Welcome to the conference call. At this time, all participants are in a listen-only mode. Following management's prepared remarks, we will hold a Q&A session. To ask a question at that time, please press star followed by one on your touch-tone phone. If anyone has difficulty hearing the conference, please press star-zero for operator assistance. As a reminder, this conference call is being recorded today, June 27, 2018. I would now like to turn the conference call over to Mike Brophy, Chief Financial Officer. Please go ahead.
Thanks, operator. Good afternoon. Thank you for joining our conference call today. Also on the line is Matthew Rabinowitz, our CEO, Steve Chapman, our Chief Commercial Officer, Solomon Moshkevich, SVP of Product and Strategy, and Paul Billings, Chief Medical Officer. Today's conference call is being broadcast live via webcast. We will be referring to a slide presentation that has been posted to investors.natera.com. A replay of the call will also be available at investors.natera.com. During the course of this conference call, we will make forward-looking statements regarding future events and our anticipated future performance. 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.
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 today 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. Now, I'd like to turn the call over to Matt. Matt?
Thanks, Mike. Good afternoon, everyone, and thank you for joining us. Let me set the agenda. We'd like to share some exciting data we have generated with UCSF concerning renal transplant rejection that we press released last week. We were very pleased to see 92% sensitivity for detection of acute transplant rejection and an area under the receiver operating characteristic curve of 0.9, which indicates the fundamental power of the test. This is in a setting where another non-invasive DNA test has been priced by CMS at roughly $2,800, and we believe to be a more than $2 billion market opportunity. We also wanted to review our recent announcements in breast cancer and give some more details on the study design of a key study whose results we expect to release at a major conference later this year.
We are very excited that the data in breast cancer looks roughly consistent with the data in other cancers that we've recently generated. This presents a great opportunity for Natera, including within our existing core points. First, a moment on the core technology that is producing this data. For several years, we have been developing a set of proprietary molecular techniques that allows us to multiplex PCR reactions on a massive scale. While previous PCR-based approaches were notable, if they could get dozens of probes to work together, we are able to run over 30,000 PCR primers simultaneously in one reaction. We pair this chemistry with a suite of proprietary bioinformatics enabled by cloud computation so that we can detect genetic variations from tiny amounts of DNA, often down to a single molecule.
We have continued to hone this technology as we performed over 1 million commercial samples in our lab, improving performance while continuously reducing the cost of goods sold. In the applications we will discuss today, we think we can achieve best-in-class test performance with a cost of goods sold below $200. We have a very robust, sensitive, and low-cost technology for detecting cell-free DNA in blood, which we have always said will have applications in many diseases beyond prenatal care. With these transplant results and the continuing flow of data in oncology, we are more confident than ever before that our core technology platform can change the standard of care in many different settings. In the transplant setting, the required protocol leveraged the same core MMPCR technology used in our commercial products. As a result, we were able to generate these data with minimal investment, opening a new multibillion-dollar market.
We've also been very efficient in our clinical trial strategy in oncology. The studies we will describe today show how winning access to valuable biobanks in academia can lead to efficient validation studies in large oncology markets. Now, I'm very pleased to hand the call over to Dr. Paul Billings to discuss the transplant opportunity in more detail. Paul.
Thanks, Matt. First, a brief overview of medical renal transplantation. There are about 190,000 living kidney transplant recipients in the United States and about 20,000 kidney transplants performed in this country every year. 20%-40% of transplants occur in individuals less than 50 years of age. Kidney transplant patients generally survive for many years after the procedure. Their five-year survival rate is about 86%, and their average survival duration is at least 10 years post-transplant. However, patients must be monitored throughout their lifetime for graft rejection. Levels of immunosuppressive drugs must be carefully monitored to optimize patient outcomes. About 15%-20% of renal transplant recipients suffer an acute rejection. The existing methods available to monitor the condition of a renal transplant patient have significant limitations.
Physicians may opt for an invasive, expensive, and potentially dangerous biopsy procedure, or monitor a patient with a serum biomarker that has relatively poor predictive value. In the event of an acute rejection, the patient's immune system is attacking the donated kidney, causing significant cell injury. This insult causes DNA from the injured kidney cells to enter the patient's bloodstream. As we described in our press release, we conducted a study with UCSF to assess whether our cell-free DNA technology could provide a more accurate, non-invasive monitoring tool than traditional methods. UCSF is a top kidney transplantation center by volume in the U.S. To summarize the study results we are presenting at the Transplantation Society Annual Meeting in Madrid on July 3rd, we evaluated 292 plasma samples taken from 187 transplant recipients, and the status of their rejection was confirmed by analysis of biopsy tissue.
The cohort includes stable patients suffering acute rejection, borderline rejection patients, and those experiencing another injury, such as an infection or drug subtoxicity. With these blood samples, Natera ran a SNP-based assay to determine the amount of donor DNA present in the recipient's bloodstream. The results of the study suggest that our assay could substantially improve the standard of care. As we expected, the level of donor DNA found in the bloodstream was significantly higher in patients suffering an acute transplant rejection compared to a non-acute response. We successfully called acute rejection with 92% sensitivity, 73% specificity, and an area under the curve of 0.9. We are taking a conservative approach in grouping the stable patients together with borderline rejection and other injury patients to calculate specificity. If we calculated specificity based only on stable patients, it would be 93%.
However, including other types of organ injury may be the most appropriate way to report our results, because in this study, 19 of 20 patients who tested positive with donor DNA greater than 1% had a clinically meaningful finding. Here you can see a comparison of Natera's data against the most recently published data from the current leader in donor DNA testing. That 2017 study included 107 biopsy match time points from 102 patients. In that smaller cohort, the results yielded an area under the curve, which is the fundamental indicator of the power of a test, of 0.74. By comparison, Natera's assay achieved an area under the curve of 0.90. Based on these data, we believe physicians will prefer our assay over other available cell-free DNA tests. I will hand it over to Steve Chapman to talk about the commercialization plan.
Thanks, Paul. We see the TAM for this opportunity exceeding $2 billion. We believe physicians would like to measure patients up to seven times in the first year post-transplant, and then quarterly thereafter. On pricing and reimbursement, we think it would be reasonable for CMS to crosswalk our assay to the only other donor-derived cell-free DNA test, which is currently priced at $2,841 per test. We have extensive experience in winning CPT codes, as most recently demonstrated by the CPT code we were awarded for zygosity testing in NIPT, and in establishing favorable pricing from CMS. The opportunity size is comparable to the market sizes we have described for key Natera franchises, like Horizon Carrier Screening. The commercial pathway. In contrast with our women's health franchise, kidney transplant patients are very concentrated in a relatively small number of centers.
In the United States, there are roughly 265 centers that offer kidney transplants, and approximately 80% of patients are treated in just 100 centers. We believe we could target this market ourselves with a very modest sales team with experience in these centers and leverage our user experience infrastructure to bring the same level of high-touch customer care to these patients. For example, we've already built the capability to execute automatic blood draws, which is highly relevant because the renal rejection monitoring protocol may include standing orders requiring repeat blood draws. We are well-positioned to leverage our strengths in logistics and user experience. We can leverage the same playbook we used to achieve market leadership in NIPT to enter the transplant market. We have a history of not being first to market, but then rapidly taking market share based on superior clinical performance and commercial execution.
In this instance, we are at an advantage because we've already done the work on lowering cost of goods sold and operating a cell-free DNA laboratory at scale. Although the commercial effort would be targeted, the high gross margin profile of this indication also gives us flexibility to partner the commercialization of this test with companies that already have a sales effort in these centers. We are evaluating our options and will provide updates later in the year. In addition, Natera's Constellation platform could be an advantage when pursuing a distributed model. Today, with this model, our licensees are performing tens of thousands of cell-free DNA tests per year from their home countries. The infrastructure and experience we have built thus far with the Constellation platform are transferable to this assay. One note on intellectual property. We feel we have strong IP and freedom to operate in the transplant sector.
Our streamlined cell-free DNA-based approach does not use transplant-specific markers and does not require donor and/or recipient genotypes to be determined in advance, so patents corresponding to the first-generation cell-free DNA-based approaches do not apply to us. We are very pleased with the opportunity to change patient care in renal transplantation. Now, let me transition to Solomon Moshkevich to discuss our progress in oncology. Solomon?
Thanks, Steve. I'd like to discuss some new commercial opportunities for Signatera. We have already produced data in several cancer types leveraging our core multiplex PCR technology. On this slide, you see the results we have presented previously in colon, bladder, and lung cancers. In those studies, we tested patients' blood for the presence or absence of tumor DNA immediately before, during, and after treatment, and then followed up at regular time points to catch relapses. Three key takeaways from this slide. First, a positive result after treatment has always been followed by a relapse 100% of the time in our studies. Second, negative results carried a good prognosis. Third, and finally, the lead time of molecular relapse versus clinical relapse ranged up to 15 months, with an average of four to seven months, depending on cancer type.
Today, I want to walk you through several studies that will evaluate the same types of metrics in breast cancer. On the next slide, you see three studies we have previously announced in breast cancer. Similar to the studies we've run in the other cancer indications and in transplant rejection, these are all valuable biobanks where the blood samples were prospectively collected and then stored at leading research universities with matched clinical outcomes. This allows us to generate data quickly without organizing and funding a new trial, which can often take years. First, I-SPY 2 we have described before. That is a trial measuring molecular response to neoadjuvant treatment being run at UCSF. The study with University of Leicester and Imperial College London is monitoring cancer relapse after completion of surgery and adjuvant chemotherapy. More on that in a moment.
The Jules Bordet study, which we announced last week, combines aspects of both other studies, evaluating Signatera for response to neoadjuvant treatment and for detection of relapse. I want to spend an extra minute on the study with the University of Leicester and Imperial College London. In this study, blood was prospectively collected every six months from patients who were relapse-free for at least three years after the completion of adjuvant treatment. Just like the studies in the other cancer types, the key endpoints here will include relapse detection rate and the lead time of molecular relapse versus clinical or radiographic relapse. You see on the right side of the slide, this study includes patients with all three of the key breast cancer subtypes, including ER-positive, HER2-positive, and triple-negative.
This study is now complete, and the data is currently under embargo because we plan to submit the results for presentation at a leading breast cancer conference later this year. Based on the preliminary data, however, we are very encouraged with achieving similar results in breast as we have seen in the other cancer types. I want to discuss some of the promising opportunities this study may open up. There are two indications we'll highlight today. First, there is an opportunity to help physicians decide which patients with HER2-positive disease may need additional therapy. Last year, a new drug called neratinib was approved for HER2-positive patients after completion of a standard course of treatment with trastuzumab or Herceptin. However, the side effects reported in those clinical trials were significant, leaving the community to wonder who should get this additional treatment.
Key opinion leaders believe it is most appropriate for patients at increased risk of relapse, but the tools currently available to make that determination are not very strong. Enter Signatera to help identify those patients who need the extra treatment because of a high risk of relapse. With at least 40,000 cases of HER2-positive disease per year, this can be a very valuable tool for decision-making in the healthcare system. Another big indication for Signatera in breast cancer is recurrence monitoring. There are 266,000 new breast cancer diagnoses expected in 2018 and a five-year prevalence of the disease of approximately 1 million patients. Today, after treatment is completed, high-risk patients are monitored for recurrence by the oncologist and radiologist, largely using mammography and clinical examination.
Lower-risk patients with ductal carcinoma in situ or some stage 1 cancers, plus those with greater than 5 years of recurrence-free survival, are routinely monitored in the primary care setting with their OBGYN. The unmet need here is that over 70% of relapses are distant and not picked up by mammography. In addition, many cases of relapse do occur after 5 years. Picking up more relapses with a molecular tool like Signatera earlier than ever before may improve outcomes, particularly when patients start to get treated right upon molecular relapse. To review our commercialization strategy, I would like to focus on the most relevant channels, indications, and reimbursement pathways. We are already selling the RUO product to pharmaceutical companies and to academic researchers. When the CLIA service launches, it will be sold to pharma and to clinical oncologists and other providers.
There will be multiple different indications for use, the lowest hanging fruit will be those scenarios where oncologists are already struggling to decide which patients should receive an additional approved treatment, such as the HER2-positive indication we just described, as well as the stage 2 colon and stage 1B lung cancer indications we have discussed on previous calls. The more complex indications are those that will require new treatment protocols, where we plan to leverage clinical trials funded by pharmaceutical companies and others to develop clear evidence of utility that will be sufficient for FDA and CMS approvals. We expect reimbursement to come in several forms, including a pursuit of local and national coverage determinations, private payer coverage, and a cash pay market driven by demand from domestic and international patients. With that, we'll conclude our prepared remarks, and we're happy to open it up for questions. Operator?
Ladies and gentlemen, if you'd like to ask a question at this time, please press star then the number 1 key on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, you may do so by pressing the pound key. Again, if you'd like to ask a question at this time, that's star then 1. Our first question comes from the line of Bill Quirk with Piper Sandler. Your line is now open.
Great. Thanks. Good afternoon, everybody, thanks for hosting this, guys, to walk through the pipeline with us.
Hey, Bill.
Hi. First question is for Steve, and I guess, Steve, I just want to see if I can tie you down a little bit here. You talked about a couple of different potential distribution models for transplant, and given that it is a very large market and could be resourced with relatively small number of salespeople, I guess I was a little surprised to hear that you guys wouldn't try to target that directly and are considering Constellation and/or some other models. Can you elaborate on that a little bit? Thanks.
Yeah, sure. It obviously is a very attractive opportunity. We're certainly very excited about the data. We think it's a very efficient opportunity for us that can be targeted with relatively few sales representatives. As we mentioned, there's about 100 transplant centers of relevance in the U.S., covering about 80% of the business. We have a very low cost of goods sold offering. There's a very high margin with an established price point. It is very attractive for building a direct team and going after that. That is one of the models that we are considering. There's multiple opportunities. We're looking at different partnership opportunities as well.
I think the Constellation opportunity could be important, particularly in the international markets, to decrease the turnaround time and also come under the regulatory guidelines in certain countries that may not allow samples to be shipped back to the U.S. We see our experience in Constellation and the infrastructure we built there as an advantage. We absolutely are considering a direct model.
Okay, got it. Thank you. Just two additional ones from me. I'll try to wrap them into one question. Is there anything else that needs to be done on the assay? Do you need a larger study? Do you need a multicenter study in order to launch that? Just on reimbursement, as I understand it, for the existing tests on the market, part of the reason why that reimbursement was established is because they're participating in a registry study. Could you elaborate a little bit on your thoughts about trying to be able to crosswalk to that code? It strikes me as not maybe quite that black and white, but would love your thoughts there. Thank you.
Bill, this is Steve. I'll start off. We have experience working with CMS, establishing good pricing as we've done with our microdeletion assay. We believe this test would be crosswalked to the existing donor-derived cell-free DNA assay at a price point of around $2,800. The technology is similar, although our technology is slightly more complex, which could in fact be favorable for Natera. We've spoken with industry experts and have had positive conversations with respect to that crosswalking process. From the standpoint of clinical utility and coverage development, the clinical validity data that we've developed, which Paul can elaborate on further, is very consistent with what others have used to establish coverage from CMS. We think the Coverage with Evidence Development process is very favorable because, in fact, you get paid while you're completing your clinical utility work.
We would be very pleased to participate in that type of a model to execute clinical utility studies.
Bill, this is Matthew here. Thanks as usual for your great questions. We do not need additional studies. The study that we conducted with UCSF, which is one of the leading centers in the world has very compelling data, as you've heard, and also more sensitive data than others have used to be able to offer a test. We're in really good shape here to launch this relatively soon, whether we do it ourselves or through partnerships, as Steve described. Paul, do you want to elaborate on the clinical utility data?
Well, I think that we do have the beginnings of a good story for clinical utility. I would say that we have a good story for a sensitive assay to determine other causes of problems for renal transplant patients, including acute rejection.
Very good. Thanks, guys.
Our next question comes from the line of Catherine Schulte with Baird. Your line is now open.
Hey, guys. Congrats on the data, thanks for the questions. I was just wondering what the plan is for launching the kidney test internationally. Is there any particularly attractive international markets, any thoughts on potential CE mark timing?
I'll take that. It's Matt here. There is obviously a great market internationally. When you look at the U.S. market, it's typically a factor of five from the U.S. market to other developed countries that have similar medical care and similar payment capabilities. We do have about 70 labs around the world right now that use our genetic tests, and most of these labs are not focused on women's health. These are generally genetics labs that do women's health testing, oncology testing, and many of them will be interested to do transplant testing. The transplant opportunities are obviously more focused internationally, but we have relationships with labs that currently do this kind of testing. There are also some substantial discussions going on right now, with labs who are in the international space who would see this as a good opportunity and a good differentiation.
All of that said, I just want to be cautious on the international opportunity that we don't have that well-established price point as we do in the United States, where we've got a roughly $2,800, pretty stable, very strong high gross margin reimbursement. Although the international market is great, I would just caution you that it's not going to be exactly the same as the U.S. market.
Okay. Then in terms of potential commercial partners for these tests, do you think it would likely be a single partner for your suite of pipeline products, or would there probably be different partners for kidney versus oncology applications?
Oh, no, there's going to be many different partners for the different applications. We've got a lot of stuff coming down the pipe.
Great. Thank you.
Our next question comes from the line of Mark Massaro with Canaccord Genuity. Your line is now open.
Hey, guys. Thanks for the questions. Certainly encouraging developments here. My first is on maybe some of the additional applications in organ transplant. Clearly, kidney will be the first. Obviously, there are other organs. Can you just speak to, should we expect kidney really to launch, and can you clarify the specific timing of launch for kidney? Can you speak to what you might need to see to launch additional applications to other organs?
I'll take that. This is Paul. Thanks for the question. Our CLIA launch is expected in 2019, and that's when the kidney test will be available clinically. As far as other organs are concerned, it's apparent that organ rejection is important in many solid organ transplantations and other situations. We are looking to develop data for those applications, and we'll move those tests into the clinic as that data becomes available.
Wanted to follow up with a second question, and that is, can you speak to or just clarify your comments around the breast cancer data? I believe you said it will be presented at a leading conference. Is that data to be embargoed until that conference begins, or do you think we may see the data ahead of the conference?
I'll take that, Solomon, if you want to add anything. I would love to present that data now because I don't think I'm exaggerating when I say that the team is excited about that data, but we can't. It's embargoed, and it's going to be only released at the San Antonio Breast Cancer Conference.
Perfect. One last one if I can-
Hang on. Wait on that, because I think Solomon has something to add over the top. Solomon?
Okay.
Yeah. No. Thank you, Matt. I'm happy to add. I would just say that we will update you guys as soon as we're able to share any data, whether it's before the conference or during. We will let you know.
All right. Thank you. Not sure who should respond to this question, can you guys speak to the pipeline of prospective partners that you're talking to? Obviously, you've signed the QIAGEN deal in NIPT, I believe that there are likely other potential partners across other parts of your business, notably in oncology, across cancer types. Can you just speak to when we might see another partnership, whether it's with pharma or another type of strategic partner? Thank you.
I'll comment on that, then I'll hand over to Steve. Well, there are a lot of partnership discussions going on right now. I don't think this level of partnership activity has been replicated in the history of the company. There's a lot of activity. There will be additional announcements, I think, through the course of this year, it's difficult for me to point to any one of them and say, "This is going to be the big pivotal announcement." You're going to see an ongoing drum roll, I think. We've announced an ongoing drum roll of clinical studies in oncology, a lot of those are pilot studies, which will be transitioning to more substantial studies we hope and expect over time. We are in discussions with pharmaceutical companies right now about more substantial later-stage studies.
I think you're just going to see a steady drum roll. Steve, you want to add to that?
I think you got it, Matt. Thanks.
Okay.
I want to make-
Sorry. I made a comment earlier about when that breast cancer data is going to be released, I shouldn't have made such an absolute comment because I'm hearing some notes around the room that there might be situations when we release the breast data at a different time. I think I overstated the absolutism of when the data was going to be released. We have chosen not to release it right now because we have submitted to conferences that are coming, but there might be a different timing on the data release relative to what I said earlier. Sorry about that.
No worries. If I can sneak one last one, I promise. You guys had indicated both FDA and CMS approvals. I think you were referring to your oncology pipeline. I don't know if that's a little bit different than what I was thinking previously about likely launching as an LDT initially. Can you just speak to your conviction level that over time, you expect to bring the oncology assays through the agency for FDA approval?
I'll take that. Certainly there's some low-hanging fruit, as Solomon described in the slides, where we feel like we can get a local coverage decision and go out with a strong presence. I think there are certain indications that require more clinical utility data, where we will be working hand-in-hand with pharmaceutical companies to deliver that more expensive clinical utility data, and generally, those are the types of trials that will be sufficient for taking to the FDA and for putting us in a position to enter the FDA CMS parallel review pathway.
Great. Thanks, guys.
Our next question comes from the line of-
Great question. Thank you.
Our next question comes from the line of Alex Nowak with Craig-Hallum. Your line is now open.
Great, good afternoon, everyone. This is actually a follow-up to Bill's question. Have you talked with CMS about your reimbursement strategy of crosswalking your kidney test versus CareDx's AlloSure test?
Yeah, I'll take that. This is Steve. As I mentioned, we've had a lot of experience working with CMS for various products. We're just now actually completing a pricing process for a zygosity NIPT code. We've looked at the fundamental principles behind the appropriateness of a crosswalk, we feel confident in the ability to crosswalk to that $2,800 price point.
Just Alex, it's Mike, just to put a final point on that, we'll stay out of the practice of disclosing specific conversations with regulators and things like that.
Okay. That's fair. When would you expect to be getting reimbursement for the kidney test? Are you too late to make the 2019 clinical lab fee schedule review for reimbursement? Would you wait to launch a test until you do get reimbursement established?
Well, I think as we described, we're planning on launching in 2019. I think at this point, the fee schedule review for 2019 has been completed. Although we can have direct discussions with CMS about the appropriateness of reimbursement.
Okay. That's helpful. Just last question, just on the IP landscape. It looks like your team already obviously conducted a review. Are you anticipating maybe your competitor here to file any sort of lawsuit against your test? Maybe just explain the technology behind your transplant test. How is it not using transplant-specific markers here? Because I think that's the key wording of your competitor's patent.
Well, we don't comment on IP, but I'll just say that the technology is unique and as we described in the prepared remarks, so we think that we're in very good shape here. I think that you'll have to ask the competitors what they're going to do. We've looked at the IP carefully, and we think we're in great shape.
Great. Thanks for the update here.
I'm showing no further questions in queue at this time. That will conclude today's question and answer session. Ladies and gentlemen, thank you for participating in today's conference. This concludes the program, and you may now disconnect. Everyone, have a great afternoon