Q1 2023 Natera Inc Earnings Call

[music].

Hello walked in a terrorist 2023 first quarter financial results conference call. At this time all participants are in a listen only mode. Following management's prepared remarks, we will hold a Q&A session to ask a question at that time. Please press star followed by one on your Touchstone.

If anyone has difficulty hearing the conference. Please press star zero for operator assistance as a reminder, this conference call is being recorded today may nine 2023, I would now like to turn the conference call over to Mike Brophy Chief Financial Officer. Please go ahead.

Thanks, operator, good afternoon. Thank you for joining our conference call to discuss the results of our first quarter of 2023 on the line I'm joined by Steve Chapman, Our CEO , our selection Chief Medical Officer Subbing in for solid marketplace. She wasn't able to join the call today the company business.

And John <unk>, Chief Business Officer, Today's conference call is being broadcast live via webcast, we will be referring to a slide presentation that has been posted to investor Natera Com a replay of the call will also be talking to our IR site as soon as its available.

Starting on slide two during the course of this conference call. We will make forward looking statements regarding future events and our anticipated future performance, such as our operational and financial outlook and projections, our assumptions for that outlook market size partnerships clinical studies 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.

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, 10-Q, and our 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.

Being made as of today may nine 2023.

Calls replay to reviewed after today the information presented during the call may not contain current or accurate information.

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.

It was needed.

This represents a year on year comparison, and now I'd like to turn the call over to Steve Steve Great. Thanks, Mike.

As you can see from the highlights we're off to a very strong start as we continue to drive robust financial performance maintained our leadership position in cell free DNA analysis and achieved important milestones across the business. We processed roughly 626000 tests in the quarter up 28% from Q1 of last year.

And 12% sequentially versus Q4, we generated $242 million of revenues in the quarter, which was a major increase both versus Q4 and year on year.

We also saw strong volume growth, we performed 71000, Cigna, Tara and I'll share just in the quarter, which is more than a 100% growth versus Q1 of last year. We saw a very strong step up in clinical volumes over Q4 of last year and are generating continued momentum this spring.

As a result, we are pleased to be raising our annual revenue guide that we just said two months ago.

We are moving to a new range of $995 million to $1 billion 15 billion for the year.

Rest of the elements of the guide will remain the same for now.

We are on pace to hit our margin target of 41% to 44% and hit our reduced cash burn target of $300 million to $325 million.

You'll see our quarterly cash burn in Q1 cut almost in half versus Q1 2022, we feel we're on track for our 2020 for cash flow breakeven goal that we previously announced it.

In addition, we've been conservative with the impact of guidelines for 2000, 10-Q expanded carrier screening and <unk> testing in our Asps forecast.

Note that these guidelines are not necessary to achieve our financial goals.

We continue to extend our leadership position in women's health with two significant <unk> publication and a third paper that has been accepted for publication. We now have more than 40 published peer reviewed papers highlighting the performance of our Panorama AIP T, including the landmark Smart studies, we think that's critical.

<unk> continues to be an important volume driver.

<unk> market continues to grow.

Of course, we've had a string of wins for signature of this spring as well.

We continued our data leadership with several presentations at ACR. We are very excited to announce two oral and 12 poster presentations at <unk>. This year. In addition, a new study demonstrating cigna terrorists performance in stages, three and four melanoma and the expanded I spy two study demonstrated the value of Citi.

Tariff for breast cancer patients in the neo adjuvant setting.

We think the neo adjuvant breast setting is important and we will dig into that later in the call after securing Medicare coverage for breast cancer. In March we were pleased to receive the first major commercial coverage decision for signature with a pan tumor coverage policy from Blue Shield of California, and Oregon Health, we secured Medicare reimbursement.

For Prospera in heart transplantation.

Hadn't included this in the guidance. Originally so this is a nice win in kidney in line with our expectations. We are seeing some modest disruption in the wake of the updated Medicare policy, but as you can see from the results and the guide this isn't making an impact in the context of our overall business, especially with the upside from heart reimbursement now coming in.

I'll get into more details a bit later in the call. Okay, Great. Let me get into some of the business trends, we've more than tripled the quarterly volume since the beginning of 2019 and our growth rates remained in the mid twenty's. Despite the significant increase in the scale of our business.

I think that gives a sense of the commercial execution track record shows that we are offering critical services to some very large patient populations. You can also see that Q1, historically represents a big step up over the prior year and 2023 has proven to be no different. This is driven in part by the seasonal patterns of it.

<unk> favoring Q1, but also shows our ongoing success in taking market share and represents a continuation of the broader shift from maternal serum screening and IP T. As a reminder, we think an IPP is only about 50% penetrated today.

This year, our Q1 volume growth was further amplified by three strategies, we have been pursuing that increased volume for the long term, what we expected would impact gross margin for this year. One was our decision to continue operating in California.

Anticipate in the prenatal screening program that went into effect last fall when most lab providers opted to not participate.

California initially required patients to go through the state program. Despite the low margin of the state's limited at ITT offering we thought it was important to provide access for this patient population. However, after a legal challenge. The courts are now allowed in IPD to be offered outside of the state program, enabling us to regain some of the lost margin.

While increasing our volumes. So we're optimistic that we've made the right decision to stay.

The second was our decision to serve many new carrier screening customers after competitors exited the space last fall.

Any of these customers are high volume accounts and they have a preference for the broader carrier screening panels that currently have a very low margin profiles, we opted to take on many of these accounts because we feel the clinical utility and guidelines support for broad carrier screening is strong and we hope to see reimbursement rates improve as we go into 2002.

Four.

The third is our decision to continue driving signature volumes because of the growth ramp and the upfront expense signatures margin profile is lower than our overall company margin. However, we expect that delta to narrow as we continue to lower Cogs increased asps through various initiatives obviously growing.

Signature era is the right decision as we are still in the very early days in oncology we.

We have established a strong competitive advantage with Cigna terror, particularly with the extensive body of peer reviewed data, we generated which is now leading to strong uptake and more coverage.

With each of these strategies there was a trade off between short term gross margins in the future upside potential. Despite these volume bets, we've significantly improved our cash burn trajectory by continuing to grow topline revenue on top of now much lower operating expenses you see this happening with our net cash burn reduction in Q1, our aggressive <unk>.

Cash burn goal is remaining intact and our strong gross margin guidance of 41% to 44% for the year and again, we've been conservative with a potential upside for future Society guidelines, which could boost things further.

The next slide demonstrates the strong volume trends are translating into revenue at roughly the same pace and as we just mentioned we think there is upside on 20, <unk> broad panel carrier screening at signature our clinical volumes as we described in detail in March we were very pleased to see strong updates to the <unk> guidelines.

22, Q on <unk> guidelines, we think the data published in smart are compelling.

We're hopeful for a positive update soon but of course, we don't have direct insight into the guideline process with.

With carrier screening off the back of favorable existing ACM G&A club guidelines, we're seeing payers start to change their policies, which we think is a good sign in oncology. We were very pleased to see sequential progress in our signet turret clinical asps.

Moving from the mid seven hundreds in Q4 to the low eight hundreds in Q1.

This trend was driven largely by incremental progress in our Medicare and recurrence monitoring mix with a smaller benefit coming from breast coverage. So for Cigna. Kara. We are ahead of schedule on our reimbursement trajectory. We remain optimistic that we can see continued improvement over the course of 'twenty three for clarity, we're not dependent on MCC and guidance.

Lines to get the ASP to a much stronger place also the signature of gross margin benefit from improvements in Asps was offset by the fact that we haven't yet gotten the full cogs benefit on the tissue <unk>.

Which is a benefit and we expect to realize as this year progresses.

The next slide gets into the compelling new publications on our Panorama AIP key Oh as a reminder, panorama represents around 50% of the <unk> market in the United States with differentiated capabilities.

<unk> by more than 40 peer reviewed publications. This includes smart the largest prospective multicenter <unk> study, where we clinically validated <unk> performance in over 18000 pregnancies with genetic outcomes confirmed for all samples analyzed in the study.

With recent publications, we are continuing to add to the body of evidence. The first published in the <unk> and gynecology evaluated patients who received a rare panorama result that can indicate suspected maternal malignancy.

We showed that when kinner MFC has a very specific type of DNA pattern more than two thirds of the time. These patients had maternal cancer. The PP&E at 67% is quite high. So doctors seeing this result are advised to investigate further it's an extremely rare finding but one that could provide important and potentially life saving.

Clinical information for these patients and their doctors.

The second is a new publication from smart published in Ajax.

This publication found that in a subcategory of about one to 200 patients Panorama was able to determine a significantly increased risk of adverse pregnancy outcomes. These patients were four times more likely to have preeclampsia and four to 10 times more likely to have preterm birth.

These patients Panorama may provide important information about increased risk of adverse outcomes, which could ultimately help doctors to more closely manage these pregnancies are high risk.

Finally, we learned that another publication was accepted from smart by genetics in Medicine. This is the largest prospective clinical validation of screening for sex chromosome and employees with ni PT across over 17000 pregnancies in a real world setting panoramic performance with screening for.

Sex chromosome Aneuploidy was excellent as we are seeing the smart study continues to yield critical new insights about ni PT in the real world performance of Panorama as.

As the market expands we think our strong data leadership will continue to differentiate panorama from other <unk>.

Okay, Let me transition over to Oregon Health as I mentioned, we were pleased to secure Medicare reimbursement for prosper in heart transplantation. We hadn't originally included this in our guidance because we can't always predict when coverage will come in many of you will recall that we launched prospera and heart.

Ahead of reimbursement. So now that we're covered we're already off to a running start with a nice volume risk. We also have additional data coming out from the NIH sponsored prospective <unk> study, which we think will be published later this year. So we're feeling really good about our trajectory and heart.

And heart, but extending to kidney as well we were pleased to see medical society endorsement of donor derived cell free DNA testing from the STS and Asps.

In addition, a recent endorsements from <unk> and <unk>.

These guidelines and statements could serve as the basis for further volume growth where today the markets are very underpenetrated.

Ah kidney, we've seen modest disruption in the transplant volumes as physicians worked out how to implement the new Medicare policy some.

Some of the disruption is based on confusion surrounding the policy, which we think will resolve itself overtime and some retro sense slight shift in ordering patterns. The.

The magnitude of the disruption is in line with our expectations and it's offset somewhat by the upside from our heart coverage as you can see from a raised revenue guidance isn't making a material impact on our overall trajectory.

Looking ahead, the recent society endorsement to provide a potential path to expand access and increased penetration plus we've got new data from the now fully enrolled proactive trial that we think could help further expand patient access the first readout will be at ATC in June we think its impressive data that can benefit the entire.

Industry in support of donor derived cell free DNA testing.

We look forward to sharing it with the community now let me turn it over to John <unk> Chief Business Officer.

A few additional updates on chronic kidney disease and oncology John Thanks.

Thanks, Steve.

As a reminder, we also have the chronic kidney disease genetic testing product line Rina site.

<unk> it looks like conditions like polycystic kidney disease, or <unk> syndrome in Germline DNA at those patients who have already been diagnosed with <unk>.

In the future, we think every patient diagnosed with TKD could get genetic testing.

The market opportunity is potentially very large because over 1 million patients in the U S are diagnosed each year.

And there are about 37 million patients in the U S living with CK.

Define the clinical utility of genetic testing in this context net tariff sponsored the definitive greening care study.

We started working on this in 2019 and collaborated with leading investigators from Colombia Yale pen.

Nancy NYU Mayo, or Cleveland clinic, and others to design the study.

We completed enrollment last year with more than 600 patients from over 30 centers.

The renal care study is designed to prospectively assess the incidence of genetic conditions in the CE population and then importantly, how rina sites genetic findings can impact clinical management.

<unk> asked us what success looks like in the renal care study.

While we are waiting the published results the best proxy, we found as hereditary cancer testing.

We talked about this last quarter, but I think it's instructive comparison.

Previous large study of nearly 3000 cancer patients published in Jama oncology 13, 3% of patients had a pathogenic germline variance, indicating hereditary cancer.

Those patients with a high penetrance myriad 28, 2% had resulting treatment modifications.

As Rina care reach out we will be looking at these same metrics, including the fraction of study participants who have a pathogenic variants associated with CK D.

As well as what fraction of patients who test positive had their treatment modified after the pathogenic variants discovered with reinstate stay tuned for more information over time.

Let's dive into some of the oncology trends on the next slide.

We covered the strong overall volume growth at the top of the call.

The growth in our clinical oncology volumes in Q1 is actually masked somewhat by a lumpiness in our pharma volumes that favour Q4.

Typically pharma companies will order a larger number of tests in Q4 as they need to utilize excess budget for the year, our clinical volumes were actually up roughly 17% sequentially. Just since Q4 of 2022 and we've seen continued strong momentum so far in Q2.

We are continuing to concentrate on the core indications, where we have Medicare reimbursement.

More than 80% of our volumes are now coming from covered indications.

We're also really pleased to see Asp's make a meaningful step up in Q1 from the mid seven hundreds to the low eight hundreds, which we estimate was driven by the mix of 10 points ordered and some incremental benefit of breast reimbursement looking forward to the rest of the year. We think there are some opportunities to improve our collections within covered indications expand.

And the new indications and drive more commercial coverage as well on that note. We received our first commercial coverage policies in March the recent decision from Blue Shield of California is a good case study for the current progress were making with commercial plans, who are increasingly appreciating the clinical and economic utility that signature offers.

That this was a pan tumor coverage policy highlights the breadth of our data across a number of cancer types, which we think is a key differentiator.

In addition to Blue Shield of California, We also secured coverage from Blue Cross and Blue Shield of Louisiana for serial testing with Cigna for plan members diagnosed with colorectal cancer muscle invasive bladder cancer and Pan cancer Io therapy monitoring.

We think there's momentum on commercial coverage and we look forward to seeing how things progress right before I turn it over to Alex I wanted to briefly touch on our IP portfolio.

As we've discussed in the past, we have a broad portfolio of MLR VIP.

Only a small portion of which has been deployed in litigation.

The remainder is not yet in play as we assess how things evolve.

With that I will now turn it over to Alex to review, our oncology data in more detail Alex.

Thanks, John .

First let me provide some detail on the data roadmap in colorectal cancer.

As we predicted Cigna Terra was not included in the updated <unk> guidelines that were published this spring.

This is because the circulate galaxy paper published in January and was unavailable for the end CCN systemic evidence review process that occurred prior to the August meeting and therefore was not included in the committee vote <unk>.

The less we are pleased to see that the 18 month real world prospective data Meredith inclusion in the discussion section of the updated guidelines and that Sigma Terra was acknowledged as having prognostic and predictive value.

Now that the circular galaxy data has been published and highlighted on the cover of nature Medicine. We plan to submit this tariff review data in time for the 2023 systemic evidence review.

While it is possible that the galaxy study may be sufficient to change in CCM guidelines, we know that the NCC on committee referenced the need for more data in both the adjuvant and surveillance studies.

The good news is that this data is already coming.

There is a randomized biobank study in the adjuvant setting that is expected to readout later this year followed by the prospective Altair data expected in 2024.

Which would address both the adjuvant and surveillance questions.

Furthermore, the randomized the escalation arms of the Japan and U S. Circulate studies continue to enroll well with Readouts currently anticipated in 2026.

There are also several non randomized trials that we expect will impact with field.

Including a large commercial experience study that will be submitted for publication later this year.

Extended follow up from the Galaxy study.

Plus the bespoke trial, where enrollment is now complete and which has relevant endpoints in both the adjuvant and surveillance settings.

These many shots on goal we believe we're in a good position.

Additionally, it's worth noting that this list is far from extensive.

As it does not include other independent clinical utility studies being conducted on SYGMA apparel buying multiple institutions that are now beginning to read out.

Even though we started working on these trials years ago, some dating back as far as six or seven years, we think the pipeline creates a significant competitive advantage going forward.

While the CRC data pipeline has been advancing we continued to make significant progress across multiple other indications.

Here, you see six studies with large patient cohorts and more than 500 plasma time points each.

Either recently published.

Or on the near term roadmap.

We think that the data from these studies could support clinical adoption and serve as a basis for additional submissions to Medicare.

The gastroesophageal and anal cancer papers are highly relevant to Gi oncologists, who order <unk>.

Also true for pancreatic cancer.

Or we are planning to submit for publication, a real world study with more than 300 patients and 1900 time points.

Data that opens new avenues for risk stratify in managing these patients.

For example, the surgery for pancreatic cancer can be extremely morbid.

And our data suggests that <unk> may allow for more personalized selection of patients for either surgical or medical management of their disease.

We've also had a particular focus on developing data in breast cancer, given the scale of the unmet need.

So the recent coverage decision we achieved in this histology is a major win for us.

Building on our landmark <unk> study.

<unk> in 2019 and CCR we're.

We are now following up with an expanded cohort examining three times more patients and five times more plasma time points with significantly longer follow up visit.

This will expand the data was presented at Astro in 2022 and has already been submitted for publication.

Of course, we're very pleased to get the publication out or the eisai to new adjuvant breast cancer data we.

Thank you Ashwin breast cancer represents a strong use case for Sigma apparel, which I'll cover in more detail on the next slide.

First let me tell you about the neo adjuvant setting and how patients are treated today up to 50% of all breast cancer patients now given the adjuvant treatment, which is a growing trend and it describes any systemic treatment that is render before definitive surgery.

This can include any combination of the following.

Chemotherapy endocrine therapy targeted therapy or immune therapy.

The purpose of Neo adjuvant therapies threefold, but first is to decrease the risk of distant recurrence. The second is the downstage the tumor to allow for more effective surgery and the third is to assess treatment response in order to guide adjuvant therapy.

However, there are several unmet clinical needs in the neo adjuvant setting, namely it's hard to know of the adjuvant therapy is working and if certain patients can avoid or shortened the duration of toxic chemotherapy.

The NCC guidelines themselves state explicitly but accurate assessment of response to new adjuvant therapy is difficult.

So there is an opportunity for certain terra to fundamentally change management here.

Now, let's go over the data.

In this study 280 patients with over 1000 plasma time points were analyzed.

Teekay status and trajectory during new adjuvant therapy were found to be significant predictors of metastatic recurrence or death in HR positive <unk> negative as well as triple negative patients.

You can see on the slide patients who tested <unk> negative after new adjuvant therapy has improved survival, even when a residual disease was detected at the time of surgery.

This is a big deal since these patients are being treated with aggressive adjuvant regimen in the post operative setting.

<unk> may not be necessary.

Additionally, in triple negative breast cancer this effect could be observed even earlier.

As soon as just a few weeks after new adjuvant therapy was initiated.

Suggesting that if a patient was to clear they're seeking after just one or two cycles. They may be eligible towards the escalation of their new adjuvant regimen and potentially avoid certain forms of additional adjuvant chemotherapy.

The second significant finding was that patients were <unk> negative or T zero.

This is a time point before new adjuvant therapy was initiated had exceptionally favorable long term outcomes with significantly improved relative distant recurrence free survival compared to patients who are <unk> positive and that timeline.

Very powerful indicating that cetane negativity at diagnosis.

Identifiers favorable subgroup of patients that in the future maybe managed much less aggressively in terms of the intensity of their chemotherapy surgery or the radiation treatments.

We believe this data can support reimbursement in the neo adjuvant setting.

And help accelerate the general adoption of neo adjuvant treatment for breast cancer patients.

It also enables an earlier entry point for patients into the <unk> ecosystem.

At diagnosis, which then allows for seamlessly monitoring these patients after surgery.

David Youre seeing today is the result of an incredible amount of time and effort as we initiated our relationship with the I Spy consortium way back in 2015 as a next step we are now coordinating with the <unk> team to make signature a prospectively integrated biomarker in their future studies final.

We've kept our busy academic conference schedule for the season with a number of key studies being presented at ACR last month and more being planned to be presented at <unk> in June .

Let me highlight a few significant data sets that may be of particular importance for our program going forward.

At ACR, we have five poster presentations, including new data and Issaquah gastric as well as muscle invasive bladder cancer.

The utility of Sigma Tara in the Neo adjuvant and adjuvant settings.

At <unk>, there will be significant new data spanning cros to oral and at least 12 poster presentations.

I wanted to highlight just a few of these studies.

The first being a poster discussion of the intercept program.

Being conducted by MD Anderson.

This poster reports on the clinical utility of Cigna Tara in the surveillance setting of CRC.

Additionally, we look forward to the readout from the empower one study.

Sponsored by Regeneron, and non small cell lung cancer.

Which we think will demonstrate the predictive nature of Cta dynamics in patients receiving immune therapy.

We know the non small cell lung cancer remains the largest market for immune therapy use with upwards of 60% of non small cell lung cancer patients receiving an io containing regimen.

Lastly, updated data from circulate, Japan, including a focus on the role of Cta dynamics in predicting adjuvant therapy benefit and risk of recurrence will also be presented.

Finally, I wanted to provide a brief update on our ECB program.

We continue to make good progress on developing a blood only early cancer detection assay first for colorectal cancer and later for multi cancer.

We are completing a case control study should readout by the end of the year.

With a presentation to follow thereafter, we remain committed to prudent investment into this program as we've said before we will provide updates if and when a significant inflection in spending as warranted.

That let me hand, the call over to Mike to review the financial results.

Nick.

Thanks, Alex the next slide is just a summary of the quarterly financials versus last year, Steve covered the encouraging revenue and volume trends in the three market share initiatives that we've been taking to set up the business for future growth at the cost of short term gross margins, even with those initiatives underway I was pleased to see revenue growth tracking in.

Line with volume growth, which speaks to some of the progress we are making with average selling prices across the business, particularly anything of terror.

As in class commercial channels that can win and then hold that expense base steady while the revenues and volumes continue to scale we've.

We've done that once before when the terror was really just a women's health business and we're really pleased to be showing that we are now achieving scale again. After a few years of building, the Oregon health and oncology channels.

The next slide I think it gives you a sense of the operating leverage we're starting to see in the business. We've heard a little more than $160 million in Q1 last year and then it's down to about 86 million in Q1 of this year I will caution you that cash burn will have some swings how we've been working capital Capex and other factors. So we may not.

Have just a linear progression downward on cash burn quarter after quarter and just to keep things simple. This castling metric is just the change in cash and equivalents of short term investments. So includes some modest impact of unrealized gains and losses from our investment portfolio. The overall trajectory is quite clear in my view.

T from my perspective is driving strong revenue growth on flat or low growth operating expenses.

I was also pleased to see Dsos train down once again for the second consecutive quarter. Despite very robust revenue growth. That's a function of us getting some returns on our revenue cycle operations focus and we hope to shorten the cast election cycle further as we continue to gain experience with the nuances of Medicare and Medicare.

Vantage plans for signature of reimbursement.

Another opportunity for upside is gross margin tracking driven by broader reimbursement words.

We've talked about the fact that we could get see some movement on 22, Q and terrorist screening this year, which would be significant when given the volume scale. We are operating in now and I think we're showing very encouraging progress on <unk>.

Even without some significant benefit from improved clinical practice guidelines. We continue to think that we are on track to hit her previously stated cash flow breakeven target next year based on a Q1 performance and our outlook for the rest of the year. Okay. So on the next slide let's talk about that revised outlook. These make sure we're moving apart expectations for <unk>.

News versus the Guy, who we provided two months ago. Those of you that have followed the company for awhile no that we prefer to be cautious with these razors earlier in the year I think the strong women's health performance in Q1, driven by account wins set the set for a great year, but as I mentioned, we're going to monitor the impact of seasonality.

The sacraments, especially.

The guide assume steady Isps and an I T. T. Then continued erosion in the carrier screening E. S. P N and S piece for kidney transplant and modest improvements from here and speaking of terror clinical reimbursement.

That leaves plenty of scope for these assumptions to prove conservative over the course of the year. We think that's the appropriate forecast for now we.

We are leaving the rest of the guide elements unchanged on gross margins were comfortable at the a S. P trajectory in cost savings expected. This year will bring us into the guy mid range of 41% to 44% for the full year.

Operating expense plan remains on track in Casper and has really similar in concept to the revenue Guy. We think there are certainly scope to outperform and we wanted to see the progress come in on a couple of our initiatives this year before getting more aggressive on that forecast.

So in summary, we think we are off to a strong start this here and look forward to taking your questions.

Later.

Alright. Thank you at this time I would like to remind everyone in order to ask a question press star and the number one on your telephone keypad.

For just a moment to compile the <unk> roster.

Okay. Your first question comes from the line just.

Just a moment.

Hey, guys Uhm good afternoon, maybe maybe I'll start with one on the on the signature you know guideline decision commentary or Steve Uhm, you talked about sort of the committee not fully considering the circulate data.

You know she has some color on on what sort of drives your your confidence around that and more importantly, the degree to which you're viewing the timelines for that guideline inclusion as a swing factor in your medium term signature CRC estimates.

Yeah.

So first you know nothing in our guidance, we're really on our path to cash flow break even includes that we're gonna get an N C. T. M guidelines <unk>. So I mean, we're trucking ahead, we've got a lot of momentum both on volume and on E. S. P without having that upside one now with.

Of course, we set ourselves up here and really I think a very nice position with all of the data that Alex outline I think a lotta people probably didn't realize that we have randomized trials that are gonna be reading out you know sort of towards the end of this year and then the ulterior trial, which we think is going to be reading out of 2024.

I mean, certainly that will put us in a in a very very strong position.

Far as the the 2022 vote is concerned we've confirmed that at the time it circulates.

Two eight study the Galaxy study was not considered you know, but it was included in the discussion section which was written.

Several months after the vote occurred yeah.

I think that's sort of in line with what we expected you know as we realized that the Galaxy study wasn't going to be published before the August 2022 meeting that's what we've been saying I think that on the last three.

Earnings calls with respect to timing.

What happens going forward from here you know, we we do know there's another meeting in August .

We can't say exactly what's gonna happen at their meeting it's good that Galaxy is now published and can be formally considered but certainly we've got stopped future decisions with all of the new data, that's coming out and the sweep of randomized trials.

Alright. Your next question comes from the line of <unk>. Please go ahead.

Yeah, I guess, thanks for taking my questions. So first one is on E. S. P N maybe Mike can address some of this.

<unk> could you talk a little bit about you know ask me both on the women's helps out of the business as well as you know signature you know sort of what are the what.

The trend lines here and in terms of improvement we were seeing some impact on carrier testing. So maybe you just talk about that and how should we think about the S. P. Overall.

Yeah. Thanks for the question. So first I'll just give me a <unk>.

We're ahead of schedule quite simply click.

Clinical asses, we've talked a lot of in the past about what the.

The components for the drivers.

Clinical is necessarily just a function of that product.

So can the early days in the launch and that is C being quite immature relative to.

The price points.

That was one of the product.

Previously.

You know we had set the expectation that we would exit this here with an S. E for clinical second here in the 808 in front of it and we actually got there you're a Q1 is.

You've mentioned if it is <unk>.

<unk>. So from here you know not me, it's not really a reason in our minds.

Why we would see that.

<unk> I think you know <unk>.

Improvement from here, we hope that you know we can kind of.

Keep that traction.

For all the reasons that we've talked with on this call in previously and it's principally volume mix between initial under current time points.

Increasing concentration of our volumes in these.

High School, we have a Medicare reimburse beachhead, alright increase <unk> business coming from Medicare reimburse cases, particularly in Colorado cancer just to name a few in addition to the paint new reimburse tumor types and not getting some commercial coverage, so lots and lots of good drivers there on the women's health side.

You know X, California, and I think he has these words were strong. They were you know, we we sequentially sequentially glue them in the quarter. So I was encouraged by that we knew and Steve talked about this and prepared remarks that in order to stay in California.

We're gonna take a.

We would take a penalty on.

When did I S. P is there, but we wanted the same mistake because we feel like there's a there's a longterm.

Rationale for being there both clinically and for the.

The business and as Steve mentioned and that some more cautiously optimistic about the way that that is has turned it so far.

The guide contemplate a little bit more erosion on the carrier Springs.

And that just goes back to the you know the fact that we've actually kind of leaned into this previously talked about head window was saying if there is any reimbursement as a few competitors have that have exited the market. We've actually opted to you know to take share their because you know we think the clinical utility and the.

Guidelines are actually quite strong and there's a potential for us to improve.

Improve the off the reimbursement profile in that business and that's that's something we'd like to see progress on here in the calendar year. So I know that's a lot of those are kind of the main drivers <unk> O'brien I'm I'm feeling quite encouraged about.

Teachers record business. If you look out you know 23 and 24.

Yeah, I'll, just say that you know even with the best that we've taken in sort of some of the temporary initiatives will be traded off volume from origin, we're still keeping or guidance and tack for <unk> for the year of 41% to 44%, which we think is very strong so things are actually looking very positive.

Alright. Our next question comes from Katherine Katherine go ahead.

Everyone is actually sound Peterson on for Catherine Thanks for taking the question.

Good to hear about progress with commercial payers on the signature of front.

You know what it is no progress are you contemplating for the remainder of the year.

And have you made any additional progress.

<unk> genetic testing legislation passed.

Yeah. So you know I think one of <unk>, there's definitely a big opportunity and commercial coverage for signature that we think that is gonna come in overtime.

You know it all starts with having very strong peer review data.

And that's where we really have you know an extensive leadership position I think now with more than 40 peer reviewed papers and you can see from some of the slides it Alex shows.

You know, it's it's not just expansion into commercial payers for colorectal, but we still have a long way to go with with him all the ex program with Medicare Yeah. I think we said we might be able to do seven or eight new <unk> submissions. This year based on the strength of the data that we're putting out.

Certainly that's an expansion opportunity as well as what we're seeing on the commercial side on the commercial side you know I think it's great that we are seeing this distraction and we're seeing some of the the bipartisan legislation supporting.

Supporting expanded access for everyone. We've seen several more states now sort of put this legislation in place.

The <unk> the <unk>.

Backend of of US you know filing the appeals and getting paid was still at the very early stages. So.

So it's hard to really comment at this at this point on what the impact is going to be.

You know overall on the commercial plans, but.

The good news with the legislation continues I think we're seeing progress we're seeing increased number of states adopting the the positive legislation.

And then you know again, we see planes like like Blue shield that have done their own okay, economic analyses and determined that it makes sense to add coverage per signature, which which is great and I think there'll be a little bit more of that as well.

Alright. Our next question comes from the lines Julia can Julia.

[noise] Hello. Thank you for taking my question. This is my account Julia.

I don't know.

You know I recently got the coverage.

Right and <unk>.

Seen any meaningful impact and turns out and I've taken.

From that expansion and that's not Wendy.

Should I think about it for the rest of the year.

Yeah.

Yeah. That's a great question. So we've we've actually been seeing an increase in breast.

Proportion of business for awhile, because there's you know first breath is a is a very big opportunity. When you just look at the number of patients that are available second we think there's there's very high clinical utility in third is we have incredible performance data very very strong.

For which data in breast in book Ageratum across monitoring setting and now in the in the Neo adjuvant setting.

And both of those settings or all of those settings. We have initially published.

You know smaller datasets and week now followed those initial publications up with extensive.

Datasets that include.

Roughly 300 patients and well more than a thousand times. So you have this very strong data combined with the coverage.

Combined with.

The operational execution is is leading to an increase in.

The number of tests that are coming in and I think that's it I think that's a very good sign.

Alright. Our next question comes from the line again Brendan Dan. Please go ahead.

Great. Thanks, Thanks for the questions maybe two parter just on the media allowed to have an opportunity you know it sounded like the high speed data kind of comment could could.

Right reimbursement, but I know, you'll also sided you're coordinating with a team there to make.

Some new camera perspective biomarker in future Saturday. So can you just kind of give us a sense of what the plans are for finally for coverage.

<unk> in terms of timing.

And kind of what the impact would be.

Secondly on it on a woman. So I just you know on 22, Q and carry screening could you just remind us like I know, they're nine and guidance but.

Swimming you know if they were to come through how do we think about the potential impact when that happens. Thank you.

Yeah. So on the ice by studying the new adjuvant setting I think this is definitely one of the one of the settings that we take very high clinical utility, where we have very strong data now with new publication with 283 patients in 1024.

<unk>. So this is one of the biggest breasts buddies separate right out for doing a garage. So could you know.

And we we do plan on submitting this <unk>.

Coverage in the very near future.

When it comes to you know the opportunities in women's health, you'll look I think.

We we sort of look at this as an opportunity to expand access to more patience.

And you know anytime you you generate the type of data that we've generated which.

Shows exceptionally high clinical utility four tests like for example in a small study for 22 Q.

We showed that we could with very high sensitivity very high specificity and a positive predicted value, which was really incredible to 50 per cent range. We could we could test for this disorder that affects me roughly one in 1500 pregnancies, so anytime you're generating that type of data.

You know it it is the type of thing that the guidelines committees, you're gonna look at and you know we think that's great because it expands access for patients and I think helps bring the test to to those patients that may not otherwise have access.

Alright. Our next question comes from the line of Alex No right Alex.

Alright, great. Good afternoon, everyone. I was hoping you could expand a bit more on the kidney headwinds you're facing for the multiplex coverage change you said physicians are working through at the head would attract into your expectations. So I guess just expand then how does the reimbursement changed just impacting testing in the field what would the guidance have been without that had one and then just had it.

Longterm change your outlook on the bike transplants housing market.

Yeah. So you know I think.

Anytime there's a change you know or clarification coming from Medicare It just causes some sort of confusion.

<unk>, what it actually means what position should do do they need to make any changes.

At all and I think there's a sort of swirl of misinformation out there you know of course that that just causes some some volume disruption and I think is what kind of work it through that you know we're.

We're seeing that that maybe things have been misinterpreted in various places and you know I.

The good thing for US is alright, I guess one of the biggest changes that was announced was that you can't get reimbursed for RNA itself free D. N. A testing at the same time on the same patient and that was never part of new Terror strategy and I think that's probably the biggest change that has occurred so we weren't impacted.

By that at all so we're really just impacted by this sort of you know.

Slight volume disruption.

Oh, I'd say, maybe a new kind of 15 to 20 per cent ranch of where you know account to sort of just kind of stopped ordering her temporarily pushed pause while they sort of work through things now for us.

Revenue from doing a garage sale for D N a testing kidney business to take this survey.

Mid single digits.

When it comes to kind of the overall book of business. So it's it's a very tiny fraction of her overall revenue.

And I think that disruption is offset now by didn't.

New revenue that we're seeing coming in from prosper of heart.

Way is not completely offset but we do have a nice ramp at heart.

Now that that's reimbursed uhm that is helping to offset things that of course, you're seeing that we we raised our guidance.

So overall the broader company is is growing nicely, even though we did see this sort of.

15% to 20% pullback in the in the kidney Williams.

Great. Thank you.

[laughter] sorry, there's a second part there what do we think overall about the business. You know look we we have a lot of different opportunities.

Oregon help that we think are very positive I take the proactive trial was reading out in June I think that's gonna be good for the entire.

There's gonna be some great information there uhm it support <unk> overall I think all these new guidelines that have come out like it really in the last six months. We've now seen for strong society guidelines that that didn't exist before and I think that creates an opportunity to.

Expand volume potentially have coverage reassessed and maybe you know get into sort of commercial coverage in the future and then of course there within.

And the last couple of calls we've been talking more about <unk>, we think that's a great opportunity.

To really change how <unk> how.

How how chronic kidney disease patients are treated and we think that potentially could have very high clinical utility and we're looking forward to read out of the <unk> study later this summer.

Alright. Our next question comes from the line of David Westenburg, David. Please go ahead.

Hi, This is John for day. Thanks for taking my question can you give any comment on what the gross margins might've been.

If accounting for the California, and I P T.

Carrier screening headwinds.

Mike you Wanna take that.

Yeah sure. So yeah, no I think gross margins would've been a crystal higher without those that I think it's a little bit hard to just separate separate out those two things because.

Those two events have also causing disruption.

In the market place I think is temporary and we are kind of winging in Nevada in the market.

Sure you know so it's hardly could take credit for some of the account wins and then turn around and say well. Yeah. You know you you would've gotten the gross margin I mean, there's a penalty.

So what we're gonna take that appointment now in return for out of a longer term benefit.

We think that you know you can see as early as they are with this year and going into next year. So we feel really good about about that play I mean, I think without those and then.

And your third which way.

The press onward with with.

<unk> continues to compare growth.

Yeah I think.

No just would've been kind of.

If you had to raise it and you've seen in the last year. So from us so to some branch essentially a move on our part and we think it's own quite constructed for the long term it a business.

Alright. Our next question comes from the mind customize the Garcia. Please go ahead.

Hey, guys. Thanks for taking questions.

So congratulations another at great volume print on Signet Tara So another second Tara question for you but.

He hasn't been doing really really well and obviously plans to kind of add indications, which kind of drive volumes with that I think you know more X one testing.

And so if you guys could just kind of see qualitative me to kind of had to think about you know.

That on the margin side, and obviously you know you're <unk>, you're not really getting that excellent benefits right from the shift and kind of how you doing your accent testing and really kind of had to think about the 2020th urgent and kind of heading into 2024 on the oncology side that would be great Kenneth taken they're a little bit.

Yeah, So I'll I'll come at first and then maybe Mike you can you can jump in.

The X one side Uhm anytime we get a new patient for signature we brought in that show them and that's one of the more expensive parts of the.

The protocol that does lead to increased Cogs in you know we've had various projects.

Projects under way too.

Reduce the Cogs, but still deliver the same very high quality information for physicians and you know, we're we're kind of mid stream on that I think you know.

Most most of the work there is going to be executed in sort of the twenty-three time frame, but they're still going to be some opportunity there as we extend beyond that but.

I mean, the volume is growing very quickly and.

Also have to focus on scaling up well at the same time, you're you're focusing on Tom's reduction across the company as a whole.

We have an extensive amount of cards reduction projects that are underway and I'll just give you.

Some basic inside onto onto some of these I mean, no one is as simple as moving the panorama task for them.

The next week.

<unk> right and so that obviously saved decent amount on a per sample basis. That's a project that you know now is gonna be applied across.

The million Panorama tests that are being run yeah. So obviously, if we get sort of per sample savings because you're sequencing costs. That's applied across the Bay you know very large base of email I P. T samples. So there's all types of projects like that we have for five pretty big cards projects that <unk>.

Sure in the range of sort of you know <unk>.

Probably $5 million to $20 million in savings on Annualised basis and.

Executing noticed none of which really require like extreme amount of sort of new <unk>.

Research they really just require the development work of integrating things within the limb system, you know doing the standard kind of verification validation studies and then launching those are all part of our our road to getting the business to cash flow break even.

Get on the margin side, you know, it's it's sort of both cards NASP and you can see some of the cards projects are hitting this year somebody ESP projects are hitting this year and that's how we're getting into that range of the kind of 41% to 44% by the end of the year and then just as a reminder.

In order for us to hit that we really don't need any of these big milestones that are out there like getting 22, Q guidance from a card or getting N C. T N guidelines.

For colorectal or really seeing any any sort of drastic improvements on expanded carry screening.

Alright, thank God.

Awesome. Thank you and that is all the time, we have for questions. We would like to thank everyone for their time today and have a pleasant rest of your day.

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