Ladies and gentlemen, thank you for standing by. My name is Desiree, and I will be your conference operator today. At this time, I would like to welcome everyone to the Natera Inc. Fourth Quarter 2023 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. I would now like to turn the conference 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 fourth quarter of 2023. On the line, I'm joined by Steve Chapman, our CEO; Solomon Moshkevich, President, Clinical Diagnostics; and Alexey Aleshin, General Manager of Oncology and Chief Medical Officer. John Fesco, President and Chief Business Officer is also on the line and will be available for Q&A. 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 posted to our IR site as soon as it's available. Starting on Slide 2, during the course of this conference call, we will make forward-looking statements regarding future events and our anticipated future performance. 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 the documents we file 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 or suggested by the forward-looking statements. Forward-looking statements made during the call are being made as of today, February 28, 2024. 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 numerical growth changes as we discuss our financial performance. And unless otherwise noted, each such reference represents a year-on-year comparison. And now, I'd like to turn the call over to Steve. Steve?

Great. Thanks, Mike. Natera is focused on transforming the diagnosis and management of disease worldwide. Our growth is driven by combining our innovative technology with significant peer-reviewed clinical evidence that supports the utility of our products. We've had a lot of great news since our presentation at the JPMorgan conference and we're excited to get into the highlights. We finished Q4 with $311 million of revenue, which was $11 million ahead of the preannouncement we made in January and represents 43% growth over Q4 of 2022. Full year revenues were $1.080 billion, an increase of more than 30% compared to 2022. On volumes, we processed 2,496,000 tests in 2023, which is roughly 6,000 units ahead of the preannouncement. We processed 341,000 oncology tests in 2023, representing year-over-year growth of 73.5%, and we also saw strong growth metrics in women's health and organ health. Gross margins in Q4 came in at 51.4%, compared to our Q1 margin of 39.9%. We finished the full year at 45.5%, above the top end of the Q3 guide. As Mike will cover later in the call, we had some revenue true-ups and lab savings in Q4 that don't repeat every quarter. We estimate organic revenues in Q4 were roughly $306 million and gross margins were roughly 49%, which still represents a significant improvement versus previous quarters. And as we discussed at the JPMorgan conference, we also made great progress on cash burn throughout the course of the year, ultimately reducing our cash burn by roughly $193 million in 2023 compared to 2022. The guidance for 2024 reflects the continued momentum in the business that generated these very strong results in 2023. We are guiding revenues of $1.320 billion to $1.350 billion, gross margins of 50% to 53%, and cash burn for the full year of $50 million to $75 million. On cash, we estimate we will be cash flow breakeven by Q3 or sooner. What's most impressive is we will be achieving this cash flow breakeven quarter while still making significant investments into our core business. You'll see later in the guidance that our investment in research and development and commercial operations remains robust in 2024. This includes major investments in core product enhancements and line extensions, plus potentially guideline enabling clinical trials that we believe could benefit patients in the years to come. We can do this because our core fundamentals are so strong. We're in large expanding markets, our volume is growing rapidly, and our margin is expanding with ASP increasing and COGS going down. I'll now hit a few other highlights before we go into more details on each. First, we think our recent acquisition of Invitae's women's health assets is well timed given the clinical value of expanded carrier screening and the strong trends we are seeing there. We're feeling positive about our progress on the acquisition thus far. In organ health, we're building momentum as we complete enrollment and read out major innovative clinical trials. We'll be talking today about some big first-of-their-kind perspective studies in donor-derived cell-free DNA and how they may positively impact patient care. Finally, in oncology, earlier this week, we were pleased to announce that MolDX has expanded coverage for Signatera to include neoadjuvant monitoring in breast cancer and separately for MRD and recurrence monitoring in ovarian cancer. We've had a drumbeat of exciting clinical developments across a range of indications including CRC, muscle invasive bladder cancer, and breast cancer. I'm excited for Alex to also talk about the modern study in bladder cancer, which just enrolled its first patient a few weeks ago. Finally, we've had a string of good results on the IP front that I think puts us in an excellent position in 2024 and beyond. Okay, great. Let's get into the details of the results on the next slide. Revenues exceeded our expectations at $311 million driven by continued strong volume growth and excellent ASP traction across the business, particularly in women's health and oncology. We previously had a goal to get oncology ASPs above $1,000 by the end of 2024 and we actually hit that level in Q4 of 2023. That's great news because we now think we can get a full year's benefit of higher ASPs in 2024, and we think there's still room to drive Signatera clinical ASPs another $50 to $75 higher just by continuing to execute on currently covered indications. Of course, this week's announcement on new Medicare coverage will help us as well. The commentary on women's health ASPs is broadly similar. We saw encouraging sequential quarterly progress throughout the course of 2023 and preliminary analysis of Q1 trends suggest that we are on track for continued improvement so far in 2024. Volume was also a strong driver of Q4 performance, as well, and you can see the annual volume trend on the next slide. As mentioned earlier, we came in 61,000 units ahead of our preannouncement in January. I have a separate slide on oncology coming up, so I'll focus on women's health and organ health here, where we saw strong growth in the full year 2023. As the year ended, we saw an acceleration of women's health including hitting a record units per receiving day in December. This strong momentum carried into January as well, and that was prior to the acquisition of Invitae's women's health assets, where we're just now starting to see volume come in. In organ health, as the year progressed, we saw a return to growth in the donor-derived cell-free DNA business after the initial pullback in early 2023 due to the coverage changes. We think we're well positioned going forward in donor-derived cell-free DNA to compete, given the significant body of peer-reviewed evidence that we generated and the unique features of our tests. Also, we continue to see strong interest in Renasight after the RenaCARE publication. This momentum is great, and we're off to a fast start across women's health, organ health, and oncology. On the next slide, we're showing the ramp of our oncology business, which continues to outperform. In Q4, we did 98,000 units, another strong sequential quarter increasing by 9,000 clinical units over Q3 of 2023. For the full year of 2023, the growth rate was 73.5% over 2022. We're continuing to see strong growth across the core indications including colorectal cancer, breast cancer, muscle invasive bladder cancer, and immunotherapy monitoring even as we add new indications. Roughly 40% of oncologists used Signatera in Q4, which shows the strong clinical utility of the test, and we have strong momentum going into 2024. Just as critical as revenue and volume growth is the gross margin traction we are seeing. I think this slide is a good snapshot of the business maturing. Over the course of the year, our ASP and COGS initiatives delivered above our expectations, particularly in Signatera, ASP and COGS, both of which improved over the course of 2023. As I mentioned at the top of the call, we think the underlying repeatable gross margin in the quarter was roughly 49%. Our 2024 guidance implies meaningful continued gross margin improvements based on ASPs and cost drivers that are within our control. Additionally, we've also got a number of potential upside drivers to both revenue and gross margin that we'll discuss later in the call that aren't included in our guidance. So the net result of strong revenue growth and expanding margins on stable operating expenses is a dramatic reduction in cash burn we've achieved in 2023. This is essentially in line with the data we released in January. As discussed previously, we accelerated a chunk of 2024 scheduled CapEx in December to take advantage of some large year-end discounts, which has helped us set up for an efficient year in 2024. Two years ago, we set a long-term target to get a cash flow breakeven quarter this year, and based on these results and the early data we are seeing so far in Q1, we are confident that we can reach that milestone by Q3 of this year, if not sooner. Of course, cash flows are dependent in part on payer response times to submitted claims and so are inherently difficult to forecast with precision on a quarterly basis. But the point is that we're continuing to build momentum, and our confidence in achieving this goal is stronger than ever. Finally, I think anyone that follows this space has taken note of our results on the IP front. Since we created the category of tumor-informed MRD in 2017, we've had two companies attempt to follow us into the space, requiring us to enforce our IP against them. The good news is that they've now both been enjoined for violating our IP. The permanent injunction against Archer and Invitae was ordered after the conclusion of a jury trial, and then subsequently, a preliminary injunction was entered against NeoGenomics. One notable point about these results is that different sets of patents and different judges are at issue in each of these cases, which I think demonstrates the strength of the IP estate that protects our core technology. Natera's IP litigation offers another case in point, which generated a sizable jury verdict for damages based only on past infringement of our patents. The process is ongoing to determine whether future royalties will be awarded. And on the Ravgen trial, we were found to not willfully infringe, and the damages awarded were much lower than what Ravgen was requesting, but we still respectfully disagree with the outcomes of the trial and we plan to appeal certain rulings. Okay, now let me hand it over to Solomon to discuss updates in women's health and organ health. Solomon?

Thanks, Steve. Let's start with the Invitae deal. First, recall we secured a judgment on past damages in our Archer IP litigation of roughly $20 million. We anticipated that it could be difficult to collect that amount from Invitae given their financial issues, so we applied that judgment amount as part of the consideration in this deal. We also paid Invitae $10 million upfront and if we have excellent retention of Invitae's accounts, there's a potential milestone payment that we can make of up to $22.5 million. We would be happy to make that payment because it would mean that the deal is working extremely well for us. As a reminder, we did not take on any of Invitae's products, its lab operations, nor its physical assets. We did hire roughly 30 of their women's health sales reps, and our goal is to provide a seamless transition of those Invitae accounts to Natera's Panorama and Horizon products. Our team is working hard to retain as much volume as we can and we're doing well. We expect to retain at least $20 million to $25 million in high-quality recurring revenue per year, but we think there is a potential to increase that up to $50 million to $60 million depending on how things go, especially if we see clinical practice guidelines for expanded carrier screening or 22q, which we think could come as soon as this spring and would provide upside to these numbers. So we think the deal rationale is strong, and we look forward to providing more updates as the year progresses. One of the keys to our offering in women's health is our highly differentiated screening test for the 22q microdeletion. As 22q goes into societal guidelines and becomes commonplace as we believe it will, the differentiation that Natera has in its 22q test is going to become increasingly valuable. When we run our test, we're using our core SNP-based technology that allows us to target this very small region of the genome, which is around 2.5 to 3 megabases. This allows us to get over 25 times more observations in this particular region of interest than companies doing massively parallel shotgun sequencing, which creates a significant technical advantage that has translated into excellent clinical performance as demonstrated in the SMART trial. We think the SMART trial represents the gold standard in clinical validation that would be very hard to repeat. As a reminder, SMART was a 7-year multicenter prospective trial that enrolled more than 20,000 patients and collected genetic outcomes from prenatal specimens and newborn blood spots. In this trial, Panorama demonstrated an overall clinical sensitivity of 83% and specificity of 99.95%, which translates to a PPV of 52.6% overall and a PPV of 100% in cases with ultrasound anomalies. As 22q has gotten more attention in the wake of a strong guideline from ACMG and anticipated guidelines from ACOG, we have noticed competitors starting to present datasets with PPV metrics that look high, but with screen positive rates that are low or completely unreported. In one report from a lab doing shotgun sequencing, the screen positive rate was approximately 1 in 6,500, which is 3 or 4 times lower than the expected population incidence, suggesting that they might be missing a significant number of affected pregnancies. In addition, other labs are making comparative claims based on patient cohorts that had very high rates of ultrasound findings, where we saw PPV of 100% in the SMART trial, as I mentioned previously. In our view, a test is not appropriate for population screening if you don't know the clinical sensitivity and specificity. These are typical marketing tactics that we've seen before, and we do think physicians will see through it. Moving now into carrier screening, we've seen really strong adoption in the past year and we believe we're the number one ordered next-gen sequencing-based carrier screening test in the United States. Our mix of broader panels increased after the exit of 704 from the market in late 2022. And we are finding that quite a few of the new transitioning Invitae accounts also have a strong mix of broad panels. So in addition to our existing portfolio, we are really pleased to be launching a new 613-gene panel and a completely flexible custom panel option to serve these customers. Horizon provides high detection across all genes, including the challenging ones where other labs may struggle. With these new panels, together with our investments in variant curation, our genetic counselor team, and lab automation, we think Horizon is well positioned to remain a leader in the field. Broad panel carrier screening is also a hot topic for ACOG, where we expect to see an expanded guideline in 2024. Turning now to organ health, where we are excited about the prospects for 2024 and beyond. We think the strength of our clinical data, our commercial execution, and our intellectual property estate enables us to compete for the leadership position in this space. Our clinical data generation in organ health has been prodigious in the last 5 years, where we now have 39 papers published or accepted in top journals. In the heart indication, we recently had our third paper accepted for publication, the Trifecta Heart Study, which demonstrated strong correlation between Prospera and endomyocardial biopsy assessed with the molecular microscope, reporting an area under the ROC curve of 0.9. You can see in these three high-quality data sets on the page the consistent performance across the Trifecta, DTRT, and DEDUCE trials, including in adults and pediatrics. This performance laid the foundation for us to start the randomized controlled ACES trial, which aims to show the non-inferiority of using surveillance with Prospera compared to surveillance biopsies that most centers do on a monthly basis in the first year after a heart transplant. Sites are preparing for their first enrollment this summer. Now in the kidney transplant space, we have finished enrollment of three major trials: proactive, pedal, and motor. Our first paper from the proactive study has now been accepted, showing that Prospera can detect active rejection up to 4 months ahead of biopsy. No other cell-free DNA lab has lead-time data like this, and we think this data might support payer coverage in the surveillance setting. We look forward to this publication and we're already working on additional readouts from this study. Moving on to the pedal trial with over 500 patients enrolled from 28 different sites, this is an important prospective utility study aiming to show how Prospera can be used serially after a rejection event to predict therapeutic response and outcomes. We believe this study can bring significant value to the field for this important indication. Finally, the motor study is generating novel clinical validity data showing the performance of Prospera in cases of multi-organ transplantation, including kidney-heart, kidney-pancreas, and kidney-liver. We expect these key trials to extend our data leadership in a meaningful way, so we're excited about 2024.

Great. Thanks, Solomon. Turning now to key indications. In colorectal cancer, there are multiple events worth noting. We reported the first data from our BESPOKE-CRC registry study, which enrolled patients across more than 100 centers in the United States. The study's initial results were presented at ASCO GI this year and showed exceptional asset performance consistent with prior readouts. Additionally, for the first time, it was shown that Signatera testing markedly reduced patient anxiety in over 73% of respondents. Additionally, 96% of participants reported that they wanted to continue using Signatera going forward. The next study I wanted to highlight is the INTERCEPT trial that was done by MD Anderson Cancer Center with over 1,100 patients tested using commercial Signatera. The observational component of this study was able to characterize the impact of Signatera testing on routine clinical practice and showed a median DFS of approximately 5.6 months between Signatera positivity and clinical relapse. Interestingly, the investigators also presented preliminary results from the Phase II TAS-102 substudy, which enrolled 13 patients to receive TAS-102 based on a positive Signatera result. Despite the small sample size, the study is notable since TAS-102 is the same drug being used in the randomized perspective ALTAIR study. The exciting finding was that 54% of patients had CK clearance at 3 months, suggesting high single-agent activity of TAS-102 in this patient population. Compared to an untreated Signatera positive population, where our data suggests that the spontaneous clearance rate should be around 3% to 4%. Additionally, this study reported a median disease-free survival of 9 to 4 months, which compares favorably to the 5.6 months I presented a moment ago from the broader observational cohort. Though we know the study was not randomized, we believe this all provides a positive signal for the ALTAIR study. We expect the top-line readout from the ALTAIR trial in Q3 of this year with full results being presented and perhaps concomitantly published in Q4. If the study is positive, we expect it to be practice-changing in the U.S., in Japan, and likely in many other countries. Next, let us review our progress towards key catalysts in bladder cancer. Just to remind everyone, we currently have Medicare reimbursement, both in the neoadjuvant and recurrent monitoring settings. While we do not talk about bladder cancer often, with around 35,000 new patients being diagnosed every year, we believe this indication could become highly penetrated and well reimbursed pending the readout of the two studies highlighted on this slide. We have previously discussed the randomized, placebo-controlled global IMvigor011 study that is being done in collaboration with Genentech. The study continues to enroll well, and if the readout is positive, it would form the basis for our first Signatera FDA submission, likely in the second half of 2025. We believe the advanced status of our work with the FDA gives us an advantage. We also want to find that the prospective non-randomized DFS data from the Signatera negative arm of this study will be presented in oral format at the European Association of Urology Conference later this year, and it may create an interim commercial tailwind as it shows convincing data that Signatera negative patients have good outcomes, especially if an improvement is noted beyond the great results we already saw in the IMvigor010 dataset published in 2021. We are also pleased to announce the MODERN study being done in collaboration with the NCI-funded Alliance Group. The lead PI of the study is Dr. Matthew Golsky, a leading expert in this space, and the study design is a testament to his and Alliance's leadership and forward-thinking. With the study incorporating both an escalation and a de-escalation cohort, similar to the design of the CIRCULATE trial in colorectal cancer, the de-escalation cohort has multiple similarities to the VEGA study, and if it meets its primary endpoint, it could have significant implications for patient management, making it possible to reduce unnecessary and expensive treatment in the MRD-negative patient population. Moving on to the next slide, we were excited this week to announce the expansion of Medicare's coverage of Signatera to include ovarian cancer as well as the neoadjuvant setting in breast cancer. Ovarian cancer affects close to 20,000 women per year in the United States, has a median age of diagnosis of 63 years, and is the fifth leading cause of cancer death in women. Current tools, including imaging and biomarkers such as CA-125, are inadequate to guide adjuvant and surveillance decisions in Stage 2 to 4 disease. Based on the tariffs perspective, multicenter study evaluating 69 patients across over 160 time points, we reported longitudinal sensitivity and specificity of 100% to detect recurrence with an average lead time of around 10 months. In breast cancer, as a reminder, Signatera has already been reimbursed in the postoperative setting for Stage IIb and higher patients regardless of disease subtype. What's interesting is that up to 50% of all resectable Stage 2 to 4 breast cancer patients currently receive neoadjuvant therapy, which is any treatment prior to surgery, both to improve surgical outcomes and to assess the tumor's sensitivity to systemic therapy. However, as the NCCN guidelines themselves now, current tools available for assessing neoadjuvant treatment response are not perfect. Signatera has been extensively validated in this setting, particularly through our collaboration with the ISPY-2 consortium, which is a leading group we have now been working with for over half a decade to study how bespoke CTA dynamics in the neoadjuvant setting can further improve on existing methods. In a study of over 280 patients and over 1,000 time points, we have shown that early Signatera clearance was highly predictive of therapy response, and persistent ctDNA detection was associated with poor distant relapse-free survival. We believe this expanded coverage can help inform care for tens of thousands of patients every year. These coverage determinations are a great way to start the year, especially as biomarker legislation kicks in across multiple states. We look forward to additional indications from MolDX in 2024 based on our published clinical data. Now, let me hand the call over to Mike to cover the financials. Mike?

Great. Thanks, Alex. The first slide here is just a summary of our Q4 results compared to Q4 last year. Steve hit some of the highlights already. Revenues were up 43% and gross margins expanded by almost 10 full percentage points. On revenues, we estimate that we had roughly $5 million in true-up beyond what we typically get in a quarter that contributed to the $311 million in total revenues. So I would estimate the organic revenue number to be roughly $306 million. Steve also mentioned some lab-related savings that helped gross margins in the quarter. The way the holiday landed this year with the entire last week of December bracketed by Christmas and New Year's meant that we had fewer cases coming in from customers during that last week of the quarter. We didn't experience typical COGS-related expenditures we would normally expect in a week. It takes about a week for us to report out most of our tests, so this resulted in slightly lower COGS expenses, but did not significantly impact revenue, which is only accrued on reported units. Netting all of that benefit out from our Q4 gross margin of 51.4% gives you our estimate of roughly 49% repeatable gross margins, which, of course, still represents a huge sequential step-up from Q3 of '23. We were able to drive these results on operating expenses that were stable compared to 2022. As Steve described, we've invested heavily to build the critical infrastructure needed to rapidly scale the business, and we believe we're in a position to drive significant future innovation with relatively modest increases in operating expenses from our current levels. This combination of expanding revenues and improving margins on stable expenses fits precisely with the multi-year strategy we've laid out in the past. The net result of that is that we cut our Q4 loss per share by more than half compared to Q4 2022, and now have clear line of sight to a cash flow breakeven quarter as Steve described. Okay, that's a good segue to the guidance on the next slide. We're excited to be initiating the revenue guidance at $1.32 billion to $1.35 billion, gross margins at 50% to 53%. And with relatively stable operating expenses leading to another dramatic reduction in our cash burn. While there are a lot of variables that will cause cash flow to fluctuate from quarter to quarter, we now believe we can get to a cash flow breakeven quarter by Q3, if not sooner. This cashes in a steady continuation of the strong underlying trends in volumes, ASPs, and COGS we've seen over the past year, but does not rely on upside drivers from potential guideline changes, any spike in volumes from further Signatera data, or any meaningful benefit from the biomarker legislation in the calendar year. And it's just a modest contribution from the recent MolDX coverage decisions. That approach leads to a fairly cautious guide on further margin expansion. I would expect to start the year in the high 40s, consistent with our organic estimate for Q4, with the goal of getting gross margins to the top end of the range and possibly beyond that by Q4 of 2024. We have also assumed a relatively modest volume contribution from Invitae accounts, we are picking up now, consistent with Steve's base case described earlier, but hope to be raising that forecast as we get more clarity on account retention in the coming months. In our R&D organization, the team has a steady drumbeat of product launches, clinical trial work, and COGS initiatives slated to launch this year. Once those initiatives are complete, we anticipate having bandwidth to keep driving innovation in future years without large increases in spending. The SG&A guide includes the pickup of the Invitae sales reps and several other product launch initiatives we have slated for this year. So at the midpoint of the guide, we are forecasting revenue growth well above 20%, about 650 basis points expansion in gross margin against annual 2023 full-year actual margins and operating expense growth of about 4%. Those of you that have followed us for a few years know that we prefer to start the year with a guide that feels challenging but achievable to us. I think there are several sources of upside that could allow us to outperform once again this year. And that's another good segue to the next slide, which just summarizes those catalysts. We are making great progress on ASPs, volume growth, and COGS in our core business, as I just described. I'm looking forward to sharing our progress on earnings calls this year as we continue to execute on the initiatives within our control. If we can do that, I think we are in a position to outperform once again in 2024. Beyond that, we have some potentially significant catalysts on TAP. Of course, we have the potential guideline expansion in carrier screening in 22q, that Steve described earlier in the call. The timing of those updates are always uncertain and subject to change, but tentatively, you could see some society guideline updates as early as this spring. In oncology, we are working to expand MolDX coverage to several additional tumor types, and the advent of biomarker legislation in a number of heavily populated states creates an opportunity to drive commercial coverage higher for Signatera in those states. We are excited about the ALTAIR CRC escalation in treatment on molecular relapse study readout in colorectal cancer that Solomon touched on in his remarks, which we expect to get in the summer or early fall as he described. Finally, we are really excited about a number of significant product launches in women's health and oncology we have planned for this year. Consistent with our typical practice, we will dive into each of those product launches in the first earnings call post-launch. So in summary, I don't think we've ever been in a stronger position to start the year, and we are very pleased to be sharing these updates with you. So let me now hand the call over to the operator for questions.

(Operator Instructions) Your first question comes from the line of Subbu Nambi with Guggenheim.

You guided to $1.32 billion to $1.35 billion in 2024 revenue. This is well above Street expectations. That said, as you noted on your last slide, there are still a lot of sources of upside. To unpack this a little bit, can you talk more about the key assumptions for things that are not in the guidance specifically? How are you thinking about the potential for videos, potential ASP increases for Signatera biomarker bill 22q, potentially Renasight? What I'm trying to get at is essentially the magnitude of upside for each of these in 2024? I can easily see our path to $50 million to $75 million in upside to your guide. When I look at these components, does that seem reasonable?

Yes. This is Steve. So maybe I'll just make a couple of comments on these different things, and then Mike, you can sort of talk about the magnitude. I mean certainly, there's a lot of opportunities for upside. You've listed a couple of them. I think within Invitae, we're working hard to move as many of those accounts over as we can. And we think that is going well, as we said in the prepared remarks. We'll have a little more visibility as time goes on. From a guideline standpoint, all we can really do on guidelines is produce the peer-reviewed evidence, and we feel incredibly good about the evidence that's been produced particularly on 22q and on broad panel carrier screening. Now I think it's really up to the societies and the physicians to decide what they want to do. But certainly, that would provide a lot of upside as we're the market leader in noninvasive prenatal testing. We have a high attachment rate of microdeletion testing. As we sit here, we believe we're the market leader as well in next-gen sequencing-based broad panel tests. When you look at Signatera and ASP, certainly, there's a lot of opportunities for upside, the same with biomarker bills. So Mike, do you want to comment further?

I think those are really the key drivers to consider as we look at the catalysts and beyond. I would just reiterate what we mentioned in the prepared remarks, which is that the underlying trends in our core business over the last couple of quarters have been quite strong. If we can continue to see those trends meet our expectations, I believe we are in a strong position for 2024.

First of all, congratulations on surpassing the preannounced numbers for the quarter and on the strong momentum you're experiencing in the business. I wanted to follow up on the guidance. Could you elaborate a bit more on the details? If I look at your guidance compared to the consensus and our expectations, it's clear that you're increasing the average selling price on the MRD side, and there has been recent expansion in indications. Additionally, there's momentum with Panorama, an increase in the average selling price from last year, and progress in carrier screening. The list goes on, and we also have Invitae's volumes contributing. Could you explain why you maintain this cautious guidance given the current momentum? Also, can you provide more details about the timing for the 22q microdeletion? I know you mentioned it briefly, but what else needs to occur there? I have a follow-up as well.

Yes, Mike, do you want to take that?

Yes, I think that's a good summary of the key factors influencing our approach for 2024, as Steve mentioned earlier. In assessing these factors, we need to exercise judgment when setting our guidance for the year. We aim to establish targets that require strong execution, including efficient volume management and sustained growth in average selling prices and costs of goods sold. We believe we can achieve this and need to strike a balance between what is challenging yet attainable for our initial guidance of the year. Our strategy remains consistent with past years. Regarding 22q, we hold the same views we've expressed before. The SMART trial, as mentioned in our prepared remarks, is a significant study in this field. The results have been outstanding, and after some time, the data has been shared in various publications and presented at several conferences. This warrants further consideration for guidelines, though the committees operate independently, and we lack complete insight into their timelines. Therefore, we won't factor in potential benefits from guideline updates when starting the year, but we are very optimistic about our future opportunities.

Got it. If I could cover the MRD side. You had ovarian cancer as well as the expansion into new adjuvant breast cancer. When do you think that will start to reflect in the volumes? I just wanted to confirm that they should also benefit from the current ADLT rate you have. Maybe Alex can discuss this in relation to the clinical trials you have with ALTAIR and the new trial you announced today. Can you stack them because this seems like a series of data sets that strengthen your position in the marketplace? Also, how does all of this fit into the NCCN guideline update when we do hear about that? If you have any updates on that front, that would be great as well.

Yes. So first, I'll just say on ovarian and neoadjuvant breast, we're really excited about those indications. We've got some great data and more data coming out. I think generally, once we get coverage in place, that's really when the medical liaison team and commercial team can start going out and educating physicians about the benefit. So that will take a little bit of time to come in. But certainly, there's volume there today that will benefit from Alex, do you want to talk about ALTAIR and the potential there for upside opportunity and guidelines?

Yes. Absolutely, Steve. Puneet, thanks for the question. I think as we presented in our prepared remarks, we're expecting a top-line readout kind of in Q3 for the ALTAIR study. We believe that this study, if positive, may be one of the largest events in how early-stage cancer is managed in quite a while. Just to put this in perspective, the last study that truly changed how early-stage colon cancer is managed was the MOSAIC study published in 2004. So I think there's a lot of pent-up interest in approving new treatment modalities for these patients. We believe that any positive statistically significant result will be significantly impactful for how patients are treated. And we're frequently asked what are some of the numbers that would be even more significant. I would kind of guide folks to look at the MOSAIC study, which showed a hazard ratio of 0.77, and an absolute risk reduction of 5%. So we strongly feel that if we want both of these metrics, the study would be even more significant. And then in terms of the IMvigor011 study, we're expecting top-line readout for that in Q1 of 2025. Again, if that study is positive, we also believe that would significantly not just change the guidelines, but really fundamentally alter how early-stage bladder cancer is managed. I think these are the two most immediate binary events to look forward to. And we have many other studies currently ongoing that we'll be reading out the next year or two.

It was an extremely strong quarter, and I want to dive into the guidance. I'm pleased with the guidance but also want to discuss the potential upside. Regarding the Invitae acquisition, I assume your average selling prices are higher than those in many reproductive health areas. You are projecting $25 million, which suggests a $100 million business. Can you explain your expectations and why you anticipate capturing such a small market share? If it's a share you don't particularly want, it seems likely that other companies in the industry would feel the same, potentially leading to an increase in pricing in those accounts. Additionally, many of the OB sales team also sell BRCA tests. While BRCA may not be a significant business for you, is there a possibility to leverage cross-selling in that area? That was one question, and I have a follow-up that will be shorter.

Yes, that makes sense, and it's a good question. We believe a conservative estimate for our range is between $20 million and $30 million, but we also think this could reach $50 million to $60 million. We'll need to see how things unfold in the post-acquisition phase. It's important to note that the volume we began with at the end of January was significantly lower than Invitae's reported volume in Q3. This discrepancy is understandable as Invitae had initiated efforts to reduce some of its low-margin businesses, including some cash pay operations. Thus, our starting point may differ from what you anticipated. That being said, we're actively working to transition as many accounts as possible, particularly the high-margin ones that remained, over to Natera. We believe we're making good progress. Historically, Natera has performed very well in such scenarios, retaining over 50% of the business. I think we'll witness a similar outcome here. Regarding your question about opportunities in the OB channel, we also see potential there on the oncology side. With the current disruptions, we anticipate some upside opportunities.

I forgot I asked that part. So just in terms of expectation, you have neoadjuvant breast, adjuvant breast, bladder, CRC, IO. Can you talk about your expectation for long? And just given that you have all these tissue types, and I'm asking you to predict a bureaucratic agency, but have you had any conversations with MolDX or expectations on MolDX and just say, you know what, this science works in every tumor type. So when does that get coverage?

That's a great question. The topic of pan cancer coverage has been frequently discussed. Looking ahead, there may be a chance for broad pan cancer coverage as more cancer types are included. However, we are not reliant on this possibility. Instead, we are meticulously validating various tumor types and gathering the necessary data to secure coverage. This diligence is one of the key reasons we hold a leadership position today, as we have invested significant time and effort into these studies over the past five to six years. Other companies might not commit to this level of groundwork and could struggle to obtain coverage. We see strong opportunities ahead, and we’re particularly excited about ongoing submissions for ovarian and neoadjuvant breast cancers, as well as the potential in lung and gastroesophageal cancers, which align well with our colorectal indication. There’s a lot of potential here, and we are focused on continuing to generate valuable data.

Steve, Mike, I'll spare you the question why you've decided to be prudent with the guide and take a highly different tack here. What I want to know is what would carrier screening and ACOG guideline inclusion for 22q mean in terms of gross margin upside? I know it's not baked in, but were those two guidelines to fall in place in the spring? What does that look like? And Steve, on the exit of some of these lower margin Invitae accounts over the course of the year, is that something that we should be thinking about in terms of just the phasing of the gross margins through '24?

Yes, it's a good question. So let me just comment on Invitae first. As I mentioned, Invitae had taken steps to exit some of their lower margin accounts or maybe move away from some of that business. So that's why the starting point of where we took over in January was different than what you might have seen from Invitae in Q3. From the Natera side, when we bring this business on, it's obviously through the Natera contracts and insurance contracts and with the Natera products. We think the margin should be in line with what is currently an accelerating and expanding Natera gross margin. Hopefully, that makes sense. From the upside opportunity, obviously, there's an enormous amount of upside in the guidance. We didn't include anything for 22q coverage. We didn't include anything from broad panel carrier screening. So there's obviously upside as these things come in. If you just think about the clinical impact and the data that we generated, we really think that, that's the most important piece. 22q is a very severe disorder, it's a leading cause of congenital heart defects, causing hypocalcemia, which can lead to seizures and brain damage at birth, if it's not treated. So this is a very serious disorder. We test for it with, I think, a very well-validated test that was prospectively done over a 7-year period. We think we've checked all the boxes for society guidelines. If you look at the very high attachment rate that we have, I think 75% plus of our IPT, get 22q. Obviously, there's upside opportunity, but we think it's really important that patients get access to this test and that it's covered by their insurance company. The same thing for expanded panel carrier screening. As we said today, we believe we're the market leader in next-generation sequencing-based expanded panel testing. But there's still opportunity there as guidelines come in place both to extend the volume today. There are still customers and OB offices around the country that are ordering smaller panels. As the guidelines come in, we think that they will transition to broader panels, which will put Natera in a good position. There's also a lot of business today that we're just not reimbursed on, where the payers maybe have a negative coverage policy where there's an opportunity to get paid and get coverage for testing that the physicians want and that we think are important for patients.

And then switching gears to oncology, Steve. Just curious as to what's your thought process in terms of timelines to reimbursement in the breast recurrence monitoring indication? I mean that's clearly the big price. Second, can you comment on the FoundationOne tracker, given the broader launch in Medicare coverage here? Where you expect in terms of perhaps an attach rate by year-end '24? And then finally, the data on early detection, I believe the first readout there is relatively imminent. But just curious as to how you're sort of perhaps you've updated your thought process there in terms of the go/no-go decision in terms of the performance specs you'd like to see from that data that would be helpful.

I will briefly discuss early cancer detection and then let Solomon address breast cancer recurrence monitoring and the potentially exciting data regarding molecular recurrence treatment. For early cancer detection, we plan to share results from a case-control study around Q2 that includes patients with colorectal cancer and advanced adenomas. We are looking forward to this data, as most samples were prospectively collected and matched with colonoscopy. Not all were matched, but the majority were. After reviewing this data, we will assess our next steps. Sometime in September or October, we expect to release findings from a 1,000-patient prospective study that will be fully matched with colonoscopy; patient recruitment is already underway. Based on these results, we will decide on pursuing an FDA-enabling trial. The 1,000-patient study in Q3 is designed with the same protocol that would be used for the FDA trial, allowing us to continue enrollment without delays if we choose to proceed with the FDA. Our decision will hinge on the test's performance. All our activities this year are budgeted, with no additional expenses. We project reaching cash flow breakeven by Q3 or sooner, which includes costs related to early cancer detection. If we decide to initiate an FDA-enabling trial, it will depend on us achieving market-leading performance, surpassing existing options for both colorectal and advanced adenomas. Solomon, would you like to discuss breast cancer?

Sure. I think the question was specifically about coverage in breast cancer recurrence monitoring. We do have that already. Signatera was covered for recurrence monitoring in all subtypes of breast cancer, that decision came out early last year. That's been a very high demand area for Signatera. As a reminder, almost 300,000 new breast cancer diagnoses per year in the U.S. We estimate over 100,000 of those are eligible under the Medicare coverage, which is Stage 2b and above, and that's for both adjuvant decision-making and recurrence monitoring. For many of those patients, especially in the hormone receptor positive disease, recurrence monitoring is something people do not just for a few years after surgery, but 5 to 10 Years after surgery. So that's a very important area for us to be helping our patients and we've been doing that.

(Operator Instructions) Your next question comes from the line of Doug Schenkel with Wolfe Research.

First, let me just start with the, I guess, a clarification on ALTAIR. In terms of defining success in getting NCCN guideline inclusion and driving broader commercial reimbursement. If you get 5 to 9 months of disease-free survival, is that enough? Is that a win? I picked this range because I think that's the range of DFS demonstrated in the 2 INTERCEPT sub-studies. So as we think about the readout this summer, is that kind of the goalpost that we should be setting?

Alex, why don't you take that?

Yes, absolutely. I would think instead of the hazard ratio for TSS, and if the MOSAIC study is any comparator, the hazard ratio there was 0.77. The second thing that's usually pretty important is the absolute risk reduction. So what percentage of patients do you prevent from recurring with a new therapy? For that study, I think the event rate went down from 26.1% to something like 21.1% with the addition of oxaliplatin. I would use those two as benchmarks. I think the median DSS improvement in absolute terms may be a little bit difficult, and I would not extrapolate those numbers from INTERCEPT to ALTAIR. I would focus on the hazard ratio as well as the absolute risk reduction.

The next topic I wanted to touch on is MRD competition. So you guys have had tremendous success awarding competition, defending your intellectual property estate. There's been a ton of focus out there on how this landscape is going to evolve even with wins by Natera. There's a potential bevy of companies intending to launch new products over the next couple of years. So 2 questions. One, can you talk about what you expect in terms of stickiness associated with existing accounts and really a material first-mover advantage that you have? And what can be gleaned from your experience in NIPT, which is a competitive market where you have what I think is a very fair to say, sticky? I mean, how much money would you need to invest to catch up with Natera, a company that's still doing more studies including one that you announced for the first time today?

Yes, that's a great question. I'll make a couple of comments and then maybe, Solomon, you can talk a little bit more about all the things that we've done as we look toward the future. First, I'll say there is competition. We think the tumor-informed MRD companies are the real competitors here. Particularly, I think NeoGenomics is a strong competitor. Of course, they've been enjoined right now, but they have a very strong footprint. Although I think when you look at the performance of the NeoGenomics product, from an analytical standpoint, they've made some very significant claims. If you dig into the details, they've really increased the amount of plasma input to make it seem like the test analytically performs potentially better than it does. I think that hurts us when you look at comparative claims that they're making based on different levels of plasma input. Now when you look at the clinical validation, what we see on the radar product is that the performance doesn't hold up. We see this where analytical validation or maybe looks good, but then you look at the clinical validation and it doesn't quite look as good. So you just have to be careful with any competitors making claims about the performance of their tests. Solomon, do you want to talk about some of the stuff that we've done? I think the investments that we've made into clinical data and clinical trials?

Sure. I discussed this in the prepared remarks too. A key aspect is that once a Signatera patient, always a Signatera patient. Once a personalized assay is created for a specific patient, it's highly unlikely they would opt for a new personalized assay from a different lab. This creates ripple effects; for example, a physician's office testing several Signatera patients regularly develops a level of switching costs to consider bringing in another lab. That said, we are not becoming complacent. Natera has always aimed to be at the forefront of test performance while pushing the limits of clinical validity and utility. This is reflected in our ongoing investments following this strategy. As we mentioned on the call, we plan to roll out multiple new features and enhancements in MRD-related products over the next 12 to 24 months. We are heavily investing in clinical trials. While I can't provide a specific figure on how many hundreds of millions of dollars would be necessary to catch up, it is certainly in the hundreds of millions.

And Doug, maybe I'll just add to that a little bit. I mean if you look at the different areas Solomon broke out, you look at data, I mean we now have a significant number of peer-reviewed studies that have been published. But not only that, we have multiple randomized trials that are ongoing that have been underway, some now for kind of 5 years or something in that timeframe. I think the key thing is with these randomized trials that the data really is only applicable to the test that was used in the trial. I think we're seeing some groups now coming, doing clinical validations where they're looking just at the performance of their test. As you go forward, that's really not going to be good enough. You have to have a randomized study that shows how patient outcomes were impacted based on using your test in the randomized study. That's where we're going to be and that's where we think things are going as we move forward and moving away from analytical validations and from clinical validation.

Congrats on the quarter and the year last year. Maybe just given the importance of the gross profit line, could you maybe just talk about your expectations for ASP trends for women's health kind of ex-potential guideline inclusion? Like what do you kind of envision in terms of ASPs for this year? And then I have one quick follow-up.

Yes, we anticipate stable trends in the women's health average selling prices that we observed toward the end of last year. As those following our performance will remember, we experienced significant sequential increases in the ASPs, especially for carrier screening and the NIPT product throughout the year. This contributed significantly to the margin expansion reflected in our 2023 results. For 2024, our guidance indicates that we will benefit from the full year of the ASP trends we witnessed in the fourth quarter. There is also potential for continued improvement, and we are actively working to ensure we receive the proper reimbursement for the covered services we believe are warranted. Therefore, we have room for further enhancement beyond the expectations we've established for this year. This provides a strong foundation for our guidance.

Got it. And then just on Mike, again, just on COGS reduction, and you guys have done a good job. It's obviously been a key gross margin driver. As you kind of look across your businesses, where do you see the most upside for reduction in COGS whether it's in women's health, Signatera, organ health, et cetera? Like where do you think the biggest levers are for COGS reduction this year that could actually drive those gross margins to the top end of the guide like you talked about?

Yes. The first project that comes to mind is the in-house project for Signatera exome in Austin. We launched our exome capability in San Carlos last year, and we've redirected a significant portion of the volumes to the in-house exome. Launching in Austin will create additional cost efficiencies due to increased space and the ability to implement more automation in that lab. We're very excited about this and aim to launch it in the summer or early fall. Additionally, we have workflow launches and improvements planned this year across all major products, including Panorama, carrier screening, and Signatera, which will help reduce COGS across the business. We have a solid history of successfully executing COGS projects, and these are accounted for in our guidance without much uncertainty. We're eager to implement them, as we believe they will contribute to our growth.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.