Q3 2022 Natera Inc Earnings Call
Welcome to the terrorists 2022 third 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. Please press star followed by one on your textile and found it.
If anyone has difficulty hearing the conference. Please press star zero for operator assistance.
As a reminder, this conference is being recorded today November eight 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 third quarter of 2022 on the line I'm joined by Steve Chapman, Our CEO and somebody Moscow Rich General manager of oncology Today's conference call is being broadcast live.
A webcast, we will be referring to a slide presentation that has been posted to investor Natera Com a replay of the call will also be available at Investor Natera Duck.
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.
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, we caution you that such statements reflect our best judgment based on factors currently known to us and that actual events or results could differ materially. Please refer to the documents we file from time to time with the ICC, 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.
Looking statements made during the call are being made as of today November eight 2022. If this call is replayed or reviewed after today. The information presented during the call may not contain current or accurate information repair 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 year comparison, and now I'd like to turn the call over to Steve Steve.
Great. Thanks, Mike, let's start with our Q3 highlights as you can see from the press release, we had another strong quarter in Q3 revenues grew approximately 33% over Q3 last year and we processed 518000 tests this quarter growing 27 per se.
Year over year.
We're seeing strong momentum across all product lines and I'll spend more time on that in a moment.
We are pleased to be able to once again raise our 2022 guidance to $810 million to $830 million at the midpoint. This represents an increase in our revenue guidance by over $40 million compared to our initial guide in March and this new range implies annual revenue growth of 30%.
7%, excluding the onetime qiagen milestone in 2021 of $29 million.
We are exercising caution in forecasting some of the early results from the launch of the California prenatal screening program. There have been a few legal developments with the program in the last few days and we are evaluating the impact but for now we are being careful with our forecast. In addition, we've recently integrated our empower a signature of sale.
<unk> teams to focus on centers, where both signature and empower in demand.
The expected benefits of that move later, but we are being cautious with the guide to account for the disruption in the immediate term.
One of the key reasons for the revenue raise is the strong momentum, we're seeing with <unk>, which is performing well above our internal volume forecast for the year.
We processed roughly 132000 oncology tests this year and we think we are on track for roughly 175000 units. This year, we will expand on our signature volumes further in a moment.
The breadth and depth of our data generation for signature across multiple tumor types is a key competitive advantage over others. In this space. In fact, we now have 35 peer reviewed published studies with 13 Pud locations. So far in 2022 and several more coming soon we.
We were pleased to publish our first validation study in ovarian cancer in the journal of Gynecological oncology. In addition, our large scale gastroesophageal validation study, which includes over 900 time points was just accepted and Jay Seo precision oncology.
Finally, we are pleased to announce that the circulate study now with 18 months of median follow up has been accepted in nature Medicine, which has an impact factor of 87, and we look forward to its publication shortly.
Our ordering health products were a strong contributor to both volume and revenue growth. This quarter, we announced the second publication from the <unk> study and transplantation publication demonstrated our prosperity kidney test were superior to the current standard of care donor specific antibody and predicting it.
<unk> mediated rejection I'll spend more time on this data in a few moments.
Finally, we are pleased to share that an independent committee of our board of Directors has completed a detailed independent investigation into the allegations made in the March short seller report.
Board was assisted in this matter by Wilmerhale, which as you know is a leading international law firm with deep experience in investigation like this the Wilmerhale team has had access to company executives personnel communications and other company Records based on the investigation the independent committee on behalf of.
The board has concluded that the allegations of wrongdoing against the company in the report were unfounded.
We werent surprised with the findings as you recall, we had a very detailed response and open Q&A. The next morning, where we reiterated the strength of our compliance program and following that call based on our confidence in the company and the belief in our points program members of the executive team bought stock and took salary in the.
A form of equity for the remainder of 2022.
It's great to have this investigation completed as it involved a substantial amount of time and energy from our team to support the activity of the outside law firm, but we were happy to do the additional work to respond to all of their requests.
Of course, given the high profile nature of that short report and some of the accusations made about the <unk> space in the January New York Times article, we Werent surprised to receive inquiries from regulators, which we've responded yet there have been no specific claims or allegations made just the customarily broad request you would expect.
As we said from the outset, we feel we have a very strong compliance program in place and I think wrapping up the independent Board investigation, which involved a detailed review of the allegations and found no wrongdoing by the company represents an important milestone.
Okay, great, let's get into more of the detailed business trends on the next slide as I mentioned volumes grew rapidly once again in Q3 as a reminder, in Q3 of 2021, we got a big one time bump from a key competitor, leaving the market. So despite that big base in volumes, we continued to deliver rapid growth.
The women's health business continues to expand and we continue to get balanced contributions from end market expansion and competitive wins.
Not going to go into detail on women's health on the call today. So I'll just spend a moment on that opportunity first we take the <unk> market is only about 45% to 50% penetrated so theres still a larger opportunity to help more patients.
We think natera is well positioned going forward, given our political differentiation and our leadership in peer reviewed evidence, including the smart trial, which is the largest prospective trial ever done looking at both commenting any employees and the <unk> micro deletion.
Finally, we think it's possible there may be some critical milestone opportunities ahead, where societies may advocate for expansion of prenatal genetic testing so theres a lot of great things happening behind the scenes.
Okay 19 volumes in addition to our women's health growth the prosperity transplant tests continues to ramp significantly in kidney and we are now also seeing traction in heart and lung transplants.
Positive volumes in heart, and lung or leading indicators, but they arent yet contributing to revenues and we are working to get reimbursement in those segments in the future.
Finally, our largest contributor to volume growth has been the increase we've seen in signature clinical volumes.
The next slide gives you detailed historical snapshot of the traction we're seeing with signature ads in Q3 of 2022, we performed 53, Cigna Terra and altera tests, representing growth of 153% year over year.
For 2022, we expect to perform a 175 signature and altera tests for growth of approximately 130%.
Volume growth at this stages coming from both increases in repeat ordering from the base of patients that started with signature previously.
A rapid increase in the number of oncologists that are ordering signature and adding new patients. For example, we estimate that roughly 25% of the 12000 community oncologists in the United States have ordered a cigna <unk> tests in the past quarter.
That's a strong testament to how quickly we think signature is becoming integrated into the standard of care.
A little more than half of these volumes are in Medicare reimbursed indications like colorectal cancer, and Io monitoring and a significant chunk of the remaining volume is in indications, where we have strong data and are actively pursuing Medicare reimbursement we.
We had previously committed to breaking out these volumes annually, but I wanted to share. These numbers a quarter early because this slide is important to understanding our growth strategy at signature.
Given the volume and the reimbursement traction we are seeing we think it's clearly the right strategy to continue to establish Cigna Terra as the standard of care for MRV recurrence monitoring even if the oil reimburse volume growth pressures our margins in the immediate term.
Mike will get into our guidance later in the call, but the rapid growth in signature volumes, particularly in the areas that aren't reimbursed today, but we believe we have a near term opportunity for coverage is one of the reasons, we're increasing the cash flow and forecast for 2022.
We continue to expect a major reduction in cash burn in 2023, followed by a path to cash flow breakeven, even with the rapid increase in ceded Tara non covered indications that we are seeing now.
This next slide shows you that volume growth is translating into revenue growth total revenue growth of $210 million increased 33%, which is a larger increase in our volume growth of 27% as clinical signature of volumes grow the ASP progression is particularly important to the overall model.
<unk> signature Asps continue to increase from about $500 last year to over $700 last quarter and are now over 750 in Q3, we believe our Asps will continue to improve driven by greater coverage and in the near term the mix of Medicare reimbursed tests is improving and an.
Creasing proportion of our volumes are starting to come from their recurrence monitoring indication, which is reimbursed by Medicare at the <unk> rate of 3900.
In transplant, we're seeing some limited pressure on Asps.
As we see the mix shift to currently uncovered heart and lung tests, although we've submitted for coverage for both of those indications in kidney we haven't been impacted by Medicare advantage or commercial mix shift as our payer mix has remained stable and we are always incorporated those factors into our ASP.
In addition, we've seen some pressure on Germline asps.
Theres, a handful of opportunities, we're working including possibly gaining increased coverage with forthcoming guidelines.
In Oregon Health, we continued to make progress on several key initiatives. We now have a significant body of peer reviewed data across kidney heart and lung indications in fact, we've published 13 publications in the past 12 months alone.
Im going to highlight on the slide here, a second publication from the <unk> study.
The study demonstrated that donor derived cell free DNA testing was superior to the standard of care donor specific antigen <unk>.
Both components of prosperity algorithm donor derived cell free DNA fraction and estimated quantity of donor derived cell free DNA outperform DSA and predict the AMR with the AUC of <unk>, four and <unk> 85 versus the current standard of care have an AUC of <unk> six six we.
The continuing drumbeat of strong data across our Oregon health franchise to continue in 2023, we're very pleased with how we're doing it is the great work. Our team has done to help physicians and patients now before I turn it over to Solomon to discuss oncology I wanted to talk about our early cancer detection efforts.
We continued the development of our DNA methylation platform for both colorectal and multi cancer early detection products. We remain on track to present initial case controlled performance data for our CRC <unk> and 2023.
On the regulatory front, we continue our discussions with the FDA and are hoping to receive final feedback in 2023 during our first pre submission meeting we had a productive discussion with the FDA with two pathways emerging with.
The first half includes using the our health samples for the FDA validation study followed by a post market surveillance study the second path could use the <unk> House study for the initial validation, while we're conducting a new prospective study for the FDA.
While we await the final feedback from the FDA, we are finalizing the design for either option. We are excited to provide additional information about our ECB program in 2023.
With that I will now turn it over to Solomon to review, our oncology results in more detail Sullivan.
Thanks, Steve.
I will touch on some of the key drivers of our commercial success in oncology.
Highlights from our clinical data pipeline and I'll dive a bit deeper on the key investments that we're making for the future.
Steve described the incredible growth that we've observed with Cigna Terra MRV test as a reminder, this personalized tumor informed test has been shown to detect cancer recurrence many months earlier than standard diagnostic imaging.
Help inform treatment decisions and monitoring of quantitative dynamics to help identify early whether a treatment is effective.
The product has been very sticky for both physicians and patients with high rates of repeat testing. We believe our commercial success is attributable to four key strengths.
First we have a large industry leading team of tenured sales professionals and we combine that with a team of more than 50 in medical and scientific affairs, including four board certified physicians, who have practiced oncology.
This team is calling on oncologists and surgeons and we've recently started to gain momentum with large strategic accounts around the country, including the VA and other leading groups. We're really very proud to have been selected as a partner to the veteran community, especially heading into veterans day later this week.
Number two our market access team has a strong track record of execution with multi acts as we've repeatedly secured both coverage and good pricing for.
For example, our colorectal coverage includes both adjuvant and recurrence monitoring rather than being limited to just address it.
In bladder it includes neo adjuvant adjuvant and recurrence monitoring.
We think these distinctions are important and are a competitive advantage on pricing. We've received <unk> status, which is hard for other MRV labs to replicate on the pricing. We've secured this past quarter for the Io monitoring service is at $7489 per patient.
Number three strong user experience with mobile phlebotomy physician portals fast turnaround times and electronic medical record integration for example, our national partnership with Epic where access to Cigna Terra is already pre installed on the latest version of their EMR software.
This experience is further enhanced by our portfolio of oncology tests for example, Cigna Terra and Altera testing from the same tumor and blood specimens.
We're always striving to get better.
With this infrastructure in place, we believe that we're poised to scale quickly and sustainably as we prepare for several key milestones ahead, including potential inclusion into the NCC guidelines expansion of coverage by Medicare and private payers and readout several key clinical studies.
And that's the fourth major advantage our data leadership given the significant time it takes to collect longitudinal samples and gather long term clinical follow up this maybe one of the biggest advantages that we have.
I am very proud of the execution of our team, which includes 13 peer reviewed publications, thus far in 2022 and 35 overall across more than two dozen different cancer types. We have 10 additional manuscripts and submission right now so our evidence generation continues to move at a rapid pace.
In the past three months, we published our clinical validation study in ovarian cancer.
Phase II study in Uveal melanoma, and we had two oral presentations at the European Society for medical Oncology conference in Paris in colorectal and breast cancers touching.
Touching on a few highlights here and the multi site ovarian study, we analyzed 163 samples from 69 patients and with serial testing signatory to detect recurrence with 100% sensitivity and 100% specificity with an average lead time of 10 months versus standard imaging.
There are approximately 20000, new cases of ovarian cancer diagnosed each year in the U S and we believe signatory can help inform treatment decisions for many of those patients.
And early stage triple negative breast cancer. The Bellini study presented at ESMO demonstrated the power of monitoring Cte DNA dynamics with signature during near Adjuvant immunotherapy. This builds upon a significant base of evidence that in the Terra is already developing in breast cancer with published studies from the I Spy two consortium and the <unk>.
Adjuvant setting and the University of Leicester, and the adjuvant and recurrence monitoring setting.
Additional manuscripts already submitted for publication plus the ongoing phase III trial in triple negative in BRCA mutated breast cancer.
The additional studies in the pipeline, which have not yet been announced we are deeply committed to proving the utility of Cigna terror for patients with breast cancer.
Finally in colorectal cancer, leading Gi oncologists presented real world data from over 16000, Cigna patients with stage one to three disease that has no. The results were in line with prior evidence showing that <unk> negative patients showed no significant benefit from adjuvant chemotherapy. This will be submitted for public.
Patients in the near future and will be a great addition to the existing body of evidence.
Sets the stage for our next major Readouts from the circulated consortium clinical follow up now extended to 18 months, which has been formally accepted for publication by nature Medicine.
And the Gi cancers beyond CRC.
Had another validation study recently accepted for publication and Gastro esophageal cancer.
From a multi site real world study with over 900 plasma samples collected from over 200 patients. We believe this is going to pave the way for Signet Sarah to help inform management in this challenging disease, which is the sixth most common type of cancer in the U S affecting approximately 47000 new patients per year.
This one is somewhat personal for me.
We lost my father to esophageal cancer last year.
Additionally, we were pleased to see a recently revised practice guidelines from the Japanese society for medical oncology.
J S.
Providing what appears to be a strong recommendation for the use of serial MRV testing in colorectal cancer.
We think this is a great step forward for MRV.
This clinical evidence often drives payer coverage directly or in some cases it generates data that's required to inform the design of definitive phase III trials.
At some point in the coming years, we believe there will be an inflection point for <unk> will be fully adopted and reimbursed in pan cancer fashion much like Cte scans without the need for separate trials in each indication, but we're not quite there yet or.
Our current approved indications in colorectal bladder and immunotherapy response monitoring represent an estimated addressable market of up to $2 5 million tests per year at full penetration, giving our commercial team plenty to do as we work to expand coverage even further.
Finally to achieve our long term vision, we are making several substantial investments in the business.
Number one we're accepting and processing tests ahead of reimbursement and expanding our footprint in lab staff.
This sets us up to be in an excellent position in the future, where we're already scaled for success.
Number two we are investing heavily in clinical trials to establish pan cancer clinical and economic utility for certain tariff.
Number three in addition to the current LDC version of Cigna, Sara we're developing an IBD version of the product. This is to support global expansion into Japan, and Europe , which require regulatory approval in order to gain market access and approval by the FDA as a companion diagnostic and eventually as a surrogate end.
Point.
Number four we're expanding our menu and expect to add a liquid biopsy therapy selection assay to the product menu in the future. In addition to what we think is a promising early cancer detection program.
Plus we're advancing the Sigma Taro technology, which we think is going to pay dividends in the future.
Finally, we are building out promising new data service several of our research partners have already started to access our real world database with its unique combination of tumor and Germline Exxon data.
With cereal, Cte DNA dynamics and clinical outcomes.
Which together to generate novel insights to inform the development of new therapies and new Biomarkers by.
By the end of this year, we expect to have run over 250000 cumulative signature tests. So it's not unrealistic to think in the future. We will have over 1 million Cigna test data points in our database, which we think creates a great opportunity.
Although these are capital intensive investments, we think they are the right things to do for the long term future of the business.
Now I'd like to hand, it over to Mike to cover the financials.
Mike.
Thanks Aman. The first slide is just a standard view of the Q3 results Steve covered the key trends on volumes and revenues. Our Q3 gross margins were similar to our Q2 levels Steve.
Steve touched on the fact that we were able to deliver strong revenue growth. Despite some headwinds in transplant in Germline asps.
And the fact that we are blowing out the Cigna <unk> volume forecast this year with the strong volume growth. We've had we continue to experience some backlogs and Tessa Saturday, although we do expect to have that fully resolved during Q4.
All of those variables together modestly held down gross margins in the quarter compared to what we think they can be in the future.
R&D expense was lower in the quarter due to a change in accounting treatment of expenses related to the small technology acquisition, we made last year, but pro forma for that operating expenses were basically flat sequentially.
Since the last quarter, we fielded a few questions on our increase in receivables. This year for context, if receivables trends had remained constant to Q4 2021 levels. We would have collected roughly $80 million in additional cash by at this point in the year, we think about $50 million of this cash can be collected between now and Q.
One and the remaining $30 million would flow in over time as we collect from Medicare on a longer collection cycle.
<unk> a bit more detail there are two primary drivers for the increase in receivables. One is the temporary issue. We described on the Q2 call in which we held a onetime bolus of accrued women's health claims in our system prior to submitting to payers for reimbursement that initially represented about 60000 claims.
All of all of which will be built out by the end of Q4.
We estimate those claims could yield roughly $25 million in cash and we expect that that cash flow and between now and Q1 next year.
The second driver is caused by the dramatic increase in Medicare reimbursed Cigna <unk> revenue, we have accrued this year. We now have almost a full year's worth of Io monitoring claims that we have crude as revenues, but we are waiting for final pricing and Zika confirmation prior to submitting for payment now that we have those details we will start to build those claims.
About the Medicare.
We've learned this year that at least in the near term our Medicare cash collection cycle will be slower than what we experienced in our commercial insured business at present. It takes us about 10 months to get from test report the cash collection from Medicare because Medicare patients require additional manual processing, which takes time to complete.
Over time, we think this process can get much faster as we implement more automation, but that will be a very gradual path to improvement I'll also note. The dsos increased slowed between Q1 and Q2 and Dsos increased very modestly in Q3 105 days to 110 days or so so that's two quarters of DSO stabilize.
Okay. We've covered a lot of ground today and I just want to summarize where we stand strategically, especially for those of you that are newer to the story, we've already established ourselves as a market leader in multiple large and growing markets. We've got a significant lead in generating data and frontloaded our investment in commercial infrastructure, we are reaping the benefit.
As the volumes come in and the revenues continue to grow.
Of that we can generate significant returns on investment capital by reporting these established products onto lower cost sequencer is in scaling our cost efficient Austin lab. So.
So just that base case drives clear visibility to cash flow breakeven.
You referenced the integration of our hereditary cancer commercial team within our oncology sales team that strategic change plus a small workforce reduction resulted in elimination of about 115 employee positions as mark as part of our 2023 budgeting cycle with the primary driver being efficiencies we identified during our review.
Would that move complete we think we're in great position to drive growth next year, while holding operating expense growth in the low single digits that combination will allow us to very significantly reduced cash burn in 2023, and we still have line of sight to a cash flow breakeven path. Thereafter of course, 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.
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 believe we're in a great position to achieve each of them.
Okay. Good let's get to the next slide in the updated guidance for the year, we've touched on the update to the revenue guidance range for the rest of the year, we are seeing strong volumes and positive ASP trends in clinical oncology.
We are slightly adjusting our gross margin target based on where we stand on a year to date basis to 44% to 47% with stronger same antero volumes being dilutive to gross margins. Currently the good news here is that there is a path to getting paid on a much broader array of arts and compare our claims in the near future and I expect everyone would agree it wouldn't make sense for us to shut off CRC.
Claims ahead of a possible NCC and guideline change or setup breast cancer test ahead of for example, profitable coverage for Medicare in breast cancer and <unk>.
Vision, we do see a path to improving ASP on some of our germline testing through anticipated guideline changes and we do think there is a path for us to get coverage on heart and lung in the transplant business.
On our cash flow guidance, we now expect to be at roughly $450 million in 2022 with significant improvement in 'twenty three and beyond as outlined this was caused by an increase in Dsos and Suntrust on Germline Asps. So we think it's capable as Tom had mentioned Theres always strategic changes, we can make if we wanted to reduce cash burn.
For example, we could limit volumes and covenants you can care indications or reduce our clinical trial spend although we don't think those are smart decisions given the growth opportunity ahead, and so with that we're very pleased to share. These results with you today and then I'll hand, the call over to the operator for questions operator.
Thank you before opening the lines for questions I would like to turn the call over to CEO , Steve Catlin Steve.
Yeah. Thanks, operator, just one quick clarification, so earlier in the call.
Prepared remarks, I said that we expect to do about 175 signature tests this year.
It was actually meant to be greater than 185000.
Just want to reiterate that we're expecting to see robust.
Order on quarter growth between Q3, and Q4 and Signet Tara. Thank you, let's open it up for questions.
At this time I would like to remind everyone. If you would like to ask a question. Please press Star then the number one.
Pat.
Yes.
From the line of Puneet soda with SBB.
<unk>.
Yes, Hey, guys.
For taking the question. So a couple of questions. So first one on the.
53000 oncology test I mean that was well ahead of us and 180 more than 185000 that you are.
<unk>, two here and that implies a 145% growth year over year. So.
The first question really is.
How do you think the ESP growth is going to trend now and as a result of the ABL team Medicare payments that you are getting obviously different payments different indications. So how should we think about ESP. That's number one and then.
Number two is really I think the big question here is given one year of experience that you have had with this assay and the remarkable growth that youre seeing here sort of how should we think about the 2023.
Wrote here because obviously.
This is you have a leadership position here and you are continuing to.
Grow very meaningfully in this market.
Yes, So let me make a couple of comments and then I think Mike you can you can dig into the Asps.
And I think 23 growth trends, but I'll just say first of all we are obviously very pleased with the rapid growth and the uptake that we've seen.
In colorectal and then in indications.
Beyond colorectal and we think this is just the beginning I mean, if you look at the momentum that we have I think we're really building.
Great flywheel here, especially with the data so we've got a lot of opportunity.
Ahead of Us and we certainly are seeing.
A shift over time into that recurrence monitoring indication as you'd expect as more and more patients coming to the pipeline.
At the same time, we're also seeing very robust growth in that initial time point for new patients coming in so as we mentioned in prepared remarks, we had.
Last quarter, we had 25% of U S oncologists order the product.
And I think that's really incredible based on where we are now.
And I think that's going to continue to get better over time so as.
As more patient shifting and recurrence monitoring.
We start to get commercial coverage as.
As we start to get a broader array of coverage beyond colorectal Io in bladder I mean, all of these things can have a positive impact on ASP.
Mike do you want to touch maybe briefly just on some of the ASP trends and then on 23.
Yeah sure Thanks, Steve and Thanks to me just so just to level set.
Where we've been and where we're going on Cigna Asps. So we started.
Now last year was five.
<unk> five hundreds on Asps.
And we have rapidly grown that that ASP.
As we've gotten.
Average for Medicare.
And the mix shift has continued to improve both in terms of mix.
Medicare reimburse CRC patients and also steadily improving mix.
Recurrence monitoring patients as well I think that mix shift is something that's a pretty durable trends into next year. So as we we.
Exit 2022 and that in that mid seven hundreds range I think theres room to grow in other <unk>.
50 to $100 just just purely on the.
On the mix shift dynamics alone.
And then beyond that Solomon touched on the favorable reimbursement we've now.
Formally secured in terms of pricing on immunotherapy response monitoring we will start to start to build out those claims as well and then we've got a lot of opportunities to significantly broaden reimbursement.
In terms of for example, breast cancer reimbursement from Medicare as a possibility.
Is it a broader commercial reimbursement in colorectal cancer. So a lot of really positive drivers that I see as kind of a multiyear drivers for the ASP.
Got it that's helpful and then.
On the early screening programs Steve.
I appreciate the Argos data in.
The FDA discussions that you've had but this market already has two liquid competitors theres. This tool competitor that could also launch a liquid test and so just to help us think about how do you want to position in this market and obviously that.
My assumption is that that will involve us.
Additionally, cash burn so what does that mean for then for 2023 win.
When you're expect to moderate that cash burn in 'twenty three so just walk us through how.
How that's going to happen. So thank you thanks for taking my questions.
Yeah. Thanks, So I think look we've been in a position before where we're not the first entrant into the market and I think we did really well in that position I think there is there is an opportunity I think now to kind of.
Take a step back and look at the landscape and whats happening is different products get commercialized and then tailor our launch strategy to that and that includes I think some things on tailoring the roadmap and sort of doing the design in a way.
To pick up certain.
Certain aspects of the detection that I think would be important so in some ways theres an advantage to being a note.
And the position that we're in.
Also just sort of reiterate we we do have a big women's health sales team.
I think somewhere kind of in that range commercial team members. All in I don't know, maybe 300 people or something like that so we're covering a broad swath of the primary care practices, because most women cedar obgyn for.
For primary care, and we think Thats an opportunity for us as we.
Look to commercialize product in the future, but when it comes to kind of figuring out the trial plan and the opportunity for us there and which path we're going to have to go down we've already gotten that sort of built in to.
Two our budget plans over the next couple of years, so when Mike and I talk about.
Our path to cash flow breakeven.
And a very significant reduction in 'twenty three that includes the necessary spending on the clinical trial that we think we may end up ultimately having to do in early cancer detection. So we've already built in.
And I think I think you just have to kind of stay tuned to the data as it reads out and we will go from there.
Your next question comes from the line of pay half the FERC with Morgan Stanley .
Hey, guys good evening.
Sticking on the on the cash.
Cash burn theme that Steve.
Just beyond the Pan cancer push for Sigma.
Betsy we laid out an oncology here on this slide.
Is there anything else, we need to be keeping in mind and how are you thinking about that mid 24 sort of breakeven timeline is there any sort of like slippage there or do you still feel really confident that you can hit mid 'twenty four for breakeven.
Okay. Yeah. So maybe let me make a couple comments and then.
And then I'll turn it over to Mike.
So I'd say first.
You look at the projects that we have to get executed to get cash flow breakeven I think first of all we're taking.
Cost.
Management.
Seriously I think many of you saw.
We recently had a workforce reduction probably about 115 people and we've looked at ways to create synergies across the business business by integrating the empower sales team and with the <unk> sales team. So were taken this initiative very seriously. We also have many Cogs reduction project.
That includes.
Things like building out new lab capacity in Austin that includes things like moving to more higher throughput lower cost sequencer. So these are projects that are.
Aren't difficult to do they just have to be done and they just take manpower.
And time and planning and development work to get done. So we can see that path pretty clearly ahead of us than there is the execution on the ASP.
Things like <unk>.
Getting more indications covered for Cigna Tara.
Getting.
Commercial coverage for some of the colorectal test.
That includes improving asps coverage in other areas of the business. So it is all these things come together there is obviously some puts and takes.
Theres some things that are directly within our control and there are some things that are a little less within our control, but we have set up I think nicely for when you put all that together.
We expect to see a very significant reduction in cash burn in 'twenty three.
Followed by a very clear path to cash flow breakeven and we do think that that 2024 time, what is achievable I think mid 'twenty four is achievable.
And we're putting all these pieces together and kind of see where we hit on that roadmap. If we did get in a position where we wanted to accelerate things theres a lot of levers that we can pull.
Some of the big bets I think it's all of it outlined I mean look we're doing a lot of things that cost a lot of money because we think they are important for the future of the business now if we said look we want to pull and getting cash flow breakeven by quarter or by two quarters, we could pull a bunch of levers that we can do that very quickly.
But we don't think that's the right move necessarily we think being prudent sticking to the plan executing the Cogs executed asp's keeping the expenses relatively flat.
Is the right strategy and it is good that we're seeing this line of sight in our model clearly at this stage.
Mike you want to add anything.
No that was quite comprehensive.
Got it that's helpful and then one.
On a segment that out for me.
Steve can you give us a sense of spin off the 185000 sort of tests that you hope to do the CR.
How are you thinking about the fraction that you anticipate sort of getting paid on at the moment, obviously, it's going to go up as reimbursement broadens and you submit these.
Prior claims to Medicare as well so curious on that and then on the CCN process. Given that you have this nature medicine paper you are.
Are you still feeling good about the sort of April may timeframe next year for guideline inclusion and do you think it should be a relatively straightforward process now that you have this mark keep obligation out there.
Yes, so maybe let me comment on an end CCN.
And then Mike or Solomon you guys can talk a little bit about sort of the mix that we're seeing between covered and non covered indications.
So on <unk> I think.
We all know that they sort of met in August .
We haven't seen the readout from that meeting we think it will come out in the near future, but I think the unfortunate part was that the circulate paper.
Wasn't included obviously because it wasn't.
Accepted and peer reviewed at that stage. So now that it has been accepted in nature medicine, which is one of the highest impact journals in existence in the entire field of medicine.
I think that being very prominently featured.
I think it will obviously allow that can be included in future reviews. The guidelines. So we just kind of have to see how things go.
But I think.
The results for the August meeting, unfortunately or could it be included.
Including that publication in a significant way I do think there's line of sight.
As we turned the corner into next year, but we really just have to kind of see how how things pan out.
And then.
One I think really big upside.
A price that was a big win for US was to see these Jack.
Japanese society of medical oncology guidelines come out.
I think this is.
This is a great step forward to see national.
Guideline like this.
Be formally put in place and obviously I think it's something that.
Committee members around the World, we'll be looking at.
And I think that's a great step forward and I think there is a positive read through there as we look for the future.
MRV testing.
Mike.
And do you want to cover kind of what we're seeing from a from a.
Indication mix between covered and non covered.
Alright, do you want to take that.
Yes, sure. So I think there is.
The overall mix is.
Roughly stable to what we've talked about previously I mean, I think there's kind of a some modest improvement.
We are glad to see on a sequential basis. So what that means is roughly half of the volumes.
Our following into indications, where we have a Medicare coverage.
Now that doesn't mean, they have the volumes of reimbursed because all of those.
Those patients are obviously Medicare patients for example, what we're seeing in the colorectal cancer indication.
Something like high 30% of those people are actually Medicare reimbursed patients and we've seen some really nice.
Progression there from the low thirty's to the high <unk> over the last year I think there is potential scope for our Medicare mix within colorectal cancer to continue to improve so thats one way to think about mix and the way to think about mixes is.
Applied testing versus serial monitoring and that's progressing really nicely, perhaps that you would expect.
We had a really strong launch year.
A lot of people got their initial <unk> test and set up last year and they are coming back are you staying on protocol and getting repeat monitoring tests.
So that makes it continues to improve in our favor. So that's kind of a high level view of the mix and those trends are those trends are modestly above I think where we would have been.
To be at this point.
Your next question comes from the line of Matt <unk> with Cowen.
Hey, thanks for taking the questions.
First one just curious what are the key timelines or checkpoints. So we should keep on our radar for the build out.
The refreshing or internal sequencing infrastructure and capabilities and then curious since the mid 2024, our profitability target assumes that.
The updated or enhanced infrastructure is in place or if yourself outsourcing of that.
Okay.
Yes, so let.
Let me comment there first and then we can open it up further.
There are several projects that we have right now.
That include both.
Kind of scaling up.
Our lab infrastructure, particularly I think our tissue infrastructure.
And then also moving up to more high throughput scalable sequencer for Panorama. For example, there were still running despite the number of <unk> tests, we're doing you're seeing running in the next year or.
So.
Advancing the sequencing system there.
It's pretty straightforward project.
Theres other areas, where we have significant cost reduction opportunities in the range of $20 million plus per project now the vast majority of these are.
In progress right now and are going to be the primary projects that we work on throughout 'twenty three along with several technology advancement opportunities is actually we've got some really exciting stuff coming as well, it's not just cost reductions. There is some really cool technology advancements that we're working on is.
Well, but.
But I would say these things will kind of come in.
More towards the end of 'twenty, three and as we kind of turned the corner and then at the beginning of 'twenty four.
Just given the.
The scale and the size of some of these projects now.
Some of them are kind of hitting right now and will be phased in throughout the course of 'twenty three and get up to full capacity by the end of 'twenty three but then many of the other ones will sort of hit and that kind of late 23 early 2004 timeframe.
Mike do you want to add anything further to that.
No I think that covers it.
Okay great.
One moment.
Your next question comes from the line of <unk> with J P. Morgan.
Hi, good afternoon. Thanks for taking our question. So I'll cancel screening you know that go to a potential FDA approval pathways could.
Could you talk about kind of the pros and cons, each and what our product's competitive positioning would be each pathway. Obviously, the two scenarios would have very different cash burn and conclusions of Wow. So when you said earlier that Youre correct.
Cash flow expectation already fully SaaS that investment are you referring to.
The more cost efficiency narrow.
Using the.
<unk> data with post market study.
Are you embedding.
Nissan Michael Thomas why the product launch and how should we think about the January timeframe.
Got that.
Yes. Thanks for thanks for asking further there so I think from a positioning standpoint, it's always been our focus to to lead with technology and lead with performance and that's what our goal is here as well.
As I mentioned, we have an opportunity.
Two to kind of take a step back and see whats important.
Adenomas for example.
Maybe if those who had started the development multiple multiple years ago didn't really kind of have to have that opportunity to kind of take a step back. So we're designing.
Product in a way that I think leverages the strength of our core technology and the capabilities that we have but also what we know about how the market's developing and then also the unique data that we have access to now we have.
<unk> 50, plus thousand tumor exxon's that we've drawn uniquely early stage tumor excellence that we can leverage as far as mining data and understanding what's important. So we think we think leading with technology and leading with performance as always.
Great way to go of course.
And distribution is also important and we will be focusing on that very.
Very clearly.
When we look at the different pathways I think the one pathway of running your health samples.
As the FDA validation study and then doing the post market surveillance study where the other is.
Running our house is sort of an initial validation and then doing doing the prospective FDA level steady actually.
Costs associated with both of those we think will be roughly about the same.
I think in both cases, we'd be enrolling.
Kind of similar number of patients and we would expect enrollment to take kind of a similar amount of time.
And actually.
I think as we start to kind of look at the landscape and some of the newer ways of doing studies.
There's been some companies recently that have done.
Prospective trials in a range of 10000 patients that are sort of matched with gold standard colonoscopy and they've executed those studies and in the range of $15 million to $20 million.
And took into a range of kind of one year. So I think there are some newer designs in newer ways to do studies that we intend to kind of leverage some of these newer trends and we think we can do it in a pretty expedited manner.
In a pretty cost effective manner.
But either way, it's going to cost us roughly the same amount.
Got you that's very helpful.
Then another one on Sydney.
Sure.
Yes, you are correct.
Guidance assume any meaningful contribution from the VA contract.
<unk> monitoring and reimbursement and if not.
How much and how should we think about the magnitude of that incremental revenue going forward.
Yes, So I'll just mentioned briefly we do include.
Include Io monitoring that's something that although we just got the pricing then I think obviously, there's there's actually some upside on the pricing versus what we had initially expected I think there is some.
That is generally part of our guidance.
So good growth there.
Is it really a new win.
This is something that I think does represent upside it's not something we had kind of plugged in Solomon do you want to talk about the VA.
And kind of what our expectations are there.
Yes.
We're really excited about working with the veterans administration.
This was a public.
Our RFP process that was initiated earlier in the year.
It was a competitive process that natera.
When selected through depressed.
The process was.
Narrowed to only labs, who had a tumor informed test were eligible.
Which I think was.
A good signal of kind of where the market is growing with its perception of tumor informed testing is as the standard.
The emerging standard of care.
And so we were selected for this for this contract it is sort.
Sort of.
Many testing contracts with the VA have gone into it's an initial step.
In the range of $5 million to $10 million in size.
And we expect that.
Charles is going to provide great service as we have to our other customers in that that's going to lead to re up opportunities in the future.
Contract does cover serial testing.
And it is a pan cancer in nature. However, we do expect the initial rollout to be heavy on colorectal cancer.
As we've seen with many of our other customers and I think the VA is.
Is an important example of strategic account.
Adoption that were seeing with many other leading large oncology groups around the country.
And I think it's going to contribute to our.
Two are achieving our mission and to our first mover advantage.
Yeah.
Your next question comes from the line of Catherine Schulte with Baird.
Hey, guys. Thanks for the questions first for the ILS 7500 dollar pricing how many tests on average are you seeing in that bundle and so we try to think about the ASP impact there and then can you just give an update on where signature at Comed stand today and the path forward for that.
Solomon do you want to take the first one.
Sure Yes.
I don't think we've previously talked about average number of tests per patient, but what I can say is that the pricing for that service does reflect an expected.
Higher testing frequency and slightly longer timeframe on average than what you would see with the.
With the service that was priced for patients with colorectal cancer for example for Cigna Terra where the pricing was just under $6000.
So that's that's what the pricing did reflect now I think we will.
When we're when we're announcing more information more granular data about average test per patient in.
Then we will be able to give more detail on that.
Yes, let me.
Comment on the Cogs question, just on a blended basis our Cogs.
Again, just to level set historically, we had cogs upwards of $600 on a blended basis per unit that's dropped down through the course of 'twenty two to now thats kind of in the low to mid 500.
And here in Q3 and expecting in Q4.
And then based on some of the improvement projects and in house projects that Steve.
We're also seeing earlier in the Q&A, we can that can drop down below lower again below 500 on a blended basis per unit next year and just can continue to get lower as your mix continues to shift towards repeat monitoring and we just continue to get more efficient.
Got it and then for the California <unk> program as it turns out that that program is not allowed to stand.
Locked into your pricing with the state or is that something you can renegotiate.
Yeah, Let me, let me kind of talk on that so I think the.
The program the way it was kind of initially devised.
There was an RFP process and we were selected.
I think a lot of companies.
Applied.
They all had to make decisions about what they thought was best for them, but.
In the end it was Austin and quest, we're the only ones really allowed to offer an ITT testing in the state we thought that that would be I think.
Okay, given that we're taking a lower price and we're expanding the volume and theres some opportunities to cross sell other products. So we decided to go ahead and purchase right now obviously.
It's a lower margin opportunity.
Wasn't ideal, but we decided to kind of go ahead with it because we thought it was important to be in California.
Now with this recent legal happening where there's an injunction that's been given.
Against the program that prevents them from kind of implementing certain aspects of the program.
I think it's not clear exactly we're still kind of understanding what that means so that I think one of the likely passes.
We kind of go back to the way things work and.
I think frankly, a positive for us.
But we're also fine being in the program. So I think we just have to kind of see how things pan out for US modeling goes we've obviously been very conservative in our guidance both for the rest of the year and as we turned the corner into 'twenty three.
Assuming sort of a worst case scenario.
So any any improvements of that worst case scenario would be would be upside.
Alright, great. Thank you.
We have reached the allotted time for questions.
This concludes today's conference you may now disconnect.
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Okay.
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Okay.