Q2 2020 Natera Inc Earnings Call
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Okay.
Hello, and welcome to the net Terra incorporated second quarter 2020 earnings Conference call.
My name is Michelle and I will be the operator for today's conference.
This time, all participants are any listen only mode.
Later, we will conduct a question answer session.
Question and answer session. If you have a question. Please press Star then one on your Touchtone phone.
I will turn the call over to Mike Pricey, Mike you may begin.
Thanks, operator, good afternoon.
Thank you for joining our conference call to discuss the results of our second quarter 2020.
So on the line the Klabin, our CEO, Bob Ciaran, Chief operating Officer, Solomon Moskovitz General manager of oncology and Paul billing Chief Medical Officer.
Today's conference calls being broadcast live via webcast, we'll be referring to its life claims and the husband perfectly investor Dot net dot com.
A replay of the call will also be available faster.
Dot com.
During the course of the conference call, we will make forward looking statements regarding future events.
Hey, Peter performance, such that our operational and financial outlook.
It's not just for that outlook.
In fact, the Carbonite mean, <unk> business and operations market size partnership clinical studies opportunity the strategies.
The equation for various current and future products, including product capabilities expected really thing.
Reimbursement coverage related effects on our financial and operating results.
We caution you that such statements reflect our best judgment.
Factors currently known to us and that actual events or results could differ materially we refer to the documents we file from time to time, we've got the including our most recent form 10-K or can you.
Form 8-K filed with him personally.
Stockman identify important risk factors that may cause our actual results may differ materially.
Okay. That's about forward looking statements.
Looking statements made during the car be made up of todays call is required or do you after today.
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Good current are accurate information the clarity quaint any obligation to update or revise any forward looking statements.
We will provide guidance on todays call, but will not provide any prototypes or update on our performance during the quarter must would do so called the core.
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We will quote a number of the American <unk> changes as we discuss our financial performance and unless otherwise noted.
That's reference represents a year on year comparison, and now I'd like to turn the call over to feed me.
Thanks, Mike Good afternoon, everyone and thank you for joining US let me get into the highlights Q2 was another very strong quarter Fearnet Terra we processed 234000 test in the quarter, which was essentially on par with our all time record Q1 volumes. Despite the obvious impact from cobot.
We generated 86.5 million in revenues on a 46% gross margin and group product revenues approximately 24% year on year.
Started enrolling patients in three separate large perspective trials, but spoken idea circulate for signature right in colorectal cancer and the proactive trial for prosperity in kidney transplant rejection screening. These your key trials that we believe will extend our leadership position in these areas I'm sure. Many of you saw that we have now compare.
He did the process to get reimbursed for Prospero and so far we are being paid as expected by CMS.
We were very pleased to recede a forced to change Illuminator award from leading with an entrepreneur doors, which has an organization that is recognized over 500 outstanding women leaders in innovative companies over the past decade, Sheeple Parmar, who leads the clinical services in medical education teams at a tariff and its co chair when.
No Tara and employee resource group that supports workplace equality, a diversity was also recognize for individual contributions to the terrorists mission and values. So we just wanted to say, thank you and congratulate sheeple and the women of mid tariff for their leadership.
Koji effort first in I O monitoring just this week, we saw the publication of a groundbreaking validation study in nature cancer, demonstrating signature as ability to monitor sure tumor response, you immunotherapy in 25 different types of solid cancer.
Second in colorectal cancer, we presented data at ASCO and ESMO Gi <unk> that supports the use of Cigna tariff for metastatic colorectal cancer with a prospective publication to follow.
Okay.
Based on the strong data I'm very pleased today to announce to new clinical expansion opportunity, where we're seeking reimbursement for signet. There as you can see on this next slide we think together these new opportunities represent approximately 900000 additional tests per year, nearly doubling our previous addressable market.
Associated with stage, two and three colorectal cancer. So all combined we think we have a clear path for reimbursement and commercialization and clinical settings that represent roughly 2 million tests per year in Io monitoring we have already completed a positive pre submission meeting and formally submitted our dossier for.
Local coverage decision to Medicare and what would be our second major reimburse clinical indication for Cigna tariff in metastatic colorectal cancer, we plan to submit this indication to expand the previous colorectal cancer indication. So good solid will describe these indications in more detail later in the call.
The next slide shows our volume performance by quarter each of the last few years, we've seen a very large step up into Q1 volumes over prior years and then due to seasonal factors that we described in the past Q2 volumes, you're typically just below Q1.
2019, Q2 volumes pulled back 3% from Q1 2019. This year in 2020, we saw smaller pull back of about a half percentage point versus our record Q1 2020.
This is remarkable given the scale of the disruption to the economy to.
During the onset of decoded 19 outbreak, we immediately side drop in a weekly receive volume's up about 15% in the last two weeks of March 1st few weeks of April and then we sell weekly volumes start to recover toward Q1 levels and the our existing customers and the accounts we want to early in Q1 figured out how to reopen there.
Practice is to maintain critical services like noninvasive prenatal testing.
Mike will talk more about the outlook later in the call, but we're feeling good about our existing customers ability to weather cobot 19 surges in the second half the year in order to grow we also need to new to win new accounts, well I still think it's clearly easier to win new business. When a rep has unfettered access to a clinic we've made good use of.
Remote tool and we built can have a number of encouraging customer wins since our last earnings call. So we are monitoring the situation as you'd expect but we're cautiously optimistic about the second half the year.
The next slide shows or revenue trajectory over time I don't get partner revenue recognition. In Q2 2019 included $5 million from BG <unk> compared to only about 1.2 million for BG and Foundation medicine combine in Q2 2020, so the underlying product revenue.
Trends in the business remained very strong as I mentioned.
The next slide is our typical ASP in Cogs view, which came in as we had expected and I think shows our momentum is intact.
S.P. front, we had both headwinds and tailwinds in the quarter as expected or I've, yet channel was much more severely impacted in our core channel as it was initially considered elective and many centrus closed the products, we sell that I'd F. channel heavy much higher average price per test in the core reproductive health channel. So we suffered.
That permit less favorable product mix.
Think that's more of a timing issue as it's likely that a lot of these idea customers that were put on hold in the spring, we'll find a way to push forward in the next three to four quarters. So the idea volume I think can swing in our favor when that happens the main tailwind we had with aetna extending their average risk and I P. T coverage due to the pandemic.
And we just saw over the weekend that they've chosen to extend coverage now to the end of the year, which of course, we were very glad to see so I view. This ASP result, as more or less status quo as expected given the factors outlined.
One other long term potential benefit to both SP and average risk adoption is the publication of the smart study.
The study enrollment is now completed and we expect gated to be published and presented around the SMS and conference in roughly six months as a reminder, smart is a landmark 20000 patient multi site prospective clinical trial, we've been running for the past five years, we expect multiple papers from the study.
One focused on fetal aneuploidies in both the average risk in high risk pregnancies and one focused on micro deletions. The any party data has been analyzed in the micro deletion data has yet to be released although we can't comment on the performance. Because this is the largest perspective average risk aneuploidies and microdeletion trial to be.
We did we think smart could have a positive impact on society guidelines in coverage policies for both indications. We also expect to generate additional demand for panorama given our leadership in clinical validation data that extends further with the smart trial completed.
I've got largely the same take away for Cogs per unit in the quarter. We added some redundancy to fortify our lab operations team to make sure. We are robust to cope with 19, including the expansion at our Austin lab facility and we anticipate needing to.
Maintain that redundancy over the next few quarters, having said that the new workflow improvements coming out of R&D that have caused the step change improvement versus last year performed even better in Q2 than they did in Q1. So we're very confident our plan for Cogs below $200 for the reproductive health business is achievable.
That last point getting below $200 for the reproductive health business, it's important to note.
Our product mix changes to include new products like Signet Terra the average Cogs will change as well. So we'll still track. These overall metrics, but I anticipate giving some separate color in the future on reproductive health Cogs.
You'll recall the number one goal in the company is to get the reproductive health business to cash flow breakeven. This comes from strategic volume growth stable asps in Cogs getting lower despite all the impacts from cobot 19, all the variables that we just walk through give us the confidence that we are on track to achieve that goal well.
We rapidly scale to do business.
Just one more checking slide on our operational response to coated the mobile tools for patients to customers, which had been available for years or scaling nicely. We've seen this mobile offering proved to be particularly critical in starting new accounts for signature and Prospero given these patients tend to be compromise and also how.
As a critical need to be consistent we monitor I mentioned, the Austin lab expansion as well this was executed smoothly. Despite the pandemic. The Austin lab gives us critical redundancy or California lab and offers capacity of more than 2 million test annually.
It should into future offer additional costs of goods sold efficiencies once at scale.
We've also launched a wide array of safety in protective testing protocols for both labs and feel confident we have a good model for consistent operations in this new environment.
Okay now, let me shift to focus to the transplant business as I mentioned, we're very pleased to get final reimbursement for prosperity. This line is the same slide we first presented in 2018, and we're now happy to retire it.
As you'll see later in the call. We of course following the same path now for a number of indications in oncology.
We've been able to submit claims to Medicare for prosperity, and so far received reimbursement consistent with the final pricing a 28 41 per test assigned to us by the multi ex program. So we have now executed our commercial launch we described on our last call. The success, we had during our pre launch phase for prosperity in which we demo.
Straight if we could access a broad swath of the transplant centers, we're still in the early days of the launch and despite the ongoing pandemic. We continue to feel confident that prospero can be a significant contributor for the company.
As described on the next slide we've continued to generate data and improve the performance of the task given that we have run more than 2 million cell free DNA cats commercially Atta Terra we've built up a huge data set that we can query to further refined prosperous algorithm. This spring we launch an improvement to the algorithm that identifies.
Patients with Alegrett elevated background level of cell free DNA in their blood. This could provide critical information for example, we've seen patients affected by co had 19 can have very elevated levels. The background cell free DNA being able to identify elevated levels of background DNA allows us to death.
By patients who might be a risk of a false negative result, where the donor skin signal is simply diluted by an extremely elevated background signal.
So we presented several key studies on this new technology at HTC. This year and we also announced the launch of a prospective trial. The petal study to externally validate this enhanced algorithm and we plan to run that study had 500 patients across several major transplant centers.
Active running from Johns Hopkins Dr. Buena products from you CLA introduce the study at HPC two great perception. These are two premier physician researchers.
Two of the largest and most prestigious centers in the world. We're excited to leverage our scientific expertise and our leadership in cell free DNA to help transplant patients and we look forward to continuing our early success the second half the year.
Now, let me hand, the rains over to Solomon to cover our progress in oncology Solomon.
Thanks, Steve.
The first slide here summarizes the commercial verticals, we are pursuing within oncology.
A reminder, we signed a deal with foundation medicine last year to co develop a tough similar to signal Terra, which leverages the tumor genomic data identified in a foundation one cdx test to design, a personalized assays for each patient serial monitoring of their ctdna.
We continue to think this is an elegant combination of industry, leading technologies for both companies and we're excited to have the foundation oncology field force out marketing the product to both bio pharma and clinical customers, we expect the new tough to fit, especially well for the immunotherapy response monitoring indication.
Which I will discuss in greater detail in a moment.
The co development effort is going well and we remain on track for foundation medicine to be engaging with pharma customers. This year.
Another key partnership for US is with BG Guy to bring signature technology to China. We remain on track there to get the initial launch in China by the end of this year and we have already signed deals with leading biopharma better just waiting for the service to launch.
Within our direct commercial effort demands in our pharma channel has been exceeding our expectations.
We are generating new data together with pharma clients at a rapid pace and the data that we presented at ASCO in collaboration with Genentech was well received as our pharma clients planned to launch more MRV guided clinical trials, we are continuing to invest Mike will touch on this further and he's got.
We expect more news flow from the pharma channel in the second half of the year, but for today, we want to focus on new developments in our clinical channel.
In the direct clinical channel, we have been extremely pleased with the reception we've gotten from the pre launch phase for cigarettes are in colorectal cancer.
You mentioned, we started enrolling in the bespoke trial and the idea circulate trial.
The initial uptake in feedback from NCCN sectors, and other leading institutions has been very positive.
With that struck momentum plus the new opportunity. We are pursuing an immunotherapy response monitoring we are moving forward with commercial expansion plans to ensure full access nationwide.
Checking in on our reimbursement path now for the indication in stage, two or three colorectal cancer, where we received the draft coverage decision from Medicare.
We initially set out a goal to have final reimbursement in the second half of this year and nothing has changed from that expectation.
Now I'm excited to discuss the two new clinical indications that Steve touched on and he is a true oligo metastatic CRC an io monitoring.
I will describe the metastatic CRC opportunity first which is really an extension of our existing application in colorectal cancer.
If you recall our initial indication was focused on stage two or three CRC based on validation data, we published last year in Jama oncology.
We have now generated data that shows the validity of signature in CRC patients with stage for all ago, metastatic disease, which represents about 20% to 30% of all stage for CRC patients.
In all of them anesthetic disease. There are generally only a few metastatic lesions usually isolated to deliver which can be treated with curative intent surgery, plus or minus adjuvant chemotherapy.
Many of these patients can be curative surgery alone, but doctors today to not have good diagnostic tools to determine which patients need occupant chemotherapy and the NCCN guidelines are vague on this front. These patients may also benefit from early relapse detection as the relapse may again be oligo metastatic eligible for local.
Treatment if caught early it out.
We're secretary can help clarify which patients still have residual disease in their blood after surgery.
ESMO Gi World Congress back in July Dr. state to Cohen from the University of Washington presented data showing Cigna Terra protective ctdna prior to surgery in 100% of patients with confirmed oligo metastatic disease and half of patients from the first blood sample taken after surgery.
Still had circulating DNA.
This is consistent with what many doctors had expected based on published relapse rich, but now Cigna Terra allows them to get this information in closer to real time, when they can make a better decision or chemotherapy after surgery.
We have recently had a separate dataset from a perspective phase two study accepted for presentation at ESMO in September which will further bolster the evidence base for this patient population.
As Steve described we look forward to working with Medicare to include this application under the coverage policy.
Turning to page now we have a totally new opportunity for signature era in immunotherapy response monitoring Oh, what we like to call I O monitoring for short.
Let's start first with the problem statement here, which is different from what we're doing in CRC.
More than 200000 patients are estimated to receive immune checkpoint inhibitor treatment every year across a range of cancer types and that number is growing with every successful new pharma trial.
While immunotherapy hasn't revolutionize cancer care in many ways and brought hope cure to many it is expensive and many experience immune related adverse events.
So the majority of patients do not respond to this type of treatment. Despite the introduction of predictive biomarkers.
One particular challenge is how to determine whether the treatment is working after it has been initiated.
And when it may be appropriate to discontinue or switch treatment strategies.
There are many points of clinical uncertainty during a patients journey with immunotherapy, but one that we want to highlight here is a phenomenon called pseudo progression.
If a patient does not responding to treatment you would expect to tumor to get larger on a scan overtime.
However, up to one in 10 immunotherapy treated patients see their tumors get bigger before it gets smaller.
Because it's being filled with lymphocytes and swelling up under attack from the immune system.
With the CTG scam, this well it looks like true disease progression, which it's not hence the term pseudo progression.
No that phenomenon is not super comment it actually impacts care for most patients because everyone with increasing tumor volume on a cts can hopes that they might be the one in time.
As a result of this uncertainty current guidelines suggest to physicians continue treating beyond progression until they see confirmation of progression in a follow ups can which can be approximately six to 12 weeks later.
This extra treatment can significantly delayed sick patients from switching to other available lines of therapy that may be more effective.
Or can result in premature withdrawal for a patient who may actually be sensitive to the treatment.
And of course during the current 19 outbreak getting routine CTG scans for these compromised patients is even more challenging.
Based on the published evidence, we think a serial testing protocol with Cigna Terra could significantly help improve this picture.
Setting a baseline ctdna measurement before treatment.
And then following up regularly in conjunction with imaging to help identify true disease progression earlier.
In addition to ruling out pseudo progression serial follow up with Cigna Terra also identify patients with secondary resistance before its noted on imaging.
Helping to decide whether to modify or potentially switch treatment strategies.
And it can also identify exceptional responders, who clear there ctdna completely and might be eligible for early drug holiday.
If you assume for signature tests per year for over 200000 patients. We think the addressable market for signature in this indication could exceed 800000 test annually as Steve described.
So there is a fast growing body of scientific literature that validates the use of Ctdna for this purpose to highlight a few quotes here from earlier academic studies a nature reviews article concluded that monitoring or Ctdna levels has now been shown to be a clinically valid method of assessing.
The early efficacy of immune checkpoint inhibitors, a jama oncology article found that Ctdna profiles can accurately differentiate pseudo progression from SRU progression.
And an article on clinical cancer Research reported these findings provide rationale for use of Ctdna in conjunction with standard energy to provide an earlier and more comprehensive assessment of immunotherapy efficacy.
So the momentum within the clinical community for this indication strong now our paper is the first to validate these results using a commercial great technology.
And this perspective phase two study called inspire published in nature cancer on Monday patients with 25 different types of solid cancer received the Merck drug Pembrolizumab and we are monitored regularly with both CTG scams and personal lives Ctdna assessments.
Just six weeks into treatment, 42% those patients showed increasing tumor volume on Cts, Ken and increasing ctdna.
Mm, 100% were later confirmed to be nonresponsive to the treatment.
These patients received on average six extra weeks or treatment that potentially could have been avoid.
Signature also identified 16% to patients who completely clear there ctdna during treatment.
And 100% to those patients survived through the end of the study period with immediate of 25.4 months a follow up beyond the first clearance of their tumor DNA.
Based on the strength of this data early feedback from leading oncologists, we think Io monitoring will have a meaningful impact for patients doctors and health systems. So we're moving fast now to commercialize.
The next slide shows where we are in that process with Medicare hopefully the slot format will look familiar and this is now our third time down the path with the same group at multi acts.
We've now had multiple positive pre submission meeting with multi X on this topic and we have formally submitted our dots here for view.
If multiplex remain positive on the clinical validity and utility here. The next step could be a draft coverage decision, which we may receive in late 2020 or the first half a 2021.
So in summary, the oncology business is progressing rapidly.
With that let me hand, the call over to Mike to review the financials Mike.
Thanks, Tom and.
The next like year, it's a summary set of results for the quarter.
Covered volumes revenues and Cogs.
Couple other items to note on the expense the side when we spoke in May we described but we were going to take a wait and see approach as it relates to investments across our businesses. Despite the uncertainty around the pandemic business has been resilient we've expanded our initial investment plants from the start of 2020.
In oncology, we've made the additions in the quarter as the pre launch phase has given up comfort that we should pursue a full commercial launch in the second half as we had originally plan.
At the start of the year, we expect to be ready in time for the final reimbursement and colorectal cancer here in the second half.
One other area that we think is going to require additional investment is in support of our pharma commercial and operations channel the inbound demand for MRV guided clinical trial, including phase three trial and subsequent anticipated commercial volumes have pleasantly exceeded our expectations.
We're continuing to make investments to support these larger deals.
Some of that as reflected in increase R&D investments in the quarter, but also we continue to make progress with the BG guide at the mine development efforts. As reminder, we were paid cash upfront last year to support team and not much of the effort is running through the R&D line.
The balance of the increase in R&D largely approved attributable to headcount to support several of the large clinical trials that we've launched in some described.
So in summary, we are glad to be ahead of schedule.
In terms of making some of these client investments and really most of this work is in the service of large high margin near term revenue opportunities.
On the balance sheet, we raise cash via the seven year convertible note in the spring, which after the Hugh the principal amount with roughly 288 million and a cash interest expense quarter percent.
We paid off the Orbimed loan in the second quarter.
Total interest expense went up in the current quarter $3.8 million 2.2 million last year, but the cash portion of the convert interest is lower than the cash interest we used to pay to over mad at the cash interest for the convertible note with 1.4 million in the current quarter.
Okay onto the guide.
We're very happy to be reinstated guidance for the year and we're guiding significantly above where we plan to be at the beginning of year when cobot Nike was not even on our radar. This is really driven by the resilience we've seen in our existing customer base.
They blame the good cock trajectory and the strong response, we've seen so far in the new businesses.
By far the most impactful assumption on revenue and the model is the volume assumption implied by this guy.
Although the business has performed well as Steve described and we haven't been significantly impacted in areas, where cobot 19 have served more recently this guide implies a significant amount of caution given the dynamic situation and uncertain timing of when we can get back to normal with routine access to accounts.
Gross margin really assumes continued progress in our plans to reduce Cogs in the reproductive health business, which are on track and largely within our control.
The top and bottom end is driven more by product mix, which again is driven by the volume assumption.
Touched earlier on the rationale for stepping up expenses slightly we're responding quickly to the demand, we're seeing and the new clinical indication Stephen Solomon described.
And we're pleased to be accelerating our planned investments as I mentioned.
The net of the increased revenue and advancement for oncology means that the cash burn remain basically the same for the year as compared to the original guide.
And the balance sheet remains strong.
So with that let me hand, it back the operator for questions operator.
Thank you Sir we will now begin the question answer session. The first question comes from Mr., Doug Schenkel, Sir Your line is open. Please proceed.
Hey, good afternoon, guys and.
Great job in a challenging period.
Mike really building off of where you acquired as noted your revenue guidance is actually higher than where you started the year I'm. Just wondering if it's possible that provide a bridge you may not be but I'm wondering how much of a headwind co rate is expected to be in the context of full year guidance.
On the flip side, how much better are you now expecting certain volume categories at Sps to be versus original guidance that maybe but I figured I guess the Christmas idea that's possible.
Yes. Thanks I appreciate the question I mean, I think fee.
Hi.
We certainly would be doing better this year at one point.
Situation will be doing even some of our strong conviction.
We were able to guide above what we started a year initially really because.
Mainly because the volume performance I think exceeded our expectations.
And then followed by the way ASP is I think has been stable, where I think you'll recall, we've gotten some conservatism.
Great and begin idea, so thats slightly exceeded expectations and then third I think the new businesses are performing well.
I think it's in order to manage the next 1.33 major drivers.
I'd like you said on the call Im not prepared remarks.
This does the volume assumption for the second half a year does does offer some possible as it relates to act like sequential volume growth.
There's a lot of uncertainty lieutenant monitoring the situation so.
We're still on the look offer.
So I wouldn't be surprised but still build a bit of headwind for us in the second half Steve would you anything that are good.
No. Thanks, Mike.
I guess I'd just just reiterate.
That we in the guide even though we're raising the guys. We have been conservative with the second half the year, just because of the surgeon covance and that doesn't mean that we've seen any disruption or many of the new hotspot, because frankly, we habits and we think that a lot of the sensors and our sales team put did message.
Gary steps in place to manage through Corona. So we're not really seeing that debt like we saw on some of the other hot spots in March but with that said just with the surge and seeing the sort of peak numbers at various places we wanted to be conservative with with the guide, although we did race.
Yes, and that's really helpful. I guess I guess, that's kind of a good segue to just kind of what's contemplated and guidance like is it fair to say the low anchor that rate your doctor there.
Resurgence and infection rate pressure volume.
On the.
A marker.
Yes, that's right I think that that the lower end to the goal over the guide presumed spending more disruption.
More kind of widespread locked down kind of scenario akin to what we saw.
In the spring.
And the upside.
Copper in the upper end to guide presumes more gradual returned to normal.
Okay last one I'll get back on the clear just a cleanup question on gross margin guidance.
Does that contemplate any benefit this year associated from the recent recent alumina agreement at it and if so how should we think about quarterly pace.
Yes, if not at the is not a huge benefit from the aluminum settlement. So as you recall that deal will go into effect.
Oversee just from a timing perspective get Mac and be a lot of time for that that the benefit from that deal do affect full year.
Gross margins.
Okay. Thank you again.
Thanks, Doug.
Your next question comes from Tycho Peterson. Your line is open. Please proceed.
Hey, Thanks, I'll start with an IP it looks like at night extended the average risk policy through the end of year, that's factored into guidance and any thoughts on that becomes permanent any update from United and then it seems like your growth on volumes is obviously tremendous how much of this is the market catching up versus share gains on your part.
And IP specifically thanks.
Okay.
And then Steve you want to talk TV cycle.
Yes sure.
Yes, so on the guide, yes that news that is factored in.
Hi go.
The guide.
Again in terms of.
What we think about going forward and borrowing and ended the season.
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Yes, I think there's there's a couple of factors that we think can really move the needle. One is obviously an updated cod guideline I think the other is the publication of the Smart study and then I think the third is just continued pressure from of physicians.
Patients in the community has to have updated policies and I think across each of those fronts, we're seeing very positive momentum.
We've said for a while now that we've heard updated cod guidelines are drafted and they're coming we really don't know when that's going to happen, but we havent heard anything that would indicate net their negative or thats not the case.
For the Smart trial as we said in his prepared remarks. This is the largest perspective clinical trial in IP, that's ever been done and it's the largest average risk and I PT trial, that's ever been done and although we're really excited about microdeletions I don't want to overlook the fact that Theres 20000 paid.
Since many of which were average risk, where we have aneuploidies results and we have.
Clinical outcomes through newborn carrier types that were done on on the baby, So where we're at a very good position now to have this be.
A very significant tipping point, if we havent seen a cogs guidance before that and we've seen the aneuploidies data and we still feel strongly that this trial has the opportunity to really move that needle significantly pretty Tara.
And.
For the industry on the whole of course, we can't comment on the data at this point.
And then I think the third thing is continued momentum with physician usage from patients and from from others in the industry, we're seeing now with aetna extending their coverage many of their physician so our.
Getting comfortable with ordering and many of their patients have certain expectations for what's going to be covered so I think it's a positive sign new they've continued to extend their coverage and we don't know if that will become permanent at some point, but certainly the fact that their extending their coverage as a positive sign.
And then it sounded like from your comments that the EPS could could also drive some upside it into h.
Picking up in helping with and piece can you just elaborate on commentary you catastrophe.
Yes, so what we saw the ABF business was really.
Almost immediately.
Roughly 80% drop in late March early April because the centers were basically shut down and.
Around mid May we started to see centers start to open back up but they're still in this sort of.
Social discontinuing, maybe low volume less capacity than they would have been before just for safety reasons. So we think that there's certainly a swing to the upside there.
And the second half the year and we've we've we've already started to see some of that come through in recent weeks and I guess that the trend is heading in the direction you would expect it to be.
Okay, and then two quick ones to before I hop off on guidance I, just want to make sure that you didn't factor anything in on on the Signet Terra China launch given that that's at year end or is that factored in as well.
And then you probably brought up the mobile offering we heard from one of your peers last night about how that had been very important in the global environment can you just talk you whether youre seeing increased uptake of the mobile offering in this environment as well.
Yeah, Let me talk about that first and then maybe Mike you can comment on.
Any of that the channel revenue so.
We had built an enormous infrastructure to deal with mobile.
Patient blood draws mobile for bottoming, we've been doing that for a long time, and we have very significant tools. So that enhance the user experience that allow physicians to place orders it allow patients to interact with genetic counselors and get kicked shipped directly to them or have a mobile for bottoming.
I'm directly to their house. So this is something that we had all the groundwork for really just had to flip the switch and expanded across all three businesses women's health.
The transplant organization and in our pre launch oncology phase, we've seen significant uptick from where we were previously and it's certainly been a driver of us getting into new customers and extending our relationships.
With existing customers and we're actually seeing quite a nice uptick across all three of those businesses at this point.
Yes.
So just channel in terms of be Jive not in the guide that it's again, it's more of a timing thing it just won't be by for long enough for the year to affect that.
Full year guidance.
Understood. Thank you.
Executive.
Thank you and the next question the Q comes from Catherine Sheltie. Your line is open. Please proceed.
Hi, guys congrats on a great quarter and thanks for the question I guess first starting last quarter, you reference that volumes declined about 15% in the last two weeks of March 1st its prior one Q level can you just walk us through what the rebound look like throughout the second quarter maybe.
Trending at July let me start to see a cold lake or circuit of geography.
Yeah, I'll take that so yes, we did see like we said.
It was down significantly.
We saw.
Some of that the the new businesses drop more significantly initially.
And then we saw some areas like New York, New Jersey drop more significantly initially what's happened. Since then is the core business has basically recovered.
Jeff has a very strong trajectory.
Heading throughout the month of July as sensors have started to open the new businesses are actually above the levels, where they were pre go big because of all of the tools that we put in place.
And I think with the recent resurgence, although we've been cautious in our guidance.
We've actually looked into the details and we haven't seen any disruption in some of the hotspot areas that you would think of now so we're feeling good about.
The trajectory, but like we said in the guidance, we just want to be cautious because of the uncertainty I know most people actually already been guiding but we felt like.
We could conservatively put out what we put out now given what we're seeing in the business.
Okay very helpful on any comments on how the additional cost for a long time relative to your expectation.
How much is baked into 2020 guide for past.
Yes, I would say, it's exceeding our expectations I think.
Certainly in this cobot environment I mean, when we look at the breadth of customers that were reaching I think the value.
The being placed on on the product by key centers in key positions and then our.
Relatively.
Quick.
Enrollments and.
Sites sign up in the proactive clinical trial.
We're really pleased to see the engagement that we had at the HTC conference we had very strong presence.
To see presentations, where we had top principal investigators lined up so we're feeling good about.
Things and we're seeing the volume trajectory and meet our expectations of course.
Certainly it would be easier for us to launch new products, if we weren't.
In this sort of walk down coven environment, but I'm really impressed with the way that our team has been nimble and been able to continue to move the ball down the court in use our mobile solutions.
We continue to grow.
The business from a guidance standpoint, Mike you want to make any comments on what's in the Guy yes.
Yes, I mean, so echo Steve's comment.
Reality isn't just compared to the very large core business.
For for a new product like prosperity.
EBIT for it to do well on a volume basis doesn't really allowed to be much more than kind of smaller tailwind in terms of.
Got to the died so is it had contemplated in the Don that we get paid to Medicare like we're getting paid yes.
But again very small in terms of the overall business up in second half.
Okay, and maybe last one for me just on Signets half our I O response monitoring when do you think you get the draft LCD for that application I think the turnaround time colorectal, it's pretty flat, maybe month and keel passed back closer to five or six months I think I heard Solomon say potentially by the end of the.
Just curious about your specific timing expectations.
Yes, Thanks, Catherine I'll make a couple of comments and then get it over to Solomon.
As I said, the beginning of the prepared an installment said I mean, we're really excited about this opportunity because it basically doubling what we'd previously put out there.
For stage, two and three colorectal cancer and with this nature paper it again puts us in a.
Data leadership position to be on the front foot and you go out and build this clinical market and we've already completed.
A significant portion of the work which is to get the paper published and then go get the dossier submitted to Medicare. So Solomon you want to comment specifically on what that pathway looks like for for Medicare.
Sure.
I think we've mentioned in the prepared remarks that.
We are assuming more VX remained positive on the validity and utility.
Which we expect based on multiple positive pre sub meetings.
We would expect something either as soon as the end to late second half of this year.
Or something in the early part of 2021.
Multiplex has its own timelines and priorities and those are also affected in various ways by the current environment. So I'm certainly not in a position to speak for from Medicare or for the multi extra.
But.
I think that's very strong momentum here.
Great. Thank you.
Thanks Catherine.
The next question the Q comes from Max Mrcc. Your line is open. Please proceed.
Hi, Thanks for taking the questions and congrats on a great quarter.
So I mean do you feel like you've you've been.
Meaningful share gainer in and I PT due to some of your larger competitors lighter testing portfolios, maybe de prioritizing and I'd continue in favour of of covert testing and do you think that can be sticky and then are you likely to prioritize your mobile tools beyond the pandemic.
Just as the delivery of healthcare continues to evolve.
Yes, so we.
We definitely feel like we've been taking share, but also continuing to impact the greenfield opportunity. So if you remember and I PT overall, we still think is only about 15% to 20%.
Penetrated and particularly in that average resetting where where there's a lot of customers that are still ordering high risk only so we think theres a lot of room to grow we just a big market survey.
Where we in detail mapped out high risk low risk, where the opportunity is and it's really incredible how many physicians are still doing high risk only and how big that opportunity is well when you look at the.
Uniqueness of her offering where we have we can detect things that simply other companies can't nobody else is doing the slip method everyone's doing shotgun sequencing, there's just biological limitations things that they can detect and you combine that with the extensive.
Rolodex of peer reviewed publications that we have at this point we are by far the leader now in published data in fact, just recently, we had another publication of the Green Journal.
Over a million patient study the confirmed.
Our near 100% accuracy on fetal sex determination. So we just continue to to push out evidenced that shows our unique aspects in physicians now recognize us as both the clinical and market leader now we've combined that with a strong salesforce and an extreme.
Focus on.
User experience a lot of the customer tools that are now.
Used in coated or things that we've been investing.
The past four five years.
Mobile solutions ways physicians can interact with patients ways, we can interact with physicians.
And provide counseling for patients. So we certainly see that as a major part of the business going forward.
I think near to the extent mobile for bottoming itself is important I think that really depends on what happens with co. Good long term and how frequently patients are returning to their offices, but absolutely digital tools are very important and we've always said the user experience is extremely important.
Great and then can you just speak to how your automation initiatives are coming along well how far along are you with those projects and when do you expect to really start gaining traction from some of those initiatives.
Yes, I think you're referring to some of the Cogs initiatives that we've described previously.
So is that correct.
Yes.
Okay. So.
Yes. So we have we had really a book of big R&D initiatives that we're working on throughout the year.
This year and then into the beginning of next year and as we said in his prepared remarks, we stay on track to our trajectory to bring our Cogs down below.
$200 than reproductive health business and Theres, a couple of ways, we're going to get there one is extraction automation.
Where we've actually now rolled out the initial version.
Of that in our Austin facility.
And that's going to be rolled out more broadly as this year goes on Theres a couple other projects that we've talked about that.
Rely on our deep neural networks project and the fact that we've run more than 2 million commercial samples, we can use that to reduce some of the sequencing costs and then there's other.
R&D projects that were working on that.
I don't want to go into detail on right now, but would reduce costs. So we think together.
Theres still a good chunk.
Coming out of where we are today from a from the future R&D projects. So the stuff is all coming along it's on track.
As we said we think it will make a meaningful impact and then of course I think our updated.
Supply agreement with Illumina has put us in a strong position too.
Continue to to focus on reducing our costs.
As we grow our business and that can be another I think benefit for us in the future.
Just one last comment on that as I said in the remarks.
Reproductive health.
Has been our goal to get down below $200 as we start to see the mix changes some of these other products come in what we'll we'll try to provide more color on the reproductive health business, specifically see can track our progress on some of these key initiatives that are moving forward.
Great and then second just squeeze one more and can you just give us a directional idea of where your different direct salesforce stand for.
On call engineer for transplant, just any idea about why these may shake out.
In the near or medium term. Thanks.
Yes so.
We've we've said previously on the oncology side that we had hired 25 sales reps and that we were going to be expanding that.
Somewhat as we go into the the full commercial launch we currently have a sense of where some of the other teams are.
And we sort of have now a kind of a schedule based on how many accounts are out there how many calls we want people to make and so forth and so we we have a good sense of what the optimized number looks like for competitive reasons, we haven't really been giving the exact exact number of reps that are out there.
On the transplant side, we said before that we think that you can be.
You can you can cover the market with a relatively small force.
Because there's only 200 transplant centers.
That are meaningful size and you just really don't need a big team and then I think.
In women's health, we sort of said were the Opex is generally been been plant there may be slightly up as things vary a little bit, but overall I think.
We really havent been giving exact numbers.
Great well congratulations on the continued progress thanks.
Thank you next question the Q comes from Stephen Michael Your line is open. Please proceed.
Hi, Thank you. Thank you congrats on the quarter guys.
Just a few follow up questions on the Signet Tara and wanted to follow up on Catherine's question about the Io response Monterrey application. So is that is the.
The draft or is your dossier is it going to call out specific cancers or is it going to be a pan cancer, because I noticed on the nature paper.
There was 25 solid tumors in there so maybe just a little color.
On the strategy there.
Yes, So let me do you want to take them.
Sure Yes.
At a high level, we believe the.
That there is.
Ample evidence for validity and utility.
Using signets era in a pan cancer fashion.
So for for any cancer type any solid tumor type where the patients indicated to either begin or continue treatment with immunotherapy.
We see value being added.
By using signature in conjunction with imaging.
The decision, making a long runway.
And as we've discussed that specifically.
With the team at Medicare and look forward to seeing what the final.
Decision draft policies will look like.
Okay, Great. That's that's fantastic if he can do that.
And then my last question is on the metastatic CRC application.
Is it sounds like it's going to be an amendment to the existing draft LCD. So maybe it's a little color and how that works do you have to wait for the final LCD.
Or can you.
Amend that in parallel while you're still getting the final LCD.
Yes, Steve I'll, then was 400 once you take that one tier yet.
So I think the simple answer here is we're not a 100% sure because we havent seen the final LCD.
And.
Based on what that final policy will look like will dictate what approach we take there are pathways for.
For amendment.
And.
Other past that should be a little bit more streamlined than going out to get a brand new local coverage decision.
So once we see that final, we'll we'll be able to share more details about the plans.
Okay, great. Thanks, so much for the questions.
Yes, we can Steve I guess.
I just had one other comment to that I mean, if you remember I think the.
The opening comment period, starting kind of roughly October.
Of last year, so we're sort of coming up on that that sort of mark where theyre statutorily.
Required to release that final LCD. So we think actually upon all see could be coming in the near future and so it's not really a long wait to to sort of see what's in there.
And then a Solomon also mentioned on CRC, we have this.
Although we presents a great data.
As most GPI.
What we're actually really excited about his perspective trial data from the phase two study that's being presented at ESMO and there will be submitted.
As a peer reviewed publication so I think there's there's little bit more of a lift there, but the data looks fantastic and that's that's really the biggest hurdle is is generating this data.
Not necessarily at this point for us getting the submissions down because it's it's sort of become a well oiled machine for us.
We have time for one more question. The last question will come from Alex Noah. Your line is open. Please proceed.
Great. Good afternoon, everyone actually just following up about last point right. There. So I think statutorily, it's got to be issued by August 22nd or so so just any update on the conversations you're having with Palmetto and am I correct that has to be issued by that date or has to be drop of than anything on pricing.
No.
Just one correction. So it's basically 12 months from the October date 12 months from the start of the open comment period.
So we think it should be coming in before we think it should become an before October. So I think there's it's up to a couple of months left before that comes in but it's it's it's near churn certainly and we look forward to we look forward to that coming out we've been in active engagement with them like we said.
We completed multiple pre submission meetings on Io recently is as recent as.
Early summer and sort of late spring and then we submitted the dossier.
For Io.
We said in June so theres, a lot of engagement, there and we feel like Thats actually.
The CRC final is.
Is on track and we're really excited we're sort of gearing up for that to come out in the next couple of months.
Okay got it thanks for the correction there as well and then the Io monitoring applications, certainly seems pretty unique pretty valuable to patients now sanitaire CRC. That's designed for cars monitoring this new indication is very much upstream for treated bond rating. So the use cases are different just how do you plan to leverage the.
Cost of sales team itself, both into a recurrence at a treatment monitoring application.
Yeah, So I'll make a couple high level comments and then.
Solomon you or might feel free to jump in I think first.
There are certainly quite a bit of overlap, particularly in the community on the ordering physicians I think when you get into the committed academic centers you see more specialization, but for the very large community practice network that we're going to be targeting theres going to be quite a bit of overlap in synergies within the salesforce <unk>.
I did about that I think.
Second one of the.
One of for US one of the key rationales for doing the partnership with foundation medicines was because they're they're brilliantly set up to just dominate in this particular space and.
Having already run the therapy selection panel.
Having already.
Performed as many tests they perform and just have the dominant sales team, we certainly think that.
Having them out in the field.
You know with an indication like this is going to be is going to be very meaningful and.
Combined with with or force in our separate product I think it's going to the should put us at a place to really lock that down.
Very very quickly.
Yes, the reflecting investments.
Well that's all my.
Yes, I was just going out I think we're excited about the opportunity to leverage the same oncology field force to be able to.
Educate customers about both use cases.
As Steve mentioned.
It's roughly 80 20 community.
Versus academia, where patients are treated so yes, there's massive overlap in the customer relationships, we've already built in academia, where we're today, we've really focused on.
Gee I oncologist gastrointestinal oncologists for rollout of CRC application integrate news is that there's been so much excitement and engagement on the research front with with other specialties from.
Breast cancer lung cancer G GPU cancers et cetera that I think a lot of those relationships are.
Already being developed and.
And are going to set us up for success.
Okay. Appreciate it. Thank you that's helpful. And then just last question I know you are building, United healthcare and appealing any denials more aggressively base and thus the cipher feel basses decision.
You just say if in the quarter or maybe to Liar real first week in August at any of those denials by you and age that you. What ahead. It appeals are starting to get paid.
Mike you want to take that.
Yes, So I think the best way to track. This is just by the coverage.
Policies of the various payers have put out and it's it's basically status quo.
With the exception and extend into the end of the year.
At this point Alex.
Okay understood. Thank you appreciate it.
Yes, Sir I'll turn the call back over to Mr. breathy for any closing remarks.
Well. Thank you all for joining fantastic questions as opposed to be with you and we're looking forward to the second half the year.
Thank you ladies and gentlemen. This concludes today's teleconference. Thank you for participating you may now disconnect.