Q2 2022 Natera Inc Earnings Call

August 4, 2022

Okay.

Welcome to the terrorists 2022 second quarter financial results Conference call.

At this time all participants are in a listen only mode.

Following managements prepared remarks, we will hold a Q&A session.

To ask a question at that time, Chris Star followed by one one on your Touchtone phone.

As a reminder, this conference call is being recorded today August four 2022.

I would now like to turn the conference call over to Michael Brophy Chief Financial Officer. Please go ahead.

Thanks, operator, good afternoon. Thank you for joining our conference call to discuss the results of our second quarter of 2022.

On the line I'm joined by Steve Chapman, our CEO , and finally moskovitz general manager of oncology.

Today's conference call is being broadcast live via webcast, we will be referring to a slide presentation that has been posted.

The investor on the paradox.

A replay of the call will also be available at Investor Natera Dot com.

Starting on slide two during the course of this conference call. We will make forward looking statements regarding future events and our anticipated future performance.

Such as our operational and financial outlook and projections, our assumptions for that outlook market size partnerships clinical studies opportunities and strategies and expectations for various current and future products, including product capabilities expected release dates reimbursement coverage and related effects on our financial and operating results.

And you that such statements reflect our best judgment based on factors currently known to us and that actual events or results could differ materially. Please refer to the documents we file from time to time with the SEC, including our most recent Form 10-K or 10-Q and the form 8-K filed with today's press release.

Those documents identify important risks and other factors that may cause our actual results to differ materially from those contained in or suggested by the forward looking statements.

Forward looking statements made during the call are being made as of today August four 2022 at this cause replay to reviewed after today. The information presented during the call may not contain current or accurate information.

<unk> disclaims any obligation to update or revise any forward looking statements. We will provide guidance on today's call, but will not provide any further guidance or updates on our performance during the quarter unless we do so in a public forum, we will quote a number of numeric or growth changes as we discuss our financial performance and unless otherwise noted each such reference represents a year on.

On year comparison, and now I'd like to turn the call over to Steve Steve.

Thanks, Mike, let's get into Q2 highlights on slide three as.

As you can see from the press release, we had another strong quarter in Q2.

Revenues grew approximately 40% over Q2 of last year every reached an incredible new milestone by processing 500000 tests in a single quarter.

Going more than 33% over Q2 of last year.

We achieved this growth rate. Despite the fact that Q2 last year had a large onetime benefit from a competitor exiting the <unk> business.

We saw strong continued sequential growth from Oregon health and oncology products strong ESP gains in signature.

And we further strengthened our market position.

We estimate our Panorama test now demands roughly 50% market share in this expanding market.

This business momentum enables us to again raise our 2022 revenue guidance to $805 million to $825 million, an increase of $15 million at the midpoint.

Pro forma for last year's onetime Qiagen revenue of $28 6 million. This new range implies an annual revenue growth of 37%.

Mike will cover this in detail later in the call, but our progress so far this year. It makes us even more confident on our path to cash flow breakeven in mid 2024.

As good as the Q2 results were they were negatively impacted by a timing difference of about $3 million worth of volumes that were session in our lab, but not reported out until early July . So we took the expenses on that testing in Q2, but we will recognize the revenue and margin benefit in Q3 there.

Before we believe the printed results actually understate the momentum we think we are seeing in the business right now and I think the rest of these highlights show that we are just getting started.

We recently announced that we have been selected to participate in Unitedhealthcare preferred laboratory network. After completion of a rigorous application of review process for access cost data quality and service. We were pleased to have the chance to undergo this rigorous review with the largest commercial insurer in the United.

We sure United Healthcare's commitment to driving improved patient access affordability outcomes and patient experience.

Our Oregon health products were significant contributor to both volume and revenue growth in the quarter. We were thrilled to see the publication of the Trifecta study in transplantation, which is a leading journal in the transplant space. We think the trifecta publication is a significant accomplishment. This is the largest prospective multi site full.

The biopsy match study that has ever been published in this space and highlighted the benefits of testing for both donor derived cell free DNA percents and quantity, which we provided with each cross Barrett result, I'll spend more time on this data in a few moments.

In oncology, our progress with signature continues to exceed our expectations. We continue to reach a record number of signature test performed in each a question quarter with our commercial momentum remains very strong led by colorectal and Io monitoring indications. In addition, we recently secured Medicare reimbursement for Cigna.

Tara and muscle invasive bladder cancer, we think the clinical need for Cigna Tara among muscle invasive bladder cancer patients is significant and the peer review data we've presented thus far in bladder cancer is compelling.

This is now the fourth time, we have secured Medicare reimbursement in the first coverage expansion under the foundational LCD for <unk> testing in solid tumors published in December of 2021.

I think that demonstrates the breadth and depth of our data generation across tumor types and highlights our competitive advantage over others in the liquid biopsy space.

We continue the drumbeat of presenting excellent data at <unk> in June with 11 circulating tumor DNA abstracts, including one oral and seven poster presentations. In addition, we plan to publish or submit many significant studies for Cigna Tara in the next few months, including data in colorectal gastroesophageal.

Jill pancreatic breast ovarian and melanoma and bladder cancers seven of these studies have more than 500 time points, making them. Some of the largest circulating tumor DNA studies to date and four are in new tumor types.

I think the breadth and quality of the data opens up new indications, where we can pursue reimbursement while also burnishing our credibility with community oncologists that treat many different types of cancer cells.

Sullivan, who will go into more detail on all of this later in the call.

We were also thrilled to welcome Dr. <unk> to the Cara as Chief Medical Officer for oncology.

Dr. Lu previously served as professor of oncology and share of research in the department of oncology at Mayo Clinic, Dr. Lu brings a wealth of expertise and how practicing oncologists can best supplies Cigna, Tara and has already proven to be a fantastic addition to our team.

Finally, we received another vote of confidence in the business from our executive Chairman, Matt Rabinowitz, who announced an additional equity investment in the Tara. This is on the heels of our lead independent director, making investment in Q1.

Management electing to forgo cash salaries this year in favor of stock compensation.

We are all very excited about <unk> future and I think the Q2 results demonstrate we are on the right track.

Okay, let's get into some of the business trends on the next slide <unk>.

We processed a record 499901 units in the quarter a third more than we processed just in Q2 of last year as you can see from the volume progression on the chart. It was just recently.

Surpassed 1 million tests for a full year in 2020, so to be at the 500000 tests level for a single quarter demonstrates the strong momentum in the business.

We overcame our typical seasonality in the women's health business that we have historically seen in second quarter, which is a function of existing accounts seeing fewer prenatal patients during Q2 in.

In fact this is only the second time in recent history that we have grown sequentially in Q2 versus Q1, New account starts were very strong and we see an opportunity to further consolidate market share in women's health.

Since the Smart trial was published in the spring we are finding that data to be a significant competitive advantage in the field. We are off to a very strong start so far in Q3, and I think the raised guidance demonstrates our visibility solid performance in the second half of this year on.

On the next slide you can see the revenue growth was even stronger than the unit growth at 40%.

That was driven by another step up and ITT asp's in the quarter and continued strong sequential growth in our clinical asps for signature.

As clinical signature of volumes grow the ASP progression is particularly impactful to the overall model.

We described last quarter have clinical signature Asps were in the 500 last year and stepped up to roughly 650 in Q1.

Now seeing the signature asps in the seven hundreds for the first time and we think there's room for more improvement in the second half of this year.

This is being driven primarily by our mix of Medicare reimbursed tests, improving and an increasing fraction of our volume starting to come from the recurrence monitoring indication, which is reimbursed by Medicare at the <unk> rate of $3900. So again part of upward re rating the guidance for the year is not only volumes but.

Also these positive ASP trends.

On the next slide is a bit more detail on our selection to Unitedhealthcare preferred lab network effective July one.

We have a long track record of innovation to improve the patient experience and delivering data that shows improved patient outcomes. So we are pleased to partner with United on this effort.

It only includes a handful of U S labs in this network to be selected labs must undergo a very rigorous months long quality audit that includes detailed review of claims processes and our internal software systems. This change means less administrative cost and overall, we expect this agreement to be a positive for our women's health Prob.

Alex.

Okay.

In women's health, we continue to benefit from further market penetration driven by a Cox average risk recommendation at Ni PT from August of 2020, we estimate the <unk> market is roughly 50% penetrated so there's still a large opportunity for growth, enabling us to help more patients and physicians.

Our volume has also increased from competitive wins, where we continue to differentiate ourselves with unique clinical features and strong data combined with our focus on user experience.

We now estimate we have roughly 50% of the overall <unk> market share.

I think we're well positioned to continue to lead going forward, given we're still publishing meaningful data and adding clinical features while many competitors do not appear to be investing in clinical data generation.

<unk> business.

One example of our investment in clinical data generation is the publication of landmark Smart study in the Gray Journal, which validated the high clinical utility of <unk> testing the performance of our <unk> test and the smart trial was remarkable and may further differentiate our product going forward.

<unk> 2000, <unk> test is well positioned given the excellent sensitivity specificity and PPV and because of our ability to assess the smaller 20, <unk> deletions that have historically been more difficult to detect and make up roughly 41% of the disease load test performance breadth of disease.

Low coverage and strong clinical data are important for physicians based on the quality of the smart study. We are now even more optimistic that 20 <unk> deletion syndrome could be included positively in society guidelines in the near future.

As <unk> becomes more important as part of the decision of which Ni PT laboratory to us we see the benefit of choosing the terror increasing.

Okay.

Okay now in Oregon health, let's spend a bit more time on the Trifecta study recently published in transplantation, which is a leading journal in the transplant space.

The Trifecta study is the largest prospective multi site study of fully biopsy matched patients per donor derived cell free DNA analysis conducted to date.

Using a novel <unk> threshold algorithm, incorporating both donor fraction and estimated amount of donor derived cell free DNA when assessing active rejection.

<unk> assay excelled at discriminating between active rejection and non active rejection with an AUC of <unk> 88 versus molecular pathology. We are very proud of these results and the significant body of peer reviewed evidence that we've generated now in the transplant space, we're continuing to perform very well seeing record level.

<unk> of test utilization and kidney heart and lung donor derived cell free DNA testing.

Shifting gears now to arena site, which is our germline tests for patients with chronic kidney disease.

Kidney disease affects roughly 37 million Americans, making it one of the single largest areas of health care today.

Connecticut genetic testing for renal conditions using a broad tests such as Rina site has demonstrated clinical utility in fact, a recent study published in the New England Journal of Medicine showed that roughly 10% of chronic kidney disease patients have a genetic etiology.

Results can inform targeted treatment therapies help avoid kidney biopsy confirmed or reclassify a clinical diagnosis provide risk assessment to relatives identified candidates for clinical trials and diagnose conditions that could benefit from additional medical referrals.

Recent executive statement from the <unk> guideline group suggested that Nephrologist should think genetic when evaluating chronic kidney disease patients.

We completed enrollment in our renal care real world prospective multi site study in late July total enrollment in the study is now with more than 7500 patients across over 30 U S sites to our knowledge. This is the only large scale perspective multi site study looking at the clinical.

Utility performing routine genetic testing a chronic kidney disease patients as a reminder, we started this study several years ago with the most prestigious academic centers in the field and partnering with Dr. <unk>, who is the chief of the division of Nephrology, a Columbia University as the principal investigator we.

Back to submit this study for publication in late 2022, and we think it could have the potential to change guidelines around the management of patients with chronic kidney disease.

We believe that <unk> patients should be able to receive germline testing at the time of diagnosis given the number of patients diagnosed and living with CK D. The Tam for this opportunity is similar to that of hereditary cancer testing.

Now I'd like to hand, the call over to Solomon to cover our recent progress in oncology Solomon.

Thanks, Steve.

The Big news in oncology with <unk> decision to cover Cigna terror for muscle invasive bladder cancer under its umbrella LCD, which we announced in July .

This is our fourth coverage decision by Medicare for Cigna Tara after early stage colorectal cancer.

Then a follow on extension for stage for oligo metastatic colorectal cancer.

Third the Pan cancer immunotherapy monitoring and now the bladder cancer, we expect to coding and pricing will be similar to CRC with coverage effective as of April 19.

Based on the communications, we've had from <unk>. We believe coverage will include the neo adjuvant adjuvant and recurrence monitoring setting.

With about 81000 newly diagnosed cases per year bladder cancer is the sixth most common cancer in the U S generally split into muscle invasive and non muscle invasive.

Second Paris coverage in muscle invasive disease on the right side of the page represents we believe about 35000 new patients per year.

With a median age of diagnosis at 73, we expect a heavier Medicare mix in this patient population than we see in CRC.

Based on our anticipated testing schedule.

Which itself is based on current NCC guidelines for imaging.

We believe this implies approximately 400000 cigna Terra tests per year at full adoption.

As a reminder to put this in perspective that is more than two times the size of the entire breast cancer gene expression testing market, which has been a very important area for diagnostics in the past.

But most importantly, this will have a big impact on patients and patient care.

To better understand the clinical utility of Signet Terra in this population, let's take a look at the patient journey.

Today guidelines recommend starting with the <unk> procedure, which stands for trends or repo resection of the bladder tumor. This allows for pathological staging and assessment of the tumors invasion into the surrounding muscle tissue.

Once it's been diagnosed as muscle invasive guidelines recommend neo adjuvant chemotherapy prior to cystectomy.

We're the first clinical conundrum presented itself <unk> guidelines recommend monitoring for neo adjuvant treatment response, and switching treatments, if a patient fails to respond.

However, it is reported that approximately 60% of patients do not respond to neo adjuvant chemotherapy with a lack of good biomarkers to assess that response.

After surgery in the adjuvant setting up to two thirds of patients are cured by the surgery alone while the other approximately one third of patients will go onto experienced distant recurrence.

Here the clinical challenge is whether the prescribed adjuvant systemic treatment chemotherapy.

Chemotherapy for those patients who did not have near adjuvant chemo or the new option of prescribing a year of immunotherapy.

<unk> was recently approved for use in patients at high risk of recurrence.

Finally in the surveillance setting.

CCM guidelines already recommend intensive monitoring as the scientific evidence is strong that early asymptomatic detection of recurrence leads to better survival.

However, with the current monitoring tools, primarily imaging, it's reported that at least 50% of relapses are still detected two made.

<unk> has been validated as a prognostic and predictive biomarker to help inform each of these challenges in conjunction with standard imaging and clinical assessments.

There are two major peer reviewed publications that supported Cigna <unk> clinical validity in these settings.

The 2019 Christiansen paper in the journal of clinical oncology.

Which followed 68 patients with regular testing 656 time points in total all the way from diagnosis through Neo adjuvant therapy surgery, and MRV assessment and recurrence monitoring.

This study showed that serial signal taro testing could detect relapse with 100% sensitivity and 98% specificity with an average diagnostic lead time of about three months.

Second in the 2021 pulp paper in the journal nature, we reported that Cigna Terra could identify with 37% of patients who were <unk> positive after surgery and he benefited significantly from immunotherapy, while the other 63% of <unk> patients who are <unk> negative.

Did not see any significant benefit from immunotherapy.

Coming from the phase III randomized and Viger <unk> trial. This was the first demonstration at Cigna Terra as predictive as well as prognostic.

The strength of that data together with the breadth of evidenced in other cancer types is what makes oncologist. So enthusiastic about incorporating cigna terror into their standard of care.

Now shifting our focus to commercialization to get this into the hands of as many bladder cancer patients as possible.

We're already in an excellent position to commercialize.

With our existing infrastructure into signature as a pan cancer platform.

We will use the existing sales and marketing team focused on community and academic oncologists, the same user experience and customer support tools that have already been established and just simply continue scaling the existing signature lap since it's the same MRV product that we already offer for CRC in Io monitoring.

Our strong commercial adoption and with every new covered indication, we create additional operating leverage and drive additional customer loyalty further extending our first mover advantage in this exciting field.

After the bladder cancer announcement, we have been asked what is next in the clinical roadmap.

We anticipate several important datasets to be published or submitted in the coming months.

In the areas of colorectal gastroesophageal pancreatic breast ovarian and melanoma and more.

As Steve mentioned seven of these papers have more than 510 points and four of them are in tumor types, where <unk> has not yet published peer reviewed data.

Making them substantial additions to our body of evidence.

We expect those papers to publish in the second half of this year or in early 2023 and that will support our goal is to expand insurance coverage to more patients.

We also continued to grow and execute on our pipeline of prospective clinical trials, which are expected to deliver definitive practice changing evidence over the coming years.

In particular.

To highlight our continued momentum in colorectal cancer.

Number one we have submitted the circulate data from Japan for publication, which now includes 18 months of clinical follow up versus the 12 months, we presented earlier at Astro GR.

We expect that paper to be published soon.

Number two we're pleased to have enrolled the first patient into the new NCI sponsored circulate U S trial.

We think these two trials are an important part of our strategy to increase utilization achieved our coverage goals.

On the next slide we are seeing early signs of enthusiasm from private payors.

And we're hopeful that the NCC guidelines committee for CRC, which meets in late August may incorporate tumor informed MRV into their guidelines.

We believe our guidelines update is further supported by the recent data from Australia published in the New England Journal of Medicine, which showed that <unk> guided treatment of stage II colon cancer resulted in the same survival outcomes with approximately two times less chemotherapy.

Now I'd like to hand, it over to Mike to cover the financials.

Okay.

Great. Thanks Aman. The first slide is just the standard financial results for Q2, Steve covered the key trends on volumes and revenues as Steve mentioned revenues would have been roughly $3 million higher in the quarter if not for the timing difference between this session in the lab and reporting out the units, which is the event we need to accrue revenue. So that also art.

Recently held down gross margin in the quarter and I expect Q3 gross margins to be a little higher than usual as a result.

Steve touched on the fact that new account starts were really strong in Q2 and women's health, we have a sustained track record of adding 250 to 300, new physician offices ordering per month on a base of approximately 20000 customer accounts.

We saw another quarter of good sequential progress on clinical signal Terra Asps.

We've now moved from the Asps and the 500 last year to roughly 650 in Q1 to now just above an estimated $700 in Q2, the clinical Isps with clinical Cogs now in the low five hundreds were still gross margin dilutive, but that progression is absolutely critical given that the volumes continue.

To exceed our initial sales targets, we are armed with another coverage decision in our favor and we are optimistic about starting to get some commercial coverage traction that Solomon described I think that sets up for more ASP progress on cigna ore in the second half of the year.

Asps were up sequentially again, this quarter and we think there's more room for progress on women's health Asp's in the second half of the year.

Balance sheet remains strong we used substantially less cash in Q2 as compared to Q1. This year, we expect quarterly cash usage to continue to drop meaningfully in the second half as revenues grow and expenses remained stable. In addition to that progression. We estimate that we have about $30 million in receivables on accrued use.

<unk> that we expect to catch up on in the second half of the year. The catch up is driven by software update that causes us to hold a portion of our claim the spring <unk>.

Our ramping up of operations that are particular to Medicare reimbursement for Signet tariff.

Spending a bit more time on the cash flow breakeven on the next slide last quarter, we went into some detail laying out a longer range model with our expected progression.

Repeat all of that here, but the first half of 2022 has reinforced for us they're getting to cash flow breakeven is not going to require draconian cuts or fundamental changes to the business model today, we have already established ourselves as the market leader in multiple large and growing markets.

We've got a significant lead in generating data that we think could take years to close even if we stopped clinical trials now we.

Frontloaded our investment in commercial infrastructure, and we are reaping the benefits as the volumes come in and revenues continue to grow quickly.

Because of all that we can generate significant returns on invested capital by putting these established products onto lower cost sequencer and scaling our cost efficient Austin lab.

So just that base case drives clear visibility to cash flow breakeven based on the results. We've seen so far this year. We now think we can get to cash flow breakeven quarter bye.

By mid 2024.

On top of that base case, I think we have a number of potentially meaningful catalysts that we think can be achieved in the near term as you can see on the right hand side of the page, we think it's likely one or more of these could be achieved as early as this year.

One of these catalysts would represent another step function change for the company and we've spent a lot of time, describing why we are in a great position to achieve each of them.

Okay. Good let's get to the next slide in the updated guidance.

Guidance for the year Steve.

Steve touched on the re rate of the revenue guidance range for the rest of the year.

As you can see on the slide this new guide represents a major step up from our initial guide in March and reflects the strength, we are seeing in both asps and volumes across the company.

We are holding cash burn margins and expenses stable to the prior guide for now which represents some caution on the working capital elements. We described earlier expected continued scale in the women's health products and a recognition that the <unk> clinical unit economics, while improving are still in a phase where they are dilutive to gross margins for the time being.

Finally, we expect to publish our inaugural ESG report in the near term, including our 2025 sustainability goals, which we are very excited about.

So we're very pleased to be able to share. These results with you today and now let me hand, the call over to the operator for questions operator.

Thank you.

As a reminder to ask a question you will need to press star one on your telephone please.

Please standby, while we compile the Q&A roster.

Okay.

Our first question comes from Tejas Savant with Morgan Stanley . Your line is now open.

Hey, guys good evening and congrats on a strong printer.

My first question is on reproductive health.

Steve can you talk a little bit about the opportunities for share again that you alluded to here, particularly given some of the competitors going through an internal restructuring how much of that is playing into your outlook increase and then as we think about sort of the ROE versus Wade decision is there a possibility.

<unk> is getting into guidelines sooner.

Off that and how should we think about the revenue implications as that sort of 23 situation.

Yes. Thanks for the question. So I think on the share gains we took it comes down to a lot of things I think largely that we generated significantly more clinical data supporting the validation and the performance of Panorama.

Any other IPG company and in addition, there was about nine points of clinical differentiation, where we offer things that others simply cant do so I think it's largely those two things.

Combined with our focus on user experience that are driving our share gains.

Of course, as others pulled back their investments both in their commercial infrastructure and also in R&D I think that does benefit us.

But largely I think we're benefiting from from the data.

The clinical differentiation.

On the <unk> side.

We've talked a little bit more in this earnings call about the possibility of.

Society guidelines.

Being updated in the near future.

Or is it very strong clinical utility.

Resulting from doing prenatal testing.

The 20, <unk> deletion and Thats outlined.

In the Smart study, which was the largest prospective trial that's ever been done in this space that was published in January of this year. So.

So we do think that there is.

As a likelihood or possibility that society guidelines change in the near future.

Include <unk> as part of our routine prenatal screening.

<unk>.

Just say that we feel more confident now than we have in the past that those guidelines are going to change.

Thank you.

Our next question comes from Dave Delahunt with Goldman.

Goldman Sachs. Your line is now open.

Hey, guys congrats on the strong quarter.

You can see the Asps is going up.

Could you double click on that and give us a little bit more.

Color on whats going into <unk>.

<unk> ASP is going up as well as the.

Signatory getting up into the seven hundreds now.

Yes, Mike do you want to take that yes. Good yes. Thanks for the question David.

Yes.

No surprise right I think on the on the Cigna HERA ASC largely what we add.

Second quarter at the beginning of the year, which is our Medicare mix is increasing the number of.

Chemo types that are reimbursed are increasing.

And we're just getting further into the launch and so youre going to just have more and more patients are actually falling into this reimburse category that you could get further and further into the launch so it's a really it's a pretty natural organic progression.

On thing of Terra as we were we're very focused on obviously because those lines or are really ramping.

On the <unk>.

It's again, it's pretty predictable.

There is a significant chunk.

Potentially.

Especially.

<unk> plan that Havent historically priced they're covered.

Key.

And some other barrier to kind of getting reimbursed for those patients.

Gradually improving whether its administrative barriers stopping us from getting the reimbursement per test or just new coverage policies.

So I think it's one of the main drivers.

Thank you.

Our next question comes from Catherine Schulte with Baird. Your line is now open.

Okay.

Hey, guys. Thanks for the question is what are you expecting in terms of for muscle invasive bladder and any contribution the guidance there and related to that I think you've seen stronger adoption of our patient population for CRC and given the older SKU for bladder is that something that you would anticipate being a rate limiter.

The adoption.

Yes, So let me you want to take that.

Sure happy to.

I actually didn't quite hear the very first part of your question Kathy was it what.

What we expect for commercial adoption in bladder cancer.

I guess, we can't hear anymore, but.

Yes, I'll answer the second part certainly be.

With the median age of diagnosis of <unk> 73 would you expect a bigger Medicare mix there.

Heavier Medicare mix, which is going to be positive for.

For Asps and we.

We don't expect that necessarily to weigh down anything in the adoption curve.

The <unk>.

<unk>.

And receptiveness that we've encountered thus far.

<unk> oncologists.

Is quite significant given the.

Unmet needs that they have today in managing a bladder cancer patients.

Yeah, Let me let me just add on on commercial adoption I'll say, we're already seeing a nice.

Increase in the utilization muscle invasive bladder post some of these publications.

Coming out and post the coverage decision there has been I think a lot of positive buzz. So I think we're feeling good about it.

I think when you look at the overall Tam.

Maybe one third of maybe between one third and one half of what we had announced previously for colorectal.

Thats potentially good.

Benchmark.

But the other thing that I think is really unique here is that yes.

There is very limited data.

From from competitors in this in this sector in muscle invasive bladder and I think thats an opportunity for us to really kind of on the long term have a very significant outsized share.

This particular segment of the market.

Which I think which is great benefit.

Thank you.

Our next question comes from Max Masucci with Cowen. Your line is now open.

Hey, thanks for taking the questions.

Just the first one if you look at slide 20 in the deck highlights the mid 2024 and target.

Quarterly cash flow breakeven.

In the prior Q1 slide deck suggested that one three to one 5 billion revenue run rate and 55% gross margin will get you there to breakeven cells.

If we look at that mid 2024 target on slide 20, it seems to imply that 131 5 billion in revenues it could be a reasonable target for 2024, just looking at consensus it's just north of $1 2 billion. So it's.

More of a broad question just about how we should think about that bridging those two numbers.

And the confidence that we can have in our modeling for the growth segments.

Yeah, Hey, Matt Thanks for the question <unk>, So yes so.

All of that is roughly right.

I think the distinction is that what we're calling for us in getting to a quarter, where we're kind of crossing over that cash flow breakeven threshold.

As distinct from like a like a full year.

Revenue number so there's just a little bit of nuance. There I think that's a question. We often get is just kind of which quarter does that.

And what the timing is I do think that our look our confidence on getting to that level of increase as the year Hasnt gone on because of all the commentary we provided.

In the prepared remarks.

Headline continued commercial traction.

We see continued progress across all points in the business gives us more comfort could provide a little bit more precision around a quarter I don't think that necessarily imply that.

A huge disconnect in terms of the.

Yes, the numbers that were put out previously versus the model that I think this is a distinction of gateway a specific quarter.

Thank you. Our next question comes from Puneet <unk> with Leerink. Your line is now open.

Yes, hi, guys.

Thanks for taking the questions. So first one is really around.

And CCN can you just provide any updates there.

Terms of Sigma Terror, and any studies or things that you have submitted or anything that you expect here in the second half.

Yes, I'll take that it's all been maybe you may want to add something additional.

So I think we're feeling.

Positive, although we don't control the guidelines I still think that there is some some good <unk>.

<unk> happening with Kols that were feeling positive about.

Both from the data that we've generated and also from the data from the dynamic trial.

That was that was presented previously yes. So I think there there is a good opportunity for guidelines to potentially change in the summer.

Or later in the year like the December timeframe.

Biggest contribution that we'll be making to that will be the publication of the circulate Japan study.

And that paper is now in submission as we said it would be.

I mean, there is a possibility it could be published sometime this summer.

Or in the early fall and one of the.

Key updates is that the follow up for that study has now been extended to 18 months.

And I think Thats, just makes the paper even stronger than it was before.

And I think well positioned that to really drive guidelines.

If they haven't changed this summer based on the existing data.

Okay.

Sullivan feel free to add to that if you'd like.

I'll just add two things.

First.

We do not think that publication of the Galaxy data in August is gaining.

For a change in the guidelines.

Though we've done everything we can to take.

To accelerate that.

And.

Again, the reason, we don't think it's gaining its just because there is there has been so much other data now public.

Published and presented in the field that has really impacted how leading.

<unk> oncologists think about.

Utility here and as Steve mentioned, the dynamic trial from Australia.

Welcome addition to the overall body of evidence supporting Cte DNA.

Thank you.

Our next question comes from Julia Chin with J P. Morgan Your line is open.

Julia.

Thank you.

Our next question comes from Julia Chin with Jpmorgan. Your line is open.

Julien open please check your mute button.

Hi, Thank you you may now.

Yes Julien.

Karen could you give us an update on the current mix between first year patients and recurring patient and in light of the expanded coverage what kind of trajectory are you expecting for signature over the next few years.

Yes, let me let me comment on the first one and then maybe Mike you could talk about the.

T trajectory.

So long term when you look at the number of patients that are that are living with cancer versus the number of patients that are diagnosed every year. Obviously, there is way more patients that are living with cancer.

Over the long term, we think that theres going to be a very significant shift CA.

The recurrence monitoring indication.

What we're seeing now though is just the demand and the uptake for.

The test is so high that we are seeing like a very large number of new patients coming in and these are patients that are using the test for the first time.

And as we are commercial and clinical team meet with more doctors, yes. There is a lot of these patients coming in for the first time at their first time point.

We are seeing over time over the past two years a shift.

In the volume towards the recurrence monitoring.

And longitudinal tracking segment, which is what one would expect.

Obviously, it's not going to fit with their sort of population dynamic just because we do have the significant number of new patients coming in.

Mike do you want to comment further on the ASP.

Yes, I mean, I think those those drivers actually influence AFC quite a lot of it I think in summary, we think that the current ASP is quite immature.

For for Cigna.

And it's really a function.

Volumes expanding in these reimbursed population having more of these populations covered by Medicare, where we feel like we can really make a huge difference to the care in these patients.

Clinical utility that we've demonstrated I think in some of that.

And some of the data that we published particularly the prospective data in colorectal cancer, we think is really compelling.

And obviously that would can draft guidelines, which of course guidelines within drive broader commercial coverage all of those things are areas that we expect to have happen over the next few years as you can tell which would drive hpe's significantly higher.

This.

Yeah makes us business something that works for everyone.

Thank you.

Our next question comes from Mark Massaro with BTG. Your line is open.

Okay. This is any answer Mike thanks for taking the question.

So could you share with us.

Level, but some of the key milestones or catalysts will be for any of the Apache program.

You also share any learnings.

From potential discussions with FDA.

And as it relates to our clinical trial development or placebo.

Yes, thanks for the question so.

As we said before on early cancer detection, which is which is a priority for us.

We're doing is we're leveraging.

The data that we have on early stage.

Tumor exosomes and we've used that to generate.

Our proprietary targeted panel.

DNA mutations, we're combining that with methylation signatures.

<unk> available for public databases, but also.

We've developed ourselves.

We've licensed from our partnership with our House University. So we're taking the DNA combined with methylation.

And we plan to run that and generate some data looking at the performance of the test.

The initial performance looks good and that's prompted US obviously to continue with the work.

But we plan on having a kind of more significant readout I would say later in 'twenty two or at some point in the first half of 'twenty three roughly.

The biggest milestones in front of us are getting feedback from the FDA in fact, we've already done our pre submission.

To discuss.

The clinical trial.

That we have.

We are participating in and we're looking forward to that meeting, which will be coming up in the next couple of months and then post that will.

We'll be understanding their feedback adapting our trial strategy if need be and.

And then generating more significant proof of concept data as I mentioned.

And the next kind of year or so.

Thank you. Our next question comes from Alex Nowak with Craig Hallum. Your line is now open.

Great. Good afternoon, everyone. This is connor on for Alex I guess first I was hoping on some color around the competitive environment and <unk> tests.

I'm sure you all know guardant health.

They are tests covered but when do you expect some of these tests to be solely used for adjuvant decision, making and others used for recurrence monitoring just some.

Just some thoughts there would be helpful.

Yes, I think so.

From a competitive standpoint, I think we think that we're doing exceptionally well I think.

Physicians minds.

We're seeing that the tumor informed approach.

As the winter.

We think we have the vast majority of the market share at this point.

And we're in a very good position most of that is driven by.

The breadth.

And depth and quality of our peer reviewed data.

We think physicians will want to use.

The same test for Mardi time.

<unk> point adjuvant decision, making as they will.

For recurrence monitoring.

When you look at our local coverage decision from Medicare based on the data that we generated in the peer reviewed evidence that we've had we've received coverage for both.

Mardi.

Time point adjuvant decision, making in addition to longitudinal monitoring of recurrence monitoring and we think that that's really important long term.

Similar when you look at muscle invasive bladder.

<unk> now received coverage for neo adjuvant.

For <unk> adjuvant and for longitudinal recurrence monitoring again, I think just showing that we have super high quality data and the breadth of our data is outside of just one narrow indication.

Thank you.

Our next question comes from Nathan <unk>.

With Stephens Your line is now open.

Nathan Your line is open please check your mute button.

Hey, guys, sorry about that.

Maybe to hit on prosper kidney for a minute could you update us on penetration into kidney centers.

How many centers are you receiving orders from and then thinking about the components of growth there.

How much is coming from.

Untouched Greenfield opportunity and.

Are you guys taking share there as well.

Yeah. Thanks for the question so.

Yes, I think from a from a volume standpoint, a growth standpoint, we're doing well we're seeing.

Volume, increasing we're hitting record numbers every quarter.

Physicians are giving very positive feedback.

Post the publication of the Trifecta study.

It was the largest.

Multi site perspective fully biopsy match study that's ever been performed.

We've continued to get excellent feedback. So we think we're in a good position.

We're working with the vast.

I'd say it was the majority of transplant centers at this point.

I think previously we've said roughly in the range of 50% or something in that range, but that continues.

Continues to increase.

From a penetration standpoint, we think the overall.

Market is probably about 10% penetrated.

And that.

That means the vast majority of patients today still arent being monitored with donor derived cell free DNA and we think that's where the biggest opportunity lies.

Now there are some centers that haven't yet adopted donor derived cell free DNA.

There are some centers that are using it in a selective way.

But as things.

More data is generated and as physicians start to use donor derived testing more frequently in their practice, obviously, there is a large opportunity to help patients.

B to help patients.

Thank you.

This concludes the Q&A session. Thank you for participating. This concludes today's conference call you may now disconnect.

The conference will begin shortly to raise Johan during Q&A you can dial one one.

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