Earnings Call Transcript - NTRA Q3 2025

Operator, Operator

Welcome to Natera's 2025 Third Quarter Financial Results Conference Call. As a reminder, this conference call is being recorded today, November 6, 2025. I'd now like to turn the conference call over to Michael Brophy, Chief Financial Officer. Please go ahead.

Michael Brophy, CFO

Thanks, operator. Good afternoon. Thank you for joining our conference call to discuss the results of our third quarter of 2025. On the line, I'm joined by Steve Chapman, our CEO; Solomon Moshkevich, President of Clinical Diagnostics; and Alex Aleshin, General Manager of Oncology and our Chief Medical Officer. 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, such as our operational and financial outlook and projections, our assumptions for the 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 10-K or 10-Q and the Form 8-K filed with today's press release. Those documents identify important risks and other factors that may cause our actual results to differ materially from those contained in or suggested by the forward-looking statements. Forward-looking statements made during the call are being made as of today, November 6, 2025. 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. 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?

Steve Chapman, CEO

Thanks, Mike. Let's get to the highlights on the next slide. We had a fantastic quarter. We generated $592 million in revenue, which is up about 35% over Q3 of last year. We had an excellent volume quarter as well, which included strong growth across the product portfolio and another record for Signatera growth. We processed 202,000 clinical MRD tests in the quarter, which represents more than 21,500 units of growth compared to the second quarter. You'll recall that we had a record of 20,000 Signatera growth units in Q2, so we're very pleased to beat that record again in Q3. Gross margin took a big step up in Q3, coming in at 64.9%, which is almost 1.5 percentage points higher than we were just last quarter. Excluding true-ups, gross margins grew over a full percentage point versus Q2 and almost 3 percentage points over Q3 of last year. Given all that momentum, we are in a position to significantly increase the 2025 financial guidance. We are raising the revenue guidance by $160 million at the midpoint and now expect revenues in the range of $2.18 billion to $2.26 billion, which is a full reset of the prior revenue range. We are raising the gross margin guidance to 62% to 64% in recognition of the gross margin performance we saw in the first 3 quarters and ASP and COGS momentum continuing in the business. We are also modestly bumping OpEx guidance, largely due to the one-time expenses that have accumulated over the course of the year, totaling around $60 million. In addition to those one-time expenses, there's a small increase in R&D to support MolDx coverage for the remaining Signatera indications. Based on this effort, I'm excited to announce we are now in a position to submit 7 new MolDx submissions before the end of the year, potentially worth around $250 million to $300 million of gross profit based on our run rate. We've also invested to expand the market by increasing the number of definitive MRD trials and supporting the FDA-enabling FIND study for early cancer detection. It's important to note that our SG&A was flat to down between Q2 and Q3, which aligns with what we said about pre-spending to build the commercial team in the first half of the year. We aren't planning any big commercial expansions anytime soon, and we'll discuss that later in the call. Finally, we are substantially raising our guidance for free cash flow generation for the year, now formally expecting to generate roughly $100 million in cash for the full year. We're thrilled to see the Signatera data readout from the IMvigor011 trial in bladder cancer, and we appreciate Dr. Tom Powles for joining us on the special call held a few weeks ago to review the results. We think the IMvigor trial results represent a fundamental new paradigm in cancer care enabled by Signatera, and that data has been published now in the New England Journal of Medicine. We've also touched on our last call that we were very excited to launch Fetal Focus, a new single-gene NIPT for inherited conditions that leverages our proprietary SNP-based method. We recently announced an expansion of the Fetal Focus product to cover over 20 genes planned for this quarter. The initial feedback from our August launch is positive, and we think this is a compelling expansion of the panel. Let's get into some of the business trends on the next slide. The first slide shows our Q3 volume progression versus prior years. We had solid sequential quarterly growth in women's health, driven in part by interest in Fetal Focus that spurred a lot of new commercial activity for our team. Organ health was also very strong with both greenfield and competitive wins, and we will continue to keep our foot on the gas as we have several clinical trials ongoing, demonstrating how much utility and cost savings these tests deliver. Overall, the volume momentum in Q3 was very strong across the products and has continued into Q4 thus far. The next slide shows our clinical MRD unit growth over time. We saw another record growth of 21,500 additional units, which includes more than 21,000 Signatera growth units and a few hundred Latitude growth units. As a reminder, we offer Latitude as a reflex to Signatera when Signatera can't be performed. This unit growth represents 56% year-on-year growth versus Q3 of last year, the fastest year-on-year growth rate we've had in all of 2025. The drivers here are really the same as we've covered on prior calls - groundbreaking clinical data combined with excellent customer experience. New patient starts were again strong as physicians continue to use the test for ongoing monitoring. We see adoption being fueled by the excellent data released earlier this year, including at ASCO, ASCO GI, and ESMO. We haven't had time yet to see the effect of the recent ESMO data for publication in the New England Journal of Medicine, but clearly, those are both very positive factors. The mix of tumor types we see continues to be broad-based as physicians start to generalize the use of Signatera in their clinics. That broad adoption drives volume growth, creating a large revenue opportunity as we broaden the range of tumor types that we can get reimbursed. The next slide shows revenue, another area of significant outperformance this quarter. We grew revenues 35% over last year, faster than Q2 despite the tough comparable. This was from strong volume performance combined with excellent progress on ASPs. Each of our major products had a sequential improvement in ASP in Q3 compared to Q2. Women's health and organ health had standout quarters, and Signatera's ASPs are now roughly $1,200. We had about $55 million in true-ups this quarter as cash collections accelerated. We posted another record for DSOs at 49 days compared to 57 days just in Q2. That trend has continued in Q4, with October being a clear new record for cash collections. All of this bodes well for future ASP growth, as Mike will describe later in the call. The next slide shows our gross margin traction over time, and we posted another strong gross margin quarter in Q3. Top line gross margins were a record as we got very close to that 65% level. Stripping out the revenue true-ups, we grew gross margins a full percentage point to 61.3% compared to Q2. We drove that with a combination of better ASPs and lean COGS in the quarter. Additionally, investing in revenue cycle operations has been a huge win for us over the last 2 years. We think we can hold dollar spending steady as we continue to grow ASPs, which gives us leverage on prior investments. There is also a coverage expansion opportunity, notably in Signatera. We are starting to see green shoots in biomarker state reimbursement for commercial volumes, estimating the growth in Signatera ASP this quarter was driven primarily by our success in the spring and fall working with health plans in these states to cover Signatera for their patients. I think it's going to be a steady linear process for us over the next 2 years or so. Finally, all of the above can be accelerated with the deployment of AI. In addition to driving innovation, AI is already helping us scale operations as volumes grow without forcing a commensurate increase in headcount. That's a good segue to the next slide on OpEx. We went into detail on the last call about the investments we are making this year in both R&D and commercial operations to extend our leadership in MRD. Looking at Q3, this R&D increase reflects the investments made to support multiple new product launches, and expansion of our clinical trial and data generation efforts for both Signatera and early cancer detection. This year, we've launched Signatera Genome, Latitude tissue-free MRD, Fetal Focus single-gene NIPT, and we're about to launch an expanded version of Fetal Focus. All of these things put us in a position to continue doing well in the market and to help millions of patients per year. We're now in a position to submit 7 new MolDx submissions by the end of the year. As mentioned earlier, reimbursement for the remaining indications could be worth around $250 million to $300 million of gross profit based on our run rate. In addition, we're launching many interventional trials to continue advancing the field towards incorporating personalized MRD into the standard of care. We expect there will be limited OpEx growth of roughly 10% next year, while revenues grow much faster, and margins continue to improve. The OpEx investment will focus on executing definitive Signatera clinical trials to expand the market and complete the FDA-enabling FIND study, which will enroll patients in 2026. We think these are smart investments. With that, let me turn it over to Solomon to discuss more details. Solomon?

Solomon Moshkevich, President of Clinical Diagnostics

Thanks, Steve. Getting into some of our new data and announcements, I want to start with the expansion of our Fetal Focus test. We originally launched Fetal Focus in August with the panel covering 5 of the most common inherited conditions: CF, SMA, Fragile X, alpha-thalassemia, and beta-hemoglobinopathies, including sickle cell anemia. The goal of the test is to offer a solution for pregnant mothers who are carriers of one of those inherited genes but where the father is unavailable for screening to determine if the baby might be at increased risk. This can be accomplished with a simple blood draw, as our Fetal Focus test can directly assess the fetal DNA circulating in the mother's blood to detect potential fetal inheritance from both mother and father. This can be done with high sensitivity and specificity, and we believe it is the next best thing when the father is not available for screening. Last week, we announced that we are expanding the panel to cover 20 of the most common genes before the end of this year. The validation of this expanded panel, like the original 5-gene panel, leverages prospectively collected samples from the EXPAND trial, which has enrolled over 1,700 high-risk pregnancies from a diverse multi-ethnic population. This includes those with dual inheritance from both parents, partial inheritance from one parent, or zero inheritance, with confirmed fetal outcomes in all cases based on prenatal or postnatal diagnosis. Testing and confirming negatives is critical for a robust estimate of test sensitivity. We use our proprietary LinkedSNP technology to improve detection of challenging homozygous cases, which occur regularly in certain conditions like the classic Delta F508 mutation causing cystic fibrosis if inherited from both parents. LinkedSNP uses information about neighboring DNA loci to deduce likely inheritance patterns. We're pleased with the response from the medical community after our initial launch in August, and we know folks are looking forward to this expansion. Turning now to oncology, we had a strong quarter of clinical adoption and new evidence generation. At the ESMO conference, we had 14 abstracts, including 6 orals with a blockbuster readout in muscle-invasive bladder cancer across 2 different studies, IMvigor011 and CheckMate 274, both of which also had concurrent publications in the New England Journal of Medicine and Annals of Oncology, respectively. Many of you tuned in after the conference for our special call with Professor Tom Powles, Director of the Barts Cancer Center in London and Chief Principal Investigator of the IMvigor011 trial, who reviewed the significance and the novelty of this data. The summary is that we have generated Level 1A evidence to support the role of Signatera in directing treatment after radical cystectomy. As noted by the discussant during the Congress, this is the strongest evidence to date for intervening with adjuvant systemic therapy based on detecting plasma ctDNA. There are three more things to note. Number one, the IMvigor011 protocol called for Signatera monitoring every 6 weeks after surgery. This is a serial surveillance protocol, not just a one-time test. Number two, patients who tested positive with Signatera at any time in the first year after surgery derived significant benefit from immunotherapy, improving overall survival by 41%, while those who remained negative derived no treatment benefit and had excellent outcomes without treatment, achieving 97% overall survival at 24 months. Number three, the result was consistent across cohorts, IMvigor011 with atezolizumab and CheckMate 274 with nivolumab. As perioperative care is expected to grow in popularity, questions will always arise about which patients benefit most from additional systemic therapy after surgery, often hard for patients to tolerate. As a reminder, the median age of diagnosis in the U.S. for muscle-invasive bladder cancer is 73 years old. We expect this data to fuel adoption of Signatera among GU oncologists and create a positive halo effect on the overall field to further differentiate Signatera. Among the other readouts at ESMO, the colorectal data was also notable. Data from the INTERCEPT study and the NICHE study was presented, both showing that Signatera dynamics and particularly MRD clearance during or after therapy were reliable markers of therapy response. In the INTERCEPT study, they followed ctDNA patterns from over 1,300 colorectal cancer patients, showing the rates of clearance after adjuvant therapy and what it signified. In this cohort, adjuvant therapy achieved MRD clearance in about 1/4 of the patients who had tested positive after surgery, a clearance that was very rare without treatment, occurring only 2% to 4% of the time. This makes Signatera extremely reliable for evaluating response to adjuvant therapy. In the NICHE study published concurrently in the journal Nature, investigators conducted an in-depth analysis of response to neoadjuvant immunotherapy in patients with MMR-proficient colon cancer. While they identified novel predictive signatures based on TP53 status, immune cell proliferation, and whole-genome duplication, the study also exhibited the power of Signatera dynamics to predict response. Out of the 6 patients who achieved response based on pathologist review of their resected tumor, 5 out of 6 had cleared their ctDNA prior to surgery. Conversely, among the 20 patients who failed to achieve pathological response, 19 out of 20 were still ctDNA positive prior to surgery. This highlights the clinical utility of utilizing Signatera in the neoadjuvant setting to inform the surgical and adjuvant treatment plan. Both of these studies, along with similar evidence in other cancer types, contribute to a growing narrative of Signatera supporting a new type of surrogate endpoint to potentially accelerate future drug approvals as well. While Signatera had a successful showing at ESMO, there were other ctDNA-guided trials using different assays that did not hit their endpoints, for example, in colorectal and lung cancer. We believe this underscores differences between ctDNA assays and technologies as well as differences in trial designs. As presented at ESMO, study results are not necessarily transferable between ctDNA assays. The field is increasingly recognizing significant performance differences between technologies. It is insufficient to measure analytical assay performance in controlled laboratory settings. Assays must be rigorously evaluated in well-designed prospective clinical studies, especially when informing life-and-death treatment decisions. Signatera is unique in using a patented multiplex PCR amplification technique followed by next-gen sequencing, identifying a targeted set of clonal mutations with the lowest background error rates and sequencing the plasma at extreme depths with over 100,000 reads per target. In comparison, other labs may utilize hybrid capture techniques that are broad and shallow, tracking hundreds or even thousands of mutations but sequencing them at shallow depths. Test performance depends on the chemistry, variant selection, and calling algorithms, all solidifying Signatera's role in cancer care. In summary, it will also give rise to a new wave of clinical trials treating patients based only on molecular recurrence and using Signatera dynamics to evaluate treatment response. With that, I want to turn it over to Alex to discuss our exciting roadmap in early cancer detection. Alex?

Alexey Aleshin, Chief Medical Officer

Thanks, Solomon. Colorectal cancer is both common and highly preventable when detected early, before or right as the cancer develops. Traditional screening works, but participation is uneven. That's why there's intense interest in accurate, convenient blood-based screening options. We have leveraged our experience with over 250,000 early-stage tumor sequences to drive deep discovery in order to find a proprietary set of markers that differentiate colorectal cancer and precancerous advanced adenoma lesions from healthy controls. We estimate that the vast majority of these markers are currently undetectable if only publicly available data sets are utilized. Furthermore, we've embraced an advanced adenoma-first approach, focusing our discovery and algorithm development to prioritize performance in the difficult-to-detect advanced adenoma lesions. Lastly, we have invested considerable resources to optimize our methylation technology platform to maximize molecular recovery and prevent signal degradation. Taken together, this allows us to detect signals significantly below 0.01% VAF, a range required to improve advanced adenoma sensitivity. PROCEED-CRC is a U.S. prospective study of approximately 5,000 average-risk asymptomatic screening participants who provided blood pre-colonoscopy. In the most recent analysis focused on advanced adenomas derived from 1,400 sequential participants with clinical outcomes, we reported a 22.5% sensitivity and a 91.5% specificity. Furthermore, when adjusting performance for histological subtype prevalence in recent FDA-enabling trials, sensitivity remained in the approximate 22% to 24% range. This is a step-up from earlier 2025 pilot data readout, which showed an 18% sensitivity at a 91% specificity after technological and algorithm refinements. We've heard questions about if this sample set is representative of the FDA-enabling study. We want to reiterate that these samples were collected in the same manner and funnel as the FDA-enabling FIND study. In addition, we know the sample processing occurred in a blinded fashion, and the size distribution was potentially more challenging than what we expect in a larger cohort. Before diving into the data, it's important to understand the types of advanced adenomas that are precursors to colorectal cancer and why their detection is clinically challenging. Advanced adenomas are precancerous polyps that can vary significantly in size, structure, and cellular composition, including 4 main subtypes: number one, the rated adenomas, which are flat and often more difficult to detect visually; number two, tubular adenomas, the most common but typically smaller and less aggressive; number three, villous or tubulovillous adenomas, with a high malignant potential due to greater villous architecture percentage; and lastly, number four, advanced adenomas with high-grade dysplasia, representing the highest risk of transformation to colorectal cancer. In our cohort, 78% of lesions were serrated or tubular, consistent with the 74% to 78% range observed in other large studies. This alignment indicates our cohort represents real-world advanced adenoma biology, further validating our results. In addition to histological subtype, detection rates can also vary by lesion size, with smaller or flatter lesions notably more challenging for blood-based screening methods to detect. In our PROCEED-CRC study, the mean AA size was 13.7 millimeters, notably smaller than the greater than 15-millimeter average reported in other FDA-enabling studies. Despite the smaller lesion size, which is typically associated with lower detection rates, our results demonstrate promising sensitivity. In summary, the PROCEED readout underscores Natera's commitment to advancing early detection through a data-driven approach, showing promising detection rates even under stringent clinical conditions, laying the groundwork for improved colorectal cancer prevention outcomes. To move from promising readouts to potential screening tests, Natera has launched FIND-CRC, an FDA-grade validation study targeting approximately 25,000 average-risk adults providing blood before colonoscopy, targeting approximately 70 screen-detected CRC cases. Primary aims are CRC sensitivity and specificity in people without advanced precancerous lesions. Secondary aims include performance for advanced precancerous lesions for advanced adenomas. The study is designed to generate regulatory-grade evidence that complements and builds upon the PROCEED-CRC development data set. The study has enrolled its first patient in May 2025, and we expect enrollment targets to be met over a cumulative 18-month timeframe. With that, let me turn it over to Mike to review the financials. Mike?

Michael Brophy, CFO

Great. Thanks, Alex. The next page is just a summary of the financials compared to last year. We've clearly ramped volumes and revenues while also continuing to transform the gross margin profile of the business. We stated a few years ago that long-term gross margins could exceed 70%. The progress we've made this year should give you confidence that we can get there, particularly as oncology overtakes women's health as the largest part of the business over the next few years. We've also clearly ramped OpEx, but very little of the OpEx increase translates to revenue in the same calendar year. These are not Super Bowl ads meant to drive short-term volume growth. These are primarily investments designed to deliver growth in 2026 and beyond, along with the roughly $60 million in accruals that don't repeat every quarter, as Steve described. As a result, we are pleased to show leverage in the business regarding free cash flow generation, and we are significantly bumping up our expectations for cash flow generation for the full year. The balance sheet remains pristine with no permanent debt on the books and cash flows from operations pushing our cash balance above $1 billion currently. Okay. Let's get to the guidance update on the next slide. For the third time this year, we are completely resetting the revenue guidance, now ranging from $2.18 billion to $2.26 billion based on the revenue and volumes we've seen this year. The gross margin guidance is also being bumped up on the bottom end of the range by 100 basis points to account for the good results generated so far this year. For simplicity in modeling, we’ve forecasted Q4 without true-ups in revenue or gross margins, as has been our previous practice, although the record cash collections in October position us well for more true-ups when we close the books in Q4. Looking into next year, a preliminary way to think about volume growth for women's health and organ health is to post a similar number of growth units as we delivered this year, given stable team sizes. For Signatera units, we continue to think about the rolling average of the last 4 quarters as a good goal for unit growth over the course of the year. This implies healthy quarters for Signatera next year, justified by the strength of our team and the ongoing stream of prospective outcomes data. Regarding ASPs, a reasonable initial forecast would be to hold women's health and organ health ASPs stable, with modest growth for Signatera in the $50 range over the course of the year. Our internal teams are focused on achieving better results across the board, but even this approach yields significant revenue numbers when paired with the expected volume scale. On the SG&A and R&D lines, we are making the bumps Steve described in his section. He noted that SG&A was flat to down sequentially in Q3 compared to Q2, and R&D was up due to the additional launch efforts and clinical trial work undertaken. We remain opportunistic on further OpEx investments, particularly in R&D and clinical trials, while the commercial operations are well-scaled to support continued rapid growth. Accordingly, I expect OpEx growth to align more closely with the 10% range next year, leaning toward R&D. We're currently amid our budgeting process and will plan to provide an update on 2026 when available early next year. Cash flow generation is a highlight of our results this year, and we expect to sustain this next year as we scale with top line growth and improving margins. With that, let me open it up to questions. Operator?

Operator, Operator

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

Noah Kava, Analyst

This is Noah on for Tycho. I wanted to start by asking on prenatal. So you guys announced a new Fetal Focus test last week. I guess why is now the right time? What were you hearing feedback-wise on the 5-gene panel? And then looking at the 20-gene panel, how are you thinking about reimbursement there?

Steve Chapman, CEO

Yes, thanks. It's a good question. We launched the 5-gene panel earlier this summer, in August. That's gone really well, receiving great feedback from customers. Now R&D has progressed to the point where we are in a position to launch a broader panel, which was always part of our plan, and we're excited about that. We are also excited about the EXPAND clinical trial—this is something we started several years ago, a gold standard where we prospectively collect blood tubes, then collect diagnostic outcomes on both positive and negative samples effectively on all the pregnant patients enrolling in the study. This will be a defining trial in the space.

Noah Kava, Analyst

Got it. And for my follow-up, switching to MRD here coming out of ESMO and the IMvigor readout. How are you thinking about the path to NCC guidelines with some of the clinical utility data you put out and then subsequently, the broader commercial payer adoption?

Steve Chapman, CEO

Yes, obviously, we're excited about the data from ESMO, particularly around IMvigor. Alex, do you want to comment on guidelines for a moment, and maybe Solomon, if you want to comment as well?

Alexey Aleshin, Chief Medical Officer

Yes. Thanks, Steve. We want to note that the IMvigor011 data is what we call Level 1A clinical data and has been submitted for FDA approval, both for the compound and for Signatera as well. Past precedents suggest if something goes through the FDA process, it is included in NCCN guidelines. While we can't speculate on how NCCN will describe this, we expect Signatera and atezo guided by Signatera in this setting will eventually make it into the NCCN guidelines.

Solomon Moshkevich, President of Clinical Diagnostics

Yes, this is Solomon. Given that the New England Journal paper has already come out, assuming all FDA processes are on track, we expect a guideline update sometime mid or late next year.

Steve Chapman, CEO

On the final point about commercial payers, we are starting to see traction, as Mike mentioned, from commercial payers due to the biomarker bills. But generating this level of evidence and the quantity of data we are producing puts us in a strong long-term position to have coverage from commercial payers.

Operator, Operator

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

Douglas Schenkel, Analyst

I'm going to keep it to one topic, early cancer detection. First thing is regarding the PROCEED-CRC, advanced adenoma sensitivity, specificity performance—I'm just wondering how important that was to shaping your willingness to invest more in this program? And generally speaking, are you using the same standards you applied in advancing your NIPT and MRD programs, areas where you clearly made the right call to move forward?

Steve Chapman, CEO

Yes, thanks, Doug. The performance we've achieved certainly shaped our willingness to invest into the program after the JPMorgan conference and our initial pilot readout on advanced adenoma. We made the decision to initiate the initial stages of the FIND study based on that strong indication. Now, based on that and our internal views of the performance, we're full steam ahead on the FIND study and set everything up appropriately. We believe we can enroll the trial in 2026 and aim to be a major player in early cancer detection, which presents a great opportunity.

Douglas Schenkel, Analyst

That said, how much would you expect to invest in 2026? I'm guessing something like $50 million incremental in that program. And then lastly, I'm curious if you'd be willing to share the minimum viable performance you would consider to move forward with this product from a commercial viability standpoint.

Steve Chapman, CEO

Yes, I think you're directionally right; building off what we spent this year is reasonable. We believe strong performance is crucial for commercial viability, and we’re seeing very robust data right now. We know where our competitors are positioned, and we're mindful of our market standing. It's a huge market, and we've succeeded well in competitive environments.

Operator, Operator

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

Daniel Brennan, Analyst

Great, maybe just on Signatera. You've taken up the guide for giving us some color on next year in terms of an 18,000 plus or minus trend line. Any color from the quarter? You called out strength there last quarter too. Is there anything unique that stands out? If you do hit that 18,000 sequential run rate, it is still a deceleration from what we've seen in the last 2 quarters. Is there anything in the last 2 quarters that was unusual causing the deceleration? Or is it just general conservatism?

Steve Chapman, CEO

Yes, good question. The growth is coming across the board. We see many new customers starting to use Signatera for the first time, while existing accounts and doctors are extending their usage. The new histologies coming on board is quite encouraging, and it's notable how low our current penetration is overall. There is still a long way to go. We are continuously generating high-quality data, which keeps us in a great position. In Q4, we are experiencing the same strong trend continuing, positive new patient influx. Overall, we expect performance to stabilize and grow, but the journey may not always be linear.

Daniel Brennan, Analyst

That was super helpful. On Signatera, if you don't mind, you talked about the biomarker bills, and Mike mentioned the $50 price increase in 2026 as a decent starting point. Are you baking in additional indications discussed? Any timing expectations?

Mike Brophy, CFO

Yes, so on the ASPs, I believe, if we achieve our internal goals regarding both biomarker states and the MolDx submissions, we could do better than the $50 mentioned. It's important to note we will have another reset on ADLT, which will present a modest headwind next year. The $50 represents a conservative expectation for achieving some fraction of our upcoming opportunities, but we have a long track record of being successful with MolDx submissions preceding ASP improvements.

Operator, Operator

Our next question comes from the line of Subbu Nambi with Guggenheim.

Subhalaxmi Nambi, Analyst

Solomon, your prepared remarks described the advanced adenoma samples in the PROCEED trial. Help us understand why you believe the study is designed to be more predictive as we head into the FIND study readout. What is unique about your assay?

Steve Chapman, CEO

Yes, that's a great question. Alex, can you provide some insights?

Alexey Aleshin, Chief Medical Officer

Yes, it's a multitude of factors and our research team's dedication. This has been a multi-year endeavor, and we've been thorough in our approach to finding the best biomarkers, prioritizing advanced adenomas as a challenging area. We have advanced our technology in recent years for improved molecular recovery, reduced sample loss, and developed techniques to effectively detect methylated regions. Also, our access to a comprehensive repository of early-stage colon cancer cases has bolstered our assay development, allowing us to focus on significant cancers traditionally difficult to detect. Our performance in the PROCEED trial leads us to have confidence as we approach the FDA-enabling FIND study.

Subhalaxmi Nambi, Analyst

That's very helpful. When should we expect the VEGA trial to read out, the de-escalation arm of the GALAXY study?

Steve Chapman, CEO

Alex, can you address that question?

Alexey Aleshin, Chief Medical Officer

Yes. It's difficult to predict the exact timing, as it's an event-based readout. I will note that all patients in the VEGA study have been randomized, and we're simply waiting for sufficient events. It is safe to estimate the readout will likely occur in 2027, but we'll refine that guidance as we approach the time.

Operator, Operator

Your next question comes from the line of Casey Woodring from JPMorgan.

Casey Woodring, Analyst

I have a couple of quick questions on Signatera. Can you split out the contribution from new patient starts in the quarter and whether that increased from last quarter? You have noted strength there previously. What tumor types are showing the most strength, and are you detecting early traction from new data readouts like IMvigor?

Steve Chapman, CEO

Yes, it's a great question. In Q2, we said that the growth in new patients was an all-time record – approximately 2x any previous period. Remarkably, in Q3, we saw similarly high levels of new patient starts coming in. We saw a growth quarter-over-quarter almost as high as what we experienced previously. In Q4, we also see continued interest, particularly following the IMvigor announcement opening up a lot of conversations among physicians and pharma regarding implementation in trials and practices.

Casey Woodring, Analyst

That's helpful. And then a follow-up here. Can you provide more details on gross margins, especially as Signatera becomes a larger part of the mix? Would you expect those to step up in a way similar to this year in 2025?

Mike Brophy, CFO

Yes. As I mentioned earlier, to simplify modeling, I suggest starting with the pre-true-up number. I expect reasonable sequential improvement in gross margins next year as we continue to increase. It is tough to replicate this year's exact rate, but we feel confident in the target of reaching the 70% range long-term. Even including true-ups, the 64.9% gross margin this quarter gives a glimpse of our capability. I believe gross margins will reflect a continued upward trend.

Operator, Operator

Our next question comes from the line of Puneet Souda with Leerink Partners.

Puneet Souda, Analyst

Congrats on a strong print here. More on the Signatera side. On the ASP increase, is that just from biomarker bills? Are you considering additional indications discussed?

Steve Chapman, CEO

Yes, we believe if we capitalize on the opportunities ahead regarding both biomarker states and the MolDx submissions, we can exceed the $50 number mentioned. That said, we will face a modest headwind due to another ADLT reset coming next year, so consider this when assessing performance.

Alexey Aleshin, Chief Medical Officer

Regarding VEGA, it’s hard for us to comment on other readouts. However, we put a lot of thought into the study design ensuring that it's the right approach. Factor in that there was serial testing with patients able to crossover and experience delayed treatment. The GALAXY trial has generated a long-term view of how the assay has performed, enhancing our confidence. Additionally, it's a sizable study with close to 1,000 randomizations. While I can't predict the outcome exactly, we're excited to see the data when it's unblinded in 2027.

Puneet Souda, Analyst

Okay. That's very helpful. On the women's health side, we've seen growth from a competitor in the market with a mother-only assay. Can you discuss the positioning of your product and if your sales force is fully trained? How can you capture share with your strong commercial position?

Steve Chapman, CEO

Yes, good question. We've been providing carrier screening for a long time, being among the largest providers of next-gen sequencing-based carrier screening in the U.S. When screening the mother, the standard of care is to subsequently test the father. However, the father is not always available for testing, highlighting a clinical need for directly assessing the fetus's genetic status. The launch of Fetal Focus meets this need. We successfully introduced the 5-gene panel and are expanding to a 20-gene offering. This allows us to utilize our entire customer base for a broader rollout through our existing and well-trained sales team. Our competitive positioning is strengthened by this distinctive capability compared to others. As always, we monitor competitors, and we're pleased with our successful growth in women's health. We see this expansion driving further growth in the future.

Operator, Operator

Next question comes from the line of Catherine Schulte with Baird.

Catherine Ramsey, Analyst

I'll just go ahead and ask both my questions now. First, regarding early detection, we've seen some players start with lung cancer and then transition to multi-cancer applications, and you've shown interest there as well. While I understand the focus on CRC, can you share any long-term strategy updates in screening and timing on multi-cancer updates? Second, regarding Signatera's 2026 volume growth, just to confirm, was your comment to look at the rolling average of the last 4 quarters in terms of sequential unit volume growth of 18,000? Does that level hold up for the fourth quarter as well?

Steve Chapman, CEO

Yes, the focus right now is completing the CRC product through clinical trials and gaining approval for the market. However, we have considerable activity ongoing regarding multi-cancer applications as well. Stay tuned for news regarding that, but we recognize the big opportunity in CRC to emerge as a major player in that space, particularly with ASPs, gross margins, and clinical needs. Mike, feel free to address the second question.

Mike Brophy, CFO

Yes, Catherine, you're correct. I'm suggesting to assess the rolling average for growth units over the last four quarters. But keep in mind, not every quarter will consistently be upwards, even though we've seen that thus far. A model needs a benchmark, and this is a healthy one requiring our team's excellent execution. As the year progresses, we'll be able to revisit those numbers.

Operator, Operator

Ladies and gentlemen, that is all the time we have for questions. This concludes the question-and-answer session and today's conference call. Thank you for your participation. You may now disconnect your lines. Have a pleasant day, everyone.