Natera (NTRA) Q3 2026 Earnings Call Transcript

Steven Leonard Chapman:Hi, everyone, and thanks for joining us this afternoon. As you may have seen by now in the press release, I am stepping down from the CEO role as now is an excellent time to transition to new leadership for Natera. We have had an incredible run during my time here since joining in 2010. My last almost 8 years as CEO have been particularly meaningful to me and I am extremely proud of all we have accomplished in that time. Our revenues have increased by roughly tenfold during my tenure as CEO, creating great value for shareholders and having an extraordinary impact on the millions of patients we serve.

We have achieved all of that by building an exceptional team, who are now in an excellent position to keep executing our plan like we always have. I am very pleased to be handing the keys over to my friend and colleague, Solomon, I hired Solomon in 2011, and we shared a small office in those early years of the company as we try to get our foothold in women's health. Among other accomplishments, he was the key man behind our launch of Prospera for transplant monitoring, and he was the original strategic driver and general manager for oncology we were just launching Signatera.

Given his leadership of our oncology effort, since inception, his breadth of experience across commercial and product focused roles, and the deep relationships he has across our company, he is uniquely qualified to lead us in our next stage of growth. what is next for me? I am going to remain engaged as a consultant here with the company as an and as an adviser to the board. and will be actively involved in making sure Solomon and the team have everything they need to be successful. there is a lot to look forward to. In the near term, we are on track to launch Signatera in Japan, We have several MolDx submissions underway to expand access for more patients.

And we are seeing incredible growth in both clinical and pharma product lines. Next year, we expect to unlock the next major driver for the company and deliver our FDA enabling FIND Study results in early cancer detection. I am looking forward to staying connected here as we achieve that. Okay, now I am pleased to be the first person to introduce Solomon as the CEO of Natera. To take us through the results of an outstanding third quarter. Solomon?

Solomon Moshkevich:Steven, I accept the handoff with great honor and admiration for what we have accomplished together in the past 15 years under your superb leadership. When I first joined the company back in 2011, the launch of Panorama, we were only about 45 people. And as Steven mentioned, he and I shared an office where we could hear each other making cold calls and solving problems for IVF centers around the world. How far we have come Thank you for your mentorship, and I am grateful to have your support over the months to come. To everyone, I am honored to serve as Natera's third CEO. In Natera, we are building an enduring health care company.

Transforming the practice of medicine by enabling earlier, more targeted interventions for those who need it. And by reducing unnecessary treatment for those who do not. In the coming years, we will improve both treatment and prevention. By generating more diagnostic insights from every blood and tissue specimen, developing novel technologies and applying them in entirely new patient populations, integrating more seamlessly at the point of care, and doing it globally. It is a worthy mission, and I am proud to be on it with our 6.5 thousand employees. To all of Natera's employees, clients, partners, investors, and most importantly, to our patients. Thank you for your trust. Turning now to the highlights from the quarter.

It was an exceptional quarter. And processed approximately 1.1 million tests in the third quarter. Up more than 22% from about 894 thousand a year ago. Clinical MRD units reached approximately 316 thousand compared with 202 thousand in the third quarter of last year. for growth of 56%. That was up about 33 thousand units sequentially over the second quarter, which makes this the second quarter in a row with more than 30 thousand units sequentially. And adjusted for the Q1 weather impact, that inflated the Q2 number, I think this is the best quarter we have ever had for MRD clinical growth.

We generated $794 million in revenue, up approximately 34% over the $592 million that we reported in Q3 of last year. But excluding the true ups, revenues grew >40%, year over year. Gross margin was approximately 65% driven by strong organic improvements in both COGS and ASPs. True ups fell to about $32 million this quarter down from $52 million in the second quarter. Gross margins held at 65%, but excluding the true ups, gross margin was at 63.2%. Which is up about a 140 basis points just from the second quarter. We generated cash again in the quarter, and narrowed our losses significantly even as we continue to invest aggressively in our future growth.

Given the strength of the results, we are raising the revenue guide by approximately $140 million at the midpoint. Which means we expect to be above $3 billion for the year. Mike will take you through the specifics of this later in the call. Finally, I am excited to set a bigger long term goal for the company: we are setting the goal to double revenues in the next 3 years. Reaching $6 billion in revenue in 2029. I look forward to spending more time on this call to discuss how we will get there. Okay. On the next slide, we will get into the business trends starting with overall volumes. I think this chart tells the story well.

In the third quarter of 2026, we processed about 262 thousand tests. This quarter, it was about 1.09 million. More than 4 times that level. And it is a new company record. Obviously, Signatera continues to accelerate, and I will cover that in a moment. But we were also pleased to see continued growth in women's health and organ health. Where women's health posted another strong quarter of mid- to high-single-digit growth and organ health grew volumes by almost 40% compared to this time last year.

Driving that growth in women's health is the continued momentum from our product launches, Fetal Focus late last year, together with the new integrated deep sequencing feature that delivers results at the lowest fetal fractions. In organ transplant monitoring, we are seeing growth coming from the Medicare coverage of surveillance, which was announced in July. And which took effect on August 30. This has had a positive impact on both volumes and ASPs. On the oncology front, the next slide shows clinical MRD volumes in more detail. Approximately 316 thousand units in the quarter including both Signatera and Latitude MRD. As I mentioned earlier, this means we added about 33 thousand units sequentially versus Q2.

You will recall that last year, we made a big push to get the commercial team up to scale that is similar to other specialty diagnostic labs. And those reps were fully onboarded and productive by Q2. Given the number of productive reps in the field, was held basically flat, I am particularly pleased to see the volumes continue to ramp. what is driving that growth is that we continue to see excellent increases in both new accounts and new patient starts. As well as continued performance and subsequent repeat testing. This acceleration is happening across tumor types.

Colorectal and breast cancers remain our largest indications but I continue to be really encouraged by the contributions from the new indications because it demonstrates broader adoption of Signatera in clinical practice, and also because it increases revenue opportunity as we expand coverage to additional tumor types. On the next slide, we show year-over-year unit growth in MRD. Meaning how many more clinical MRD units we process in each quarter versus the same quarter a year earlier. I like this view because it corrects for a lot of the noise that creeps into a quarter to quarter comparison.

Seasonality can be an obvious 1, but then there is also weather like the January storm this year that held back Q1 and inflated the Q2 sequential number. So when you compare against the same quarter last year, those variables tend to wash out. And I think what is left is a very clear picture of the underlying trend. Which shows that Q3, where we grew 113 thousand units year-over-year, represents real acceleration over growth in prior quarters. Okay. Let's turn to revenue on the next slide. This shows that our total revenue progression over time GAAP revenues of $794 million were up about 34% year over year, and up 42% excluding true ups.

This growth compares favorably to prior years despite a larger revenue base. Which is really impressive when we think about the continued pace of expansion. Growing across 3 businesses hitting roughly 65% gross margin, generating cash, and investing in a deep pipeline of new products at the same time. Growth at the scale that is so diversified and pays for itself is rare. Driving this revenue growth in Q3 has been the improvements in ASPs as well as volumes. Signatera ASPs stepped up again to approximately $1.29 thousand up from $1.27 thousand in the second quarter.

And we continue to see a long term path to $2,000 ASP and beyond, as MRD is adopted increasingly into the practice guidelines, and as insurance coverage further expands. Like we saw with the new Medicare coverage in liver cancer. Turning to the next slide. We show gross margin fraction. Reported gross margin was approximately 65% up about 20 basis points sequentially. Excluding true ups, gross margin was 63.2%, which is up about 140 basis points from the second quarter. So that is a very positive underlying execution. There are a few drivers here. We continue to see a sequential step up in Signatera ASPs, as I just mentioned.

But also, the lab continues to deliver leverage as we scale volumes, on some of our recent product launches. As we pick up efficiencies, and as we renegotiate with some of our large suppliers. We got a lot more work to do here going into 2027, and Mike will describe some of those efforts in a few minutes. Moving to the next slide, Medicare has granted coverage for serial use of Signatera in patients with early stage hepatocellular carcinoma or HCC. In a surveillance setting. This is a disease that affects nearly 40 thousand new patients per year in The US, of which approximately 3 quarters are diagnosed as early stage 1 through 3.

They think it is a meaningful population that is about the same or slightly larger than muscle invasive bladder cancer. The coverage was granted based on the strength of our published data from a multi institutional study in JCO Precision Oncology. Which showed that Signatera significantly outperformed standard of care imaging as well as the serum biomarker AFP. HCC is generally treated by GI oncologists and GI surgeons. Naturally, our sales and medical affairs teams are already well established within the GI community, so that means we are well positioned. it is worth noting also that this is the first new indication covered by MolDX since we announced the lung cancer coverage in early 25.

We have been working with MolDx on this indication since the fall of 25, approximately a year ago. And we expect many more to come. Which are currently in progress. We are pleased that the new MolDX team is appreciating the strength and the validity of our real world evidence. But looking ahead, the next big reimbursement event that we expect will likely be in Japan. Not in The US. In Japan, we are on track to launch of colorectal cancer and muscle invasive bladder cancer. As you can see on the next slide.

We were pleased to announce regulatory approval of bladder in the third quarter and now we are working with the health ministry to finalize reimbursement and pricing. Where we expect to have an update at the JPMorgan conference, if not sooner. Colorectal and bladder indications have now been consolidated into 1 pricing discussion. With the ministry, which we think is a positive development and we expect the number of covered time points per patient to differ by indication. Our commercial team and partners in Japan as well as the medical community itself are poised and ready we have a green light to start offering the test to clinics.

Moving to the next slide, Over the last 9 months, we have seen a real surge in biopharma demand for our MRD technology, in clinical trials. After several years of relatively flat pharma revenue, the 70-75%, over all of 2025. With a strong Q4 expected as well. IMvigor011 trial, really, helped open the floodgates. Readout last year and the companion diagnostic approval this year proved that MRD guided trials are feasible and that Natera can deliver on the regulatory front. We have since announced a string of Phase 1, 2, and 3 pharma studies. With more that are not yet public. Many of which are recruiting directly from our commercially tested patient population.

We are also seeing real momentum in matching patients to clinical trials. As well as data licensing and trial design services that are built on our real world data asset. And we think the time will come when FDA adopts Signatera MRD status as a primary endpoint or even a surrogate endpoint. Which can be worth billions to a drug developer and can be lifesaving for patients. I expect pharma and data licensing partnerships to increase meaningfully in 2027 and beyond. Our investments in the tech, the team, and the capacity that our pharma clients need has been a key driver for us adding OpEx through the course of this year compared to our initial plan.

Furthermore, we think the debate over Signatera's technical leadership and analytical performance is largely settled now after the launch of Signatera Genome with phase and structural variants. Which has certainly helped in biopharma as well. Before I hand it over to Alexey, I would like to expand a bit on the goal that we set out at the top of the call to double our revenue to $6 billion by 2029. As you know, it is not our typical practice to set out these longer term financial targets. The last time we did this, we set a line in the sand back in 2022. That we would reach cash flow breakeven in 2024. And we hit that goal.

We did not achieve that by making miracles happen. We simply executed on the plan that we had in place, and we remained focused on delivering world class products clinical validation data, and commercial execution. that is the same approach that we intend to use to hit $6 billion by 2029. When I look at the core growth drivers, the volume and ASP potential in our core oncology portfolio, the expansion into global markets, including Japan, and momentum in pharma and data licensing, slightly more modest growth from our nononcology portfolio, I think this is a highly achievable target even with minimal contribution from our emerging cancer screening business.

Furthermore, if we execute on this plan, we expect to achieve profitability as well. Growing our way into it just like we did with the cash flow breakeven target that I mentioned before. And with that, I am gonna turn it over to Alexey Aleshin. Alexey?

Alexey Aleshin:Thanks, Solomon. Moving to the next slide. This quarter, we are completing the most significant upgrade to the Signatera products since launch. I wanna spend a moment on why it matters. When we integrated phase variants into Signatera, the question was whether we could take the most clinically validated MRD tests in the field and push its sensitivity to a level that had not been achieved before. The answer is yes. Signatera genome with phase and structural variants has an LOD 95 sub 1 part per million and we are detecting ctDNA well below that. Less than 1 tumor fragment in 10 million. Not long ago, most of the field considered that out of reach for a clinical assay.

More importantly, the clinical data is now arriving. And it is exceptional. You will see this assay behind several of the ESMO readouts on the next slide. Performing across cancer types, and the cadence will accelerate because we have embedded it across sponsored studies, as well as pharma partnerships. Pharma interest has also been broad and immediate. It has already been selected for several global phase 3 programs including the AFT-70 / NAVIGATE study. So the launch is on track, we are building the next generation of Signatera evidence on the most sensitive platform in the field. Moving to ESMO on the next slide. This was 1 of the strongest meetings we have had.

25 abstracts featuring the Natera technology, 9 oral presentations, including the presidential symposium, and simultaneous publications in Nature Medicine and ESMO Open. The theme across the data is consistent. Signatera is no longer just prognostic. It is changing treatment decisions. In Sagittarius, an ongoing phase 3 trial of a ctDNA guided adjuvant strategy in high risk stage 2 and stage 3 colon cancer patients we saw an early look at the physician's choice arm. Among the first 205 patients, 1 in 3 had their adjuvant plan changed after a negative Signatera result and 87 percent of those changes were de escalations. Being moved off oxaliplatin entirely.

The primary readout is still a few years away, but the behavioral signal is already clear. Signatera is changing how CRC is managed. In Volga, an AstraZeneca funded phase 3 trial in bladder cancer and exploratory retrospective analysis on the Signatera GENOME with phased and structural variants product, showed that patients who were Signatera negative before cystectomy had a 24 month event free survival of 91%. Identifying an ultra low risk population that in the future may benefit from de escalation. Including bladder preservation, This is now the third Phase 3 in muscle invasive bladder cancer alongside IMvigor011 and KEYNOTE B15 to show consistent results with Signatera in this cancer type.

Professor Tom Powles of Barts Cancer Institute 1 of the leading voices in bladder cancer and the presenting author of Volga, said that ctDNA is becoming an increasingly important tool in our armory in bladder cancer, and that role only grows as the field moves toward bladder sparing approaches. And across 10 tumor types, a Signatera guided reflex strategy to liquid comprehensive genomic profiling delivered actionable biomarker findings. At the moment of molecular recurrence. We believe this will open up a new indication in MRD-guided patient management.namely identifying resistance mutations, ahead of clinical recurrence. When patients are potentially most likely to benefit from early therapeutic intervention. Turning now to breast cancer.

Where we continue to step up our investment as shown on the next slide. Last quarter, I introduced SIGNAL-ER101. The first interventional trial AFT-70/Navigate in partnership with Genentech and the Alliance Foundation for Cancer trials of that list. Here's the clinical problem. In stage 2 and 3 ER positive HER 2 negative breast cancer, higher risk patients receive a CDK4/6 inhibitor on top of endocrine therapy. After definitive treatment. These are difficult, expensive drugs and many of the patients receiving them were already cured. Navigate asks whether Signatera can identify who may be able to step down from this type of treatment.

Navigate is a natural complement to the SIGNAL-ER101 study which holds back the CDK4/6 inhibitor and adds it only when Signatera turns positive. Navigate tests the same principle in a slightly different patient population. With randomization and with the next generation oral SERD durvalumab, as the endocrine backbone. Together, the 2 studies approached the same question from both sides. The response from key opinion leaders around the world has been tremendous. And it is a testament to the level of evidence we are committed to generating. Navigate is 1 of the many potentially practicing changing studies we are investing in.

Our sponsored study portfolio is expanding into endometrial immune therapy optimization, lung, and renal cell cancers with several slated to open over the next few quarters. We will announce each as it opens. From a business standpoint, breast is our second largest indication. And the path to broader guideline inclusion and commercial coverage runs directly through trials like these. On the next slide, we highlight progress in our next tier of cancer indications. Because after years of investment in these histologies, the data is finally maturing. And is generating real excitement in the clinic.

In head and neck cancer, 3 recent peer reviewed publications showed excellent performance across both HPV positive and HPV negative disease types with a 100% specificity and this data builds on the prospective phase 2 SYNERGY trial presented last February. This is especially important given that some other labs are limited to monitoring only HPV positive head and neck cancer subtypes. A minority of the population. While with Signatera, we are seeing comparable performance regardless of viral status. In lymphoma, a new Blood Neoplasia public covered 144 patients across 14 subtypes. And showed 100% positive predictive value for treatment response monitoring versus 62% for PET-CT scans. As well as detecting recurrence months ahead of imaging. Why does this matter?

Colorectal and breast get the most attention because they are the biggest indications. But head and neck and lymphoma each add tens of thousands of new US a year. And in both indications, recurrence is hard to catch with standard surveillance techniques. This is exactly where there are highly specific tumor informed tests adds the most value. Finally, 2 milestones in early cancer detection as outlined on the next slide. First, the FIND Study. We said in May and August that we would complete enrollment in the third quarter and we did. The study is fully enrolled with 30 thousand patients in the PMA cohort.

The population we needed for a definitive colorectal cancer readout which we are progressing towards in 27. Second, in October, the FDA granted breakthrough device designation to our multi cancer early detection assay. We are pleased to see the agency recognize the data behind the program and the designation gives us a more collaborative expedited path forward. Both programs are on plan and positioned to support FDA submissions. We will have more to share as the data matures. With that, let me hand it over to Mike to walk us through the financials. Mike?

Michael Brophy:Great. Thanks, Alexey. The next slide is a summary of the financial results for the quarter. Solomon touched on the revenue growth, which was >40% once again this quarter ex true ups. I was pleased to see the true ups come down meaningfully in the quarter as this shows we have been able to incorporate some of the recent ASP outperformance into our quarterly revenue accruals. Gross margins tell the same story where ex-true ups would make significant progress on the underlying organic gross margins as we described. I was pleased to see our losses continue to narrow even as we invested in future growth.

You can see our losses narrowed substantially compared to Q3 and even more so compared to our third quarter of 2025. I think that gives you some sense of the future potential of this business to scale. The next slide is a breakdown of where the spend is focused in both R&D and SG&A. What sticks out to me in the SG and A stack is a lot of our investments are now much closer to being fully scaled in terms of our commercial build out for oncology which we paired this year with a step up in our investments in the team to respond to all the pharma and data demand Solomon described.

Within SG and A, we also have a number of cash and noncash adjustments related to items that I would argue do not have a big impact on operations going forward and will not necessarily repeat. each year. On the R&D stack, what strikes me about this chart is how forward looking a lot of this investment really is. We could scale this back by 70% or more, and it would not really harm the business for the next 2 years.

Given the speed with which we are growing gross profit dollars in Signatera, we have the ability to invest in longer duration, truly practice changing clinical trials that will further cement Signatera as the gold standard for many years to come. Of course, the largest single example of our future ambitions is the spend for early cancer detection. We think the FIND Study can be the anchor that establishes an entirely new growth for the company, and the guidance now describes how we now have breakthrough device designation in a range of populations that will once again massively expand the size of our addressable markets.

At the moment, of course, it is more than a $100 million in spend that generates zero revenue. So investments like this tend to hide the success we are already having in achieving scale just for the time being. Let's get to the guide on the next slide. Given the strength of the third quarter, we are raising our full-year 2026 revenue guidance to a range of $3.05 billion to $3.35 billion up from the $2.85 billion to $2.91 billion on our last call. that is an increase of $140 million at the midpoint, now clearly in the $3 billion range for the full year, which is an exciting milestone for the company. The guide takes our usual cautious approach.

We are assuming steady ASPs and continued volume growth. And as usual, the guide does not include any true ups. I think we will continue to have some contribution from true ups in Q4, but we will continue to leave them out of the guide for simplicity. On gross margins, we are continuing to hold steady centering at 64% to 66%. I think there is some scope for continuing progress on the COGS components we described earlier, and that is balanced by leaving true ups out of the model for the guide.

On OpEx, in addition to the ramp of our clinical business, the team showed you the in initial results of this enormous influx of pharma and data business demand we have seen this year, catalyzed in part by the readout of IMvigor and its subsequent publication in the New England Journal of Medicine. This is great news for all the reasons we described, And in order to support this demand, we have accelerated a lot of investments in our pharma specific offerings, commercial team, and operations that drive both CapEx and operating expenses higher this year even compared to the ambitious plans we had in place earlier in 2026.

We are going to bump the top end of the range of R&D by $25 million, and I remain biased toward the top end. That bump reflects the expanded effort in pharma and data services the timing of enrollment of a number of MRD clinical trials that we have been able to accelerate, and costs associated with the FIND trial. On SG and A, we are going to bump from $1.225 billion to $1.3 billion at the top end. We have had some onetime expenses related to legal spend that, since they are now actuals, I want to incorporate in the guide at this point.

Along with additional investments we have made in the pharma commercial teams and some new commercial initiatives for Signatera Clinical, that we think can pay dividends as we move into 2027. Overall, I think we have some room for outperformance on the top line given the strong start we have had in Q4 for Signatera volumes. If we can continue to make progress on margins, I think it will be possible for us to continue to deliver another quarter of positive free cash flow and improving EBITDA in Q4. Given the momentum we are seeing now, I expect 2027 to be another growth year across the board. For preliminary planning purposes, I would stick with our standard approach to revenue.

Presume we can grow the same number of units we grew this year, and hold ASP relatively steady. I am more optimistic than that specifically for Signatera ASPs. For example, I think the win we announced this week in liver cancer bodes very well for several of our other MolDX submissions. But at this point in the forecasting cycle, it is prudent to recognize that diagnostics can be a tough business, and there is no rule that ASPs always have to improve any linear way despite our success in recent years. On gross margins, for now, I would pencil in the same range as we are guiding for 2026.

In a middle of the road scenario, I expect a few puts and takes on gross margins. I already mentioned ASPs, which have the potential to outperform particularly on Signatera. On COGS, I think we are well positioned to continue to make progress along the same types of work streams we have described with this Q3 result balanced with the potential that demand for some of our newer products like Fetal Focus and Signatera GENOME come in ahead of schedule.

As we continue to experience higher COGS on those new products in the immediate term. it is important to understand that we would be willing to weather some short term pressure on COGS because we have development efforts already in flight to reduce the COGS for these new products over the next 18 to 24 months, and we have ample room to significantly grow ASPs over that same time horizon. I have got a very modest assumption for true ups in this base case 2027 scenario. I expect we will continue our efforts to sunset those true ups. On OpEx, we are going to keep our foot on the gas.

We discussed the huge inflow of demand we are seeing for our pharma and data service offerings, and we have accelerated a bunch of these high ROIC investments there to meet our customers' needs. We have got a big year scheduled for MRD and early cancer detection trials. In addition to the development work, readout, and FDA submission work for FIND, Solomon, and Alexey mentioned the breakthrough device designation. We have now secured in a broader range of populations for early cancer detection. On the commercial side, we will selectively add to our oncology efforts and largely hold our Oregon Health and Women's Health team steady.

I think the net impact of all these initiatives imply OpEx growth in the 10% to 12% range next year, which should allow us to continue to be cash flow generative while deepening our competitive advantages in each of these business areas. Finally, I feel great about the $6 billion revenue target Solomon described. When we look at the multiple near term catalysts for Signatera, the volume and ASP potential in our core oncology portfolio, together with more modest growth from our nononcology portfolio, plus significant momentum in pharma and data licensing I think this is a highly achievable target even with minimal contribution from our emerging cancer screening business.

So with that, let me pause there and then hand it over to the operator for questions. Operator?

Operator:We will now begin the question and-answer session. Please press 1 again. We ask if you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Dan Brennan of TD Cowen. Your line is now open.

Dan Brennan:Great. Thank you. Steven Solomon, congratulations on your respective news today. Maybe Solomon would you say your top priorities are to ensure Natera's continued success? And any ways that we might see your leadership or strategy take a different tack than Steve's?

Solomon Moshkevich:Dan. Thanks for the question. You know, I have I have been here for 15 years. So you know, all the strategy and the decisions over that time, you know, I have been involved with most of those if not all. You know, you are not gonna see any big radical change We wanna stick to the formula that is worked for us. Which is to continue to provide great service for our customers, generate practice changing data, and make sure that our products are the best they can be, and the test results are the most trusted. So.

And I think if we just execute on what is in front of us, and, you know, keep our eyes focused on that. Gonna be really successful.

Dan Brennan:Okay. Thank you for that. And maybe just on the big picture, the $6 billion opportunity, it is like a 25% CAGR, and think you mentioned the CRC screening is really not included or not much in there. Any more color what is assumed for, say, a signature volume target out there in ASP and, you know, Wall Street's gotten intoxicated with, you know, Natera coming through with material beats every quarter. To speak to any of the conservatism that might be baked into that $6 billion guide, what would be some of the levers?

Solomon Moshkevich:Yes. Thank you. I think we mentioned on the prepared remarks that you do not have to imagine any big miracles. To hit the $6 billion. We have to continue executing on the commercial plan. there is certain studies, I think, are poised to read out You know? We have catalysts coming from that. In terms of ASP, you know, we mentioned that we can hit that 6 billion really without getting much beyond $14.50 ASP. So Mike and I and the team think that there is upside to that as well. But, you know, I really think that we are set up for success here, and Mike, if there is anything you wanna add to that, please go ahead.

Michael Brophy:Yeah. I mean, thanks for the question. I mean, as I mentioned in my prepared remarks, I feel like this is a. it is an aggressive goal. it is a goal that we have set out to kind of galvanize the company around. And it is also meant to just communicate that we. We are on a great role. We are-- Someone mentioned the ASPs. Mean, if you think about, you know, current ASPs around $12.90, with the flow of news that we can have, over the next few years, I feel like $14.50 is imminently achievable. Starting with MolDX, broader coverage in biomarker states. Of course, over that time horizon.

I mean, I will be disappointed if we cannot get into a few larger clinical practice guideline areas. In The United States. So I think we are well set up on ASPs. On volumes, I think it is gonna require good execution, but it does not require some heroic departure from the performance you have seen from us so far. Mean, we have a real dynamic here, on volume growth with Signatera, where you have got a base of patients that are already on Signatera, and then they are getting repeat monitoring from us. So that ends up being kind of a important bolster for growth, a driver for growth. As the business continues to scale.

So like I said, it is a strong goal. it is meant to galvanize, the company. But imminently achievable.

Dan Brennan:Great. Thank you.

Operator:Your next question comes from the line of Puneet Souda of Leerink Partners. Your line is now open.

Puneet Souda:Yeah. Hi. Solomon, congrats on the role. And maybe just following up on the on the $6 billion target. I mean, just wondering how are you thinking about pacing of the trials and, I mean, over the next few--what I am trying to get to is cadence over the next 3 years. Should we think about 2028 and 2029 stepping up with revenues from screening, or do you just continue to expect MRD sort of carrying majority of the growth even into 29? Just trying to understand how are you thinking about products that you have? Obviously, you have a great franchise with MRD. And also, you know, very well established position with women's health.

So trying to understand from a product perspective, how should we think about the growth over the next 3 years within this construct of this plan?

Solomon Moshkevich:Puneet, yeah, thank you for the question. On how we get to that, target. There are several clinical trials in the near term that we expect to read out. In fact, there is, you know, there is probably dozens, a few that might really move the needle. But a lot of the big trials that we have been talking about recently, the SIGNAL trial we talked about last quarter, AFT 70 that we just discussed here, you know, the. Many of the pharma studies that are just starting to take off now, those are not going to read out for several years, right? So those are not required in order to hit the target in 2029.

Those are trials that set us up for continued long term growth. Well beyond. And, you know, that is something that we think is super important. You know, Natera is investing heavily to change practice and we think that is the right thing to do. Now similar story on the product side. Because as everybody knows, we are investing heavily and we are optimistic about early cancer screening. But given the timelines there, with our plan to read something out from the FIND trial, late next year. You know, and then go through the process with FDA and then commercialize you know, realistically, that is gonna be a relatively small contributor in 2028 and 2029. Relative to the overall target.

So you know, we do think just you know, staying focused on the existing businesses, significant growth opportunity, not only in The US, but ex-U.S., increasing ASP, driving volume, improving customer service, and you know, I think that is the way that we get there.

Puneet Souda:Got it. And then, look, I am getting a number of questions just given the change here in management. So just if you could bear with me. In terms of this decision, if you could talk about. Maybe Mike can comment on this or how this decision sort of came about, timing of this and any color or context you can provide around that. I think it is important Really, you know, it is exciting to have. Solomon, I think, has a great understanding of the business. So excited about that, but just want. I am getting a number of inbounds on that.

And lastly, Mike, anything on 2027 as an investor investment year, do we should we expect OpEx to step up again, for 2027, versus the guide that you are providing? Thanks for taking my questions, guys.

Solomon Moshkevich:Yeah. Thanks, Puneet. So as we discussed before, you know, the company is so well positioned right now, thanks to the past multiple years, of great leadership from Steven. Steven and the board in dialogue together agreed that the time is right. For a leadership transition from a position of strength. So you know, that is I think that answers the first question. Mike, do you want to take the second 1?

Michael Brophy:Yeah. Sure. So on. For 2027, I made quick reference to it in the prepared remarks. As it stands right now, I. I am expecting OpEx kind of in that 10% to 12% growth range. Off of. In 2027. Off of 2026. And I do view that as us keeping our foot on the gas We have got some significant investments to make in ECD and MRD clinical trials. That I think would be the single largest drivers of that OpEx growth. And I think SG&A's growth, I expect to be you know, to be relatively steady compared to the r and d growth. Okay. Alright. Thanks, guys.

Operator:Your next question comes from the line of Daniel Markowitz of Evercore ISI. Your line is now open.

Daniel Markowitz:Hey, guys. Good evening, and thanks for taking my question. Firstly, congrats, Solomon and Steven, on a great run. I wanted to ask first on the HCC coverage. Decision this week. Could you update us on the remaining MolDX submissions and the aggregate potential revenue contribution to 27 and 28? I think it was initially sized at about a $253 million to $1 billion opportunity. I imagine the volumes in those cancers have grown significantly since then. So how would you size that today, and how should we think about the phasing of recognizing that opportunity?

Operator:Dan, for your question.

Solomon Moshkevich:We are we are really excited about the coverage decision in HCC. Significant cancer type, a lot of unmet need, difficult to detect, recurrences often with traditional tools. And, you know, this is a process that we have been in with MolDX now as I as I mentioned, for about a year. So when I look at the data behind that submission, relative to the data behind many of our other submissions, I am I am feeling pretty good about what to expect over the coming months. Now, you know, in terms of solidifying the timing, which 1 would come in what order, that is just not something that we really know.

And we just gotta keep doing our best working with MoldDx, responding to questions, and strengthening the evidence wherever necessary. Or the interpretation of the evidence. So in terms of, you know, contribution over time, Mike, is that something you wanna pick?

Michael Brophy:Yeah. I mean, I think in terms of the absolute contribution, I am in a similar place. You know, it is these are in aggregate these volumes will end up representing a, you know, a large chunk of our Signatera volume. So I think the TAM I feel better than ever about it. And to your point, Dan, I think, you know, you could argue for higher TAM even now as the volumes continue to evolve in favor of the slant tail. I think getting HCC in the door, I think, you know, I was hugely encouraged by that. We have got you know, 9, 10 additional, submissions currently in flight with MolDX.

And I think that can be an important driver for upside to Signatera ASPs compared to anything else we have talked about so far on the call today.

Daniel Markowitz:that is helpful. And then just 1 follow-up. Can you help us think about the gross margin trajectory into 2027, 2028? And I guess now 2029 is on limits too. But as ASPs improve, you have the MolDx cancer reimbursements pulling through, which should be a nice incremental gross margins. How should we think about balancing that versus the newer gross margin dilutive products hitting the market such as Signatera GENOME and Fetal Focus and the overall of the gross margins over the next few years?

Michael Brophy:Mike, do you want to take that? Yeah. Great. Thanks. I will take that. Yeah, no, I think that is that is the right setup. I mean, I feel better than ever about reaching the ultimate goal of kind of getting to 70% plus gross margins, and that is really informed by the stability of our contracted rates. And our ability to move forward just getting just getting reimbursed, an ever greater percentage of the time for Signatera. As we move through these MolDX coverage, decisions and then ultimately as we get in guidelines. So I think that ASP trajectory of kind of $2,000 long term for Signatera.

70% gross margins, I think that will ultimately end up looking conservative, particularly as it relates to Signatera. ASPs. In the immediate term, you are right. There are some potential trade offs that we would be willing to weather around the incremental COGS impact of some of these newer products. The reason why we would be willing to weather it is that these are ultimately very solvable COGS impacts. Over an 18 to 24 month time frame, we feel very good about the projects we have in flight, to reduce the cost of goods sold even for these newer products.

And over that same time horizon, you are gonna get the ASP benefits that more than swamp the incremental COGS required to deliver the test. So it may very well be that the timing kind of lines up the ASP improvements come in and the COGS improvements. Also kind of flow in line with kind of a linear kind of increase in demand for the new products. But it also may be the case that we just get more demand earlier in this time horizon. Than kind of a linear forecast would suggest. that is okay. We are gonna weather that. We are gonna do the right thing for the, you know, for the customers and the patients.

And that is why those are kind of puts and takes just in the immediate term for 2027. Beyond 2027, you know, I think that you will kind of have a trajectory kind of toward that 70% gross margin target as I described. Great. Thank you.

Operator:Your next question comes from the line of Casey Woodring of JPMorgan. Your line is now open.

Casey Woodring:Revenue is included in that $6 billion target in 2029, maybe just share kind of what you are expecting from a growth rate from now until then. And then, know, Mike, you talked about raising OpEx in the quarter partly related to data and the 11-12% increase in OpEx next year includes building out the data business. I guess, can you just elaborate on where that investment is being allocated and what that kind of operational lift looks like in order to build that business out more?

Michael Brophy:Hey, Casey. Thanks. I think I heard the first part of your question, at least on my end, got cut off, but I think I understood you kinda want just the components like, what contributes to the growth. To the 2029 target? And so, look, there, I mean, I think, know, this basically requires business as usual good execution across the board. So it is gonna require us to do, you know, continued steady growth in the women's health and organ health areas of the business. It does not require, you know, significant additional ASP expansion in either area of the company. And then Signatera, I mean, I think we have kinda covered the components of ASP and volumes.

Again, kind of very good execution will be bolstered by the fact that we have an increasing base of repeat customers. That will help us get there along with you know, all the datasets that we have in flight that will. I think can support us getting into selected additional clinical practice guidelines, which would help both volumes and ASPs. Given that we are at kinda 102 right now, I do not think that 64 is. You know, I think that. Again, that kinda gives you a sense it is a good, but achievable. A bit of execution from us over that time horizon.

Casey Woodring:Ask your second question again. I think it was on OpEx, but, again, your line broke a little Yeah. Sorry. No, I was asking about data. Just, like, what is included in pharma and data in the $6 billion target and then in OpEx, just maybe talk a little bit about what you need to do to build that business out further? And how much investment is needed there. Sorry about that.

Solomon Moshkevich:Yeah. Solomon, do you wanna you wanna comment for a sec? Sure. Yeah. Yeah. I would be happy to. So as we were saying on the call, you know, we see a lot of opportunity and momentum right now in the pharma and data business. So, you know, for 2029, I would say that is. You know, that would have to be several hundred million dollars of contribution in 2029. So, you know, I think we are well on our way to that with the right team.

And with just the incredible inbound interest as the field moves towards a totally new understanding of how to stage patients how to consider treatment dynamics, So, you know, I think that is an inevitable trend. that is gonna hit drug development and how people think about how people measure the success of treatments in different populations. And also how you set up the trials, right? So, you know, what is driving the interest in the data asset? First of all, Natera has a An incredibly unique and valuable data asset. We have tested now over half a million patients. We have multiple time points per patient, and many of them we have associated clinical data.

For all of them, we have either tumor or excuse me. Either genome or exome sequencing on the tumors as well as the normal DNA. And so that is just a very unique view at disease dynamics in response to different treatments over time And that information is super valuable. For a drug developer who is trying to design a trial who is trying to determine, you know, what is the right population for my trial, how many patients do I need, what time points do I test, and what percent do I expect them to be positive or negative, And so that. All that information is sitting in our data asset. And is developing over time as well.

So the type of investments that we need there are several I think, you know, in more data abstraction and curation especially in real time for different types of projects. More scientists who can help our customers evaluate and analyze the data in the way that they need, certain software tools, and then ultimately, you know, I think we are going to see that growth. So Mike, I do not know if there is anything you wanna add there.

Michael Brophy:No, I think that was that was thorough.

Casey Woodring:Got it. Thanks, guys.

Operator:Your next question comes from the line of Subhalaxmi Nambi of Guggenheim. Your line is now open.

Subhalaxmi Nambi:Hey, guys. Thank you for taking my question. Solomon, congratulations on the new role. So what are some of your formative experiences that you have had that will inform how you operate as CEO?

Operator:Thank you so much for your question and your kind words.

Solomon Moshkevich:So I have to draw on all the experiences that I have at Natera previously. You know, my number 1 principle is to have integrity and honesty and accountability for myself and for our teams. I think we have incredible people at Natera who work really well together. But as the company evolves over time, and changes, you know, we need new ways of working together. We need new processes and I have been a part or a leader for developing those processes over time as we went from you know, 40 people when I joined to 6.5 thousand people now. And doing that, and, you know, being able to work through problems together and overcoming challenges.

You know, oftentimes, I found that the hardest times are the ones that reveal true character of a team. And that is where Natera has come through many things together. And I think we are so well set up for success going forward. Thank you for your question.

Subhalaxmi Nambi:I am excited for that, Solomon. Thank you for that. Business question, there has been some consolidation announced in the prenatal market and now a larger infrastructure competitor, Labcorp will have a fetal recessive testing assay with Cell-Free DNA Does this change anything for you in terms of the competitive landscape for prenatal business at all?

Solomon Moshkevich:Yeah. Thanks for your question. Certainly, you know, it is a change in the market, but it does not really change anything significant for us. We have been competing with Myriad and LabCorp for years. And for us, this is a continuation of that, but, you know, with a different flavor. Certainly, there is there is some potential change and dislocation in the market right now, which is enabling conversations and inbound interest that, you know, that is it is good. it is a positive signal for us. And for the business on the on the women's health side.

But overall, I think we have to continue doing the things that we know will satisfy our customers and our patients and continue to innovate. Perfect.

Subhalaxmi Nambi:Thank you so much, guys.

Operator:Your next question comes from the line of Tycho Peterson of Jefferies. Your line is now open.

Analyst:Hey. Thanks. I will add my congrats on the transition. Maybe Japan, ahead of the launch here, can you just help us frame what you think successful launch looks like? and can you think about the reimbursement pathway?

Solomon Moshkevich:Sure. Thanks, Tycho. We are. We are very excited about the launch coming in Japan there is multiple reasons for that. The. You know, the population especially in colorectal cancer, is unusually high. They have cancer, about 150 thousand cases per year, which is, like, equivalent to what we see in The US. The Galaxy trial was run in Japan as well as having sites in the IMvigor011 trial on the bladder side. So these are clinicians who understand the technology well, who many of whom have used it if they were in the trial. You know, over 100 sites when you look across both of those studies were in the trial.

And the guidelines from the Japanese medical society is already strong. For colorectal cancer and really already looking towards a pan cancer adoption of MRD testing. So I think, you know, when we think about the dynamics early in launch in Japan, there is a lot that makes us think this is gonna be at least as fast adoption as we saw in The United States, if not faster given all the things that are already in place that we did not have when we started in The US. On the reimbursement side, we are also feeling optimistic. I would say that, you know, we do not know yet. So, obviously, we. You know, there is nothing to report today.

But relative to our ASP in the United States, where, you know, we think we are gonna be able to get pricing that is accretive to what the ASP is we see in The US. And historically, Japanese ministry pays pretty well, like, you know, comparable to what you would see from US Medicare. We will see what comes in, but certainly, we are expecting something that is gonna be accretive to ASP. Mike, is there anything you wanna add to that?

Michael Brophy:No, I think, again, that was that was thorough.

Analyst:And then follow-up on Signatera. Yeah. I know you have had a number of questions here, but I guess, where are we from a mix perspective, CRC and breast versus newer indications? And do you think about head and neck and lymphoma in terms of mix perspective? Does Genome with phase and structural variants add cost? When you kind of roll that out? And then lastly, just competitive dynamics. you have obviously a number of competitors coming in. Including Tumor Informed for the first time. Just talk a little bit about how you think about the competitive landscape here over the next year.

Solomon Moshkevich:Great. Thanks. Why do not I start, and then Mike and Alexey, you could add as well. On the mix, you know, colorectal cancer and breast cancer continue to be very strong growth areas and number 1 and number 2 contributors. But we do see an increasing share from other cancer types some of the ones we mentioned on the call today. Lung cancer, immunotherapy monitoring, bladder cancer, you know, these are areas that we have already had coverage and continue to grow well.

So there is just so much opportunity And, you know, 1 of the things that we have been talking about now for years with the broader community is that once a community oncologist experiences Signatera, in a particular cancer type in their practice, you know, if they have that moment, which most physicians eventually do, you know, that they understand how to apply that technology. To other cancer types. And that organic flywheel, you know, just continues, which is which is excellent. And as I mentioned in my prepared remarks, you know, sets this up well as we get expanded coverage in the new cancer types.

On the Signatera genome side, as Mike said, you know, we do expect increasing adoption of the genome signature genome with phase and structural variants. But I think that is something that, as Mike said, we are, you know, we are prepared to weather. I actually think that is been a little bit slower adoption. Than we had expected until now and, you know, has been fine for gross margins. I think that could you know, that could change as we head into the early months of the launch with phase and structural variance because there is a lot of excitement. in the community, but that is all kind of baked in. We are ready to plan.

And especially as new patients, you know, slowly but surely become a lower mix or lower percentage of the overall mix of tests. Relative to subsequent tests that also kind of dilutes the effect. And then on competition, you know, again, competition is something that we welcome in the space. We have been competing in the market against other laboratories providing MRD testing for years. So we do not see any big change right now. Right now we are. You know, we are remaining focused on our core principles, which is make sure that the tests work, you know, as well as they possibly can.

Make sure that the clinical data is being generated and it is solid, and then make sure that our commercial teams and our support and infrastructure make it as easy as possible to order So thank you for those questions. Mike, anything you wanna add there?

Michael Brophy:Nope, once again, thought that was thorough. Thanks for the question.

Operator:Thank you. We have reached the end of the Q&A session. This concludes today's call. Thank you for attending. You may now disconnect.

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Natera (NTRA) Q3 2026 Earnings Call Transcript was originally published by The Motley Fool