Earnings Call Transcript
Natera, Inc. (NTRA)
Earnings Call Transcript - NTRA Q1 2025
Operator, Operator
Welcome to Natera's 2025 First Quarter Financial Results Conference Call. At this time, all participants are in listen-only mode. As a reminder, this conference call is being recorded today, May 8, 2025. I would now like to turn the conference call over to Mr. 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 first quarter of 2025. On the line, I'm joined by Steve Chapman, our CEO; and Solomon Moshkevich, President, Clinical Diagnostics. Alexey Aleshin, General Manager of Oncology, will be available for Q&A. Today's conference call is being broadcast live via webcast. We will be referring to a slide presentation that has been posted to investor.natera.com. A replay of the call will also be posted to our IR website as soon as it's available. Starting on Slide 2, during the course of this conference call, we will be making 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, 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, May 8, 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. 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?
Steve Chapman, CEO
Thanks, Mike. Let's get to the highlights on the next slide. We generated $502 million in revenue this quarter compared to $368 million in Q1 of last year, which represents approximately 37% growth. We had an outstanding volume quarter across the board with 855,000 units processed in the quarter. This included a big step-up in women's health volumes over Q4 of last year and a record volume quarter for Signatera. Signatera clinical volumes grew 52% year-on-year and increased by roughly 16,500 units compared to Q4, which is our best sequential unit quarter yet for Signatera. Gross margins were 63% in the quarter. And when you back out true-ups, grew more than 110 basis points just compared to Q4, so we're feeling great about the margin expansion we're still seeing in the business. We also generated $23 million in cash even as we doubled down on growth investments as discussed on the Q4 call in February. With all this momentum, we are in a position to substantially raise the revenue guide for the remainder of the year. We now expect revenues to be in the range of $1.94 billion to $2.02 billion this year, a raise of $70 million from the midpoint of our prior guidance given just a few months ago. This implies about 26% revenue growth year-on-year ex true-ups, which is really strong. For strategic highlights in the business, starting off most recently at ISHLT, we shared a positive readout of the prospective DEFINE study in heart transplantation, which demonstrated Prospera's ability to predict clinical outcomes in heart transplant. Remarkably, Prospera outperformed biopsy in predicting graft dysfunction one year after transplant. The study also tested DQS or donor quantity score, which is a novel feature unique to Prospera. Prospera with DQS outperformed donor fraction alone in predicting graft dysfunction. Prospera with DQS' outperformance over fraction alone was also published this week in a separate study in the American Journal of Transplantation. The paper reviewed the head-to-head performance of donor quantity score, DQS versus donor fraction alone and found that DQS performed with higher accuracy. Solomon will discuss this further later in the call. Next week, we'll attend the ESMO Breast Annual Meeting. Most notably, we look forward to a presentation on the I-SPY-2 trial, which is a great collaboration that has produced strong data on Signatera in different settings of breast cancer. This particular trial will report on the ability of Signatera to predict outcomes for metastatic recurrence in high-risk early stage breast cancer. It's especially novel as it looks at the neoadjuvant setting and measures ctDNA levels at diagnosis prior to treatment. In the study, Signatera's unique method goes beyond just positive and negative results to categorize positive patients by tumor quantity and then shows the five-year recurrence-free survival, which correlates with that quantity. While serial testing and ctDNA dynamics will certainly help further refine a patient's trajectory, we are seeing a significant amount of clinical information coming from this single blood draw prior to any treatment beginning. Later this month at ASCO, we'll have the largest and broadest set of data that we've ever had with more than 25 presentations on a wide range of tumor types, including six oral presentations. We have eight in breast cancer alone, several in colorectal and GU, two real world evidence studies based on our proprietary database and a large scale readout of our Signatera genome test. And finally, we're pleased to see critical findings in sarcoma from a Stanford-led study presented at the Society of Surgical Oncology Conference last month. With more than 2,100 samples, this is the largest sarcoma study in ctDNA analysis to date and the results were excellent. Sarcoma is an important indication with 17,000 new diagnoses per year in the United States. So this is similar in size to ovarian cancer and it's a very important cancer type because there are significant unmet needs that need to be addressed and it's a tough cancer to treat. While we're sending our lead in breast, colorectal, muscle invasive bladder, lung and the other initial histologies, we're making significant progress in other tumor types. Sarcoma is just one example of many where this type of data we'll be reading out. So let's jump into some of the volume highlights on the next slide. As you can see, we processed 850,000 tests in the quarter with strong growth across the business. This represents a sequential increase of 8% over Q4 of 2024, which is one of the best quarters we've ever had. Women's Health had an outstanding quarter, growing more than 40,000 units sequentially in Q1 versus Q4 alone. This excellent growth extends what was a very strong 2024 where Women's Health grew hundreds of thousands of units year-over-year even when excluding the impact of Evitec. Organ Health was also very strong in the quarter. We saw north of 50% year-on-year growth in Organ Health and a lot of interest in our donor-derived cell free DNA and germline tests. Moving on to Oncology. The next slide shows the progression of Signatera clinical units over the last eight quarters. We're very excited to see record growth quarter with 16,500 growth units over Q4. This is the fastest that we've ever grown and a testament to the strength of our technology, the breadth and quality of our clinical data and the great user experience we've built to help patients with cancer. We estimate that over 45% of oncologists in the United States ordered a Signatera test last quarter. We think the next two years is an especially critical period for MRD as we evolve toward becoming the standard of care and we are continuing to invest to expand clinical utility and to innovate to help as many patients as possible. The next slide shows our revenue progression over the last six quarters. We're excited to cross the $500 million in revenue threshold for the first time in a single quarter. Despite the scale at which we're now operating, we still grew revenues 37% over Q1 of last year. In addition to the volume momentum, the investments we've made in our reimbursement operations continued to improve average selling prices and we're seeing ASP strength across the board in Women's Health, Organ Health, and Oncology. Signatera ASPs moved above $1,100 in the quarter, driven primarily by continued execution on securing Medicare Advantage reimbursement. All of this effort is allowing revenue growth to outpace volume growth. Of course, ASP growth has been a major driver of our margin expansion over time as well, as this chart shows, how we've moved from 39% to 63% in the last several quarters. The 63% includes about $34 million in true-ups and we're really pleased to see our underlying gross margin improvement again about 110 basis points from 59.3% in Q4 of 2024 to 60.4% in Q1 of 2025. That gross margin improvement came from all the positive trends on ASPs, and COGS were excellent again in the quarter across the business as we continue to get scale efficiencies from the robust volume growth. We feel great about our gross margin trajectory as we look out over the next several years. In the near term, we expect Signatera ASPs to increase as we improve on our Medicare Advantage reimbursement and we also hope to see some green shoots in biomarker states with commercial plans later this year as we've previously discussed. Longer term, we've got some significant potential opportunities that could further drive margin improvements. Guidelines in the United States and Japan for Signatera have the potential to move ASPs above $2,000 per test. We've made a ton of progress on the Women's Health side as well on ASPs but we still have carrier screening guidelines and two guidelines ahead of us. As we continue to grow share in Organ Health, Prospera and Renasight can also both be accretive to gross margins as well. We previously described a longer term goal to get gross margins above 70% over time, and I think we remain very well positioned to reach that target. We started this year with a guide to remain cash flow breakeven and we were pleased to now generate $23 million of cash in the quarter. We demonstrated in the second half of 2024 we are capable of generating much more free cash flow right now, but we see 2025 as a crucial investment year for us, particularly around Signatera. Given the potential size of the market, we think Signatera could eventually generate more than $5 billion in revenue annually. So it makes sense to continue funding high ROIC investments in commercial operations, clinical trials and product improvements. On that topic, we've never had a more exciting slate of data reading out across the business this summer, and I want Solomon to walk you through all of that data now.
Solomon Moshkevich, President, Clinical Diagnostics
Thanks, Steve. And good afternoon, everyone. I'll start off with Organ Health. Steve mentioned that we just published an important manuscript in the American Journal of Transplantation, the premier scientific journal in the field. This paper demonstrated the excellent results of our two threshold algorithm for Prospera, which combines donor fraction with the donor quantity score, also called DQS. Using this unique two threshold algorithm, Prospera with DQS delivered better sensitivity and specificity than donor fraction alone, including a 37% reduction in false positives. The same algorithm was also evaluated in our DEFINE heart trial, which was presented last week at the ISHLT conference. As a reminder, the DEFINE trial is a large scale prospective multicenter longitudinal study of donor DNA in heart transplant patients. The objective of the study was to assess serial cell free DNA dynamics and its association with clinical outcomes in the first year after heart transplant. We evaluated more than 100 patients and more than 1,000 samples utilizing Prospera with DQS to measure levels of donor DNA in the blood. The results showed that patients with at least one elevated Prospera result were at significantly higher risk of experiencing an adverse event in the first year, which is defined as graft rejection, graft dysfunction, retransplantation, or death. In this trial, Prospera also outperformed serial biopsy by threefold in predicting graft dysfunction. Before Prospera, endomyocardial biopsies used to be performed every month as part of standard surveillance in many heart transplant centers. Obviously, a highly undesirable procedure that carries inherent risk. But more and more, we are starting to see physicians replace biopsies with Prospera. Turning now to oncology where we continue to make excellent progress. At this month's ESMO Breast Congress coming up in Munich, we're excited to present new data from multiple studies, including the I-SPY 2 trial that will highlight Signatera's ability to predict long-term outcomes in early-stage breast cancer patients. The data from over 700 patients will show that testing Signatera negative at diagnosis is an extremely good prognostic marker after being treated with surgery and chemotherapy. Not only is Signatera status at diagnosis a highly significant predictor of outcome regardless of disease subtype, but the quantity of tumor burden as measured by ctDNA was also correlated with outcomes. This reflects Signatera's differentiated quantification capabilities. And it's the first time to our knowledge that anyone has demonstrated the clinical value of absolute ctDNA quantity at time of diagnosis. These findings open new therapeutic strategies, including the potential for Signatera negative patients to skip chemotherapy and other intensive forms of treatment. Questions that Natera will evaluate definitively in upcoming prospective trials. The data also highlights the benefit of starting Signatera testing at the earliest stage of a patient's treatment journey, right at diagnosis. The time we believe Signatera will become a standard component of the diagnostic workup for a breast cancer patient, much like testing for HER2 status or hormone receptor status today. Beyond our data generation efforts in the core indications, we continue to pursue expansion into new histologies at a rapid pace, one such indication is sarcoma with over 17,000 new cases diagnosed in the US every year. Because of the heterogeneous nature of this disease, both adjuvant and surveillance strategies tend to be highly individualized and surveillance that can include frequent imaging for up to 10 years, highlighting concerns for radiation exposure in such patients. There's a strong clinical unmet need here, which we think is ideal for Signatera. So we're very pleased about the recently presented sarcoma study out of Stanford University, showing the validity and utility of serial Signatera in over 200 sarcoma patients and more than 2,000 plasma samples, representing to our knowledge, the largest study to date of ctDNA monitoring in sarcoma. The findings showed exceptional test performance, including overall recurrent sensitivity of 89% and specificity of 100%. These numbers were strong across subtypes, including some of the more clinically difficult to treat histologies like leiomyosarcoma where the sensitivity was 93%. We look forward to these results being published and working more closely with the sarcoma community, a great example of Natera's strategy to introduce and validate Signatera across all cancer types. Looking ahead now, this will be a busy and exciting ASCO conference for Natera, with nearly 30 abstracts and presentations planned across multiple tumor types, including, as Steve noted, six oral presentations, four of those orals will be in breast cancer alone, two of which are in the neoadjuvant setting building up the momentum with the I-SPY 2 trial. One of them will have interim results from our prospective randomized DARE trial and the fourth breast cancer oral presentation will demonstrate the utility of treatment monitoring in the metastatic setting, which is something new. These studies started years ago and the results will serve to further expand our data leadership in MRD. We also look forward to presenting posters with clinical performance data in Merkel cell carcinoma and other cancer types and a readout from our new Signatera Genome assay. As we announced previously, the Genome version of Signatera is now broadly available. This version of the test leverages Natera's patented multiplex PCR technology and our targeted and deep sequencing approach. It detects ctDNA at frequencies as low as a single tumor copy per million and it is being offered alongside the Signatera exome assay, which itself regularly detects in the ultrasensitive range and can get down to the low single digit parts per million as well. At ASCO, we will present our first clinical data with Signatera Genome, encompassing hundreds of patients and thousands of plasma samples across multiple tumor types. The assay performance looks very strong with longitudinal sensitivities ranging from 90% up to 100%, depending on histology and with specificity approaching 100%. We believe the specificity is very important and we're pleased to see that Signatera's high specificity is maintained even with the improved sensitivity of the genome. This is something where we have seen other MRD labs struggle with clinical specificity data that is low or simply not reported at all. We have generally seen competing MRD labs struggle with translating extreme analytical claims into clinical performance. Furthermore, we've developed a research version of our genome assay that's available to our academic and pharma collaborators that will improve detection to levels even below a single part per million, opening, we believe, even more research opportunities. So we're really excited about what lies ahead. We've got a lot of incredible data reading out in the near future. As you can see from our continued strong volume growth, the medical community is responding positively to the utility of Signatera and we expect that trend to continue as we move ahead. So with that, I'll turn it over to Mike to cover the financials and the guide. Mike?
Michael Brophy, CFO
Great. Thanks, Solomon. The first slide is just a summary of our Q1 financials. If you look at the year-on-year change, call in to the right, you'll get a sense of the progress we've made across every metric of the business. Steve covered the tear we've been on with respect to revenue growth driven by both volumes and ASPs. I was particularly pleased to see Women's Health units step up as strongly as they did just given the scale at which we are now operating. And of course, Organ Health and Oncology just continue to ramp. If you strip out all true-ups from the gross margin line, we expanded gross margins by more than 800 basis points from roughly 52% this time last year to north of 60% today. All of that progress allowed us to generate cash and actually reduce our loss per share even as we significantly ramp R&D and SG&A to take advantage of the growth opportunities we have ahead of us, particularly in oncology. We maintained a pristine balance sheet with nearly $1 billion in cash and no debt outside of the relationship line of credit we have with UBS. Let's get to the updated 2025 guidance on the next slide. As Steve described, we are raising the revenue guide by about $70 million at the midpoint. This is our standard approach to the guide, it does not include any true-up revenues in future periods. So the $70 million bump implies rapid revenue growth for the full year just as Steve described. We are holding the gross margin guide at 60% to 64% for the full year and the Q1 results put us in great position to land in that range. Given the organic gross margin was about 60.4% in Q1, I think this guide again shows we are confident in the ASP and COGS trend we saw in Q1 are sustainable, and we've kept to hedge in the gross margin guide to account for possible short-term headwinds we could get from the new products we're launching, so we haven't really seen much of that penalty just yet. But for both revenue and gross margins, the guide does not require heroic improvements in the business trends versus Q1 but rather steady execution on the targets in front of us. We are also bumping SG&A and R&D modestly higher as we look to maximize out year revenue growth. We expanded our commercial operations in Q4 and Q1 and those investments are on track to drive additional growth in 2016 and beyond. The bump here in Q1 accounts for some noncash expense accruals and noncash charges related to stock-based compensation, along with some additional staffing we are putting into areas of the business where we are seeing high returns. For example, as John Fesko described in February, we've made a number of key hires focused on delivering AI-supported solutions in the revenue cycle operation and we are already seeing results that merit further investment. On the R&D side, we are seeing additional opportunities to accelerate data generation. Some of the recent data sets we presented have spawned significant interest from the academic community and we are running as hard as we can to make sure we have the key clinical trials needed to unlock more indications along the lines of what Solomon described in this section. These clinical trials have delivered extremely high ROICs in the past because they flow into bedrock for broader adoption and allow us to drive reimbursement across an ever wider range of tumor types. The net of all this is that we're holding steady with our plans to remain cash flow breakeven. We're obviously off to a great start with $23 million in cash flow generation in Q1 and we'll be opportunistic with future investments for the balance of the year. Okay. With that, let's open it up to questions.
Operator, Operator
Our first question comes from Dan Brennan with TD Cowen.
Dan Brennan, Analyst
Maybe the first one, obviously, the sequential volume growth in Signatera really solid, a bit above even what Mike and Steve, you guys kind of pointed to as we get into '25. Can you just give a little flavor what's going on in the market, kind of what drove it, just kind of volume was sustainable as we go through the year? And then I have a follow-up.
Steve Chapman, CEO
So obviously, we're really pleased, record sequential quarter in growth. And that's off the back of a couple of really strong quarters in a row. We're just seeing that the data that we generated, the performance of the test, the very strong clinical utility is resonating with physicians. And that, combined with the large commercial presence that we have plus the very significant scale and user experience focus that we have, whether it's quick turnaround time, EMR capability, mobile phlebotomy, all of those things are working and the volume is increasing. As far as kind of the rest of the year goes, we're not sort of changing the previous quarter-over-quarter sequential growth, which we said was around like 10,000 to 12,000 units roughly. But obviously, we are pleased with what we saw now and we're seeing a lot of utilization and a lot of excitement as we move forward.
Dan Brennan, Analyst
As a follow-up, there is a significant amount of clinical evidence being presented at ESMO and ASCO. I know you mentioned a few studies that excite you on the neoadjuvant front. Which of these studies do you believe we should prioritize over the next year to really impact actual volumes in the marketplace?
Steve Chapman, CEO
I'll just make some general comments and then maybe Alex, Solomon, if you want to comment. First, I think we're incredibly excited to have more than 25 presentations at ASCO, including six oral presentations, that's really remarkable and a testament to the team and the academic PIs that we've worked with. Certainly, we've got a very strong presence in breast cancer, in gastrointestinal cancers, as two of the largest areas. I mean, breast, ISPY-2, which we announced today, the DARE study, which is a randomized study looking at the concept of treatment on molecular relapse that's generating a lot of excitement. So there's a lot of good data reading out, pan cancer, I think continuing the trend of having a data driven approach. And remember, a lot of these trials started five years ago, right? So these aren't studies that you can sort of just drop in at the last second and run a respective randomized study. It takes a long time to get to this point. And we think this just continues the leadership position that we have in the space. Solomon or Alex, do you want to add anything?
Solomon Moshkevich, President, Clinical Diagnostics
We are looking forward to the results of the IMvigor011 trial, which we conducted in collaboration with Genentech. Since it is their trial, they will be announcing the results, but we anticipate this will happen around midyear. We believe the results have the potential to significantly impact the field of GU with muscle invasive bladder cancer. If the trial is successful, it will represent the first companion diagnostic label that we submit to the FDA. Alex?
Alexey Aleshin, General Manager of Oncology
No, I think that's a great summary. I would also just highlight, I think there are more and more smaller histologies like we've highlighted sarcoma where we are starting to see data mature. And even though each indication by itself may be only 10,000, 15,000, 20,000 patients a year, in combination, that is a significant growth opportunity. So I think we have data coming out in pancreatic, melanoma, gastroesophageal. So we're really excited to kind of share some of those data sets and really keep growing the number of patients that Signatera can help through market-leading evidence generation strategies.
Operator, Operator
Our next question will come from the line of Tejas Savant with Morgan Stanley.
Tejas Savant, Analyst
A couple of ones on Signatera, actually. So maybe just to kick things off, one question that we've been getting a little bit is, is there a delta in terms of the number of tests reimbursed for breast versus CRC in the recurrent setting? And if so, do you have any studies underway to your point on more studies in response to physician and KOL sort of opinions, I guess, that could help define the optimal frequency of testing in the breast recurrent setting?
Steve Chapman, CEO
So as we kind of go through the process of getting reimbursement with MolDX, part of that process is to sort of look at what the cadence is in the studies and what the standard kind of imaging cadences are. And those aren't always necessarily going to be the exact same time points in each tumor site. So I would say without getting into the details on each particular tumor site, you can just expect that there's going to be differences. I think sometimes it's two times a year in the surveillance setting, sometimes it's four times a year in the surveillance setting, sometimes it's two times a year for the first three years and then it's two times a year thereafter. So of course, as we read out sort of the ASP currently that includes tests that may be performed that may be intermediate between one of the reimbursed time points where we're not getting paid and those are areas where we see opportunities. So of course, as Mike has talked about, we think the Signatera ASP over time can be up to $2,000. And part of that is getting covered for tests that today we're not getting paid for. That includes tumor types where we're not covered but that also includes some of the fill-in for maybe time points that aren't necessarily covered today that we think could be covered.
Tejas Savant, Analyst
Mike, did you notice any disruptions from weather or calendar day factors in the first quarter? You had a strong quarter, so I'm curious if it could have been even better if those factors were at play. Additionally, considering the significant growth in Signatera volume, how do you view revenue seasonality for the second quarter? Is it reasonable to assume it will remain flat, or do you anticipate a potential dip based on your typical observations in Women's Health?
Michael Brophy, CFO
Weather posed a significant challenge this quarter, especially due to the wildfires in Southern California, which is a key area for us. However, it’s hard to see that impact in our volumes. This situation reminds me of our experience during the pandemic when it was difficult to notice the massive lockdowns through our quarterly volume trends. Despite disruptions caused by weather, patients still need timely tests like NIPT, carrier screening, and the Signatera test, and they find ways to return to their doctors quickly for testing. This dynamic has important implications for the efficiency of our commercialization model for Natera compared to many others in the molecular diagnostics field. While weather was an issue this quarter, we managed to push through. Regarding the rest of the year, I believe the pacing for Women's Health is on track. We typically see a strong volume in Q1, followed by a drop in Q2, with recovery in Q3 and Q4, as it's linked to when patients visit their OB/GYN for NIPT. New account acquisitions aren’t really seasonal; they happen consistently in the background. However, our large existing business means same-store volumes significantly influence overall volume and revenue. We’ve seen hints of this trend in past years, though acquisitions have obscured it. I expect it to become more apparent in 2025, as we have limited outside factors affecting our Women's Health performance. Additionally, Signatera continues to grow, as does Prospera and our transplant business. We haven't noticed much seasonality there, although as you mentioned, the timing of growth units for Signatera may vary slightly due to calendar days or holidays, which can affect our quarterly numbers. Overall, I anticipate the usual seasonal impact in Women's Health while other segments keep growing.
Operator, Operator
Our next question comes from the line of Rachel Vatnsdal with JPMorgan.
Rachel Vatnsdal, Analyst
So first, I just wanted to ask on the Signatera volume strength in the quarter. Can you walk us through which indication did you see the greatest sequential growth for Signatera volumes and then kind of how do we see that roadmap from here in terms of indication contributing to growth for the rest of the year?
Steve Chapman, CEO
So we're really pan-cancer at this point. So obviously, we're seeing a lot of interest across the board. That includes colorectal, breast, lung, muscle invasive, bladder, ovarian, standard immunotherapy monitoring across all different tumor types. I think everyone sort of knows that colorectal is the largest indication. But certainly, there are several others that are really seeing a lot of interest. And we're doing well across the board. We're seeing very strong growth across all the tumor types. And I think that just again like helps us kind of recognize how big of an opportunity this is. We're really at the very early stages but there's a lot of room for continued growth and we've put ourselves in a position where we're now deep in the offices. And as they start to order an expanded indications we're right there to partner with the physicians to help more patients.
Rachel Vatnsdal, Analyst
And then just for my follow-up, I wanted to ask on screening. You didn't really talk about that in the prepared remarks. So can you walk us through what are you assuming on the screening front? You increased the R&D guide. Is any of that could be tied to getting some data on the colorectal screening front as well?
Steve Chapman, CEO
So as we said before, we have the PROCEED study where that's actually now met the goal of enrolling more than 3,000 patients. So that's basically done. We're now going to be reading that out toward the end of the year. So that's exciting, that was the big perspective, colonoscopy match study that we had talked about previously. I would say, toward the end of the year, you'll get that big readout. And then the other main update is the FDA enabling study, the FIND study. We're actually expecting the first patient in on that this month, which is exciting. So as a reminder, that's basically designed in the same way as the PROCEED trial. PROCEED was designed itself to exactly match what you would do in an FDA enabling trial. So that data is super reliable. So we're just sort of picking up from there. And the fact that we're already at first patient in targeted for this month is pretty exciting. You do see some of the R&D expense trickling in throughout 2025 but that's also going to be kind of built in 2026. And that's in the models and in the guidance in the way kind of Mike is talking about the future of the business, we're already accounting for that.
Operator, Operator
Our next one will come from the line of Tycho Peterson with Jefferies.
Unidentified Analyst, Analyst
This is Noah on for Tycho. I wanted to start by asking about ASPs for the year, specifically some of the puts and takes with and things like that...
Michael Brophy, CFO
It was a bit garbled on my end, can someone just repeat that for me.
Steve Chapman, CEO
Just question was what's our sort of trajectory on ASP for the rest of the year? And what are the puts and takes on denials, true-ups, coverage? How should we be thinking about that?
Michael Brophy, CFO
I believe the guidance expects stable average selling prices in both the Women's Health and Organ Health businesses, with some modest improvement anticipated from Signatera. We see clear opportunities for increasing the percentage of Medicare Advantage approvals for certain tumor types that are already covered, which we expect to be reimbursed 100% of the time. We will work on improving these figures throughout the year, and I'm optimistic about that. As mentioned earlier, the average selling price and revenue forecasts for the year do not hinge on extraordinary changes in business conditions like we experienced in Q1. Regarding true-ups, they are decreasing as a percentage of total revenue, which aligns with our expectations. However, predicting their absolute dollar amount is challenging due to the rapid growth of the business, which is why we do not provide guidance on true-ups for future periods. The guidance for the remainder of the year accounts for $34 million in true-ups from Q1, but for the rest of the year, assume zero true-ups, including for the gross margin guidance. While we will have some true-ups, they are difficult to forecast and complicate modeling, so we won't include them.
Unidentified Analyst, Analyst
And then for my follow-up, can I just get a quick update on for MRD and what the timeline is like there and what reception has been like in the other research environment?
Steve Chapman, CEO
So yes, we've outlined the forthcoming launch of tumor-naive MRD testing in colorectal that's sort of on track with what we had said previously. I think the data looks really strong, not as good as tumor informed as expected, but we feel really good about that. And we'll give you an update as that rolls out.
Operator, Operator
Our next question will come from the line of Doug Schenkel with Wolfe Research.
Unidentified Analyst, Analyst
This is Colleen on for Doug. We have a few questions, first on your prenatal business. Can you give a bit of color on the over 40,000 tests sequentially on the split between NIPT and carrier screening? Also, we haven't seen anything in the Green Journal table of content for May or June in terms of ACOG guidelines for microdeletions or extended carrier screening. Should we assume that this might be coming in the late summer at the earliest? And can you remind us what the revenue and ASP impact would be if guidelines are published?
Steve Chapman, CEO
When we examine the prenatal business, we typically see steady growth that aligns with the size of our product portfolio within Women’s Health. NIPT is our leading product, closely followed by carrier screening and other offerings in our lineup. The growth trajectory for both carrier screening and NIPT has been positive. The addition of 40,000 tests from one quarter to the next is a strong indicator of growth. This reflects the strength of our technology, our team's ongoing execution, and the robust peer-reviewed data we have published. In 2024, we experienced strong growth with several hundred thousand units added, even excluding any contributions from Vite. Women’s Health is performing well. Regarding the microdeletion and carrier screening guidelines, we believe these will be introduced, although we don't have specific timing insights. Recent articles have mentioned the forthcoming guidelines, which we view as a positive sign. The delay in their release also presents an upside for us. Our business is thriving, with significant growth potential ahead based on our core offerings. For microdeletions, we see a high attachment rate. We previously mentioned that we aim to conduct around 1 million 22q tests this year, which are not currently reimbursed. These tests are part of our cost of goods sold and infrastructure. We have a code that supports a favorable average selling price, and we have contracts with payers for the test, but reimbursement is not in place yet. If reimbursement were to start at around $200 or $500 for those million tests, it would greatly impact our business. The CPT code is estimated to be around $750 on the CMS fee schedule, but we aren't including that in our financial models. Even with a few hundred dollars in reimbursement, the potential upside for us could be substantial.
Unidentified Analyst, Analyst
And then just one quick follow-up on indication mix for Signatera. Is breast above 25% of total volume now? And is there anything you can share on how a potential increase in breast as a percentage of total volume impacts your payer mix, given breast cancer patients tend to be a bit younger than colorectal cancer, lung, et cetera? And relatedly, how have biomarker bill wins impacted your no pay rate with commercial plans?
Steve Chapman, CEO
I think we're doing really well in breast cancer. We've generated a lot of data, and the physicians really like our test and its performance. We have excellent genomic data in this area, which is generating a lot of excitement. The DARE randomized study that's about to be read out is creating a buzz, along with the I-SPY data we announced today and what's coming at ASCO. Breast cancer is definitely one of the primary tumor types for us. We don't see issues like reimbursement challenges; it's actually being reimbursed well with Natera under our current structure, and we view breast cancer as a great opportunity. It’s one of the main cancers, and we believe we can help millions of patients as we move forward. Regarding biomarkers, the bigger question is when we will start seeing reimbursements from commercial plans. Currently, the average selling prices are around the $1,100 mark, but there’s still substantial upside in the commercial opportunity. We're beginning to see some positive trends in biomarker states, but there's much more potential. We believe that over time, the average selling price for Signatera could increase to about $2,000, which would be a significant rise from today. Looking ahead, revenue growth across Women's Health and Oncology in the next five years is not only going to rely on volume increases but also on significant improvements in average selling prices from coverage wins and engaging with commercial payers for reimbursement on tumor types. This is exciting because we expect revenue growth to accelerate beyond simple volume growth.
Operator, Operator
Our next question comes from the line of Catherine Schulte with Baird.
Catherine Schulte, Analyst
Maybe just first on Japan since you brought that up, getting your $2,000 Signatera ASP. Can you just remind us the timeline and path forward there and what kind of updates we could expect to hear this year on that topic?
Solomon Moshkevich, President, Clinical Diagnostics
We are enthusiastic about the program in Japan and are on track with our plans. Our application has been submitted to the PMDA, which is the Japanese equivalent of the FDA, and they are currently reviewing it. If everything continues as expected, we anticipate approval by the end of this year or possibly early next year. Following that, we will submit to the health ministry for reimbursement, which typically takes another six to nine months. This timeline suggests we might begin seeing an impact on our top line by late next year. There is a strong demand for our technology in Japan, with a similar number of colorectal cancer diagnoses annually compared to the United States, despite the vast difference in population size. The interest in biomarker-driven MRD-guided treatment decisions is high, and MRD is already included in the clinical guidelines in Japan. We look forward to progressing in this area and remain on track.
Catherine Schulte, Analyst
And then maybe at this point in the launch for Signatera, I mean you guys are continuing to put up pretty incredible sequential volume growth even with competitors coming out. We've got a new one entering the market now, one competitor about surveillance Medicare coverage and you guys still seem to be pretty dominant in where you are. So I guess, is there any change to how you go about that commercially in the current competitive landscape or maybe what are you hearing from customers around your value proposition?
Steve Chapman, CEO
We’re very pleased with our growth. There have been many competitors in the market for a while, selling tests, engaging in early access programs, and talking to doctors. We don’t see any significant change in the competitive environment at the moment. Some larger companies may have gained coverage in the last six to nine months, but we are focused on delivering results. What we're observing is that physicians appreciate the performance of our test and the clinical data we’ve provided. We now have over 100 peer-reviewed publications and long-term overall survival data, with evidence of physicians acting on our test results. We believe there is significant emphasis on this data, as opposed to some analytical validation studies that can be easily manipulated. Overall, we think we’re performing well, and we’re excited about the positive feedback from physicians regarding our product and our growth trajectory.
Operator, Operator
Our next question comes from the line of Puneet Souda with Leerink Partners.
Puneet Souda, Analyst
First, regarding the Women's Health business, the 40,000 units exceeded our expectations. Can you clarify how you are comparing to the Invitae results? How much of that growth in 2024 can be attributed to Invitae, and how does that comparison influence your expectations for the current year? Additionally, Mike, concerning the average selling price, we are noticing that commercial payers are facing some pressure. What gives you confidence that the average selling price will remain stable or slightly increase in the Women's Health segment?
Michael Brophy, CFO
First, regarding volumes, as you may recall, we started integrating the Invitae accounts in the first quarter of last year. We have nearly a full year of experience incorporating those volumes into our business, and it has proven to be a successful transaction for us. We are pleased to offer continuity of care to a large group of what were initially new customers, who have now been with us for some time. As the year progresses, the comparisons are relatively straightforward compared to last year, although it is somewhat challenging to differentiate between Invitae and Natera volumes at that time. This integration continues to enhance our platform. The significance of deals like this, along with our growth in the first quarter, lies in our exceptional operation that supports average selling prices, which we have demonstrated strong results on over the past two years. Our team is well-equipped to manage increased volumes and is keen to add even a dollar of ASP to an expanding base of Panorama volumes, which creates strong synergies. This operational confidence is what enables me to believe that we can maintain steady results for the rest of the year, even though that is not the primary commercial objective we are focused on. Our internal team is dealing with various situations where we have established coverage policies for standard of care tests, yet for various administrative reasons, reimbursement has not been as expected, which the team takes seriously. This concern is shared from leadership down, and we are diligently working to enhance that situation. I understand there may be pressures, and there have been fluctuations, but I believe we are on a solid path to possibly growing ASPs while keeping our expectations steady for now.
Puneet Souda, Analyst
On Signatera, I have a broader question. Looking ahead to the next two quarters and into 2026, could you discuss the key factors that will drive strong growth? Is it related to NCCN, expanding into community settings, reaching other tier accounts beyond Tier 1 and 2, or growth in indications? Please explain how you view the various factors that will contribute to continued growth for Signatera, as this is an important topic for us and for investors every quarter.
Steve Chapman, CEO
If we start with the fundamentals, this market has a very low level of penetration. Despite the excitement around our current volume and growth, we're still in the low single digits compared to the broader opportunity, which is significant. Currently, we are working with 45% of oncologists, and they are actively ordering Signatera. So, it's not that we're only at 3% and need to find a way to reach the remaining 97%. We already have a substantial portion of oncologists placing orders. As more data becomes available, and as oncologists become accustomed to the test and recognize its value, they will begin to order it for additional patients. This is the main driver of our growth, alongside our efforts to bring on new providers and physicians. We are focused on onboarding new doctors who have not used our product before, as well as supporting those currently using it by providing them with clinical data to broaden its application. It's important to remember that most physicians and volume are found in the community setting. Simply having one indication reimbursed will make it challenging to engage community practices, as they would be reluctant to refer only specific patient subtypes without being able to offer other services. Our unique position allows us to offer a comprehensive cancer solution, with extensive coverage, integration into EMRs, and a large medical affairs and customer service team to ensure quick turnaround times. We are generating as much data as possible, which we believe drives utilization. We are concentrating on significant cancer opportunities while also exploring smaller opportunities through innovations like the recent launch of the Signatera Genome product, which detects down to one part per million. We do have some physicians interested in this, although most are satisfied with the performance of the exome test, which already detects down to very low single-digit parts per million. We're ensuring that we can cater to those preferring genome testing. Currently, there’s little reason for physicians to choose competing tests, which we believe strengthens our competitive position for future growth. We are heavily investing in clinical data and research, and we are very optimistic about the growth trajectory of our business. Despite the competitive launches and increased energy from rivals, we are achieving record performance, which clearly reflects the strength of our technology and the positive reception of Signatera among physicians.
Operator, Operator
Our next question comes from the line of Matt Sykes with Goldman Sachs.
Unidentified Analyst, Analyst
This is Will on for Matt. Just want to touch on the gross margin. It was really strong this quarter. Can you talk a little bit more about the COGS improvement initiatives? And longer term, how much room is left for COGS reduction or is gross margin improvement largely going to come from the higher ASPs?
Steve Chapman, CEO
I’ll briefly address that and then maybe Mike can add. There is definitely potential for improvements in COGS. We currently have several large-scale projects in progress. Most of the previously announced projects, like establishing the tissue sequencing labs, are mostly finished, but we still see opportunities and are actively pursuing them. Additionally, improving COGS can come with scaling our operations. As we continue to expand, that should provide extra leverage, which benefits us. However, there are significant opportunities to enhance ASP and reimbursement. It’s important to note that our current ASPs reflect the fact that many of our tests aren’t covered by insurance. Much of our investment aims to change this, and we expect to see progress in the next five years. We believe we can potentially double the ASP of Signatera and significantly boost the ASP in Women's Health and Organ Health, which could lead to substantial revenue growth that exceeds volume growth.
Unidentified Analyst, Analyst
And then maybe building on the last question, you launched the whole genome product this quarter. Just curious any color on initial uptake? And building on your previous comments, longer term how do you see the whole genome fitting into your portfolio?
Steve Chapman, CEO
So we've launched the genome test, it's broadly available now. Pan cancer, we get down to one part per million. We are seeing some interest. But I think largely, physicians are really supportive of the peer review data that they've seen with the exome-based test where you have a lot of clinical outcomes. And one of the things that we're hearing from physicians is that some of these sort of extreme performance claims that are coming out of analytical studies, they're just not seeing that translate into improved clinical performance. And they're also raising concerns about specificity problems with some of the other genome-based laboratories. So we think we're in a good position. We have great performance on the exome. Doctors are telling us that they like the performance of the test, they like all the peer review data, they like the long-term data sets. They're raising concerns about extreme analytical claims not necessarily translating into clinical performance, and they're raising concerns about specificity from some of the other companies. And we're seeing, as Solomon pointed out, in some cases, the competitors are actually not even disclosing their specificity. I think we saw that recently a genome competitor that talked about their colorectal data, they actually didn't disclose their specificity. So that raises questions and doctors see that. So we think we're in a good position. Long term, we have both products available, the doctor could look at the data and they can choose which test they want to go with.
Operator, Operator
And that will conclude our question-and-answer session and our conference for today. Thank you all for joining. You may now disconnect.