Grupo Aeroportuario del Pacífico Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 8, 2023

There are 11 speakers on the call.

Operator

Welcome to the Natera Inc. Q3 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. As a reminder, today's call is being recorded.

Operator

I will now hand today's call over to Michael Brothe, Chief Financial Officer. Please go ahead, sir.

Speaker 1

Thanks, operator. Good afternoon. Thank you for joining our conference call to discuss the results of our Q3 of 2023. On the line, I am joined by Steve Chapman, our CEO Salman Moskovitz, President of Clinical Diagnostics and now selecting, General Manager of Oncology and Chief Medical Officer. John Fesco, President and Chief Business Officer is also on the call and will be available for Q and A.

Speaker 1

Today's conference call is being broadcast live via webcast.

Speaker 2

Starting on Slide 2, during the course of

Speaker 1

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, partnership, clinical studies, opportunities and strategies And expectations for various current Ateca products, including product capabilities, expected release dates, reimbursement coverage and related effects on S and A and some operating results. We talk to you that such statements reflect our best judgment based on the 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 ks or 10 Q and the Form 8 ks 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 seek you to buy the forward looking statements. Forward looking statements made during the call are being made as of today, November 8, 2023.

Speaker 1

If this call is replayed or reviewed after today, Information presented during the call may not contain current or accurate information. Pater 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 discuss our financial performance. And unless otherwise noted, each such reference represents a year on year comparison.

Speaker 1

And now, I'd like to turn the call over to Steve. Steve?

Speaker 3

Thanks, Mike. I think our Q3 results demonstrate that our strategy is paying off and I'm excited to share the highlights. We generated $268,000,000 in total revenue and product revenues were up 33% versus Last year, volumes were strong again across the business with strong year on year growth in women's health and oncology versus tier 3 of last year And a nice sequential recovery quarter for Oregon Health. Signature volume growth particularly continued to exceed our internal forecast And this was the 2nd best quarter ever in terms of the absolute unit growth in the clinical channel. As good as those top line metrics are, I'm most encouraged by the marketing platform

Speaker 2

We talked about the focused effort

Speaker 3

to improve ASPs and I think that effort started to pay off this quarter. Gross margins were 45%. You'll recall we also had 45% gross margins in Q2, but we noted it was closer to 43% on a normalized basis As it had some one time benefits. In contrast, we think this quarter represents an organic 45% based on ASP and COGS improvements. We slashed our tax burn dramatically in the quarter as well, almost a 50% reduction compared to last quarter.

Speaker 3

Clearly, we are getting leverage as revenue Grew rapidly while operating expenses was essentially flat and margins have improved. Our efforts to improve ASPs is also leading to getting reimbursed more quickly On average from payers. Mike will talk about this later in the call, but we think this is a good sign that more ASP improvements are in store for future quarters. These results and the continued strong trends we are seeing so far in Q4 put us in a position to significantly improve our annual guidance across the board. We are raising the revenue guide once again to a completely new range and now expect to come in between $1,035,000,000 $1,050,000,000 in total revenue for the year.

Speaker 3

We are tightening the gross margin guide to the top end of the range and are now expecting full year gross margins to land between 43% at 44%, which we think implies the strong Q3 gross margins are repeatable in Q4. Finally, we are dramatically reducing our tax burn guide for the year, now expected to be $260,000,000 to 280,000,000 This represents a more than $200,000,000 reduction in cash burn versus 2022. The momentum we are seeing leaves us even more confident We are in a good position to reap the cash flow breakeven quarter next year and we do not believe we need any guideline changes in order to hit that milestone. The significant reduction in cash burn has largely been achieved because our core strategy is working. We are growing revenue rapidly while reducing COGS and improving ASPs.

Speaker 3

We are keeping OpEx stable though at very competitive levels allowing us to maintain a strong commercial team and continue to focus on clinical and innovation road map. For example, over the past few years, we've made investments Technology development, product enhancements and clinical trials, and these investments are now resulting in an excellent pipeline of new products And new indications to go after within our core businesses. As a result, in 2024, we expect to announce new MRD related products and updates along with other major innovations that can power future growth. In addition, on the clinical side, we have major randomized controlled trials that we expect will be read out in 20 So we think we are positioned very nicely for the future. We're on a rapid revenue growth path while moving quickly to cash flow breakeven And doing so with our previous multi year investments driving potential major near term catalysts.

Speaker 3

On top of our financial results, We had several big wins during the quarter. I'll start with ReniCare, which has proven to be a landmark study for us in an area that we believe can drive significant growth over time. Last week, we announced the study publication in Jason, a leading nephrology girl and also shared the results at the ASN Kidney Week Conference. As a reminder, RENACARE is a large real world prospective study of more than 1600 patients that looked at the impact of genetic testing within chronic kidney disease. The findings are getting strong clinical and diagnostic utility profile for rhenocytes or genetic tests to identify causes of CKD.

Speaker 3

The results also exceeded clinical precedence for the implementation of genetic testing within an at risk population. For example, hereditary breast cancer, which we think is a good proxy for comparison. I won't spend too much time on this now as Solomon will cover it in detail later in the call. But I'll just note that we're very excited to see where we go from here. Feedback from nephrologists has been positive and we believe these results lay a strong foundation for increased adoption and Coverage.

Speaker 3

The market opportunity is potentially large and notably under penetrated with 37,000,000 people affected by CKD in the United States. There's a significant need for reliable and actionable genetic information to turn these patients and we think rinoside could be that driver Backed by the strong clinical evidence we reported in the study. In oncology, we presented key colon cancer data at ESMO From the GALAXY arm of the CIRCULATE study. Notably, this analysis included 2,000 patients, which was Twice as many as the Nature Medicine paper as well as significantly longer follow-up at 24 months. The data provides Significant insights to the predictive and prognostic value Signatera and CRC with ongoing excellent performance by Signatera.

Speaker 3

Separately, While MRD has historically been focused on the initial adjuvant draw and the adjuvant CMO decision making, The initial MRD time point represents only a tiny fraction of the overall MRD opportunity. More and more, we are leading the way in a new area that we call treatment on molecular relapse, which is where patients can actually receive a drug Upon becoming ctDNA positive with Signatera in the surveillance setting, rather than waiting for radiologic evidence of recurrence. This is part of our key vision for how the serial use of Signatera can transform cancer care and ultimately save lives. We see it gaining real momentum now with sponsorship from both pharma and academic consortia. In fact, Long term, this might be the single biggest MRD opportunity and one where we believe Natera has a meaningful first mover advantage with multiple Phase 2 and Phase 3 trials already underway, some which have been ongoing for several years already.

Speaker 3

So Alex will describe treatment on molecular relapse a little bit later in the call, including describing the new treat ctDNA study, Which seeks to show the benefits of treatment on molecular relapse in early stage breast cancer. This is a randomized Phase 3 trial conducted across 120 sites 12 countries led by the European Organization For Research and Treatment of Cancer otherwise known as EORTC. We also published additional data in lung cancer, strengthening our leadership position in the patient population. In 2023 alone, we published or presented the results for 4 key lung cancer trials across the neoadjuvant, adjuvant and metastatic treatment setting And we've seen very strong performance. 2 of these were conducted in collaboration with our partners at Foundation Medicine and demonstrated strong clinical test performance For immunotherapy monitoring, these studies help to support the broad clinical launch and Medicare coverage of Foundation 1 tracker, which we also announced in October.

Speaker 3

As many of you know, TRACK3R is a complementary asset of Signatera with a focus on patients with advanced stage cancers. We're very excited about the launch and believe this new offering will help oncologists make the best possible decisions about their patients' care through actionable and personalized data. Great. So with that, let's get into some of the business trends on the next slide. We saw continued strong growth in volumes across the major product areas as I Brad, in women's health, we had strong growth compared to Q3 of last year.

Speaker 3

The strong growth, particularly given our ongoing efforts to reduce Some volume from accounts where we don't see impact to stable reimbursement over time. In Organ Health, we were pleased with the return to growth. As a reminder, earlier this year, reimbursement changes created some uncertainty for transplant centers about when they should order Prospera. That uncertainty has now largely been resolved. In Q3, we saw some of our larger customers return to prior levels.

Speaker 3

Both Organ Health and Women's Health represent large underserved patient population that have a critical need for the type of testing we offer. Solomon will cover the oncology volumes later in the call where the trends continue to be positive. On the next slide, you can see that our revenue growth Getting a significant boost from improved reimbursement in addition to our volume growth. The left chart is total revenues, which grew 27% year on year. And I think that growth rate actually understates our true progress because we reported a large one time licensing payment in Q3 of last year.

Speaker 3

The product revenues on the right hand side of the page adjust for that and as you can see product revenues were up 33% year on year. We made a decision last November to redouble our efforts on reimbursement and billing operations, making sure that we navigate all the operational hurdles required to get reimbursement for Covered service. For example, doing better on appeals when a service is denied or chasing down missing insurance information. Since then, we've made a significant investment in new processes. We've added new team members and we've identified systems and engineering opportunities.

Speaker 3

While we're still at the very early stages, it's great to see that we're starting to see these efforts come through in the financial results and there's still a long way to go. Of course, these improvements benefit both revenue growth and gross margins as you can see on the next slide. Gross margin dipped To 41% in Q4 of last year and then to 39% in Q1 of this year, as we executed growth on the initiatives that we described in the past. On the Q2 call, we described the gross margins were helped a bit by some one time factors. Last time, we estimated the organic gross margin to be about 43 In Q3, our 45% gross margin is largely organic.

Speaker 3

We're seeing modest improvements in the NIPT and carrier ASPs and have outperformed our expectations in Signatera. For each of these products, we have put in place multiple operational initiatives whose effects have not yet been fully recognized in our revenue accrual. So we're cautiously optimistic that we can deliver steady gains in the gross margin throughout the course of 2024. Another interesting byproduct of all this effort is that our cash collection cycle noticeably improved in Q3 compared to prior quarters, Which helped drive the significant reduction in quarterly cash burn along with the revenue growth and gross margin improvement. Finally, we continue to hit our marks on cost of goods sold As we've expanded our Signatera Xome Laboratory and executed COGS projects across the company.

Speaker 3

We've got a full slate of these lab infrastructure projects And we expect to launch many of them during 2024. This has been a big area of investment within our R and D budget and it will be nice to see that investment pay off. In addition to the above COGS project, we've also passed some key validation and regulatory milestones with an alternative NGS provider. We validated the Signatera technology on an alternative NGS platform and in partnership with a major pharmaceutical company We received a key regulatory milestone using that alternative platform. In addition, we validated NIPT on an alternative NGS platform and PAS C regulatory milestone, which we may now launch a version of in our centralized laboratory.

Speaker 3

All of these factors give us confidence that we are on track to get to a cash flow breakeven quarter next year. And with that, let me turn it over to Solomon, We will dive deeper on the results of Remicare and the oncology business. Solomon?

Speaker 2

Thanks, Steve. I just got back this weekend from the American Society of Nephrology, ASN Annual Conference in Philadelphia, For renal genetics was a hot topic and where the Renascare paper was well received. Many doctors expressed the belief that nephrology is at the beginning of a new wave of Personalized medicine, similar to where oncology was as a field 15 to 20 years ago. There are about 37,000,000 people in the U. S.

Speaker 2

Living with CKD or roughly 1 in 7 adults. CKD is also a significant burden on the healthcare system With roughly $85,000,000,000 Medicare spend related to its management. Natera launched the REMICARE study back in 2019 In collaboration with leaders from Columbia, Yale, NYU, Mayo Clinic and several other leading institutions With the goal of determining what personalized insights can be gained from genetic testing with Natera's Arena Cy product, of 385 disease related genes and how often a genetic diagnosis leads to a change in treatment. More than 1600 patients were enrolled across 31 sites in the real world prospective study. The results were impressive.

Speaker 2

Some of the key headlines as you can see on the slide. 1 in 5 patients tested positive for a genetic cause of CKD, meaning that a pathogenic or likely pathogenic variants was found in their germline DNA. Out of the positive, 1 in 2 patients received a new or reclassified diagnosis and of the positive, 1 in 3 reported a change in treatment plan. At a high level when thinking about renal sites diagnostic yield of 20.8%, Let's compare it to hereditary cancer testing, like the classic BRCA-one and 2 gene, where studies have shown a test Positive rate of between 5% 17%, including in cohorts that meet NCCN criteria for being high risk And that have received Medicare or commercial insurance coverage. We all know that germline DNA testing in oncology has become standard practice.

Speaker 2

Given the high yield we've seen for ArenaSight together with a significant clinical utility, we see a great opportunity here for changing standard practice In nephrology, strong potential for clinical guidelines and insurance coverage. To that end, we recently submitted an application to MolDX for coverage of renal site. We look forward to their feedback particularly given the strength of the ArenaCare study. Let's dig just a little bit deeper now on the study findings. One of the key stories unfolding here is that genetic testing is useful not only in the 8% to 9% of patients without a diagnosis, but also in patients who have already been given a clinical diagnosis.

Speaker 2

For background, CKD has a vast spectrum of underlying causes. The current diagnostic protocols generally rely on basic measurements of kidney function as well as imaging and biopsy. This approach has left significant gaps. For example, diagnoses that are non specific, meaning that the kidney disease may be inaccurately attributed to diabetes or hypertension when in fact those may be comorbidities that mask the true cause of a patient's CKD. Similarly in the case of cystic disease, it contains clinical management to know the subtype of disease whether it's driven by PKD1 or PKD2 for example.

Speaker 2

In many cases, we also found that timely genetic testing could have helped the patient avoid an unnecessary invasive biopsy. There are more than 20 drugs already addressing gene specific CTV targets on the market and approximately 270 clinical trials. So having this specific diagnostic information can really enhance targeted treatment options. It can open doors for participating in clinical trials and ultimately it can improve outcomes. For people who want to learn more, we just published a good white paper on our website.

Speaker 2

In summary, the REITASCURE study provides solid evidence demonstrating that renal site testing is useful and appropriate in the vast majority of patients Presenting with CKD. That it can lead to an earlier and more accurate diagnosis in standard of care practices and frequently change or refine an existing diagnosis. And it can enable clinicians to tailor treatment decisions. We're very enthusiastic about the future potential of this product to help millions of people with CKD. Moving to oncology now, where we had a great quarter.

Speaker 2

Clinical Signapaira volume shown on the right Had one of its best quarters to date in terms of absolute growth. This growth reflects a strong increase in new patient initiation, Continued serial testing by existing patients and significant adoption by new physicians who had never ordered Signatera before. We believe over 35% of all U. S. Oncologists ordered Signatera in the quarter.

Speaker 2

The left hand chart includes all clinical volumes and pharma units. As a reminder, we had a spike in pharma units in SVE-two, which we discussed in our call in August. So we broke out the clinical volume Separately this time relative to the pharma business, which is doing well, but is a bit more lumpy as expected. We recently closed some big pharma projects across various handset types, including prospective, retrospective and real world data study. There continues to be significant interest, such that we are now expanding capacity Back to clinical Signatera, we've also continued to drive steady improvement in the average sales price, outpacing our initial expectations.

Speaker 2

In Q2, our ASP was in the 800s. In Q3, it was in the 900s. And now we see a near term path getting above 1,000. This roadmap is being driven by better operational execution as well as anticipated Medicare coverage of new And expanded coverage among private payers. As a reminder, Signatera is in a unique economic position with its advanced diagnostic lab test status or ADLP, which is very hard for other MRD labs to replicate.

Speaker 2

We believe all the data that we've been announcing and the studies underway will help drive ongoing volume growth over the near and long term. So with that, let me turn it over to Alex to provide a closer look at some of the studies. Alex?

Speaker 4

Thank you, Solomon. We recently presented updated 24 month data from the Galaxy cohort at this year's ESMO 2023 conference. The data continues to support and strengthen our 2 central hypotheses that have implications to change how CRC is managed, Namely that MRD positive patients benefit from treatment, while MRD negative patients do not. On the right hand side of the page, CKAN negative patients continue to show exceptional disease free survival regardless of adjuvant treatment. No significant differences DFS of 24 months were observed for CPA negative patients receiving ACT compared to those without ACT.

Speaker 4

We believe this data further degrades the outcome of our definitive randomized VEGA study, which seeks to establish the de escalation strategy As a standard of care in early stage CRC. On the left hand side of the page, we see TPN positive patients treated with HCC Have significantly improved DSS compared to patients who undergo observation. This effect persists even after adjusting for all possible confounding conditions. The randomized arm of this trial known as ALTARE is scheduled to read out in mid-twenty 24, which will further assess whether the addition of PAS-one hundred and two on top of chemo can further improve DSS and MRD positive patients. We believe that if the study is positive, it would establish a pathway for a new standard of care in CRC patients treated with curative intent or tested with Signatera.

Speaker 4

As a reminder, the data on this page reflects outcomes based on single Signatera time points within 8 weeks post surgery. The DAL's paired study is a key component in the protocol that allows enrollment of patients who were initially negative, but then turned positive in the surveillance setting Up to 24 months post surgery. This is a new concept in MRD and is what we are calling treatment on molecular recurrence. The majority of trials and data in the MRD space to date have been focused on adjuvant decision making based on the first 1 or 2 time points immediately post surgery. However, we believe the largest market is treatment on the Lacto to relapse, Defined as initiating treatment based on positive CCDA status in the surveillance setting, instead of waiting for clinical or radiologic recurrence.

Speaker 4

This space could be multiple orders of magnitude larger and potentially revolutionize cancer treatment By providing patients a second Santhak cure before a VERT recurrence is detected on a scan. We have seen tremendous interest in this strategy from clinicians, patients, pharmaceutical companies. These studies take years to design and run, and we recognize this opportunity over 5 years ago. And we now have multiple studies That are rolling in this space, including the ones listed below. I want to highlight a new study recently announced, The Phase 3 treat ctDNA trial in early stage breast cancer that is being done in collaboration with the ERTC Consortium.

Speaker 4

The primary objective of the study is to evaluate whether Menarini's oral endocrine monotherapy or SERDU and delay and or prevent occurrence of distance, metastases or death in patients who turn Signatera positive in the late surveillance setting. The study is expected to screen approximately 1900 patients across more than 120 sites. And if successful, the results of the study could support broad recommendation for serial monitoring with Signatera in HR positive 1st 2 negative breast cancer patients. Additionally, we continue to see strong interest in the DARE and LEADER studies They're also examining treatment on molecular recurrence in breast cancer patients and should be reading out in the 2024 to 2025 timeframe. We continue to generate new clinical data to support Signatera reimbursement and an expanding list of indications.

Speaker 4

Today, we want to highlight non small cell lung cancer. We're in 2023, we have generated multiple presentations And publications in the neoadjuvant, adjuvant and metastatic settings, including radiotherapy And immunotherapy treatment response monitoring. We have seen immunotherapy transition from being utilized primarily in late stage non small cell lung cancer Earlier stages of disease, with the recent approval of these agents in the neoadjuvant, adjuvant and perioperative settings. This has resulted in a significant extent of IO treatment eligible patients, a setting We're Signatera is well positioned to serve given the strength of our data and existing reimbursement for IO monitoring. In the accident and surveillance setting, we continue to exceed exceptional specificity, approaching 100% across multiple studies, A key performance metric that many competitors have struggled with.

Speaker 4

In the recently published LEEBO study of Phase 1 to 3 lung cancer patients, We observed an 82% detection pretreatment and 100% longitudinal sensitivity to a recurrence with a median of 162 day lead time. This build previously presented data in the AVOS study showing a 93% longitudinal sensitivity to recurrence. Broad set of data shows very strong performance across all key metrics. We believe These various datasets are critical to establishing clinical utility, including reimbursement and maintaining market leadership In emerging indications like non small cell lung cancer, the strength of the data has led to interest in prospective clinical trials With the first Signatera trials in the states now being launched, we plan to provide further updates on our prospective evidence generation strategy during future calls. Lastly, we want to highlight that we are now expanding our data generation efforts with partners like Foundation Medicine, Where the tracker product was utilized either exclusively or in combination with Signatera in both the EMPOWUR-1 And I'm POWER 131 studies.

Speaker 4

Building on the strength of this evidence and the recently announced Medicare coverage for IO monitoring, We are excited to highlight the FoundationOne tracker product that is now available across the U. S. This innovative assay Combines the genomic information derived from the FoundationOne CDx suite 2 based comprehensive genomic profiling test With a personalized assay design and ccdna analysis from Natera, we believe this is a great win for patients, Given this product will enable greater access to impaired core technology when safety may be limited or previously exhausted. We are excited for the additive effects of this partnership for our core monitoring business and excited to present additional clinical data that supports the value of integrated, fit to inform PDDA monitoring into routine clinical practice. Now, handing it over to Mike to review our financial detail.

Speaker 4

Mike?

Speaker 1

Thanks, Alex. The first slide is just our standard results slide. You can see again that revenues were up substantially Versus last year despite the fact that we had a very large licensing quarter in Q3, as Steve mentioned. So that really highlights How strong our product revenue growth has been over the last year and also gives me some confidence that the gross margins are sustainable. Operating expenses took some modest growth versus Q3 last year, but this year we've been effectively flat in sequential quarters.

Speaker 1

Now even as we've delivered significantly faster revenue growth. The balance fee includes proceeds from the equity raise in September, so we remain in a very strong capital position. The next slide highlights the cash burn dynamics we've seen in the last year and a half. You can see we were burning roughly $115,000,000 to $120,000,000 a quarter on average in 2022 As we set up all the infrastructure needed to deliver a 1st class launch of Signatera, we stepped down to $80,000,000 to $90,000,000 a quarter burn As volumes and reimbursement grew rapidly and now we cut that cash burn roughly in half again here in Q3. As Steve described, we placed a lot of emphasis on getting reimbursed efficiently for covered services.

Speaker 1

And while we are still in the early innings of that effort, We do seem to be getting some results here in Q3. Day sales outstanding fell dramatically in the quarter and now stand in the low 90s. I'll offer the standard caveats here. We fully expect cash burn to fluctuate quarter to quarter and given our cost projects are all on track, We do have some large CapEx spending planned in Q4. However, I think the trend you see here in the chart demonstrates continued progress And we expect to see more of that next year.

Speaker 1

Great. Let's get to the 2023 guide on the next page. As Steve described, we are once again in position to completely re rate the revenue guide upward and now expect to come in at $1,035,000,000 to 1,050,000,000 We are pleased to be tightening the original gross margin guide to the top end of the range. And since the OpEx guide is remaining unchanged, That means we cannot significantly reduce our expected path burn guide for the year, now expected to be $250,000,000 to $280,000,000 For many of you that have followed us for some time, you'll know that we try to set forecasts that require good, but achievable execution. I think that's what this guide implies.

Speaker 1

We've got to continue to grow margins and maintain the ASP improvements we obtained this year. This guide does not imply, however, continued growth in ASP. Obviously, we are focused on making that happen, but there is always some uncertainty around As Steve described, we are feeling very positive about 2024 and we feel like we've got the right sized sales team to continue driving growth. Given units are largely a function of sales rep productivity and rep counts are remaining stable next year, I think repeating the same absolute unit growth we achieved this year is a good Target. This will require good execution because our commercial team will also need to manage a larger book of existing business at the same time as they're growing those units.

Speaker 1

In addition to this potential volume upside, we are now starting to see revenue increase at a faster pace as ASP improves. So if our strong ASP trends continue, that could be another factor helping us in 2024. On revenues, we've got the potential for a number of further upside Tailwinds that I would regard as upside to our base forecast. We are cautiously optimistic on 22Q and broad panel carrier screening guidelines And footnote inclusion in NCCN guidelines. Based on the cadence of meetings we've seen publicly announced from these guideline committees, we would expect updates Relatively early in 2024.

Speaker 1

I'll state again that we do not need these to fit our cash flow breakeven targets In order to continue making progress on ASPs, which could support steady improvement in the gross margin over the course of the next year. We expect operating expense to be relatively stable in 2024 compared to 2023. We've talked about the commercial teams And we are rapidly getting operating leverage on our lab infrastructure for Signatera. Holding R and D expenses steady will still allow us to make critical investments We are also planning to launch a suite of compelling new products and we are looking forward to talking more about those in the future. Our overarching goal in 2024 is to get to cash flow breakeven without sacrificing growth and innovation.

Speaker 1

Given that objective, we're planning to spend only about $15,000,000 next year on early cancer detection. That investment will still allow us to deliver 2 significant data readouts, one of which will come by the either the end of this year or very early in Q1 and the other in the first half of twenty twenty four. If those data look very strong in past transient investment criteria, then we would evaluate moving forward with the program. Given the goals we have in front of us in our core products, we will only push further into this area in the future if we see excellent results that we think can be market leading And we're hitting our cash flow goals. So we're really excited to be talking about the future of Natera.

Speaker 1

And with that, let me open it up to Q and A. Operator?

Operator

Your first question is from the line of Taha Sivant with Morgan Stanley.

Speaker 5

Hey, guys. Good evening and thanks for the time here. Congrats on a great quarter. Steve, Mike, Just in light of your comments that you didn't really have any benefit from one timers here in the quarter on either revenue or gross margin. Can you just help us contextualize that implied 4th quarter guide?

Speaker 5

It looks like you're pointing to sort of Shailesh, that implied 4th quarter guide looks like you're pointing to sort of flattish growth sequentially and flattish gross margins as well for my quick math. So any color on sort of any offsets that we should think versus the typical year end seasonality?

Speaker 6

Hey, Tejas. Thanks for the question. It's Mike here. Yes, no, look on the guide, I think on the gross margins, I think that's just tightening to the top end of that range implies some Similar or better gross margins in Q4. As you know, as you guys know, we don't kind of guide specifically To quarter, so there's a kind of a level of caution there.

Speaker 6

I don't think that should be taken as a message about concerns about underlying trends. As you heard in the prepared remarks, The underlying trends that really across the business remain incredibly strong. I'd echo the similar Send events on the revenue line. Volumes typically follow a pattern where Q2, Q3 are kind of our weaker quarters in terms of the seasonality for the women's health business. Q1 is our strongest quarter, but usually Q4 is kind of it's also a Good quarter as well.

Speaker 6

So we feel like we're off to a good start with Q4. As I mentioned in my prepared remarks, I mean, kind of Our approach to providing guidance is always to try to provide kind of good but achievable benchmarks for financial guidance and We hope to be able to see this.

Speaker 3

Yes. I'll just add.

Speaker 5

Got it.

Speaker 3

This is Steve. We're off to, I would say, an incredibly strong Start in Q4 and we're continuing to see, I think acceleration in ASPs and in volumes.

Speaker 5

Got it. That's super helpful color. And then guys, a couple in terms of the follow-up here. 1 on Signatera, can you just update us on your status with BSCA? And I know this isn't a material part of revenue, but it's a question that we've gotten from investors here.

Speaker 5

And how do you sort of juxtapose that with the biomarker bill being passed in California? You've got the F1 tracker Opportunity coming up as well. So any color on that? And then my second part of the follow-up is actually on ArenaCyte. Given the Really strong results here in VenaCare.

Speaker 5

How are you thinking about the slope of that adoption curve? I think in the past, Steve, you'd mentioned about You mentioned the 37,000,000 new patient population, but about 750 ks newly diagnosed annually. So just any color in terms of the slope of the uptake there And early feedback from payers and nephrologists would be fantastic. Thank you.

Speaker 3

Yes. Thanks a lot. So I guess first just on sort of commercial payers and the biomarker bill. I think some of the other Groups that have presented have talked quite a bit about that. We're obviously monitoring things.

Speaker 3

We're taking a little bit of a more No cautious approach. We want to see how things actually come through. But the reality is that biomarker builds aren't In place now and passed in a significant number of very critical states. So we think that it could serve as an opportunity, I think to quicken the traditional pace that you see, for commercial coverage and obviously with California passing, That's resolved things with Blue Shield of California. But overall, I would say this biomarker bill is a net positive.

Speaker 3

It's something that is sort of unique for its time period and not an opportunity that's been available previously. So frankly, this might end up being the quickest path to get commercial coverage versus what we've seen historically. From Arena side standpoint, I think the Arena Care study, we think is a real inflection point. We've already previously said about 40% of nephrologists have used the product. We've done tens of thousands of tests at this stage and the excitement from the nephrology community And the interest is incredible.

Speaker 3

I mean, it's like something that I haven't experienced before where nephrologists are really Welcoming this product in with open arms, they're very engaged. It's like They've been starving for a product like this. So we're excited about that. With that said, anytime you're introducing something It does take a while to get protocols in place and get that type of market penetration That could be impactful. When I think about the market size, I think a very direct comparison here can be made with hereditary cancer testing.

Speaker 3

There you have a very similar situation where you have the sort of incident and prevalent pools and Frankly, they're of similar size and hereditary cancer testing today is an incredibly large opportunity. And so we think we're laying the groundwork for something

Operator

Your next question is from the line of Puneet Souda with Leerink Partners.

Speaker 7

Hey, guys. Thanks for the questions here. So first one on ASP, then I have a follow-up On guidelines, so on ASP, I mean, it's good to see the improvement and appreciate you giving the details on Signatera. But Could you talk about what how much was the ASP improvement on the Panorama and Horizon side and sort of what should we expect there? And then on Signatera, could you outline, what's the ceiling here given the ADLT rate you have, the reimbursement, The indication expansions that you're seeing and potentially guideline inclusion ahead as well, which could help with commercial payers.

Speaker 7

So maybe just talk about the ASP.

Speaker 6

Hey, thanks, Puneet. Appreciate the question. So yes, first on the ASP, we saw in addition to continued pretty rapid Improvement in the Signatera ASPs, which we covered. We also saw some very encouraging improvement in the women's health ASPs. I mean, I think that's Both for Panorama and for carrier screening.

Speaker 6

You may recall that earlier in the year, we actually guided Assuming some erosion in the ASPs in that category and at the time I said, look, it's not because we're seeing it, but it's become more So thoughtful point and thankfully we haven't seen that erosion and indeed we've seen some we've actually seen some improvement. Now where does that improvement come from? It really comes from a variety of sources and it's small contributions from a range of the efforts that We've been really making over the last year and Steve covered in some detail on the call. So Leaving the guidelines aside, which I think could be very impactful, I'm actually quite encouraged about the trajectory that we're seeing right now on ASPs. In women's health, to say nothing of the rapid improvement we've seen in the Signatera ASPs, which we did expect.

Speaker 3

2nd question, can you just remind me again, just give me

Speaker 6

your follow-up again one more time?

Speaker 7

Yes. Just what is the ceiling For Signatera, how you think about that with the ADL T and indication expansions?

Speaker 6

Yes, yes. I think Sona covered it in the prepared remarks that just based on where we're seeing right now, just on the current coverage Dynamics that we have on our current tumor types, we feel like there's a path beyond $1,000 just Through kind of grinding and blocking and tackling and making sure that we get paid for covered services and we clear All of the myriad kind of administrative hurdles that one typically encounters in this space. So that's a lot of room to run from where we are now. I wouldn't

Speaker 7

put a ceiling on that per se.

Speaker 6

I mean, I think at about the time that we're reaching those levels, We're going to have more data. We're going to have feedback from MCCN and then also we'll have prospective randomized data. We'll have data in a number of different sources. Steve touched also on the biomarker legislation. So there's some other potential catalysts that are going to hit roughly contemporaneously.

Speaker 6

So I would expect kind of a fairly smooth trajectory to Signatera ASPs, which is really encouraging.

Speaker 3

Yes. I'll just add too. I think One of the things that is really exciting is as we're looking now at this very clear path to cash flow breakeven in 2024 And a very strong revenue growth ahead that we're not really incorporating any of the upside Cindy, from guideline changes, things like 22Q or any of the upside opportunity from biomarker which was just asked about a minute ago. So the model that we're looking at really just includes sort of status quo and blocking and tackling and billing Operations improvements, but all of those other things are really upside, potentially very significant upside That we just don't need to get to cash flow breakeven and have another good year.

Speaker 7

Got it. Super helpful. Then on guidelines, wondering maybe a Part A and B to this question. Could you Clarify on the women's health side. Mike, did you say you're expecting to see 22Q guideline update in early 2024?

Speaker 7

I just wasn't sure if I heard that Correctly. And then on the NCCN for the Signatera side, could you maybe elaborate, given the number of data sets that you have already with Altair and treat ctDNA coming up, I guess the question is When does this translate into NCCN guideline inclusion? What that guideline inclusion can look like? If you could, if maybe Alex or Solomon can elaborate on that. Thank you.

Speaker 3

Yes, yes. First, let me just talk on Lumet Health. So, of course, we don't have any information on You know exactly what happened and so forth, but we do know that there was a guideline committee meeting, I think in September From ACOG and if you start to think about just sort of the timeline that you might see the results from that, I think that that could be in Q1. We don't know either way, whether things will be positive or negative, but we feel really strong about the fundamentals Behind 22Q testing that are outlined in the SMART study and behind the fundamentals of expanded carrier screening. So we'll just have to stay tuned and see what happens there.

Speaker 3

From the NCCN side of things, when you look at kind of the I think there was a meeting in August. We're expecting to kind of hear outcome from that maybe later this year or early next year. We do know that the CIRCULATE 18 month data It was included in the review, because it was submitted in time. But of course, we don't know the outcome. Now the great thing For Natera, it's because we started working on randomized controlled trials in the escalation setting, for example, Ultera More than 5 years ago, in 2024, we will actually have the results, initial results from Altair reading out.

Speaker 3

So regardless of what the guideline committee says this year with respect to the CIRCULATE study, next year the Altair results will be out. And so it's just really a matter of time assuming the trial reads out positively. And that's why we feel very positive about things. When you look at what setting is Ultera, I think it has sort of 2 settings. 1 is treatment escalation.

Speaker 3

But then the other is a treatment on molecular recurrence components where patients from the VEGA study That are initially negative are being monitored with ctDNA and when they screen positive, they flip over into the Ultera arm and are randomized at that time and then are either treated or not treated. So we're excited about that treatment on molecular recurrence readout as well, which we think I think it's another reason why surveillance testing is important. So, look forward to having both of those read out. Alex or Solomon, would you like to add anything else?

Speaker 2

No. Okay.

Operator

Your next question is from the line of Catherine Schulz with Baird.

Speaker 8

Hey guys, congrats on the quarter and thanks for the questions. I guess first, Steve, I think you mentioned planning to launch some new MRD products next year. Could you give any additional details on that? Will that be additional indications? Or are you more referencing a new platform like the potential for a liquid exome or tumor naive kind of off the shelf version?

Speaker 3

Yes. So we're going to have multiple, new things that are coming out, not just in MRD, but across the business. And We've been investing heavily, in research and development and innovation, really The entire history of the company, but particularly over the last couple of years. And I think that's now going to start to bear fruit as we have a significant number of product launches and updates next year. So on the MRD side, I would expect to hear multiple different Opportunities, both new products and product updates.

Speaker 8

Okay, great. And then you mentioned validating Signatera And NIPT on an alternative NGS provider. Any additional color you can give there? What's the timeline to rolling out NIPT TME alternative sequencer in your central lab and is the plan to switch all of your volumes over?

Speaker 3

Yes. So I think you guys sort of know the history here of the evolution of sequencing. And really over the last several years, we've seen the market open up Quite a bit. And now we've done work on multiple different instruments and we think there's many different groups out there. So it's great that we've been able to meet regulatory milestones and in collaboration with Pharma Partners, Valadate Signatera and independently now Valadate NIPT on these alternative platforms.

Speaker 3

We're focusing on reducing our COGS and getting to cash flow breakeven. And so we're going to make the best Decision for Natera on what provider we use based on the service level, the price and the quality.

Operator

Your next question is from the line of Rachel Bensdell with JPMorgan.

Speaker 8

Okay. Thank you for taking the questions and congrats on the quarter you guys. So first up, nice to see the coverage of the Foundation 1 tracker in the U. S. Last month.

Speaker 8

Can you just kind of walk us through how should we size that opportunity? And then how quickly can it become a meaningful contributor here?

Speaker 3

Yes. Solomon, why don't you take that?

Speaker 2

Sure. Yes. Thank you for the question. We were very excited about getting that coverage For Medicare, and we thought it was appropriate given the great data that's already been generated to support the test. FoundationOne tracker is very well positioned for patients in the advanced cancer setting who Are already getting a FoundationOne CDx test and want to monitor response to immunotherapy without needing to send Another tissue sample, for development of Signatera and that's especially useful for patients where tissue might be scarce or already exhausted after the first analysis for genomic profiling.

Speaker 2

So that's exciting and we look forward to rolling that out, That commercialization being led by Foundation Medicine and helping a lot of patients.

Speaker 8

Great. And then my follow-up, I just want to ask about the pending lawsuit that you guys have with RabGen and the upcoming trial in early next year. You have one peer that had to pay out in the high $200,000,000 range, but other peers have settled out of court. You had one peer earlier this week flagged that their payout is going to be in that $30,000,000 range all in. So can you just walk us through what are the potential range of outcomes that we could see for this suit and any color on dates leading up to that trial?

Speaker 8

Thank you.

Speaker 6

Hey, Arisa. Thanks for the question. So just like all the any pending litigation, we unfortunately can't get into a lot of details on ongoing litigations. We clearly believe we don't infringe. We don't think the patents are valid and we feel like we've got some very Strong defenses and that's kind of where we've got to leave it for now.

Speaker 6

But we look forward to providing more updates as they become available.

Operator

Your next question is from the line of Dan Brennan with TD Cowen.

Speaker 9

Great. Thanks. Thanks for the questions. Maybe the first one, Mike, you talked about some of the Screening data that's coming out later this year and early next year, you talked about if the data looks very strong, you would evaluate and move forward only Can you give us a sense of what we expect to see here coming up in these two studies and just any more color around the level of evidence you would need in order to push ahead?

Speaker 3

Yes. So, this is Steve. I'll take that. So we've said before we have a case controlled study that's coming out Probably at the end of this year, maybe in early January. And then we're following that up with an additional study looking at Advanced Sanninoma.

Speaker 3

And once we have both of those in hand, we're going to sort of see how we measure up to Others that are out there and I think there's sort of 2 decision points there. There's how do we compare to the competition And where are we on our trajectory to cash flow breakeven and how do the financials look. And we're not going to do anything at all that's going to impact our ability to get the cash flow breakeven. So we think we're taking the right kind of measured approach And phase gated approach where we're waiting to hit key milestones before we decide whether we're moving the ball forward or not. And if we do move the ball forward, I think the next steps would really be in 2025 And 2026, where we'll be operating in a different environment where we think we'll be cash flow positive.

Speaker 9

Got it. Thanks for that. And then maybe just another one on NCCN. Just if you are successful getting And inclusion maybe as a footnote in the current update that you expect early next year, like what would that what does that mean? Obviously, commercial coverage could start you'd likely, I guess, see a volume benefit to it, maybe just clarify.

Speaker 9

And then as a related question, obviously, the Galaxy 24 month data in the MRD positive arm look Really impressive. How much does that derisk Ultera? I know you kind of mentioned, but I think the regimen might be a little bit different Ultera. Just wondering how much Confidence that gives you an Ultera positive readout. Thank you.

Speaker 3

Yes. Let me just talk quickly about guidelines and then I'll have Alex Comments on the circulate data. So the why do you need guidelines to grow volume And to get commercial reimbursement. And we're growing volume right now at a really fast pace. And we're also now seeing commercial reimbursement coming on and because of the biomarker bill, we think that's going to continue.

Speaker 3

At this point, I think guidelines obviously would quicken the pace of those things, but we're going to get really far along here Without guidelines coming in and I think importantly for Natera, we don't need guidelines to Achieve cash flow breakeven and continue to significantly grow the business. So we'll wait and see what happens. But if we don't end up getting it this time around, we have the Ultera study coming out and we'll be in a great position. So Alex, you want to comment on the circulate data, whether that's derisked Ultera Vega?

Speaker 10

Yes, absolutely, Steve. So we definitely have seen continuation of separation of the curves in the ctDNA positive arm In the CIRCULATE study and furthermore, we've seen that in the CTA negative arm, we continue to see very little if Any benefit from adjuvant chemotherapy and that absolute difference has shrunken and actually we've seen those curves now reverse. We think actually both of those help derisk, not just the Ultera study, but also the VEGAS study. And since Ultera is coming up just around the corner, I think the way we are extrapolating these findings is that CPA positive patients Have almost 100% risk of recurrence without treatment. We've seen that adjuvant chemotherapy helps reduce that risk, but does not eliminate that.

Speaker 10

And the way that AltCare is designed, we are adding a known active agent TAS-one hundred and two that's already approved in colorectal cancer and is No one should have efficacy even in the second and third line setting. So by adding that and randomizing patients to either get that drug or get placebo, We're pretty confident that there will be an effect that should be able to bear out from that study. Again, we won't know the results So the study is unblinded. But I think given the study design, given the findings so far from the CERCLA data, We're very positive that we should be able to see something if the effect is there.

Speaker 9

Great. Thank you.

Operator

This does conclude the allotted time that we have for question and answers. I will now hand the call back over to our presenters for any closing remarks.

Speaker 6

Hey, thanks operator and thanks to everyone for joining today. We're really about these results and we're very pleased to share them with you. So thanks again for joining.

Operator

This concludes today's call. Thank you for joining. You may now disconnect your lines.

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Earnings Conference Call
Grupo Aeroportuario del Pacífico Q3 2023
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