Welcome to Natera's 2024 Third 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, November 12, 2024. 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 third quarter of 2024. On the line, I am joined by Steve Chapman, our CEO, and Alexey Aleshin, General Manager of Oncology and Chief Medical Officer. Solomon Moshkevich, President, Clinical Diagnostics, couldn't be here today but will be joining us again next quarter. 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 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 and expected results, 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 the documents we file from time to time with the SEC, including our most recent Form-10K or 10-Q and the Form-8K 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 forward-looking statements. Forward-looking statements made during the call are being made as of today, November 12, 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 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'd like to turn the call over to Steve. Steve?

Thanks, Mike. Let’s get into the highlights on the next slide. 2024 has already been a transformational year for Natera, and I think Q3 represents our best quarter yet. We generated $439.8 million in revenue, up 64% from the third quarter of last year, which represents a record quarter for revenue growth. Volumes continue to grow rapidly, up 24% year-over-year. We performed about 137,000 oncology tests in the quarter, which is up 54% from last year. Signatera Clinical Units posted another strong quarter, up 11.4 thousand units sequentially versus Q2. This is the third fastest quarter-over-quarter growth we've had since launch. We also grew a record 48.4 thousand units year-on-year, which is the best quarter we've ever had in terms of growth units. Our gross margins were 62% in the quarter, again a record for us. After breaking even on cash for a couple of quarters in a row, we generated $34.5 million in cash this quarter, which is, of course, another important milestone in our evolution. All of this puts us in a position to raise our guidance for the year. With revenue expectations now at $1.61 billion to $1.64 billion, that implies about 50% revenue growth for the full year, which would be the fastest full year growth we've had as a public company and is significantly above our own internal expectations from the beginning of the year. Many of you saw the groundbreaking GALAXY data published in Nature Medicine and concurrently presented at ESMO in September, which delivered outstanding prospective overall survival data in MRD for the first time. We think this data is important because it strongly supports the core indication for MRD testing, adjuvant decision making, and recurrence monitoring. In colorectal cancer, physicians have moved beyond analytical metrics and clinical validation studies and now expect to see prospective outcomes data like this. As a reminder, this took us over four years to generate, and we have a median of 24 months clinical follow-up, with a good portion of patients having three years of follow-up. I'm also pleased to announce the completion of a study using Signatera from the CALGB/SWOG 80702 trial, which is a randomized phase three study in CRC. These results have been accepted as a late-breaking abstract for the ASCO GI Conference in January. As you saw from our press release, we see this trial as one of the most important in the space given its size, randomized design, and indication. As a reminder, the trial is looking at whether Signatera can predict which patients will benefit from escalation of adjuvant therapy and will report on disease-free survival and overall survival respectively. Similar to Altair, this will be another trial that is drug dependent, and we look forward to sharing results in early 2025. We also expect results from the GSK ZEST trial in breast cancer will be presented at the San Antonio Breast Symposium next month. As a reminder, this trial was terminated in April of 2023 due to low trial enrollment, so it's underpowered, but we're still looking to see a trend towards improved disease-free survival in MRD positive patients treated with niraparib versus placebo. Okay, let's get on to some of the business trends. The first slide shows Q3 volumes over time and despite the scale of the business, our growth continues to be very strong. In women's health over the past year, we saw significant growth from our direct channel augmented by the Invitae volume we added earlier this year. In addition, we launched our Fetal RhD test at a time of critical need in the prenatal community. We are really seeing strong demand for this test, which can help physicians assess the need for medication traditionally given to RhD negative women to prevent potential complications in future pregnancies. As we've spoken about previously, having an RhD test and the timeliness of our launch was important given that OB-GYNs were facing limited supplies of this medication. The launch is also a great example of the passion and commitment of the Natera team rallying to help patients in need. We're excited about the future of the women's health business and we are working hard to help as many patients as possible get access to our differentiated suite of testing. We also had another excellent quarter in Oregon Health with strong volume growth year-on-year. The strength of our peer-reviewed evidence and differentiated product pipeline is being received very well by physicians. We now have more than 45 peer-reviewed papers in Oregon Health, including the largest prospective study published in the field to date. We look forward to continuing to serve physicians and patients as we move forward. On the next slide, we're double clicking on the Signatera clinical volumes. We processed 137,000 units in Q3, which includes 130,000 Signatera clinical volumes. This represents growth of about 11,400 units in the quarter, well above our average of between 8,000 and 10,000 units. The volume was one of our best quarters of growth ever. Given that sequential quarters tend to have some variability in terms of holidays and number of receiving days, it's also useful to look at the trend year-on-year. Q3 clinical units were 48.4 thousand higher this year compared to Q3 of last year, a record for the company. We're off to a great start in Q4 despite the impact of the hurricane, and the trends are continuing to be very positive. Okay, the next slide shows total revenues year-on-year and a sequential quarter trend. We are very pleased to post 64% revenue growth year-on-year. We have $34.5 million in revenue true-ups, which is lower than last quarter as expected, and Mike will talk more about that later in the call. Even stripping out those true-ups would have yielded a growth rate of 50%, which compares very favorably with our fastest growing quarters despite the fact that the revenue base has gotten much larger in the past few years. While the volumes are clearly providing a strong base for growth, ASP improvement continues to contribute to our revenue growth. We've seen progress across the board as we've worked hard to improve reimbursement for covered services in women's health, and the Signatera ASP continues to improve. It's important to recall that we reached this level without getting any tailwinds for the Women's health guidelines. While we remain optimistic about guidelines for both carrier screening and 22Q, we plan to be successful with or without guidelines, and we're pleased to see that happening. Our growth in total company ASPs is also a function of our product mix evolving towards Signatera. That shift in product mix is fueling the evolution of our gross margins as shown here on the next slide. 62% gross margin is a record for us and well above our expectations at the beginning of the year. ASPs were once again very strong across all of our major products, and we're pleased to see Signatera ASP step up modestly once again in the quarter compared to Q2. The COGS wins from the first half held steady in Q3, and we delivered a significant gross margin expansion over Q2. The true-ups moderated slightly, down to just under $35 million this quarter. This represents excellent execution as the cash receipts exceeded our past expectations. Excluding true-ups, underlying gross margins expanded considerably from roughly 55% gross margins in Q2 to over 58% gross margins in Q3. Again, that is driven by strong ASPs, execution on COGS projects, and the continuing mix shift in the business towards Signatera. While reimbursement can fluctuate from quarter-to-quarter, we feel like we are very well positioned to continue to drive margins higher led by Signatera volumes and ASPs continuing to ramp. So accelerating revenues and gross margins coupled with cash collections well in excess of prior expectations are leading us to our first quarter of meaningful cash flow generation. The chart demonstrates quite a journey from Q1 of 2022 where we burned $162 million in a single quarter. The reality is that our strategy has remained the same throughout this timeframe depicted on the chart. We made the big investments required to deliver excellent care for patients, and the volumes and reimbursement followed. While we've been very efficient with resources, we've gotten here without big cost cuts that jeopardize the future of our business. In fact, as Mike will cover in the guide, we've continued to invest in future growth by adding meaningful investments to our R&D and commercial teams. As we look into 2025, we will continue to prioritize innovation and customer service while managing to cash flow break-even. We think that's the best approach for patients, for doctors, and for the business given the size of the markets that we're in. With that, let me hand it over to Alex to provide an update on Oncology. Alex?

Thanks, Steve. I'm pleased to share some of the recent results from the GALAXY study in colorectal cancer, which we believe were universally excellent across the board, particularly on Signatera's ability to predict overall survival as well as adjuvant chemotherapy benefit in patients with CRC. As many of you know, GALAXY is part of the Circulate Platform study. We have presented a few datasets thus far which have focused on disease-free survival since overall survival takes longer to mature. At the ESMO conference in September and published concurrently in Nature Medicine, we showed for the first time an overall survival signal associated with Signatera in a prospective study. Given that overall survival is such an important metric for oncologists and the gold standard for clinical trials, we view this as a major milestone for the field. There are a few main points I want to highlight for you today. The first is that Signatera was predictive of overall survival. Patients who tested Signatera positive had a much worse prognosis than Signatera negative patients, around 10 times worse at 36 months. Furthermore, Signatera was the most significant predictor of recurrence as well as overall survival when compared to all known clinical pathological risk factors. The second point is that Signatera predicted an overall survival benefit from chemotherapy. The GALAXY results show that if a patient tested Signatera positive and received chemotherapy, they had a superior overall survival with a 50% lower risk of death versus patients who did not receive treatment. The study also demonstrated that patients who tested negative had no significant benefit from chemo in terms of OS, highlighting the potential for de-escalation of adjuvant therapy for a large portion of patients. And finally, we looked at Signatera clearance after adjuvant therapy. We showed that patients who cleared ctDNA and remained Signatera negative had superior outcomes with 24-month overall survival being 100%. In comparison, patients who did not achieve ctDNA clearance at 24 months had an OS of just 61%. These findings may allow for personalization of treatment and recurrence monitoring that we hope can fundamentally change how colorectal cancer is managed. So, in summary, we believe these results are incredibly significant and further expand the body of evidence supporting Signatera in CRC. Moving to the next slide, I'm also happy to provide an update on a key study in colorectal cancer. As per our press release earlier this morning, I'll first summarize the main points and why we believe this is such an important trial. To start, the study is drawn from the CALGB/SWOG 80702 study that we'll refer to going forward as the 702 study, a randomized Phase III clinical trial in CRC, which evaluated the benefit of adding celecoxib to adjuvant chemotherapy in the postoperative management of patients with stage III colorectal cancer. Individuals in the study were randomized to either receive adjuvant chemotherapy plus placebo or adjuvant chemotherapy plus celecoxib. The original study results published in 2021 showed that the addition of celecoxib did not significantly improve disease-free survival in patients with stage III colon cancer. However, that study was initially run without Signatera. The new analyses used samples from the 702 study to investigate whether Signatera can be utilized to identify a subgroup of patients who may benefit from escalation of adjuvant therapy with the addition of celecoxib. This pre-specified analysis included more than 1,000 patients with Signatera CTA status post-surgery, so it will be a sizable readout. We will report on Signatera's ability to predict DFS and OS benefit from the addition of celecoxib. The results have been accepted as a late-breaking abstract for ASCO GI along with the results of the Altair study, but we look forward to sharing more details on both in late January. On this next slide, we provide a bit more context on Celecoxib, also known as Celebrex, which as I mentioned is a drug being investigated in this trial. Celecoxib is a nonsteroidal anti-inflammatory drug or NSAID, and as many of you are likely aware, NSAIDs are a class of drugs like aspirin that can be used to relieve pain, reduce inflammation and bring down fevers. These medicines are widely available, relatively non-toxic and generally low cost. NSAIDs have also shown promise in benefiting certain subpopulations in CRC. For example, several studies suggest that NSAIDs reduce the risk of developing precancerous colon polyps. There's a clear need for additional adjuvant treatment options for patients with colorectal cancer as there has not been a new drug approval in this space for over 20 years. Our analysis will be the first randomized study to help address this unmet need, and we are hopeful that Signatera can help open the door to effective treatment options in colorectal cancer personalized to patients who are most likely to benefit. And with that, I'll turn it over to Mike.

Great. Thanks, Alex. The next slide is just a summary of the P&L in Q3 and the year-over-year progress. Steve covered the trends on revenues and gross margins, which I think is set in stark relief on this slide. We really are in a completely different place in terms of revenue scale and gross margins compared to where we were even just a year ago, which at the time was actually a very good result. R&D, we've grown as we've staffed up to accelerate the tempo of new product launches and additional clinical trials. SG&A has also stepped up meaningfully, although a significant chunk of the step-up is related to litigation expenses and noncash charges related to stock-based comp. We, of course, added the Invitae women's health sales team this year and we've made steady investments in Signatera commercial operations through the course of the year. Despite all those investments, you'll note that the loss per share narrowed significantly as our strategy continues to play out. That's consistent with the positive cash flow generation we posted in the quarter that you see at the bottom of the slide. Related to the cash flow generation, I was very pleased to see the days sales outstanding drop again dramatically to approximately 73 days in Q3 after hovering in the mid-90s range for several quarters previously. After we had spiked to above 100 days during the first few quarters of Signatera growth. I wouldn't be surprised to see DSOs and quarterly cash bounce around a lot based on a typical working capital dynamic for our business, but we are seeing clearly much more efficient conversion of our coverage services to cash after years of hard work with payers to make this happen. One other key subsequent event to mention is we are very pleased to retire the convertible notes that you actually see here on the slide. At the beginning of the pandemic when the shares were roughly $25, we issued the convertible notes as an insurance policy to make sure that we had cash available to survive whatever might happen as the world was shutting down. The notes don't mature until 2027, but we were able to retire the notes early via a soft call feature given the tremendous share price performance we've delivered since then. This was a purely opportunistic move that cleans up our balance sheet at a time when many other players in our space have convert maturities over the next few years that are massive relative to their market caps. We are now effectively debt-free as the UBS line of credit is secured by our own cash, and earnings are roughly the same as the cost of the capital. We closed this transaction in October, so the convert will be wiped off the books when we print the 10-K this year. Okay. Good. Let's get to the guide on the next page. As Steve covered, we now expect revenues between $1.61 billion and $1.64 billion, which is up roughly $300 million compared to our initial guide this year and implies continued growth in Q4. We've had very strong volume growth this year, but the revenue growth has really accelerated this year as we've seen strong realized pricing performance in all of the major products. Signatera especially has seen its ASP mature this year, moving from the 800s in the past to now roughly $1,050 as of Q3. Note that the $1,050 number is before the true-ups. That's the kind of organic repeatable number that we anchor on internally. These same drivers are also transforming gross margins, and we now expect full year gross margins in the range of 58% to 61%. We are bumping OpEx to account for elevated litigation and stock-based comp expenses for the year in addition to the fact that we continue to keep our foot on the gas for future growth. Finally, I'm very pleased to update the guide to cash generation of $50 million to $75 million this year where we started the year expecting to burn about $50 million. So a meaningful swing there. As you think about how this continues into 2025, do keep in mind that there's about $108 million in true-ups baked into Q1 through Q3 revenue actuals now that we would not include in our guide for next year, so the organic underlying range for this year's revenue translates to $1.51 billion to $1.54 billion and gross margins of 56% to 58%. Those results are still well above our initial expectations and form a solid baseline for growth into next year. As in the past, baseline 2025 goal should be to grow the same number of units next year as we have in 2024. From there, I think we'll need to take into consideration the fact that we got a bolus of women's health units from Invitae in Q2, and that same influx of new units won't repeat next year. And then on the plus side, of course, our base Signatera users continue to grow, and we expect to continue to receive recurrence monitoring orders as we continue with those patients on their cancer journey. We would typically presume some erosion in women's health ASP pricing, but given the progress we've made this year, I think it's plausible to hold ASPs steady into 2025. We are cautiously optimistic that Signatera ASPs still have room for modest improvement as we continue to see better coverage from Medicare Advantage plans, and possibly in the second half of the year, we could start to see some additional contributions from commercial volumes where state biomarker laws are in place. On OpEx and cash generation, Steve clearly laid out that our priority is to do everything we need to do to serve Signatera patients. More commercial operations, more clinical trials, and enhancing our menu of offerings. We recognize it's important to remain cash flow positive. But within the best use of that cash for the immediate term is to turn around and reinvest it in the business, particularly in support of Signatera growth. Okay. With that, let's open it up for questions. Operator?

Our first question comes from Puneet Souda with Leerink Partners.

Really strong congrats — I mean a strong quarter here. Congrats on this. It's great to see the cash generation. Maybe, Mike, first for you or Steve, can you outline the ASP pickup that you're seeing across the product? I know you highlighted Signatera. Can you elaborate how that Signatera ASP can continue to grow? And the stability of ASP across the other products, because I think that has come under scrutiny a bit with some of the commercial payers paying closer attention to coverage and ASPs. So wondering if you can elaborate a bit on that? Then I have questions on oncology.

Mike, do you want to take that?

Yes, sure. Yes. Thanks for the question. So on Signatera ASPs, it's really the same kind of talk track that we've discussed previously. I mean you got really rapid movement upward in the Signatera ASPs from the 800s to now, we're at about $1,050 on an organic basis. The path from here, I think there's always puts and takes, and there's always potential for kind of quarter-to-quarter volatility with ASPs. But from here, we feel like there's more room to run in terms of just execution with Medicare advantage payers continue to increase per person allowed for covered services with Medicare advantage payers. And then as I mentioned in the prepared remarks, it's going to be a grind, but I think we're cautiously optimistic that maybe in the second half of next year, you could start to see some additional tailwind in the Signatera ASP as these state biomarker laws have had a chance to go into effect and mature and we've had a chance to interact with payers in terms of getting them online with covering those coverage services as well. So it looks like a good 18 months or so trajectory for Signatera ASPs. On the rest of the product portfolio, we've actually seen really strong kind of improvement, particularly in the major women's health products, both Horizon and Panorama. And I hear you. I mean I think there's always, having just been in the diagnostics business for long enough, you're always kind of thinking about, well, is there some chance for erosion in these more mature products? And usually, I'd say, yes. I think just the actuals that we're seeing and just the – maybe the time on task and the fact that these offerings are more and more enshrined as just kind of within the standard of care for prenatal health has kind of given us more confidence and a bit more visibility on our ASPs there. So let me pause there. Steve, I don't know if you have anything else to add.

No, that's good. I mean I'll just add, over the last couple of years, we've invested a lot into improving things like medical appeals, getting the medical records when requested. And I think you're seeing some of the benefit of just executing on those things. And then of course, there's still upside opportunity when we look at some of the tests that we're performing today where we're not really getting paid, for example, like 22q or RH testing in the women's health sector or expanding to additional indications in oncology. So I think it's positive upside opportunity ahead.

Got it. That's great. And then on the Signatera, can you elaborate how much of the lift are you seeing from volume growth in the community setting or maybe the tier 2 setting vs when you present data at these conferences, including ESMO, ASCO and others, the lift you get from that is, I assume, is mostly in the community – in the academic setting, but just trying to parse out where you're seeing the growth and the sustainability of this growth, obviously very strong in the quarter.

Yes, good question. So it's really a mix. I mean we see uplift here in both academic and in the community setting. As we've said, we think about 40% of oncologists are using Signatera today. And so there's still a long way to go. The market is very underpenetrated in sort of the kind of low single-digit penetration. Every time we generate data, I think that just helps bring more and more physicians into the fray. And especially when you're talking about the type of data that we generated with GALAXY, that's exactly what people want to see is this longer-term overall survival data that now kind of we're getting to that level of follow-up where you're hitting that mark where you're kind of meeting the threshold that some of the doctors who have been holding out have been waiting for. And then, of course, we're really excited about data that we're going to have upcoming in the future randomized readouts. So I think there's a long way to go, but we're seeing it from both academic and community.

Got it. And last one, just Alex, maybe, Alex, the Nature Medicine paper, where is that most helpful? Is that most helpful for NCCN or is it driving deeper into the clinical practices? And maybe just elaborate on what you expect out of the 702 study at ESMO? And then would that study actually give you any further insights into the IMvigor011 study?

Sure. Thanks for the question, Puneet. I would say for the Nature Medicine study, it's helpful, I would say, pretty much across the board. I would say, first of all, a lot of doctors have been waiting for OS data. I think DFS is one thing, but actually seeing the assays predicted of patients living longer, I think the whole field has been kind of waiting for a well-powered study to read that out. I think the second part for that study is the pharmaceutical market. I think we've really been able to show that DFS dynamics is predictive of overall survival. And that's really the first step to kind of validate a new certain endpoint. So I think we're seeing a lot of interest in those results. And I think that makes us very confident, right, about some additional readouts that we've been awaiting. I think the 702 study, I think, will kind of defer commenting on the outcome of that until the embargo is listed for ASCO GI. But again, it's over 1,000 patients. It was a well-designed prospective randomized study. So we're excited to share those results when we're able to. And then for IMvigor011, I think that's on track. We'd expect our partner Genentech to probably read out those results in probably the first half of 2025.

Our next question comes from the line of Dan Brennan with TD Cowen.

Congratulations on the quarter. To start with the Signatera price, the $1,050 shows a nice improvement, though it's a bit more modest compared to prior quarters. Can you elaborate on the factors influencing the price moving forward, especially regarding the biomarker? You've mentioned being optimistic about the potential here. You launched five states over a year ago, and three of the largest states in the country went live recently. I'm curious about your experiences in these markets and whether this could drive more upside, potentially indicating some positive developments in your services.

Yes. No, thanks for the question. No, it's been really constructive so far. I mean the interactions we've had from payers has been quite positive, actually. It's just our experience has been any time you have coverage like this that comes online. It just takes about a year between the time that the coverage comes online to you get some denials back in the door, you appeal those denials, then you kind of get a critical mass of thousands of cases where you've submitted the claim correctly and appeals have been denied. And then you got to interact with natural human, more senior person at that payer and just work with them on the workflow. And it's been really collaborative so far. So as I said for that, I feel really optimistic about it. But the timeline I gave that's just reflective of the way things work and how long it takes just to get the logistics right. Hopefully, you can come faster but we'll have to see. In terms of like the pace of the increase, I mean, I think that's an important point. I mean there's kind of no way for us to just increase the Signatera ASP $200 a year forever. I mean, there's a maturity that we tried to get to here as we've kind of gotten into the launch. So that's just a realistic consideration. Having said that, I mean, the gross margins in the products are quite strong. I think they can continue to get stronger. So that, coupled with the data that Alex highlighted on the call today, we're feeling really strong about the Signatera franchise.

Got it. I have a follow-up regarding the financial side and gross margins. We've seen a notable gross margin expansion of 400 basis points excluding the true-ups. Steve mentioned some cost initiatives in the prepared remarks. Could you provide more detail on what’s driving this? Are we beginning to see the benefits from the shift in the adjuvant surveillance mix, which contributes positively to gross margin? You also updated the full year guidance, but could you discuss the outlook for gross margins as we move into 2025?

Yes, I believe the mix shift has remained fairly consistent. We have noticed a shift towards recurrence monitoring in our mix. However, what's more significant for our corporate gross margins is the mix among our franchises. For a long time, Panorama was our top product, but now, particularly this quarter, Signatera revenues have surpassed Panorama, making it our largest revenue source. The margins we are achieving with Signatera have positively impacted our corporate gross margins, contributing to this improvement. This trend has the potential to continue benefiting our corporate gross margins into next year. That said, it’s important to recognize, as Steve asked earlier, the rate of increase in average selling prices must moderate. We should expect more steady improvements, which I anticipate will also be reflected in the trajectory of corporate gross margins as we move into next year.

Our next question comes from the line of Tejas Savant with Morgan Stanley.

Just a couple of cleanups to start on, perhaps the guidance framework or even just what you're seeing in terms of recent trends in the business, Steve. So first of all, in light of some of the pain the private payers are going through in the Medicare book of business, have you seen any uptick in prior auth or just more documentation required in the last few months across the oncology portfolio? I know you mentioned the biomarker middle rollout starting to help a little bit in the back half of next year. But is there any risk here that some of these private payers might grab their feet on the implementation at all? And then, Mike, just to clean up on the guide really, can you quantify the weather impacts and to what extent that was a little bit of an offsetting factor in the revised guide?

Yes. A good question about the insurance payers. The positive aspect is that we have been managing various challenges with payers for years, including prior authorizations, requests for medical records, outright denials, and the need to appeal. We have developed systems, protocols, and processes to ensure we navigate through these bureaucratic hurdles without getting stuck. We've made significant investments in this area, and over the last few years, we've seen many improvements. Recently, we haven't observed anything notably different compared to our historical experience. However, Natera has become more efficient in responding to these challenges, indicating that our investments have paid off regarding biomarker billing and commercial opportunities. As Mike mentioned, these initiatives take time, and it's encouraging that we have positive prospects ahead. Historically, we've performed well in this area and still see potential gains from the implementation of biomarker billing and commercial payer coverage in Signatera. Additionally, another potential area for growth is obtaining Medicare coverage for new indications. We have publicly mentioned our ongoing efforts to engage with Medicare for expanded coverage for Signatera. We believe this presents a valid opportunity. Lastly, when examining both organ health and women's health, there are avenues for improving average sales price, especially regarding obtaining coverage for tests or indications that currently lack it.

Regarding the weather, it's always challenging to gauge the precise effects. We noticed a slight impact from the hurricanes that occurred last week in Q3, which likely affected the Q3 results modestly. There was also an effect observed in October, and we'll need to assess the full quarter's impact later. We've considered this situation and adopted a cautious approach in our guidance to account for how people are affected, not just by the weather, but also as they begin to rebuild their homes and reassess their circumstances.

Got it. Okay. And then one on Signatera and the 702 study guys. How should we be thinking about framing those DFS and OS results in terms of what's clinically meaningful for physicians? And also, given that the results will be dependent on the drug evaluated, obviously, can you provide a little bit of color or context around prior studies that showed CELEBREX on top of standard adjuvant chemo and is a promising approach in certain populations?

Yes. Alex, do you want to take that?

Yes, absolutely. Well, I think there's two parts to the question. The first is how well is the drug tolerated, the class of drugs tolerated. And then kind of what could be clinically meaningful in terms of an outcome from the study. I think the good news is that unlike traditional adjuvant chemotherapy, which has significant toxicities, sometimes a risk of death, I think the NSAID class of drugs, of which CELEBREX is one of them, are pretty well tolerated. It's obviously not without side effects completely, but relatively, this is a class of drugs, thousands and millions of folks are taken for other indications. I think what good looks like, I think, obviously, that's going to depend on a few things. How does the readout look in terms of DFS, in terms of OS, and how does it compare to prior studies? I think we've said in the past kind of the last study that led to an approval with a new agent was the MOSAIC study and had a hazard ratio in kind of the 0.75%, 0.77% range for DFS and a very small benefit for OS. So we do think that's kind of a good number to think about. I think CELEBREX itself in the initial 702 study, without any selection, I think showed a hazard ratio of, I think, around kind of 0.8%, 0.9% range, depending if it was for DFS or OS, and it was obviously not statistically significant. So maybe a long answer, but I think the short of it is we do think anything that's significant below 0.8% hazard ratio for DFS and/or OS and be significant, especially with the class of drugs that's pretty well tolerated.

Okay. That's actually really helpful. And Steve, last one for me on screening. We've been getting the question a little bit. Back in September, you talked about being relatively close to sharing that data. And I think you'd also called out that you expect initial proof of concept to be a little bit more sophisticated and fulsome than your initial expectations, which was going to help you sort of inform that go/no-go decision. So just curious as to where we are in terms of that process? Is year-end still the right benchmark on timelines there? And have the posts evolved a little bit in your mind in light of the ESMO data on advanced adenoma from one of your peers?

Yes, it's a good question. So yes, we plan on actually reading that out as we said, I would say, very early in 2025, there's a couple of big investor conferences and medical conferences where we're going to be reading out the initial early cancer detection screening data in CRC and just stay tuned. We're very close now.

Our next question comes from the line of Rachel Vatnsdal with JPMorgan.

So first I have just on Signatera volume. Can you walk us through what you guys are assuming within Q4 for quarter-over-quarter Signatera volume growth? You've historically talked about this 8,000 to 10,000 rate for the past few quarters. You've obviously been beating that as well. So should we expect that trend of beating that volume level into Q4 to continue? And then what kind of a sequential assumption when we head into 2025?

Yes. So I think as we – well, first on Q3, I mean, obviously, this was like a really strong quarter. I think we did 11,400 sequentially. That was, I think, the third fastest we've ever had well above this average of 8,000 to 10,000. We said all along that you just really can't kind of get into the kind of quarter-over-quarter sequential comparisons just because there's differences in sort of the number of holidays, the differences in the number of receiving days, and you can just – I mean one day could be 2,000 additional samples, right, that you weren't able to access because maybe it was a Sunday or maybe it was a holiday or something like that. So we're just sort of sticking with that conservative estimate of saying, look, 8,000 to 10,000 is sort of the average, that's kind of roughly what we've plugged in. But of course, we're always trying to beat that and either for outperformance or for just kind of the way the days fell and so forth. We've been able to come above that in the last several quarters.

Regarding the Q4 figures, we currently don't have enough historical data to accurately determine the seasonality effects of this product. As Steve mentioned, Q4 typically sees more holidays. Last year, our Q4 performance was strong, but we had Christmas and New Year's on different weekends, which led us to take the entire week off. As a result, many units we would normally sell in December occurred in the first two weeks of January. Therefore, we're being cautious in projecting a specific number for this quarter, especially given the abundance of holidays.

Yes. But I think also, as we said in the prepared remarks, I mean we – despite, I think, this hurricane hit in the beginning of October, we were off to a fast start in Q4.

Got it. And then by just on SG&A. You raised the guide for SG&A for the year. And you've talked about accelerating some of your growth investments. So obviously, it makes sense to invest into the business. But just can you break down for us where is that driving increased spend going towards? And then on 2025, you've historically talked about this like annual OpEx growth of mid-single digits to high single digits over time. So is that the right way for us to think about 2025? Or what other factors should we be considering that would move the number higher or lower relative to that range?

Yes. Let me comment on just kind of where we're investing. And then maybe, Mike, you can comment on sort of what it looks like in '25. Look, we've – there's obviously a lot areas of investment and expanding clinical trials, investing heavily into innovation, user experience, customer service, new patient portals, EMR connectivity, expanding, I think, certain areas of marketing, certain areas where it makes sense to add a handful of salespeople here or there, maybe more significant expansions. So we're doing all those things. And like we said, we're in the very early stages of this opportunity, and we plan on investing in order to be able to serve as many patients as possible with our tests, and we're making those investments. Mike, do you want to talk about '25?

No, I believe that remains the right framework heading into 2025. As mentioned in the prepared remarks, we do not intend to return to you with news of significant cash burn next year, and we recognize the importance of maintaining a positive cash flow. However, our main focus continues to be on serving our patients and expanding our opportunities.

Our next question comes from the line of Doug Schenkel with Wolfe Research.

Okay. First, on volume growth. You're tracking the year-on-year volume growth of, I think, about $550,000, maybe $600,000. Mike, if I heard you right, I think you said at some point on the call, we should expect similar volume growth next year. Did I get that right? And if so, does that mean a similar number of incremental tests across the portfolio next year?

Yes. I mean, I think that's always kind of our baseline to try and do that as a growth goal, is to focus on this, quantify this as absolute units rather than growth rates. I think the growth rates become challenging because the base business becomes so much bigger. So that's going to be the goal. Similar comments as what Steve gave previously though, as it relates to the different drivers and the puts and takes.

Okay. Year-to-date, you have about $110 million in true-ups. Hopefully, I did that math right. Obviously, we don't know what Q4 true-ups are going to be. That said, as we model out of next year, should we be kind of taking true-ups out of the base as we think about normalizing the business space? Or is there an argument that these true-ups are actually indicative of better collections and sustainable ASP improvements?

Well, I think it's both. I mean the reality is that the collections have come in ahead of our expectations as defined by our accruals from last year. And so that's what's kind of driving true-ups, which should happen when the ASPs are going up this much. But the ASP is going up a lot is an attempt to kind of respond to that and just kind of match the revenue as best we can based on the information we have available to us at the time when we put to queue. So it's our kind of expectation that we're going to continue to see true-ups moderate. And as we kind of go into next year with the guide, I still think it's appropriate to guide about the true-ups because it's just impossible to kind of model the timing of when you get cash for a bunch of units that you're on the second appeal for and that you finally get the cash in; that's no way to guide kind of an operational business.

Yes, Mike, I agree with you. Everything you mentioned makes sense. What I'm trying to say is that you've had these consistent adjustments, likely from recent periods rather than years ago; they are probably closer to the current quarter. It seems like these adjustments could indicate that while they reflect collections from previous periods, you are actually receiving payments more frequently for these tests. Therefore, I wouldn't expect you to incorporate those adjustments into the model. However, I can see this as a sign that the average selling prices are increasing and that this trend is sustainable. Does that make sense?

Yes, definitely. For those of you who have followed us for a long time, you know that we usually provide commentary on the direction of average selling prices when we give guidance, and we're indicating some erosion. That’s what we’re currently observing, which gives us confidence in our position in women’s health. Additionally, there are specific factors influencing the Signatera average selling price that we believe are on the horizon, such as Medicare advantage and possibly state biomarker legislation. I believe that the improvement in collections and the decrease in days sales outstanding are evident, as reflected in our reported average selling prices each quarter. This also contributes to our long-term confidence. While we recognize there will be fluctuations in average selling prices in the diagnostics business, we feel we are in a favorable position.

Okay. Last one, Mike, what was the mix of first-time tests versus recurrence monitoring? I think Dan may have tried to get at that earlier, but I'm just curious if you could give us anything specific there because it was a really good gross margin quarter. Obviously, as that mix shift starts to kind of kick in, that's another leg to gross margin, but I didn't hear anything on the call to suggest that that was like a material driver in this period to the margin improvement.

Yes. Instead of focusing on first-time patients, we usually discuss a division between patients in their adjuvant treatment phase and those undergoing recurrent monitoring tests. That trend remains fairly balanced. We see strong retention of patients who stay with us and continue to receive Signatera as they progress into remission, and we are also continuously attracting new patients. This has contributed to an increase in the number of patients in the adjuvant treatment phase. Overall, we've maintained a balance between adjuvant treatment patients and those in recurrence monitoring so far. There hasn't been a significant change in this trend during this quarter. The more significant shift is the mix of different franchises in terms of their contributions to total revenue, which affects gross margins, as I previously mentioned to Dan.

Our next question comes from the line of Matt Sykes with Goldman Sachs.

Congrats on the quarter. Mike, maybe just the first one for you. Just following up on Rachel's question on the OpEx. I'm just curious, as you think about the women's health business, certainly as it relates to sales and marketing. Are we at kind of a steady state there on the sales and marketing side, where there's sort of some maintenance investment you think you made, but most of the sales and marketing is going towards Signatera? I'm just trying to think about as we move into '25, how you're thinking about the allocation of OpEx across the product portfolio? And just want to make sure that my assumption on the Signatera is the sort of the beneficiary spend are going to be maintained into next year?

Steve, do you have a take on that? Or do you want me to go?

Yes, I can comment on that and then you can add more if needed. I believe that assessment is accurate. We already have a substantial presence in women's health, which we have developed over the past 12 years. Sometimes, we can add more medical science liaisons, genetic counselors, and medical directors, and potentially conduct new clinical trials and innovative efforts like we did with the residual disease test, which was a significant launch that benefited many patients. Overall, we are concentrating on assisting oncology patients, and we see that Signatera is making a notable difference in care. It's still in the early phases, which is where a lot of investment is directed, including additional clinical trials, research and development, innovation, and enhancing our existing strong commercial presence. That's where a significant portion of our spending is focused.

Got it. And then just for my follow-up, just on Signatera. Have there been any noticeable differences in indication growth? Meaning, I know it CRC and breast are sort of the main ones, but have you seen any shift towards different indications that any that are ramping up significantly that might have been sort of lower volumes to begin with? Or has it been pretty consistent this whole time?

Yes. I think it's been pretty consistent, but certainly, what drives utilization broadly is peer-reviewed evidence. And where we're able to generate data, which we've done a lot of. I think we now have more than 85 publications supporting the use of the Signatera technology where we're able to generate data, that tends to be kind of where you see physicians using the product. And that makes sense, right? You want to have the evidence-based decision-making. So some of the areas that we talked about, muscle invasive bladder, we're excited about that with IMvigor010 being, I think, a very strong study itself and now with the IMvigor011 data reading out in 2025, as Alex mentioned, I think that's a great opportunity. Of course, IO monitoring is another area where we do see quite a bit of utilization we generated some good data there. So yes, it's a mix. It's one of the reasons why I think there's still some upside opportunity from getting coverage even from Medicare on additional indications is that we do have a decent chunk of utilization that's outside of the currently covered indications.

Our next question comes from the line of Tycho Peterson with Jefferies.

A lot has been asked already. Just a couple on the numbers here in the near term. What was the Invitae contribution in the quarter? And then you did raise by more than the beat, $40 million by more than the beat, what's the delta on that?

Yes, the difference is primarily due to continued growth across the board. I would also suggest you consider the true-ups. However, even with the adjustments, we increased our guidance significantly more than the expected results, which reflects the overall insights we've shared during the call regarding the state of the business. As for the Invitae contribution, while we haven't specified the breakdown, earlier this year we set a contribution target of $25 million, which we've since adjusted to $40 million, and it has remained within that range for our full-year expectations.

And then I guess thinking about the framework you've put in place for next year, the 500,000 to 600,000 tests, where do you think kind of the community penetration goes? And then it sounds like you don't feel like you need to add additional reps at this point as we think about next year?

Yes. I'll just comment on penetration. I mean, look, obviously, it's slightly different by tumor type and then whether you're talking about sort of the adjuvant setting or new incident patients or the prevalent pool of patients. But looking broadly at the bigger opportunity, I mean, we still think we're in the low single digits. So there's a ton of opportunity ahead in community and academic settings. And we are adding sales team members in addition to medical team members and doing more clinical trials, which is a big part of our investment.

Okay. And then just lastly, I guess, on timelines for the readouts on breast and kidney, should we still expect those next year as well? I mean, I know we've covered CRC and bladder and some of the other indications, but how do we think about the breast and kidney timelines?

Yes. We've got, I think, a very solid road map of data that's going to be reading out. So not just across those indications, but I think a broad sort of span of indications. We've got pretty big data sets reading out, which we're excited about. So I think right now, there's probably over 100 trials that are underway that are going to be reading out at various time points. So we're excited about that. We're excited about generating evidence that can drive additional coverage from Medicare and that can drive additional utilization.

This will conclude our Q&A session. And with that, we will conclude today's conference call. Thank you all for your participation. You may now disconnect.