide shows total revenues year on year in a sequential quarter trend. We're very pleased to post 64% revenue growth year on year. We have $34.5 million in revenue true-ups, which is lower than last quarter as expected, and Mike will talk more about that later in the call. Even stripping out those true-ups would have yielded a growth rate of 50%, which compares very favorably with our fastest-growing quarters, despite the fact that the revenue base has gotten much larger in the past few years. While the volumes are clearly providing a strong base for growth, ASP improvement continues to contribute to our revenue growth. We've seen progress across the board as we've worked hard to improve reimbursement for covered services in women's health, and the Signatura ASP continues to improve. It's important to recall that we reached this level without getting any tailwinds for the women's health guidelines. While we remain optimistic on guidelines for both carrier screening and 22Q, we plan to be successful with or without guidelines, and we're pleased to see that happening. Our growth in total company ASPs is also a function of our product mix evolving, towards Signatera. That shift in product mix is fueling the evolution of our gross margins as shown here on the next slide. 62% gross margin is a record for us and well above our expectations at the beginning of the year. ASPs were once again very strong across all of our major products and we're pleased to see Signatera ASPs step up modestly once again in the quarter compared to Q2. The COGS wins from the first half held steady in Q3 and we delivered a significant gross margin expansion over Q2. The true-ups moderated slightly, down to just under $35 million this quarter. This represents excellent execution as the cash receipts exceeded our past expectations. Excluding true-ups, underlying gross margins expanded considerably from roughly 55% gross margins in Q2 to over 58% gross margins in Q3. Again, that is driven by strong ASPs, execution on COGS projects, and the continuing mixed shift in the business toward Signatera. While reimbursement can fluctuate from quarter to quarter, we feel like we are very well positioned to continue to drive margins higher, led by Signatera volumes and ASPs continuing to ramp. So, accelerating revenues and gross margins, coupled with cash collections well in excess of prior expectations, are leading us to our first quarter of meaningful cash flow generation. The chart demonstrates quite a journey from Q1 of 2022, where we burned 162 million in a single quarter. The reality is that our strategy has remained the same throughout this timeframe depicted on the chart. We made the big investments required to deliver excellent care for patients and the volumes and reimbursement followed. While we've been very efficient with resources, we've gotten here without big cost cuts that jeopardize the future of our business. In fact, as Mike will cover in the guide, we've continued to invest in future growth by adding meaningful investments to our R&D and commercial teams. As we look into 2025, we will continue to prioritize innovation and customer service while managing to cash flow break even. We think that's the best approach for patients, for doctors, and for the business given the size of the markets that we're in. With that, let me hand it over to Alex to provide an update on oncology. Alex?

Thanks, Steve. I'm pleased to share some of the recent results from the GALXY study in colorectal cancer, which we believe were universally excellent across the board, particularly on signatories' ability to predict overall survival, as well as adjuvant chemotherapy benefit in patients with CRC. As many of you know, GALXY is part of the Circulate platform study. We have presented a few data sets thus far, which have focused on disease-free survival, since overall survival takes longer than mature. At the ESMO conference in September and published concurrently in Nature Medicine, we showed for the first time an overall survival signal associated with Signatera in a prospective study. Given that overall survival is such an important metric for oncologists and the gold standard for clinical trials, we view this as a major milestone for the field. There are a few main points I want to highlight for you today. The first is that Signatera was predictive of overall survival. Patients who tested Signatera positive had a much worse prognosis than Signatera negative patients, around 10 times worse at 36 months. Furthermore, Signatera was the most significant predictor of recurrence as well as overall survival when compared to all known clinical pathological risk factors. The second point is that Signatera predicted an overall survival benefit from chemotherapy. The Galaxy results show that if a patient tested Signatera positive, and received chemotherapy, they had a superior overall survival with a 50% lower risk of death versus patients who did not receive treatment. The study also demonstrated that patients who tested negative had no significant benefit from chemo in terms of OS, highlighting the potential for de-escalation of adjuvant therapy for a large portion of patients. And finally, we looked at signatera clearance after adjuvant therapy. we showed that patients who cleared ctDNA and remained signatory negative had superior outcomes, with 24-month overall survival being 100%. In comparison, patients who did not achieve ctDNA clearance at 24 months had an OS of just 61%. These findings may allow for personalization of treatment and recurrence monitoring that we hope can fundamentally change how colorectal cancer is managed. So in summary, we believe these results are incredibly significant and further expand the body of evidence supporting Signatera in CRC. Moving to the next slide. I'm also happy to provide an update on a key study in colorectal cancer as per a press release earlier this morning. I'll first summarize the main points and why we believe this is such an important trial. To start, the study is drawn from the CalGB SWOG 80702 study that we'll refer going forward as the 702 study, a randomized phase 3 clinical trial in CRC, which evaluated the benefit of adding Celecoxib to adjuvant chemotherapy in the postoperative management of patients with stage 3 colorectal cancer. Individuals in the study were randomized to either receive adjuvant chemotherapy plus placebo or adjuvant chemotherapy plus Celecoxib. The original study results published in 2021 show that the addition of Celecoxib did not significantly improve disease-free survival in patients with stage 3 colon cancer. However, that study was initially run without Signatera. The new analyses use samples from the 702 study to investigate whether Signatera can be utilized to identify a subgroup of patients who may benefit from escalation of adjuvant therapy with the addition of Celecoxib. This pre-specified analysis included more than 1,000 patients with Signatera CTA status post-surgery, so it will be a sizable readout. We will report on Signatera's ability to predict DFS and OS benefit from the addition of Celecoxib. The results have been accepted as a late-breaking abstract for ASCO-GI, along with the results of the Altair study, but we look forward to sharing more details on both in late January. On this next slide, we provide a bit more context on Celecoxib, also known as Celebrex, which, as I mentioned, is a drug being investigated in this trial. Celecoxib is a non-steroidal anti-inflammatory drug, or NSAID, and as many of you are likely aware, NSAIDs are a class of drugs like aspirin that can be used to relieve pain, reduce inflammation, and bring down fevers. These medicines are widely available relatively non-toxic, and generally low cost. NSAIDs have also shown promise in benefiting certain subpopulations in CRC. For example, several studies suggest that NSAIDs reduce the risk of developing precancerous colon polyps. There's a clear need for additional adjuvant treatment options for patients with colorectal cancer, as there has not been a new drug approval in this space for over 20 years. Our analysis will be the first randomized study to help address this unmet need. And we're hopeful that Signatera can help open the door to effective treatment options in colorectal cancer, personalized to patients who are most likely to benefit. And with that, I'll turn it over to Mike.

Mike? Great. Thanks, Alex. The next slide is just a summary of the P&L in Q3 and the year-over-year progress. Steve covered the trends on revenues and gross margins, which I think is set in stark relief on this slide. We really are in a completely different place in terms of revenue scale and gross margins compared to where we were even just a year ago, which at the time was actually a very good result. R&D, we've grown as we've staffed up to accelerate the tempo of new product launches and additional clinical trials. SQ&A has also stepped up immediately, although a significant chunk of this step up is related to litigation expenses and non-cash charges. related to stock-based comp. We, of course, added the Invitae women's health sales team this year, and we've made steady investments in Signaterra commercial operations through the course of the year. Despite all those investments, you'll note that the loss per share narrowed significantly as our strategy continues to play out. That's consistent with the positive cash flow generation we posted in the quarter that you see at the bottom of the slide. Related to the cash flow generation, I was very pleased to see the day sales outstanding drop again dramatically to approximately 73 days in Q3 after hovering in the mid-90s range for several quarters previously, and after we had spiked to above 100 days during the first few quarters of significant growth. I wouldn't be surprised to see DSOs and quarterly cash bounce around a lot based on typical working capital dynamics for our business. But we are seeing clearly much more efficient conversion of our covered services to cash after years of hard work with payers to make this happen. One other key subsequent event to mention is we are very pleased to retire the convertible notes that you actually see here on the slide. At the beginning of the pandemic, when the shares were roughly $25, we issued the convertible notes as an insurance policy to make sure that we had cash available to survive whatever might happen as the world was shutting down. The notes don't mature until 2027, but we were able to retire the note early via a soft call feature given the tremendous share price performance we've delivered since then. This was a purely opportunistic move that cleans up our balance sheet at a time when many other players in our space have convert maturities over the next few years that are massive relative to their market caps. We are now effectively debt-free as the UBS line of credit is secured by our own cash and earns roughly the same as the cost of the capital. We closed this transaction in October, so the convert will be wiped off the books when we print the 10K this year. Okay, good. Let's get to the guide on the next page. As Steve covered, we now expect revenues between 1.61 billion and 1.64 billion, which is up roughly 300 million compared to our initial guide this year and implies continued growth in Q4. We've had very strong volume growth this year. But the revenue growth has really accelerated this year as we've seen strong realized pricing performance in all of the major products. Signaterra especially has seen its ASP mature this year, moving from the 800s in the past to now roughly $1,050 as of Q3. Note that 1,050 number is before the true ups. That's the kind of organic repeatable number that we anchor on internally. These same drivers are also transforming gross margins, and we now expect full-year gross margins in the range of 58% to 61%. We are bumping OPEX to account for elevated litigation and stock-based comp expenses for the year, in addition to the fact that we continue to keep our foot on the gas for future growth. Finally, I'm very pleased to update the guide to cash generation of $50 to $75 million this year, where we started the year expecting to burn about $50 million. So, a meaningful swing there. As you think about how this continues into 2025, do keep in mind that there's about $108 million in true-ups baked into Q1 through Q3 revenue actuals now that we would not include in our guide for next year. So the organic underlying range for this year's revenue translates to $1.51 billion to $1.54 billion and gross margins at 56% to 58%. Those results are still well above our initial expectations and form a solid baseline for growth into next year. As in the past, baseline 2025 goals should be to grow the same number of units next year as we have in 2024. From there, I think we'll need to take into consideration the fact that we got a bolus of women's health units from Invitae in Q2, and that same influx of new units won't repeat next year. And then on the plus side, of course, our base Signatera users continue to grow, and we expect to continue to receive recurrence monitoring orders as we continue with those patients on their cancer journey. We would typically presume some erosion in women's health ASP pricing, but given the progress we've made this year, I think it's plausible to hold ASPs steady into 2025. We are cautiously optimistic that signature ASPs still have room for modest improvement as we continue to see better coverage from Medicare Advantage plans, and possibly in the second half of the year, we could start to see some additional contributions from commercial volumes where state biomarker laws are in place. On OpEx and cash generation, Steve clearly laid out that our priority is to do everything we need to do to serve Signatera patients, more commercial operations, more clinical trials, and enhancing our menu of offerings. We recognize it's important to remain cash flow positive, but we think the best use of that cash for the immediate term is to turn around and reinvest it in the business, particularly in support of Signatera growth. Okay, with that, let's open it up for questions. Operator?

Thank you. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, press star 1 again. If you are dialed in and listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Our first question comes from the line of Puneet Sudha with LeeRinc Partners. Please go ahead.

Yeah. Hey, guys. Really strong congrats. I mean, strong portrait here. Congrats on this. You know, it's great to see the cash generation. Maybe, Mike, first for you or Steve, can you outline the ASP pickup that you're seeing across the product? I know you highlighted Signaterra. Can you elaborate how that Signaterra ASP can continue to grow and the stability of ASP across the other products, because I think that has come in scrutiny a bit with some of the commercial pairs paying a closer attention to coverage and ASPs. So I'm wondering if you can elaborate a bit on that. Then I have questions on oncology.

Yeah, Mike, do you want to take that? Yeah, sure. Yeah, thanks for the question. So on sedentary ASPs, it's really the same kind of talk track that we've discussed previously. I mean, you've got really rapid movement upward in the signatera ASPs from the 800s to now. We're at about 1,050 on an organic basis. The path from here, I think there's always puts and takes, and there's always potential for kind of quarter-to-quarter volatility with ASPs. But from here, we feel like there's more room to run in terms of just execution with Medicare Advantage payers continue to increase the percent allowed for covered services with Medicare Advantage payers. And then as I mentioned in the prepared remarks, it's going to be a grind, but I think, you know, we're costly optimistic, maybe second half of next year, you could start to see some additional tailwind in the Signatura ASP as these state biomarker laws have had a chance to kind of go into effect and mature, and we've had a chance to interact with payers in terms of, you know, getting them online with covering those covered services as well. So, you know, it looks like a good, you know, good 18-month or so trajectory for signatory ASPs. On the rest of the product portfolio, we've actually seen, you know, really strong kind of improvement, particularly in the major women's health products, both Horizon and Panorama. And I hear you. I mean, I think there's always, you know, having just been in the diagnostics business for long enough, you're always kind of thinking about, well, Is there some chance for erosion in these more mature products? And usually I'd say yes. I think just the actuals that we're seeing and just maybe the time on task and the fact that these offerings are more and more enshrined as just kind of without doubt kind of in the standard of care for prenatal health has kind of given us more confidence and a bit more visibility on our ASPs there. So let me pause there, Steve. I don't know if you had anything else to add.

No, that's good. I mean, I'll just add, you know, over the last couple of years, we've invested a lot into, you know, improving things like medical appeals, you know, getting the medical records when requested. And I think you're seeing some of the benefit of, you know, just executing on those things. And then, of course, you know, there's still upside opportunity when we look at some of the tests that we're performing today where we're not really getting paid, for example, like 22Q or RH testing in the women's health sector. or expanding to additional indications in oncology. So I think it's positive upside opportunity ahead.

Got it. That's great. And then on the Signatura, can you elaborate, you know, how much of the lift are you seeing from volume growth in the community setting, or maybe the Tier 2 setting, versus when you present data at these conferences, including ESMO, ASCO, and others, the lift you get from that is, I assume, is mostly in the community, in the academic setting, but just trying to parse out, you know, where you're seeing the growth and the sustainability of this growth, obviously very strong in the quarter.

Yeah, good question. So, you know, it's really a mix. I mean, you know, we see uplift here in both the academic and in the community setting. You know, as we've said, we think about 40% of oncologists are using uh signatera today and so there's still a long way to go you know the market's very under penetrated and sort of the kind of low single digit penetration um every time we generate data i think that that just helps bring more and more physicians um you know in into the fray and especially when you're talking about the type of data that we generated with galaxy um you know that's exactly what people want to see is this longer term overall survival data You know, that now kind of we're getting to that level of follow-up where you're hitting that mark where you're kind of meeting the threshold that some of the doctors that have been holding out have been waiting for. And then, of course, we're really excited about data that we're going to have upcoming in the future, randomized readouts. So I think there's a long way to go, but we're seeing it from both academic and community.

Got it. And last one, just for Alex, maybe. Alex, the Nature Medicine paper, where is that most helpful? Is that most helpful for NCCN, or is it, you know, driving deeper into the clinical practices? And maybe just elaborate, what do you expect, you know, out of the 702 study, you know, at ESMO? And would that study actually give you Any further insights into the InVigor 011 study? Thank you.

Sure. Thanks for the question, Puneet. I would say for the nature medicine study, it's helpful, I would say, pretty much across the board. I would say, first of all, a lot of doctors have been waiting for OS data. You know, I think DFS is one thing, but actually seeing that the assays predicted a patient's living longer I think the whole field has been kind of waiting for a well-powered study to read that out. I think the second part for that study is the pharmaceutical market. I think we've really been able to show that CTA dynamics is predictive of overall survival, and that's really the first step to kind of validate a new certain endpoint. So I think we're seeing a lot of interest in those results. And, you know, I think they make us very confident, right, about some additional readouts that we've, you know, been awaiting. I think the 702 study, you know, I think we'll kind of defer commenting on the outcome of that until the embargo is lifted for ASCO GI. But again, it's over 1,000 patients. It was a well-designed, prospective, randomized study. So we're excited to share those results when we're able to. And then for InVigor 011, you know, I think that's on track. You know, we expect our partner, Genentech, to probably read out those results in probably the first half of 2025. Got it.

Super. Congrats, guys. Thank you. Yeah. Thanks, Padik.

Our next question comes from the line of Dan Brennan with TD Cowan. Please go ahead.

Great. Thank you. Congrats on the quarter. Maybe first one, just on signatory price, Mike, you know, the 1050, nice improvement, but a little bit more modest than what we've seen in prior quarters. Can you just speak to, I know you gave some color in the prepared remarks, just speak to kind of some of the drivers of price from here, in particular, like on the buyer marker. I know you guys have been, you know, I thought fairly constructive on what this opportunity could be. You've had, I think, five states live for over a year. You had three of the biggest states in the country go live in the last month or so. So I'm just wondering, what your experience has been and whether or not that could be more of an upside driver and, and, you know, maybe you're kind of baking some good services in there.

Yeah, no, thanks for the question. No, it's been, um, it's been really constructive so far. I mean, the interactions with that from Paris, um, has been, um, uh, has been quite positive actually. Um, it just, our, our experience has been anytime you have, you know, coverage like this, that, that comes online, it just takes about a year, uh, between the time, you know, that the coverage comes online and, You get some denials back in the door. You appeal those denials. Then you kind of get a critical mass of thousands of cases where you've submitted the claim correctly and appeals have been denied. And then you've got to interact with an actual human, a more senior person at that payer, and just work with them on the workflow. And it's been really collaborative so far. So as I sit here today, I'm feeling really optimistic about it. But the timeline I gave is just, you know, that's just reflective of the way things work and, you know, how long it takes just to get the logistics right. Hopefully it can come faster, but we'll have to see. In terms of, like, the pace of the increase, yeah, I mean, I think that's an important point. I mean, there's kind of no way for us to just, you know, increase the signatory ASP 200 bucks a year forever. I mean, there's a maturity issue. that we've had to get to here as we've kind of gotten into the launch. So that's, you know, that's just a realistic consideration. Having said that, I mean, the gross margins of the product are quite strong. I think they can continue to get stronger. So that coupled with the data that Alex highlighted on the call today, you know, we're feeling really strong about the signature of franchise.

Got it. And maybe just one follow-up. Maybe I'll send a financial side just on the gross margins. Really nice gross margin expanse in 400 basis points, extra true ups. I know you talked about, Steve talked about in the prepared remarks, you know, some of the only cost initiatives. Can you just give some more color on the driver there? Are we starting to see the benefit of the adjuvant just available? It's Nick shift starting to come through, which is a nice gross margin leverage. And I know you kind of updated the full year guide, but as we, you know, I think you talked a little bit about 25 Mike and the prepared remarks, but how do we think about the trajectory of gross margins as we turn the, you know, kind of turn the calendar into 25th?

Yeah, I mean, I think that on the mix shifts, that has remained relatively steady. I mean, we've seen some move in favor of the recurrence monitoring within the mix. I think what's more important, if you're thinking about mix for our corporate gross margins, is the mix between franchises. So for a long time, Panorama was far and away our biggest product. And now, first last quarter, but now really this quarter, is really the first quarter where Signaterra revenues are, you know, measly higher than, you know, than Panorama. And, you know, it's now our biggest revenue product. So given the margins that we're seeing on Signaterra now created the corporate gross margins, that itself is kind of driving this kind of corporate gross margin improvement. So I think that trend, you know, can continue to move in our favor as far as corporate gross margins go for next year. I haven't said that. I mean, I think it's worth just understanding kind of the prior, you know, the astute first question, which is like, you know, what's the kind of rate of increase in ASPs? And they have to moderate, right? I mean, they have to be kind of more kind of steady improvements. And I would expect that to, you know, be reflected in the corporate gross margin trajectory as you go into next year as well. Great.

Thanks a lot.

Our next question comes from the line of tape just savant with Morgan Stanley please go ahead.

hey guys good evening just a couple of clean up to start on on perhaps the guidance framework or even just what you're seeing in terms of recent friends in the business deep so. First of all, you know, in light of some of the pain, the private payers are going through on their medicare book of business. Have you seen any uptake in prior auth or just more documentation required in the last few months across the oncology portfolio? I know you mentioned the biomarker bill rollout starting to help a little bit in the back half of next year, but is there a risk here that some of these private payers might drag their feet on the implementation at all? And then Mike, just to clean up on the guide really, can you quantify the weather impacts and to what extent that was a little bit of an offsetting factor in the revised guide?

Yeah, I think a good question on the insurance payers. I mean, the good news for us is we've sort of been, you know, dealing with all sorts of obstacles for years with respect to payers, you know, whether that's prior authorization, medical records requests, just sort of outright denials and then having to appeal. And this is something that like we've developed systems that uh you know protocols and processes uh in order to to make sure that we can follow through and and just not get kind of bogged down by these these various bureaucratic procedures so we've invested heavily there over the last couple of years we've had had tons of improvements and i don't think we've noticed anything really different recently than what we've seen you know historically um but what we are seeing is that natera is getting better at just responding to those types of things. And so I think that was definitely a good investment. With regards to the biomarker bills and commercial opportunities, as Mike said, these things take time. And it's good that we have that ahead of us. We've done really well historically, and now we still have this upside opportunity from biomarker bill implementation to commercial payer coverage and signatera. You know, the other area that Mike didn't highlight earlier that could be upside opportunity is just getting Medicare coverage and some additional indications. And there's lots of areas where we published, you know, that we were in the process of submitting or interacting with Medicare to get additional coverages for Signatura. So we think that's an opportunity. And then, of course, when you look back at both in Oregon Health and then in women's health,

there's opportunities for asp improvement particularly around getting coverage for indications where or tests today where we where we currently don't have coverage got it okay um on the weather just on the weather question we we think it's it's always hard to measure these things with precision we think we saw a really modest impact to the weather with the hurricanes hitting like that last week in Q3. So that probably had a modest impact in the Q3 results. And I think that, you know, there was an impact that we saw in October and, you know, remains to be seen, you know, what that impact would be for the full quarter. But that we've kind of taken that into account. We try to take a kind of a cautious approach to the guide to try and work around that as people kind of not only just the weather itself, as people kind of get, you know, get their homes rebuilt and kind of get themselves back into, you know, seeing their physicians and such.

Got it. Okay. And then one on Signatera and the 702 study, guys, you know, how should we be thinking about framing those DFS and OS results, you know, in terms of what's clinically meaningful for physicians? And also, you know, given that the results will be dependent on, you know, the drug evaluated, obviously, can you provide a little bit of color or context around prior studies that showed, you know, Celebrex on top of standard adjuvant chemo as a promising approach in certain populations?

Yeah, Alex, you want to take that?

Yeah, absolutely. Well, you know, I think there's two parts to the question. You know, the first is how well is the drug tolerator, the class of drugs tolerated, and then kind of what could be clinically meaningful in terms of an outcome from the study. You know, I think the good news is that unlike traditional adjuvant chemotherapy, which has significant, you know, toxicities, sometimes a risk of death, you know, I think the NSAID class of drugs, of which Celebrex is one of them, you know, are pretty well tolerated. You know, it's obviously not without side effects completely, but, you know, relatively, this is a class of drugs, you know, that, you know, thousands and millions of folks are taking for, you know, other indications. You know, I think what good looks like, you know, I think obviously that's going to depend on a few things, you know. How does the readout look in terms of DFS, in terms of OS? And how does it compare to prior studies? You know, I think we've said in the past kind of, you know, the last study that led to an approval with a new agent, you know, was the Mosaic study, and it had a hazard ratio in kind of the .75, .77 range for DSS and a very small benefit for OS. So we do think that's kind of a good number to think about. I think Celebrex itself in the initial 702 study without any selection, I think showed a hazard ratio of, I think, around kind of the 0.8, 0.9 range, depending if it was for, you know, DFS or OS, and it was obviously not statistically significant. So, maybe kind of long answer, but I think the short of it is we do think anything that's significant below 0.8 hazard ratio for DFS and or OS, can be significant, especially if the class of drugs is pretty well tolerated.

Okay. That's actually really helpful. And Steve, last one for me on screening. We've been getting the question a little bit. You know, I think back in September you talked about being relatively close to sharing that data. And I think you'd also called out, you know, that you expect initial proof of concept to be a little bit more sophisticated and fulsome than your initial expectations, which was going to help you sort of inform that go-no-go decision. So just curious as to where we are in terms of, you know, that process, you know, is your end still the right benchmark on timelines there? And has the goalpost evolved a little bit in your mind in light of, you know, the ESMO data on advanced adenoma from one of your peers?

Yeah, it's a good question. So, yeah, we plan on actually reading that out, you know, as we said, I would say very early in 2025. You know, there's a couple of big investor conferences and medical conferences where we're going to be reading out the initial early cancer detection screening data in CRC. And, you know, just stay tuned. You know, we're very close now. Fair enough. Thanks, guys.

Our next question comes from the line of Rachel Vattenstall with JP Morgan. Please go ahead.

Hey, great. Good afternoon and congratulations on the quarter, you guys. So first up, just on signature of volumes, can you walk us through what you guys are assuming within 4Q for quarter over quarter signature of volume growth? You've historically talked about this 8,000 to 10,000 rate for the past few quarters. You've obviously been beating that as well. So should we expect that trend of beating that volume level into 4Q to continue? And then what's kind of a safe sequential assumption when we head into 2025?

Yeah, so, you know, I think as we – well, first on Q3, I mean, obviously this was like a really strong quarter. I think we did 11,400 sequentially today. Um, you know, that was, I think the third fastest we've ever had, you know, well above this average of eight to 10,000. Um, you know, we, we said all along, you know, that you just really can't kind of get into the kind of quarter over quarter sequential comparisons, just because there's, you know, there's differences in sort of the number of holidays, the differences in the number of receiving days. And, you know, you can just I mean, one day could be 2,000 additional samples, right, that, you know, you weren't able to accession because maybe it was a Sunday or maybe it was a holiday or something like that. So, you know, we're just sort of sticking with that conservative estimate of saying, look, 8,000 to 10,000 is sort of the average. You know, that's kind of roughly, you know, what we've plugged in. But, you know, of course, we're always trying to beat that and, you know, either for outperformance or for,

uh you know just kind of the way the days fell and so forth we've we've been able to come above that uh you know in the last several quarters i think on the q4 number in particular we don't really have enough q4s in our in our bag to tell you exactly like what the seasonality is with this product just yet um and to steve's point i mean like obviously q4 you know you're going to have um you're going to have more holidays last q4 we ended up having a strong number but know like christmas and new year's landed uh on opposing weekends that made it very tempting for people to take that whole week off so we ended up i think in retrospect got a lot of units kind of the first two weeks in january that would have normally landed in december so hence the you know the caution around trying to to you know land on a specific number for a quarter here but you know taking a little bit more caution around q4 just because there are a lot of holidays yeah but but i think also as we

we said in the prepared remarks, I mean, we, you know, despite, I think this hurricane hit in the beginning of the October, we, you know, we're off to a fast start Q4.

Got it. Thanks for that. And then maybe just on SG&A, so you raised the guide for SG&A for the year and you've talked about accelerating some of your growth investments. So obviously it makes sense to invest in the business, but just, can you break down for us, where is that drive and increase spend going towards? And then on 2025, you've historically talked about this like annual OPEX growth of mid single digits to high single digits over time. So is that the right way for us to think about 2025 or what other factors should we be considering that would move the number higher or lower relative to that range?

Yeah, let me comment on just kind of where we're investing and then maybe Mike, you can comment on sort of what it looks like in 2025. You know, look, there's obviously, you know, a lot of areas of investment, you know, in expanding clinical trials, investing heavily into, you know, innovation, user experience, customer service, you know, new patient portals, EMR connectivity, expanding, I think, you know, certain areas of marketing. certain areas where it makes sense to add a handful of salespeople here or there, maybe more significant expansions. So we're doing all those things. And like we said, we're in the very early stages of this opportunity. And we plan on investing in order to be able to serve as many patients as possible with our tests. And we're making those investments. Mike, do you want to talk about 25?

No, I think that's still the right kind of framework going into 25. We mentioned on the prepared remarks, I mean, we don't really have an appetite to come back to you guys and say we're going to burn significant amounts of cash next year. I mean, we understand that we need to be on the plus side of the ledger in terms of cash. But beyond that, our focus, really our primary focus really does remain on serving our patients and continue to grow the opportunity.

Perfect. That's it for me. Thanks, you guys. Our next question comes from the line of Doug Shankle with Wolf Research. Please go ahead.

Okay. Good afternoon, guys. Thanks for taking the questions. First on volume growth, you're tracking the year-on-year volume growth of I think about 550,000, maybe 600,000. Mike, if I heard you right, I think you said at some point on the call we should expect similar volume growth next year. Did I get that right? And if so, does that mean similar number incremental tests across the portfolio next year?

Yeah, I mean, I think that's always kind of our baseline to try and do that as a growth goal. is to try to focus on this, quantify this as absolute units rather than growth rates. I think the growth rates become challenging because the base business becomes so much bigger. So that's going to be the goal. Similar comments as what Steve gave previously, though, as it relates to the different drivers the person takes.

Okay. Thank you for that. Year-to-date, you have about $110 million in true-ups. Hopefully, I did that math right. Obviously, we don't know what Q4 true-ups are going to be. That said, as we model out next year, should we be taking true-ups out of the base as we think about normalizing the business base, or is there an argument that these true-ups are actually indicative of better collections and sustainable ASP improvements?

Well, I think it's both. I mean, the reality is that the collections have come in ahead of our expectations as defined by our rules from last year. And so that's what's kind of driving true reps, which should happen when the ASPs are going up this much. But the ASPs going up a lot is an attempt to kind of respond to that and just kind of match the revenue as best we can based on the information we have available to us at the time when we put the queue. uh it's our kind of expectation that you know we're going to continue to um you know see see trips moderate um and as we kind of go into next year with the guide i still think it's appropriate to guide without the trips because it's just impossible to kind of model the uh the timing of you know when you get cash for you know a bunch of a bunch of units that you're on the second appeal for and that you finally get to cash in that that's no way to uh you know the guide you know kind of an operational business so

yeah and i mike i'm with you and again for whatever my opinion's worth like everything you just said makes sense what i'm what i'm getting at is you know you've you've had these consistent troughs you know presumably from periods that aren't years ago they're you know presumably you know closer and closer to the quarter we're in so it's almost as if you know like these true ups are actually indicative above you know obviously they're collections from past periods but you know you're actually getting paid more frequently on these tests so I wouldn't expect you to model true or guide true ups into the model. Um, but I could see this being a sign that like, yeah, the ASPs are actually going higher and this is sustainable. Is that, is that logical?

Yeah. Yeah, definitely. I mean, I think that the fact that, um, you know, for those of you who've followed the fathers for a long time, know that we typically have some pretty curmudgeonly commentary about which way ASPs are going. Well, I usually guide to some erosions. Um, and, and that's, um, you know, the trends that we're seeing, I think give us some confidence that we can, you know, women's health, that we can, um, you know, we can be in the zone, um, where we are now. And then there's, there are some specific, uh, drivers to the secondary ASP that we think are ahead of us. Right. So, uh, Medicare Advantage can take, you know, and, uh, and potentially state biomarker bills. So I do think you're, um, That the improvement in the kind of the collections and the reduction of DSOs. I mean, I think that where that gets reflected is one in the, you know, ASPs actually are getting higher in terms of like what we're reporting every quarter. And also that's, you know, that's getting reflected, you know, in our confidence in terms of, you know, what we can do over the longer term with the caveat remaining that you will have ups and downs with ASPs and diagnosis business. That's just the way it goes. But we feel like we're in a good spot there.

Okay, last one, Mike. What was the mix of first-time tests versus recurrence monitoring? I think Dan may have tried to get at that earlier, but I'm just curious if you'd give us anything specific there, because it was a really good gross margin quarter. Obviously, as that mix shift starts to kind of kick in, that's another leg to gross margin, but I didn't hear anything on the call to suggest that that was like a material driver in this period to the margin improvement.

Yeah, and just one tweak there, rather than like first-time patients, I think there's a, you know, what we typically talk about is a split between patients that are in their adjuvant treatment window, like volumes in the adjuvant treatment window, we're getting reimbursed on the bundle, for example, and then patients who are getting a recurrence monitoring test. That, you know, that trend has continued to be pretty balanced, you know, between the two. And what's happening there is that you have very healthy retention of patients that have stayed with us and continue to get Cigmentera through their journey as they go into remission. And then, you know, we continue to fill this top of the funnel, continue to get new patients in the door. And so that has continued to increase our patients who are in the adjuvant treatment window. And the net of all that is that we've been pretty balanced between adjuvant window patients and recurrence monitoring so far. So that by itself is not there's not some huge move in that trend just in this quarter. The bigger move, though, is kind of just the mix of the different franchises in terms of contribution and total revenue and the implications that has for corporate gross margins, as I described to Dan.

Okay, fantastic. Thank you so much.

Our next question comes from the line of Matt Sykes with Goldman Sachs. Please go ahead.

Hey, good afternoon. Thanks for my questions and congrats on the quarter. Mike, maybe just the first one from you, just following up on Rachel's question on the OPEX. I'm just curious, as you think about the women's health business, certainly as it relates to sales and marketing, are we at kind of a steady state there on the sales and marketing side where there's sort of some maintenance investment that needs to be made, but most of the sales and marketing is going towards signature? I'm just trying to think about, as we move into 25, how you're thinking about the allocation of OPEX across the product portfolio, and just want to make sure that my assumptions that Signatera is the sort of the beneficiary of spend are going to be maintained into next year. Steve, do you have a take on that, or do you want me to go?

Yeah, yeah, I'll comment, and then you have extra, but yeah, I would say that's about right. I mean, look, there's, you know, we already, you know, have, I think, you know, pretty big presence from a commercial standpoint in women's health. And we built that over the last, you know, 12 years or so. You know, obviously we're sometimes able to kind of add an additional medical science liaisons or genetic counselors, medical directors, maybe, you know, do some new clinical trials and do innovative things like we did with the Rhesus D test that we, you know, was a very timely launch and able to help you know, a lot of patients, you know, but largely, yeah, we're focusing on, I think, helping oncology patients and, you know, we see that, you know, Signatera is really making an impact on care and we're seeing that it's at the very early stages and that's where a lot of the spending is going, both, you know, when you look at additional clinical trials, you look at research and development, you look at innovation, you look at the sort of

we already do have a big you know commercial presence there but you look at sort of rounding that out um you know that's where a lot of the spending is going got it and then just for my follow-up just on signatera are there many noticeable differences in indication growth meaning I know it's CRC and breasts are the main ones but have you seen any shifts towards different indications um that any that are ramping up you know significantly that might have been sort of lower volumes to begin with, or has it been pretty consistent this whole time?

Yeah, I think it's been pretty consistent, but certainly what drives utilization broadly is peer-reviewed evidence. And where we're able to generate data, which we've done a lot of, I think we now have more than 85 publications supporting the use of the Signatera technology, You know, where we're able to generate data, you know, that tends to be kind of where you see physicians using the product, and that makes sense, right? You want to have the evidence-based decision-making. So some of the areas that we talked about, you know, muscle-invasive bladder, we're excited about that with, you know, Invigor 010 being, I think, a very strong study, you know, itself, and now with the Invigor 011 data. You know, reading out in 2025, as Alex mentioned, I think that's a great opportunity. Of course, IO monitoring is another area where we do see quite a bit of utilization. We generate some good data there. So, yeah, it's a mix. It's one of the reasons why I think there's still some upside opportunity from getting coverage even from Medicare on additional indications is that we do have a decent chunk of utilization that's outside of the currently covered indications.

All right. Thanks, Steve. Appreciate it. Yep.

Our next question comes from the line of Tycho Peterson with Jefferies. Please go ahead.

Hey, thanks. A lot's been asked already. I just, a couple on the numbers here in the near term. What would seem to be a contribution in the quarter? And then you did raise by more than the beat, $40 million by more than the beat. What's the delta?

Yeah, the delta is really just the, you know, just continued growth kind of across the bulk is what we've seen. I would also encourage you to back up the true-ups as well, but nonetheless, even back up the true-ups. So, you know, we increased the guide more than, substantially more than the B, and that's just kind of all the comments we've made on the call so far in terms of kind of where the business is. Um, if you take contribution, we haven't broken up specifically other than to say, like, I think at the beginning of the year, we had a $25 million contributor to the guide and we kind of bumped that to 40. And it's, it's been in that, it's been in that zone in terms of full year contribution. And that's, that's where we have it for the guys for the year.

And then I guess thinking about the framework you've put in place for next year, the 500,000 to 600,000 tests, where do you think kind of the community penetration goes? And then it sounds like you don't feel like you need to add additional reps at this point as we think about next year.

Yeah, I'll just comment on penetration. I mean, look, you know, obviously it's slightly different. different by tumor type and then whether you're talking about sort of the adjuvant setting or new incident patients or the prevalent pool of patients. But, you know, looking broadly at the bigger opportunity, I mean, we still think we're in the low single digits. So there's a ton of opportunity ahead, you know, in community and academic settings. You know, and we are adding sales team members, you know, in addition to, you know, medical team members and doing more clinical trials, which is a big part of our investment.

Okay. And then lastly, I guess, on timelines for the readouts on breast and kidney, should we still expect those next year as well? I mean, I know we've covered CRC and bladder and some of the other indications, but how do we think about the breast and kidney timelines?

Yeah, we've got, you know, I think a very... solid roadmap of data that's going to be reading out. So not just across those indications, but I think a broad sort of span of indications. We've got pretty big data sets reading out, which we're excited about. So I think right now there's probably over 100 trials that are underway that are going to be reading out of various time points. So We're excited about that. We're excited about generating evidence that can drive additional coverage from Medicare and that can drive additional utilization.

Okay. Thanks.

This will conclude our Q&A session. And with that, we will conclude today's conference call. Thank you all for your participation. You may now disconnect.