Q4 2020 Natera Inc Earnings Call
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Okay.
Welcome to the terrorists 'twenty and 'twenty fourth quarter and full year of 2020 financial results Conference call. At this time, all participants are in a listen only mode.
Management's prepared remarks, and we will hold the Q&A session to ask the question and at that time. Please press star followed by one of you touched on some of them. If anyone has difficulty hearing the conference. Please press star zero for operator assistance as a reminder of this conference call is being recorded today February 26, 2021, I would now like to turn the conference call over to Michael Brophy Chief Financial Officer. Please go ahead.
Okay.
And.
Thanks, operator, good afternoon. Thank you for joining our conference calls and discuss the results of our fourth quarter and full year results for 'twenty and 'twenty on the line of Steve Chapman, Our CEO, Bob <unk>, Chief operating Officer soundly Boskovich General manager of oncology and Paul Billings Chief Medical Officer.
We also have our co founder and chairman, Matt Rabinowitz on to review the results of the Smart trials 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 Dot com a replay of the call will also be available at Investor got and the Terra Dot com.
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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 all the assumptions for that outlook the impact of the COVID-19, and they make on our of places us and operations market sizes partnerships clinical studies opportunities and strategies.
And expectations for various current and future products, including product capabilities and expect the release states 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 then absolutely bench of our results could differ materially. Please refer to the documents we file from time to time with the I T SEC, including our most recent 10-K or 10-Q and the form 8-K filed with today's press release, those documents identify important risks and the other.
Factors that may cause our actual results to differ materially from those contained in or suggested by the forward looking statements.
And looking statements made during the call are being made as of today and if this calls we played of reviewed after today. The information presented during the call may not contain current or accurate information and Terry disclaims any obligation to update or revise any forward looking statements. We will provide guidance on today's call, but will not provide any further guidance or updates on our performance during the quarter and.
Yes, we do so in the public Forum.
We will call the number of numeric or growth changes as we discuss our financial performance and unless otherwise noted each such reference and represents a year on year comparison.
And now I'd like to turn the call over to Steve.
Thanks, Mike Good afternoon, everyone and thanks for joining us let's get into the highlights.
Q4, 'twenty and 'twenty was the best quarter, we've ever had it and the tariffs we processed 295000 tests up 13% sequentially versus the very strong Q3, 'twenty and 'twenty and up 41% over Q4 2019.
Revenues were 112 million, our first quarter above 100 million and product revenues were up 43% versus Q4 of last year. This represents the fastest quarterly net unit growth in company history of.
I'll get into more details on what's driving our performance at the moment.
On top of 'twenty, and 'twenty being a great year for deter and we entered 2021 with significant momentum across the all of our businesses and.
Women's health, we've seen an acceleration and commercial payer coverage and average risk and I P. T. Even since we last spoke in November as of January all of the major National plans are covering and I P. P for all women and we've seen significant adoption among states state Medicaid plans.
We also released the results of the smart trial at the SMS and conference in late January and we announced the validation of our new Panorama artificial intelligence platform. The final results from this trial were even stronger than expected and put us in and excellent congestion and positioned to achieve reimbursement for our micro deletions test and <unk>.
And further drive market share gains within the <unk> space.
Our growth is being further amplified by the progress, we're making and the transplant business. We've collaborated with top kols to present data at each of the major academic conferences. This winter we continue to produce data on prosperity unique differentiators, including the ability to detect background cell free DNA simultaneously.
From the same workflow with no extra of turnaround time are added costs. We believe this differentiator will be valuable for physicians for example, the high level of background cell free DNA, we are seeing and patients affected by COVID-19 can mask rejection and we've completed the study highlighting our ability to assess when this might be occur.
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All of these data sets are being submitted for publication and I'll spend more time on that when it comes out later this year overall, we continue to hit our internal volume growth targets for Prospera, and we're very pleased with how the transplant business is developing.
And oncology on the pharma side of the business, we announced in January of the deal signed in 'twenty and 'twenty exceeded $65 million up from $9 million two years ago that business got a boost in December with Genentech's and vigorous study was presented this was the first time and M. R. D assay has been evaluated.
And the phase III clinical trial and the results for Cigna Terror were compelling.
On the clinical side of the business are colorectal colorectal cancer and launches underway and we've now completed the build out of our commercial team. This investment gives us a great jumpstart as we seek to capitalize on our first mover advantage.
Now that the commercial team is in place we can start executing on our plan to expand the signature of indications and and other new products to their bag and I'm excited today to announce two oncology launches signature of Io monitoring and altera of tissue based comprehensive genomic profiling.
Physicians to select targeted therapies for cancer patients.
Alterra can be ordered from the same tissue sample used to power of Cigna Terra, but will also be available as a standalone offering.
There are significant synergies between the two tests, particularly in advanced stage indications, where the use of the therapy selection panel is commonplace and reimbursed and the need for improved monitoring of patients response to immunotherapy is clear.
Oh tier of fits right into the bag of the clinical field force, we have in place for Cigna, Carol and we think this combined offering will be compelling for oncologists.
All of them and we'll get into more detail on that later in the call.
Mike's going to get into details of the revised guide at the end of the call, but there are two major headlines. The first is that we're guiding total revenues of $500 million to $525 million and second we expect the reproductive health business to get to a sustainable cash flow breakeven during 2021, having a core women's health franchise.
Cash flow breakeven allows us to continue making substantial investments to maintain our leadership position in oncology for the long term. This guide presumes, we keep the volume growth going across all three areas of the business and that's exactly what we've seen so far this year in 'twenty and 'twenty, one going above the $500 million Mark and.
And getting to cash flow breakeven and women's health and our two major milestone instead of been years and the baking and we're excited and have to have the schools and site.
Okay with that let's get into some of the business trends.
The next one is our volume progression over time Q4 represents a big step up even compared to a very strong Q3 performance. This breaks from historical trends, where both Q3 and four have traditionally been more muted providing a nice momentum into <unk> 'twenty 'twenty, one and the volume growth we experienced.
And the second half of the year was driven by strong account retention and new business wins during the height of the Covid of COVID-19 last spring and early summer.
The mix and our womens health business between average risk and high risk hasn't changed that much. We believe two potential future short future drivers of growth average risk and ITT market penetration and a bump from the smart trial are likely still in front of us.
The next slide demonstrates that revenue growth is tracking nicely with volume growth once again accelerating meaningfully over what we've seen in the past.
If you just zero in on product revenue was on the right hand side, you'll see revenue growth rates of 43%. This removes development and revenue from partners, which was larger and 2019 than it is now.
We sort of recurring ESP step up again in Q4 versus prior periods and blended Cogs remained and the low 200 range. The combination of consistent gross profit per test and volume growth that we've talked about in the past is working and as expected, allowing us to get the women's health business cash flow breakeven supporting.
Even bigger investments and the oncology business.
The payer response to the eight card practice bulletin and has been stronger and faster than we anticipated last fall. We were really pleased to see all of the major payers start covering and I P. T and all women and continue to see excellent progress among state Medicaid plans. This is positive not only for coverage, but also for market penetration.
And is health plans expand coverage many providers are changing their protocols from serum and I P T.
Given those trends and the timing of our smart trial data readout is very timely.
We are very pleased to be joined on the call today by Matt Rabinowitz, Our board chairman and the terrorists cofounder, who helped initiate and steer this trial for several years.
Matt.
Thank you Steve Good afternoon, everyone I decided to join the call today to highlight the significance of the team's achievement on the smart trial, which was over five years and the making.
The trial was designed to affirm the performance of our N I P T technology, and the general population and in the detection of micro deletions.
We have made some big predictions of Natera. These include the and I P. T would be adopted and reimbursed and all of his categories and then I'll personalize oncology assay Cigna Terra would achieve differentiated performance and reimbursement across multiple cancer indications.
These have now occurred as we predicted because solid science usually prevails.
Based on the exceptional performance of all the technology and the smart trial and the prevalence of micro deletions and the study.
We now believe the professional guidelines can change and that micro deletions testing and and I P. T will be more broadly reimbursed.
Yeah.
Smart was and over 20000 patient prospective clinical trial with 21 global centers, we collected pregnancy clinical outcomes as well as genetic truth samples from the fetus well the born children for 18000 and 497 cases.
The unprecedented data was used to showcase unique capabilities of the panorama, including Panorama AI.
The AI or artificial intelligence component uses deep learning neural networks model of the sequencing data better than could be achieved by our team of classical statisticians the sum.
Amazing science was enabled by more than $1 6 million samples that we could use for training the deep learning network and the performance can continue to evolve with more samples.
This is like a modern biotech equivalents of the competition between Kasparov and the supercomputer over the game of chess, which the supercomputer ultimately had to win.
Panorama AI extends our leadership and women's health.
The two major presentations came out of the trial and each of now being submitted for publication.
First.
Smart serves as the largest ever perspective of Aneuploidy and I P. T trial, and the only study of the scale to collect genetic outcomes and the setting of new bar and quality and science.
And the majority of the patients and the study where average risk and we demonstrated best in class performance with 99% sensitivity and 90, 997% specificity and trisomy 21, with a positive predictive value and the general population of 95, 1%.
As a large number of newly adopting providers start using and I P. T. We think of this study confirms the significant advantage and further separates us from N I P. Ts that of limited or no peer review data.
Penn or on the AI lowered the no call rate to roughly 1.5%, while maintaining best in class accuracy.
This category of cases that have very low fetal fraction were also clinically significant as these cases were at substantially increased risk of other conditions, including preterm birth and preeclampsia.
These add to the list of unique clinical Differentiators, which have made panorama of the leading test.
Second smart serves as a major advancement for micro deletion testing rigorously validating Panorama is best in class performance and advanced and clinical knowledge of the most common micro deletion twenty-two Q1, one point too.
We showed excellent performance and detecting twenty-two Q as we expected detecting of 100% of cases of the most common micro deletion and $2 six mega basis Oak racer.
Using panorama AI, we were able to also detect the small and micro deletions below 2.6 Mega basis down to 0.7, Mega bases, which amounted to 41% of the disease load significantly more than previously believed.
Including micro deletions of all sizes, and the 22 Q region, we demonstrated of sensitivity of 83% and of positive predictive value of 53%. This performance is unique and the industry.
To date and none of the massively parallel shotgun sequencing labs of testing for the small and micro deletions, which is a critical issue given how come and nail this could prove to be of major competitive advantage for natera.
Clinically twenty-two two micro deletions proved to be much more common than previously believed but consistent with our estimates based on commercial experiments.
And in the incidents of one and 1525. This disorder is more common than cystic fibrosis, and one and 4000 of spinal muscular atrophy and one and 10000 each of which are in the guidelines for screening and broadly reimbursed and.
And women under the age of 35, the incidents of this disorder and yes that of Trisomy 21 crew.
Crucially none of these 22 acute cases were detected at the first time I missed the ultrasound and only roughly half were detected by any other means throughout the pregnancy.
We cant be prescriptive, yet on timing, but we think of that the study should be sufficient to drive changes to society guidelines and we received of dedicated reimbursement code for micro deletions testing, which is price by CMS at $759 and we already run more than for hundreds of thousands of.
And of these tests annually, which grew 37% year on year from 2019 to 2020.
The next step is to get these data sets accepted for publication and high impact journals.
Back to you Steve.
Thanks, Matt Panorama is the market, leading and IP T. We performed over 2 million tests a day.
We're uniquely leveraging the power of snips two to deliver best in class performance and differentiated clinical value and the smart trial further amplifies those differences we've studied more than one 3 million patients and 23 peer reviewed publications and with the completion of the smart trials, we now have the largest.
The most rigorous and the highest quality validation data for both and employee and micro deletion testing combined out with our seasoned clinical and commercial teams and we're very well positioned for the increase and N. P. T adoption over the next several years, we believe the average risky and ITT market could get close to 75% to 90.
Per cent penetration over the next three to five years, which bodes well for our business, especially with the high and consistent attachment rates of both carrier screening and micro deletion testing, two and IP T, which further amplify the benefit of the expanding and I P T market penetration.
Now I'd like to hand, the call over Solomon and Boskovich. The cover some of the recent highlights and oncology Sullivan.
Thanks, Steve.
The first slide here is the only the addressable markets and liquid biopsy that we've shown before and the Terra is the leader and in MLD and monitoring and we're aggressively investing to maximize our first mover advantage.
We have hired up the commercial oncology team and were well underway and with our launch and of colorectal cancer, which is going very well.
Steve announced earlier, we're now launching string of tariff for immunotherapy monitoring as well on the strength of both our peer reviewed data in nature of cancer published last year and our draft coverage decision from Medicare, which we expect it to be finalized later and this year.
We're now also leveraging our leadership position and monitoring and MRV to expand into adjacent markets. We're excited today to announce the launch of Alterra.
She based comprehensive genomic profiling or CGP for therapy selection.
Therapy selection, and we believe as of $6 billion market opportunity with established reimbursement, which makes a lot of sense for natera, given the growing strength of our customer relationships.
Collagen and Altera also pairs nicely with our launch of signature and immunotherapy monitoring, which will go into more of a moment.
Let's first dive into how altera works.
Altera reports genomic alterations found and the cancer across the full exome with extra boosted coverage and over 400 clinically relevant oncogene altera.
Altera is at the cutting edge of therapy selection tests with its exome wide coverage of nearly 20000 genes. Its full transcriptome based RNA seek analysis for optimal detection of structural rearrangement.
It's matched normal DNA analysis to filter out germline mutations that can sometimes cause false positives and other tests.
And its ability to identify MSI status and gold standard G M B status based on the exome.
All of Terra will be offered at the Standalone chest and also in conjunction with Cigna terror for those who want the combined therapy selection with personalized monitoring.
A big advantage here is that signature is a tumor informed of chest, where whole exome sequencing is already performed on the tissue and normal DNA specimens from all chicken the chair of patients to inform the personalized assay design.
So now we can deliver the altera and CGP results seamlessly from the same specimens and this is a key advantage for advanced stage patients, where both CGP and treatment of monitoring of both clinically indicated and we're tissue can often be scarce.
Now let me share of typical patient journey that includes both altera and signature for a patient receiving of immunotherapy.
As we've discussed before over 200000 patients per year of treated with immunotherapy, but an even higher number of patients are screened annually for immunotherapy eligibility. This eligibility assessment often depends on the biomarker status, including what alterations or found and the patient's tumor.
For example, the FDA has approved the pan cancer indication for the immunotherapy drug timber Elizabeth and patients with MSI high tumors or tumors with high tumor mutational burden or T. M. B, we think that using our altera test would be and efficient way for treating physician to assess the immunotherapy eligibility.
Or eligibility for other targeted therapies, and then use the pre treatment blood sample as the baseline for future treatment response monitoring with the signature with no additional tissue specimen required.
And with Altera and signature would be covered by Medicare and the scenario.
So and our clinical business. We're now full steam ahead with early stage colorectal cancer, where we are enrolling nicely into the bespoke registry trial as commercial adoption of signature of gains broader momentum and now we're launching of iron monitoring and altera.
We look forward to releasing more updates on the clinical market as time goes on.
Now shifting gears to the pharma business.
You see the rapid progression and we've had these last two years since launch.
This business has continued to mature as we have predicted and we're now seeing significant interest and a larger phase III studies, which if successful can lead to having signature are included and the drug's label as a companion diagnostic.
Pharma is now using signature and studies of more than a dozen different cancer types.
The key driver of this business is the compelling data that we've been able to generate from some of the clinical trials.
The muscle invasive bladder cancer data presented just a couple of months ago by genetics at ESMO I O isn't the excellent case study. This was the vigor of one O trial, which was of global phase III randomized controlled trial of cheese of lose about the took more than five years to run at great expense.
Unfortunately, the trial itself failed to meet its primary endpoint and all comers after cystectomy.
But the <unk> improved overall survival by 41% for the signature of positive patients, which was 37% of the population.
So with 581 patients analyzed and vigor of Renault was by far the largest study evaluating and mark any MRV assay and it's the first ever randomized controlled phase III trial, presenting the results stratified by MRV status critically the study shows have signature of can take the trial.
That did not work and all comers and make the results positive by getting the drug to the right patients who are <unk> positive.
And you can imagine we've fielded a lot of interest after the results of the study going.
Going forward, we expect most adjuvant trials to include some level of of MRV related stratification and.
And in addition, we also are seeing the impact of this predictive data on how physicians and the clinical market are perceiving the utility of Cigna, Tara, even and early stage colorectal cancer and other indications.
So to summarize and oncology, we have a lot of activity underway to drive the business.
Clinical launch of signature and CRC, and now and Io monitoring launch of Alterra CGP to drive additional insights for our ordering physicians and continuing to ramp and our pharma business.
And that.
This slide gives a good snapshot of the data that we've already published to date and our pipeline that we will be reporting out over time.
And you can see we have a significant head start and published data across a range of cancer types and that leadership creates its own momentum and network effect.
The leading biopharma companies and academic medical centers and community oncologists all of a strong incentive to use the most thoroughly validated technology for their patients and and their clinical trials, which couldnt turn and enable us to accelerate our lead generating more data, which eventually leads to more coverage and adoption of new clinical.
Patients, it's a virtuous cycle as Mike will cover in a second just demands of significant investments on our part, but the rationale for our patients and our business is very clear.
Now, let me hand, the call over to Mike to cover the financials Mike.
Thanks, Al and then the.
The slide here is just the summary set of results for the quarter.
And you've covered the major trends on volumes and revenues of the top of the call you.
You can see on the first two rows of the chart that the revenue growth was driven by robust product revenue growth and accounting driven revenue recognition around signing the BG I and foundation medicine deals and point I team was actually a headwind for the year on year revenue growth comparison, that's a very healthy dynamic and exactly what we had hoped.
C.
Within the reproductive health business, we continued to see a stable mix between Panorama and horizon carrier screening and micro deletions testing was ordered as part of the Panorama and ITT about 75 per cent of the time, which is consistent with what we've seen for the last five years of more <unk>.
<unk> per unit and the women's health business continued to improve we are now below $200 per unit and that category and we saw improving trends and the and ITT average selling price on and ITT. The ASP. We started the benefit from average risk and ITT coverage policies, but the full benefit I think.
Gradually translate to revenue over several quarters as we get more history with changing payer coverage policies.
To be clear, we start getting paid right away when coverage changes, but the visible impact of the P&L is really driven by the history of required for accounting.
Rules on revenue.
So the unit economics for our reproductive health tests continue to improve overall gross margins will slightly softer owing to driving some volume and our new businesses prior to getting fully reimbursed and that's also a fairly transient impact as I'll discuss on the guide.
On the expenses side, we were able to significantly accelerate our build of the infrastructure for commercialization and oncology accelerating the build out is crucial to making sure. We can win on every dimension not just technology and published out of leadership, but also and the experience we provide for the physician and the patient.
It's much the same story in R&D, there's really two categories of R&D efforts, we have going one of the very targeted effort on true research. These teams are doing things like leveraging the data we are collecting from early stage cancer exxon's. The develop new tests that can expand our addressable market, we've always committed and minority.
Of our R&D team to this kind of work and the results include the technology behind Panorama, AI and the Cigna Terra and prosperity franchise of the.
Second much larger effort is focused on development work that requires time and effort from a lot of really high quality people. So the peds.
Nickel risk is relatively low and the returns are very clear.
You could see and our reviews of these projects you would want us to fund all of them one of the large projects and this category is our aggressive effort partnering with academia degenerate validation data and a growing set of oncology indications.
Types of projects of obviously paid off for us and the path and we are happy to have more sample banks and the studies to run and this area.
The built the strong cash position last year, and we've been able to uses of our competitive advantage for example, and return for more favorable terms from partners and vendors and long term deals. We made prepayments of roughly $15 million in Q4 other than those prepayments of our cash burn last year actually came in below our pre.
And Scott.
Okay, let's get to the next slide and the guidance for the year of 2021, Steve gave you the headlines at the top of the call. We expect revenues to be 500, the $525 million gross margins in the 47% and 52 per cent range and we're expecting our cash burn to be $230 million to $250 million. This year.
<unk> data across SG&A and R&D as you can see on the page.
Let's walk through each of the key assumptions for each of these lines.
Yeah.
First of the revenue line presumes that we will continue to see strong volume growth across all three business areas and <unk>.
Productive health, we've historically focused on the absolute unit volume growth per sales rep, given that team is more mature.
So the guide presumes, we can produce and similar unit growth pace of last year, which of course will require very good execution given the year, we just had.
The guide does not presume, we get a huge windfall of units and a short period of time some of the average risk and ICT market opening up the.
The specific timing and speed of broader and ITT adoption are not under our direct control.
Similarly, we've tried to take a balanced approach and modeling the volume trajectory and transplant and the oncology recognizing that we now have good teams and large markets with ease and areas. But these are also basically new categories, and we have less forecasting history with them.
We've taken a conservative tack on average selling price assumptions for the year's guide that's mainly of the.
Massawa call point and that we just don't think it's wise for diagnostics businesses is just the.
Assume asps are going to improve because of the factors that can move against you are also largely behind your control.
But if the very recent trends, we've seen so far and Q1 hold up our blended ASP assumption could end up being slightly conservative for the year.
The gross margin of assumptions have several cross currents running this year, we feel great about the reproductive health gross margin trajectory, because both because of the improving and ITT coverage, but also because cost of goods sold per unit continues to decline for example, we've got a better alumina supply agreement and the piano.
The AI platform is cutting on cutting down on a redraw at rates and once again.
We are also pleased with the cost per unit trends, we're seeing in oncology and transplant, which should be no surprise since both franchises are based on our core technology.
The pressure on gross margins and there's much more transient and the linked to volume growth as I've mentioned for example, we are excited about launching and the Io monitoring and depletion and hope to grow units quickly. We don't expect the final reimbursement decision from CMS until the second half of the year.
I covered the major drivers of SG&A and R&D increases in my review of the Q4 results.
I expect those lines to grow and Q1, Q2, and basically stay flat and the second half of the year based on the objectives. We have mapped out for 2021 at this point.
I do think there's one more variable that gets obscured on the page we have found that and investing in SG&A and R&D, it's much more effective and capital efficient the doing lots of that physicians.
Many of the players and our space pay full price for targets to stay relevant and what we've done instead is we built our team will try to be opportunistic on the M&A front, but I think you'll see of selectively picking up technologies for relatively small dollars and that's because of the organic growth engine here is really strong.
We've talked in the past about the gross profit per test and the unit volume metrics, we would need to get the cash flow breakeven and in the reproductive health it.
Even with some additional investment targeting new product features and commercial activities to support the growth. We've seen we feel confident we can cross over the cash flow breakeven line and reproductive health of this year of Steve mentioned of the top of the call. That's a huge milestone for us and should give some confidence of the investments we're making are primarily for.
The on these large markets and transplant and especially in oncology.
To summarize we're very excited about 2021, we're off to a great start so far and Q1, and we think we've got a bunch of interest and catalyst to unlock as the year progresses.
So with that let me hand, it back to the operator for questions operator.
Ladies and gentlemen, you of a question of recombinant. This time. Please press. The Star then the one key on your Touchtone telephone which of.
Of course and has been answered or you wish to move yourself from the queue. Please press the pound key.
The first question comes from Treehouse, along with the Morgan Stanley.
Hey, guys. Thanks for the time here and congrats on the strong quarter I just wanted to ask and overarching question on the guide here.
Mike you mentioned that you've been relatively conservative and your assumptions for Sigma Dara and prosperity and.
And I'm, assuming it's it's the Alterra is probably not and there at this stage at all.
Can you can you sort of like put a finer point on it in terms of giving us some color around the volume trends, particularly in the back half for each of those tests.
Hey, Thanks for the question.
Yeah, Hey, yes, the things of the question I think you hit on something there and your question, which was the just the waiting for the year I would expect the year to be somewhat back end weighted as we kind of grow.
Each of these launches.
And in terms of specific stage of I think like in the future. We will start to give you kind of.
More color on volume trends.
Hardly and those new areas.
But but not yet I mean, we're basically starting from <unk>.
Launches and Signet Tara effectively and Q4, and then middle of the year last year as and when we got going in and transplant. So we we started to see some green shoots there and some contribution to revenue of Q4, and we're just going to expect that the kind of growth.
And of consistent with our our comps so far this year.
Got it fair enough and Matt. It's it's good to hear from you again following the smart study readout and the validation of the algorithm here can you just share some color and early feedback you've had since the smart study I know it's very recent.
But I'm, especially interested and the ability to detect patients at increased risk of preterm birth, and preeclampsia are those sort of standalone indication something that you could look to essentially add to the reproductive portfolio here and on micro doubts over what timeframe do you think you start generating meaningful of payer traction following the readout.
Yeah. This is Steve thanks to the house all take us so on the payer side. We think the most important thing is society guidelines and you know what.
The position now generating this really gold standard evidence the largest frankly, the largest and I T. T prospective trial, that's ever been done but now do.
And that for micro deletions you had the.
The type of data that societies will react favorably to and so once the papers published this summer.
We expect to hear from the societies and if you look at some of the press releases, where where the pis on the study and have been quoted.
And they spoke and very favorably about the opportunity here to change society guidelines if that occurs the payers will absolutely change their guidelines. So we look forward to the paper coming out followed by updated Society guidelines and then per policy. Following suit as we mentioned in the prepared remarks last year, we did four.
<unk> thousand and micro deletion tests and that was at a growth rate of 37% year on year versus 2019. So this is really a rocket ship that is growing.
And we're running the test if we can get reimbursement.
It's going to be we're going to be off to the races. When you look at.
The first question preeclampsia of preterm birth.
We made a decision a long time ago to not report out results at extremely low fetal fraction, because we thought and if there's something biologically going on there that is important for the physicians to not get tricked by and and cannot just getting and negative and ITT result, when there might be something more going on there.
And now it turns out that not only of fetal fraction of important as the quality control metric and giving and accurate aneuploidy of micro deletion result, but patients that have low fetal fraction actually are at risk for preterm birth, fetal demise, preeclampsia and very significant levels.
We look forward to seeing how again, how physicians and the Kols community one of Digest. This information with the panoramic Panorama AI algorithm. We were seeing presented your risk percentages of 15, 16, and 17% risk to the pregnancy and that's very significant compared to other biomarkers that are out there.
So, it's and like unlikely that would be a standalone tests, but.
It's important when you're getting of no call back that you can get this extra information that no other laboratory and can provide.
Got it that's super helpful. Steve.
And one final one on prospects for me I feel like that's the part of the pipeline that sometimes doesn't get as much attention as oncology.
The market is and sort of still relatively at low levels of penetration over what timeframe do you think you'll have a shot at sort of pulling even with the sort of the your competition. There and have you thought about sort of creating an ecosystem of service offerings around prosper.
Hum.
You know your competitor has launched the referral service and the Waitlist management service and software like EMR platform et cetera is that something that's very much on your radar as well as you think about ramping plus barrel volumes here.
Yeah. So we didn't spend a lot of time today talking about Oregon health, but that's an area, where we continue to invest it and we're actually doing really well and in 2020.
I think we mentioned at the Jpmorgan conference that we actually beat our pre Covid estimates for prosperity.
We're pleased with the performance of of.
The test we're pleased with the interactions we've had with key opinion leaders and certainly we keep our eyes on some of these ancillary opportunities.
You have to sort of decipher whether it fits in with the broader strategy of new Tara deep.
Of these ancillary services, whether they fit in with the broader strategy at the Terra and whether they fit in with the strategy of interacting with patients and physicians and if it does then we're certainly going to take a look but.
And we've.
Keeping our finger on the pulse and it's an area that we think has an enormous opportunity to grow and the future.
Got it thanks, so much and congrats again.
Thanks.
Our next question comes from Tycho Peterson with JP Morgan.
Hey, Thanks, a couple of one thing sticking to kind of I O and altera.
And the timeline for the final LCD that you laid out I guess is the initial use case for seeing the Terra IL for our U O for pharma and until you have the final LCD and then pricing you'd previously talked about 1800 to 3500 and just curious if there's any updated thoughts and then how are you thinking about pricing for altera.
Yeah. So on the signature of I O side. The test is CLIA validated we have a peer reviewed publication that came out and nature of genetics and the last summer. The the serves as the validation study. So it's it's on the market now through our sales force and the CLIA.
And you know clinical offering so it's available to pharma as well.
As of CLIA test.
But it is being sold through the commercial and clinical sales force at this point.
Now, we're getting out there of pre reimbursement.
You know and we expect reimbursement to come in at some point and this summer and you know as you build the ramp.
When you initially launched something you know in the earlier days the volume comes in handy and the rack is less significant.
We'll be hitting our stride right around the time that that reimbursement comes in the great thing about the altera launch is that it's the same tissue sample and it's going to be very convenient for physicians to be able to order altera.
Get the information back on therapy selection and tumor mutational burden MSI status, and then you ongoing monitoring and surveillance with personalized Cigna Terra now the reimbursement for Altera is already established so we can piggy back on the the broad reimbursement that's already in place there.
And that's one of the reasons why we thought it made sense to <unk>.
The launch this in and out of to the bag.
And how often do you expect the signature of Io and altera to the used together do you think that becomes the norm.
Yeah.
You look at.
And the opportunity and the percentage of patients that are eligible fire monitoring and then how that decision is made on who's eligible for I O.
And I O treatment of excuse me you know it does seem like the vast majority of the time someone's setting up for potential Cigna Terra that they're going to want altera.
Okay, and then as we think about your work with foundation on developing liquid exome, how do we think about that and the context of these launches I mean is that something that potentially could replace altera overtime right now.
No we.
We think about the foundation partnership of separate I mean Foundation medicine is really the the leader and tissue based comprehensive genomic profiling and the product that we're working on with them is going to be a therapy monitoring product that is based on their foundation, one CD ex product, which.
As of targeted panel of comprehensive genomic profiling. So they have a large team in place they have a big customer.
Customer base and whenever somebody orders that foundation, where T D ex there'll be eligible to design personalized primers. So.
We think about our XO and best Altera, and Cigna, Tara and independent offering and together, we're going to approach this market.
Okay and then the follow up on the micro del commentary I just wanted to be sure I heard that right. You think the guidelines could actually change as soon as the summer and we're all over the Jade it from the average of SK Cup situation and.
Why do you think you're more bullish on micro Dallas and then some of your peers.
Dropped it down.
Yeah. So I mean look the the societies respond to the peer review data and this is the study that.
And that is going to change.
Move the needle if you look at the studies that moved the needle for non invasive prenatal testing and high risk or even and average risk they were significantly smaller than this and less rigorous and this study. So a study of this magnitude with this level of clinical out.
Outcome has never been done before so if you were to go back and designed the the perfect study that the societies would respond positively to this is it and at the outset when we met with the key opinion leaders and society members and we said what do you need to see in order to change society guidelines and they.
Said two things of disease incidents that is in line with expectations and at that time. It was thought that 22 Q had a prevalence of about one and 2000 and the study we showed that it was about one and 1500 and so it's actually more common than what was thought and the second thing was we have to show.
High sensitivity and of high positive predicted value and we've done both of those so the sensitivity and the.
And the U K.
Micro deletions of above $2, six Meg and basis was 100%.
And for all of micro deletions of.
All 22, micro deletions and it was 83% and the positive predictive value was 53%. So if you think about aneuploidy screening overall serum screening has a positive predicted value of 5%, so and I P T and aneuploidy.
And it's a higher P. P V.
80 to 90 per cent for trisomy 21, and lower for the other and you put east Trisomy 18, and 13th So this performance is right in there now with the top.
Comment and you. Please so we feel very positive about it.
The severe genetic disorder that has the significant outcome on blood births.
Theres a screening test that works very very well the gold standard study has been done.
And the results came out very positively so it's exactly what you would need in order to change guidelines now of course, we can't promise anything but the.
This is exactly what you would want and it's the perfect setup for a guideline change and if guidelines do change the payers certainly will change and we're looking forward to the the publication coming out at some point this summer.
Okay. That's helpful. And then just last one quickly on guidance on the guidance side for R&D you highlighted the expansion into new oncology indications is that anything you can kind of shed some more color on is that other indications beyond the CRC is the pan cancer Mardi is it liquid exome, what's kind of the priority list.
Yeah. So we're looking at multiple different things that includes and rapidly expanding cigna Terra indications. So while we work on commercializing colorectal and Io monitoring and we're looking at the long list of additional indications. We think eventually signature will be a pan cancer assay.
And we're working on generating the data and.
Multiple different indications as we've shown and the slide deck.
But we're also looking at other ways that we can penetrate and into the $50 billion.
Liquid biopsy market, we talked today about tissue based therapy selection, but we think that theres a lot more of that and Tara can do to leverage the strength of our technology across the entire $50 billion.
Can and you can certainly believe we have irons and the fire.
And each of those circles that we've shown and the slide deck.
Okay. Thank you.
The next question comes from Doug Schenkel of Cowen.
Hey, good afternoon, guys and thank you for taking my questions.
The first a I guess, just the trend and kind of a math question.
Doing this on the fly but it looks like you guys were doing about 22000 tests per week in the fourth quarter I'm, just wondering how that trended over the course of the quarter from the beginning to and and then keeping in mind you were doing you know using the same logic 17 to 19000 tests per week.
Over the first three quarters of the year.
How much of the lift lift relative to the at the beginning of the year versus what we saw in Q4 was a function of average risk or new products versus seasonality and then I guess final component of the presumably you're expecting to trend up from here as we look ahead to Q1 and beyond.
Yeah. Thanks, Doug.
And I apologize and actually.
The phone broke up for the first half of it I got it.
Mike do you want to yeah, and you want to take that.
Yeah. So I think the core of the question is like how much of the uplift in Q4 is due to average risk versus just the business humming along and our typical seasonality here.
And look if you look back over the year of what we saw was that and retrospect and some of the spring in the summer what really drove the volume outperformance for the year was just organic kind of new account wins paired with even better than normal account retention and the.
The mix between average risk and high risk and ITT and didn't really change all that much through the course of the year I mean, I think historically that makes them like 60% of average risk and <unk> 40 per cent high risk and that they have.
Ticked up maybe that's like 63 37 something.
And that ZIP code, Doug so that that's the that's not just positive, but that's sort of a rough and ready metric would tell you that it's not like I don't think that a lot of the average risk penetration is whats driving us yet I think that's largely and the future for us. So what what led to Q4 I think theres typically there is some step up.
Q4 versus Q3, but not like what we've seen here and I think the second and third chart and the deck shows you visually the size of the step up and this Q4 versus the typical step up that we've seen in years past. So I think that interest is a lot of kind of good accounts.
And when and just kind of organic growth and we will be able to tell what the benefit of hindsight to what extent it was some more and of average risk of penetration, but anecdotally. It seems like the net average risk penetration still ahead of us.
And in terms of the the.
Volume and like for next year I mean, it was kind of encapsulated in the revenue guide and so it does presume a stir.
<unk> volume growth.
Next year tempered with the other areas of conservatism and we talked about the prepared remarks.
Okay, and just a couple of clarifications, Mike and thank you for all of that so so theres nothing in there I think cigna taro would be and that numbers in terms of kind of Q3 to Q4, where you had another quarter of marketing and Youre starting to get paid that that wasn't a big mover to the sequential improvement.
Yeah, So that is a contributor and because it didn't exist really as much and in Q3, it's because it's our growth I think that that is a contributor.
But really I mean, if you look at the.
The the sequential growth in the women's health business of really across the product lines I mean theres not like.
It's not a huge disparity where the new products are growing and the and the existing products are flat and the women. Some parts of flat on the contrary I mean, we saw very strong uplift across the business.
Okay Super helpful. And then Steve I'm going to I'm going to ask a similar question. So you know what I've asked the other companies in this sub segment over the course of earnings.
So sorry for folks listening, but we're gonna go there again.
You you and your peers seem to be scaling of the standard place when it causes cancer of menu, which is something we've envisioned for a while interest is could be happening at a quicker pace than maybe we thought it was going to happen.
With you guys, you know youre moving to MRV monitoring with a pretty natural and smart extension given your leadership and high sense of the sensitivity of cell free DNA assay development.
And said, you're now moving into the tissue, where you don't.
And have a ton of experience.
And at least in terms of using tissue for actual diagnostic purposes.
And you would seem to need assays in screening and blood based therapy selection, and so kind of round things out so with that and mine.
Questions are one how do you build of how did you build out the tissue capabilities.
Two of how are you expanding your commercial infrastructure pursuant show the full menu buildout and is that the right way to think about it and then third you know how do you think about building out the menu Mike at the end of his prepared remarks talked about increased investment and R&D and SG&A, but when I think of some of these things, particularly screening.
That's an example of where you might be better served going and organic.
And I just wanted to get your thoughts on that thank you.
Yeah. Thanks, Doug So I think we've been doing a lot of hiring in R&D and I think that's reflected in the the.
And the numbers that we put out.
And we have a really solid team in place. So we've been we've been working on different things.
Yeah, I think we're excited about the Altera launch we think this is the first step into the $6 billion therapy selection opportunity.
I do think that you know looking at.
Liquid therapy selection and and asymptomatic screening makes place, but it makes sense, but I think we're going to we're going to make smart decisions and and be very targeted with our.
With our efforts, we do have some unique advantages.
For example, we can.
And we're doing a lot of early stage exxon's at this stage and that gives US you know information that others don't have access to that we can leverage.
Two design assays that.
Can can perform well and in asymptomatic environment.
So we're doing things and a very targeted manner on asymptomatic screening, but it is something that we're looking at and I think as that program develops we'll release more information.
On the tissue side and on the liquid therapy selection side. These techniques are the same techniques that we use for other assays and and.
We have very skilled team.
Team members.
And I think we're in a great position to put good tests out on the market.
And it will be very competitive.
Trying to do is leverage the commercial footprint that we've put in place and offer a full menu back to physicians and so the.
College team that we built.
Top quality.
Hi.
And high quality medical staff.
Sales staff MSL staff and when they are meeting with the physicians, especially where there's significant amount of synergies like there are with.
I owe monitoring and altera and it makes a lot of sense to capitalize on these different opportunities.
Okay.
Thank you Steve can I add a comment there.
Yeah sure so yeah.
Yeah.
There's and there's obviously a lot of opportunity here, Doug you pointed out and.
From my perspective, our first priority is to maintain and extend our leadership position and MRV.
Which has opened up.
So much opportunity to improve patient lives of huge amount of of demand just inbound coming in from them from the data and utility we've been able to generate and.
And if you think about the others.
Sort of serious.
That form opportunity when you think about two things first to run at signature of tests, you automatically get the tissue sample of normal DNA sample and plasma samples and so there's just so much you can do with the assessments.
And then the second thing is once you generated of personalized assay for a patient and you're running monitoring for a long period of time, that's our patient for a long time.
And that's a very special type of long term relationship that's less common.
Historically in the industry and we intend to to make the most out of that to deliver the most of the services and insights we can for those patients and and those two things together, there's also kind of help us.
Generate our clinical genomic data strategy as well.
Generating.
And enormous amount of genomic information that has never before been available from exxon's and early and late stage patients with long term follow up.
Yes. It is.
Kind of create a whole new opportunity were investing and significantly that will then further extend our leadership position.
I think there's a lot of of opportunity on the table and we're well positioned.
Yeah.
Thank you. Your next question comes from Catherine Schulte with Baird.
Yes.
Hey, guys. Thanks for the questions first just one on guidance and I don't have a coupon sick natera and Mike.
Like how should we think about revenue pacing throughout this year kind of waiting and the first half versus the back half and imagine transplant and oncology as well and some of that average risk S. P left are likely more back end loaded.
Yeah, that's exactly right and thanks for that question I mean, it is significantly backend loaded and part of that is just the natural.
Tempo of the business and the fact that you've got the volumes growing through the course of the year of since the business is growing so quickly and.
Part of that is related to reimbursement, where you'll have broader reimbursement and for things like Io monitoring, which will be contributing volumes and the <unk>.
First half and and can start to contribute actual revenues and the second half of them. So long as we can get the.
The CMS reimbursement in place so it sort of driving like that.
<unk> tend to put you kind of more backend weighted this year.
Okay and then on signature of are you. All you had $55 million of total contract value at the end of 2019 out of another 65 million per that last year can you just talk to how much that contributed to revenue and in 2020 and when can we expect to see that ramp up more materially.
Yeah. So.
Just to refresh everyone I mean, the tip of the waterfall is you sign a contract to do of pharma deal and.
It takes about a year from signing for the patients to start actually sending samples and you book whatever revenue you signed from that contract and years, two and three post signing and if that makes sense. So you can kind of see on that chart, you started and that kind of $9 million ish range and then grew from there and so that waterfall it's pretty.
It's actually pretty high fidelity and indication of where we were related for pharma revenues. This year kind of high single low double digit cash.
And of millions of revenue it was kind of of the kind of a sense of that and so that's just kind of continue to ramp.
Much more so as you hit any of these bigger studies and that's why results like this and bigger trial are so important to us.
Okay, and then on the breast cancer recurrence of phase two trial and the share by my son last year are you still expecting of data readout sometime this year and.
And I thought that that would be enough to take to Medicare or do you think you'd have to wait for the phase III data.
Yeah, I'll make a comment on that and then maybe Solomon you can come in so we actually announce.
And two trials, one with Pfizer and the other with Novartis.
We're looking at breast cancer treatment on molecular recurrence.
One.
And you'll book, both phase III trials and I think we're excited about that because that's the that's an enormous.
The warmus opportunity I mean, that's the breast.
Recurrence market is.
You know, maybe five six times bigger than.
And the colorectal market and that's an area where.
There are a phase III.
The trials that we've.
We've competed for and we're feeling very very good about.
I do think that in order for physicians and pharma companies to be enabled to to actually make that change you'll you'll need to see the the phase III data.
But certainly.
I think these these phase two trials would be good.
Initial readouts, but there are phase III trials underway, and we look forward to making announcements in the near future. So all of them or would you like to make additional comments there.
Oh sure Yeah, just echoing breast cancer is a hugely important area with a lot of unmet need.
And there are other studies that are underway.
The have not been announced yet.
But I agree with Steve that.
In terms of base case assumption you need some.
Strong.
The one data like phase III data to really enable that but there are there is upside potential and.
Seen before the breast cancer.
The patient population is very active.
Very forward thinking a lot of.
A lot of.
Patient to take matters into their own hands and push policy forward more than you see and some of the other cancer types, so between that and and a lot of the data will be reading out earlier.
There's there's some upside potential, but the general I agree with Steve.
Okay, and if I could sneak in one more.
Go ahead.
Yeah, just going to say Catherine.
As a reminder, too we just published some great data and neo adjuvant breast and as you saw on the slide deck. We've had another peer reviewed paper and breast cancer. That's been accepted that we can't talk about now, but you know just.
Adding to the massive amount of data that we have out there one of the main things that separates Cigna Tara.
From some of the other groups that are coming into MLD is the amount of data that we have I mean, we now have eight accepted and published peer review papers and over 2000 patients that have been studied.
And when you look at that.
Some of the competitors that are now coming in that that really don't have any peer reviewed data.
It's a very significant differentiator.
Okay got it and.
And just sneaking one and you've talked a lot of hot early detection today.
What's the general timeline, we should think about for hearing more.
And I thought your early detection plans and sort of general thought to take a multi cancer or single cancer approach there.
Yeah.
Yeah. So I think at this point, we Havent really released any of the details of of our plans and.
We're going to update everyone on that and the future when we're ready.
You know what what we're saying at this point is is that we have irons and the fire.
We have some unique capabilities based on all of the early stage ex some data that we have.
And we have a very targeted way from an investment standpoint to go after the market.
So we look forward to giving some of some.
And some future updates windows of ready, but you know we're really as you can see we didn't include it and any of the prepared remarks.
We will do that in the future when we're ready, but we're just not we're not ready to do that today.
Hi, great. Thank you.
Ladies and gentlemen, this is all the time and you have for questions today and this also does conclude today's presentation. You may now disconnect and have a wonderful day.