All right, great. Let's get started. Hi, everyone. Thanks for being here. My name is Paige Chamberlain. I lead the specialty diagnostics effort here at Wolfe Research. I am pleased to be joined in this session by Natera. We have CFO Mike Brophy with us. Mike, thank you for being here.
Hey, thanks for having me.
Mike, I got to say, you gave me a lot of material to work with last week, so thank you for that.
Henry and the vultures, is that what you were going to come back with?
Yeah, that's where I was going to start.
Yeah.
Actually, I'll lay out the roadmap.
Yeah.
I say we start with some updates out of last week, and then maybe hit on Signatera a few different ways, and then round out with screening, if that's okay with you. So, you have a new CEO-
Yeah
-effective immediately.
Yeah.
Tell me about Solomon.
Yeah. Solomon was circa the 40th employee that joined the company back in 2011. I think as he mentioned on the call, he shared an office with Steve when Steve first hired him, when this was just an IVF company back in the day. He has led almost every different area of the business since then, from women's health marketing to key pieces of the product and development team. He's probably the one person that's most responsible in the company for the existence of, for example, Prospera. It was really his insight and initiative to make the connection between the NIPT assay and the unmet need that transplant recipients were facing. He had a preexisting collaboration with a key opinion leader in the transplant space at UCSF.
He was able to help to productize a version, an early version of Prospera, get the clinical trial enrolled, and get the readout. That was an enormous kind of next step for the company. In Signatera, he was the original general manager for Signatera. He was absolutely fundamental in the core decisions around how the product would be designed, what type of clinical trials would we run, what types of clinical questions would we answer with Signatera. So, he's been absolutely fundamental to the business in its longer history. More recently, he's served as the president of clinical genomics, and he's been a member of our four-person operating committee. So he's had broad oversight over execution generally in the business. For example, I interact with him all the time, even on things as seemingly distant from his responsibilities as the guide, right?
When we make a decision like how to guide for the year, Solomon's always been involved in that conversation. Everyone knows him. He's deeply steeped in the business. He's absolutely well-positioned to lead us from here.
I think I hear in all of that, like, the why Solomon answer.
Yeah. Why the transition, yeah.
Maybe why now? Could you help us with that one?
Well, I think that, so the one piece of feedback I've heard from investors since the call was that it struck some people as perhaps a bit abrupt, like, why not do a transition period? I understand if you are an outgoing CEO and you're bringing in an outsider, you kind of need a six-month transition period because the newcomer has got to sit in your meetings for six months and learn who all the people are and figure out, like, what is the meeting cadence? What are the key decisions? What are the challenges? What are the opportunities? It's a six months that's absolutely necessary for training of the new CEO. I think what's a little bit unique to us is that that's just totally unnecessary in Solomon's case, as evidenced by the description of his evolution of the business that I just gave.
It's actually much, much more functional for us to make a clean change and have clear decision-making authority handed to Solomon right away, particularly as we kind of go through the rest of the year. We're finalizing things like budgets and key decisions for 2027 right now. To have two CEOs in the building for some period of time, and it's not clear who's making what decision, would actually be kind of a potential source of dysfunction for us, even though we're all friends and we've done a good job historically of kind of managing those types of things in the past. Now, I think the spirit of what investors would be right to ask for would be like, "Well, we want a warm handoff from Steve because he's done such a good job." We definitely have that, okay?
So, one, on a personal level, this also might be a little bit unique about Natera. I mean, you guys can tell me, but we really are all good friends. I mean, we all have deep connection with one another. I've been here 11 years. I'm still the newcomer among the management team. So regardless of what the actual formal arrangement would have been, we would have had this continued access to Steve, and we would have been able to ask him questions and kind of kibitz with him on all the key decisions anyway. But you can look in the disclosure. Steve has a consulting agreement in place with us, and that's intended just to formalize what would have been the arrangement anyway. Like, we will have a continued dialogue with Steve, and we'll get what we need and all the advice that we need from him going forward.
He wants us to do well. I mean, he's a good friend of Solomon's, and he wants this to work well for Solomon, so he's going to be supporting us, and we appreciate that.
Definitely hearing a message of continuity from you, like more of the same and-
Sure
-more of a good thing is certainly a good thing. I guess maybe my last question on this topic, and then we can move on. Steve, to his credit, was a superb operator and led Natera through a pretty transformational period of growth. Can you help us get the confidence that we can expect the same or more from Solomon?
Yeah. First, I totally agree with you, and I appreciate those comments. One of the fun things I've had to- I've been doing over the past bit of time is just sharing all the feedback from investors back to Steve. He won't tell me, but-
It must make him feel good.
-I imagine it must make you feel good. But yeah, he's been tremendous for us. One of the things that Steve, I think, helped to imprint on our culture is the importance of our commercial team in the organization. I think there can be a tendency with companies that are on the cutting edge of science, that are led by technologists, for the sales team, the commercial people, to perhaps sometimes be kind of a little bit of a second-class group. They're not the PhDs, they're not the people that are creating the science or what have you, and that is absolutely not the way that our commercial people interact with the organization. I will get emails from individual sales reps that say, "XYZ didn't go well," and I absolutely send them back an email that day with a thoughtful explanation of what we can do better.
I think some of that comes from Steve knowing, as having been a salesperson himself on the front line, that your commercial people really are your best product people, and they have such a connection to the customers that if you are going to care the way that we care about the customer's experience, you have got to be quite attentive to the commercial people. That is absolutely something that is imprinted on the organization and has served us extremely well.
I will point out that there is an entire architecture of people that have been here. Many of the women's health people have also been here longer than I have been here, longer than the 11 years that I have been here, but that also extends to the oncology frontline team and the oncology leadership team within the commercial organization for Signatera, and all those people are still in place.
Our meeting cadences, the decisions that we make, our approach to how we size territories, how we measure performance, none of those things are going to change. Of course, Solomon has been intimately involved in the shaping of that culture over the last decade and a half, so it is not a surprise to him to understand those meetings, and he has been in them before. All those kinds of decisions, I think we will be able to channel all the things that have made us successful to this point.
Also new news last week was you issued a $6 billion revenue target-
Yeah
-in 2029. That is a little out of character, a little bit unlike you guys.
Yeah.
Why did you do that?
Well, I think one reason to do it is just because the news is a little bit It is a surprise to people, and people can take that in a way that might signal, "Hey, maybe there is something wrong, and I do not know what it is, but it is potential cause for concern." One rationale is just to give something tangible to reassure people and share with them the knowledge that we have internally that everything is going extremely well inside the company. We have never been on a better roll than we have been on just recently and where we are positioned going into 2027. We wanted to give something tangible to reassure people.
I think also, we did this once before in 2022 when we burned $100 million in a single quarter in 2022, and I knew that there was going to be a lot of emphasis on putting a line in the sand on how can we get to cash flow break-even and how are we going to do that. We did that on a call in 2022, and I think it was important for investors, but to my surprise, where that line in the sand was really so valuable was internally, because we came back on a town hall, as we always do after the earnings call, and we shared with our employees everything that we said on the call and what the feedback was from the research analysts and the investors. The company really rallied around that goal in a way that I found quite inspiring.
I am kind of constantly looking for ways that we can treat all of our employees like partners and include them in these goals, and when you treat people that way, they really respond. There is also a dynamic here where Solomon is on the town hall, and he is able to celebrate with the team, "Hey, we have crossed over now for 2026. We are going to generate more than $3 billion in revenue for the first time," and plant the flag and say, "Look, we are far from done. We are just getting started. We are actually going to double revenues between now and 2029. Here are the things that we need to do to make sure that that happens." I think there is a lot of kind of synergy around making that announcement now.
One side benefit I hope that it can inspire for investors is, I know for many investors that have modeled the company carefully and followed, owned the shares for a long period of time, they hear that number and it immediately strikes them as something that would require good execution, but it should be eminently achievable for us. I think there are a lot of investors that just hadn't put pen to paper on 2029, and so you see a number like $6 billion, which is meaningfully above consensus at the time for 2029, and it inspires you to say, "Hey, well, okay, what is Mike talking about?
Is this doable or not?" As you start to kind of build your own volume forecast for the whole business, but particularly for Signatera, and you think about what ASP progression can be for the whole business, but particularly for Signatera, I think it should strike people as a number that is a big goal, and it's just a way station. It's not a terminal point, but it ought to strike you as something that, if given good execution, that is a reasonable target.
Okay, I want to unpack that a little bit because you made the reference, but that revenue target was roughly $1 billion ahead of street at the time. So clearly we're missing something. That's maybe not a surprise. I'm often wrong. But I'm wondering if you could break down the components that you use to get to that number. I hear you guys say, there's multiple ways to get there.
Yeah.
Maybe, what's your favorite?
Yeah. Well, that comes into what are kind of some indicative assumptions one could use to get to $6 billion in revenue by 2029. The simplest one to articulate is what Signatera pricing might be consonant with a $6 billion revenue target three years hence. Well, I put out the number on the call, $1,450 as an ASP for Signatera. Compare that to the current ASP of $1,290. I mean, I hope that strikes people on the webcast and in the room as something that. Would that require good execution for us to get to $1,450? It would. Is it unachievable? Is it pie in the sky? It's absolutely not. It's something that we can drive to through a variety of ways.
One obvious way is we can continue to execute on the submissions we've already put in flight with Medicare and the MolDx program, okay? As we mentioned on the call, we were very pleased to get one recently with liver cancer. There's a long tail of tumor types that individually are a couple percentage points worth of the volume, but collectively make a meaningful impact to our reimbursement, where we need to get Medicare coverage, and we need to get kind of individual dossiers submitted and approved. We've submitted 11. We got the liver cancer, so we've got roughly 10 submitted to MolDx at this point. Our track record with getting those coverage decisions approved has been quite good over the last six years, so we have a sense of how we can do that.
We have a good sense of how high quality the data is that we've submitted and the clinical utility associated with using Signatera in those tumor types. So, we think it'll be good for the system if we can get coverage decisions in those tumor types. If you just did that and nothing else happened, there's a case to be made that that gets you to $1,450 and beyond. So, I would view that as something that is imminently achievable as long as we can execute. We have other drivers. We'll continue to improve the fraction of time we're reimbursed for covered service from Medicare Advantage payers, and we can improve the fraction of time we're reimbursed in biomarker states for commercial units. So, those things are going to continue apace.
As a side note, I mean, it doesn't require you to assume this, but by 2029, I mean, I would like to be in the zone for additional important NCCN and guideline coverage decisions. So, for example, we've got a whole swath of prospective outcomes data already published in colorectal cancer. By 2029, we'll have a number of additional prospective outcome studies published both in Japan and the United States So, that's another kind of orthogonal factor that you could throw in. It's a different way to where you could get to the same place and beyond on ASPs. So, given an ASP, now I'm going to ask you to run your own models on the volumes, because this is a kind of a compounding number over three years, so it's a little bit more complex to tell you a number on volumes.
I will tell you the way, just the pieces of how I did that, is I have got a typical waterfall volume model that includes the assumptions for what are the repeat tests that I expect to get going forward for the patients that are already on Signatera, what is a reasonable assumption for new patient adds consistent with our history for Signatera, and then retaining those patients for a period of time. Pretty quickly, you can kind of get to a waterfall Signatera testing volume number that looks like you have got a range of outcomes there. I think a reasonable case scenario that will require good execution multiplied by $1,450 would get you, for the Signatera piece, in a position where the whole company could be north of $6 billion by that time.
Do you think about the phasing as linear over the next three years, or is there a reason to think perhaps a step change in ASP in one year versus another, or outsized growth at a certain inflection point?
Yeah, it is a good question. I mean, historically, over the last three or four years, it just so happens that the progress in ASPs has been rather linear, and the progress in the Signatera volume growth has been rather linear. If you look back further over our longer history, it will tell you that there is no law of nature that requires linear progress, and I think it is probably likely that you have some periods where you have big step-ups and you have periods where there is more flatness in the ASP, for example.
So, I do not have a particular point of view that says, "Oh, it is just definitely going to be linear," versus, "There will be more step function changes." That is related to the ASPs. I think on volumes, same comment, although the momentum of the repeat volumes does tend to impose more of a linear progression in the business.
I do think that we will continue to just make steady progress as we just steadily read out more and more outstanding kind of prospective outcomes datasets.
Okay, great. Maybe turning to the MRD market broadly, talking about how you build up what the opportunity might be ahead. I am curious for your latest house view on that, because I hear the message of early innings of Signatera, but Signatera is now really big, so that must mean the market is really, really big. So, now with a few more years under your belt, you have more clinical data, there is spots where you guys have NCCN guidelines, more coverage. What do you think about the total testing opportunity today?
Yeah, I think we are still relatively early days. Oh, I thought that was in here. Yeah, I think we are in relatively early days for Signatera. The way that I think about the total number of tests that we can offer to patients over time, just at a very high level, and I concede that there is a number of different ways to do this, but this is just one indicative path, is to just look at total cancer incidence in the United States, meaning how many people get diagnosed with cancer every year in the United States. And that number is something like 2 million people a year, okay? So, that is a number.
Over the course of their cancer journey, most patients get about 10 Signatera tests, give or take, and then there is some that are higher, some that are lower, but on average, over the course of a five-year journey, patients get 10-ish kind of tests. In any one year, I have got five years, six years worth of patients that are getting testing in that given year, okay? So you do kind of have to think about this as a little bit of a waterfall. The way that math works out is on average per year, I think you can take that incidence rate and multiply it by 10, and you kind of get to a kind of an annual testing TAM, okay? For me, that can get you to something like 20 million tests per year.
You can, of course, make haircuts to that based on where you think Signatera is going to be most relevant. So, haircuts that I personally make is, I take a chunk of the stage one patients just to be conservative, and I set them aside. I take a chunk of the stage four patients just to be conservative, and I set them aside. I think the reality is that the data sets that we are presenting enable you to really serve the entire cancer population in the United States, but nonetheless, just trying to be conservative. You get to kind of an annual testing TAM, and then you multiply that by an ASP, okay? So, I think the long-term ASP for Signatera ought to be something like $2,000, okay? Why do I think that? There is not a huge amount of magic behind that number.
Our contracted rates today are something like in the mid $3,000s. Our ASP, as you know today, is something like $1,290. The $2,000 is kind of consonant with the philosophical approach we had around the $6 billion. It is good progress, but it shouldn't be viewed as like pie in the sky or just absolutely flawless future outcomes. I think you can get to $2,000 if there is kind of a meeting in the middle between contracted rates, so that would be an enormous amount of pricing pressure if you think about it, much more than what we ever saw with NIPT. Pricing pressure on contracted rates coupled with broader and broader coverage for Signatera such that the coverage, when you get the test, it is covered 80%, 90% of the time. You can pretty easily get to a $2,000 ASP.
Armed with those two facts, you can easily get to a $20 billion-$40 billion TAM for Signatera. We are going to do north of $1 billion this year. I think that gives you a sense of where we are in terms of the overall opportunity. It is easy to quantify these things in dollars, but I would just stress to you that what is really moving to this organization is the amount of good that we can do for that number of patients and how much we have ahead of us there.
I think penetration we can look at another way too. I think a stat you guys have offered over the years is that roughly half of oncologists have ordered a Signatera test and half have not. Cancer as a disease category is obviously super heterogeneous and treatment is very dispersed. First of all, is that number still up to date? Second, how do you think about the long tail of doctors across community oncology treatment? Is that number ever going to 100%?
I do not think it. Maybe it does not get to 100%. I mean, there are other case studies in other areas of healthcare where you do get to levels that are approaching 90% adoption just because it is close to home for us. NIPT is very broadly penetrated, and the predecessor quad screen in prenatal screening got to something like 95% penetration. It just became a boring part of the standard of care, and NIPT is well on its way to becoming that as well. Those are just kind of older case studies. I think the argument for Signatera reaching that level of penetration is honestly a bit stronger than it would have been in the prenatal space as an example, because I think cancer patients on the whole get more reliable access to healthcare for better or for worse, mainly for worse, compared to our prenatal population, unfortunately.
I think there's an absolute path where you can get to 90% + penetration. Another comparable might be a penetration of CT scans. I mean, who in the audience, if you have a loved one that is going through cancer treatment and they say to you, "You know, I've never gotten one of those CT scans before. I wonder what those are about." You would be incredulous. "What do you mean you didn't get a CT scan?" You get CT scans to get checked up on, you know? This is, I think, an analogy for Signatera. This really is kind of a liquid CT scan that just does a much better job than CT scans do.
I think there's a very clear pathway working within the existing clinical kind of frameworks where people, the way they already get checked up on, that you can get to high penetration. How do you get there? You just got to be great, okay? We got to keep making the product better and better and better. We got to keep obsoleting ourselves at every turn. We've got to continue to be extremely ambitious in the prospective outcomes trials that we're investing in, and we've just got to keep pushing it forward, okay? There's nothing, I mean, you can see me kind of get more excited when I get to that topic. There's a lot of excitement and demand for that internally in our company. We feel very strongly about that, and we're going to continue to pursue that mission.
Okay, I might deflate the excitement a little bit. I want to ask on competition. There's a lot of noise right now. It's an attractive market.
Yeah.
A lot of players want to enter it.
Yeah.
That's, I think, natural. We're kind of at a moment where these other players are no longer just a rounding error, dare I say. What do you hear from your sales force on this front?
Well, just conceptually, absolutely welcome competition. Competition is healthy. It's good for patients. I love it. I'm surprised, honestly, that the competitive environment isn't more severe now than it was even five years ago. I mean, I'm surprised by that. If you look back five years, I've been on the stage multiple times five years ago where the competitive environment looked extremely daunting, where we were not really an oncology company. We did not really have any oncology customers. We had this new idea for a personalized MRD test that we had to convince people that they could actually get and they would actually work, and we could actually deliver it, and we could get paid for it. There's these other companies that are oncology companies that already had these are already their customers, and they're launching an ostensibly competitive product.
Five years on, we're kind of still here. We're still kind of at the starting block as it relates to other players. That won't continue indefinitely because this is a huge unmet need. This is a very important area and opportunity to improve patient care. Look, I just think that we don't spend a ton of time internally sweating what the competition is doing. The best way to deal with competition is just to listen to the doctors and listen to your commercial people. They will tell you what the shortcomings are in the current product that you're offering, and then you've got to take that seriously and just presume that if we don't continue improving, if we don't continue to be a moving target, that someone else will get there. That's what we do.
I think we probably qualify as an extremely paranoid management team in that way, in that we sit around and we think up like, "Hey, what would be cool to do? What are we not doing? What performance specs do we need to hit, could we hit theoretically?" Then you see that in the cadence of our product launches. It's not an accident that we are way down the path here. We've launched an ultra-sensitive version of Signatera, which will eventually supersede the exome-based Signatera, and over time, I think will end up just being the core offering. It's not an accident that we launched a tumor-naive MRD test. Well, there's a set, it's probably small, debatable how big it is. There's a set of patients for whom a tumor-naive test is just the best way to go.
You can choose not to serve them, or you can just offer a great product. We've always tried to do the latter.
Okay, I'm going to ask another way too. We're going to pretend. Say I'm a doctor. I've been ordering Signatera for two, three years, and now I have reps from five different companies coming, say, "Use my MRD test. It's ultra-sensitive. It's this, it's that.
Yeah.
What keeps me ordering Signatera?
Okay, so first of all, it's important to understand that this physician is seeing patients every 15 minutes from 8:00 A.M. to 5:00 P.M., okay? They don't have a two-hour window just to meet with whatever rep wants to get in front of them, right? You've got, and we experience this even with all the success we've had, you get in front of an oncologist, and they say, "Oh, you want me to start using Signatera? Okay, tell me about the outcomes trial that you guys have run, that if I follow this outcomes trial exactly the same protocol, that my patients do better. You have 30 seconds." And you better be able to do it.
You better be able to say, "Well, for stage three colorectal cancer patients, we know that a lot of the polyp development is created by some kind of inflammation cascade. Yet when you try to knock down that inflammation with CELEBREX and you give it to everyone, it doesn't work, and that's disappointing. But you know for a meaningful portion of the population that CELEBREX would be hugely helpful to them. So, which patient should get it? We ran a clinical trial that showed on retrospective, prospective sets that if you just identify who is Signatera positive and you give them CELEBREX, which is free, it's a generic drug, you can have a 40% treatment effect for them." Okay, so I'm not a sales rep, but that was 20 seconds, right?
You've got to be able to just invest in the data so that you can show the doctors how you can improve the experience for their patients. So, when other companies make those massive investments and they wait the years to get the prospective readouts, they'll be able to make that case, and they will earn a piece of the market share. But while they're doing that, we're a moving target. We've got five-year outcomes data now, so if you started now, you could say, "Well, we'll match, we'll be on par with Signatera in five years." Well, five years from now, we'll have 10-year data. We are going to continue to aggressively invest in this so that we have the best datasets, we have the best commercial people, we have the best user experience.
So, we're just going to try to be the best, and I think most oncologists will appreciate that.
Okay, we have negative one minute, so I'm going to ask you one question on CRC screening, and you're getting off easy on multi-cancer early detection. So, you guys just completed enrollment in your FIND-CRC study. I think we'll get data next year was the message. I want to ask your thought process on this. So, you're going to be at least the third blood test to market, which is already sort of the second alternative to colonoscopy. There's stool testing out there at scale. Why your test, and what sort of market assumptions or share assumptions have you guys made that have rationalized the return on this investment?
Well, there are about 40 million people just in the United States that are not going to do a colonoscopy. They are not going to do a stool test. Absent blood tests, they are just going to go without screening. I am old now, I am 47, so I just got my first colonoscopy last year.
You are a terrible example.
Well, listen, I think I understood this issue on a much more visceral level when I, who work at a cancer company, who I receive emails from people over the transom that are my age that have colorectal cancer and they are looking for help. I mean, I am very aware of this issue, and yet I rescheduled my own colonoscopy for nine months. I put it off because I had other stuff going on. Most people don't have the level of privilege that I have where I can just schedule. I have a calendar where I can block it. Most people have to punch a clock. This is a real ordeal to make the time for it, and it was a terrible ordeal. It was like a three-day ordeal to do the prep and do the actual, and then recover. It was a terrible ordeal.
Look, I recommend that you get your colonoscopy, but I understand this fact that 40 million people are not going to get it feels very believable to me. Okay? That becomes a huge unmet need. We got to meet people where they are at, and we got to get them a blood test. You need one of these tests probably once every three years, so that means that there is roughly 13 million people a year in the United States that needs a blood test just to screen them for colorectal cancer. Okay? An aspect of this is that that is a very hard technical challenge to design, to conceive, and deliver a blood test that performs well. You have got to light about $500 million on fire just to get to the starting block. Okay?
Just in the development work and in the massive clinical trial you have to run to get FDA approval. Naturally, that narrows the field in terms of companies that are even capable of delivering one of these things. We are not going to be the only one. There will probably be two or three of these players that will have an offering to go to 13 million patients a year. Those other companies are really good companies. That is great for patients, and there will be constant innovation, and they will win market share. I think our history demonstrates that we are pretty good at this too. I think it is reasonable for investors to assume that we ought to be able to just capture our fair share of that opportunity, and the ROICs flow imminently from that.
I know we are over time, but there is a bigger topic here, which is on early cancer detection more broadly. I think everyone in this room probably knows someone who felt like crap for nine months, went to the doctor a couple of times, couldn't figure out what was going on, and then nine months later, they find out they have non-Hodgkin's lymphoma. That delay can kill you. That is extremely dangerous. We need a blood test that will just rule you out for cancer. So that you can go on with your life, and if you do have cancer, we can get you into treatment quickly. Now, that is an example of a high-risk population that right now, there is nothing for them.
There are 10 of these types of populations where you have some risk factor that should indicate you for a simple blood test to rule you out for your cancer. If you just stack up those patient populations and you compare them to the patient build we just did for Signatera, they are similar sizes. So with the technology that we have built with colorectal cancer as an anchor in early cancer detection, we are in position to roughly double the number of patients, the testing volume that we can serve in a given year via early cancer detection. We are just getting started. We will just be hitting our stride with Signatera, and we will then be doubling our TAM roughly around 2030, 2031. We will have colorectal cancer much quicker than that, but I am very excited about that as the next chapter for Natera.
Good stuff, Mike.
Cool.
Thanks so much.
Thank you for the time. Good to see you guys.