Natera, Inc. Price & Performance (NTRA)

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. Refer to the documents we will file from time to time with the SEC, including our most recent Form 10 ks or 10 Q and the Form eight ks filed with today's press release. Those documents identify important risks and factors that may cause our actual results to differ materially from those contained in or suggested by the forward looking statements. Forward looking statements made during the call are being made as of today, 02/27/2025. If this call is replayed or reviewed after today, the information presented during the call may not contain current or accurate information. It's Air disclaims any obligation to update or revise any forward looking statements. We will provide guidance on today's call, but will not provide any further guidance or updates on our performance during the quarter. Unless we do so in a public forum. We will quote a number of numerical growth changes as we each such reference represents a year on year comparison. And now, I'd like to turn the call over to Steve. Steve? Thanks, Mike.

Let's get to the highlights on the next slide. 2024 was a transformational year for Natera and I think the Q4 results demonstrate that we ended the year with a lot of momentum coming into 2025. Revenues in the quarter were $476,000,000 up 53% year on year and $4,000,000 above our January preannouncement of $472,000,000 Volumes were up 26% compared to Q4 of last year and included an excellent showing for signatory unit growth. I'm pleased to report that gross margins in the quarter were 63% which is significantly above the 51% we posted just one year ago and highlights the progress we made on both COGS and realized pricing in 2024. Finally, we generated roughly $46,000,000 of cash flow in Q4 wrapping up the full year with about $86,000,000 in total cash flow generation. On top of the financials, we discussed a series of milestones across the business in the last few months. We announced our innovation roadmap and shared several impressive Natera sets at the Apto GI Conference in January. Most notably, we announced the 8,702 data in colorectal cancer that underscores the predictive abilities of Signatera. We also had our first readout in early cancer detection and we are excited to share some additional data on that program on today's call.

In Women's Health, The Green Journal published our clinical validation study for our fetal or HD which demonstrated excellent test results. We also have two meaningful novel studies coming out of Oregon Health later this year that we look forward to discussing today. We are also pleased to see MCCN strengthen its position on cell free DNA testing across several tumor types as well as an expansion of the Medicare coverage for patients with stage one through three lung cancer. This makes Signatera more accessible to a population with a significant unmet need for risk stratification and recurrence monitoring. Great. Let's jump into some of the business trends on the next slide. As discussed in the pre announcement, volumes exceeded expectations in Q4 with strength across the portfolio. These longer term slides really highlight the progress we've made in just a few years with Q4 volumes up more than 2.5 times since 2020. In Williams Health, we delivered very strong organic growth as we continue to deliver a stream of new features and data sets. This was augmented by the Evitay win which helped us well. Oregon Health volumes were up almost 50% year on year as volumes continued to ramp across the portfolio.

Of course, Signatera had a transformational year with clinical volumes up approximately 60% versus Q4 twenty twenty three and nearly 15,000 units of growth over Q3 of twenty twenty four. Looking back over 2024, we can see in retrospect that this twenty four month overall survival data presented at ASCO GI early last year proved to be a critical catalyst for broader adoption and early returns suggest that the three year overall survival data presented at ESMO is having a similar impact. We will spend more time on the seven zero two data later in the call, but the feedback has been positive and in Q1, we're once again tracking to one of our strongest volume quarters ever. Signatera. Total revenue growth continued to accelerate as well in Q4, which came in above our preannouncement as I mentioned at the top of the call. Volume growth has also been strong but revenues grew almost twice as fast as volumes as our ASP continue to improve across the board. Signatera clinical ASPs improved to roughly $1,100 in Q4 and we continue to see steady progress for both Panorama and Horizon ASPs. We launched a significant effort in late twenty twenty two to better secure reimbursement for all the coverage services we provide including significantly increasing staffing and automation tools, Those efforts continue to bear fruit in Q4 and give us confidence in modeling ASPs for the 2025 guide as Mike will discuss later in the call.

We're excited about our ASP increases thus far but looking several years out, we think we have the potential to double the revenue from the volumes we are already running today as we expand coverage and reimbursement. While ASPs have continued to climb, the cost of goods sold per unit has continued to fall, driving a significant improvement in gross margins in 2024. We had about a 3% true up benefit to margins in the quarter which represents excellent execution from our team in driving receipts above prior estimates.

Even stripping out those true ups yields a gross margin of 59% in Q4 which is another record for the company. While we do have a number of initiatives on tap to reduce costs further in 2025, I'm very pleased that the major COGS projects that have consumed significant R and D resources over the last few years are now launched which frees up resources to focus on delivering new products features and clinical evidence. As we ramp revenues and gross margins, we've been able to generate cash even as we began to increase investments in our platform. This longer term slide shows the evolution of the company since early twenty twenty two when we were making investments that are now generating significant benefits for both our patients and shareholders. While the $46,000,000 in cash flow represents a significant new record for Natera, it's worth noting that we actually made an approximately $20,000,000 asset So I'd argue the operational cash flow in the quarter was approximately $65,000,000 in Q4. On our current trajectory, we could begin to generate meaningful cash flows in 2025. I think the last two quarters have been a critical case study in the efficiency of our business model and the ROICs we are now seeing on investments in R and D and SG and A. The major clinical trials we are running the new features we're launching and the investments we're making to further refine our service to patients and physicians are translating to additional volume growth and our track show in gross margins makes every new unit increasingly valuable.

So we want to take advantage of our position by taking the cash flows we are generating and reinvesting them in the business in 2025. We feel strongly that this approach has the potential to enhance the growth profile of the business in 2026 and beyond. Part of these investments have been in teams tasked with expanding payer coverage, and unlocking new insights from the massive amounts of data we generate every day.

I'd like John Sesco to now expand on each of these initiatives. John? Thanks, Steve. Within our core business, we have a significant potential opportunity to unlock reimbursement from test volumes that we're already running. And we've had several promising wins on this front recently. Many of you have seen that we secured a strong increase in our Medicare ADLT rate this year which was driven by strong pricing achieved in our commercial contracts. Steve also touched on the new Moldex decision to cover Signatera and NSCLC. Based on the written requirements of the ADLT regulations, we believe no other MRD test is eligible to receive ADLT status unless they obtain FDA approval.

We are also now seeing formal policies from commercial health plans announcing coverage for state mandated biomarker legislation. Effective 01/01/2025, a leading benefits management company who supports a large number of health plans across the country published a formal policy detailing cancer biomarker mandates across 20 different states Additionally, a top five national health plan updated their own medical Additional plans have also begun coverage and we are hopeful that others I will caution that we still expect ASP improvements from biomarker loss to flow in gradually over time. These are early wins that we can build on.

Within our women's health business, we also saw numerous planned and policy coverage for expanded carrier screening, including a large national payer and several large Blues plans. We also saw the first meaningful Medicaid coverage in expanded carrier screening with a published policy in one of the largest state Medicaid programs. Many other states have added expanded carrier codes to their fee schedules. We're excited about the momentum we're seeing here. Steve touched on the time and investment we've put into our operations to get reimbursed for covered services, and the positive impact that's had on revenues, margin and cash flow. We are now deploying new tools based on artificial intelligence to drive further improvement. Natera has developed AI tools to identify errors on claims, to spot patterns and denials and take corrective action to scan payer response letters and to develop custom patient We're spending significant time and effort to refine these AI tools with initial focus on driving quality we are very excited about what's possible here. This is just one of many examples of how our team is deploying cutting edge AI large language models to optimize productivity and business operations. It's only scratching the surface of how we are deploying AI to improve our customer experience, to optimize the performance of our core products to identify new prognostic and predictive signatures from our vast trove of clinical and genomic data We believe we have one of the largest cancer exome databases in the world.

With over 200,000 cancer exomes and genome sequence.

Many of which are in early stage cancer patients, both tumor and germline. So we have a great opportunity to leverage that database further improve patient care. 2024 was a good year from that perspective. We generated meaningful revenue from our data initiatives and we expect to build on this effort in 2025. We are pleased to report that we've already signed over $10,000,000 in data related contracts this year we have some positive early momentum. Okay. With that, let me hand it over to Solomon to review some recent clinical trial results and product updates. [indiscernible] Thanks, John, and good afternoon, everyone. First, I would like to provide an update from the women's health side. On our non invasive fetal RHD test, where we continue to see growing demand and adoption. We were pleased to see the publication of our clinical validation study in the Journal of Obstetrics and Gynecology. In November.

This was the largest study of its kind performed in The U. S. To date. It demonstrated excellent performance with sensitivity of 100% and specificity of 99.3%.

This study provides compelling scientific evidence on the ability of our tests to identify fetal RHC status, and demonstrate the potential to assist patients and clinicians in the prevention and management of RHC Allo immunization. Thanks to the growing base of evidence together with guidelines from ACOD supporting the use of fetal RHC patients. Adoption among eligible patients has been strong. And we were pleased to see commercial coverage initiated by one of the largest payers This new policy, which became effective last month, expands access to fetal RHD testing that can significantly improve Building on this successful launch from last year, we look forward to additional product and future announcements Natera this year. [indiscernible] Transitioning now to Oregon Health. I want to share some details on two unique studies on PROSPERA that we expect to read out in the coming months. And we believe will have a meaningful impact on the field. The first is the PEDAL study, which is the first of its kind prospective clinical trial of kidney transplant patients that is designed to evaluate the dynamics of donor DNA monitoring during treatment of a rejection event. This is similar to the cancer setting where circulating tumor DNA monitoring with for immunotherapy response has become an important use case We expect that Prospera base therapy monitoring will also have a utility for organ transplant recipients dealing with a rejection event.

Sync complete resolution of rejection remains a significant risk factor for long term grad survival And up until now, there has been limited research into this area.

With the PEDAL study, hope to address whether on treatment monitoring with PROSPERA can aid clinicians in understanding resolution of rejection and the risk of ongoing and whether discrete trends are associated with outcomes at one year. Ultimately, understanding how each patient is molecularly responding treatment may allow physicians to make dynamic adjustments to the treatment plan.

Enrollment in the study included more than five eighty patients across 28 leading sites in The U. S. And internationally, including UCLA, Cleveland Clinic, Wash U, Mayo and more. Patients were monitored with PROSPERO for eight weeks following a rejection. With tests performed at two week intervals in the rejection cohort. And clinical outcomes assessed at twelve months. We've submitted the results for peer reviewed publication and we look forward to sharing those results once they're available. We are also outlining here a second novel study for PROSPERA, This one for heart monitoring. The DEFIN study is a large scale prospective multicenter longitudinal study of donor DNA in heart transplant patients.

That evaluated more than 100 patients in over 1,000 time points. The objective for Define is to assess serial donor DNA dynamics along with serial and myocardial biopsies and their association of clinical outcomes in the first year after heart transplant. It's the first of its kind longitudinal study, we believe. And the first to evaluate the dynamics of Prospera's unique two threshold collar using the donor quantity score in conjunction with serial biopsies. And all compared to outcomes at one year. A defined study is being submitted for publication so we look forward to a readout later this year. We believe this can make a meaningful impact on the standard of care in heart transplant monitoring. Turning now to oncology. The first big news is that we announced Medicare coverage of Signatera for serial recurrent monitoring in non small cell lung cancer, including stages one, two and three and including both receptacle and nonresectable diseases. This coverage was secured based on three Pura VUE public stations showing the validity and utility of Signatera in lung cancer. Think the coverage is important for several reasons. First and foremost, there is a significant unmet need for lung cancer patients in the Timely detection of recurrence is a core principle of PARE.

But serial imaging has limitations.

In sensitivity and specificity. And it's often hard to interpret, especially after surgery, and radiation. Additionally, this is the first time we have secured reimbursement in Stage one disease. Based on the strength of our data in that setting. Lung cancer is a lethal disease. Hard to treat, where even stage one patients have a five year rate of recurrence that is higher than the rate of recurrence in Stage two and three colorectal cancer.

Finally, this coverage expands on Signatera's Natera existing coverage for immunotherapy monoclonal.

Where immunotherapy is already commonly prescribed in the adjuvant setting as well as in the neoadjuvant and metastatic settings, for non small cell lung cancer.

We look forward to working more closely with the thoracic oncology community to improve care and outcomes for patients with lung cancer.

Looking beyond lung cancer now, to the NCCN guidelines.

We were pleased by the recent guideline updates which for the first time included ctDNA, in management guidelines of colorectal cancer as well as Merkel cell carcinoma.

These updates are a significant validation of our Signatera clinical data strategy. As well as the core strength of our technology. The inclusion of Signatera every three months for surveillance of Merkel cell carcinoma is a big step forward for the management of this rare but aggressive form of skin cancer. The guidelines specifically reference the peer reviewed publication about Signatera, from a study that was initiated several years ago and published last year. Adoption in Merkel cell carcinoma has been strong. Additionally, we were pleased to see Signacare included in the guidelines colon and rectal cancers. Specifically acknowledged as a high risk prognostic marker in the adjuvant setting. Based on the initial positive feedback from physicians, we believe these recent guideline updates will support the use of Signatera in more CRC patients than before and likely to support adoption by new physicians. It's worth noting that this language in colorectal cancer was discussed and voted on by the committee in the early fall of last year before the publication of key Natera sets including the overall survival data from the GALAXY study, the surveillance data from the Bespoke study, and the predictive data from the CalGB swag 8,702 study.

We believe this recent data has the potential to support further guideline updates the not too distant future. Now, I will turn it over to Alex to discuss the data in greater detail and our product roadmap in oncology. [indiscernible] Thanks, Solomon. I want to start by highlighting the CalGB swag in 08/2002 study.

The results of which were presented in an oral at this year's ASTO GI Conference. 1,000 Stage three colorectal cancer patients in this randomized cohort. The results found that in Signatera positive patients, the addition of celecoxib, the standard adjuvant chemotherapy, resulted in a three year DFS improvement and a reduction in all cause mortality of over forty percent.

Signeture negative patients by contrast, had no significant improvement in overall survival. From receiving celecoxib. The results were very well received by the scientific and clinical community with multiple leading GI oncologists already telling us that they have started discussing celitoxib with their stage three patients who test 10 data in bladder cancer published back in 2021, that Signatera can be predictive of therapy benefit across multiple cancer types and drug classes. We look forward to publishing this study later this year. Expect 2025 to be a pivotal year for expansion of our product portfolio. Before reviewing our new product launches, I wanted to spend a minute discussing the underlying technology that powers and differentiates our MRD product offerings. Over the past fifteen years, Natera has developed patented and optimized a multiplex PCR NGS technology. That allows for deep and targeted detection of tumor derived mutations in plasma. Resulting in exquisite sensitivity and specificity while controlling costs. While our technology can multiplex thousands of targets simultaneously, as we do with Panorama and IPT, for example. We believe the best approach for tumor informed MRD detection is to select a targeted set of the highest quality clonal variants where Natera has significant experience using proprietary methods, Also to optimize the primary designs and the amplification protocols to sequence these targets at extreme high depth of over 100,000 reads and then to deploy a calling algorithm based on our proprietary error model.

Some competitors have tried to replicate this approach but have been enjoying from using our patented multiplex PCR technology. And so have been forced to go a different route for example, by using hybrid capture technology. MRD labs who use hybrid capture typically track hundreds or thousands of targets. But sequenced them at a shallower NGS depth to control COGS. This is why MRD test performance depends on much more than simply the number of targets tracked the technology truly matters.

This is why Signatera's clinical performance remains out and published clinical studies. This debate of targeted and deep versus wide and shallow is similar to the early days of NIPT. Where Natera deployed a deep targeted SNP based strategy based on multiplex PCR NGS. Competing with shallower shotgun sequencing techniques and we all see how that played out. While Signatera design on Exelon continues to be the asset of choice for the vast majority of oncologists with over 100 peer reviewed studies supporting its broad clinical utility and emerging predictive claims, we are also now receiving positive feedback on our genome based product launched at the end of last year. Early interest from both the pharma and academic community has been strong. For the role this product can play. Clinical trials in certain clinical situations. We'll be presenting clinical data from our genome assays this year. Furthermore, we're excited to make progress on our tissue free assay. With launch expected mid-twenty twenty five and with promising data presented in ASCO GI several weeks ago, showing competitive performance. Right now in the lab, we're processing a large scale prospectively collected study of over 1,000 samples that will support the launch of the tissue free assay the adjuvant and surveillance settings.

We believe the evidence will support reimbursement by Medicare will follow quickly with applications in other cancer types.

With that, let me turn it back to Steve to discuss early cancer detection.

Steve?

Thank you, Alex. As we previously shared at JPMorgan, we presented our first prospective validation of our ECD technology 95% sensitivity and 91% specificity with minimal degradation of performance in the asymptomatic screen detected population. We continue to make rapid progress on this program and I'm happy to announce that we've confirmed our CRC sensitivity in another independent dataset where the majority of patients were stage one and two. We are encouraged by these results in CRC and look forward to reporting out a more definitive study later this year for the PRCEDE trial. The big announcement for today is a readout of our prospective advanced adenoma trial. As a reminder, we've collected roughly three thousand patients using a protocol similar to what we would use in an FDA enabling trial.

All samples were asymptomatic patients and collected prior to a screening colonoscopy.

We're pleased to report that in the patients analyzed for the study, we found an 18% sensitivity for advanced adenoma with a specificity of ninety one percent, Because of the manner in which these samples were collected, we don't expect to see the type of performance degradation that's been observed in other ECD trials. Based on the excellent results in CRC and Avast and Enova, we decided to kick off the FDA enabling [indiscernible] The PROSEIDE study has allowed us the opportunity to better estimate both the possible enrollment rate and the cost of the definitive study. We believe this improves the chances for executing the study on schedule within budgeted costs. This is already baked into our guidance for the year and has limited the impact on our cash trajectory. Finally, as we look at the overall opportunity, we're pleased to see the Medicare rate confirmed at ninetwenty and given that we will seek FDA approval for this test, we believe ABLT pricing at a higher level is possible. This elevates the opportunity for Deterra, which is exciting, given our mission to help as many patients as possible. For distribution, we're considering partnering with a national distributor or using our direct sales channel or a combination of both.

Directly, we believe today we are already covering nearly all female patients through our OBGYN channel and all major hospital systems through our strategic accounts team.

We can augment this with sales reps in select markets for a solid distribution strategy. We also think the idea of partnering is enticing as well either as a standalone strategy or alongside our direct team. In either case, we can do this without significantly impacting our operating expenses. With that, I'll pass it back to Mike to review the financials. [indiscernible] Great. Thanks, Steve.

The first slide is just a summary of our Q4 financials. If you look at the year on year change column to the right, you'll get a sense of the progress we made across every metric of the business. As Steve covered at the top of the call, the large increase in revenues was even faster growth in gross margins move the P and L to a different level in 2024. Even as we made substantial investments in future growth, our loss per share narrowed significantly and we generated a meaningful amount of cash.

You'll recall that we retired the convertible notes early in Q4 So that leaves us with just under $1,000,000,000 in cash and effectively no debt on the balance sheet aside from the relationship line of credit from UBS. Okay, let's get to the 2025 guidance on the next slide. Steve touched on the revenue guide at the top of the call. We are pleased to be guiding to $1,870,000,000 to $1,950,000,000 in revenues to start the year Our base assumption for this guide is really just having the positive trends we've been seeing the last few quarters continue rolling into 2025. That means steady volume growth and stable ASPs in women's health continued market share capture and in market growth in organ health And of course, we expect Signatera to continue to grow sequentially. We've also obviously seen Signatera clinical volume now grow. Can consistently above the 8,000 to 10,000 sequential unit growth threshold as a target The guide presumes we will modestly outpace that eight to 10,000 level in 2025.

The guide does not attempt to forecast any revenue true ups.

While we think the true ups represent good execution on cash collections, The fact that they can be lumpy and unpredictable means that we will just guide based on what we think the underlying business can deliver. Consistent with our philosophy, we are setting this guide at the beginning of the year acknowledging that we have several meaningful sources of upside potential. For example, those of you that have followed us for a long time know that for us to guide to stable ASPs in women's health is a fairly bullish signal and we are cautiously optimistic that we could actually see continued growth in women's health ASPs this year through our own organic efforts, as John described.

We haven't spent a lot of time dwelling on ACOG guidelines recently, but of course if we get either of 22Q or expanded carrier screening, that would be another great upside outcome. And the feedback we get on both continues to positive. Solomon covered some of the extremely impactful clinical trial results we have on tap and accelerated adoption of both on the back of those data readouts would be upside to the guide. Of course, the pace of adoption and realized pricing of Signatera in the clinical setting offer the largest potential sources of upside to the model this year. Between the three year overall survival data from CIRCULATE CELEBREX readout at ASCO GI, sales and operations currently executing at a very high level and significant additional investments flowing into the business we've never been in better position to change the way cancer is treated in The United States. The guide presumes some modest ASP growth for Signaterra consistent with better allowed rates in Medicare Advantage, does not require any significant level of traction with either NCCN guidelines or with biomarker state reimbursement. We remain cautiously optimistic we could see some green shoots in the results in the second half from biomarker laws.

And of course, we will do everything we can to broaden Signatera adoption.

The gross margin guide presumes continued progress above the 59% gross margin we posted in Q4 ex the true ups. The margin growth can come from several sources, and much like the revenue, we believe there are several sources of upside to the guidance For example, better than expected realized pricing in any of our major products. A note of caution on the gross margin is that we are launching these two complementary products in the MRD menu neither of which have optimized unit economics. Our model presumes some modest uptake of both tumor naive and the genome backbone product And we expect this volume to be largely additive to core Signatera volumes as existing customers avail themselves of the menu from us on a broader set of their patients. If uptake from either offering exceeds our expectations, that would create a short term headwind for margins but I would argue that uptake is a very healthy signal for the longer term development of the Signatera franchise.

As Steve covered, the SG and A and R and D lines demonstrate that we are not taking our foot off the gas in pursuit of innovation great clinical trial results, and customer service across our business. We could hold expenses completely flat in 2025 and it wouldn't affect our growth at all in 2025 or 2026. Indeed, if you look back to 2023, we held expenses of approximately flat that year and still grew revenues 32%. We are already seeing high ROACs from investments we made in early twenty four and we think every dollar we invest in our platform now puts us further ahead of the field for years to come.

Steve unveiled some very promising ECV data today but the spend in early cancer detection this year and next year is incremental to the core mandate we have to deliver the best possible offering to our patients in our core products. We will remain focused on ensuring we are getting excellent returns on these investments and we are going to manage the business with a goal to deliver a cash flow positive result again in 2025. Okay. One more slide just to put the revenue guide its proper context.

As I mentioned, we are not guiding to any true ups in the 2025 guidance.

Although we will likely have some true ups as we continue to drive reimbursement from appeals on older test volumes, As ASP growth moderates, I do expect true ups to moderate as well. And I think the simplest framework for understanding quarterly progress is to review the results with the true up strip dial. Accordingly, when you remove the true ups from the 2024 results, and then evaluate the guide on an apples to apples basis, you'll note that the implied revenue growth rate is roughly 24% at the midpoint. While this growth is much faster than most other businesses operating at our current scale, We are setting this guide as a starting point with the goal of exceeding this target through the course of the year.

Okay. With that, let's open it up for questions. Operator?

We'll go to Doug Schenkel, Wolfe Research.

Hey, good afternoon and thank you for taking my questions. I think a couple of questions following up on your prepared remarks. So Steve, in your prepared remarks, you talked about, I think it was the ability to double Signatera revenue at the current level of volume over the next few years. [indiscernible] maybe dumbing it down for me as a math person, cutting through all of that, does that mean that you would expect to potentially get Signatera ASPs up to around $2,000 over the balance of the decade. And then I guess one for Solomon. You talked about the rationale, the how clinical side with Signatera. Natera, that continues to resonate That said, some pharmaceutical companies have indicated they want a broader panel. How is the introduction of your genome based products resonating with pharmaceutical and biotech customers? Yes. Thanks, Doug. This is Steve.

So, yes, just first on the ASP or on the revenue per test. I think the idea is [indiscernible] there's a significant number of tests that we process don't get paid by the insurance companies.

And that's sort of baked into the average ASP that we share you guys when we're talking about ASP. So as time goes on, as we get more coverage policies in place for things like expanded carrier screening, other tumor types, commercial coverage for Signatera, we think we could see the revenue per test effectively double as we start to get paid for some of the tests that we run today they're already baked into our COGS, we're not getting paid on. So that the comment I made was more general about the business overall. But it also really does hold true for Signatera and I think your math is [indiscernible] As you sort of look out into the future. Then on I'll briefly comment on the Genome side and then turn it over to Solomon. Certainly, there's some interest from pharma and in a select areas, some clinical providers, I think the product's been received very well, largely with the idea kind of clinical using it for clinical research. But at this point, if doctor wants genome, pharma company wants a genome, we have it available. And the product performs exceptionally well So we're excited about it. Solomon, you want to make any further comments?

Sure.

Yes, I'll add that there are situations where we do research projects with pharmaceutical companies or academic consortia. They seek to answer more translational or researchy questions of interest. And we routinely run custom versions of our technology that can include hundreds of targets, if that's something that the customer wants. Generally, we think about building a product for the clinical setting, that's going to become a workhorse and highly scalable and also cost efficient. So I think that's that's where you're seeing attractive levels of adoption in the clinical setting. So we do think about these the end products a little bit differently for those different settings But the underlying core technology leveraging multiplex PCR we think provides the advantages across both of those settings. Depending on the application type. And increasingly, we're able to more services and more genomic insights from [indiscernible] with the genome or an exome, and from the normal DNA and being able to run additional side assays like RNA C, for example. So there's a lot that we're able to do. Hopefully, that answers the question. Yes, that was great. Thank you guys.

The next question is Rachel Battenstahl, JPMorgan. Okay. Thank you. Good afternoon, you guys, and thanks for taking the questions. First up here, just on Signatera. As we look at the volume growth that you saw throughout 2024, you did roughly 14,000 sequential unit growth throughout last year. You said you're going to do above that 8,000 to 10,000 per quarter or sequential per quarter in 2025. But can you just give us some more color on how much above you could do versus that 8,000 to 10,000 kind of the old long term plan that you guys have had? And then could it be something in that range of $14,000 like we saw last year? And then I have a follow-up as well.

Yes. Thanks for the question. So I'll let Mike comment a little bit on the guide.

But first, I'll just say, we're very under penetrated. This is a very large market. We generated over 100 peer reviewed papers and we're seeing very significant interest from physicians and that interest is accelerating as we generate data like the seven zero two study that really provides an actionable predictive use case for the product So as we said in the prepared remarks, Q1 volume growth in Signatera is looking to be one of the best quarters that we've ever had in the history of the company. So we're feeling very good about volume growth in Signatera. Mike, do you want to comment on sort of how we do the guide? The guide, I mean, we covered the philosophy kind of in detail in the prepared remarks. So the guide presumes that we can do better than the eight to 10 It's not necessarily anchored at 14. It's going to be it wouldn't surprise me if you just look at last year averaging out you're kind of in that 13%, 14% range, but obviously the lumpy and you had 15,000, you got 11,000. Would it surprise me if you have those types of kind of typical fluctuations through the course of the quarters and that's really more driven by just different numbers of receiving days that are available to you in a given quarter.

So I think The spirit of the guide is that the momentum continues and it's a Strong, but still an achievable target as a starting point for the guys for the Great. Thanks for that color. Then I just wanted to dig into the concept of true ups here as well. So you mentioned that you're not including true ups within the current guide for 2025. You've also talked about how the magnitude of those true ups are going to come down as you guys continue to do better on collect and have more visibility in that. So could you just level set for us what should we expect in terms of that true up getting more standard as we go forward in the trajectory there over the next Thanks.

Yes. I mean, I think the Yes. I mean the goal for the true up the reason why we have true ups is that the historical cash collections are exceeding the historical accruals. And as we get history with better and better cash collections per test, obviously, the accrual increases in sympathy, okay? And so variably, that's going the change in the in these products is going to moderate Natera when it does for a period of time you'll have the troughs kind of decline kind of on a glide slope. So I do think that they'll kind of moderate over time back to kind of what we've thought historically, which was sort of like a $55,000,000 kind of true up number. Every quarter. The reason why we don't guide to it though is that that's hard to predict quarter to quarter. So I'll just give you an example. I mean, we're working very hard to win appeals on cases that we ran in [indiscernible] fourth quarter of twenty twenty three. So we've already kind of collected 100% of the revenue that we needed to collect for twenty twenty three Q4, but if we win more of those appeals, if they arrive the cash arrives in Q1 or arrive in Q2, they will book revenue in that period.

So fully expected to be lumpy. But you've seen the ASP go up quite a bit. And I expect over time on average those to moderate down on on a more or less linear glide slope. Next up from Morgan Stanley is Tejas Savant.

Hey, guys. Good evening, and thanks for the time here.

Just to start, maybe one for Alex here.

I know in the deck you talked about sort of the number of targets only being one variable impacting tumor informed MRD assay performance, but How many markers do you anticipate tracking for your personalized whole genome panels, like the current version of Signatera and how did you think about that choice in terms of cost considerations, versus optimizing for perhaps higher sensitivity And can you just share some early color on feedback from the oncologist community?

Yes. Let me make a couple of comments and then throw it over to Alex.

So So yes, on the genome product, we're tracking 64 variants And remember, we're using the same multiplex PCR NGS approach that we used with the sixteen variant assay.

So the philosophy is to go extremely deep at a very highly curated targeted set of variants. So we think that's the best approach. We can do 2,000 variants We can do we actually do 30,000 variants in a single reaction when we run certain tests. We do that all the time in the laboratory. But we chose specifically to do 16 and now in this case of genome 64 because we think that's the right approach where you're optimizing sensitivity and specificity And I think that's proving to be the right decision. If you look at our clinical performance data, you look at our very strong data that we published recurrent monitoring it's really good. So this looks like to be the right approach and we're excited about it.

Alex, you want to comment further?

Yes, maybe just one or two quick points. I think the first is, we've seen Really very positive and very strong feedback. With this launch both from the broader academic community, the consortia community, as well as the pharma community. We're very pleased with that and the way we think about it, as Steve mentioned, is there's a few factors that go into asset performance. Number of variance is just one of many. So error model is super the quality of the variants selected and then the ability to sequence and call those variants very, very deeply. And I think when we did the math, 16 was really kind of the optimal number for Exelm. And kind of when we did the math for genome, I think at least initially the number is 64 that kind of optimizes performance. It kind of across those metrics. While kind of keeping COGS contained. Got it. That's helpful.

And Mike, a quick follow-up on the guide for you. So first, how are you thinking about any potential And second, on the Medicare lung reimbursement for Cyxtera, any color you can share in terms of peer mix Medicare versus commercial and non small cell lung? And how many tests will be covered in the surveillance setting? [indiscernible] [indiscernible] sorry. Yes, let me comment on one, Mike, and then then you can maybe jump in on the COGS projects that we've executed on. But obviously, we're really positive on lung We're seeing a lot of interest there from providers. That's an area where historically we did really well engaging with the KOLs and some of the top centers but we weren't reimbursed. So it wasn't necessarily I think the first thing that our sales representatives and medical team were talking about when they were out in the field But nevertheless, we still have a lot of volume coming through. There's a lot of interest So this is a big opportunity for us as we as we look at just the number of patients that are diagnosed, I think the clinical importance of this type of testing and the value that we can provide from surveillance So I think this represents a new vector of growth for Natera that could potentially even help us push significantly past maybe some of the record volume quarters that we saw in in 2024.

Mike, you want to talk on college projects?

Yes. So just first, as we're on lung, I mean, I think the Medicare mix is going to be broadly similar to the average that we see kind of across the business there. So I do think it'll be kind of kind of a contributor as the similar to the rest of the tumor types. There's not like a very meaningful skew, I think within that Medicare mix. Similarly, I mean, I presume that there will be now that we have the coverage, we'll go back and just confirm on the pricing decisions with Muldex. But I think it's safe to presume that [indiscernible] pricing would be the standard there for the adjuvant setting. In terms of In terms of the cost projects, yes, I mean, we definitely we're going to have some improvements to COGS. I think here in 25% and that's part of the guide. That's part of the kind of the gross margin improvement that's contemplated in the guide, it's pretty meaningful gross margin. Improvement versus the underlying 59% we just posted in Q4, Steve's comments in the prepared remarks were more it used to be up until middle of last year, it was really the overwhelming thrust of the R and D effort was we were forced to kind of prioritize just getting these COGS projects out the door.

And now we can be a lot more nimble and focused on Yes, some interesting product launches and features and Natera sets. So it's a much more kind of balanced portfolio.

Got it. Appreciate the color guys. Thank you.

The next question is Tycho Peterson, Jefferies.

Hey, this is Noah on for Tycho.

Thanks taking our questions. I wanted to start by asking about the seven zero two study and particularly interested in what the initial reaction has been like there. Anything you would point out as an indicator that this will lead to broader use of clinicians?

Yes. Thanks for the question. So I guess I'll make a comment and then maybe hand it over to Ally Solomon if they want to come in further. But anytime you have something like this, it's very actionable for the doctors there's going to be significant interest particularly when it has that predictive impact as well. And I can just say from my view, coming out of the conference, one of the [indiscernible] colorectal physicians came up and said, hey, look, I've already started prescribing Tocosid in my practice to MRD positive patients based on this data.

So I think to hear that really gave us confidence that this is very important and it's going to change practice. So Alex or Solomon, you guys want to comment further?

No. I think the initial feedback is overwhelmingly positive. I think there's also additional data that was presented at ASCO GI about benefit of aspirin and some early stage colorectal cancer patients think that further kind of reinforced this concept that COTS2 inhibition especially when biomarker directed can be very, very impactful for these patients. And just to put this into context, there's not been a new therapeutic development in the adjuvant management of colon cancer for over twenty years.

Since the MOSAIK study. So I think because of this, think patient advocacy groups, physicians, I think there's just broad excitement across the board. And we'll see how this translates into further guidelines changes. We can't predict that, but you're looking kind of forward to see what the NCCM committee kind of may weigh in on this Natera. [indiscernible] Thanks.

And then one more from us.

MRD, obviously, a number of competitors will be launching in the next year or so. Just wondering what your competitive strategy is in order to to maintain the marketing position there?

Yes. So So there's always been competitors coming in. I think a couple of them have sort of been enjoying because of our IP position, but for the last couple of years, there's been competitors selling MRD testing in the market marketplace clinically. So we feel like we're in a good position. You have to just do the fundamental things. You have to deliver high quality clinical data you have to have an amazing customer experience, You have to have a strong medical commercial team and we're continuing to do that.

The other area is innovation. And I think we're in a very strong position because we're able to invest very significantly in R and D. And you can see we're not burning cash, we're cash flow positive. We're at one of the highest levels of R and D spend that we've been at and that's because we think there's a lot of opportunities. For product line extensions, product line enhancements, new versions of products. And most importantly big large scale market moving clinical trials.

So we're doing all those things and we think we're doing the right things, but But competition is a good thing too. It's great to see that this market is very meaningful and that it's growing. And I mean, it's what like 33% penetrated or something like that. So this is this is probably the largest molecular diagnostic opportunity in the history of oncology molecular diagnostics. So certainly there's going to be lot of competitors coming in. And the next question is Puneet Souda, Leerink Partners.

Yes. Hi, guys. Thanks for the questions here. Maybe first one on the cadence, can you remind us maybe Mike, how should we think about growth through the year? You have a number of drivers, obviously data reading out, products launching, And on top of that, John talked about a number of ASP drivers. So just trying to understand to think about Q1 and the cadence through the year The gross margin lift that you have in the guide was also strong. So just is that largely ASP or how much sort of COGS reduction are you thinking about? Again, looking at both oncology and women's health and [indiscernible] Yes, thanks, Puneet. Yes, I think the it's a good question on the cadence Typically, the women's health business, I actually think that we will return to our normal form there where Q1 is a very strong quarter for women's health. I guess seasonally Q2 tends to be softer and then you kind of return to Q1 levels and beyond. In Q3 and Q4. Last year, the cards were kind of scrambled a little bit just because we did we added those VK units and that was kind of straddled between Q1 and Q2.

So you didn't quite see that that trend in the financial this year, but this is a pretty clean year from ads as far as that's concerned. So I think women's health returned to kind of the normal seasonality we've seen over the last decade. Cygnetera and Prospera, we haven't there's not really a a seasonal component there other than the dynamic that I mentioned earlier in the call, which is just, hey, the number of receiving days will vary and where to scale in Signatera wherever you're receiving days is worth a lot of units. And so you just got to keep that So holidays, will impact you. But that's the main process is kind of Q1 bigger because women's health Q2 softer because of again seasonality women's health and kind of return the form in the second half of the year. And not by seasonality in the Oregon Health and Signatera? [indiscernible] Yes.

So yes, I agree with you. I mean, look, I think that's important to think about the gross [indiscernible] it doesn't apply a very bullish outlook as it relates to continued gross margin improvement.

And I do think as Tejas asked, there some Fox projects that are going to deliver in 25s, I think will be useful. We're also just going to get some benefits on the COGS side just from the scale efficiency as you kind of grow units the way that we're growing them, you do get kind of you do get a linear benefit to all the facilities and all the equipment and the people things like that and we're getting more and more efficient there. So that's a component of it. I do think that, weighting them, there's more of a weighting toward benefits in ASPs.

So that's kind of the continued growth in the Signatera ASP And also just steady execution kind of women's health ASPs kind of continuing on kind of where we left in the Q4 and then annualize them for a full year would get you a strong uplift But that does leave you room for upside. And John alluded to some of the potential sources of upside we have particularly in women's health is Got it. And then, if I could, I'll my best with this question on NCCN. But we're also getting questions on the advanced adenoma data that you provided in the slide deck. So, NC ctDNA is prognostic, but not predictive. And then they also said ctDNA is not recommended for surveillance. I appreciate the Merkel cell support that you're getting there. But could you elaborate on the oncologist feedback and one side, there's the traction with payers potentially. But on the other side, there's also the offset maybe in the community setting, they might I mean, the oncologists are still going to be looking for So maybe just help us capture the NCCN and how you're thinking about that? And just on advanced adenoma, why should we not see any degradation there?

Yes.

Let me just comment briefly and then maybe Alex you can Natera couple of comments on the VENCINEMMA. But on ACTN, it's being received very There's been a lot of good feedback on the calls that we've we've done and meetings we've had over the last two weeks. I think certainly in adjuvant was an enhancement And as Solomon pointed out in the prepared remarks, some of the data that I think is very meaningful like for example the seven zero two couldn't be where maybe you would have received that predictive claim But certainly that's an enhancement Surveillance, we think it's sort of just administrative language cleanup. That's kind of some of the feedback we've been getting is there was no real intention there. And that makes sense and that's kind of in line with with what we're hearing out in the field as well. So we don't think it will have any impact There's also great surveillance data in Intercept, which is more and more people are talking about that now. At MD Anderson very significant trial And then the Bespoke study was received very positively at ASTO GI So certainly, we think that's going to have an impact as well.

But I would say net NCCN readout was very positive for us. And then on advanced cell I'll turn it over to Alex on advanced cell lymphoma. Alex, Thanks, Steven. Can you I think this is our first readout. I think what makes us more comfortable to really think that we're minimizing the chance for degradation as much as possible is that these are samples that are collected prospectively colonoscopy matched in the screened population kind of really following the same ethos as our prospective FDA enabling study. That Steve announced that we're launching shortly. And again, this is the first of what we hope to be multiple readouts. Also for advanced adenoma. I think we're planning an additional readout later this year, again, following the same ethos of only running prospectively collected colonoscopy matched samples following a very similar protocol to the FDA study.

And but the news is that we still have a little bit more time before the algorithm has to be completely locked, right? So we do also think that could be room for further improvement beyond the number that we initially read out. So those are the things we're doing to try to minimize the chance of degradation as much Got it. Helpful.

Thank you. Next up is Catherine Schulte Baird.

Hey guys, thanks for the questions. Maybe first on biomarker bills, is there any way to frame what your success success rates have been in getting paid in those states to date? How has that evolved once the bill becomes effective? And then I know you aren't baking any into guidance, but how do you think those success rates could realistically evolve over the course of the year?

Yes, Yes, that's a good question. So I think the outlook on biomarker is positive and it's great to see that we're seeing I think the first signs of the ship turning here.

So let me turn it over to John Fusco to talk just briefly on what's happening there.

Thanks, Steve. Catherine, we've been cautious on the impact of biomarker and it's taken a little longer than we had hoped for But with these formal publications, we think that creates ammunition to go press other plans And we have heard from other plants that they want to come into compliance with the law So we think that we will see conservative positive improvement over the course of this year and next year.

Okay. And then maybe on R and D, just given the magnitude of the increase you're calling for this year, can you just talk through the spend bucket within that, oncology versus women's health versus early detection [indiscernible] Also for the next couple of years or where that might settle out as a percent of revenue over time? Yes. Just make one more comment on the BioMar Bill. I mean, this goes back to this goes back to I think Doug's question at the beginning around our prepared comments that the revenue per test So biomarker bill is a great example because today we'll receive a test from a commercial payer and a lot of times they don't pay us. And this is an opportunity, it's a biomarker bill comes in where we can actually get paid on some of the tests that we're already running.

So not only are we accelerating volume growth as time goes on by getting things like lung coverage in place and just the MRD market but we also have this impact of accelerating ASP that's happening over time. And the biomarker bill is very significant opportunity for us. R and D, so yes, sorry, I just had to remember what the second question was. Yes, on the R and D side, look, the vast majority of the R and D is going to be on MRD. And that's clinical trials and that's product line extensions, product line enhancements, that's COGS and scaling related projects and that's UX related projects. When you look at other areas of the business, certainly we think women's health and organ health are very important We've got some pretty exciting launches happening there. Of those businesses in the future. But and also some great clinical studies as we went over pedal and define These are really the first time these specific things have ever been studied in this very rigorous perspective manner, And we think they can be very meaningful for the field.

But yes, the main focus is MRD in oncology and we think that's where we should be putting our investment now. Of course, the ECD opportunity although traditionally our investment there has been been very targeted and we'll continue with that philosophy. Now we're launching the FDA enabling study That's already worked into the budget, already worked into the guidance for the year, but there will be some been there. And we think that that's warranted given What we think is really, really strong performance on the ECD product and given the ASP I think the $900 plus Medicare clinical fee schedule rate plus the opportunity to have a ADLT rate that could be in the $1,500 range I think that that's actually that makes it a very significant opportunity Natera and given our ability to develop these touch work through the regulatory framework or historical success with distribution but actually the built in channel that we already have for distribution we think we can be a very major player in that space. And we think we can we can do it without really significantly increasing the operating expenses and have a very high gross margin product. So certainly that's worth investing and that's why we're putting money behind that.

Great. Thank you. Up next is Daniel Brennan, TD Cowen.

Great. Thanks the questions. Maybe just starting on price, Mike.

Just kind of walk us through, I think you said women's health price has flattened 25%.

So kind of what are you assuming on Cynetera?

And if you could let us know kind of on commercial payers, just what's the progress been there? And kind of what are you baking in implied in that price for 25% of commercial payers?

And then I had a follow-up.

Yes, Mike, you want to take that?

Yes, go ahead. Thanks.

Thanks for the question.

So yes, just on Signatera, we just expect kind of steady kind of continued improvement in the ASPs. Women's Health, as you mentioned, is stable. What's going to drive the improvement in Signatera, at least in the base model, is just going to be continued execution on reimbursement for our Medicare Advantage volumes for covered services. So that's been an important driver for Signatera ASPs over the last well up to eighteen months is getting Medicare Advantage reimbursement from the 20% range to now kind of in the 60 high 60s range. And so we're going to make steady improvement on that We fully expect in '25 and that's what gives us confidence actually guide to improving SINCEARA ASPs in a year. And I just thought again, I mean, the women's comp ASPs been really strong. We've been very encouraged by the results we've got from all the hard work there. So that's certainly a potential source of upside if we can continue to see improved ASPs, particularly in expanded carrier screening that would represent upside to what we've guided today.

Great. And then maybe just a follow-up on Long.

So can you just remind us what percent of the lung indication you have today like wasn't covered by IO to of the 200 plus thousand incidents I mean, those patients are already applicable for IO. So what's like the expansion that you see? And any other approvals we could expect this year which tumor types are kind of high on the list?

Hey, Solomon, you want to comment on sort of how things are parsed out between maybe the adjuvant indication in lung where we were already covering quite a few of the patients with with IO monitoring Natera then then what is this kind of very large surveillance opportunity that we just coverage for Sure. Thank you. In lung cancer, immunotherapy is already very commonly prescribed. Even in early stages of disease.

In many patients in the adjuvant setting, in the early stages and some patients also in the neoadjuvant setting, so that's before surgery and some patients get both. So Signatera was already covered for immunotherapy monitoring.

In those patients and that would be a single bundled payment when a patient is starting monitoring for immunotherapy. The new coverage it provides the new Medicare determination provides coverage in the surveillance setting. This is for patients who complete their definitive therapy who will have no more evidence of disease [indiscernible] in line with NCCN recommendations for monitoring in the surveillance setting. Signatera can now be used as well. And paid for by Medicare. So So we think that's a big deal. We think it's in line with the evidence and in line with the opportunity for greatest impact for those patients. In terms of other disease types, we've published now in many additional cancer types We have several submissions that are currently in progress. And others that are being prepared that the draft off of the evidence that's been established and published. So looking forward to provide further updates there. And thanks for the question.

Great. Thank you.

The next question is Dan Leonard, UBS.

Great. Thank you for running long. I'll ask a two parter on early cancer. First off, can you clarify the timing? I think you mentioned eighteen months trial. So does that mean we'll get data by the end of twenty twenty six and you'd hope for a 2027 FDA approval if all goes well. So that's the first part.

And the second part, can you touch on the platform capability? Is this a platform where you could add other cancers as well on the same format or would any future multi cancer offering be a different technology platform entirely? Yes, it's a great question. So let me I think the timing is probably about right. Alex or Solomon, if you want to to provide any more specifics there. But I think roughly in the right ballpark, The good news is with the trial, we set up this entire infrastructure procedure study. So we already had collected prospectively 3,000 samples there. We worked with different vendors to run the trial So we're basically just sort of flipping a switch and moving into the new trial with the same infrastructure. I think that's going to allow us to get it done I think quickly and efficiently And as Alex said, we learned a lot through I think the 3,000 patient proceed trial. On the platform that we built, I think you're exactly right.

We spent two years building a discovery platform that allows us to identify novel markers and we're just sort of pumping new data through that and using that to design assays now and this sort of pan cancer approach. Now we're still assessing our strategy for the next version of where we want to go after CRC. And we think that the right approach is focusing on CRC initially But certainly as we said in tumor naive MRD, we're already moving to other tumor types And I think in the field of early cancer detection, there's going to be that opportunity to do to do the same thing based on the strength of the platform that we built.

Thank you. And next we'll hear from Subu Nambi Guggenheim.

Hey, guys. Thank you for taking my question. Two questions. One, could you elaborate on why you believe no one else will receive ADLT status? One could argue or first in class Q1-nine test for example.

And then second, how much of an advantage is having a biobank with all the Natera samples to develop in tumor naive and screening tests that you just touched upon?

Yes. So look, I think if you go through I would just point you to go kind of go through the ADLT regulation There's multiple tumor naive MRD tests on the market.

And that's one of the disqualifiers for ADLT without FDA approval. So I think there's several commercial CLIA validated on market tumor naive products and if you go through the specific legislation, that itself is a sort of disqualifier for a new new ADLT approval. Now of course there's the FDA path that that takes time. From a sample collection standpoint, I mean this is one of the real values of Natera and you start to see remember we've been at this since 2015. We started collecting biobanks, we started doing prospective clinical studies, we started collecting samples So when it comes to launching new products in the MRD space, new versions to the product we have a real advantage because we published over 100 peer reviewed papers and we have over 100 ongoing clinical trials in biobase and studies that we're participating in.

So we're in like we said in tumor naive for colorectal, we already have a perspective 1,000 patient sample covering surveillance in the adjuvant setting. It's already running in the lab today.

So I think that just gives you a sense of how quickly we can execute on things. That's great. Thank you, Beth.

And everyone, that does conclude our question and answer session. Well as our conference for today. We would like to thank you all for participation. You may now disconnect.