Morning, everyone. I'm Puneet Souda. I cover life science tools and diagnostics here at Leerink, and it's my pleasure to be hosting Mike Brophy, CFO of Natera. Mike, thanks for joining us. Thanks for being here. Great. You know, a lot to talk about. You obviously had remarkable growth in Signatera over the past few years, 2025 again. You know, you have 100+ publications, lots of clinical evidence there.
You acquired the technology for phased variants, so that's enhancing sensitivity. There's women's health business that's also doing well. You have 40%+ market share in NIPT. Competition is increasing, but you're taking it head-on, and we'll get into some of the Fetal Focus and other discussions. Maybe just to staying on Signatera at first. You know, when we think about the volume, sequential volume growth, the number was 8,000-10,000 earlier, when Signatera was growing strongly. It still is.
Now that number is 20,000 sequential, you know, over the last three quarters. You're suggesting we look at the last four quarters' average sequential volume growth, the right way to look at it. Maybe tell us your thinking behind that, and how should that inform the view on forward volume?
Yeah. Well, thanks for having me. Y ou're right. We've been on a massive upward trajectory with Signatera volume growth. We posted 22,500 growth units last quarter, 225,000 units overall in the quarter. Look, the question always comes, you know, well, how do we model the next quarter as we're kind of on this ramp? I like the construct of the trailing four quarters average just because that does two things. One, it just normalizes the quarters in terms of seasonality and days available in the quarter and all those kinds of factors that really don't. They can impact volumes quarter to quarter.
They really don't have an impact on the reason why you care about the number, which is sort of a metric for demand for the test. Secondly, it does give the effect of kind of the compounding that happens in the real world with Signatera because as you start more and more patients with Signatera, they're getting you know repeat monitoring tests. You do have this kind of waterfall effect of volume growth. When you do kind of a rolling four quarters average, you do have this effect of the quarterly target kind of increasing every time we set a new high. I think that that's a decent framework to measure where we are.
It allows for quarter-to-quarter variability, which is always possible, although as we mentioned on the Q4 call, we are off to a fantastic start in Q1.
That's great. Wanted to touch briefly on the ASP side as well. ASP growth has been strong. How should we think about the sort of ceiling on that ASP for Signatera? Maybe walk us through the puts and takes for ASP. What needs to happen to get to that to the higher end?
Yeah. You know, when reimbursed for Signatera, you know, we're paid north of $3,000 on average, and the ASP is about $1,225 as of Q4. What's the difference? Well, there's a lot of commercial payers that don't cover Signatera yet. We can get into what is the path to change that.
We are covered fairly broadly by Medicare. Medicare is a little bit unique as a payer in that they certainly have a different set of incentives from the typical payer, where typical payers, you know, if you get sick, there's a decent chance you're gonna change jobs and, you know, you're not going to be on that particular payer's rolls the next year.
There's a bit of a disincentive to focus on the kind of things that can improve the care up front, you know, the kind of preventative care.
You know, early, you know, earlier care in the cancer patient's journey, whereas Medicare has just the opposite incentive. I mean, they know that when patients don't get the chemotherapy that they should, for example.
They're very likely to come back with stage III and IV disease. Of course, that's a human tragedy, but it's also very expensive for the system. Medicare is now kind of broadly reimbursing Signatera across a range of tumor types. That explains the difference between-
you know, when paid and the average selling price. Reasonable people can differ on what is kind of the ultimate, you know, realized, you know, pricing for Signatera. I tend to think, you know, without trying to set, you know, too high a bar or, you know, make all kinds of aggressive arguments, I just sort of center on meeting in the middle, you know around $2000 as an ASP. What that would mean is, over time, you have, you know, contracted rates coming down as volumes expand into the millions.
The fraction of time you get reimbursed goes up. It goes to, you know, you get to 80%-85% allowed. One case study that supports that would be the non-invasive prenatal test. I mean, when we launched Panorama, we were getting you know, the contracted rates were in that kind of $850-$900 range, and the ASP was around $350. Kind of similar proportions, this is kind of when we went public in 2015. More recently, I mean, the ASPs are, you know, above $400.
10 years later a s the you know, NIPTs are now kind of solidly within the standard of care, you have a higher ASP even though the contracted rates have come down. Why is that? Well, just the NIPT is just in the coverage policy for all of these payers, and so the fraction of time we get paid is in that kind of 80-90% range. I expect as Signatera becomes the standard of care over the next couple of years, I think you'll kind of go on a similar trajectory and that's why I think about, you know, that $2,000 ASP. Another case study that perhaps would be, you know, a more bullish scenario would be in the experience of Oncotype DX.
I recall when the test launched in the, you know, in the mid-aughts, dating ourselves a little bit here 'cause we remember that. There's a lot of people that we work with that
Indeed. Yeah.
have no recollection of this. You know, their reimbursement was around $3,000 at the time, and i t's more than that now. Why is that? Well, there's obvious clinical utility for the test. They have wonderful long-term outcomes data and it's broadly covered. That's certainly a potential outcome for Signatera as well.
Got it. That's great. You know, in terms of just hopping back to sort of volume, but it is tied to the clinical evidence that you have built out for MRD, how should we be thinking about the clinical trial readouts this year? I mean, obviously you have a number of studies in the works on Signatera, some even longer term. Maybe tell us for this year, what do you think are sort of key sort of catalyst or studies that investors ought to be paying attention to?
Yeah, I mean, the interesting thing about Signatera is that, you know, it's not a biotech in the sense of, you know, we don't have PDUFA dates, we don't have clinical t rial readouts that I would view are truly binary events. Instead, what we have is every academic conference. Quarter in and quarter out, we have a continued drumbeat of a broad base of compelling data across a range of tumor types. Just one case study from this year already is the ASCO GU conference. We had incredibly compelling data in head and neck cancer.
I wouldn't present that as a catalyst or some binary event t o investors because it's pretty consistent honestly with the data that we've put up in head and neck cancer previously.
Data we've put up in other tumor types. It does meaningfully kind of expand the use case for physicians that are dealing with a very difficult disease. We're gonna continue to do that. Every academic conference, you're gonna see us on podiums, plenaries, plenary presentations, publications in major academic journals. The key focus of our very significant R&D investment is in data generation and particularly within Signatera, but really across the business.
You know, maybe tied to that is the Foresight acquisition, you know, the phased variants, how you've incorporated. Maybe tell us, first of all, is it incorporated across which assays it is incorporated across as of right now? You know, in terms of that enhancing the analytical performance, but then more importantly, the clinical performance or the clinical evidence overall, when do we start to sort of see some of that come through, because that could be really powerful if it's in a prospective trial.
Yeah. I mean, the Foresight acquisition fits in perfectly with our preexisting strategy to just be constantly improving the Signatera test. Another example from women's health is our Panorama NIPT assay. I mean, we're on version ten-something on that order. We've just continuously improved the test. You know, the technology and the algorithm that we use for NIPT now is. Just light years better than it was a decade ago, and yet, physicians are ordering the Panorama test. I don't know if a lot of our customers would be able to give you kind of a detailed bridge of all the technology developments we've had over the last 10 years.
I expect a kind of a similar trajectory with Signatera, where the current version of Signatera has, you know, all of the a huge base of outcomes data. Now, to your point, there's a lot of clinical evidence that shows that if you just follow the protocols with your patients we've established in these clinical trials, your patients are gonna do better, okay?
That's gonna continue to be true, even as in the background, we're continually improving the test. All right? What are some potential routes to improvement? Well, you know, one example is, dropping in, the phased and structural variants, analysis into the algorithm, okay?
We feel like one of the most promising routes to massively improved sensitivity in the assay over time without having to pay a big penalty in terms of false positives is this technology of kind of phased and structural variants. We had a program in flight to add that to the Signatera technology stack. We were impressed and heartened to see a scrappy company in Foresight that I felt like had a lot of the same kind of values and intensity that we like to think that we have as a management team, and they had a lot of interesting technology in the same area a s well and made a ton of progress in a specific tumor types of particular interest to us was lymphoma.
This was a great match in terms of like just the people fit, which sometimes it's easy from the outside to kind of discount that. I'll just tell you, it's super important to kind of have that kind of cultural fit when having a you know a business join us. It's a seamless fit, I think, into the technology stack for Signatera. In terms of when will you see more data? Well, you have analytic validity already, right? I mean, we've got very impressive, you know, down, you know, below one part per 10 million limit of detection, 95% at three parts per 10 million.
That is, as far as I understand, that's just light years ahead of some of the analytic validity we've seen from others. Those types of studies are not really what matters to physicians, right? I mean, physicians want the studies that show them how the test performs in the real world and how it can actually help them care for their patients. That's coming. I mean, just gradually over time, as we fold in the technology, this drumbeat of clinical trial data that I've been referencing will increasingly incorporate outcomes data sets that have the phased variant technology folded into it.
Got it. Just to stay very brief, a bit more on Signatera. You're expecting FDA-approved version of Signatera this year with the CDx of atezolizumab. You know, how significant is that both as a companion diagnostic for muscle-invasive bladder cancer and more generally, you know, from having an FDA-approved assay? You know, if I go back to the CGP days, an assay was initially in lung, then it got in breast, and then it became pan-cancer, got a pan-cancer approval. How are you thinking about that?
Very excited about the IMvigor011 data. It was published in The New England Journal of Medicine. Just as a quick background, this was the second phase III study that we'd run with Roche with atezolizumab, where the first study IMvigor010, Roche had run, as an all-comers trial in muscle-invasive bladder cancer, you know, eight-year, several hundred million doallr effort to get that initial readout. Signatera didn't exist when that study began. Before they read out the results for the first IMvigor trial, they pre-specified an endpoint to evaluate how patients did among the subset of patients that were actually Signatera-positive, okay.
Meaning, you know, we thought that, you know, we could see that they still had residual disease and were in need of further care. Unfortunately, the drug did not work on all comers. It's very difficult to get these drugs to work on all comers, as we all know. They had a massive treatment effect among the Signatera positive population, and that was a significant proportion of the clinical trial population. It was something like 40% of the patient population was Signatera positive.
That was 2021, something in that time frame. Roche and Natera rushed around. We immediately set up a second phase III clinical trial, IMvigor011, where enrollment criteria was benchmarked on whether or not a patient was actually Signatera positive, okay? All the patients in IMvigor011 are Signatera positive, then they're randomized, plus and minus atezolizumab. We saw very happily in the prospective outcome study, we saw the very same effect. Massive improvement for outcomes in patients that got the drug versus did not get the drug. Okay. Now that that's read out, there's a couple things to do. One, there's obviously a path to getting FDA approval for atezolizumab.
Usually when a drug performs this well in a clinical trial, the drug can be eligible for priority review with the FDA. Hopeful that the drug can achieve that. If that's the case, then there's usually about a six-month time horizon to getting FDA approval. We would be in the label for the drug. We've been going through the process with Roche for years to have a version of Signatera that is FDA-approved Signatera.
It's just a separate lane i n our lab that we'll run when patients wanna order if they care to order the FDA-approved version of Signatera in conjunction with ordering the drug for their patients. How does that affect us? Well, one, I mean, I do think that there's something to the idea that there's some physicians that are heartened by the, you know, the FDA-approved, you know, stamp and the, you know, the quality process required there. I think that you could have, you know, some demand just from that process.
I think more importantly, we've already seen, you know, hospital systems, physicians come to us and say, "Hey, we're gonna implement the IMvigor011 protocol, for our muscle-invasive bladder cancer patients in our practice or in our system," which is lovely. I mean, that it becomes incredibly important for their patients and obviously drives incremental demand for Signatera. The other thing that it does, is, you know, one of the things I've been quite heartened by over the last, call it year or so, is the evolution of MRD and recurrence monitoring, in the mindset of the academic and community physicians as something that we really ought to do. I think a lot more physicians now, really believe that Signatera is pretty inevitable as being part of the standard of care.
This is a new category of cancer care that everyone should get. Over time, I would love it to be, hey, you know, it would be like getting a CT scan. Like, if you had a loved one that had cancer and they said they'd never gotten a CT scan, you'd be quite worried about what's going on. I think that's.
That's where Signatera goes. The way that we get there is by having data sets like this.
As physicians and hospital systems integrate, they center on an MRD vendor, data sets like this are compelling arguments to center on Signatera.
Shifting gears a bit, but maybe a bridging question to women's health business maybe. In terms of the overall $800 million R&D spend, that's you've guided to for this year, it's up 30% year-over-year, meaningful uptick there. Maybe just walk us through the spend priorities. I suppose a lot of this is still on Signatera, but just wanted to get your thinking in terms of how you're rank ordering the different priorities on the R&D side.
Yeah. We're really excited about this. I mean, we remain extremely ambitious in our goals in the R&D operation. There's a very significant effort in new product development across all of women's health, organ health, Signatera. We've got a huge investment in clinical trials for the existing franchises, okay? I think if you just rank to order the dollars, obviously Signatera is going. You know, the lion's share of that clinical trial investment is going towards Signatera to push forward on all these data sets that I've been talking about.
I mean, that's how we're going to be able to show up at every academic conference with a very fulsome set of new data points for physicians and their patients. Beyond that, I mean, we're making, as we talked about on various earnings calls and other outlets, a very meaningful investment in colorectal cancer early cancer detection screening. We've got the FDA-enabling FIND study now that's in full flight, that's actively enrolling. And that's a very significant investment this year, and that's stepped up meaningfully as compared to prior years on the back of some very strong preliminary data that we're able to generate. Those are the main kind of areas.
I mean, product development across the portfolio, clinical trial efforts across the portfolio, both of which the dollars kind of center on Signatera, but there's important investments happening kind of across the business. I would also just mention, alongside that very ambitious bump in R&D investment, overall operating expenses are going to grow about 9.5% at the midpoint this year. Okay? Can there be plus and minus around that? Of course, there can. We're not going to shy away from making incremental investments if they-
If good ideas arise in the middle of the year, things like that. You know, I think you're all seeing on an overall OpEx basis that we're getting a lot of leverage on the business. SG&A at the midpoints is roughly flat, slightly down. Same caveats as I just mentioned. The point is that we've been needing to make very significant investments in the commercial and customer service channels here just to be able to offer, particularly Signatera, but all the products, in a first-class way to every single American that wants the test, i ncreasingly more and more patients globally. We've gotten to a point now where we've got a critical mass of people in the commercial channel.
We've been continuing to generate, to deliver, I think, operating leverage in the business over the last couple of years, and I think that's really comes into stark relief with the guide this year.
Great. The women's health business, you know, Fetal Focus, talked about quite a bit on the quarterly call as well. That's a product that launched into the market. There is a competitive assay, a mother-only assay that's in the frontline setting there as well. Maybe just, you know, tell us your considerations on marketing Fetal Focus. One question we also get is, can Fetal Focus, you know, potentially cannibalize Horizon volumes, or is that sort of more complementary to the overall portfolio?
Well, I think just to take your last question. First, I mean, those types of questions are not really. You might be surprised, but when we're thinking about new product development around the table inside the company, it's not really top of mind. I mean, it's really, you kind of have to start, as we've mentioned in many of these types of settings. You really have to start with, you know, what are the questions, what are the concerns, what are the problems that patients and physicians are having, and how can we solve them? If we can solve, you know, important questions, then you got to go do that.
I think that's got to be your North Star in terms of product development. Having said that, I don't think that there's, you know, it just happens that there's not kind of massive cannibalization between the carrier screening business and the Fetal Focus offering. If anything, it's incremental. I mean, mom will get a carrier screening test, and if turns out she's a carrier for an inherited disorder, she just has an extra option. We can evaluate the fetus for a selected number of inherited disorders, or we can incorporate dad for a second carrier screening test. Either solution is great as far as we're concerned.
Got it. Just briefly on Panorama ASPs and costs, wondering, you know, what levers do you have to push at this point? You talked about reimbursement already being solid for this assay. You touched on that. But just what levers do you have to push ASP, you know, higher at this point, and maybe, you know, costs lower in terms of, you know, sequencers or other chemistry? Any scale improvements?
Well, I think really across the business, I mean, I'm cautiously optimistic that we can continue to drive realized pricing higher. As I described maybe too long of a description earlier. The point is that, t hat doesn't imply that we're, you know, we're raising our, you know, our contracted rates or anything like that. We're just getting reimbursed for covered services a higher percentage of the time. I mean, that's been a major driver for us, for women's health, even in the past year. Very significant improvement in these. We're really a kind of standard of care. If I had a better word than boring, I'd use it. But I mean, products that people are quite accustomed to using, we're still.
We're still making meaningful improvements in the fraction of time we get paid when the test is already covered. I think that's, you know, obviously, there's a lot more green space to run in Signatera, just because of the journey that we're on. I mean, right now covered by Medicare. Can get paid more broadly by commercial payers over time as we get into guidelines. A couple of areas of just immediate low-hanging fruit there include Medicare Advantage plans. Medicare fee-for-service patients, when we have a, you know, a covered test, we submit the claim to Medicare, the traditional Medicare program, and we get reimbursed 99% of the time, like you would expect, like we should. When we submit that same claim to Medicare Advantage payers, the reimbursement rate is more like 80%. Okay. That's pretty disappointing. It's up from what it was, 30% a couple of years ago. We've put in a ton of time and effort, but there's still more effort that unfortunately falls on us to go and execute.
To go and just make sure that we're reimbursed for covered services. That plus kind of this turning the same crank for commercial patients that live in states where there's a biomarker law in place, those two factors give us a lot of activity for us to just continue to drive realized pricing by increasing the fraction of time that we get paid when we should get paid.
Yeah. On continuing on the women's health actually, but maybe in actually an adjacent business to that is rare disease for newborn testing, and you obviously had a product launch there recently. Maybe just give us, how do you think about that market overall?
Well, I think it's a very interesting space. Our history has been one of kind of gradual expansion into adjacencies from areas of strength, either technological adjacencies or commercial adjacencies. I'll give you an example of both. I mean, our first major kind of flagship product was this non-invasive prenatal test. Then we deployed really very similar technology to then launch a what we think is a best-in-class organ transplant rejection monitoring test in the Prospera test. That core technology has a lot to do with how we ended up building Signater. There's technological adjacencies across each of these kind of flagship products. In each of these flagship products, there's actually also commercial adjacencies. We have a very large carrier screening business.
There are a number of labs that offer excellent carrier screening products. We're a leader in expanded panel carrier screening because one orders the carrier screening test at the same time that one orders the NIPT often. Okay? That's a kind of a commercial adjacency. There's a potential for there to be a commercial adjacency in the rare disease space, particularly within hospital systems. We've had to get quite good at making our offering available to hospital systems for Signatera.
When you have a flagship product and you've got that conversation with decision makers around the continuum of care, you know, you have these conversations about what else can we offer. Okay? What other problems do you have? Where can our technology be useful? Got a huge amount of history and experience in this type of testing. I mentioned the carrier screening product. You know, Renasight is another important product that it has some similarities with the rare disease space. That's something that we're actively working on. We're continuing to move forward with that in the field. After we've kind of gotten through kind of a formal announcement of product launch, we're gonna be excited to share more with the investment community as well.
Okay. In the last minute we have here, maybe just coming back to the CRC screening, a large market, then there's MCED beyond that. Maybe just give us your view on, you know, this FDA approval timing for this. There's some competitive products in the marketplace. How are you positioning for MCED given what we recently saw was a trial failure in the space?
Well, I think step one is to understand that the early cancer detection opportunity within colorectal cancer screening is itself a massive opportunity, and I think quite discrete from the overall, you know, MCED market. In colorectal cancer, early cancer detection screening, you got something like 40 million people that hey're just structurally, they're not going to get a colonoscopy. They're probably not going to get the Exact Sciences test, unfortunately. You know? I'm 46. I had a colonoscopy for the first time last year.
I now understand why that is. It's an, it's like an unbelievable ordeal. I work in a company that, you know, serves cancer patients, and I delayed my colonoscopy three different times. I just, you know, I had something to do that I couldn't reschedule and I, you know, I made it but I still had the privilege of being able to arrange my schedule, s o that I could take, you know, two full days off to get this thing done and then recover. A lot of people, like very understandably, just don't have that level of privilege, right? They're gonna need something more efficient. They would rather not do nothing.
The current modalities just don't accommodate, you know, their needs, okay? That's a huge and pretty distinct market. You need to test something like once every three years, so that's something like 13 million people a year t hat need a test, that need something, that are getting nothing, right? They're defaulting to nothing right now because the form factors just don't accommodate them. These plasma tests are very important as a result. I mean, they can make a huge difference to public health as a result. It takes an enormous amount of infrastructure, technical talent, grit, and know-how just to be able to launch one of these products. I mean, there's an enormous technological lift that we've had to go through.
You've gotta pre-spend hundreds of millions of dollars just to get to the end of an FDA-enabling study to see if your product works. It's not something that really lends itself to small startups. You need to be kind of bigger companies. The companies that, you know, have and will have offerings in this space kind of meet that criteria, and so do we. I'm very excited to do, you know, to get to that FDA-enabling, you know, readout and launch a product here. I think that's, you know, one of the ways that we've driven a lot of shareholder value is we've been able to do this internal technology development in large markets and then launch.
When you launch into a large market and you're solving an important problem like that, you know, you go from zero volumes and zero revenues to every dollar those first couple years that you're in that business, these are growth dollars. This would be another kind of secular growth driver for the company that just layers on top of all the other things we have going and really comes at a time in 2028 when Signatera, I think, will just be hitting its stride.
Yeah. Well, on that note, Mike, that was great. Fabulous. Thanks for your time here. We're out of time, but thanks for all the comments.
Thank you, guys. Cheers.