Welcome to Natera's 2018 Third Quarter Financial Results Conference Call. At this time, all participants are in a listen only mode. Following management's prepared remarks, we will hold a Q and A session. As a reminder, this conference call is being recorded today, November 8, 2018. I would now like to turn the conference call over to Michael Brophy, Chief Financial Officer.
Please go ahead.
Thanks, operator. Good afternoon. Thank you for joining our call to discuss the results of our Q3 2018. Also on the line is Matthew Rabinowitz, our CEO Steve Chapman, our Chief Operating Officer and Sohman Moskovich, SVP of Product and Strategy. Paul Billings, our Chief Medical Officer, is also here today for questions.
Today's conference call is being broadcast live via webcast. We will be referring to a slide presentation that has been posted to investor. Natera dotcom. A replay of the call will be also available at investor. Natera.com.
During the course of conference call, we will make forward looking statements regarding future events and our anticipated future performance, such as our operational and financial guidance for the full year 2018, our assumptions for that guidance, market size, partnerships, clinical studies, opportunities and strategies and expectations for various current and future products, including product capabilities, expected release dates and related effects on our financial and operating results. We caution you that such statements reflect our best judgment based on factors currently known to us and that actual events or results could differ materially. Please refer to the documents we file from time to time with the SEC, including our most recent Form 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 from those contained in the forward looking statements. Forward looking statements made during the call are being made as of today.
If this call is replayed or reviewed after today, the information presented during the call may not contain current or accurate information. Natera disclaims any obligation to update or revise any forward looking statements. We will provide guidance on today's call, but will not provide any further guidance or updates on our performance during the quarter unless we do so in a public forum. We will quote a number of numeric or growth changes as we discuss our financial performance. And unless otherwise noted, each such reference represents a year on year comparison.
And now, I'd like to turn the call over to Matt.
Thanks, Mike. Good afternoon, everyone, and thank you for joining us. I will cover our recent highlights and progress in the business since we last spoke in August, and Mike will provide additional detail on our financial progress. As Mike mentioned, we will be referring to slides that were just posted at investor. Natera.com.
A summary of our recent highlights on the next slide. On volumes, we processed over 167,000 tests in the quarter, which represents 28% growth versus the same quarter last year and sequential quarterly growth over a very strong Q2 that we have described previously. Steve will go into more detail on volumes in a few minutes. For Panorama in particular, we processed 115,000 tests in Q3, which represents growth of 26% compared to Q3 last year. We also saw continued momentum in our Horizon carrier screening volumes, which grew 36% when compared to the same period of the prior year.
We generated total revenues of $65,300,000 in the quarter, up 17% versus Q3 last year. We were pleased to see that pricing remained stable in Q3 as we expected. Our revenues were negatively impacted in the quarter by a delay in reporting our samples from our lab in late September that we estimate cost us about $1,200,000 in revenue. We also benefited from improved performance in collections of claims from roughly the last 2 years when appealing insurance companies. Mike will go into more detail on the drivers of revenue and our guidance later in the call, but I wanted to address these briefly now.
As you can see in our press release, we tightened revenue guidance for the year to 250,000,000 dollars to $260,000,000 This is primarily driven by delays in revenue recognition for volumes in our 2 new businesses, cord blood and oncology. We've continued to remain targeted with our investment in cord blood to collect volumes from existing customers and the volumes are growing, but the pace in the second half of the year has been slower than anticipated. In addition, the conversion between sale to sample receipt is longer than we had anticipated. Regarding Signatera, while the rate and uptake of signed contracts for trials has been higher than we anticipated, these signed deals have taken longer than expected to launch, collect the samples from our partners and recognize as revenue. As Solomon will discuss, we expect roughly $8,000,000 in contracted business by the end of the year.
As this book of business continues to build, I anticipate this variability will diminish. Separately, we are also currently negotiating strategic partnerships that, if signed before year end, could have a significant impact, but we are leaving those deals out of the revised guide as the precise timing is hard to predict. We have had several positive developments in our oncology efforts so far this fall. On previous calls, we have highlighted a number of pilot studies that we are running with pharmaceutical companies and predicted that this initial success would start to lead to deal to participate in larger prospective trials. Now we are starting to see that happen.
We signed an agreement with Bristol Myers Squibb to use Signatera in a Phase 2 prospective lung cancer trial and another deal to participate in a Phase 1b trial Neon Therapeutics is running for their personalized cancer vaccine that is being run-in partnership with Merck. These represent exciting opportunities demonstrating the leadership position of our unique technology. We are excited to see the top of the funnel for Signatera offerings to pharmaceutical companies continues to build. We now have more than 25 studies signed, including with many of the top 10 pharma companies. As Solomon will cover in a moment, we expect a number of milestones in our oncology business over the next few quarters, starting with exciting data in 2 different breast cancer studies that have been presented at the San Antonio Breast Cancer Symposium in December.
Switching gears to prenatal health. We were very pleased to announce that we have now enrolled 20,000 patients in our SMART trial to support reimbursement of our microdeletions test. This has been a massive effort to prospectively characterize the prevalence of disorders caused by microdeletions, further validate the performance of our test and gather all the appropriate clinical utility information from all patients to make meaningful comparison with current standards of care. As we have described before, broad reimbursement for microdeletions is an enormous revenue and cash flow opportunity for us, and we believe this data is a key step towards unlocking that potential. We have spoken in detail on the positive developments and the guidelines for average risk NIPT.
ACOG withdrew their previous guideline regarding NIPT and we continue to expect a revised guideline that we think will be supportive of NIPT for all women. Steve will talk more about recent positive developments in average risk coverage. Finally, we continue to make progress towards a transplant commercialization. We've now completed our analytical and clinical validation and had a successful pre submission meeting with CMS. So we remain on track with the timelines we outlined in August.
Steve will give more detail. Now I'd like to hand the call to Steve to summarize our commercial progress in the quarter. Steve?
Thanks, Matt. Just as a refresh for newer investors, our strategy is to apply our core technology across women's health, oncology and transplant applications. These all represent large markets and we think combined they represent a greater than $18,000,000,000 market opportunity. Over the past several years, we've invested in technology research and development and have now reduced the technical risks associated with the oncology and transplant applications. We're now in a position to focus our efforts on product launches and commercialization in order to realize the full value of these innovations, while maintaining our leadership position in women's health.
First, an update on the women's health business. The next slide shows our recent volume progression. You can see this year's volumes are a step function higher than last year's unit volumes. Volumes so far this year are in line with our expectations and we remain on track to meet the volume guidance we gave last quarter of 25% to 35% growth for the full year. The chart on the right side of the page shows the year on year growth trend in 2017 2018.
As you can see, our growth rate has nearly doubled this year versus 2017 despite the base business being much bigger. In our Panorama business, the mix of volumes has remained stable at roughly 60% average risk units and 40% high risk units. We believe that as the average risk market expands in the future, we have an opportunity to grow additional volumes by receiving average risk units from existing accounts that typically offer NIPT only to high risk patients. We continue to drive growth in long term account retention. Our total active accounts is at a record level
and
addition to our continued volume growth, we're pleased to launch a new proprietary DNA extraction technique that we developed in house and is now operational in our lab. This technology provides us with a net cost savings of roughly $6 per panorama case while delivering improved performance. To the best of our knowledge, this DNA extraction technique has the highest yield of short DNA fragments available on the market. High performance DNA extraction is particularly important in applications where single molecule recovery is clinically relevant, such as oncology. As cell free DNA testing expands, we will consider whether to commercialize this more broadly.
Now, we'd like to discuss recent reimbursement wins in our core business. First, the preliminary CMS determination for Natera's twin zygosity CPT code was to crosswalk the pricing of $7.95 which is a good outcome. Our success in applying for and winning CPT codes with resulting favorable pricing is a core competency of our market access team and we think bodes well for our future endeavors in transplant and oncology. Next, we've seen increased momentum after the ACOG change this summer. 3 significant Blues plans have now updated their average risk policies following this change.
Tennessee, Minnesota and North Carolina, these represent 3 of the top 4 remaining Blues plans by covered lives that had not already covered average risk NIPT. In addition, we've now seen the 1st state Medicaid routinely covering average risk NIPT. Although we service a large portion of the Medicaid population, today we receive $0 on most average risk state Medicaid patients bringing down our ASP. We think this is an area of opportunity that may materialize in the future. Together, these changes represent significant momentum in NIPT coverage.
Shifting gears to transplant. I'll highlight again the performance of our test in our robust clinical validation study completed in partnership with UCSF. This trial was nearly 2 times the size of the clinical validation study published by Bloom et al. And also showed an improved area under the curve. Area under the curve is a metric that combines sensitivity and specificity and represents the fundamental power of a test.
Natera uses specific molecular techniques that distinguish it from those used in Bloom et al and we believe provide us with a competitive performance advantage. This next slide is the same roadmap we showed you on our August call, except now we have a number of the key activities completed. As Matt mentioned, we have now completed our analytical and clinical validation. In addition, we successfully completed our pre submission meeting with CMS, which is a key milestone along our reimbursement pathway. We were pleased with the discussion and we believe we can secure a local coverage decision policy in 2019 based on precedent timelines after a dossier submission.
We've also made progress on pricing and coding. We think the best strategy will be to use a miscellaneous CPT code in combination with a unique Z code. We're in the process of obtaining the Z code and we expect to complete that in the near term. Once our draft LCD is released, we plan to negotiate pricing directly with MolDX. As we've outlined before, we think the precedent pricing of roughly $2,800 for a similar donor derived cell free DNA assay in the transplant setting is highly relevant and should serve as a guide for those discussions.
Now, I'd like to turn it over to Solomon to provide an update on our oncology efforts. Solomon?
Thanks, Steve. Since our last call, we have had several positive developments in the oncology business. As a reminder, the Signatera product currently on market is for research use only, available to biopharma and academic customers, and the clinical version or CLIA version of the product is on track to launch in early 2019, with availability for patients and their physicians to order and receive test results, as well as for biopharma to use in studies where the test results are incorporated into clinical decision making. In this update, I will touch on the pharma business, the clinical business and data development. First, a view on our data.
Our colorectal data was presented on the podium at ESMO last month, where it was well received. Our breast cancer data will be unveiled in about 3 weeks at the San Antonio Breast Cancer Symposium, with podium and poster presentations reporting data from our study with the University of Leicester and Imperial College and from the I Spy II study. We also continue to sign new academic collaborations that will read out data in 2019. We announced one study recently in renal cell carcinoma with Fox Chase Cancer Center and we signed another agreement to study a large cohort of metastatic patients across multiple cancer types who all received immunotherapy. There are several unmet needs in immunotherapy even with currently approved indications in metastatic disease where we think Signatera can help.
As we mentioned in the past, the speed and efficiency of developing clinical data with these well curated biobanks has been a major advantage thus far, as it generates the validity data that we need to pursue our clinical and reimbursement strategy across multiple indications. We intend to commercialize Signatera to the oncology community when the CLIA test launches early next year. In previous calls, we've discussed the low hanging fruit clinical indications where we intend to quickly seek reimbursement for Medicare. These indications include early stage colon cancer, lung cancer and breast cancer, where we have generated good data and where the utility is clear with current NCCN guidelines giving significant latitude for physicians to determine which patients should receive additional therapy. To support clinical adoption and to measure the impact on patient outcomes, we are planning to sponsor a prospective observational study in these cancer types using Signatera across multiple sites inside and outside the U.
S. We have been pleased thus far with the level of interest in joining this study from among the Tier 1 cancer centers. The momentum behind this strategy is growing fast, with a new review article published in the New England Journal of Medicine just last week, specifically calling out early stage colon, lung and breast cancers as good potential applications for cell free DNA testing to determine which patients still harbor residual disease after surgery and predicting that the approach may become a critical tool in postoperative patient management. Turning now to our pharma business, where Signatera is gaining significant traction. We have now signed 26 total projects with 20 different companies, up from 20 projects reported at the end of the second quarter.
As we discussed earlier, our strategy for 2018 for this year has been to perform initial pilot studies with the translational biomarker groups inside of the top pharma companies as a gateway to their broader clinical trial portfolios. Thus far, our product is consistently performing at or above expectations, leading to multiple follow on opportunities. The follow on projects take several forms, including the analysis of stored specimens from previous clinical trials with complete outcomes already collected and inclusion into new prospective studies. So I want to focus on 2 recent wins here, Bristol Myers Squibb and NEON. Our project with BMS announced in September represents the first time ever that a test for minimal residual disease or MRD will be used to determine which early stage lung cancer patients will receive chemotherapy standard of care versus which patients will receive chemo plus immunotherapy with BMS' checkpoint inhibitor Opdivo.
This is a prospective randomized Phase 2 trial scheduled to start early in 2019 and it involves multiple Signatera tests for each patient prior to treatment randomization and then monitoring frequently for relapse after treatment is complete. This trial is important for several reasons. First, if the program itself is successful, this could establish the utility of ordering Signatera multiple times in early stage non small cell lung cancer patients, of which there are up to 75,000 addressable cases per year in the U. S. And where the 5 year relative survival rates are currently low.
This is a great example of how our collaborations with pharma can lead to clinical adoption in the future. 2nd, we are enabling broader use of MRD analysis in clinical trials in general, Moving upstream into the adjuvant setting, where there are many more patients compared to the metastatic setting is an attractive opportunity for pharma, because they've historically focused their R and D efforts on treating metastatic disease. However, the move into adjuvant has been difficult for pharma to execute since proving treatment efficacy in an early stage population where many patients are already cured of their disease with surgery alone requires larger, longer and riskier clinical trials to show a relatively small treatment benefit. Using Signatera in this scenario allows personal minor squib to derisk that strategy by honing in on exactly those patients with residual disease who are destined to relapse and who are therefore most likely to benefit from novel treatment. Other pharma companies are taking notice of this project as it's easy to extrapolate a similar MRD approach in any solid tumor type.
As other pharma companies follow suit, we believe Signatera is poised to become a standard tool in enabling that trend. Shifting now to Neon Therapeutics, we're joining another emerging trend in oncology, personalized cancer vaccine therapy. This is where the immune system is trained through a personalized vaccine to attack only those cells in the body that express certain antigens on surface of the cells that are specific to the tumor. Neon is a leader in this space and their plan is to incorporate Signatera into a trial being run-in partnership with Merck, combining NEON's NEO PV1 vaccine with chemotherapy and Merck's checkpoint inhibitor KEYTRUDA for untreated non small cell lung cancer patients. The test will be used to correlate treatment response with data from Signatera.
This is the first time a custom designed therapeutic has been combined with a custom designed diagnostic in the clinical setting. And if it works, it may herald a new chapter in personalized medicine that may help save many lives. Looking forward, as Matt mentioned, we expect to close out this fiscal year with over $8,000,000 in contracted pharma business, though we do expect it to take some time to recognize the revenue from those deals. Given that we have not even launched the CLIA test yet, we believe our revenue trajectory since launch is comparable or better than the leading tumor sequencing companies. As we look forward to 2019 and beyond, we anticipate signing larger and larger deals with pharma with the Phase 2 trial expected to generate between $1,000,000 $3,000,000 in revenue over the course of study and a Phase 3 trial expected to generate between $3,000,000 to $10,000,000 depending on the size of the study.
This creates a virtuous cycle where the trial itself is a source of profitable revenue and where the data from the trials should be sufficient to commercialize multiple new indications and to gain positive coverage decisions for Medicare and other insurers. So we are envisioning a fast growing, high margin cash pay business by servicing the pharma sector. With that, let me hand over to Mike to review our financial performance. Mike?
Thanks, Solomon. In the last few quarters, we have predicted stable pricing for the year because we now have established in network pricing for most of our large payers and are billing our tests on disease specific CPT codes. You see that on the chart on the left. Total revenues divided by tests reported in the period have been increasing so far this year. Note that the Q1 number excludes a one time revenue recognition benefit of $5,500,000 from the QIAGEN deal we signed in Q1, but this chart includes appeals revenues we've collected from older claims and booked as revenue in Q2 and Q3.
This represents cash we've collected on appeals above our accrued revenues from tests reported from 2015 to 2017 and have never been recognized as revenue in the past. As we described in the last quarter, we booked roughly $2,300,000 in appeals revenue in Q2. In Q3, we collected roughly $5,200,000 in appeals revenue. This revenue is a result of a year long effort to optimize our billing practices and challenge denials of older claims from 2017 and prior periods. So we're pleased to see this effort bearing fruit.
And it's not strictly a one time benefit. I expect that we will be able to generate additional revenue from future appeals as well. In this chart, we are simply showing the total revenue divided by reported units. If you strip out that appeals revenue for Q2 and Q3, Q2 pricing would be roughly $4.19 and Q3 pricing would be roughly $4.11 So as we've talked about in the past, the pricing metrics can bounce around from quarter to quarter based on payer mix and other transient variables. So I think the message from this data is that underlying pricing that we saw in Q3 has been roughly stable for the rest of the year as expected.
Of course, there are a number of large pricing tailwinds out there, and we are very optimistic about achieving broader reimbursement average risk NIPT and microdeletions, as Steve and Matt discussed. As Matt also mentioned, we did have one other variable that reduced revenues in the quarter. While test process grew sequentially from Q2 to Q3, test reported out of our lab was essentially flat. This was due to a temporary delay in turnaround times in our lab over approximately 3,000 units. And if these units had been reported out at the end of September rather than early October, we would have recognized roughly $1,200,000 in additional revenue in the quarter.
The next slide shows our COGS progression. We've said previously that we launched our new carrier screening workflow in April. While we immediately realized benefits on the launch, we are still phasing in that new workflow. Cost per unit, which is simply cost of product revenues divided by test session in our lab, were slightly higher than expectations. This was partly driven by product mix, the phasing of the carrier screening workflow launch and staffing.
We continue to be conservative in terms of staffing as we optimize the new launch, but we do see a path to getting COGS lower just from optimizing suppliers, executing discrete R and D projects and seeing some of these new workflows mature over the next year. We were pleased to see our COGS for NEPT were again below 200 in Q3, in line with our model's expectations at this point. And that includes all shipping, labor, accessioning, collection costs, genetic counselor costs and reagent and sequencing costs. Beyond that, as we described previously, we have generated concept data on the next substantial reduction in COGS based on technology developments in NIPT that we think will allow us to drive blended COGS much lower again over the next 18 months. We've made some significant investments in R and D since the beginning of 2015, but as you can see on the right hand side of the page, the returns have been very strong, even if you only count COGS reductions we've achieved and leave aside key product improvements that have driven revenues.
Now to summarize our results from the quarter. The results for the quarter and the full year across the wire this afternoon. I'm going to focus on the key points of the Q3 results. Since we adopted the full retrospective approach to the ASC 606 that I've described previously, results from the current quarter as well as Q3 2017 are reported under ASC 606 standards, so it's an apples to apples comparison on the page. Our 3rd quarter total revenues were $65,300,000 compared to $55,900,000 for the Q3 of 'seventeen.
Gross margin for the 3rd quarter was Q3 2018 was 36% compared to a 38% gross margin in the same period of the prior year. It's worth noting that the Q3 gross margin last year benefited from a release of previously held reserves that increased margins in that period. Panorama revenues for the quarter were $36,000,000 compared to $33,900,000 in Q3 last year, an increase primarily driven by volume growth in that business over the past year. Horizon revenues for the quarter were $23,500,000 compared to $17,900,000 in the Q3 of 2017, the increase again driven primarily by volume growth. Total operating expenses for the Q3 increased by about $3,700,000 compared to the Q3 of last year.
This was driven by higher stock based compensation expenses and some investments we've made related to our insurance collection efforts and legal expenses, specifically around this appeals effort that I described earlier and accounting transition to ASC 606. At the close of the quarter, the company held $170,000,000 in cash, cash equivalents, short term investments and restricted cash. This includes the $97,300,000 in net proceeds from the equity raise we did in early July. As of September 30, 2018, we held a net carrying amount of $73,300,000 under our 7 year $100,000,000 debt facility with Orbimet Advisors and had drawn down $50,100,000 including accrued interest under the $50,000,000 line of credit in place with UBS. Turning to future outlook.
We are tightening our 2018 total revenue expectation to $250,000,000 to $260,000,000 gross margins to be 33% to 36 percent of revenues selling, general and administrative costs to be approximately $150,000,000 to $155,000,000 research and development costs to be $50,000,000 to $55,000,000 and our cash burn revised to $65,000,000 to $75,000,000 As Matt described, the change in guide is proven primarily by the timing of revenues from new businesses, core blood and oncology, and we're leaving out the potential upside of any business development deals we may sign through the rest of the year. The cash burn guide reflects the above drivers and also takes into account some additional investment we are bringing forward into 2018 to drive the transplant launch as we are ahead of schedule on our work in that area compared to our plan at the beginning of the year. We think the fundamental drivers of the business are still intact, and we've been encouraged by the momentum we are seeing in our transplant development process and the data we are seeing for Signatera. Now, I'd like to open the line for questions.
Operator? Our first question comes from Mark Massaro with Canaccord Genuity.
Hey guys, thanks for taking the questions and nice quarter. I guess my first question is on the just some housekeeping on guiding down the low end or I should say guiding down the high end of revenue guidance. Can you speak to how much revenue is coming down specifically from the timing of recognizing revenue from oncology versus any other factor?
Hey, thanks, Mark. It's Mike. Yes, so the two main variables are just core blood and oncology together. And that kind of goes in that bucket of the new product revenues we talked about at the beginning of the year. Those are the 2 key variables there.
Got it. And then in terms of the previously you were talking about $15,000,000 from new sources. I just want to make sure that that $15,000,000 encompasses cord blood Signatera everything. Are you now assuming or I think you said you're assuming $8,000,000 by the end of the year. So I guess should we assume that the bulk of it is some other factor?
Yes. So just let me clarify the $8,000,000 So the $8,000,000 is contracted revenue. So this is deals that we've signed where over the course of the deal, we expect to recognize $8,000,000 revenue. We hadn't expected to recognize that much revenue in Acosity this year, but we did expect to recognize a portion of that. And so the difference between like a contracted or booked revenue and recognized revenue is just that we've got the pharma partner has got to launch the study, send us the samples and we've got to run the samples.
So that $8,000,000 just kind of gives you a sense of what the signed opportunity is right now in the business.
Got it. And then Of
that $8,000,000 like very little of it, we've effectively said almost none of that is going to be booked in 2018 now, Mark.
Got it. Okay. And then I guess in terms of timing of when we might expect a new bulletin from ACOG, Can you guys comment on any visibility you might have?
So this is Paul Billings. Thanks for the question. We're both in direct communication with ACOG and through our industry partners. We're also hearing that a new guidance is underway, but its exact content and when it exactly will be published remains uncertain.
Got it. And then one last one for me on transplant. Understanding that this is one site at UCSF. Can you guys give us a sense on the potential need for developing studies across more than one location?
Yes, sure. This is Steve. I'll take that and then turn it over to Paul Billings. So I think the primary reason for generating the clinical data is to show the performance of the test and then to get reimbursement. We feel very positive about the meeting that we just completed with CMS and the execution that we've had thus far along our reimbursement roadmap that we outlined here in the meeting.
Just as a refresher, the clinical validation study that we presented in the prepared remarks is 2 times larger than the BLOOM study, which is another clinical validation that's been published. And we feel like the performance, particularly the area under the curve, is superior to that study. So, we're in a good position. We've also outlined that we'll be launching a registry trial to collect additional clinical utility data, and we expect to launch that in 2019. Paul, do you have any additional thoughts?
Yes.
The only thing I would say is we've examined the clinical validity study that we've completed for geographic and ethnic diversity and it has significant elements of both. And so we think that it represents well the diversity that's present in the U. S. Population.
Great. I'll hop back in the queue.
Thanks, Mark.
Thank you. Our next question comes from Tycho Peterson with JPMorgan.
Hi, this is Eleni on for Tycho. Thanks for taking the question. Maybe to start off, you showed an encouraging trend with revenues per test. I was wondering how you were thinking about the trend going forward? And if you could give us a ballpark estimate of what we should expect by year end and even next year, if that's available?
Yes. Thanks, Eleni, for the question. It's Mike. So, yes, if you look at the trend that we show there, you see a steadily increasing trend. As I mentioned in the prepared remarks, I wanted just to highlight for everyone on the call that there is some appeals revenue that is in those numbers.
And so I think a conservative baseline would be to hold ASPs relatively stable going forward based on what we showed earlier in the year. So as I said, if you took out that appeals revenue in Q3, you'd be at about $4.11 on a blended pricing basis. And as we mentioned, there's lots of different tailwinds there that we think we can benefit from over time. But I think that's a good kind of conservative baseline to start with.
Okay, great.
And I'll make a comment there as well. This is Matt here. So as Paul mentioned, we've heard many comments from ACOG and people involved in the ACOG process that a new guidance is coming. And while Paul said we don't know exactly the content of that new guidance, we have heard very good reason to believe that that's going to be very supportive of low risk NIPT similar to the ACMG guidance. So I think that, that ASP increase from low risk can happen in the reasonably near term.
And then obviously, in slightly longer term, we've got the very big bolus that can come from microdeletions reimbursement.
Great. That's helpful. And then separately, you mentioned that you've successfully enrolled 20,000 patients in your SMART trial for microdeletions. And I was wondering if you already have sort of a timeline in mind of when you're going to be releasing that data?
Hi, thank you for that question. It's Paul Billings again. So we're currently analyzing the first 10,000 of the patients. And with cooperation of our many principal investigators, we hope to publish an interim manuscript of that in the middle of 2019. The last child that we've enrolled will be born in the middle of 2019.
And so with analysis and so forth, we expect that the full readout of this landmark study, which we think will demonstrate the importance in microdeletion management of prenatal diagnostics, will probably come towards the end of 2019 or early in 2020.
Okay, great. That's helpful. And then one last one. I was wondering, in terms of the launch of a new DNA technique, you mentioned with Signatera, you mentioned some net cost savings per test and improved performance. I was wondering whether you can give us some more color on the impact this will have on your margins going forward?
Thanks.
Matt here, I'll take that. So the impact on margins is going to be around $6 for that. That's by reducing the number of redraws because you get a better quality, higher fraction of fetal DNA and a cleaner DNA signal. There's also going to be reductions in labor because we don't have to reflect samples at higher depths of read. So this is something which is not even incorporated right now in the current COGS because although we have got that operational in our lab, we have to use up all of the existing inventory.
So I think that, that will be about a $6 benefit, but there's a whole set of projects where we've generated data in the lab, they pass through concept or feasibility and we're now in the process of operationalizing these projects to continue the march to lower COGS. So we do see a path, as we've said before, to get the overall product COGS to about $200 over the next roughly 18 months. And that's based on data that has already been generated and products that are in the process of being refined based on what we know that we can do. These are not sort of long term Hail Marys. So I think that that's just one step in the right direction, but there are many steps moving in the right direction.
And I don't want to give an exact time on that, but I can say that we have a clear path to getting to that $200 that we previously said is doable.
Perfect. Thank you.
Thank you. Our next question comes from Bill Quirk with Piper Jaffray.
Great. Thanks. Good afternoon, everyone. First question
Hi, Bill.
Hi. First question, Matt or Steve, how should we think about the draft CMS payment for advanced carrier screening? And I guess what I mean by this is that we saw this happen a few years ago with NIPT and with microdeletions. And we saw some state Medicaid plans as well as a few private payers, albeit small ones, jump on, start adding the code to their systems. And it took a little while, but you guys eventually did end up recognizing some revenue from that.
And so I'm just thinking just trying to figure out if this new code is potentially a replay of that event from a few years ago?
Yes. Thanks, Bill. This is Steve Chavin. I'll take that. Yes, so the sort of broad panel carrier screening is a portion of our business.
I mean, we've the way that we've rolled out our offering, we have many different choices that the customer can make. And so this sort of broad panel is only a portion of the business. We've been very pleased with the pricing, which we've participated in ourselves and submitted written and verbal comments into CMS, that's now coming out in the sort of high 2000s and that's looking very favorable. It's really going to come down to sort of coverage for the particular broad panel. And we saw this recent clinical utility paper come out, which I think is positive for everyone in the industry.
But we really have to see how that coverage plays out. I do think that we have seen a trend in the past of CMS pricing something on their national clinical lab fee schedule and then that rolling out to some of the state Medicaid plans. So, I'd imagine a similar paradigm will play through here as well as we've seen in the past.
Sorry, thanks. Two additional quick ones for me is, thinking about some of the larger payers that are not yet paying for average risk screening, in the event that ACOG drags their feet, you've been in communication with several of them. Help us think about, I guess, other routes, other alternatives to getting some of those coverage decisions improved to cover average risk? And then secondly, is just asking about the new fetal fraction risk score, whether or not you're seeing that directly impact any of the volumes for NIPT or helping with new account adds, Any sort of metric would be very helpful. Thank you.
Yes. I'll take that again, Bill. Thanks. This is Steve. So on the first one, I think, obviously, as Matt and Paul outlined, we're feeling very positive about both ACOG and ACMG clarifying their position on NIPT.
And we do from direct communication with folks at ACOG, we do expect to see an updated guideline in the near future. But there's a lot of tactics that we can employ in the event that they did drag their feet, as you put it. I think one is focusing more on employer groups that are large customers of these big health plans and they drive a lot of the business and actually have an outsized share in decision making. So probably more than 50% of the national payers have an administrative services only business that makes up a large share of their customer base and we think that's an opportunity. There's patient advocacy, physician advocacy.
I think there's maybe more direct interactions with ACOG that hopefully could put some just frankly just frankly based on the communications we have with ACOG. I think on the second question, it's still pretty early days in the field fraction based risk algorithm that we've rolled out. I think there's a lot of things that we're executing right now, but it's still too early to sort of talk about specific wins from that.
Okay, got it. I'll make a couple of comments there. Thanks, Steve. I'll make a couple of comments. The first is there's a political angle on the low risk coverage as well for those big payers that aren't covering this.
And we have been in conversation with a bunch of people who have a certain amount of influence with these larger insurance companies in the political side. We haven't pulled that trigger yet because we're waiting for the strong ACOG guidance to come out. But if the ACOG guidance is as we anticipated it will be, there are some very strong levers that we can pull that put additional pressure on political as well as other sort of more stronger tactics when they are not acting in accordance with a very clear ACOG guidance. Because as we know, ACOG has been supportive, but the guidance has not been as strong as we wanted it to be. And I think if the guidance is as strong as we expect it to be, we can be more aggressive.
Okay, enough said then. All right. Thanks, Steve. Thanks, Matt.
Thank you. Our next question comes from Doug Schenkel with Cowen and Co. Mr. Schenkel, your line is open.
Hi, can you guys hear me now?
Hello? Yes, we can hear you.
Hi, Doug.
Sorry about that. I was on mute. This is actually Adam Wyschhaus on for Doug. My first question was a quick one. Did you provide the split of samples for NIPT between high and average risk in the quarter?
Yes, it was not a direct business, Adam. It remained pretty stable, 60% average risk and 40% high risk.
Okay, great. Thanks. And then I was just wondering on the liquid biopsy opportunity, you've mentioned that there is both a retrospective analysis potential as well as prospective. How are you guys thinking about those 2 markets in terms of the opportunity or the competitive dynamics in those? Thanks.
Great. Thanks for the question. This is Solomon. Yes, we see large potential markets on both sides. So one of the key differences to think about is that the retrospective studies would read out much more quickly, 1st of all, and in some cases, depending on how well curated they are and whether they come from a randomized trial with placebo control, etcetera, in some cases, those studies may actually provide enough data to achieve adoption and coverage by themselves.
On the prospective studies, in that case, we're reading out results to physicians and patients, and it will take time for those trials to complete and to read out. But just like in the Bristol Myers Squibb opportunity, could lead to a very attractive and important change in the medical system and something that's good for our business and for our patients.
Great. Thanks, Owen.
Thank you. Our next question comes from Alex Nowak with Craig Hallum Capital.
Great. Good afternoon, everyone. I'm jumping between a few calls here, so apologies if this was already discussed. But for 2019, well, I mean, you put up about 30% volume growth or so throughout 2018. So I guess looking at 2019, what is a fair volume growth rate for the entire business considering what we know today, which is no ACOG, no United, no Aetna?
Just try to help us out there.
Hey, thanks, Alex. So it's Mike.
We're going
to stick to the 'nineteen guide when we normally give it in March. So of course, we'll give you a lot more detail there. I mean, what you've seen this year, I think, is what the underlying business can do in terms of absolute unit growth in that kind of scenario because that's kind of the steady state scenario that we've been existing in. So I think that's kind of a good kind of conservative baseline. And of course, as the year progresses, we're going to be out in public settings.
And so we'll continue to give updates on that as we move along.
Okay, understood. And then I just wanted to touch on the insider selling. So I know there's a lot of different reasons for doing it, but the optics look kind of strange in my opinion. I mean, you're in front of the biggest catalyst for the company with that being ACOG. You're out there, you raised money in the market, you missed the quarter, you lowered guidance.
Yet there's still insider selling at the company. So I know this is kind of more of a statement than a question, but I guess how can investors get comfortable around the fact that appears to be a lot of good things going on for the company, but the stock is getting sold by the executives?
Well, I think that's a totally reasonable question and thank you very much for asking it and I'll take that as Matt here. So look, the selling that happened was according to 10b5-1 plans. There were bunch of executives that sold, including myself. The selling was basically because the share price has picked up a lot. The share price has been relatively deflated, I think unreasonably deflated for a long time and they haven't been selling and I'll speak for myself, they haven't been selling to me for a very long time.
And so when the share price picked up, these are 10 by 5.1 plans and the price was above the limit. So there was a certain amount of selling. It's just prudent selling. To give you a sense, I think there might have been some miscalculations. If you round the sales, I think I was around 20% of my total holdings, very roughly rounded in terms of stock and options that were vested and unvested and RSUs vested and So it's really just prudent selling.
You want to diversify to a certain amount, but the vast majority of my and the other executives' net worth is wrapped up in the company. And we're very positive on the outlook. I think that the company can be incredibly successful. And one just needs to balance that with a certain amount of competitiveness. I think if there's any other questions there, fire away.
But I'm very appreciative for the question. Thank you.
Yes. No, understood, Matt. Thank you for that. And you might have mentioned this Mike, you might have mentioned this in the prepared remarks, but when do start when will you plan to start breaking out the oncology revenue? I know it's small today, but looks like you have over 25 cancer programs ongoing.
And it's poised to become a big part of the business. So when will we get more clarity on that?
Yes. Well, so I think this quarter was a bit of a milestone in that we broke out the book of the contracted business. I think that's kind of gotten to a level where it's material and it's worth understanding, particularly in light of the other variables that we talked about on the call. So just as a general principle, we'd like to guide to variables that really drive the fundamentals of the business and are significant enough to be kind of well understood and well forecasted. And so we're going to evaluate the oncology business over the next quarter and see if it meets those criteria.
And if so, we'll guide to it and be more specific. If not, we won't because we don't want to mislead you with a variable that can be noisy. I would like, perhaps on every quarter, but on a regular basis, provide updates on the contracted book of business that we're seeing. So that's our goal.
Okay, understood. Thank you.
Yes. You know what, I'm going to come back to this insider selling question, if I may, because the question took me a little bit by surprise. And I just want to make another comment there. There's so many factors that are beyond one's control. There are market factors.
There are all sorts of very large uncontrollable factors in the public markets. And I've always said to people, you should do things roughly 50% when they're out of your control. So the amount of selling that we saw from the executives of the company was really low actually. From my perspective, having been at the company for a long time and now seeing a share price at a more recent level, selling about 20%, I just feel that's prudent. And I hope that you can understand that.
But anyway, thank you for the question.
Ladies and gentlemen, thank you for participating in today's question and answer session as well as today's conference call. This concludes the program. You may all disconnect and have a wonderful day.