Q2 2024 Natera Inc Earnings Call

Speaker Change: Good afternoon and welcome to Natera Inc's Q2 Earnings Conference Call. All participants are in a listen-only mode. After the speaker's remarks, we will have a question and answer session. To ask a question at that time, please press star followed by the number one on your telephone keypad.

Operator: All participants are in a listen-only mode. After the speaker's remarks, we will have a question and answer session. To ask a question at that time, please press star followed by the number one on your telephone keypad. As a reminder, this conference call is being recorded. I would now like to turn the call over to Mike Brophy, Chief Financial Officer. Thank you.

Speaker Change: As a reminder, this conference call is being recorded.

Speaker Change: I would now like to turn the call over to Mike Brophy, Chief Financial Officer. Thank you. Please go ahead.

Mike Brophy: Thanks, Operator. Good afternoon.

Mike Brophy: Thanks, Operator. Good afternoon. Thank you for joining our conference call to discuss the results of our second quarter of 2024. On the line, I am joined by Steve Chapman, our CEO , Solomon Moshkevich, President, Clinical Diagnostics, and Alex Aleshin, General Manager of Oncology and Chief Medical Officer.

Mike Brophy: Thank you for joining our conference call to discuss the results of our second quarter of 2024. On the line, I am joined by Steve Chapman, our CEO, Solomon Moshkevich, President of Clinical Diagnostics, and Alex Aleshin, General Manager of Oncology and Chief Medical Officer. Today's conference call is being broadcast live via webcast, and we will be referring to a slide presentation that has been posted to investor.natera.com. A replay of the call will also be posted to our IR site as soon as it's available.

Speaker Change: 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 posted to our IR site as soon as it's available.

Mike Brophy: Starting on slide 2, 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, and expected results, opportunities, and strategies, and expectations for various current and future products, including product capabilities, expected release dates, reimbursement coverage, and related effects on our financial and operating results. We caution you that such statements reflect our best judgment based on factors currently known to us, and that actual events or results could differ materially.

Speaker Change: 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, and expected results.

Speaker Change: 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.

Mike Brophy: Please refer to the documents we file from time to time with the SEC, including our most recent Form 10-K or 10-Q and the Form 8-K filed with today's press release. Those documents identify important risks and other factors that may cause our actual results to differ materially from those contained in or suggested by the forward-looking statement. Four looking statements are being made as of today, August 8th, 2024. If this call is replayed or reviewed after today, the information presented during the call may not contain current or accurate information. Matera disclaims any obligation to update or revise any forward-looking statements.

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

Speaker Change: 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.

Speaker Change: Forward-looking statements made during the call are being made as of today, August 8, 2024. If this call is replayed or reviewed after today, the information presented during the call may not contain current or accurate information. Natera disclaims any obligation to update or revise any forward-looking statement.

Mike Brophy: We will provide guidance on today's call but will not provide any further guidance or updates on our performance during the quarter unless we do so in a public forum. We will quote a number of numeric or growth changes as we discuss our financial performance, and unless otherwise noted, each such reference represents a year-on-year comparison.

Speaker Change: 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.

Speaker Change: We will quote a number of numeric or growth changes as we discuss our financial performance. And unless otherwise noted, each such reference represents a year-on-year comparison. And now I'd like to turn the call over to Steve. Steve?

Mike Brophy: And now I'd like to turn the call over to Steve. Okay?

Steve Chapman: We had another excellent quarter across the board. Revenues were up 12% sequentially versus Q1 of 2024 and up 58% compared to Q2 of last year. This was driven by record volumes and another strong quarter of ASP growth.

Steve: Great. Thanks, Mike. Let's get to the highlights on the next slide.

Steve: We had another excellent quarter across the board. Revenues were up 12% sequentially versus Q1 of 2024 and up 58% compared to Q2 of last year.

Steve Chapman: Volumes were up over 23% compared to Q2 of last year. We had a great quarter, winning new accounts in Women's Health, and despite the typical Q2 seasonal headwinds, we grew volume sequentially versus Q1. In Organ Health, we posted another strong volume quarter, and in Oncology, Signataria grew another roughly 13,000 clinical units over what was a very strong Q1. We delivered a strong gross margin quarter with excellent ASP and COGS trends that I'll get into shortly. All of that means we can raise our guidance for revenues and gross margin for the full year. We are now centering the guide around roughly $1.5 billion in revenue and a 55% gross margin.

Speaker Change: This was driven by record volumes and another strong quarter of ASP growth. Volumes were up over 23% compared to Q2 of last year.

Speaker Change: We had a great quarter, winning new accounts in Women's Health, and despite the typical Q2 seasonal headwinds, we grew volume sequentially versus Q1.

Speaker Change: In organ health, we posted another strong volume quarter, and in oncology, signatory grew another roughly 13,000 clinical units over what was a very strong Q1. We delivered a strong gross margin quarter with excellent ASP and COGS trends that I'll get into shortly.

Speaker Change: All of that means we can raise our guidance in revenues and gross margin for the full year. We are now centering the guide around roughly $1.5 billion in revenue and a 55% gross margin.

Steve Chapman: At the midpoint, the new guide implies annual revenue growth of nearly 40% and an increase in gross margins of roughly 10 percentage points from the 45% gross margins we posted last year. We're excited about our progress, and our transformational year continues. We also had many positive developments on the clinical and product side that we'll discuss on today's call. First, I want to point out that the Altair investigators let us know that they are not going to meet the timeline for the submission to ESMO in mid-September.

Speaker Change: At the midpoint, the new guide implies annual revenue growth of nearly 40% and an increase in gross margins of roughly 10 percentage points from the 45% gross margins we posted last year. We're excited about our progress and our transformational year continues.

Speaker Change: We also had many positive developments on the clinical and product side that we'll discuss on today's call.

Speaker Change: First, I want to flag that the Altair investigators let us know that they are not going to make the timeline for the submission to ESMO in mid-September. As you know, there's a huge amount of patient review and data analysis to generate the results and ready them for presentation, and the Circulate investigator team needs more time to get everything done.

Steve Chapman: As you know, there's a huge amount of patient review and data analysis to generate the results and ready them for presentation, and the Circulate investigator team needs more time to get everything done. Their current plan is to target ASCOGI in January, so we'll stand by and let them do their work. In the meantime, we have an extremely full calendar of important data readouts for colorectal and other cancers, and we'll spend time reviewing that today.

Speaker Change: Their current plan is to target ASCO GI in January, so we'll stand by and let them do their work.

Speaker Change: In the meantime, we have an extremely full calendar of important data readouts in colorectal and other cancers, and we'll spend time reviewing that today. This includes the very significant 36-month readout from the GALAXY study.

Steve Chapman: This includes the very significant 36-month readout from the GALAXY study, which we believe is of critical importance because it marks the first prospective overall survival data readout for signataria and colorectal cancers. These results will be shared at ESMO. In addition, Solomon will provide an update on organ health and some recent news on Prospera and Rhenocyte. He will discuss a major win with the new consensus paper published by the National Kidney Foundation that recommends genetic testing for the majority of patients with kidney disease.

Speaker Change: which we believe is of critical importance because it marks the first prospective overall survival data readout for signataria and colorectal cancer.

Speaker Change: These results will be shared at ESMO.

Speaker Change: In addition, Solomon will provide an update on organ health and some recent news on Prospera and Rhenocyte. He will discuss a major win with the new consensus paper published by the National Kidney Foundation and recommends genetic testing for the majority of patients with kidney disease.

Steve Chapman: We also launched a new differentiated feature for our PROSPERA heart test that enhances the detection of organ rejection for heart transplant patients and allows us to deliver a more accurate risk assessment across both acute cellular rejection and antibody-mediated rejection than with donor-derived cell-free DNA percentage alone. And finally, on the legal front, the Federal Appeals Court in July upheld the preliminary injunction of the RADAR-MRD assay made by Neogenomics.

Speaker Change: We also launch a new differentiated feature for our Prospera Heart Test.

Speaker Change: that enhances the detection of organ rejection for heart transplant patients.

Speaker Change: and allows us to deliver a more accurate risk assessment across both acute cellular rejection and antibody-mediated rejection than with donor-derived cell-free DNA percentage alone.

Speaker Change: And finally, on the legal front, the Federal Appeals Court in July upheld the preliminary injunction of the RADAR-MRD assay made by NeoGenomics.

Steve Chapman: As a reminder, the preliminary injunction was first issued by the District Court late last year, so this recent decision upholds that order, barring sales of the assay with limited exceptions. We are pleased with the outcome and look forward to presenting our case to the jury next year. Okay, let's get into some of the business drivers on the next slide. The first slide shows the year-over-year volume progression we've had over time, both in terms of growth rates and absolute unit growth.

Speaker Change: As a reminder, the preliminary injunction was first issued by the district court late last year, so this recent decision upholds that order, barring sales of the assay with limited exceptions. We are pleased with the outcome and look forward to presenting our case to the jury next year.

Speaker Change: Okay, let's get into some of the business drivers on the next slide.

Speaker Change: The first slide shows the year-over-year volume progression we've had over time, both in terms of growth rates and absolute unit growth. This quarter looks like one of the best Q2 results we've had in the last five years.

Steve Chapman: This quarter looks like one of the best Q2 results we've had in the last five years. As a reminder, volumes from our existing women's health customers usually decline by 5% to 10% compared to Q1, because clinics see fewer new pregnancies in Q2. Given the large book of existing business we have in women's health, that drag of same-store sales volume is hard to overcome with new account wins.

Speaker Change: As a reminder, volumes from our existing women's health customers usually decline 5-10% compared to Q1 because clinics see fewer new pregnancies in Q2.

Speaker Change: Given the large book of existing business we have in women's health, that drag of same-store sales volume is hard to overcome with new account wins. So I was particularly pleased to see the new volume growth in women's health above and beyond our strong quarter in Q1.

Steve Chapman: So I was particularly pleased to see new volume growth in women's health above and beyond our strong quarter in Q1. The outperformance was partly enabled by our differentiated new product features, especially the non-invasive fetal RHD analysis, which we launched in May in the midst of a nationwide shortage of GroGam that continues to affect the industry today. We continue to see very strong interest in our core women's health products, Panorama, where we're the market leader in NIPT, and Horizon, where we're the market leader in expanded carrier screening.

Speaker Change: The outperformance was partly enabled by our differentiated new product features, especially the non-invasive fetal RHD analysis which we launched in May in the midst of a nationwide shortage of GroGam that continues to affect the industry today.

Speaker Change: We continue to see very strong interest in our core women's health products, Panorama, where we're the market leader in NIPT, and Horizon, where we're the market leader in expanded carrier screening.

Steve Chapman: In addition to that organic growth, we got a full quarter contribution from the Avitae deal that we announced in January, which further boosted our growth in the quarter. We also saw another great quarter for both Prospera and Renasite.

Speaker Change: In addition to that organic growth, we got a full quarter contribution from the Avitae deal that we announced in January , which further boosted our growth in the quarter. We also saw another great quarter for both Prospera and Renasite. We continue to perform well here and growth is accelerating.

Steve Chapman: We continue to perform well here, and growth is accelerating. Of course, Cigna Terra was a major source of growth in the quarter, and we had another outstanding result in clinical volumes, as you can see on the next slide. The left-hand chart is a total oncology volume metric we've always shown, which includes Signatara Clinical as well as Altera Orders and Pharmaclinical Trial Units.

Speaker Change: Of course, Signatario was a major source of growth in the quarter, and we had another outstanding result in clinical volumes, as you can see on the next slide.

Speaker Change: The left-hand chart is the total oncology volume metric we've always shown, which includes Signatara Clinical as well as Altera Orders and Pharmaclinical Trial Units.

Steve Chapman: The right-hand chart shows the quarterly volume progression of the clinical setting over time. You can see that in the past, we typically added about 8,000 or 9,000 units per quarter. We had a big step up in Q1, and now we've followed that with roughly 13,000 sequential units in Q2. While we still think roughly eight to 10,000 units of quarterly growth is the right baseline expectation going forward, clearly, the experience physicians and patients are having with Signatera continues to drive meaningful adoption.

Speaker Change: The right-hand charge shows the quarterly volume progression of the clinical setting over time. You can see in the Paris we typically have added about 8 or 9,000 units per quarter.

Speaker Change: We had a big step up in Q1, and now we've followed that with roughly 13,000 sequential units in Q2.

Speaker Change: While we still think roughly 8,000 to 10,000 units of quarterly growth is the right baseline expectation going forward, clearly the experience physicians and patients are having with Signatera continues to drive meaningful adoption.

Steve Chapman: So all that volume growth helped us to drive one of the best Q2 revenue growth performances in recent memory. This next slide shows the Q1 to Q2 change in revenue over the last two years alongside the 2024 results. In addition to volume trends, we continue to see very positive trends in ASPs across the business. Signataria ASPs were up modestly over Q1, but we're modeling some additional growth ASPs for the rest of the year as we've seen some continued positive momentum from both Medicare Advantage plans and biomarker state reimbursement that can be a source of upside through the year.

Speaker Change: So all that volume growth helped us to drive one of the best Q2 revenue growth performances in recent memory.

Speaker Change: This next slide shows the Q1 to Q2 change in revenue the last two years alongside the 2024 results.

Speaker Change: In addition to volume trends, we continue to see very positive trends in ASPs really across the businesses.

Speaker Change: Signataria ASPs were up modestly over Q1, but we're modeling some additional growth ASPs for the rest of the year, as we've seen some continued positive momentum from both Medicare Advantage plans and biomarker state reimbursement that can be a source of upside through the year.

Steve Chapman: Women's health ASPs were very strong once again this quarter. Even without the tailwind of potential new guidelines, which we're still very positive about, we continue to make improvements in the fraction of cases that are getting reimbursed. That has been a major undertaking internally, and we made substantial investments in data analysis, engineering, and persistent appeals and payer outreach to make that happen. We model women's health ASPs remaining stable through the rest of the year, but we have a list of projects that may provide upside as we work through them.

Speaker Change: Women's health ASPs were very strong once again this quarter. Even without the tailwind of potential new guidelines, which we're still very positive on, we continue to make improvements on the fraction of cases that are getting reimbursed.

Speaker Change: That has been a major undertaking internally, and we made substantial investments in data analysis, engineering, and persistent appeals and payer outreach to make that happen.

Speaker Change: We model women's health ASPs remaining stable through the rest of the year, but we have a list of projects that may provide upside as we work through them.

Steve Chapman: All of this effort is driving cash collections in excess of the revenue accruals we set last year, which is why we are seeing these revenue true-ups in 2024. These true-ups will be lumpy, and so we don't include future true-ups in our guidance, but they do represent execution above our prior expectations. Well, they as teams improve, we continue to benefit from the efforts of our R&D team to reduce our cost and the goods sold.

Speaker Change: All of this effort is driving cash collections in excess of the revenue accruals we set last year, which is why we are seeing these revenue true-ups in 2024. These true-ups will be lumpy, so we don't include future true-ups in our guidance, but they do represent execution above our prior expectations.

Speaker Change: While the ASPs improve, we continue to benefit from the efforts of our R&D team to reduce our cost of goods sold. Signataria COGS modestly declined again in the quarter and are now just above $400, and our Women's Health COGS remain in the range we achieved in prior quarters.

Speaker Change: The net result is that we had another record gross margin quarter.

Speaker Change: This slide shows both the total gross margins as well as the underlying gross margins net of revenue true ups, and both metrics tell the same story. Underlying organic gross margins grew about two full percentage points above the Q1 results and now stand above 54%.

Steve Chapman: The next slide shows our cash burn trajectory over time. For those of you that are newer to the story, you can see that historically we made a substantial initial investment to launch signature, and now we are getting scale on that commercial and operational base while women's health continues to generate cash. We are very pleased to be cash flow breakeven for the second consecutive quarter, which is above our expectations given the potential for seasonal headwinds in Q2.

Speaker Change: The next slide shows our cash burn trajectory over time. For those of you that are newer to the story, you can see that historically we made substantial initial investments to launch Signatera, and now we are getting scale on that commercial and operational base while Women's Health continues to generate cash.

Speaker Change: We are very pleased to be cash flow breakeven for the second consecutive quarter, which is above our expectations given the potential for seasonal headwinds in Q2.

Steve Chapman: Looking into the second half of the year, we are well positioned to hit the guide of cash flow breakeven for the full year, even when incorporating the stepped-up investment in R&D and sales we announced in May. I'll say this again: we did not get to cash flow breakeven by slashing investments into our future. Our strategy is to keep our foot on the gas and to make sure we're doing everything we need to deliver fantastic products for our patients. With that, I'll hand the call over to Solomon to cover organ health and commercial updates from Oncology.

Speaker Change: Looking into the second half of the year, we are well positioned to hit the guide of cash flow breakeven for the full year, even when incorporating the stepped up investment in R&D and sales we announced in May. I'll say this again, we did not get to cash flow breakeven by slashing investments into our future.

Speaker Change: Our strategy is to keep our foot on the gas and to make sure we're doing everything we need to deliver fantastic products for our patients.

Speaker Change: With that, let me hand the call over to Solomon to cover organ health and commercial updates from oncology.

Solomon Moshkevich: Thanks, Steve. Good afternoon, everyone.

Solomon Moshkevich: I'll start with updates in organ health. Since we launched the RENOSITE test in 2020 for renal genetics, Key trial data and now society guidelines have reinforced the importance of genetic testing for the 37 million patients in the U.S. affected by chronic kidney disease, or CKD. We are pleased to share that the National Kidney Foundation published a new consensus paper last week with a strong endorsement for comprehensive genetic testing in the majority of patients with CKD.

Solomon: Thanks, Steve. Good afternoon, everyone. I'll start with updates in organ health.

Solomon: Since we launched the RENOSITE test in 2020 for renal genetics,

Solomon: Key trial data and now society guidelines have reinforced the importance of genetic testing for the 37 million patients in the U.S. affected by chronic kidney disease, or CKD.

Solomon Moshkevich: The consensus paper included input from experts in nephrology, clinical and lab genetics, kidney pathology, and genetic counseling, in addition to patients who also provided their perspectives. The NKF paper recommended a broad multi-gene panel as the primary choice for testing.

Solomon: We are pleased to share that the National Kidney Foundation published a new consensus paper last week with a strong endorsement for comprehensive genetic testing in the majority of patients with CKD.

Solomon: The consensus paper included input from experts in the phrology, clinical and lab genetics, kidney pathology, and genetic counseling, in addition to patients who also provided their perspectives.

Solomon: The NKF paper recommended a broad multi-gene panel as the primary choice for testing.

Solomon Moshkevich: Natera agrees with that position, and our rena site test covers 385 genes. NKF also clearly recognized the clinical utility and benefits of genetic testing across a wide range of renal conditions and patient characteristics. We too have reported on that strong utility in our recent RenaCare trial, which showed one out of five patients with a positive genetic diagnosis. One out of two positives leads to a change in diagnosis, and one out of three positive cases leads to a change in therapy. The NKF paper follows the recent guideline update from KDGO, which I spoke about on our earnings call in May.

Speaker Change: The terror agrees with that position and our renaissance test covers 385 genes.

Solomon: NKF also clearly recognized the clinical utility and benefits of genetic testing across a wide range of renal conditions and patient characteristics.

Solomon: We too reported on that strong utility in our recent RENICARE trial.

Solomon: which showed 1 out of 5 patients with a positive genetic diagnosis

Solomon: 1 out of 2 positives leading to a change in diagnosis, and 1 out of 3 positive cases leading to a change in therapy.

Solomon: The NKF paper follows the recent guideline update from KDGO.

Solomon Moshkevich: This means we now have support for genetic testing from two of the major organizations in nephrology. We believe these recommendations will continue to have a positive impact on clinical adoption of the RenaSite test. Moving on to Prospera, where we are seeing multiple account wins in kidney, heart, and lung. Following some turbulence last year after changes in Medicare reimbursement, we see the market has fully rebounded and is on a positive growth trajectory, and we believe Prospera is taking a disproportionate share of the growth.

Solomon: which we spoke about on our earnings call in May. This means we now have support for genetic testing from two of the major organizations in nephrology.

Solomon: We believe these recommendations will continue to have a positive impact on clinical adoption of the RENASEC test.

Solomon: Moving on to PROSPERA, where we are seeing multiple account wins in kidney, heart, and lung.

Solomon: Following some turbulence last year after changes in Medicare reimbursement, we see the market has fully rebounded and on a positive growth trajectory, and we believe Prospera is taking a disproportionate share of the growth.

Solomon Moshkevich: I would like to highlight that we recently launched a product enhancement for our heart transplant test called DQS, or donor quantity score. Previously, PROSPERA Heart reported the fraction of donor-derived cell-free DNA in the blood compared to the total CFT. But the donor fraction can be influenced by fluctuations in background self-reliance. For example, patients who are fighting off an infection, a malignancy, or who just underwent surgery; all of those can cause the background levels of cell-free DNA to vary.

Solomon: I would like to highlight that we recently launched a product enhancement for our heart transplant test called DQS or donor quantity score.

Solomon: Previously, PROSPERA Heart reported out the fraction of donor-derived cell-free DNA in the blood compared to the total CFDNA.

Solomon: But the donor fraction can be influenced by fluctuations in background cell-free DNA.

Solomon: For example, patients who are fighting off in infection, a malignancy, or who just underwent surgery, all of those can cause the background levels of self-free DNA to vary.

Solomon Moshkevich: With DQS, we have a second threshold that is independent of these background cell-free DNA levels. This feature was previously introduced for Prospera Kidney, and now it's available for Prospera Heart. In a study presented at the International Society for Heart and Lung Transplantation in April, we showed that the addition of DQS increased perspirant sensitivity to rejection in heart transplants. Unknown Coordinator, Noel Ninon, Michael Beschke, Unknown Representative, Eric Schwarzenegger, Unknown Person, Paul Start Music, Unknown Possibility, Unknown Participant, Bell Department We plan to submit this study for peer-reviewed publication later this year.

Solomon: With DQS, we have a second threshold, which is independent of those background cell-free DNA levels. This feature was previously introduced for prospera kidney, and now it's available for prospera heart, too.

Solomon: In a study presented at the International Society for Heart and Lung Transplantation in April , we showed that the addition of DQS increased perspirants' sensitivity to rejection in heart transplants

Solomon: from 80 to 88 percent. And it also reduced false positives by approximately 37 percent.

Solomon: We plan to submit this study for peer-reviewed publication later this year. This new and improved test enables clearer clinical decisions and fewer unnecessary biopsies, all using EDCFDNA.

Solomon Moshkevich: This new and improved test enables clearer clinical decisions and fewer unnecessary biopsies, all using EDCF DNA. Now, we turn to oncology. On the commercial front, as Steve noted, we saw excellent growth for signatory clinical volumes, driven by multiple factors. Additionally, we saw another impressive increase in the number of ordering physicians, with over 40% of all oncologists in the U.S. ordering at least one Signatara test during the quarter. There was also strong growth in new patient initiations, which was observed across all major disease indications, led especially by colorectal cancer and breast cancer.

Solomon Moshkevich: This growth is being driven by the core value proposition of signataria, to inform risk-based treatment decisions in the adjuvant setting after surgery to monitor for recurrence in conjunction with standard imaging, enabling earlier interventions. For example, over 85% of colorectal cancer recurrences are historically caught too late for curative intent surgery, which is the preferred treatment approach, and number three to monitor for response to neoadjuvant therapy and immunotherapy. Record numbers of customers are choosing mobile phlebotomy and engaging with Natera through our digital portals and EMR integration. The test results are reliably delivered in under three weeks from the time of specimen receipt for initial cases and under a week for subsequent cases.

Speaker Change: Turning now to oncology, on the commercial front, as Steve noted, we saw excellent growth for signatory clinical volumes, driven by multiple factors.

Steve: We saw another impressive increase in the number of ordering physicians, with over 40% of all oncologists in the U.S. ordering at least one significant test during the quarter.

Solomon: The results are strong growth in new patient initiations, which was observed across all major disease indications led, especially by colorectal cancer and breast cancer.

Solomon: This growth is being driven by the core value proposition of Signataria.

Solomon: to inform risk-based treatment decisions in the adjuvant setting after surgery.

Solomon: The monitor for recurrence and conjunction with standard imaging, enabling earlier interventions. For example, over 85% of core rectal cancer recurrences are historically caught too late for curative and tense surgery, which is the preferred treatment approach.

Solomon: And number three, to monitor for response to neoadjuvant therapy and immunotherapy.

Solomon: We're also investing heavily in user experience.

Speaker Change: Record numbers of customers are choosing mobile flabotomy and engaging with the terror through our digital portals and EMR integrations.

Speaker Change: And test results are being delivered reliably in under three weeks from the time of specimen receipt for initial cases and under a week for subsequent cases.

Solomon Moshkevich: One final note on the commercial side. I want to comment that our partnership with Foundation Medicine, The deal with Foundation was originally signed in 2019 and was up for renewal this summer. For business reasons, the companies have decided not to renew the agreement. This allows Natera to maintain our focus on growing Signatera, Altera, and Empower, and adding new cutting-edge products and services to our oncology portfolio. Continuity of Care, we will continue monitoring services for any existing F1 tracker patient. Now I'll turn it over to Alex to discuss our clinical roadmap in oncology.

Solomon: One final note on the commercial side.

Solomon: I want to comment on our partnership with Foundation Medicine.

Solomon: The deal with Foundation was originally signed in 2019 and was up for renewal this summer. For business reasons, the companies have decided not to renew the agreement.

Solomon: This allows Natera to maintain our focus on growing Signatera, Altera, and Empowered and adding new cutting-edge products and services to our oncology portfolio.

Solomon: For continuity of care, we will continue monitoring services for any existing F1 tracker patients.

Alex Aleshin: Operational improvements and volume growth in the oncology business continue to outperform our expectations, and the clinical utility of Signatera continues to gain traction based on the core value proposition from the previous slide. At the ASCO meeting in June, Signataria was featured in over a dozen publications.

Solomon: Thanks, Solomon. Operational improvements and volume growth in the oncology business continue to outperform our expectations, and the clinical utility of Signatara continues to gain traction based on the core value proposition from the previous slide.

Solomon: At the ASCO meeting in June , Signataria was featured in over a dozen publications.

Alex Aleshin: And I wanted to highlight one particular multi-institutional study from UCLA and other academic institutions that really nicely delineates this clinical utility. As highlighted on this slide, this study examined 464 patients with stage 1 to 3 breast cancer. The vast majority of the patients tested signatory negative, offering valuable reassurance in a time of high anxiety.

Solomon: And I wanted to highlight one particular multi-institutional study from UCLA and other academic institutions that really nicely delineates this clinical utility.

Solomon: As highlighted on this slide, this study examined 464 patients with stage 1 to 3 breast cancer. The vast majority of the patients tested signatory negative, offering valuable reassurance in a time of high anxiety.

Alex Aleshin: In the 12% of patients who tested Sigma Tera positive, the investigators reported a treatment change in 91% of these patients, with evidence that treatment change resulted in possibly improved outcomes. Some of you will remember the intercept study in colorectal cancer from MD Anderson. This study is very similar, but in breast cancer. This is a great showcase of how Signataria is being adopted into clinical practice and having a positive impact on patients across the country.

Solomon: And a 12% of patients who tested sick and tear positive, the investigators reported a treatment change in 91% of these patients.

Solomon: with evidence that treatment change resulted in possibly improved outcomes.

Speaker Change: Some of you will remember the intercept study in colorectal cancer from Andy Anderson.

Solomon: This study is very similar, but in breast cancer.

Speaker Change: This is a great showcase of how Sigma Tera is being adopted into clinical practice and having a positive impact for patients across the country.

Alex Aleshin: We are also pleased to publish several new peer-reviewed publications during this quarter, including the expanded IBLIS study, which we discussed in the Q1 call. But since then, there have also been new studies in muscle-invasive bladder cancer, pancreatic cancer, and Merkel cell carcinoma. The latter two represent first-time publications for signataria in these disease indications, and we believe they are both areas of significant clinical unmet need. For example, in the Merkel cell car Sonoma paper.

Speaker Change: We are also pleased to publish several new peer-reviewed publications during this quarter, including the expanded IBLIS study, which we discussed in the Q1 call.

Solomon: But since then, there have also been new studies.

Solomon: Muscle Invasive Bladder Cancer, Pancreatic Cancer, and Merkel Cell Carcinoma.

Solomon: The latter two represent first-time publications for signatarium in these disease indications.

Solomon: And we believe they are both areas of significant clinical unmet need.

Solomon: For example, in the Merkel cell carcinoma paper, signoteratesting after curative treatment was associated with significantly higher risk of recurrence.

Alex Aleshin: Signatara testing after curative treatment was associated with a significantly higher risk of recurrence. The hazard ratio reported was 7.4. This outperformed established Merkel cell carcinoma risk factors currently being utilized by clinicians. We look forward to presenting these new indications to Medicare later this year, adding to the multiple submissions that are currently under review, and we will provide an update on these submissions in the future. Looking ahead to future data readouts, we have a strong pipeline of prospective randomized trials that could, if successful, further change clinical practice in the United States and globally.

Solomon: The hazard ratio reported was 7.4.

Solomon: This outperformed established Merkel cell carcinoma risk factors currently being utilized by clinicians.

Solomon: We look forward to presenting these new indications to Medicare later this year, adding to the multiple submissions that are currently under review.

Solomon: And we will provide an update on these submissions in the future.

Solomon: Looking ahead to future data readouts, we have a strong pipeline of prospective randomized trials that we believe could, if successful, further change clinical practice in the United States and globally.

Alex Aleshin: As Steve mentioned, the Altair investigators notified us of the need for more time for data review, analysis, and interpretation, so they plan to delay the study readout to ASCO GI in January. We defer to the PIs on the timing and look forward to announcing these results at that time. Meanwhile, we're looking forward to the readout of the new GALAXY data at the ESMO conference in September, with 36-month outcomes being reported in over 2,000 patients and mature overall survival data being presented in addition to disease-free survival data.

Solomon: As Steve mentioned, they'll tear investigators, notify us of the need for more time for data review, analysis and interpretation.

Speaker Change: So, they plan to delay the study readout to ASCO GI in January .

Speaker Change: We defer to the PIs on the timing and look forward to announcing these results at that time.

Speaker Change: Meanwhile, we're looking forward to the readout of the new Galaxy data at the ESMO conference in September, with 36-month outcomes being reported in over 2,000 patients.

Solomon: and mature overall survival data being presented in addition to disease-free survival data.

Alex Aleshin: This will be the first time prospective overall survival data in colorectal cancer will be presented. Looking forward to 2025, 2026, and beyond, we have a full suite of phase 3 studies in colorectal cancer, bladder cancer, and breast cancer, including both escalation and treatment on molecular recurrence studies. Furthermore, we have trials focused on de-escalation and some trials that span both of these indications.

Solomon: This will be the first time prospective overall survival data in colorectal cancer will be presented.

Solomon: Looking forward to 2025, 2026, and beyond, we have a full suite of Phase 3 studies in colorectal cancer, bladder cancer, and breast cancer, including both escalation and treatment on molecular recurrence studies.

Solomon: Furthermore, we have trials focused on de-escalation and some trials that span both of these indications.

Alex Aleshin: In bladder cancer, we're expecting the Invigor 011 trial to read out in 2025, with a modern trial also continuing to enroll well after being recently opened. We also have important breast cancer trials that we've previously presented on. This is just a snapshot of our data pipeline, and we continue to invest in generating high-quality clinical evidence to achieve our vision of signataria as part of standard clinical practice. I also want to provide an update on our Early Cancer Detection Program.

Solomon: In bladder cancer, we're expecting the INVIGOR 011 trial to read out in 2025, with the modern trial also continuing to enroll well after being recently opened.

Solomon: We also have important breast cancer trials that we've previously presented on.

Solomon: This is just a snapshot of our data pipeline, and we continue to invest in generating high-quality clinical evidence to achieve our vision of signataria as part of standard clinical practice.

Solomon: I also want to provide an update on our early cancer detection program. We continue to make progress in developing a differentiated blood-based assay to detect colorectal cancer.

Alex Aleshin: We continue to make progress in developing a differentiated blood-based assay to detect colorectal cancer. We're finishing a study utilizing prospectively collected colonoscopy-matched average-risk blood samples supplemented by colorectal cancer samples. We look forward to sharing these results in the near future, and I will provide further details on our plans at that time. Now I will turn it over to Mike to cover the financial aspects.

Solomon: We're finishing a study utilizing prospectively collected colonoscopy-matched average risk blood samples supplemented by colorectal cancer samples.

Solomon: We look forward to sharing these results in the near future, and I will provide further details on our plans at that time.

Solomon: Now I will turn it over to mine to cover the financials. Michael?

Mike Brophy: Great, thanks, Alex. The next slide is just a summary of the P&L and Q2 and the year-over-year progress. He covered the key points on revenues and margins. On the expense lines, just as a reminder, we've made several growth-oriented investments in SG&A over the past year. For example, picking up the women's health sales team from Invitae, which is working out very well.

Michael: Great. Thanks, Alex. The next slide is just a summary of the P&L and Q2 and the year-over-year progress.

Michael: He's covered the key points on revenues and margins.

Michael: On the expense lines, just as a reminder, we've made several growth oriented investments in S.G.A. over the past year. For example, taking up the women's health sales team from the VTA, which is working out very well. We also had a modest step up in R&D and clinical trials.

Mike Brophy: We also had a modest step up in R&D and clinical trials. These measured increases in OPEX are consistent with the Q1 guide and, I think, are indicative of how we would like to proceed for the time being. We'd like to maximize investments to grow revenues and margins while holding our cash balance relatively constant. That's what we achieved here in the second quarter, and we were able to break even despite the seasonal headwinds, as Steve described, and our cash balance actually grew slightly with interest income.

Solomon: These measured increases in optics are consistent with the key one guide, and I think are indicative of how we would like to proceed to the time being. We'd like to maximize investments to grow revenues and margins while holding our cash balance relatively constant.

Michael: That's what we achieved here in the second quarter, and we were able to break even despite the seasonal headwinds as Steve described, and our cash balance actually grew slightly with interest income.

Mike Brophy: Okay, let's get to the revised financial guidance on the next slide. On revenues, we are now expecting $1,490,000,000 to $1,520,000,000. This represents a bump of 70 million at the midpoint as compared to the roughly 30 million dollar beat in the quarter when removing revenue true-ups Steve talked about. The annual revenue guide now implies about 40% revenue growth versus 2023.

Speaker Change: Okay, let's get to the revised financial guidance on the next slide. On revenues, we are now expecting $1,490,000,000 to $1,520,000,000.

Michael: This represents a bump of $70 million at the midpoint, as compared to the roughly $30 million beat in the quarter when removing revenue true-ups Steve talked about.

Solomon: The Annual Revenue Guide now implies about 40% revenue growth versus 2023. The guide also implies we are bullish on the second half of the year, and we are off to a good start so far in Q3.

Mike Brophy: On pace, we expect steady sequential growth in volumes and revenue in Q3 and Q4. Our guide always assumes $0 in true-up revenues in future periods, and if we continue to generate cash above our expectations in the second half, any true-ups would represent upside to our guidance. We are also modeling largely stable ASPs in the second half for the overall business, though we do expect to see continued modest sequential improvements in the Signatera ASP, given the current momentum that Steve described.

Steve: On pacing, we expect steady sequential growth in volumes and revenue in Q3 and Q4.

Michael: Our guide always assumes $0 in true-up revenues in future periods, and if we continue to generate cash above our expectations in the second half, any true-ups would represent upside to our guidance.

Steve: We are also modeling largely stable ASPs in the second half for the overall business, though we do expect to see continued modest sequential improvements in the area ASP, given the current momentum that's feed describes.

Mike Brophy: We are leaving the OpEx guide and the cash guide unchanged versus Q1, and we're still on track to make all the necessary growth investments we have planned for this year. I'll repeat my disclaimer about cash burn. Now that we are operating at this break-even level, it's important to understand that we expect to have fluctuations in quarterly cash burn due to the timing of capital expenditures and working capital. The timing of reimbursement from payers can easily vary in a given quarter, so I wouldn't be surprised to have a quarter where we have negative cash flow and others where we are positive, and the guide just represents the full year result.

Steve: We are leaving the OPEX guide and the cash guide unchanged versus Q1, and we are still on track to make all the necessary growth investments we have planned for this year.

Speaker Change: I'll repeat my disclaimer on Caspurn.

Steve: Now that we are operating at this break-even level, it's important to understand that we expect to have fluctuations in quarterly cash burn.

Steve: Due to timing of capital expenditures and working capital, the timing of reimbursement from payers can easily vary in a given quarter, so I wouldn't be surprised to have a quarter where we have negative cash flow and others where we are positive, and the guide just represents the full year results.

Mike Brophy: The income statement, of course, is less prone to these swings, and so I expect our losses to continue to gradually narrow through the course of the year. Okay, so with that, we're very pleased with the quarter and happy to take your questions. Let me hand it to the operator. Operator?

Steve: The income saving course is what's prone to these swings and so I expect our lawsuit to continue to gradually narrow through the course of year.

Speaker Change: Okay, so with that, we're very pleased with the quarter and happy to take your questions. Let me hand it to the operator. Operator?

Speaker Change: Thank you. As a reminder to ask a question please press star followed by the number one on your telephone keypad. Our first question comes from Dan Brennan from Cowan. Please go ahead, your line is open.

Operator: Thank you. As a reminder to ask a question, please press star followed by the number one on your telephone keypad. Our first question comes from Dan Brennan from Cowan. Please go ahead. Your line is open.

Dan Brennan: Great, thank you. Congratulations on the quarter, and thanks for the question here.

Dan Brennan: Great, thanks to you, I've seen Gratson the Quarter and thanks to the question here. Maybe just on the clinical trial read out on what I'll tell you in Galaxie. I appreciate the Altair readouts, the ladies, due to the PI's, maybe more time. But is there anything to read into this at all from other?

Dan Brennan: Maybe, maybe just on the clinical trial readouts on Altair and Galaxy, I appreciate the Altair readouts delayed just due to the PIs needing more time, but is there anything to read into this at all from either side given the time that they need from either the PFS or the OS that you might see coming out of this trial? And then on Galaxy, you know, OS would be something, you know, understand this is an observational trial, not a randomized trial. So how do we think about, you know, the expectation here, if we see an OS benefit, what that could actually mean either for utility, you know, for kind of doctor usage, and or...

Speaker Change: You know, given the time that they need from other the PSS or the OS that you might see coming out of this trial and then on Galaxy.

Speaker Change: You know, OS would be something, you know, understand this is an observational trial amount of randomized trials. So how do we think about...

Steve: You know, the expectation here, if we see an OS benefit, what that could actually mean either for utility, you know, for kind of doctor usage and or NCCN.

Steve Chapman: Yeah, thanks, Dan. That's a good question. So yeah, on Altair, I mean, there's obviously a lot of work to do to get the patient data together and complete the analysis. And I think the timeline leading into ESMO was just a little bit too tight. So the PIs want to move to the next kind of large-scale conference, which is ASCO GI. And, you know, of course, we support that. But we're definitely excited about reading out the Galaxy 36 month data at ESMO.

Steve: Yeah, thanks, Dan. Good question. So yeah, on Altair, I mean, there's, you know, obviously a lot of work to do to get the patient data together and complete the analysis. And I think the timeline

Speaker Change: leading into asthma was just a little bit too tight.

Speaker Change: So the PIs want to move to the next kind of large-scale conference, which is ASCO GI, and, you know, of course, we support that. But we're definitely excited about reading out the Galaxy 36-month data at ESMO. And I think, you know, for having the first...

Steve Chapman: And I think, you know, having the first perspective overall survival data readout on Cigna Terra is going to be a big milestone. And it's something that we're really excited about. So, Alex, do you want to talk a little bit more about, you know, I think that this readout coming up at ESMO?

Speaker Change: perspective overall survival data readout on Cigna Terra is going to be a big milestone and it's something that we're really excited about. So Alex do you want to talk a little bit more about you know I think that the this this readout coming up at ESMO?

Alex Aleshin: Yeah, definitely, Steve. Thanks for the question. You know, for colorectal cancer in the adjuvant setting, three-year DFS is usually considered kind of the gold standard as we think about predicting overall survival. And I think the timing is perfect in that the overall survival data from the GALAXY cohort is also now maturing, and we're able to read it out. So we think that kind of provides two big upsides. You know, I think the first is shows kind of how Sigma Tau results predict long-term outcomes, both DFS and OS. And it also builds a framework for looking at CTA dynamics as possible surrogates for future clinical trial development.

Alex: Yeah, definitely, Steve. Thanks for the question. You know, for colorectal cancer in the adjuvant setting, three-year DFS is usually considered kind of the gold standard as we think about predicting overall survival.

Alex: And I think the timing is perfect in that the overall survival data from the Galaxy cohort is also now maturing and we're able to read it out. So we think that kind of provides...

Speaker Change: Two big upsides, you know, I think the first show is kind of how signature results predict with long-term outcomes, both DFS and OS, and it also builds a framework for looking at CTA dynamics as possible surrogates for future clinical trial development.

Dan Brennan: Great, and then if I have a follow-up, just on pricing, true ups have been obviously a big driver here in the last two quarters. I know you don't guide us in any way to characterize what that opportunity could look like. And then Mike, on the signataria price in the back half of the year, sounds like I think from the last call you were assuming flat pricing. Now maybe you're assuming a step up in price. Maybe we could just discuss if anything has changed there. Thank you. Yeah, thanks for the question.

Speaker Change: Great. And then if I have a follow-up just on pricing.

Speaker Change: True Ups have been obviously a big driver here the last two quarters. I know you don't guide them in any way to characterize what that opportunity could look like. And then Mike, on signature price in the back half of the year, it sounds like I think from the last call you were assuming flat pricing. Now maybe you're assuming a step up in price. Maybe just discuss if anything changed there. Thank you.

Mike Brophy: Yeah, thanks for the question. On the true-ups, it wouldn't surprise me to see us have some additional true-ups. But again, they're just – because they're hard to forecast is really more the reason why we don't guide to them. But I do expect that to moderate. I mean, we've stepped up ASPs very meaningfully in response to the better cash collections that we've seen over the last 18 months or so. So I think as the ASPs go up, hopefully, more of that revenue is just showing up in the accruals rather than a true-up a year later.

Speaker Change: Yeah, thanks for the question.

Mike Brophy: Yeah, on the truce, I wouldn't surprise me to see us have some additional truce, but again, they're just because they're hard to forecast, is really the more the reason why we don't guide to them. I do expect that to moderate them, and we've stepped up ASPs very neatly in response to the

Speaker Change: to the better catch collections that we've seen over the last.

Speaker Change: 18 months or so. So I think that as the ASPs go up, hopefully that, you know, more that revenue is just chunks to the cruel rather than a true up year later, but nonetheless, I mean, this will be kind of a process, I think.

Mike Brophy: But nonetheless, I mean, this will be kind of a process, I think. So that's on true-ups. On pricing, yeah, I mean, look, we've seen continued progress with reimbursement for Signatera, and we think that that can yield – the guide presumes some modest step-ups in the ASP in the second half, but not something heroic beyond what we think is eminently achievable just based on reimbursement from Medicare and Medicare Advantage payers.

Speaker Change: So that's on TrueUps. On pricing, yeah, I mean, look, we've seen continued progress with the, you know, reimbursement for Signatara, and we think that that can yield, you know, some, the guide presumes some modest step-ups.

Speaker Change: in the ASP, and the second half, but not something heroic beyond what we think is eminently achievable, just based on reimbursement from Medicare and Medicare Advantage payers.

Speaker Change: Great, thank you.

Rachel Vattenstahl: Our next question comes from Rachel Vattenstahl from J.P. Morgan. Please go ahead. Your line is open.

Speaker Change: Our next question comes from Rachel Vattenstahl from J.P. Morgan. Please go ahead, your line is open.

Rachel Vattenstahl: Great, thank you guys for taking the questions. So first up on Women's Health, great to see the continued progress there this quarter, especially given the typical seasonality dynamic. So can you break out for us what was the contribution from the CETL test that you guys highlighted? And then also on the invite side? Can you walk us through how much the invitee benefit? You talked about some of the integration of the salesforce there. So how should we think about that contribution in the back half?

Rachel Vattenstahl: Great, thank you guys for taking the questions. So first up on Women's Health, great to see the continued progress there this quarter, especially given the typical seasonality dynamics.

Rachel Vattenstahl: So can you break out for us what was the contribution from the fetal test that you guys highlighted and then also on the invitate side? Can you walk us through how much did invitate benefit? You talked about some of the integration of the sales force there so how should we think about that contribution in the back half?

Steve Chapman: Yeah, thanks a lot. So yeah, we were really excited to launch the the fetal RHD test. You know, it seemed like we were meeting what what is continues to be a very significant unmet need. And, you know, we've seen a lot of a lot of interest in continuing interest, you know, particularly, I think, leading to us closing new new customers. And one of the things that drove this outperformance in Q2 was an increase in new customers, as we came out of Q1.

Speaker Change: Yeah, thanks a lot. So yeah, we were really excited to launch the fetal RHD test.

Speaker Change: you know, it seemed like we were meeting what continues to be a very significant unmet need, and we've seen a lot of interest and continuing interest, you know, particularly, I think, leading to us closing new customers. And one of the things that drove this

Speaker Change: Outperformance in Q2 with an increase in new customers as we came out of Q1 and then, you know, that continued on in Q2. And a lot of that is from the organic growth of the women's health business. So, of course, Invitate made a contribution. I think we said in...

Steve Chapman: And then, you know, that continued in Q2, and a lot of that was from the organic growth of the women's health business. So, of course, Invitae made a contribution. I think we said in sort of Q1 that Invitae was maybe like 25% of the women's health growth or something in that range. And, you know, I think I think it's, it's similar in Q2 now that we're getting a full quarter of the Invitae volume coming in. But, you know, a lot of the new volume coming in is organic growth that we're just continuing to see interest in the Neterra prenatal portfolio.

Rachel Vattenstahl: It's sort of Q1 that, you know, Invitae was maybe like 25% of the women's health growth or something in that range. And, you know, I think it's similar, you know, in Q2 is now we're getting a full.

Rachel Vattenstahl: Quarter of the VTA volume coming in, but a lot of the new volume coming in is organic growth that we're just continuing to see interest in the Terra prenatal portfolio.

Rachel Vattenstahl: Great, and then just my follow-up question, you've had another really solid quarter on the gross margin front. So I guess, how should we think about this progress continuing into the back half of the year? And can you kind of break down for us, especially on the Signatara side, you mentioned some of the COGS dynamics, how much of that gross margin progression on Signatara was due to, you know, getting into the subsequent tests for patients versus that first test where you really do the whole sequencing bit on the patient versus, you know, further operational efficiencies? And how do we think about that in the back half?

Speaker Change: Great, and then just my follow-up, you've had another really solid quarter on the gross margins front. So I guess, how should we think about this progress continuing into the back half of the year? And can you kind of break down for us, especially on the Signataria side, you mentioned some of the COGS dynamics. Can you talk a little bit about that? Sure. Great. Great.

Speaker Change: How much of that gross margin progression on Signatera was due to, you know, getting into the subsequent test for patients versus that first test where you really do the whole sequencing bit on the patient versus, you know, further operational efficiencies and how do we think about that into the back half?

Mike Brophy: Mike, do you want to take that? Yeah, sure.

Mike Brophy: Yeah, sure. So yeah, you're right.

Mike Brophy: The gross margin guide is influenced, of course, by continued improvement in the Signatara gross margin. But I'd also highlight that the women's health ASPs are looking quite strong, as Steve kind of mentioned in the call. We're very gratified to see that.

Speaker Change: Mike, you want to take that?

Mike Brophy: Yeah, sure. So, yeah, you're right. The gross margin guide is influenced, of course, by continued improvement in the signataria gross margin. But I'd also highlight that the women's health ASPs are looking quite strong.

Mike Brophy: Specifically, on the Signatara gross margin dynamics, we saw another kind of modest step down in the COGS for Signatara sequentially versus Q1. And a lot of that, I think, is really kind of related to the scale and the volume that we're seeing. There's still, I think, room to run in terms of reducing the COGS associated with running the tissue in-house, particularly as we stand up to Austin Lab, but we really get scale in that facility.

Speaker Change: As Steve kind of mentioned in the call, we're very gratified to see that.

Speaker Change: Specifically on the Signatara

Speaker Change: Gross Margin Dynamics

Speaker Change: We saw another kind of, you know, modest step down in the COGS for Signatera sequentially versus Q1.

Speaker Change: and...

Speaker Change: That is a lot of that I think is really kind of related to kind of the scale and the volume that we're seeing.

Speaker Change: There's still, I think, room to run in terms of reducing the cogs associated with

Speaker Change: Running the tissue in health, particularly as we.

Speaker Change: As we stand up to Austin Lab, we'll really get scale.

Speaker Change: and Natucility, so I think that's a positive driver.

Mike Brophy: So I think that's a positive driver for the back half. And I think, you know, if you just kind of think about the underlying kind of non-TRIP progression we've seen here, I think you can still see kind of modest sequential improvement in that kind of underlying trend, you know, sequentially in Q3 and Q4. That's what the model implies.

Speaker Change: for the back half. And I think, you know, if you just kind of in terms of the gross margin progression, you just kind of think about

Puneet Souda: Our next question comes from Puneet Souda from Leerink Partners. Please go ahead. Your line is open.

Speaker Change: Our next question comes from Tony Soutath from Learenk Partners, please go ahead to line his open.

Puneet Souda: Yeah, hi guys. Thanks for taking my questions. And if you don't mind, I'll ask both of them together. On Altair, I just wanted to understand the perspective from Alex. You know, how should, when, I mean, I appreciate that it's getting pushed out, but just in terms of overall benchmarking of this 240 patients trial, 80% power to deliver DFS at a hazard ratio of 0.67. Is that the right benchmark? You've talked about the Mosaic trial before where Natera wasn't involved, but maybe just tell us how we should benchmark this?

Tony Soutath: Yeah, hi guys, thanks for taking my questions and if you don't mind, I'll ask both of them together. On Altair, just wanted to understand perspective from

Speaker Change: Alex

Tony Soutath: You know, how should, I mean, I appreciate that it's getting pushed out, but just in terms of overall benchmarking of this 240 patients trial, 80% power to deliver DFS of, you know, I had to have the ratio of 0.67. Is that the right benchmark?

Puneet Souda: And then, you know, a second question follow-up for Mike is on gross margin. You know, what's behind the 54 to 56% gross margin estimate? I appreciate there's a true-up difference here, but is there anything else beyond that that we need to consider?

Speaker Change: You've talked about the Mosaic trial before, where Natera wasn't involved, but maybe just tell us how should we benchmark this?

Speaker Change: And then, you know, a second question follow-up for Mike is on gross margin. You know, what's behind the 54 to 56 percent gross margin estimate? I appreciate there's a true-up difference here, but is there anything else beyond that that we need to consider? Thank you.

Alex Aleshin: Thank you.

Alex Aleshin: Yeah, thanks, Puneet. Yeah, Alex, why don't you go ahead and talk about what good looks like, and then you can hand it to Mike.

Speaker Change: Yeah, thanks, Puneet. Yeah, Alex, why don't you go ahead and talk about what good looks like and then you can hand it to Mike.

Alex Aleshin: Thanks, Puneet, for the question. I think as we've previously discussed, and I think we stand by that benchmark, you know, Mosaic is, we think, the best kind of DFS Number to really target, you know, I think that study showed a DFS of 0.0 0.77 And it was the last study that led to change in treatment guidelines in the adjuvant setting So we think that's still the right number and you know I think we are just awaiting the final results to be generated and reported out by the investigators and you know We continue to look forward to those when they're available

Alex: Thanks for the question. I think as we've previously discussed, I think we stand by that benchmark, you know,

Speaker Change: A number to really target, you know, I think that study showed a DFS of 0.77.

Speaker Change: and it was the last study that led to a change in treatment guidelines in the adjuvant setting.

Speaker Change: So, we think that's still the right number and, you know, I think we are just awaiting the final results to be generated and reported out by the investigators and, you know, we continue to look forward to those when they're available.

Mike Brophy: On the growth margin, yeah, I mean, I think the key, Delta, to me, is just that the, you know, the second half just presumes zero in true-ups, right? So that's a key difference between first half and second half. I do think that backing out the true-ups, as I've mentioned, I think kind of the organic kind of underlying growth margin, I think there's room for there to be sequential improvement both in Q3 and Q4. And so the guide is a blend of those couple of variables. So pretty bullish on the kind of organic underlying growth margin progression.

Speaker Change: On the gross margin, I think the key delta to need is just that the second half could just presume zero and true ups, right? So that's the key difference between first half and second half. I do think that backing out the true ups, as I've mentioned.

Speaker Change: I think there's room for there to be sequential improvement both in Q3 and Q4, and so the guide is a blend of those couple of variables. So pretty bullish on the organic underlying gross margin progression.

Puneet Souda: Okay, got it. And if I could just squeeze in a quick one around FMI,

Speaker Change: Okay, got it. And if I could just squeeze a quick one around FMI, with the partnership termination, does that change your volume growth expectation for Altera or, you know, any impact on Signatara? Thank you so much.

Puneet Souda: With the partnership termination, does that change your volume growth expectation for Altera or, you know, any impact on Signatera? Thank you so much.

Speaker Change: Yeah, I think that's a good question, you know, we mentioned, you know, we're not continuing the partnership going forward and it doesn't change or a guidance or a volume forecast at all in any way.

Speaker Change: and many more. Thank you for watching. We hope you enjoyed this video. If you did, please subscribe to our channel and click the bell icon to be notified of our latest videos.

Speaker Change: All right, guys. Comrades. Thanks.

Steve Chapman: Yeah, thanks. That's a good question. No, it's, you know, we mentioned we're not continuing this partnership going forward, and it doesn't change our guidance or volume forecast at all in any way.

Speaker Change: Alright, thanks.

Speaker Change: Our next question comes from Pisa Saban from Morgan Stanley. Please go ahead, your line is open.

Puneet Souda: Alright guys, congrats, thanks.

Pisa Saban: Hey guys, good evening and thanks to the time here. I'm sticking with the signature theme.

Tejas Savant: Our next question comes from Tejas Savant of Morgan Stanley. Please go ahead. Your line is open.

Pisa Saban: Alex, can you share some color and just in light of the delay here, and ask OGI, I think it's Jan 23rd, is early next year the right time frame for when we can expect a top-line readout from you guys? And then in terms of framing that readout, right, so should the trial not meet that sort of 0.77 hazard ratio bar you talked about, do you think we could still get enough evidence from the subgroup level analysis to demonstrate that Signatara performed as it should and it was the drug that failed to meet the bar? Just any color on those two points would be great.

Tejas Savant: Hey guys, good evening and thanks for the time here. Sticking with the Signatara theme, Alex, can you share some color and, just in light of the delay here and ASCO GI, I think it's Jan 23rd, is early next year the right time frame for when we can expect a top-line readout from you guys? And then in terms of framing that readout, right, so should the trial not meet that sort of 0.77 hazard ratio bar you talked about, do you think we could still get enough evidence from the subgroup level analysis to demonstrate that Signatara performed as it should and it was the drug that failed to meet the bar?

Steve Chapman: Just any color on those two points would be great.

Alex Aleshin: Yeah, so maybe I'll comment on the readout and then, you know, Alexey can talk about the performance. So, yeah, I think we're quite a ways out here now from ASCO GI, which is the next major conference. And as we get closer to there, you know, we'll kind of discuss the communication plan. I think with, you know, we were planning to read out, you know, top line results if they were available a couple of weeks before the conference. But, you know, we'll meet with the PIs and decide what we want to do as we get a little closer to ASCO GI. Alex, do you want to talk about some of the subgroup analysis?

Speaker Change: Yeah, so maybe I'll comment on the readout and you know, I'll actually you can talk about the performance. So yeah, I think is, you know, we're kind of way down here now from, you know, after GI, which is the next major conference and as we get closer there.

Pisa Saban: We'll kind of discuss the communication plan. I think we were planning to read out top line results if they were available a couple weeks before the conference, but we'll meet with the PIs and decide what we want to do as we get a little closer to ASCO GI.

Pisa Saban: Alex, you want to talk about some of the subgroup analyses?

Alex Aleshin: Yeah, definitely. So, I think the first question about assay performance is whether Sigma Tera is being used in Galaxy. Altera is obviously a portion of that study. You know, we've published on assay performance in Galaxy. We're updating the performance estimates at ESMO, and that will also be published. So, in terms of assay performance concerns, you know, I think the data is out there, and it's been published, and I think that's what we expect.

Alex: Yeah, definitely. So I think the first question about asset performance, you know, Sigma Terra is being used in Galaxy.

Speaker Change: Altair, obviously, a portion of that study. We've published on asset performance in the Alexey. We're updating the performance estimates as well. And that will also be published in terms of asset performance concerns.

Alex: I think the data is out there, and it's been published, and I think that's what we expect.

Alex Aleshin: Now, in terms of subgroup analyses, you know, here, I just don't even want to speculate. You know, I think we're awaiting the final results, and depending on what the results show, you know, subgroup analyses may be important, may not be important. They're pre-specified, so we'll take a look at those as soon as that data is available to us as well.

Alex: Now, in terms of subgroup analyses,

Speaker Change: Here I just don't even want to speculate. I think we're awaiting the final results, and depending on what the results show, subgroup analyses may be important, may not be important. They're pre-specified, so we'll take a look at those as soon as that data is available to us as well.

Tejas Savant: That's helpful. And then, just as a follow-up, one of your competitors recently talked about greater physician preference for tumor-naive approaches in the surveillance setting just due to apparently a lack of conviction that a tumor-informed approach can continue to provide relevant results given the time since diagnosis. So I'm just curious as to your take on that. And as we think about your MRD pipeline, you've got a few things in the hopper here. Is that one aspect that you will look to address either via an improved version of Signataria, perhaps a broader tumor-informed panel, or a tumor-naive approach of your own?

Speaker Change: Got it. That's helpful. And then just as a follow-up, you know, one of your competitors recently talked about, you know, greater physician preference for tumor-naive approaches in the surveillance setting, just due to, you know, apparently a lack of conviction that a tumor-informed approach can continue to provide relevant results given the time since diagnosis. So I'm just curious as to your take on that. And as we think about, you know, your MRD pipeline, you've got a few things in the hopper here. Is that one aspect that you will look to address, either via, you know, an improved version of signataria, perhaps a broader tumor-informed panel, or a tumor-naive approach of your own?

Steve Chapman: Yeah, so, you know, we think, at this point, the decision on whether, you know, tumor-informed or tumor-naive is going to be more successful is, I think, pretty clear, right? If you just look at the volume and physician interest in the marketplace and the question about the kind of tumor dynamics over time, you know, that's not really relevant. You know, I think, generally, we're looking at clonal mutations that are present, you know, even if there are developments in the tumor over time.

Speaker Change: Yeah, so, you know, we think...

Speaker Change: At this point, you know, the decision on whether, you know, tumor informed or tumor naive is going to be more successful. I think it's...

Speaker Change: You know, it's pretty clear, right? If you just look at...

Speaker Change: the volume and the physician interest in the marketplace. And the question about tumor dynamics over time, that's not really relevant. I think generally we're looking at clonal mutations that are present even if there's developments in the tumor over time. So I don't really think that the way that it's being described is relevant.

Steve Chapman: So I don't really think that, you know, the way that it's being described is relevant. You know, look, we always keep our eye out on what's happening with competition, what's happening in the marketplace. And obviously, we've been successful, you know, doing innovative things and innovating and evolving products over time, and we'll continue to do that as the market evolves. But I think at this point, things are pretty clear. You know, the tumor-informed approach is, you know, clearly the chosen approach by physicians.

Speaker Change: Look, we always keep our eye out on what's happening with competition and what's happening in the marketplace and obviously we've been successful.

Speaker Change: You know, doing innovative things and innovating and evolving products over time, and we'll continue to do that as the market evolves, but I think at this point, things are pretty clear. You know, the tumor-informed approach is, you know, clearly the chosen approach by physicians.

Steve Chapman: Got it. Super helpful, guys. One final one for me. Just on ACOG, Steve, as you think about that as a catalyst, I mean, it's still in the framework, but do you think it happens between now and year-end, or do you just don't know, and there's a possibility here that this could slip to 2025?

Speaker Change: Got it. Super helpful, guys. One final one for me. Just on ACOG, Steve, as you think about that as a catalyst, I mean, it's still in the framework, but do you think it happens between now and year-end, or you just don't know, and there's a possibility here that this could slip to 2025?

Tejas Savant: Yeah, I think we still feel very positive about, you know, ACOG guidelines, both for carrier screening and on 22Q. And that's really grounded in looking at the data and looking at physician preferences and looking at the studies that have been done. So I think you will, well, we expect to see something this year. And, you know, we feel very strongly that that things are coming.

Steve: Yeah, I think we still feel very positive about ACOG guidelines, both for carrier screening and on 22Q, and that's really grounded in looking at the data and looking at physician preferences and looking at the studies that have been done. So I think you will.

Speaker Change: Well, we expect to see something this year, and we feel very strongly that things are coming.

Matt Sykes: Awesome, thanks guys, I appreciate it.

Speaker Change: Awesome, thanks guys, appreciate it.

Matt Sykes: Our next question comes from Matt Sykes from Goldman Sachs. Please go ahead. Your line is open.

Speaker Change: Our next question comes from Matt Sykes from Goldman Sachs. Please go ahead, your line is open.

Mike Brophy: Hey guys, congrats on the quarter. My first question is, do you expect ASPs in women's health to decline at all for the second half, assuming ASPs You mentioned we'll be stable in the second half with the sequential step up in signataria ASPs?

Matt Sykes: Hey guys, congrats on the quarter, my first one is do you expect ASPs in Women's Health to decline it all for the second half, assuming ASPs?

Speaker Change: You mentioned we'll be stable in the second half with a sequential step up in signataria ASPs.

Mike Brophy: I'll take that one. Hey, so thanks for the question. No, we actually kind of model stable ASPs in the women's health space for the second half. So do not do not expect a decline, which, as the long-term followers of Natera will recall, and that's a little bit of a deviation from the way that we typically guide. We've historically guided to some erosion in the ASPs, but that's just inconsistent with the momentum that we've seen in the women's health space.

Matt Sykes: Hey, it's Mike. I'll take that one. So thanks for the question. No, we actually kind of model kind of stable ASP in the women's health space for the second half. So do not do not expect a

Speaker Change: Decline, which, as the long-term followers in Natera will recall, that's a little bit of a deviation from the way that we typically guide. We've historically guided...

Summer Rogen: and to summer rogen.

Summer Rogen: In the ASPs, but that's just inconsistent with the momentum that we've seen in the women's health space. We've seen, you know, it's just continued progress.

Mike Brophy: We've seen, you know, just continued progress really across the board in getting that long tail of recalcitrant payers to just reimburse for NIPT. Now that it's been kind of the standard of care for a few years now, you kind of get this kind of conversion of that long tail of payers, and we're definitely seeing that now. So feeling very good about the women's health is a priority at this time.

Speaker Change: NIT. NIT is a national organization that is really across the board in getting that long tail of recalcitrant payers to just reimburse, particularly for NIPT. Now that it's been kind of the standard of care for a few years now, you kind of get this kind of conversion of that long tail of payers. We're definitely seeing that now.

Matt Sykes: So, feeling very good about the women's health ASPs at this time.

Matt Sykes: Got it. And then is the Circulate France study that you're expecting data from shortly, is that similar to the Circulate Japan study? Does it also have an escalation and de-escalation arm? And what are you expecting there incrementally that's potentially different from the Japan study?

Speaker Change: Got it. And then is the Circulate France study that you're expecting data from shortly, is that similar to the Circulate Japan study?

Speaker Change: Does it also have an escalation and de-escalation arm and what are you expecting there incrementally?

Summer Rogen: that's potentially different from the Japan.

Alex Aleshin: Yeah, Alex, you want to take that?

Summer Rogen: Starry.

Summer Rogen: The Alexey want to take that?

Matt Sykes: Yep, absolutely. So Circulate France, you know, we're looking at the lower risk stage two patient population where the benefit of adjuvant chemotherapy is, you know, hotly debated. The majority of patients in probably the world are not getting adjuvant chemotherapy, but, you know, many of these patients still recur. So that is a study that's randomizing signatory positive patients after surgery in that kind of narrow stage defined patient population to either receive adjuvant chemotherapy or follow kind of the standard of care, which is observation.

Alexey: Yep, absolutely. So Circulate France, you know, we're looking at the lower risk stage 2 patient population where

Speaker Change: The benefit of azure and chemotherapy is, you know, hotly debated, the majority of patients in the probably the world are not giving azure and chemotherapy, but, you know, many of these patients still recur.

Speaker Change: So that is a study that's randomizing signatory positive patients after surgery.

Speaker Change: in that kind of narrow stage defiant patient population to either receive adjunct chemotherapy or follow kind of the standard of care which is observation.

Matt Sykes: So in many ways, I would say it's pretty different than Alterin's asking kind of a post-operative adjuvant question. There is no de-escalation arm since, again, these patients, as part of standard of care, are not usually getting adjuvant chemotherapy. So the signatory negative patients are being just followed, and their outcomes are observed, but there is no randomized de-escalation component.

Speaker Change: So, in many ways that it would say it's pretty different than Altairan's, asking kind of a post-operative answer than question.

Speaker Change: There is no de-escalation arm since again these patients as part of standard care are not usually getting adjuvant chemotherapy. So the signatory negative patients are being just followed and their outcomes are observed but there is no randomized de-escalation component.

Matt Sykes: Got it, thank you. I forgot to mention this is Prashant on format. Thank you for the question.

Speaker Change: Got it, thank you. I forgot to mention this is Prashant on for Matt. Thank you for the questions.

Doug Schenkel: Our next question comes from Doug Schenkel from Wolf Research. Please go ahead. Your line is open.

Speaker Change: Our next question comes from Doug Schenkel from Wolf Research. Please go ahead. Your line is open.

Doug Schenkel: Hey, good afternoon, guys. I want to just go through a few loose ends on Signatera. So actually, I want to come back to the topic of competition. But let me let me put put that to the side for a second.

Doug Schenkel: Hey, good afternoon, guys. I want to just go through a few loose ends on Signatera. So actually, I want to come back to the topic of competition, but let me put that to the side for a second.

Doug Schenkel: What's the mix of first-time tests versus surveillance as we sit here today? When you talk about COGS improvement, I'm assuming that it's independent of MIX, so that, you know, gets better even more so over time as the MIX shifts towards more surveillance. And I'm kind of building off of this, keeping in mind that you seem to be on track to go signataria revenue over 80% year over year. If we think of how you've been tracking on the first time test.

Doug Schenkel: What's the mix of first-time tests versus surveillance as we sit here today? When you talk about COGS improvement, I'm assuming that's independent of MIPS, so that gets better even more so over time as the MIPS shifts towards surveillance.

Speaker Change: More surveillance.

Speaker Change: And I'm kind of building off of this, keeping in mind that you seem to be on track to go signataria revenue over 80% year-over-year.

Speaker Change: If we think of how you've been tracking on first-time tests...

Speaker Change: and then think about the annual tail of four more predictable tests per year for surveillance purposes the following year and then you stack that on top of new first-time test growth.

Doug Schenkel: And then think about the annual tail of four more predictable tests per year for surveillance purposes the following year, and then you stack that on top of new first time test growth. Doesn't that mathematically support an outlook for sustained 50% maybe more volume growth in the year ahead?

Mike Brophy: Hey, thanks for the question, Doug. It's Mike.

Speaker Change: Hey, thanks for the question Doug, Mike. Yeah, look, what we've seen is at first when we launched a terror obviously, you know, the very few surveillance tests in the cohort.

Speaker Change: And then we've grown to where, historically, it's gotten to like 50-50 balance, and it's been quite stable there for some time. It's continued to evolve, but I would characterize it very broadly, it's still in that zone, where you have a very high compliance of patients.

Mike Brophy: Yeah, look, what we've seen is, at first, when we launched Secretaria, obviously, you know, there's very few surveillance tests in the cohort, then we've kind of grown to where, you know, historically, it's been kind of gotten to like a 50-50 kind of balance, and it's been quite stable there, you know, for some time. It's continued to evolve, but I would characterize it very broadly. It's still kind of in that zone, where you have very high compliance of patients.

Mike Brophy: Staying with Signatera into the surveillance setting, and I think, you know, steady state, that's probably the vast majority of your volumes, 75, 80% of your volumes, like, over time, mature product would be that story of patients kind of getting surveilled in the recurrence monitoring setting. We haven't seen that progression happen as rapidly as you might expect because the top of the funnel just keeps getting filled. I mean, there just continues to be new account wins, physicians adopting the test, new patients coming in at the top of the funnel, and so that's kept that mix, you know, much more balanced.

Speaker Change: staying with Signatara into the surveillance setting. And I think, you know, steady state, that's probably the vast majority of your volumes, 75, 80 percent of your volumes, like over time, mature product, would be that tale of

Speaker Change: Patients kind of getting surveilled in the recurrence monitoring setting. We haven't seen that progression happen as rapidly as you might expect, because the top of the funnel just keeps getting filled. I mean, there just continues to be kind of new...

Speaker Change: Account Wins, Physicians Adopting the Test, New Patients Coming in the Top of the Funnel. And so that's kept that mix, you know, much more balanced, okay?

Mike Brophy: Okay, and so, to your point, I do think that it's kind of a unique dynamic, the fact that you've got this kind of long-term, ongoing relationship with the patient, where you stack up kind of classes of patients that stay with the test. It does support, I think, you know, longer-term outlook for growth potential that, you know, that we're quite excited about, because we think that can be extremely useful to patients over time. And you asked a two-parter, and I'm only smart enough to remember one part, so ask the second one again.

Speaker Change: to your point. I do think that it's kind of a unique dynamic. The fact that you've got this kind of long term.

Speaker Change: I'm going to relationship with a patient.

Speaker Change: Where you stack up kind of classes of patients that stay with the test. It does support, I think, you know, longer term outlook.

Speaker Change: for growth potential that you know that we're quite excited about because we think that can be extremely useful to patients over time.

Speaker Change: And you asked a two-parter, and I'm only smart enough to remember one part, so ask the second one again.

Doug Schenkel: So, I mean, I think it was essentially just the COGS improvements that you talked about. That's independent of mix. And I think you kind of just answered that because your mix is stable at 50-50. So I think we're good on that, Mike. Yeah, exactly. Yep.

Speaker Change: So, I mean, I think it was essentially just the COGS improvements that you talked about. That's independent of mix. And I think you kind of just answered that because your mix is stable at 50-50. So I think we're good. Yeah, exactly.

Mike Brophy: Garnett reported data from the COSMOS study yesterday. Specificity was 98 percent. Sensitivity was 81. Recognizing that these studies are done in a way where it's hard to make perfect apples-to-apples comparisons, this seems to be well below, certainly, what we've seen in studies from you, especially sensitivity, which at least to me looks like it was over 10 points lower. That said, Garnett is clearly asserting that their study data is actually better than what we've seen with Cignatera.

Speaker Change: My follow-up is on competition. You know, GARNET reported data from the COSMOS study yesterday. Specificity was 98%, sensitivity was 81%.

Speaker Change: I'm recognizing that these studies are done in a way where, you know, it's hard to make perfect apples, apples comparison.

Speaker Change: This seems to be well below, you know, certainly what we've seen in studies from you, you know, especially, you know, sensitivity which at least to me looks like it was over 10 points lower.

Speaker Change: That said, Garden is clearly asserting that their study data is actually better than what we've seen with Signatera. Are you seeing anything that suggests this is equivalent or better than what you guys have presented and based on what's out there?

Mike Brophy: Are you seeing anything that suggests this is equivalent or better than what you guys have presented? And based on what's out there, what part of the market positioning would be at risk for you? And should we be contemplating any moderation in growth as folks potentially contemplate shifting to a study which, I'm sorry, an assay that, you know, may be more convenient, but, you know, from a performance standpoint, I think you'd have to, you know, once again, view that convenience is more important than performance. Yeah, thanks, Doug.

Speaker Change: You know, what part of the market positioning would be at risk for you and, you know, should we be contemplating any moderation and growth as folks potentially contemplate shifting to a study which

Speaker Change: I'm sorry, an assay that they be more convenient, but from a performance standpoint, I think you'd have to, you know, want to, again, be that convenient is more important than performance.

Doug Schenkel: And, you know, we've seen them in accounts, we've seen them in the field, and they announced, I think, the Cosmos results, maybe in January of this year. So that's been out there for a while. You know, it's good that they've gotten the paper published. You know, we don't think the dynamic really changes much. You know, they've been out, you know, they've had the data out for seven months now. You know, so I don't think it will impact me much.

Speaker Change: Yeah, thanks, Doug. Yeah, so I guess I'll say, you know, GARN's been out since I think 2021 promoting their tests. And, you know, we've seen them in accounts, we've seen them in the field, and they announced, I think, the Cosmos results.

Speaker Change: Maybe in January this year. So that's been out there for a while. You know, it's good that they've gotten the paper published

Speaker Change: You know, we don't think the dynamic really changes much, you know.

Speaker Change: They've had the data out for seven months now, so I don't think it will impact much. We feel really good about our test performance, 50 peer-reviewed publications plus multiple publications. Thank you.

Steve Chapman: We feel really good about our test performance. 50 peer-reviewed publications plus multiple further studies in the pipeline. We're seeing, you know, 40% of ecologists use the product. Great operations. Things are going really well.

Speaker Change: Further studies in the pipeline. We're seeing, you know, 40% of ecologists use the product. Great operations. Things are going really well.

Speaker Change: Okay, thanks guys.

Tycho Peterson: Our next question comes from Tycho Peterson from Jeffreys. Please go ahead. Your line is open.

Speaker Change: Yep.

Speaker Change: Our next question comes from Teiko Peterson from Jeffreys. Please go ahead, your line is open.

Tycho Peterson: Hey, thanks. A couple of cleanups and then we'll be done. I guess, going back to Altair, I just want to make sure I understand the kind of pacing here. I think you previously talked about the CRC committee for NCCN meeting this summer and incorporating Altair. Now that that's pushed out to next year, how do you think about, you know, the timing of NCCN? And do you still think this is kind of a driver versus Circulate US? So that's the first question.

Teiko Peterson: Hey, thanks. A couple of cleanups here. I guess going back to Altair, I just want to make sure I understand kind of the pacing here. I think you previously talked about, you know, the CRC committee for NCCN meeting this summer and incorporating Altair. Now that that's pushed out to next year, how do you think about, you know, timing of NCCN? And do you still think this is kind of a driver versus Circulate US?

Steve Chapman: Yeah, I'll take that. So, you know, look, so first we were happy to see, you know, signatarian MRD testing being incorporated already as is footnote in NCCN, you know, based on the data that's out there. And we're excited about this 36-month perspective overall survival data that's going to be read out at ESMO, which we think is a very positive thing. You know, the committee, I think, previously has said they're looking for overall survival data in this perspective manner. You know, of course, they're looking for randomized data as well.

Speaker Change: So that's the first question.

Speaker Change: Yeah, I'll take that joke.

Speaker Change: You know, what...

Speaker Change: So, first, we were happy to see, you know, signatarian MRD testing being incorporated already as it is footnote in NCCN, you know, based on the data that's out there. And we're excited about this 36-month...

Speaker Change: Perspective overall survival data that's going to be read out.

Speaker Change: at ESMO, which we think is a very positive thing. You know, the committee.

Speaker Change: I think previously has said they're looking for overall survival data in a perspective manner. You know, of course, they're looking for randomized data as well, and that's why we're doing all of these randomized clinical trials. So, you know, we can't always predict what's going to happen with the NCCN committee.

Steve Chapman: And that's why we're doing all of these randomized clinical trials. So, you know, we can't always predict what's going to happen with the NCCN committee, you know, but certainly doing all these studies, I think, puts us in a positive position. You know, it's also important to remember, as Solomon described, I think, in his section, you know, the different use cases of signataria, right? So, you know, we have adjuvant decision-making, which is largely covered by the GALAXY study.

Speaker Change: You know, but, you know, certainly doing all these studies, I think, puts us in a positive position. You know, it's also important to remember, as Solomon described, I think, in his section,

Solomon: The different use cases of signataria, right? So we have adjuvant decision-making, which is largely covered by the GALAXY study. We then have surveillance with the notion of doing surgery with curative intent if you find a recurrence.

Steve Chapman: You know, we then have surveillance with the notion of doing surgery with curative intent if you find a recurrence. You know, and that's those two things are really driving a lot of the utilization today. And then you have the ALTER study, which is looking at sort of a new paradigm of treatment on molecular recurrence. You know, but it's not necessarily the indication that's been driving all of the growth that we've seen today. You know, so look, we'll have to see, but we're doing everything we can. We're putting ourselves in the right position by doing these studies to see guidelines and see impact over time.

Speaker Change: and that's, those two things are really driving a lot of the utilization today and then you have the old chair, the study which is looking at sort of a new paradigm of treatment on molecular recurrence.

Speaker Change: you know, but it's not necessarily the indication that's been driving all of the growth that we've seen today. You know, so look, we'll have to see, but we're doing everything we can we're putting ourselves in the right position by doing these studies to see guidelines and see impact over time.

Tycho Peterson: And then I guess on kind of use cases, I think last quarter you talked about some bumps in bladder cancer, ovarian cancer, you know, ovarian on the back of Medicare coverage. Can you maybe just talk a little bit about, you know, some of those newer indications and if you're doing anything around kind of market development there?

Speaker Change: And then I guess on kind of use cases, I think last quarter you talked about some bumps in bladder cancer, ovarian cancer, you know, ovarian on the back of Medicare coverage. Can you maybe just talk a little bit about, you know, some of those newer indications and if you're doing anything around kind of market development there?

Steve Chapman: Yeah, so we're actually seeing a lot of interest in these other areas, and one of the things I think that is great about the Cigna Terra strategy is that we've been able to generate peer-reviewed data and get coverage in multiple different indications now. And in fact, in this last quarter, as Alex announced, we've just had data on Merkel cell and now pancreatic cancer. So we're continuing to generate evidence in new tumor types, and those will all be submitted for Moldex.

Speaker Change: Yes, so we're actually seeing a lot of interest in these other areas, and one of the things I think that is great about the signature strategy is that we did able to generate peer review data.

Speaker Change: and get coverage in multiple different indications now, and in fact...

Speaker Change: In this last quarter, as Alex announced, we just had data on

Alex: Miracle Cell, and now Pancreatic Cancer.

Steve Chapman: So when we've gotten coverage, we definitely see a bump as we go out and the sales team starts promoting in those indications. And then as we look towards 2025, actually, one of the exciting areas, I think, is bladder cancer with the Invigor 011 results potentially being read out in 2025. So we continue to see a lot of interest across the board, and we think that the pancancer approach, backed by strong clinical data, is the right approach.

Speaker Change: So we're continuing to generate evidence in new tumor types and those will all be submitted for MoldyX. So when we've gotten coverage, we definitely see a bump as we go out and the sales team starts promoting in those indications. And then as we look towards

Speaker Change: 25, actually one of the exciting areas I think is bladder cancer with the Envigor 01 results.

Speaker Change: You know, potentially being read out in 2025 so we continue to see a lot of interest across the board and we think that the paying cancer approach backed by strong clinical data is the right approach.

Tycho Peterson: And then last one, is this a little bit of a change in strategy on tumor naive for MRD? I think in the past you talked about spending about 15 million this year on data sets and maybe some readouts this summer and in the fall, understanding obviously it's a smaller part of the market, not a huge focus, but I think you previously talked about spending on tumor naive.

Speaker Change: and then last one is a little bit of a change in strategy on tumor naive for MRD. I think in the past, he talked about spending about 50 million this year on data sets and maybe some regards this summer and in the fall, understanding obviously it's a smaller part of the market and not a huge focus, but I think he previously talked about spending on tumor naive.

Steve Chapman: Yeah, so I think we've, you know, what we've said before is that we're definitely, you know, kind of looking at the competition, understanding what's happening, understand what positions are interested in, we definitely think tumor informed, you know, is, I think, the winning approach at this point, you know, but certainly, we are, you know, aware of what's happening in the marketplace and, you know, what, what types of test physicians are using. I think we've said we're, you know, we're innovating, and we're doing different things.

Speaker Change: Yeah, so, um, I think we've, you know, what we've said before is that we're definitely, you know, kind of looking at the competition, understanding what's happening, understand what positions...

Speaker Change: are interested in. We definitely think tumor informed is, I think, the winning approach at this point, you know, but certainly we are, you know, aware of what's happening in the marketplace and, you know, what types of test physicians are using. I think

Speaker Change: We've said we're, you know, we're innovating and we're doing different things and we expect to announce some different MRD enhancements.

Steve Chapman: And we expect to, you know, announce some different MRD enhancements and product line extensions in the future. And I think we'll just have to wait and kind of see what those are. As far as early cancer detection, I think that's generally where we've talked about having that spend in the range of like 10 to $15 million, and having some readouts coming later this year. And those are actually on track. So, you know, we expect in the very near future to be able to give a readout on, you know, our progress in early cancer detection, which we're excited about.

Speaker Change: and product line extensions in the future. And I think we'll just have to wait and kind of see what those are. As far as early cancer detection.

Speaker Change: I think that's generally where we talked about having that spend in the range of like $10 to $15 million and having some readouts coming later this year. And those are actually on track. So, you know, we expect in the very near future to be able to give a readout.

Speaker Change: on our progress in early cancer detection, which we're excited about.

Speaker Change: Great, thank you.

Catherine Schulte: Our next question comes from Catherine Schulte from Baird. Please go ahead. Your line is open.

Speaker Change: Yep.

Speaker Change: Our next question comes from Catherine Schulte from Baird. Please go ahead. Your line is open.

Catherine Schulte: Hey guys, thanks for the questions. Maybe first on women's health ASPs, just regarding your comments on improving the fraction of tests you get paid on, even without guidelines. Does that hold true on microdels? Are you seeing improved collections there? Or was that more of a carrier screening comment?

Catherine Schulte: Hey guys, thanks for the questions. Maybe first on women's health ASPs, just regarding your comments on improving the fraction of tests you get paid on, even without guidelines, does that hold true on microdels? Are you seeing improved collections there or was that more of a carrier screening comment?

Steve Chapman: Yeah, Catherine, good question. You know, I'd say that's not the case on micro-dells.

Speaker Change: Good question. I say that's not the case on microdels. I think the improvement is really going to come from a guideline change. What we're talking about is where there's a covered test.

Catherine Schulte: I think there, you know, the improvement is really going to come from a guideline change. I think what we're talking about is where there's a covered test, and, you know, maybe the payers aren't paying when they're supposed to, and you need to really, you know, do things with the payer to try to make sure you get paid, like, for example, collecting medical records, you know, appealing after an unjust denial, you know, things like that.

Speaker Change: And, you know, maybe the payers aren't paying when they're supposed to, and you need to really, you know, do things with the payer to try to make sure you get paid, like, for example, collecting medical records.

Speaker Change: You know, appealing after an unjust and an aisle, you know, things like that and we're just getting better at that as time goes on and we learn more. You know, but certainly, you know, the upside on something, you know, that generally doesn't have coverage like microdellation still rests with.

Catherine Schulte: And we're just getting better at that as time goes on and we learn more. You know, but certainly, you know, the upside on something, you know, that generally doesn't have coverage, like micro-deletion still rests with guidelines and getting coverage.

Speaker Change: Guidelines and getting coverage in place.

Steve Chapman: Okay, got it. And then for Signatera, you mentioned, I think over 40% of oncologists ordered it in the second quarter. What percent have ordered it, you know, at all cumulatively since launch? And, you know, what portion of your sequential volume growth was from new ordering physicians versus penetrating existing accounts? Yeah, so we actually

Speaker Change: Don't call it.

Speaker Change: And then for Signatera, you mentioned, I think, over 40% of oncologists ordered it in the second quarter. What percent have ordered it, you know, at all cumulatively since launch? And, you know, what portion of your sequential volume growth was from new ordering physicians versus penetrating existing accounts?

Steve Chapman: Yeah, so we actually see, you know, once doctors start using signatariat, they're generally, you know, pretty consistent, you know, but obviously, there's there's groups across the board that have different ordering patterns. But I would say the typical pattern is they, they trial it out on a couple of patients, they like the experience, they see the clinical utility, and then they start expanding into their practice into other patients, maybe other doctors within the practice start ordering the test, and then maybe they move beyond colorectal, move beyond breast, you know, to other tumor types.

Steve Chapman: Yeah, so we actually see, you know, once doctors start using signatariat, they're generally pretty consistent, you know, but obviously there's groups across the board that have different ordering patterns, but I would say the typical pattern is they trial it out on a couple of patients.

Speaker Change: They like the experience, they see the clinical utility, and then they start expanding.

Speaker Change: I'm into the practice into other patients, maybe other doctors within the practice start ordering the test.

Speaker Change: And then maybe they move beyond colorectal, move beyond breast, you know, to other tumor types. And so, you know, I would say that, you know, once people get on board, generally there's a very strong rate of recurrent orders.

Steve Chapman: And so, you know, I would say that, generally, once people get on board, there's a very strong rate of recurrent orders and expansion within those practices. Now, with that said, we definitely track new physicians coming on board. And we see a very healthy pipeline there of new physicians coming in with interest, you know, maybe they were waiting for more data to come out, you know, maybe they just hadn't, you know, hadn't decided on the right timing for them to use it yet. But we're certainly seeing a lot of new people come in, in addition to expansion within the physicians that are currently using them.

Alexey: and Expansion within those practices. Now, with Alexey, we definitely trapped new physicians coming on board and we see a very healthy pipeline there of new physicians coming in with interest.

Speaker Change: you know, that maybe they were waiting for more data to come out. You know, maybe they just, they hadn't, you know, hadn't decided on the right timing for them to use it yet, but we're certainly seeing a lot of new people come in, in addition to expansion within the physicians that are currently using.

Speaker Change: Great, thank you.

Subhu Nambi: Our next question comes from Subhu Nambi from Guggenheim. Please go ahead. Your line is open.

Speaker Change: Our next question comes from Subhu Nambi from Guggenheim. Please go ahead, your line is open.

Subhu Nambi: Hey guys, thank you for taking my question. Do you believe that the delay in the Altair readout will have any impact on market demand? I don't think so, but just wanted to confirm any signs that clinicians were holding off on adopting pending the readout.

Subhu Nambi: Hey guys, thank you for taking my question. Do you believe that the delay in the Altair readout will have any impact on market demand? I don't think so, but just wanted to confirm any signs that clinicians were holding off on adopting pending the readout.

Steve Chapman: So, you know, just as a reminder, what Altair is studying is sort of a new paradigm, which is treatment for molecular recurrence, you know, where you would need to get approval for this particular drug to be used without clinical relapse. And so, you know, the vast, vast majority of the usage that we've seen today and the growth that we're seeing is based on different indications. And those indications are adjuvant decision making, where the doctor is trying to make a decision about whether to give adjuvant chemotherapy or not. That's not what's being studied in Altair.

Speaker Change: Yeah, that's a good question, so, you know, this is a reminder what Altair is studying is sort of a new paradigm, which is treatment on molecular recurrence.

Speaker Change: where you would need to go get approval for this particular drug to be used without clinical relapse. And so the vast, vast majority of the

Steve Chapman: The usage that we've seen today, and the growth that we're seeing, is based on different indications, and those indications are

Steve Chapman: Adjuvant Decision-Making

Steve Chapman: uh, where the doctors trying to make a decision about whether to give Azure and came a therapy or not. That's not being studied in all-ter, um, or just standard surveillance and recurrence monitoring for the intent of doing surgery, because in colorectal cancer.

Steve Chapman: Or just standard surveillance and recurrence monitoring with the intent of doing surgery. Because in colorectal cancer, in a significant portion of patients, if you catch the cancer early, you can actually do surgery. And, you know, in many cases, the patients can be cured just from that surgery alone. So, neither of those two indications are being studied in Altair. Yeah, so, you know, the delay obviously won't have any impact on the current status quo. And, you know, I think we remain excited about reading the results out as we turn the corner into 2025 and potentially expanding the market opportunity further.

Steve Chapman: In a significant portion of the patients, if you catch the cancer early, you can actually do surgery and, you know, in many cases the patients can be cured just from that surgery alone. So neither of those two indications are being studied in Altair.

Steve Chapman: The delay obviously won't have any impact on the current status quo and I think we remain excited about reading the results out as we turn the corner into 2025 and potentially expanding the market opportunity further.

Subhu Nambi: That's super helpful. And consistently, in our checks on all their trials, it appears that even if, if it reads out positive, it could be practice changing, just like what you said, a new use case. But if it reads out negative, signature ordering behavior wouldn't be impacted because I think they point out the trial design is complicated, and there are multiple subgroups. Is this how you're thinking about it internally?

Subhu Nambi: That's super helpful. And consistently in our checks on all their trial, it appears that even if

Subhu Nambi: If it reads out positive, it could be practice-changing, just like what you said, a new use case. But if it reads out negative, signature ordering behavior wouldn't be impacted because I think

Subhu Nambi: They point out the trial design is complicated and there are multiple subgroups. Is this how you are thinking about it internally?

Speaker Change: Yeah, I mean, we've thought about it as potentially opening up a new area of growth. This idea of sort of treatment on molecular recurrence.

Speaker Change: Um, you know, and I think that's really the...

Speaker Change: View of how we're looking at things and you know, of course the core volume growth today and all the utilization Or the vast majority utilization that we're seeing and we're still very very under penetrated I think are on adjuvant decision-making and recurrence monitoring with the intent to do surgery

Subhu Nambi: So what we'll have to see how things go after the data reads out and what additional uptake we get from this.

Subhu Nambi: Perfect. Thank you, guys.

Eve Bernstein: Our next question comes from Eve Bernstein of Bernstein. Go ahead. Your line is open. Great, thanks so much for the questions. Two for you.

Eve Bernstein: Our next question comes from Eve Bernstein from Bernstein. Go ahead, your line is open.

Eve Bernstein: First one, you said that your base case is to add nine to 10,000 signataria tests per quarter. At this point, though, you've had two quarters in a row with test growth clearly well above that. So two parts to this.

Speaker Change: Great. Thanks so much for the questions. Two for you. First one.

Speaker Change: You said that your base case is to add 9,000 to 10,000 signatory tests per quarter.

Speaker Change: At this point, though, you've had two quarters in a row with test growth clearly well above that.

Steve Chapman: One is part of the reason you've given for anchoring on that nine to 10,000 number is because you don't plan to increase your sales force, but you're clearly seeing interest from the market. So why not increase sales force at this point? And then two, given that strong tailwind from surveillance, even if you don't increase sales force, you'll have that working in your favor. So don't you think it's reasonable to increase the base case at this point?

Steve Chapman: Two parts to this. One is part of the reason you've given for anchoring on that nine to 10,000 numbers, because you don't plan to increase your sales force, but

Speaker Change: You're clearly seeing interest from the market, so why not increase sales force at this point and then to give in that strong tailwind from surveillance.

Steve Chapman: Even if you don't increase sales force, you'll have that working in your favor. So don't you think it's reasonable to increase the base case at this point?

Eve Bernstein: Yeah, that's a good question. And look, we're in a very underpenetrated market. There's lots of demand, we've been growing, we have seen two really strong quarters in a row, you know, very solid volume growth. But look, I think we have to just kind of stay conservative with our expectations as we normally are and try to outperform them, which we generally have been able to do. But, you know, look, it's hard to, you can't judge things on a quarter to quarter basis because, you know, sometimes there's a different number of receiving days, sometimes there's holidays, you know, sometimes there's big, major, major conferences where doctors are out.

Eve Bernstein: Yeah, that's a good question. And look, we're in a very under penetrated market. There's lots of demand, we've been growing, we have seen two really strong quarters in a row, you know, very solid volume growth.

Eve Bernstein: But, look, I think we have to just kind of stay conservative with our expectations as we normally are and try to outperform them, which we generally have been able to do. But, you know, look, it's hard to...

Eve Bernstein: And so I think part of the point of, you know, just sort of reiterating the base case is just because things can fluctuate every quarter, but when you take a step back and you look at it on an annual basis, I think that's probably a better way to look at things. But, of course, we've given the same pitch before about 8,000 to 9,000. I think we reiterated that in Q1, and then we delivered 13,000 units of growth. It's just a standard baseline that we keep reiterating and has nothing to do with our views on exactly how the next particular quarter is going.

Eve Bernstein: You can't judge things on a quarter-to-quarter basis because, you know, sometimes there's a different number of receiving days, sometimes there's holidays, you know, sometimes there's big major conferences where doctors are out, and so I think part of the point of

Steve Chapman: Got it. Thanks.

Steve Chapman: You know, just sort of reiterating.

Steve Chapman: You know, the kind of the base case is just because things can fluctuate every quarter, but when you take a step back, you look at an annual basis. I think that's kind of probably a better way to look at things. But of course, we've given this same

Steve Chapman: Pitch before about the 8 to 9,000. I think we reiterated that in Q1 and then we delivered 13,000 units of growth So, you know, it's it's just a kind of a standard

Steve Chapman: You know, baseline that we keep reiterating and you know, has nothing to do with sort of our views on exactly how the next particular quarter is going.

Eve Bernstein: As a follow-up, following up on the partnership with Foundation, you said that deciding not to renew isn't changing your guidance or forecasts in any way. That partnership made a lot of sense strategically because you could piggyback on the 150,000 or 200,000 therapy selection tests they were doing. And Altera, Unknown Attendee, Puneet Souda, Alexey Aleshin, John Fesko, Natera Inc.

Eve Bernstein: As a follow-up on the partnership with Foundation, you said that deciding not to renew that isn't changing your guidance or forecasts in any way. And

Eve Bernstein: That partnership made a lot of sense strategically because you could piggyback off the 150,000 or 200,000 therapy selection tests they were doing, and Altera's

Eve Bernstein: Clearly well below that so

Speaker Change: If you're not changing your forecast, it makes me think that the partnership wasn't really delivering a ton of value. Why not? And why not sort of fix the things that weren't going right for you?

Speaker Change: And then, what, if anything, will you plan to change about your Altera marketing going forward to try to drive volumes there, as I imagine that they, in turn, really could drive volumes for Signatera?

Steve Chapman: Yeah, I would say, look, when you look back to when we signed the partnership back in 2019, I mean, things have really changed quite a bit since then, right? So, signatory growth has accelerated and grown, you know, immensely, and we're just in a very different place than we were back when we, you know, when we signed that partnership. And, you know, as a reminder, we were running the plasma test, but, you know, the partner laboratory was responsible for commercial distribution. And, you know, that can be a challenging situation to be in, and, you know, I think for business reasons, both sides decided, you know, that it didn't make sense to continue.

Steve Chapman: Yeah, we'll see, when you look at back to when we saw the partnership back in 2019, I mean, things have really changed quite a bit since then, right? So signature and growth.

Steve Chapman: has accelerated

Steve Chapman: and grown, you know, immensely.

Steve Chapman: And we're just in a very different place than we were back when we...

Steve Chapman: you know when we signed that partnership and you know as a reminder we were running the plasma test but

Steve Chapman: The partner laboratory was responsible for commercial distribution. And that can be a challenging situation to be in. And I think for business reasons, both sides decided that it didn't make sense to continue. But like I said, it doesn't impact our forecast.

Steve Chapman: But, like I said, it doesn't impact our forecast. We're focusing on Singapore. The opportunity that we have with Altera, which, you know, I think we're doing really well on, we continue to do really well in immunotherapy monitoring. We've had very strong data where a lot of times we see Altera being ordered, you know, alongside those immunotherapy monitoring patients. So, we're continuing to, you know, move forward in that indication, but it just doesn't make a lot of sense anymore to, you know, continue the partnership. It's sort of, you know; we're moving forward.

Steve Chapman: We're focusing on singing Tara, the opportunity that we have with Altera, which...

Steve Chapman: We continue to do really well in immunotherapy monitoring, where we've had very strong data, where a lot of times we see the Altera being ordered alongside those immunotherapy monitoring patients.

Steve Chapman: So it will continue to move forward in that indication, but it just doesn't make a lot of sense anymore to continue to partnership, you know, it's sort of, you will move it on.

Speaker Change: Okay. Thanks a lot.

Steve Chapman: Okay, thanks a lot. We are out of time for questions today. This will conclude today's conference call. Thank you for your participation. You may now disconnect.

Steve Chapman: We are out of time for questions today. This will conclude today's conference call. Thank you for your participation. You may now disconnect.

Operator: Please wait, the conference will begin shortly.

Steve Chapman: Signature Cogs modestly declined again in the quarter and are now just above $400, and women's health Cogs remain in the range we sold in prior quarters. The net result is that we had another record gross margin quarter. This slide shows both the total gross margins, as well as the underlying gross margins, the net of revenue drops, and both metrics tell the same story. The underlying organic gross margins grew about two full percentage points above the Q1 results and now stand above 54%.

Steve Chapman: [inaudible] what we'll have to see how things go after the data reads out and, you know, what additional uptake we get from this.