All right, everyone. Welcome and good morning. I'm Catherine Schulte, covering life sciences and diagnostics here at Baird. Very excited to have Natera here with us today. From the company, we have the CEO, Steve Chapman, CFO, Michael Brophy. So, Steve, Michael, thanks so much for joining us.
Oh, thanks for having us.
Thanks for having us.
And if anyone has any questions during the session, you can email them to session1@rwbaird.com, and I will pass them along. So I guess first, wanted to start on Signatera. You had another incredible quarter-record sequential volume growth. You upgraded the volume growth outlook going forward. Can you just talk through kind of what's driving some of that strength that you're seeing?
Yeah. So we're seeing a lot of interest in Signatera broadly. And I really think that there's been sort of a change in the physician mentality over the past year. You go to the conferences, you go to ASCO, ctDNA, and MRD testing is everywhere. Tons of presentations, tons of talks, tons of interest, side conversations. And so we're seeing this really tidal wave, I think, of interest in MRD testing. And we're right at the front of that as the market leader with the vast majority of market share. And it's really being driven, I think, by the significant amount of evidence that has come out and just the flywheel effect of physicians using the test, becoming comfortable with it, seeing it directly impact their patients in their practice, and then continuing to use it in different ways, potentially different histologies and so forth.
If I were to kind of pinpoint a couple of things in Q2 that really drove things, I think coming out of Q1, we had another great readout at the ASCO GI conference kind of mid-Q1. That was where we read out the 702 data, which is one of the probably most significant readouts for GI cancers in the MRD setting. That was a trial that was well known by the vast majority of KOLs in the community. The data was very, very strong, giving an intervention for people that are MRD positive, which is something that the colorectal community had been asked for. I think that really gave us a boost. The other thing that we're seeing is just continued growth strength across breast cancer, significant interest there.
We have many, many studies ongoing, and then continued use across many different histologies, which is exciting and I think sets up an opportunity for future growth.
And you also talked about record new patient starts for Signatera. I think it was double the prior record and triple what you guys normally see. You talked about colorectal, breast overall. Were those kind of the two biggest in terms of new patient starts as well? And how should we expect kind of that stat to trend for the balance of the year?
Yeah. So despite competition coming in and really putting their focus there, we've continued to see actually kind of not just record numbers in colorectal breast, but record growth numbers, meaning that this is the best performance we've ever had right in the face of competition coming into the market. And I think that just speaks to the strength of our technology, the strength of the data that we put out, but also just the enormous opportunity that there is in front of us to help patients. We're really at sort of low single-digit penetration more broadly in the MRD setting. And I think that there's a lot of room to grow.
So we see new starts coming in from new physicians that are trying the test for the first time, or physicians that have ordered it maybe in a particular tumor type that are now extending to another histology, or from physicians that may have been using, say, in colorectal only for one particular patient type, say, like stage 2, and now they're extending to other types of patients.
And I want to talk a little more about that kind of physician order ramp curve in a moment. But you made the comment on low single-digit penetration for MRD. What does that look like in colorectal cancer specifically, given that you've been in that the longest? And anything to think about that penetration curve and growth potential there?
Colorectal is obviously, I think, the area where we kind of got started, and there's been tons of use. And I think that just largely because there's just enormous clinical utility in that setting where the doctors really are looking for something to help make decisions in the adjuvant setting, and also because during recurrence monitoring or surveillance, if you identify a recurrence, there is an opportunity in some cases to do surgery and actually cure the patient if you catch it in that sort of oligometastatic stage. So penetration, you have to think about in this setting in a kind of a different way because it's really easy to just say, oh, there's X number of new patients per year that are diagnosed, and that's the denominator. And however many new patients you do in that setting, that's the numerator, and that's your penetration.
But the reality is a significant portion of the patients that we're seeing coming in are coming in from the surveillance setting. So somebody that maybe got diagnosed five years ago, or maybe three years ago, or whatever it might be, we can just go get their tumor tissue. We can set up a personalized assay for them, and we can start testing them. So it's really not about the sort of incident population, but more about the total combined prevalent and incident population. So even in colorectal, where I think we are starting to capture good numbers of the new patients coming in, but there's tons of opportunity in new patients that are newly diagnosed, but also in the much broader prevalent pool.
Maybe to your comment earlier on expanding penetration within an existing doc, you have an MRD for colorectal. They go into different indications. Can you just talk through what the typical kind of order per doc curve looks like? Do you see with different cohorts of doctors they get more productive over time? Maybe just help us think through that ramp.
Yeah. I mean, that always kind of happens in diagnostics, not just Signatera, but really sort of any test. I mean, it's very rare where you come in, somebody tries for the first time, and that day they flipped over their entire practice, and every patient that walks through the door starts to get testing. Usually, what you see is somebody says, OK, this technology sounds cool. I can see how this can benefit me and my practice and how this can benefit my patients. I'm going to try it out and I'm going to do one patient. There's a patient that I'm thinking of that may benefit from this. I'm going to try it on them. Then they get their result back. They observe that patient, or maybe they take action based on the result. They like what they saw.
And then they kind of figure out, OK, now where am I going to go from here? And that cycle continues for a little bit until they feel like it's the right thing for the majority of their patients. And then usually what will happen is they'll put in a protocol. And because Natera is so deeply penetrated, and this is one of, I think, the advantages that we have, we have more than 8,000 EMR connections. Now, I stopped tracking the exact number just because it's so high. It might even be above 10,000 now. And many of those are with big hospital systems, big cancer centers. So it is possible to put us in as a protocol where the physicians get alerts, or they get kind of routed down their standard of care.
Obviously, the cancer center director, the practice director will kind of say, hey, this is what we want to do for our patients. But when you start to get into that level of deep integration, that's where they start ordering it really on all the patients that they think is indicated for their broader practice.
And you expanded your commercial Signatera team earlier. I guess from that lens, how penetrated are you from an ordering physician standpoint? And how does that kind of change your sales strategy of how you serve existing providers versus going after new accounts?
Yeah. So I think we've said we see something like maybe 40%-50% of oncologists in the United States are ordering Signatera in kind of any given quarter. That used to be we used to say like 25% of oncologists have tried it. Then it was 30%, then it was 40%. And now it's just continuing to go up every quarter as we add new physicians. But you kind of stratify the doctors and say, look, are they using it routinely? Are they using it on a couple of different patients? Or have they tried it once and now they need to kind of think where it might benefit them in the future, but they're not really actively using it? Or there's another group that is just naive. They've never used it before. And so there's a lot of opportunity to go educate physicians.
The other area that I think is exciting is education beyond kind of the main areas of focus. When you look at things like gastroesophageal, pancreatic, and so forth, there's a lot of opportunities even within that GI setting to go back to the same doctor. Maybe they're using on all their colorectal patients, but they're a GI specialist. They have gastroesophageal patients, have pancreatic patients, so forth, maybe HCC patients coming in. We can talk to them about benefits there now that we've had. You may have seen we just announced some big publications in gastroesophageal and liver cancer. We previously published on pancreatic cancer. These are things that we think will benefit us in the GI practices down the road.
In those other indications, you've talked about $250 million-$300 million of potential incremental revenue from getting Medicare coverage from some additional indications. How should we think about the cadence of potential Medicare coverage over the next 12 to 18 months?
Yep. So we really think this is an advantage for Natera. If you look now, I think we have seven coverages for Medicare, something in that range. I have to go back and count them up exactly. But generating the data to go get Medicare coverage is very difficult. And you would think that this was something that's just sort of box checking easy to do. Medicare is very strict about the quality of the studies, how the samples were collected, what outcomes you have. And because we started working in this field, really, I think collecting samples in 2015, we started getting the first biobanks, some of which we've published on in 2015, some of the first prospective studies. And so we've been at this now for more than 10 years.
And when you have a study with five years of clinical follow-up or prospectively collected, with maybe in some cases we have, I think we've published with 10 years of follow-up, those are the types of quality studies that you can go bring to the MolDX program and get coverage. And I think you'll note some of our competitors really have maybe one coverage or some actually none even years after they've kind of entered the space. But we have a full suite of studies in other indications. I think we have over 100 studies or clinical trials that are either underway or are being published or already accepted for publication. So we look each tumor type by tumor type, and we say, do we have enough evidence to go try to get MolDX coverage? And then we'll submit.
I think over the next couple of years, we could have another 10 indications covered. I think it's going to be spaced out a little bit. You never know the exact timing. We're prepared to submit on 10 additional coverages based on what I can see in the maybe not submission tomorrow, but based on the data that we have coming in and the biobanks and studies that are already underway or going to be completed in the very near future.
Maybe on the international opportunity for Signatera, Japan seems to be something that's coming up relatively soon. Maybe talk through the timeline there and any other kind of things we should think about internationally.
Yeah. You want to take that, Michael?
Yeah, sure. I mean, so I think the first protocol for the international opportunity is likely going to be in Japan, so the process for launching a diagnostic test with reimbursement in Japan is first to go through the Japanese FDA and actually get FDA approval. That process is very similar to getting a U.S. FDA approval, and we're going through the U.S. FDA right now, actually, for Signatera in partnership with Roche in conjunction with this very impactful muscle invasive bladder cancer data that was just generated with them, which will get presented this fall, but the same process for Japan. We're submitting modules right now to Japanese FDA. We'd like to have an approval from Japan's FDA sometime in 2026. Once you have the Japanese FDA approval, then you can queue up to discuss pricing with their national health system.
And then, once you've got approval and you've got pricing, then that's kind of those are the conditions you need to really have a successful commercial launch. So we're anticipating having that commercial launch happen in 2027. So I'm very excited about this. We've been talking about this for a couple of years. And it used to be that 2027 was this unimaginably distant goal. But I mean, it's coming. It's imminent. And the team's working super hard on it. Why do we care so much about this? Colorectal cancer is a massive unmet need. It's a massive problem in Japan. So even though the population is meaningfully smaller as compared to the U.S., they have actually roughly similar absolute numbers of incidence rates of colorectal cancer in Japan.
A lot of our longest dated and most impactful outcomes data that we've generated with Signatera in colorectal cancer is actually Japanese data. Why is that? Because this is such a problem in Japan, the key opinion leaders in the medical community in Japan were really forward-thinking and interacting with us as far back as 2017, 2018 to get us included in the multinational CIRCULATE consortium trial, of which there's an important arm that runs in Japan. So a lot of that data is now read out. We've got outcomes data. We've got overall survival data that's Japanese data. We've got broad support within the clinical community in Japan. There's actually a very strong clinical practice guideline that's already in place in Japan for MRD testing.
And so now we're looking at an opportunity that's roughly the same size as a colorectal cancer opportunity in the United States, a chance to have a huge impact for these patients here. And we have broad support and excellent data. So very excited about that launch. And the timing of that, again, is kind of 2027. So looking forward to that.
Yeah. Great. And maybe if we want to pivot over to the women's health side of the business, just remind us where NIPT market penetration is today. And you talked about some new account wins in the second quarter. What's continuing to allow you to take share there?
Yeah. So we think it's probably like in the kind of 65% penetrated range. We have more than 50% share in the marketplace. That's for kind of standard NIPT. Then you look at things like 22q, recessive testing. Historically, we've just sort of thought about it as like the aneuploidy testing is that's one unit. And that's how penetration is measured. But as we start to grow into these other areas, if 22q gets covered, that's another area where you can start to look at, OK, what's the penetration there? Recessive testing is now something we've launched that's covered by a couple of payers. There's a potential to kind of increase that in the future. We saw a lot of new account wins. And it's really just based on, again, the core technology, the strength of the data that we've published in the field.
I think we have more than 75 peer-reviewed papers, and there's a lot of excitement around some of the new stuff. It feels like there's innovation happening, and there's a handful of groups that are sort of moving the ball forward, and there's some others that just aren't versioning their technology that may get left behind, and I think that's an opportunity for us to take more share.
Yeah. And can you talk about the Fetal Focus test that you launched last month? How does that kind of fit in the portfolio? And what's the opportunity look like there?
Yep. So one of the challenges with germline carrier screening, and particularly like the autosomal recessive diseases, is when the mother is positive for a genetic disorder, sometimes the father is just not available to test. And what the standard of care is, is you test the mother. If they're positive, you go get the father's sample. And I think that is the best protocol if the father is available. But sometimes you're just not able to get the father in. Maybe they're not around, or they're traveling, or something like that. So we developed a new technology that's called Fetal Focus, where we can detect the disorder directly in the fetus. And rather than needing the father's sample with high sensitivity specificity, we can just detect the disorder directly from the fetus. And we think this is a pretty significant innovation.
We've seen great acceptance so far from the community, and while I think the primary standard of care is not going to change, where if the father is available, you should get the father, I think that's accepted as the best protocol. I think being able to have this in the bag when the father is not available is important technology, and not all the labs have this type of technology, so we're obviously the largest NIPT lab in the country. We have very broad reach, and the fact that we have this, I think, is going to help us certainly, and the other thing I'll mention is when we do stuff, we always focus on doing good clinical trials.
And so a lot of the data that's been published in the space so far has been like commercial experience studies, where maybe you don't have all the genetic outcomes on every fetus, not on all the positives and negatives. So we set up a trial called the EXPAND study, which is prospectively it's fully prospective, blinded blood draws being done and a genetic follow-up on every single patient that is enrolled in the study. And having the genetic follow-up on the mother and the father or excuse me, on the positives and the negatives is extremely important, right? Because if you don't know the truth on the negatives and you don't follow up on the positives with a genetic follow-up on either amnio or CVS or on the newborn, it's difficult to know really what the performance of your test is. So this is enrolling incredibly well.
It's the largest prospective follow-up or largest prospective study in the single gene NIPT(Non-Invasive Prenatal Testing) space that's ever been done that has genetic follow-up on every fetus, and we're excited to be really rapidly enrolling. We're like well over 1,000 patients now enrolled into the study, and these types of trials are very difficult to do. We launched it a couple of years ago, and it's going really well. But this is going to be very difficult for others to create just because of the network that you have to have in order to be able to collect these samples.
Then maybe if we pivot to early detection. You've got the PRECEDES- CRC trial readout coming up. Any update on when we should expect that data? This is going to be specifically focused on precancers. We've seen a lot of attempts in the early detection space. I guess what makes you think you could have differentiated performance either on precancer specifically or just for that assay overall?
Yeah. So we were pleased with the colorectal performance that we put out earlier this year. I think, as we said, we had a lot of asymptomatic detected patients in that cohort, which we think separates us a little bit from some of the other companies that have previously reported their case control data. But to set all that aside, we started a prospective trial many years ago called the PRECEDE study, which is colonoscopy matched blood draw with the blood draw being done prior to the colonoscopy, exactly like you would in the FDA enabling study. And we're going to have the first readout of that potentially as soon as next month. And we'll see what the data looks like. I think others have kind of published in that kind of 12%-13% range for advanced adenoma. We'll see where we end up here with our technology.
We'll go from there. The great thing about this study is this is the exact FDA protocol. While in the past, people have put results out and everyone says, yeah, well, let's wait till we see the actual prospective samples, this is the exact protocol. If the data comes out good, I think that's going to be very positive for us. I think we have an opportunity to be a major player in early cancer detection. We're already doing our FDA enabling study, the FIND study. We've already had the first patient in. Our plan is to be on market in 2027 and be one of the major players in the early cancer detection space. I think we're going to do really well.
Yeah. Awesome. And Mike, maybe on the financial side, you had a big second quarter, raised the revenue outlook, but maintained the OpEx guidance, which I think was well received. How right-sized do you feel the organization is here? And maybe how should we think about OpEx growth into 2026?
Yeah. I mean, I think that we've been engaging in a pretty meaningful expansion of the operation to support all of the rapid growth that we've had on the top line. I think kind of the key areas of expansion have been on one, in terms of SG&A, on commercial operations. So we've kind of very gradually kind of built the Signatera commercial team, for example. And on the back of the success and the volume ramp that we're seeing, we're engaging in an expansion of that team that is largely complete in terms of hiring the folks, but really getting very little in terms of kind of top line contribution from that expansion, as expected. I mean, it takes about nine to 12 months to get these folks into the field and get them productive. So that's something that I expect to see really bearing fruit in 2026.
So I'm excited about that. So I think that that's an opportunity for leverage going into next year. On the R&D side, I mean, the largest single area where I'll maybe call out two areas where we've made significant investments. One is in the new product launches. So Steve just walked you through a pretty impressive set of product launches. We didn't really even cover half of them. I mean, this year, we've launched a tumor-naive MRD panel. We launched a Signatera version with a genome backbone, in addition to the Fetal Focus launch and the expansion of the Rh launch that Steve referenced. So that's been a quite productive calendar for us on the product launch side. The second area that I'm particularly excited about is the effort that we've been putting into expanding our effort in clinical trials, particularly for Signatera.
There are truly a huge set of large, important prospective clinical trials across histologies that we're engaged in that is probably orders of magnitude larger in terms of an effort compared to the rest of the space. That's incredibly important for patients and for pushing the science forward and for pushing the care forward for our patients and our physicians, and it also, obviously, gives us an enormous lead, allows us to maintain our positioning in the future. I think going into next year, we're still in the mode of wanting to launch new products, wanting to continue to deliver innovation, wanting to invest heavily in clinical trials, so on the R&D side, I think the ROICs there for us are just extremely high and quite easy to calculate, so that kind of gives me the confidence that we should continue to do that.
I do think that as you see this kind of expansion of our team mature next year, I think you can see some meaningful leverage on the sales and marketing effort in 2026.
Yeah. All right. We've got one minute left, maybe a closing question. Just as you think about the next 12 to 18 months, what do you think kind of the two biggest opportunities for your business are?
Yeah. I'll tell you. I think just continuing to do what we're doing on Signatera is the biggest opportunity. We've got, as Michael mentioned, the IMvigor011 trial. That's going to be read out at a recent conference. I think the momentum in bladder cancer is going to spill over to other cancers. And that's something we're excited about. In addition, we announced some of our AI initiatives and our data initiatives. Since we put the press release out, we've been working behind the scenes on that for a long time. We've had tons of inbound interest coming in from pharma and other partners in the industry. And I think there's going to be a lot of excitement there. We've got a really unique data set. So those are two areas that I'm excited.
Yeah. All right. Great. Well, Steve, Michael, thanks so much, and thanks, everyone, for joining us.
Thanks for having us.