Natera Inc Q2 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Daniel Brennan - TD Cowen - Analyst : Great. Thank you. Congrats on the quarter and thanks for the question. Maybe just on the clinical trial readouts on Altera and GALAXY. I appreciate the Altera readouts delayed just due to the PIs maybe more time. But is there anything to read into this at all from either given the time that they need from either the PFS or the OS that you might see coming out of this trial? And then on GALAXY, OS would be something, I understand this is an observational trial, not a randomized trial. So how do we think about the expectation here if we see an OS benefit, what that could actually mean either for doctor usage and/or NCCN?

Question: Daniel Brennan - TD Cowen - Analyst : Great. And then if I have a follow-up just on pricing. True-ups have been obviously a big driver here in the last two quarters. I know you don't guide for that. Any way to characterize what that opportunity could look like? And then Mike, on Signatera price in the back half of the year, it sounds like I think from the last call, you were assuming flat pricing now, maybe you're assuming a step up in price. Maybe just discuss if anything changed there?

Question: Rachel Vatnsdal - JPMorgan - Analyst : So first up on women's health, free to see the continued progress there this quarter, especially given the typical seasonality dynamics -- so can you break out for us what was the contribution from the fetal test that you guys highlighted? And then also on the Invitae side, can you walk us through how much did Invitae benefit? You talked about some of the increasing of the sales force there. So how should we think about that contribution in the back half?

Question: Rachel Vatnsdal - JPMorgan - Analyst : Great. And then just on my follow-up, you had another really solid quarter on the gross margin front. So I guess, how should we think about this progress continuing into the back half of the year? And can you break down for us, especially on the Signatera side. You've mentioned some of the COGS dynamics. How much of that gross margin progression on Signatera was due to getting into the subsequent test for patients versus that first test where you really do the whole sequencing but on the patient versus further operational efficiencies? And how do we think about that into the back half?

Question: Puneet Souda - Leerink Partners - Analyst : If you don't mind, I'll ask both of them together on Altera, I just wanted to understand perspective from Alex. How should we -- I mean I appreciate that it's getting pushed out. But just in terms of overall benchmarking of this 240 patients trial, 80% powered to deliver DFS at a hazard ratio of 0.67. Is that the right benchmark? You've talked about the MOSAIQ trial before where Natera wasn't involved, but maybe just tell us how should we benchmark this? And then a second question follow-up for Mike is on gross margin. What's behind the 54% to 56% gross margin estimate? I appreciate there is a true-up difference here. But is there anything else beyond that, that we need to consider?

Question: Puneet Souda - Leerink Partners - Analyst : Okay. Got it. And if I could just squeeze a quick one around FMI. With the partnership termination, does that change your volume growth expectation for Altera or any impact on Signatera?

Question: Tejas Savant - Morgan Stanley - Analyst : Sticking with the Signatera theme, Alex, can you share some color on just in light of the delay here and ASCO GI, I think it's January 23. Is early next year the right time frame for when we can expect a top line readout from you guys? And then in terms of framing that readout, right? So should the trial not meet that 0.77 hazard ratio bar, you talked about. Do you think we could still get enough evidence from the subgroup level analysis to demonstrate that Signatera performed as it should and it was the drug that failed to meet the bar. Just any color on those two points would be great.

Question: Tejas Savant - Morgan Stanley - Analyst : Got it. That's helpful. And then just as a follow-up, one of your competitors recently talked about greater physician preference for tumor-nanve approaches in the surveillance setting. Just due to apparently a lack of conviction that a tumor-informed approach can continue to provide relevant results given the time since diagnosis. So I'm just curious as to your take on that. And as we think about your MRD pipeline, you've got a few things in the hopper here. Is that one aspect that you will look to address either via an improved version of Signatera, perhaps a broader tumor informed panel or a tumor-nanve approach of your own?

Question: Tejas Savant - Morgan Stanley - Analyst : Got it. Super helpful, guys. One final one for me. Just on ACOG, Steve, as you think about that as a catalyst, I mean, it's still in the framework, but do you think it happens between now and year-end? Or you just don't know and it's -- there's a possibility that this could slip to 2025? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 08, 2024 / 8:30PM, NTRA.OQ - Q2 2024 Natera Inc Earnings Call

Question: Douglas Schenkel - Wolfe Research - Analyst : I want to just go through a few loose ends on Signatera. So -- actually, I want to come back to the topic of competition but let me put that to the side for a second. What's the mix of first-time tests versus surveillance as we sit here today? When you talk about COGS improvement, I'm assuming that's independent of mix. So that gets better even more so over time as the mix shifts towards more surveillance. And then building off of this, keeping in mind that you seem to be on track to go Signatera revenue over 80% year-over-year. If we think of how you've been tracking on first-time tests, and then think about the annual tail of four more predictable tests per year for surveillance purposes the following year, and then you stack that on top of new first-time test growth. Doesn't that mathematically support an outlook for sustained 50% maybe more volume growth in the year ahead?

Question: Douglas Schenkel - Wolfe Research - Analyst : So I mean I think it was essentially just the COGS improvements that you talked about, that's independent of mix. And I think you just answered that because your mix is stable at 50-50. So I think we're going to like -- yes, exactly. -- yes. My follow-up is on competition. Garden reported data from the COSMOS study yesterday, specificity was 98%, sensitivity was 8. Recognizing that these studies are done in a way where it's hard to make perfect apples-to-apples comparisons. This seems to be well below certainly what we've seen in studies from you especially sensitivity, which, at least to me, looks like it was over 10 points lower. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 08, 2024 / 8:30PM, NTRA.OQ - Q2 2024 Natera Inc Earnings Call That said, Garden is clearly asserting that their study data is actually better than what we've seen with Signatera. Are you seeing anything that suggests this is equivalent or better than what you guys have presented and based on what's out there, what part of the market positioning would be at risk for you and should we be contemplating any moderation in growth as folks potentially contemplate shifting to a study, which -- I'm sorry, an assay that may be more convenient. But from a performance standpoint, I think you'd have to once again view that convenience is more important than performance.

Question: Tycho Petersen - Jefferies - Analyst : A couple of cleanups here. I guess going back to Altera I just want to make sure I understand the pacing here. I think you previously talked about the CRC committee for NCCN meeting this summer and incorporating all tier. Now that's pushed out to next year. How do you think about timing of NCCN? And do you still think this is a driver versus strictly US? So that's the first question.

Question: Tycho Petersen - Jefferies - Analyst : And then, I guess, on use cases. I think last quarter, you talked about some bumps in bladder cancer, ovarian cancer. Ovarian on the back of Medicare coverage. Can you maybe just talk a little bit about some of those newer indications and if you're doing anything around market development there?

Question: Tycho Petersen - Jefferies - Analyst : Great. And then last one. Is it a little bit of a change in strategy on tumor naive for MRD. I think in the past, you talked about spending about $15 million this year on data sets and maybe some readouts just somewhere in the fall. Understanding, obviously, it's a smaller part of the market, not a huge focus, but I think you previously talked about spending on tumor naive.

Question: Catherine Schulte - Robert W. Baird & Co Inc - Analyst : Maybe first on women's health ASPs, just regarding your comments on improving the fraction of tests you get paid on even without guidelines. Does that hold true on [microdels]? Are you seeing improved collections there? Or was that more of a carrier screening comment? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 08, 2024 / 8:30PM, NTRA.OQ - Q2 2024 Natera Inc Earnings Call

Question: Catherine Schulte - Robert W. Baird & Co Inc - Analyst : Okay. Got it. And then for Signatera, you mentioned, I think, over 40% of oncologists ordered it in the second quarter. What percent have ordered it at all cumulatively since launch? And what portion of your sequential volume growth was from new ordering physicians versus penetrating existing accounts?

Question: Subhalaxmi Nambi - Guggenheim Securities - Analyst : Do you believe that the delay in the Altera readout will have any impact on market demand. I don't think so, but just wanted to confirm any signs that clinicians were holding off on adopting pending the readout?

Question: Subhalaxmi Nambi - Guggenheim Securities - Analyst : Okay. That's super helpful. And consistently, our checks on Altera trial, it appears that even if it reads out positive, it could be practice changing just like what you said, a new use case. But if it reads out negative, Signatera ordering behavior wouldn't be impacted because I think they point out the trial design is complicated and there are multiple subgroups. Is this how you're thinking about it internally?

Question: Eve Burstein - Burnstein - Analyst : Great. Two for you. First one, you said that your base case is to add 9,000 to 10,000 Signatera tests per quarter. At this point, though, you've had two quarters in a row with test growth, clearly well above that. So two parts to this. One is part of the reason you've given for anchoring on that 9,000 to 10,000 members because you don't plan to increase your sales force. But you're clearly seeing interest from the market. So why not increase sales force at this point? And then two, given that strong tailwind from surveillance, even if you don't increase sales force, you'll have that working in your favor. So don't you think it's reasonable to increase the base case at this point?

Question: Eve Burstein - Burnstein - Analyst : Got it. As a follow-up -- following up on the partnership with Foundation, you said that deciding not to renew that isn't changing your guidance or your forecast in any way. That partnership made a lot of sense strategically because you could piggyback off the 150,000 or 200,000 therapy selection tests they were doing and Altera is clearly well below that. So if you're not changing your forecast, it makes me think that the partnership wasn't really delivering a ton of value. Why not? And why not fix the things that weren't going right for you? And then what, if anything, will you plan to change about your Altera marketing going forward to try to drive volumes there? Because I imagine that they, in turn, really could drive volumes for Signatera.

Question: Eve Burstein - Burnstein - Analyst : Okay. Thanks a lot.