Natera, Inc. Q1 FY2022 Earnings Call

Welcome to Natera’s 2022 First Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode. Following management’s prepared remarks, we will hold a Q&A session. As a reminder, this conference call is being recorded today, May 5, 2022. I would now like to turn the conference call over to Michael Brophy, Chief Financial Officer. Please go ahead.

Thanks, Operator. Good afternoon. Thank you for joining our conference call to discuss the results of our first quarter of 2022. On the line, I am joined by Steve Chapman, our CEO; and Solomon Moshkevich, General Manager of Oncology. Today’s conference call is being broadcast live via webcast. We will be referring to a slide presentation that has been posted to investor.natera.com. A replay of the call will also be available at investor.natera.com. Starting on slide two. During the course of this conference call, we will make forward-looking statements regarding future events and our anticipated future performance, such as our operational and financial outlook and projections, our assumptions for that outlook, market size, partnerships, clinical studies, opportunities and strategies, and expectations for various current and future products including product capabilities, expected release dates, reimbursement coverage and related effects on our financial and operating results. We caution you that such statements reflect our best judgment based on factors currently known to us and that actual events or results could differ materially. Please refer to documents we filed from time to time with the SEC including our most recent Form 10-K or 10-Q and the Form 8-K filed with today’s press release. Those documents identify important risks and other factors that may cause our actual results to differ materially from those contained in or suggested by the forward-looking statements. Forward-looking statements made during the call are being made as of today, May 5, 2022. If this call is replayed or reviewed after today, the information presented during the call may not contain current or accurate information. Natera disclaims any obligation to update or revise any forward-looking statements. We will provide guidance on today’s call but will not provide any further guidance or updates on our performance during the quarter unless we do so in a public forum. We will quote a number of numeric or growth changes as we discuss our financial performance, and unless otherwise noted, each such reference represents a year-on-year comparison. And now, I would like to turn the call over to Steve. Steve?

Great. Thanks, Mike. Let us get into the highlights on slide three. As you can all see from the press release, we had another stellar growth quarter in Q1. Total revenue came in at $194 million, driven by strong volume and ASPs. Year-on-year product revenues increased by roughly 58% and 14% sequentially from Q4. Pro forma for the one-time $28 million Qiagen benefit in Q1 of last year, total revenues were also up 57%. Test process grew north of 40% year-on-year and more than 10% sequentially versus Q4 of last year. Keep in mind, this should be tough comparisons. 2021 was a breakout year for Natera, and yet the business continues to accelerate. We will get into the drivers shortly, but we are seeing excellent growth across the business, especially in oncology with our Signatera clinical volumes. Given the traction we are seeing in late Q1 and so far in Q2, we are able to raise our revenue guidance for the year. We started the year at $770 million to $790 million, and we are now forecasting total revenue of $790 million to $810 million for the year. We are rapidly getting operating leverage on the investments we have been making in R&D and commercial channels, which has given us more clarity on when we can get to cash flow breakeven. Mike will spend more time on this later in the call. As a reflection of our confidence in the company and the substantial upside value creation we believe is achievable, the Board, executive leadership, and I opted to take our compensation in stock for the balance of the year. Our lead independent director also bought 5 million in shares on the open market. On the heels of a strong 2021, our first quarter results show we are firing on all cylinders, and our increased guidance shows we are confident in our ability to maintain the momentum. Turning to a few notable highlights from the quarter, we have had a slew of exciting milestones in our transplant business, which has seen record volume levels on the back of 10 peer-reviewed papers published in the past roughly six months. We have recently announced the publication of the VALID study, a prospective clinical validation of Prospera, we announced a 1,000 patient real-world study with Renasight and we announced a multi-site clinical validation of Prospera Heart published in the Journal of Heart and Lung Transplantation, a leading journal in this space. A few weeks ago, we were also very pleased to announce that Dr. Sangeeta Bhorade joined us as Vice President of Organ Health Medical Affairs. Dr. Bhorade is a leading academic physician in the lung transplant space who has founded the Lung Transplant Program at the University of Chicago and separately at Northwestern. Dr. Bhorade joined Natera as the latest addition among other recent notable medical leadership hires including Dr. Michael Olymbios, Medical Director of Heart Transplantation and Dr. David Ross, Medical Director of Lung Transplantation. Dr. Olymbios was previously a member of the Heart Transplant program at Cedars Sinai and the author of many peer-reviewed publications in heart transplant. Dr. David Ross is an academic transplant pulmonologist credited with starting one of the first lung transplant programs at Cedars Sinai in 1989 and has served as the Medical Director of the Lung Transplant Program and Professor of Medicine at UCLA. We also continue to make excellent progress in oncology. We were very pleased to see an update in the landmark circulate data in an oral presentation at the Society of Surgical Oncology 2022. The key update there was Signatera is now showing a 75% detection of recurrence in Stage II and III patients with a single time point MRD blood draw at four weeks post-surgery versus the previous analysis from ASCO GI in January, which showed a single time point detection of 68%. Also, the circulate papers are now in submission to a top-tier medical journal, which is incredibly exciting. As we have said before, getting the paper published was a key step on the path to NCCN guidelines. So I am really proud of our collaborators and the Natera team for moving so quickly to get the paper submitted. In addition, we have had some good breast cancer data presented recently at AACR further validating Signatera performance in triple-negative and HR-positive diseases in collaboration with Genentech in their I-SPY 2 consortium. And we also have an exciting lineup coming to ASCO this year. On the Signatera reimbursement front, we completed the first pricing measurement period for our ADLT rates since the price was initially established at $3,500 last year. As of April 1, 2022, the ADLT rate for Signatera has now been revised upward to $3,920. Obviously, that gives an immediate boost to Medicare reimburse volumes, but I think it also strengthens our position with commercial payers over time. Moving to slide four, let us get into some of the trends. The next slide is a longer run view of our quarterly volume progression. I think this view gives helpful context to the rapid progress we have made. For example, you can see the volumes are more than twice what they were as recently as Q1 of 2020. Of course, a big reason why we have been outperforming is the product launches in oncology and Organ Health are progressing well above our expectations. For Signatera, we have seen tremendous growth, particularly in the clinical volumes. We have gotten a significant boost from the ASCO GI circulate presentation on colorectal cancer and we are still seeing significant organic uptake across a broad range of cancer types as word of mouth spreads. Clinical ASPs are also ahead of plan. We had a hypothesis that our Medicare mix might increase as we got further into our launch and received more community-based units. That appears to be happening. We are rapidly getting scale on the investment that we made in our oncology commercial channel, and Mike will spend more time on this later in the call. We had a great quarter for the Organ Health products as well, particularly in kidney transplants, and we are just starting to see the benefit from our efforts in the other organ types as well. That strength has continued, and we are currently seeing record Prospera volume levels over the past several weeks. These results clearly demonstrate that we are on track, and more broadly, I think the concept of cell-free DNA as a tool for monitoring graft health is taking hold. On the next slide, you can see the revenue trajectory has outpaced the volume trends, as we benefited from positive overall ASP trends over the past few years. The left-hand side of the slide shows the year-on-year revenue growth we have seen in Q1 versus prior years, and clearly Q1 of 2022 was very strong. The right-hand side puts into perspective the revenue trajectory of the business has been on just the last four quarters. As these new products are starting to ramp, we are encouraged to see that we are quickly getting leverage on the channels we have built in transplant and oncology, and Mike will talk more about that later in the call. Okay, let me cover a few slides on our recent progress in Organ Health. We are now seeing the fruits of our labor with data generation in Organ Health having published 10 peer-reviewed papers in roughly the past six months. On the next slide, our DEDUCE study in heart transplant was published in the Journal of Heart and Lung Transplantation, a premier high-impact journal in this space. This multi-site clinical validation study Prospera Heart demonstrated the test's ability to identify acute rejection in heart transplant patients with an AUC of 0.87 in the perspectives arm of the study, which included more than 700 samples. We are continuing to build robust medical evidence with our ongoing NIH-supported DTR study and the Natera-sponsored DETECT randomized controlled trial. I want to spend a bit more time on Renasight, which is a test we haven’t spent much time on in the past. Renasight is a hereditary gene panel that addresses the large market opportunity in chronic kidney disease. There are approximately 37 million patients in the United States living with chronic kidney disease, and about 750,000 patients are newly diagnosed per year. In 2019, a large-scale validation study of multi-gene testing was published in the New England Journal of Medicine and showed that about 10% of chronic kidney disease patients have a genetic etiology, and of those, 89% would have had a change in clinical care as a result of their genetic test. This is exceptionally high clinical utility, a very large area of healthcare. To date, testing has been mostly offered on a limited basis within academic centers. We introduced Renasight to the nephrology and transplant community because we thought we could make a big impact on patient care by making genetic testing accessible at scale. Our first study for Renasight was published in the American Journal of Nephrology, analyzing the commercial experience of the first 1,000 tests with positive findings found at 21% of patients tested. We also had previously invested in a large-scale definitive multi-site prospective trial called RenaCARE and are excited to say that we are almost finished with enrollment. RenaCARE will assess the clinical utility of Renasight, and we actually expect to submit the results of the study for publication in late 2022. I want to make one other comment about our financials before I turn the call over. The RenaCARE study is a good example of a larger trend in our overall business where, in many cases, we pre-invested into a big future opportunity. While this impacts our near-term operating expenses, many of these are one-time expenses, like RenaCARE where the trial cost goes away once the study is over, but the longer-term upside opportunity remains. Another example of this is the randomized controlled trials we are doing in heart and lung transplants. Once those are done, you don’t have to do them again, or similarly, we have invested in a very talented nationwide oncology sales force, despite them being very underpenetrated in their geographies. This creates leverage because now, operating expenses can stay relatively stable as volumes grow and we can chart a path to cash flow breakeven. Mike will give more details on this in his section later in the call. With that, let me now hand the call over to Solomon to provide an update on oncology. Solomon?

Thanks, Steve. We have made significant commercial progress so far this year in oncology, as more physicians adopt Signatera and as each physician gains experience and then starts to apply the test across more and more of their patients. We have laid the groundwork over the past five years to be in a position that we are in now, where we are also presenting high-quality clinical data at nearly every major Academic Oncology Conference on the calendar and expecting to publish over 20 peer-reviewed publications this year. One case in point is the CIRCULATE-Japan trial that Steve mentioned earlier. The latest presentation at the SSO conference this year updated the analysis to show recurrence detection in stage II and III CRC at a single time at four weeks post-op of 75%, compared to the 68% that was presented earlier in January. This was in addition to the groundbreaking predictive data, where MRD positive patients clearly benefit from adjuvant chemotherapy, while MRD negative patients saw no significant benefit. Getting this data submitted for publication is an important milestone because we think it’s publication will improve the odds of NCCN guideline inclusion, which in turn could drive another inflection point in test adoption and coverage. We were also pleased to announce the launch of the prospective randomized circulate U.S. trial, which is now open for enrollment across the country. If successful, this study will add further evidence on top of the Japanese trial to definitively prove that Stage III CRC patients who test Signatera negative will not benefit from additional treatment. In Q1, we also announced a key milestone in our bespoke CRC registry trial, which now has more than 1,000 patients enrolled at over 100 sites. The pace of enrollment in this study has been strong, which reflects the excitement in the field from both physicians and patients incorporating Signatera into their care. The study will enroll roughly 2000 patients who have undergone surgery from Stage I all the way up through Stage IV of CRC. The study's designed to measure real-world clinical impact, focusing on how the test results impact clinical treatment decisions, as well as clinical outcomes. We believe this study will help drive positive Signatera coverage among private payers, and we plan to be in a position to start analyzing interim data in the fall this year, with a potential readout expected in the first half of 2023. Many of you will recall that we initiated these efforts back in 2020. So this is a great example of how our first-mover advantage can yield prospective clinical data that will be difficult for others to replicate upon entering the field. Moving on, at AACR this past April, we had two presentations for Signatera and breast cancer. The studies again demonstrated the strong prognostic value of ctDNA in triple-negative and HR-positive breast cancer. In a BEATRICE study of 186 patients conducted in partnership with Genentech, we showed that Signatera can detect recurrence in triple-negative breast cancer this time with lead times up to 30 months ahead of imaging. In the report from the I-SPY 2 Consortium, we analyzed over 700 time points from over 200 patients showing early clearance of ctDNA after just three weeks of neoadjuvant therapy is a significant predictor of pathologic complete response. This adds to the utility of Signatera in the neoadjuvant setting in breast cancer in conjunction with imaging to help identify patients who are not responding to treatment and may benefit from an earlier change in strategy. We are also looking forward to a productive ASCO Conference this June where we will have seven posters presented. More information to come once the data embargo is lifted. But right now, I can highlight that we will present data in lung cancer, breast cancer, Merkel cell carcinoma, soft tissue sarcoma, and renal cell. In the context of the strong clinical pipeline, I want to touch on a new industry draft guidance statement issued by the FDA earlier this week on the use of ctDNA for early-stage solid tumor drug development. The FDA draft guidance document is a positive step for the industry and for Natera, because it lays out a pathway for drug developers to incorporate MRD testing into their clinical trials for early-stage solid tumors, both to enrich the intent to treat populations and to accelerate the trial readouts using ctDNA. The document specifically references the potential for using multiple ctDNA time points or serial testing to establish patient eligibility and the potential for ctDNA to be used as an early endpoint to support drug approval. Its written statement is in line with guidance that the FDA has previously communicated to Natera and to our drug development partners, which really helps solidify our vision of a world where Signatera will be used regularly across all phases of drug development to accelerate the approval of life-saving therapies. We are still just at the beginning of that adoption curve. But I am pleased to say that our pharma pipeline continues to gain strength and diversity in addition to the Phase III trials IMvigor011 and ZEST that are currently enrolling. We have been engaged with the FDA on multiple fronts, including pre-submission meetings associated with our Breakthrough Device Designations, the investigational device exemption that we just received to enable the CIRCULATE U.S. trial, and active participation in regulatory and industry consortia including Blood Pack and the Friends of Cancer Research. Finally, let us take a look at the coverage roadmap for Signatera. Nothing significant has changed on this slide since our last update. We have multiple submissions into Medicare for additional indications to be covered under the LCD and we are on track for our plan to get additional tumor types covered this year and next year. Meanwhile, we are making good progress towards gaining initial private payer coverage. Private payers are evaluating their own populations and starting to realize the benefits of covering Signatera, both to improve clinical outcomes and to improve health economics. Again, we believe that the publication of the CIRCULATE-Japan data and potential inclusion into the NCCN guidelines can really help move the needle on that front. Now, I am going to hand the call over to Mike to review the financials. Mike?

Thanks, Solomon. The first slide here is just the financial detail also contained in the press release. Steve covered the major growth in revenues we have seen over the last year as we stood up the commercial teams for the transplant and oncology call points. The drop in licensing and other revenue just reflects the one-time Qiagen in Q1 last year. So, pro forma for that result, the licensing and other lines also grew meaningfully year-over-year. It’s the same story for gross margins. Note this comparison is pro forma for Qiagen. So you can see gross margins on a repeatable basis improved year-on-year. I think that’s important to note because the gross margins are temporarily weighed down by all the Signatera volumes we are running, which implies continued strong gross margin leverage from the products in the transplant and women’s health call points. A lot of patients are getting their first Signatera test compared to where we will be as the launch matures. This means currently a relatively high mix of people are getting expensive upfront exome, which should level out over time. One positive note is that we are already ahead of schedule this year on our ASP forecast for Signatera. Last year, you will recall Signatera ASPs were in the low 500s. We have seen a jump up into roughly the mid-600s so far this year, driven by expanded reimbursement and our Medicare mix in colorectal cancer continues to expand, as we reach further into the community setting. As we have talked about in the past, that is still an extremely immature ASP for this product, particularly in light of our new ADLT raise that Steve described. The future evolution of Signatera is clear to us. We see volume mix moving toward repeat plasma tests. The upfront setup costs going down and, of course, we think there’s a lot of progress to be made on ASPs as coverage expands and our patient mix reflects a higher mix of Medicare patients. The R&D and SG&A lines reflect key investments for the launch of large clinical trials and commercial channel expansion. I will spend more time on that in the next few slides. Note that cash burn was elevated in the quarter, largely due to timing dynamics. Q1 is usually a larger cash usage quarter for us. But that seasonal dynamic was amplified this year because of the large increase in volumes we processed in March, so we experienced the cost of those tests and we booked the revenue, but it takes more than a couple of weeks for that testing volume increase to translate into cash. The overall cash burn guide for the year remains the same, as I will cover on the next slide. Okay, great, let us get to the revised guidance. On revenues previously, we were at $770 million to $790 million. We are resetting that range upward to $790 million to $810 million. We continue to see very strong sequential quarterly progress on Panorama and Horizon. In addition, we are very encouraged by the rapid volume uptake for Signatera and Prospera. Given that Signatera volume is ramping this quickly, you might expect this growth to result in near-term pressure on gross margins and cash. However, we feel comfortable holding these target study given the positive ASP trend for Signatera and the continued traction we are getting on the rest of the products. We are keeping the expense line guide flat, despite the higher revenues and volumes, because we are getting scale on these investments, as Steve described. And as a reminder, we expect to see the normal seasonality in the women’s health business for Q2 is stable versus Q1 and then Q3 and Q4 grow nicely. On the next slide, we have learned a lot in the last five quarters or so, as we have built out the commercial teams and grown the business dramatically. With those results in hand, we can now apply a lot of the forecasting rigor we have developed over the last decade and been growing in NIPT. While we still have a lot to learn, we can now build the volume forecast bottoms up from sales territories based on our own experience. I think the recent results demonstrate that our existing products and commercial team can drive very significant volume growth for years to come. That means we should only need to grow SG&A in the low-double digits over the next few years to support bigger territories and gain even more scale on the lab and shared functions of the business. This also means we can focus our R&D efforts on high ROIC projects, including version of the existing products, expanding the lab and investing in prospective clinical trials. While these projects require sizable initial investments, particularly in 2022, the results of these projects tend to be reasonably predictable, low technical risk, and high ROIC endeavors. Those of you that followed us in the years from 2017 to 2019 know that similar R&D projects helped us drive gross margins from the low ‘30s to the high ‘40s that we are at today, and we think we can do that again. So that’s the background that informs the path to cash flow breakeven. A stable commercial team is poised to drive further growth in large, under-penetrated market opportunities where we have already built a leadership position. We think we have a very clear path to get to cash flow breakeven between $1.3 billion and $1.5 billion in revenues over the next few years even with relatively minor improvements to our ASP and COGS. Our cash usage should go down steadily as we get closer to breakeven, and we expect cash usage to go down meaningfully from 2022 to 2023. Over the longer term, we think there is substantially more revenue growth in our future and we believe long-term gross margins above 70% and operating margins above 25% are very achievable. So I think that lines up really well with our existing balance sheet and we feel like we are in a very good position to execute that plan. So with that, we are very excited about this quarter. Happy to share with you. I will hand it to the operator for questions.

Our first question comes from Tejas Savant from Morgan Stanley. Your line is now open.

Hey guys. Good evening and congratulations on the strong start to the year. Mike, to begin, I have a couple of points for clarification on the guidance. Regarding the ADLT code adjustment for Signatera, should we assume that is fully included in the increase, or are there any offsets we need to consider, such as supply chain disruptions or shipping delays as we progress through the year? Additionally, I wanted to ask about the cash burn reduction you mentioned for 2023 and beyond. Could you clarify what is included in that, particularly regarding the development of the primary care channel for cancer screening?

Thank you for the question. Regarding the ADLT rate, it's a great update for the business and is included in our guidance for this year. However, the full benefit of that ADLT rate might not be felt in the volumes even this year because it's linked to the recurrence monitoring indication. Initially, you'll start with Signatera in the adjuvant treatment window, which lasts for the first six months as part of bundled payments. After that, once you are in remission, you'll move to the recurrence monitoring stage. As our business grows over the next couple of years, a larger percentage of our volume will be eligible for that ADLT rate. So, while it's accounted for in the guidance, the business needs to develop further before the full effect is realized. Regarding cash burn and operating expenses, this reflects the current sales teams and modest growth, not aligned with the rapid revenue growth. It does not include plans for a complete build-out or a separate primary care effort, which we do not expect to need. On expanding carrier screening, there are technical challenges and hurdles to overcome. However, we are confident that we have an excellent primary care call point because we have the leading OB-GYN network in the United States. Long term, we aim to leverage that channel for expanded carrier screening, but we need to first generate data and make further progress before making commitments.

Got it. That’s very helpful. And then on the base business, one of the questions that I recently got was just around implications of this Roe v. Wade decision. Would it be overturned by the Supreme Court and every state starts making its own laws? How do you see that impacting first slope and also the eventual penetration that you can get to for average risk and IPD adoption? And then a quick follow-up on NIPT as well, any updates on that MGM partnership and how that has evolved since the news came out a couple of months ago?

Yes. Let me comment quickly on the Roe v. Wade and then maybe, Mike, you can talk about the things on the billing side. So, on the Roe v. Wade, I think there are already states that have more restrictive policies and we haven’t really seen any impacts on our NIPT testing overall. And just a reminder, there is a significant amount of benefits that people can get to improve care from getting NIPT, for example, with the George syndrome, treating the baby at birth with calcium could prevent hypocalcemia and prevent seizures. So I think the Roe v. Wade really doesn’t factor in the vast majority of cases. But even in states where they are more restrictive, we haven’t seen an impact. Mike, do you want to take comment about billing?

Yeah. Just on the billing side, I mean, we talked and linked on the March call in terms of the PA volume point to the vendor really has transitioned as we turn the page into 2022 because prior authorization is largely receding as a variable in the women’s health business, now that there is going to be full ACOG support for NIPT in all risk categories. So I expect that we will just continue to evolve into a smaller piece of the business.

Got it. Very helpful. Thanks for the time guys.

Thank you. Our next question comes from the line of Max Masucci from Cowen. Your line is now open.

Hi. This is Stephanie Yan for Max Masucci. Thanks for taking the questions and congrats on a great quarter. To start off, can you give us some detail about the volume and demand trends you have seen for your Empower offering and any cross-selling trends you are seeing and more generally how some of the newer more targeted women’s health offerings are being received?

Yeah. Sure. I will take that. So, Empower is a hereditary cancer testing. We are seeing there is interest from physicians to order that test from Natera. We did a pilot, I think in the kind of 2020 timeframe, and then we did a full launch that in 2021. And we are seeing good uptick, particularly in the women’s health sector, which I think is an area where we are poised to do well, just given our commercial footprint. And then on the remaining women’s health side, I mean, the vast majority of volume that we perform is Panorama noninvasive prenatal testing and then Horizon carrier screening testing. And we are still seeing the demand there would be very, very solid, because we have continued to support the products with a very significant amount of peer-reviewed data. One of the key highlights on the peer-reviewed data side was the publication of the SMART study for non-invasive prenatal testing. So that was actually published in the Gray Journal in January. I think as everyone knows, the SMART study was the largest multi-state prospective study that’s ever been done in the field of non-invasive prenatal testing and the results were really just incredible. We think that publishing peer-reviewed evidence is exceptionally important and that is driving uptick amongst the base.

Got it. Super helpful. And also, as we see new draft and final coverage determination for the new cancer types in oncology and the new organs and transplant applications you are pursuing, can you give us a refresher around how long it takes to earn coverage under an umbrella LCD and what that implies or how quickly you can start getting paid and from the new indications in oncology and transplant pursue?

We have established coverage for kidney donor-derived cell-free DNA testing in transplants and for colorectal testing and immunotherapy monitoring in oncology. We have also submitted several additional requests in both the organ health and oncology sectors. Typically, we receive feedback within eight to twelve weeks, during which there may be requests for more information, and we respond accordingly. Right now, we are either awaiting feedback or addressing inquiries based on our recent submissions. To my knowledge, there haven't been any recent coverage decisions under the umbrella LCD, but we are experiencing positive interactions and are hopeful for additional coverage soon.

Got it. Thanks for that color and thanks for taking my questions.

Thank you. Our next question comes from the line of Catherine Schulte from Baird. Your line is now open.

Hey guys. Thanks for the question. I guess first, there’s been a lot of noise around NIPT this year in the media between the New York Times report and the Short report. Are your reps hearing any doctors bring up either of those in the field or is this something that’s largely insulated from your commercial work?

Yeah. I think the physicians are largely very supportive of screening and screening for aneuploidies has been a part of OB-GYN care for the past 40 years. So when you look at biochemical screening that really started in the 80s and unfortunately had a very low positive predictive value and an okay decent sensitivity. But the positive predictive value is only about 5%. So, with non-invasive prenatal testing because the positive predictive value is much higher, like we published 95% for trisomy 21, for example. There are other microdeletions orders where it’s lower, like in the kind of 3% to 50% range in line with biochemical, but it’s sort of right in there with what doctors have been experiencing. And so there is strong support among the physician base for screening. The American Congress of Obstetrics and Gynecology recommends non-invasive prenatal testing, and I think the doctors follow that and feel very supportive of what they are doing. We did notice that the volume has actually gone up quite significantly in the past four months, five months as we continue to publish data and process orders from physicians. But in addition, I think some physicians were frustrated about the way non-invasive testing and screening in general was characterized in the media, and I think largely they disagree with how it was characterized.

All right. Very helpful. And then you mentioned seeing record volumes in recent weeks. It sounds like that business is going well, but any commercial repercussions from the recent news around the lawsuit with your competitor? And then how should we think about volume growth for your newer transplant indications this year?

We are feeling really positive right now because we published 10 peer-reviewed papers in the last six months. This was something that was holding us back since we had come in slightly later than others and had less peer-reviewed data. We are now closing that gap and putting ourselves in a great position. These are some of the most significant studies ever completed in the field. As a result of the innovation in the peer-reviewed data, physicians want to order the test and we are now at record levels. We are starting to see nice initial utilization in both heart and lung. Recently, we published two clinical validation studies that were very well received by leading physicians, and we have had a lot of great interaction. So we are feeling good about things. Regarding lung cancer, I think everyone is very early in line, although there is a big opportunity there. It’s a very underpenetrated market overall, not just for us. For heart, there is a large and established incumbent, and we are trying to convince doctors to choose us where we can, but it is an uphill battle. Still, we are pleased with what we are seeing in these early days.

All right. Great. Thank you.

Thank you. Our next question comes from the line of Matt Sykes from Goldman Sachs. Your line is now open.

Thank you for taking my questions. I have two quick ones. First, Mike, regarding the OpEx spend looking ahead, I understand R&D may be less flexible than SG&A. As you consider your spending options over the next one to two years, where do you see the greatest opportunities? Given your previous investments in commercial build-out, is there more flexibility on the SG&A side? Second, about Organ Health, I know there have been several data releases. Can you remind us how to anticipate future data releases throughout this year?

Yes. I will briefly cover the main points, and Steve will provide any additional comments. I believe there are opportunities to optimize our operating expenses in both SG&A and R&D. One immediate consideration is the spending on clinical trials. As Steve mentioned in the prepared remarks, we are currently facing significant costs for large randomized studies that are essential for establishing our business for the next decade. Renasight is one example, but there are many others where these studies are not easily repeatable. For instance, the SMART trial in the non-invasive prenatal testing area was a costly five-year study, but we will not need to conduct another trial of that nature. Many of these trials could wind down as early as next year, and we can leverage the work we've already completed. It's worth noting that this is the same team that successfully implemented a growth strategy from 2015 to 2019, a time when our stock was at $8, requiring us to be strategic in managing the team. Small adjustments on the commercial side can add up to significant successes.

No. I think you covered it. And then on the Organ Health side, I mean, we said that there are going to be three really big data readouts this year. One on heart, one on lung, and we have had both of those, and I think they were both very positive. And then the next is one of the most significant trials ever done in donor-derived cell-free DNA testing in kidney, and that’s the Trifecta study, and that’s in submission. That’s going to be a very significant trial when it reads out. So we look forward to reporting that out later this year.

Great. Thanks very much.

Thank you. Our next question comes from the line of Puneet Souda from SVB Securities. Your line is now open.

Okay. Great. Thanks guys. Thanks for taking my question. So, congrats on a strong quarter here. So maybe for Steve first, I mean, I think an important question we have been getting from investors is, what steps have you taken around prioritization overall or what can you provide us on that end that sort of gives us confidence how those are being handled? And then maybe also any changes that you are taking across the company in terms of the sales approach or how you are approaching both sales and marketing on NIPT and the Signatera end?

Yeah. Sure. So, I guess I will comment briefly on the sales and marketing side. I think things are going very well. We have mentioned that Signatera clinical volumes are up. I think doctors are ordering the test at record levels. In fact, we are seeing that across oncology, across women’s health, and across Organ Health. So I think there’s not really any changes there necessarily. I think if the context of the question was, are we doing anything differently with regards to some of the sort of negative media attention. I would say that as we have mentioned previously, in the Organ Health space, we have removed any of the sort of reference materials that were part of the lawsuit, and we don’t expect those materials or the removal to have any impact on our ability to sell the product in any way. And in fact, as you are seeing, we are seeing record numbers. So, Mike, do you want to talk about prior authorizations for a minute?

Yeah. In the interest of time, I did get into cover a little bit earlier in the Q. I mean prior authorization just as a piece of the business was already a small part of our overall volumes. And that’s going to be even smaller as we roll into 2022 because there are a lot fewer prior authorization requirements out there just given the broader consensus of the products.

Thanks for clarifying that. When we talk to several key opinion leaders using your test, and considering its application in community settings, it seems there's off-label use of the product, which has generated excitement among physicians. Can you provide an update on where we stand with this and how we should view progress from the Signatera standpoint, particularly regarding indication expansion? It appears that physicians are enthusiastic about the product, but they are using it beyond its currently approved indications.

Yeah. I will just say there is a difference between where the test is validated and where it’s reimbursed. And so we are validated today for pan-cancer offering, and we are seeing physicians order the test in a pan-cancer way, which is I think an indication of their excitement about the product. There are limited areas of reimbursement. But we published now more than 15 peer-reviewed papers across I think more than 15 different cancer types, 3,000 different patients, and so forth. So we are not surprised to see physicians using it in line with a lot of the data that’s out there on the performance of the test. Solomon, do you want to talk a little bit about the pipeline and kind of what we are doing to generate more data and to get additional reimbursement?

Sure. Yeah. Just before I do that, I want to emphasize how much continued growth in adoption we are seeing in the core covered indications in early Stage CRC, Stage II and III, and resectable Stage IV in pan-cancer immunotherapy monitoring. In addition to, as you mentioned, growth that we are seeing in other indications where physicians who have already experienced the test, let’s say, in early-stage CRC, if you are a community physician and then a breast cancer patient comes along, where you are facing a similar challenging decision and trying to evaluate a patient’s risk in that position, it’s really easy now for the physician to think about Signatera and order that test. In terms of our pipeline, we mentioned this in the prepared remarks that we are continuing to produce a significant amount of clinical validation data, much of which is being shared with MolDX and packaged up for reimbursement with Medicare, but also being increasingly sent to private payers. We have always said that guideline inclusion, we think will be the most important inflection point for coverage with private payers, and we think we have a good opportunity to see that first one later this year or early next year as we discussed in CRC.

Okay. Got it. And then just last question, in terms of ASCO, I don’t know if you have provided updates, but should we be expecting anything in ASCO? Thanks guys.

Yeah. We showed in the prepared remarks, we have got 10 abstracts and seven posters, and we look forward to sharing more data on those once the embargo is lifted.

Great. Thanks guys.

Thank you. Our next question comes from the line of Kyle Mikson from Canaccord. Your line is now open.

Hi, everyone. Congratulations on a strong quarter. This is someone filling in for Kyle Mikson. I have a quick question. In mid-April, the FDA issued a safety communication regarding genetic non-invasive prenatal screening tests and their potential for false results. Do you think the FDA might move towards regulating laboratory-developed tests in this area? Additionally, I recently came across studies indicating a trend of more first-time mothers aged 35 or older, alongside an increased rate of Down syndrome. Is this a trend you’re also observing? Do you believe that these changing demographics could significantly boost the NIPT market in the near future? Thank you.

Yeah. So on the FDA, I would say we strongly support the information shared recently by the FDA with regards to NIPT, and we have always believed that education and transparency in peer-reviewed evidence are very important, and that’s why we published 26 peer-reviewed papers on NIPT, including the SMART study, which is the largest study ever performed. We employ over 100 genetic counselors and offer complementary genetic counseling sessions pre- and post-test to all patients. We also put the negative predictive value and the positive predictive value of each disorder directly on each report. So because of that, we are in a great position to work more closely with the FDA, given the breadth of our data and the depth of our validation studies. So again, we really support the information shared by the FDA. With regards to changing demographics, things are sort of evolving. It does appear over the past many years towards a slightly older birth rate, and I don’t know if that’s an advantage or a disadvantage. But it hasn’t impacted us in a negative way and we continue to grow. NIPT is still under-penetrated; we think only about 40% roughly of pregnancies today are getting NIPT testing, where else the vast majority of patients still get biochemical screening, which has a positive predictive value that is significantly less than that of NIPT.

Thank you. This concludes today’s conference call. Thank you for participating. You may now disconnect.