Q3 2023 Natera Inc Earnings Call
Thank you for standing by and welcome to the Natera, Inc. Q3 earnings Conference call. All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session. If you'd like to ask a question during that time simply press star followed by the number one on the telephone keypad if.
If you want to withdraw your question Press Star one again.
As a reminder, today's call is being recorded I would now have today's call over to Michael Brophy Chief Financial Officer. Please go ahead Sir.
Thanks, operator, good afternoon, and thank you for joining our conference call to discuss the results of our third quarter of 2023 on the line I enjoyed by our.
Our CEO, Tom and Mark Lavigne, President clinical diagnostics and <unk>.
So lesson general manager of oncology and Chief Medical Officer.
That's still president and Chief business Officer is also on the call and will be available for Q&A.
Today's conference call is being broadcast live via webcast, we will be referring to a quite pleasant person that had been put it means that the polo dot com a replay of the call will also be posted to our site.
None of this available.
Starting on slide two.
During the course of the call the call we will make forward looking statements regarding future events.
Future performance, such as our operational and financial outlook and projection.
So that outlook market size partnerships clinical studies opportunities and strategies.
And I'll quickly with her very current sneaker products, including product capabilities that can really post reimbursement coverage.
Nathan.
We're talking to that they came up with like my best judgment based on factors currently known to us and that actual events or results could differ materially.
Please refer to the documents loop oftentimes.
G, including our most recent form 10.
Q and the form 8-K filed with the FERC.
Those documents identify important risks and other factors that may cause actual results to differ materially from those.
You get to by the forward looking statements.
Forward looking statements made during the call are being made as of today November eight 2023, we'll just call. It the replay to reviewed after today. The information presented during the call may not contain turning towards accurate information.
We disclaim 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 work.
We will quote a number of numerical growth changes as we discuss our financial performance and unless otherwise noted each but represents a year on year.
Now I'd like to turn the call over to Pete <unk>.
Thanks, Mike I think our Q3 results demonstrate that are paying off and I'm excited to highlight we generated 250 million in total revenue and product revenues were up 33% versus last year volumes were strong again across the business with strong year on year growth in women's health in our part D Burke with D. A.
Three of last year.
Nice sequential recovery quarter for Oregon Hill signature of volume growth, particularly continued to exceed our internal forecast.
Our second best quarter ever in terms of the absolute unit growth in the clinical apparel as good as the top line metrics or I'm, most encouraged by the marketing Catherine results.
Talking about the focused effort to improve the ASP and I think that effort started to pay off this quarter gross margins were 45%. You'll recall, we also had 45% gross margins in Q2, but we noted it was closer to 43% on a normalized basis as it had some one time benefits.
We think this quarter represents an organic 45% based on air.
Cogs improvements, we slack or packer and dramatically in the quarter as well almost a 50% reduction compared to last quarter. Clearly we are getting leverage as revenue grew rapidly while operating expenses was essentially flat and margins have been put it or effort improve asps is also leading to getting reimbursed more quickly.
On average compares Mike will talk about this later in the call, but we think this is a good sign that more ESPN agreements are in store for future quarters.
These results.
Opinion growing trends, we are seeing so far in Q4, but it ended up as it can be significantly improve our annual guidance across the board. We are raising the revenue guide once again to a completely new range and now expect to come in between $1 $35 million and 1.050 billion in total revenue for the year, we are tightening.
The gross margin guide to the top end of the range and are now expecting full year gross margin to land between 43, and 44%, which we think is quite strong Q3 gross margins are repeatable in Q4.
Finally, we are dramatically, reducing our cash burn guidance for the year now expected to be $250 million to $280 million. This represents more than 200 million dollar reduction in Casper and hurt the 2042.
Momentum, we are seeing leaves us even more confidence that we are.
We're in a good position to repay capital a breakeven quarter next year, we do not believe we need any guideline changes in order to hit that milestone.
The significant reduction in cash burn has largely been achieved because our core strategy is working.
We are growing revenue rapidly, while reducing costs and improving asps.
Keeping opex stable, though at very competitive level, allowing us to maintain a strong commercial team and continue to focus on clinical and innovation roadmap.
Example, over the past few years, we've made investments into technology development product enhancements, a clinical trial needs investment.
Bolting and an excellent pipeline of new products and new indications you go after within our core businesses.
In 2024, we expect to announce new MLR D related product and updates along with other major innovation in different power future growth. In addition on the clinical side, we have major randomized controlled trials that we expect will be read out in 2020 for couple of which have taken investment over five.
Or more years.
To get to that point. So we think we're positioned very nicely for the future where on a rapid revenue growth path, while moving quickly to cash flow breakeven and doing so with our previous multi year investments driving potential major near term catalysts.
On top of our financial results, we had several big wins during the quarter I'll start with renal care, which has proven to be a landmark study for US an area that we believe can drive significant growth over time.
Last week, we announced the study public taken and Jason a leading nephrology girl and also share the results at the ASN kidney week Congress as a reminder, renal curious any large real world prospective study of more than 600 patients. It looked at the impact of genetic testing within chronic kidney disease.
Finally, <unk> strong clinical and diagnostic utility profile for arena site or genetic test to identify causes that P. J D.
Also needed clinical precedent for the implementation of genetic testing within an at risk population for example, hereditary breast cancer, which we think is a good proxy for comparison.
I won't go too much time on it now it's all of them and we'll cover it in detail later in the call, but I'll. Just note that we're very excited to see where we go from here feedback from Nephrologists have been positive.
Leave these results lay a strong foundation for increased adoption in coverage the market opportunity is potentially large and notably Underpenetrated with 37 million people affected by <unk> in the United States. There is a significant need for reliable and actionable genetic information uncertainties taken.
Real estate can be that driver backed by the strong clinical evidence we reported in the study.
Call. It would be we presented key colon cancer data at ESMO from the Galaxy arm of the circulate study.
Notably this analysis, including 3000 patients, which was quite as many as the nature medicine paper as well as significantly longer follow up at 24 months. The data provide significant insight to the predictive and prognostic value Cigna Terra in CRC with ongoing excellent performance by Cigna Tara.
Lee.
Well MRV has historically been focused on the initial adjuvant draw any adjuvant chemo decision, making the initial M. Rd Tripoli represents only trading practices of the overall MLR D opportunity more and more we are leading the way in a new area that we call <unk>.
Then on molecular relapse, which is where patients can actively receiving drug upon becoming thinking DNA positive with cigna Tara in the surveillance setting.
Rather than waiting for radiologic evidence of recurrent this is part of our vision for how the serial use of Cigna, Eric can transform cancer care and ultimately save lives and we see a gaining real momentum now with sponsorship from both pharma and academic consortia in fact.
Long term this might be the single biggest mardi opportunity in one way or we believe <unk> has a meaningful first mover advantage with multiple phase two and phase three trials already underway.
Which had been ongoing for several years already.
Well, Alex will describe treatment on molecular relapse, a little bit later in the call, including describing the new treat CTD study, which seeks to show the benefits of treatment on molecular relapse in early stage breast cancer. This is a randomized phase III trial conducted across the 120 sites in 12 countries led by European.
Organization for research and treatment of cancer, otherwise known as <unk>.
We also published the vehicle data in lung cancer.
Our leadership position in the patient populations in 2023 alone. We publicly presented the results are for the lung cancer trial across the neo adjuvant and adjuvant and metastatic treatment steady and we've seen very strong performance.
These were conducted in collaboration with our partners at Foundation Medicine, and demonstrated clinical check performance for immunotherapy monitoring knee study helped to support the broad clinical launch and Medicare covered your foundation, one tracker, which we also announced the October as many of you know tracker is a complementary asking cigna Tara <unk>.
On patients with advanced cancers.
We're very excited about the launch and believe this new offering will help oncologist make the best possible decisions about their patient care through actionable and personalized data.
Great and with that let's get into some of the business trends on the next slide we.
We saw continued strong growth in volumes across the major product areas as I described in women's health, we had broad growth compared to Q3 of last year. This strong growth, particularly given our ongoing effort to reduce some volumes from accounts, where we don't see impact cable reimbursement overtime.
Oregon Health, we were pleased with the return to growth as a reminder, earlier this year reimbursement changes created some uncertainty for transplant.
Although when they showed order cross Barrett.
Uncertainty has now largely been resolved in Q3, we saw some of our larger customers returned to prior levels.
The Oregon Health and women's health represent large underserved patient population. They are a critical need for this type of testing me Alker Solomon who will cover the oncology volumes later in the call where the trends continue to be positive.
On the next slide you can see that our revenue growth is getting a significant boost from improved reimbursement in addition to our volume growth.
Left chart total revenues, which grew 27% year on year, and I think that growth rate actually understates, our true progress because we recorded a large one time licensing payment in Q3 of last year the product revenues on the right hand side of the page we've got through that and as you can see product revenues were up 33% year on year.
We made a decision last November to redouble, our efforts and reimbursement and billing operations, making sure that we navigate all the operational hurdles required to get reimbursement for covered services for example, doing better on appeal when our services denied we're chasing down lifting and girl information. Since then we've made a significant investment in new processes. We've added.
New team members, we've identified system and engineering opportunities, where we're still the very early stages, it's great to see that we're starting to see come through in the financial results and there's still a long way to go.
Of course, these improvements benefit both revenue growth and gross margins as you can see on the next slide gross margin dipped to 41% in Q4 of last year, and then to 39% in Q1 of this year as.
As we executed growth on the initiatives that we described in the past on the Q2 call. We described the gross margins were helped a bit by some onetime factors.
We estimated the organic gross margin to be about 43% on a normalized basis.
In Q3, or 45% gross margin largely organic we're seeing modest improvements in the ni PT carrier Asps and have outperformed our expectation in picking that tariff for each of these products. We have put in place multiple operational Miss is because the effect is not yet been fully recognized in our revenue accrual.
So we're cautiously optimistic that we can deliver steady gains in the gross margin throughout the course of 2024.
The other interesting byproduct of all these efforts is that our cash collection cycle noticeably improved in Q3 compared to prior quarters, which helped drive a significant reduction in quarterly Kasper along with the revenue growth and gross margin improvements.
Finally, we continue to hit our marks on cost of goods sold.
As we've expanded our Cigna <unk> laboratory and executing Cogs projects across the company.
We've got a full slate of these lab infrastructure projects and we expect.
To launch many of them. During 2024. This has been a big area of investment where their R&D budget and it will be nice to see that investment pay off in addition to the above cost projects. We've also passed some key validation and regulatory milestone with an alternative.
NGF provider, we validated this thickness tera technology, or an alternative and yet platform and in partnership with a major pharmaceutical company achieved key regulatory milestone using that alternative platform. In addition, we validated <unk> alternative NGF platform and past the regulatory milestone, which.
We may now launching version of in our centralized laboratory.
All of these factors give us confidence that we are on track to get to a cash flow breakeven quarter next year and with that let me turn it over Solomon who will dive deeper on the results of <unk> in the oncology business Sullivan.
Thanks, Steve.
I just got back from weekend from the American Society of Nephrology ASN annual conference in Philadelphia, where renal genetics was a hot topic and where the renal care paper was well received.
Many doctors expressed a belief that nephrology is at the beginning of a new wave of personalized medicine similar oncology was as a field 15 to 20 years ago.
There are about 37 million people in the U S living with PPD or roughly one in seven adults.
PPD is also a significant burden on the health care system.
With roughly $85 billion Medicare spend related to its management.
And then carillon the renal study back in 2019 in collaboration with meters from Colombia, Yale NYU Mayo clinic, and several other leading into <unk> with.
With the goal of determining what personalized insights can be gained from genetic testing with impaired renal type product.
385 disease related games and.
And how often a genetic diagnosis, we can with pain treatment.
More than 600 patients were enrolled across 31 sites in the real world prospective studies.
The results were impressive.
Some of the key headlines as you can see on the plywood.
One in five patients.
Positive for genetic causes CBD, meaning that a pathogenic or likely pathogenic variants was found in the Germline DNA.
Out of the positive one in two patients received a new or reclassified diagnosis.
And of the positive one in three reported pain and treatment plants.
At a high level when thinking about real estate diagnostic yield of 28%, let's prepare it to hereditary cancer testing.
Like the classic VR DAA one in few days, whereas the studies have shown a positive rate of between five and 17%, including an cohorts that meet <unk> criteria for being high risk and then have received Medicare or commercial insurance coverage.
We all know the Germline DNA testing in oncology has become standard practice, but given the high yield we've seen purina site together with the significant clinical utility.
Great opportunity here for changing standard practice in nephrology Congresses.
Song preclinical clinical guidelines and insurance coverage.
To that end, we recently submitted an application for <unk> for coverage of <unk>.
We look forward to their feedback, particularly given the strength of the renal care studies.
I think that's a little bit deeper now into the study findings.
One of the key stories unfolding here is that genetic testing is useful not only in the eight or 9% of patients without a diagnosis, but also in patients who have already been given a clinical diagnosis.
For background <unk> has a vast spectrum of underlying causes.
Current diagnostic protocols generally rely on basic measurement of kidney bucket.
As well as imaging and biopsy.
Is the person that left significant gap for example, diagnoses that are nonspecific, meaning.
Meaning that the kidney disease, maybe inaccurately attributed to diabetes or hypertension. When in fact, those maybe comorbidities that masked the root cause of the patient.
Yeah.
Similarly in the case of <unk>.
Clinical management to know that subtype of disease, whether it's driven by PD, one or <unk> for example, and many.
We also found that finally genetic testing could have helped the painting avoid an unnecessary invasive biopsy.
There are more than 20 drug already addressing green specific CPG partners on the market.
And approximately 270 clinical trials.
So having a specific diagnostic information really enhance targeted treatment option. It can open doors for participation in clinical trials and.
And ultimately it can improve outcomes.
For people, who want to learn more we just published but good white paper on our website.
In summary, the arena cutting provides solid evidence demonstrating that rina site testing is useful and appropriate in the vast majority of patients presenting with PK data.
Can lead to an earlier and more accurate diagnosis and standard of care practices, and frequently pain or refine and existing diagnosis and it can enable clinicians to tailor treatment decisions.
Very enthusiastic about the future pencil a good product.
If people with BTG.
Moving to oncology now what.
Well, we had a great quarter clinical signal power volumes down on the right had one of its best quarter in terms of absolute growth.
This growth reflects the strong increase in new patients in April.
<unk> testing by existing data and significant adoption by new physicians, who had never orders picking up there before we.
We believe over 35% of all U S oncologist ordered <unk> in the quarter.
The left hand chart includes all clinical volumes and former unit.
As a reminder, we had a spike in pharma unit, two which we discussed in our call in August.
Broke out the clinical volume separately this time relative to the pharma business, which is doing well, but it's a bit more lumpy as expected.
Recently closed some big pharma projects across various cancer types, including prospective or retrospective and real world data study.
There continues to be significant intra cliff that we are now expanding capacity and the army rollout.
In fact, the clinical sticking with power. We've also continued to drive steady improvement in the average sales price.
Pasting our initial expectations.
In Q2, our AFP within the eight hundreds in Q3 it was in the 900.
And now we see a near term path getting above 1000.
Its roadmap is being driven by better operational execution as well as anticipated Medicare covered new indicating and expanded coverage among private payers.
As a reminder, repair is in a unique economic because it was the advanced diagnostic lab test status or <unk>.
Which is very hard for other MRV labs to replicate.
We believe all the data that we've been announcing and studies underway will help drive ongoing volume growth over the near and long term. So with that let me turn it over to Alex to provide a closer look at some of those studies.
Yeah.
Thank you for all of them and we were.
Recently presented updated 24 month data from the Galaxy cohort at this year's ESMO 2023 conference.
The data continues to support and strengthen our team with Banco Hi, Basel theme.
Implicate pertains healthier did manage.
Namely the <unk> positive patients benefit from treatment, while <unk> negative patients do not.
On the right hand side of the page became negative paper continued to grow that Perl disease free survival, regardless of adjuvant treatment.
Significant differences in DFS, a 24 month for observed or DPA negative patients receiving <unk> compared to those without ACP.
We believe this data further derisked the outcome of our definitive randomized bigger study.
Take the tablet that escalation strategy as a standard of care and early stage theoretically.
On the left hand side of the page, we see E positive patients treated with ADP has significantly improved DSO compared to patients who undergo observations.
It is the fact that even after adjusting for all possible confounding condition.
The randomized arm of this trial known as the old pair is scheduled to read out in mid 2024, which will further advance whether they're good for the past one or two on top of female can further improve DFS and <unk> positive patients.
And we believe that if the study positive it would establish a pathway for a new standard of care.
Patients treated with curative intent or test them with cognitive era.
As a reminder, the data on the Patriot outcome based on single treatment paradigm points within eight weeks post surgery adult Barrick cutting is a key component in the protocol that allows enrollment of patients who were initially negative, but then turn positive in the surveillance setting up to 24 months, both perjury business.
New concept in MRV and is what we're calling the treatment on molecular recurrence.
The majority of trials and data in the MRI space to date have been focused on adjuvant decision, making based on the FERC, one or two time points immediately post surgery.
However, we believe the largest market treatment on molecular relapse.
Fine.
<unk> treatment based on positive data in the surveillance setting.
Instead of waiting for clinical or radiologic recurrent.
In this space to be multiple orders of magnitude larger and potentially revolutionize cancer treatment by providing patent second tampax pure before avert recurrence is detected on it now.
We have seen tremendous interest in the strategy from clinic then.
Pharmaceutical companies.
Studies take years to design and around it.
We recognize this opportunity over five years ago.
And we now have multiple studies better rolling in this space, including the one blood from below.
I wanted to highlight a new study and recently announced the Green tree PPE DNA trial in early stage breast cancer that is being done in collaboration with the E. R. A T Z consortium.
The primary objective of this study is to evaluate whether <unk> oral endocrine monotherapy.
Or thirdly, and delay and or prevent occurrence of distant metastases or death.
Concurrent with that there are positive and the late prevail on Friday.
Study is expected to create approximately 90 to 100 patients across more than 125 an.
And if successful the results of this study could support broad recommendation.
But the real monitoring with bringing up their own and HR positive <unk> negative breast cancer.
Additionally, we continue to be drawn and Kurt and the bear and leader, but is there also examining treatment on molecular recurrence in breast cancer paper and shouldn't be reading out in the 2024 to 2025 timeframe.
We continue to generate new clinical data to support their reimbursement and an expanding list of indications.
Hey, we want to highlight non small cell lung cancer.
In 2023, we have generated multiple presentations and publications.
<unk> <unk>.
I'd prevent and metastatic settings.
Including radiotherapy and immunotherapy treatment response monitoring.
We have seen immunotherapy transition from being utilized primarily in late stage non small cell lung cancer the earlier stages of disease.
The recent approval of <unk>.
Neo adjuvant adjuvant and theory operators cutting.
This has resulted in a significant expense of I O treatment eligible.
Yes.
Setting, where cigna, Eric well positioned given the strength of our data and existing reimbursement for Idaho monitoring.
In the adjuvant and prevailing setting we continue the theaters ethanol simplicity broke near 100 per ton across multiple studies.
<unk> performance better than many competitors have traveled with you.
The recently published Levo study uptake wonka three lung cancer patients.
Observe an 82% pre treatment and 100 per ton of London sensitivities are recurrent with a median of 102 day lead time.
As Bill previously presented data and the Avalere study showing a 93 per ton largest mineral continuity to recurrence.
Broad set of data very strong performance across all key metrics.
We believe these various datasets are critical to tablet brands clinical utility.
Moving to reimbursement and maintaining market leadership in emerging indicators like non small cell lung cancer.
Frankly, the data has led to encrypt and protect a clinical trial or the <unk>.
During the third trials and the data now being live.
We plan to provide further updates on our prospective evidence generation strategy during future calls.
Lastly, we want to highlight that we are now expanding our data generation efforts with partners like Foundation medicine, where there's cracker product utilized either exclusively or in combination with payment thereof.
E M power, one and I am power 131 studies.
Building on the strength of this evidence and the recently announced Medicare coverage for Io monitoring we are excited to highlight the foundation one cracker product that is now available across the U S.
The innovative assay combines the genomic information derived from the foundation, one CDI debased comprehensive genomic profiling path with a personalized assay design and DNA analysis from the parent well.
We believe this is a great win for patients given the product will enable greater access and a pair of core technology.
You may be limited or previously exhausting.
We're excited for the additive effect, but with partnership <unk> core monitoring business.
Scientists to present additional clinical data to support the value of integrated.
Ward.
Monitoring into routine clinical practice.
Now handing you over to Mike to review, our financial detail Mike.
Thanks, Alex for personalized with our tender results, while we can see again the revenues were up substantially versus last year. Despite the fact that we had a very large licensing quarter in Q3 as Steve mentioned, so that really highlights how strong our product revenue growth has been over the last year and all quite unique I'm confident that the growth.
Margins are sustainable operating expenses for some modest growth over Q3 last year, but this year, we have been effectively flat in sequential quarters now even as we delivered significantly faster revenue growth.
Balanced P include proceeds from the equity raise in September so we remain in a very strong capital position.
The next slide highlights the catbird dynamics, we've seen in the last few years.
You can see we were burning roughly $115 million to $120 million a quarter on average in 2022 as we stood up all the infrastructure needed to deliver a FERC class lots of things.
We got down to $80 million to $90 million a quarter burn as volumes and reimbursement grew rapidly now we've cut back pack burn roughly in Athens and here in Q3.
Please describe we placed a lot of emphasis on getting reimbursed and frequently for covered services and while we are still in the early innings of that effort, we do seem to be getting some results here in Q3 days sales.
Outstanding fell dramatically in the quarter and now stand in the low nineties.
I'll offer the standard caveat here, we fully expect class burns fluctuate quarter to quarter given on Cogs projects are all on track, we do have some large opex spending planned in Q4.
However, I think with <unk>, we are in the car demonstrates continued progress and we expect to see more of that next year.
Great, let's get to the 2023 guide on the knuckle Crane.
He described we are once again in position to completely re rate the revenue got upward and now expect would come in at $1 $35 million $1.050 billion.
Please be heightening the original gross margin guidance pop into the range.
We offer a guide was remaining unchanged. So that means we can now significantly reduced our expected op burn guide for the year now expected to be $250 million to $280 million.
For many of you that have followed us for some time, you'll know that we try to threat for class that require good but achievable execute then I'll come back with the guide implies.
Lastly, can you grow margins and they clean the improvements we have paid this year. This guy does not imply however continued growth in the <unk>. Obviously, we are focused on making that happen, but theres always some uncertainty around the specific timing of those improvements which is why we are reserving that as upside to the guide per our usual practice.
As Tim described we're feeling very positive about 2024, and we feel like we've got the right sized sales team and you're driving growth given units are largely a function of sales rep productivity and rep count the remaining stable next year I think repeating the old uncle unit growth. We achieved this year is a good target.
This will require good evening classes, our commercial team will also need to manage a larger book of existing business with the same time as we're growing those units.
Because the volume upside we are now starting to see revenue increased at a faster pace.
So if our tongue E trends continue that would be another factor, helping us in 'twenty four.
On revenues, we've got the protocol for a number of further update tailwind I would regard as upside to our forecast.
We are cautiously optimistic on 2000, <unk> and broad panel carrier screening guidelines and footnote inclusion in <unk> guidelines based on the patent board meetings, we've been publicly announced when the guideline committees. We would expect up goes relatively early in 2024 I'll state again that we do not need the put our cash flow breakeven.
In order to continue making progress on the E, which group report steady improvements in the gross margin over the course of the note.
Year.
We expect operating expense to be relatively stable in 2024 compared to 2023, we've talked about the commercial team and we are rapidly getting operating leverage on our lab infrastructure for <unk>.
R&D expenses, but will still allow us to make critical investments in prospecting clinical trials and talking to fold reductions. We are also planning to launch a suite of compelling new products and we're looking forward and talking more about those in the future.
Our overarching goal in 2020 core deposits low breakeven without sacrificing growth and innovation.
We have a lot of blood to we're.
We're planning to spend only about $15 million in the theater.
An early cancer depression.
That investment will still allow us to deliver significant data readouts Wunderlich will come by either the end of this year or very early in Q1 and the other in the App of 2024.
If those data look very strong in pastures of investment criteria.
We would evaluate moving forward with the program given the goals we have in front of us in our core products. We will only put further into this area in the future. If we see excellent results that we think can be market, leading and we're hitting our tactical goals.
So we're really excited to be talking about the deeper nuclear up and with that let me open it up to Q&A operator.
At this time, if you would like to ask a question press star one on your telephone keypad.
If you'd like to withdraw your question Press Star one again.
Your first question is from the line up to high so that with Morgan Stanley.
Hey, guys good evening and thanks for the time here congrats on a great quarter.
Steve Mike just in light of your comments that you didn't really have any benefit from one time earlier in the quarter on either revenue or gross margin can you just help us contextualize that implied fourth quarter guide it looks like you're pointing to sort of flattish growth.
Sequentially and Satish gross margins as well for my quick math, so any color on sort of any offsets that we should think versus the typical year end season.
Seasonality.
Yeah.
Hey, guys. Thanks for the question, it's Mike here, Yeah look on the on the guide I think on the gross margins I think that just tightening to the top end of that range implied similar or better gross margins.
In Q4 as you know as you guys know, we don't guide specifically to quarters. So there is a kind of there's a level of caution there I don't think that should be taken as a message about <unk>.
<unk> about underlying trends as you've heard in the prepared remarks.
Buying trends that really across the business remain.
Credibly strong.
Similar sentiments on the on the revenue lines.
Volumes.
Please follow the pattern, where Q2 Q3 are kind of our weaker quarters in terms of the seasonality from the women's health business.
One is usually our strongest quarter, but usually Q4 is kind of.
It's also a good quarter as well so we feel like we're off to a good start with Q4.
As I mentioned in my prepared remarks, I mean kind of or our approach to providing guidance, we always try to provide kind of good but achievable.
Benchmark for financial guidance.
We hope to be able to see that yes.
Yes, I'll just add this is Steve we're off to.
I'd say, an incredibly strong start in Q4, and we're continuing to see I think acceleration in asps and volumes.
Got it that's super helpful color.
And then guys.
A couple in terms of the follow up here one on Signet. There can you just update us on your status with BSG and I know this isn't a material part of revenue, but it's a question that we've gotten from investors here.
How do you sort of juxtapose that with the biomarker the bill being passed in California, you've got the F. One tracker.
Opportunity coming up as well so any color on that and then my second part of the follow up is actually on arena side, given the really strong results here on renal care.
How are you thinking about the slope of that adoption curve I think in the past Steve you had mentioned about.
You mentioned the $37 million.
Patient population, but about 750 <unk> in newly diagnosed annually. So just any color in terms of the slope of the uptake there.
And early feedback from payers in Nephrologist will be fantastic. Thank you.
Yes. Thanks, a lot. So I guess first just just on sort of commercial payers and the biomarker Bill I think some of the other groups that have presented have talked quite a bit about that we're obviously monitoring things, we're taking a little bit of a more cautious.
This approach, we want to see how things actually come through but the reality is it did biomarker builds are in place now and passed and a significant number of very critical stage. So we think that it could serve as an opportunity I think to quicken the traditional pace that you see.
For commercial coverage and you know, obviously with California passing.
That's resolved things with with Blue Shield of California.
But overall I would say this biomarker bill as a net positive.
It is something that is sort of unique for each time period.
Not an opportunity that's been available previously.
Frankly, this might end up being.
The quickest path to get commercial coverage versus what we've seen historically.
From a real estate standpoint, I think the.
The renal care study, we think is real inflection point.
We've already previously said about 40%.
Prologis have used the product.
We have done tens of thousands of tests at this stage and the excitement from the nephrology community and the interest is incredible I mean, it's like something that I haven't experienced before where nephrologist to really.
Welcoming this product in with open arms.
Very engaged.
So <unk> been starving for a product like this so we're excited about that with that said anytime you're introducing something new.
It does take a while to get Proto.
Protocols in place.
Get that type of market penetration that could be impactful.
Think about the market size I think a very direct comparison here can be made with hereditary cancer testing.
There you have very similar situation, where you have the sort of incident and prevalent pools and frankly, there are similar size than it was.
Hereditary cancer testing today is an incredibly large opportunity.
So we think we're laying the groundwork for something similar.
Your next question is from the line of Puneet Sudan.
<unk> partners.
Hey, guys.
Thanks for the questions here. So first one on the FSD that I'd follow up on on guidelines.
On <unk> I mean, it's good to see the improvement and I. Appreciate you, giving the details on Cigna Terra, but could you talk about how much was the ASP improvement on the Panorama and horizon side and sort of what should we expect there and then on Cigna Tara could you outline.
What's the ceiling here given the <unk> rates you have the reimbursement.
The indication expansions that youre seeing and potentially guideline inclusion ahead as well.
Could help with commercial payer so maybe just talk about the ASB.
Hey, Thanks, Puneet I appreciate the question so first on.
First one on the A&P. We saw in addition to continued pretty rapid.
Improvement in the suite of Terra Asps, which we covered we also saw some very encouraging improvement in the in the women's health Asp's I mean, I think thats and Thats, both for for Panorama and for carrier screening.
You may recall that earlier in the year, we actually guided.
Assuming some erosion.
And the Asp's Nat.
In that category and it's at the time I have said look it's not because we're seeing ended up kind of more of a philosophical point.
Frankly, we haven't seen that erosion and indeed, we've seen some we've actually seen some improvement and then where does that improvement come from it really comes from a variety of sources in it.
It's small contributions from a range of the efforts that we've been moving really making over the last year and Steve covered in some detail on the call.
So, leaving the leading the guidelines aside which I think could be very impactful I'm actually quite encouraged about the trajectory that we're seeing right now on asps.
In women's health.
To say nothing of the rapid improvement we've seen in the Secretary Isps, which we which we did expect.
Second question on it can you just remind me again just give me your fall begin more time.
Yes, just what is the what is the ceiling for <unk> turn around how you think about that with a DLT and indication expansions.
Yes, yes so.
I think finally covenant.
In the prepared remarks that just based on where we're seeing right now just on the current coverage dynamics that we have in our current tumor types. We feel like there is a path beyond $1000.
Just through kind of grinding and blocking and tackling and making sure that we get paid for covered services and we clear all of the myriad kind of administrative hurdles they want typically encounters.
In this space, that's a lot of room to run from where we are now I wouldn't put a ceiling on that per se.
I think at about the time that we're reaching.
Those levels, we're going to have more data, we're going to have feedback from Michigan and then also we will have.
Perspective randomized data, we will have data in a number of different sources.
Steve Touch also on the biomarker legislation. So there is some other.
It comes from tablets are going to hedge roughly contemporaneously. So.
I would expect kind of a fairly smooth trajectory to figure curious piece, which is really encouraging.
And I'll just add too I think one of the things that is really exciting is as we're looking now it's very clear path to cash flow breakeven in 'twenty four.
And a very strong revenue growth ahead.
We're not really incorporating any of the upside opportunity from guideline changes things like <unk> or any of the upside opportunity from biomarker legislation, which was just asking about a minute ago. So the model that we're looking at really just includes.
Sort of status quo, and blocking and tackling and billing operations improvements with all of those other things are really upside potentially very significant upside that we just don't need to get to cash flow breakeven and have another good year.
Got it Super helpful.
Guidelines wondering maybe a part a and b to this question could you clarify on the on the women's Health side. Mike did you say you were expecting to see <unk> guideline update in early 2024, I just wasn't sure if I heard that correctly.
Correctly.
And then on the CCN for the second tier side.
Could you maybe elaborate a given the number of data sets that you have already with Altair and treat Cte DNA coming up I.
I guess the question is when does this translate into in CCM guideline inclusion what that guideline inclusion can look like.
Maybe Alex or settlement can elaborate on that thank you.
Yes, yes first so let me just talk a women's health. So of course, we don't we don't have any information on exactly what happened so forth, but we do know that there was a guideline committee meeting I think in September.
From a cog and if you start to think about just sort of the timeline that you might see the results from that I think that could be in Q1.
We don't know either way.
Whether things will be positive or negative, but we feel really strong about the fundamentals behind 20, <unk> testing that are outlined in the smart study.
And behind the fundamentals of expanded carrier screening. So we will just have to stay tuned.
And see what happens there.
From a <unk> side of things.
When you look at kind of I think there was a meeting in August.
We're expecting to kind of hear your outcome from that maybe later this year early next year, we do know that the circulate 18 months data.
It was included in the review because it was submitted in time.
But of course, we don't know the outcome now the great thing for.
<unk> is because we started working on randomized controlled trials in the escalation setting for example, altair more than five years ago. In 2024, we will actually have the results initial results from Altera reading out so regardless of what the guideline Committee says this year.
With respect to the circulate study next year, the Altair and results will be out and so it's just really a matter of time, assuming the trial reads out positively.
And that's why we feel very positive about things and when you look at.
What setting as Altera I think it is sourced two settings, one is treatment escalation.
But then the other is a treatment on molecular recurrence.
Components, where patients from the Vega study that are initially negative are being monitored with CTD name when they screen positive they flip over into the Altera arm and are randomized at that time, and then either treated or not treated.
We're excited about that treatment on molecular recurrence readout as well, which we think.
I think there is another reason why surveillance testing is important.
Look forward to having both of those read out Alex Solomon would you like to add anything else.
Okay.
Yes.
Your next question is your line of Catherine Schulte with Baird.
Hey, guys Congrats on Macquarie and thanks for the question I guess first I think you mentioned planning to launch some new products next year could you give any additional details on that and would that be additional indications or are you more referencing a new platform like the potential trial liquid exome or tumor naive.
The short version.
Yeah, So we're going to have multiple.
New things that are coming out not just in <unk>, but across the business and we've we've been investing heavily.
In research and development and innovation.
Really.
The entire history of the company, but particularly over the last couple of years and I think that's now going to start to bear fruit.
As we have a significant number of product launches and updates next year. So on the <unk> side I would expect to see here in multiple different.
Opportunities, both new products and product updates.
Okay, Great and then you mentioned validating signature and <unk> on an alternative provider any additional color you can get there and what's the timeline to rolling out <unk> alternatives sequencer in your Central lab and is the plan to switch all of your volumes over.
Yes, So I think you guys sort of know the history here of the.
The evolution of sequencing and really over the last several years, we've seen the market open up quite a bit.
And now we've done work on multiple different instruments, and we think theres many different groups out there.
So it's great that we've been able to meet regulatory milestones and.
In collaboration with pharma partners validate Cigna, Tara and independently.
Independently validated.
<unk> on these alternative platforms.
We're focusing on reducing our Cogs.
And.
Getting to cash flow breakeven and so we're going to make the best decision for new tariffs on what provider we use.
Based on based on the service level, the price and the quality.
Your next question is from the line of Rachel <unk> with J P. Morgan.
Okay. Thank you for taking the questions and congrats on the quarter you guys.
Nice to see the coverage of the foundation one tracker in the U S. Last month can you just kind of walk us through how should we size that opportunity and then how quickly can it become a meaningful contributor here.
Yes, Solomon why don't you take it.
Sure Yeah. Thank you for the question.
We were very excited about getting that coverage for Medicare.
And we thought it was.
Appropriate given the great data that's already been generated to support the tests.
Foundation, one tracker is very well positioned.
For patients in the advanced cancer, setting who are already getting a foundation, one CD excess and want to monitor response to immunotherapy.
Without needing to send another tissue sample.
Further development of Cigna, Terra and Thats, especially useful for patients where tissue might be scarce already exhausted. After the first analysis for genomic profiling. So so that's exciting and we look forward to rolling that out.
That commercialization being led by Foundation medicine.
And helping a lot of patients.
Great and then my follow up I, just wanted to ask about the pending losses that you guys have with RAF Jan and the upcoming trial in early next year.
Peer that had to pay out in the high 200 million dollar range, but other peers have settled out of court you had one peer earlier. This week slat isn't there Pat is going to be in that $30 million range already. So can you just walk us through what are the potential range of outcomes that we could see further any color on.
That trial. Thank you.
Hey, Eric Thanks for the thanks for the question so just like all of that.
Any pending litigation, we unfortunately, just can't get into a lot of details on ongoing litigations.
We clearly believe we don't infringe we don't think the patents are valid and we feel like we've got some very strong.
Fences, and that's kind of where we've got to leave it for now.
We look forward to providing more updates as they become available.
Your next question is from the line of Dan Brennan with TD Cowen.
Great. Thanks, Thanks for the questions maybe the first one Mike you talked about some of the screening data that's coming out later this year and early next year you talked about if the data looks very strong you would evaluate and move forward only excellent results can you can you give us a sense of what we expect to see here coming up in these two studies and just any more color around.
The level of evidence you would need.
To push ahead.
Yes.
This is Steve I'll take that so we've said before we have Keith controlled study that's coming out.
Probably at the end of this year maybe in early January.
And then we're following that up.
With an additional study looking at advanced set of Noma.
Once we once we have both of those in hand, we're going to see how we measure up to others that are out there.
I think theres sort of two decision points. There there is how do we compare to the competition.
And.
Where are we on our trajectory to cash flow breakeven in <unk>.
Out of the financials look and we're not going to do anything.
At all that's going to impact our ability to get to cash flow breakeven. So we think we're taking the right kind of measured approach and phase gated approach, where we're waiting to hit key milestones before we decide whether we're moving the ball forward or not and if we do move the ball forward.
I think next steps would really be in 2025, and 2026, where we will be operating in a different environment, where we think we'll be cash flow positive.
Got it thanks for that and then maybe just another one on <unk>.
If you are successful getting.
And inclusion maybe as a footnote in the current update that you expect early next year like what would that what does that mean, obviously commercial coverage could start and you'd likely see a volume benefit to maybe just clarify and then as it related question. Obviously, the galaxy 24 month data and the Emory positive arm looked really.
Really impressive how much does that Derisk altera I know you kind of mentioned, but I think the regimen might be a little bit different altera, just wondering how much of a confidence that gives you in alterra positive readout. Thank you.
Yes, let me let me just talk quickly about guidelines and then I'll have Alex comments on the circulate data so.
Why do you think you need guidelines to grow volumes.
And to get commercial reimbursement and we're growing volume right now.
At a really fast pace and we're also now seeing commercial reimbursement coming on and because of the biomarker Bill we think thats going to continue so.
At this point.
I think I think guidelines, obviously with quicken the pace of those things, but we're going to get really far along here.
Guidelines coming in and I think importantly for Natera.
We don't need guidelines to achieve cash flow breakeven and continue to significantly grow the business. So we'll wait and see what happens.
But if we don't end up getting it this time around we have the Altair study coming out and will be in a great position. So Alex do you want to comment on the.
Circulate data, whether that's Derisked Altair Vega.
Absolutely Steve So we definitely have seen continuation of separation of the occurs and the Cta positive arm and the circulated studying and Furthermore, we've seen that in the <unk> negative arm, we continue to see very little if any benefit from adjuvant chemotherapy and that.
Absolute difference has shrunk and actually we've seen those curves now reverse we think actually both of those helped de risk not.
Not just the Altair study, but also the Vegas study and since Altera is coming up.
Just around the corner.
The way we are extrapolating. These findings is that CGM positive patients have almost 100% risk of recurrence without treatment, we've seen that adjuvant chemotherapy helps reduce that risk with us not eliminate them and the way that helps here as designed we are adding a known active agent task.
102, that's already approved in colorectal cancer and is known to have efficacy even in the second and third line setting so by adding that and randomized patients to either get that drug will get placebo were pretty confidence that there will be and the fact that should be able to bear out from that study again, we won't know the results.
Until the study is unblinded, but I think given the study design given the findings so far from the circulate data were very positive, but we should be able to see something if the factors there.
Great. Thank you.
Okay.
Yes.
Okay.
This does conclude the amount of time that we have a question and answers I will now hand, the call back over to our presenters for any closing remarks.
Hey, Thanks, operator, and thanks to everyone for joining us today and we're really excited about these results and we're very pleased to share with you. So thanks again for joining.
This concludes today's call. Thank you for joining you may now disconnect your lines.
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