Hi, welcome to the Canaccord Genuity Growth Conference. I'm Kyle Mikson. I cover life science tools and diagnostics with Canaccord. Pleased to have Natera here with us for a fireside chat. With the company, we have Mike Brophy, CFO. Just for background, Natera is a leading provider of cell-free DNA-based testing for women's health, oncology, and organ health. Thanks, Mike, for joining us. Appreciate it. Yeah. No, thanks for having me. Let's start with the second quarter results you guys announced last week. I think you beat by $100 million or so, raised the guidance. Just walk through the puts and takes for the quarter, and then we'll get into some specifics. Yeah, had a fantastic Q2, just read it out last week. Outstanding volume quarter across the board. Very strong momentum in organ health. Had an outstanding Q2 in women's health, which is sequentially seasonally down for us usually. Sequentially, we were really strong. That was kind of high single-digit growth year-on-year, which is quite difficult to achieve in such a penetrated market. Nonetheless, we got there. Probably the headline for the quarter, I think from investors' perspective, was the growth that we posted in Signatera, which just sequential to a very strong Q1 of this year. We grew an additional 34,000 units to now north of 280,000 units in the quarter. That's a record for us. The prior quarter was also a record at 25,000. That's quite a move up and we can kind of get into some of the puts and takes on that. I think overall the business is really firing on all cylinders, to use that cliché. This is year 11 for me at the company. We've just never been in a stronger position across all areas of the business. Revenues and ASPs are very strong. Gross margins were quite good. We continue to narrow losses even as we stayed very aggressive on the investment front. I think we're very well positioned for a great run over the next few years here. Okay. Maybe just quickly on women's health first. The single-digit improvement, the growth, how much of that is driven by Fetal Focus and some of the newer improvements to the platform? Yeah, I certainly think that that was an important component of our progress. As you'll recall, we launched the Fetal Focus offering some quarters ago, and we're seeing a very good uptake for that. Q1 we had a very strong kind of launch quarter. We saw that continue into Q2. Beyond that, I was very pleased to see us announce the launch of a new Panorama version that is even more sensitive than the prior version of Panorama in NIPT. Particularly highlighting the data we've now generated in low fetal fraction cases, which historically has been a kind of a difficult area for performance for non-invasive prenatal testing. I think our performance there is quite differentiated. Looking forward to having some publications and some presentations this fall. Because we announced that in kind of the early June timeframe, I don't think that was really part of the Q2 performance, but I think that augurs well for the rest of the year for women's health. The outlook is there is runway to keep growing in this kind of range, basically, for this business? Well, I didn't include it in the guide to keep ramping like this. This was truly an outstanding quarter. When investors ask us how to think about forecasting growth in women's health, just given the level of penetration that you see there, I typically think about this as a kind of a mid-single digit volume grower, and then you'd love to aspire to grow a little faster than that on revenue if you can continue to just do a good job executing and increase the fraction of time that a covered service in women's health is actually reimbursed. There is still work to do there. This is obviously a step function higher than that. We will see how we do, but we are really excited about the momentum. Yeah. Awesome. All right. Now on MRD, on Signatera and oncology. You had like 283,000 clinical units, and that is the growth at 34,000 quarter-over-quarter. I guess, yeah, 34,000. That's huge compared to the 25 or so that you were. The trailing 12 month must have been in that 20s or so- Yeah But, it's big. You had some kind of one-offs or kind of potential inflationary kind of factors there. Yeah. There were some claims that were pulled from, I think, the first quarter due to weather. Well, let me summarize. Yeah. I will just summarize that. In Q1, I think in retrospect was a little bit understated just because of the weather impacts that the entire world saw in Q1. Looking back on it, we think something like two to three, maybe 4,000 units that would have normally come in the door in Q1, we just didn't get them in Q1. That just means since we are focused on the change quarter- over- quarter, that just means that relative to Q2, that sets you up if Q2 is as clean a quarter as it was, that sets you up for kind of an outsized growth unit number in Q2. We did that. Even stripping that out, it is still an absolute blowout of a quarter. That is really fundamentally driven by a couple of factors. One is just the continued evolution of the outcomes data that we continue to produce. We were in the New England Journal late last year in muscle-invasive bladder cancer, got an FDA approval for Signatera here in the spring. In June, we were actually included in the muscle-invasive bladder cancer NCCN guidelines. Not really a driver for Q2 per se, but I think augurs very well for the rest of the year. Along with, we have completed a large commercial expansion in roughly April of this year that took us about a year and a half to execute. Q2 was, although those new reps that we added were contributing volumes in Q4 and Q1, I think Q2, you see the full effect of those reps fully in place and being operational. So, a couple of factors, and several of those are obviously quite sustainable as you go forward through the rest of the year. In terms of maybe the mix in the quarter or the growth units, any of that is like Genome maybe? Latitude's not reimbursed, so I feel like that's not a huge impact. Yeah. Neither the Genome nor the Latitude represent a huge piece of that. It is de minimis relative to the overall, you are talking a couple thousand units out of 283,000 units, so that is actually quite small. However, I do think that having Latitude and the Genome available as part of a menu does help to further burnish the Signatera offering as the premier offering in the space. For example, if you have the occasional physician that may want to avail themselves of either a Latitude test or a Genome test, they can do so on a one-off basis for certain patients for whom they think that might be more appropriate, and still be continuing to order Signatera for the vast majority of their patients where you have all the excellent validation data. So, I do think that those two product launches kind of punch above their weight as measured by their own volume in the contribution to the overall effort. I guess when you roll out the phased variant detection version of Signatera, that is higher sensitivity, I guess. Does that move the needle as well? I think it does along the lines of the way that I just described. I think that, just hearkening back to women's health for a moment, I think we're on version 10 of the Panorama test. If you asked our most loyal customers what are the technical differences between version 10 and version six, I don't know if they'd be able to tell you. But they trust and believe that we've just continued to improve the assay over time, then we continue to deliver excellent clinical trial data to support that supposition. That's part of why we've been able to maintain a leading position in the women's health space, is that we're never satisfied. We're continually improving what we offer to patients and physicians. Next versions of Signatera are also inevitable and will be meaningful improvements over the current version. But I think in the experience of the physician and the patient, they're going to be ordering Signatera. The data that we read out over time, it'll have phased variants, it'll have different technical components that make the assay even better than it is today. Yeah, I think on the topic of different versions and things like that, I think that you guys first announced an FDA goal, let's say, in 2022 or something like that. Obviously now you have CDx for MIBC. Is the goal to get FDA approval for multiple cancer types? Or how does that Why MIBC, basically? Well, why MIBC is we happen to be running- In here an FDA-enabling trial for a drug. We ran this phase III clinical trial for atezolizumab. Yeah Just as a bit of background, atezolizumab had been run in muscle-invasive bladder cancer in an all-comer setting in an initial phase III IMvigor010, and unfortunately, the drug did not meet its primary endpoint on all comers. But when you double-clicked in on the Signatera-positive patients in that cohort, those patients had an amazing response, 40% treatment response. The second phase III trial IMvigor011 was the study that was ultimately published in "The New England Journal" last fall, where entrance criteria for the study was Signatera-positive patients, and then they were randomized plus or minus atezolizumab. That's what drives the approval for the drug. Then because we're then in the label for the drug, it's necessary for us to have an FDA-approved lane in the lab and an FDA-approved assay. I think it is inevitable that over time, you have additional FDA approvals just because we'll be running similar trials like that in the future. Got it. On this topic of MIBC, you got the NCCN guideline inclusion recently, the Category 1. That is the third. You also have, or I guess not you, but MRD also has Merkel cell and B-cell lymphoma. Maybe talk about how volume changed or could be changed through guideline inclusion, if you have noticed anything with those other tumor types in the past. Well, I think you can even see it a bit already in the bladder cancer setting. When that data was published, there were a lot of centers that could easily see through that that was going to yield an FDA-approved drug, and that the Signatera was likely going to be in the label for the drug. We had a number of centers call us up and want to implement that exact protocol that was run in the study in their own setting. I think getting into the guidelines unlocks a further set of centers that were perhaps waiting for the guideline and the approval to execute the same strategy. I do think it is an important growth vector for the business to get into guidelines. We are honestly just at the beginning in terms of guideline inclusion. We have got a huge swath of outcomes data coming across a range of tumor types that will enable further guideline inclusion across the spectrum of cancer types. Yeah. I guess on that note, a big focus on the earnings call last week was how much more data you have than others, as well as how much is in the pipeline, basically. Maybe just give us a flavor for just how differentiating that is and how long it would take to really generate that for some competitors now. Well, it takes years. You can just look at our own experience. There is a chart in the earnings call deck that has the one curve, I think it is a blue line that started really ramping three, four, five years ago, and is now just going up at a 45-degree angle. That line is cumulative number of prospective studies that were launched. Yeah. Okay? Then you have a phase shift out to the right because these things take years to read out, and now you are seeing a sharply upward sloping line, a red line, which is prospective studies that have been read out. If you just reflect back on how impactful these prospective studies have been to validating not just Signatera, but the concept of minimal residual disease and recurrence monitoring, they have been incredibly impactful. The reality is we are really at the early stage of that flight wheel. A lot of the studies that were initiated in 2023, 2024, and 2025 are slated to read out in 2026, 2027, 2028, 2029. As much progress as we have made up to this point, we are poised to see that progress really accelerate because of all the investment we have been making over the last couple of years in clinical trials. Okay. Hypothetical question for you. If there was an MRD test that was said to perform as well as Signatera, let us say, did not have nearly as much data, but was at a price point that was like a quarter or 10% of the price point, would that possibly be successful? What would that be like? Well, I think we would have to ask the question, how does one show that type of equivalence? I would want that to be shown in a prospective setting. I think it is easy, and we have seen this in a bunch of different settings over time. It is much easier to make a PowerPoint slide that says that you meet certain technical performance requirements. It is a very different thing to then translate that PowerPoint slide into outcomes data, and there is a lot of failures between point A and point B. It is simply not enough to say, "We did some spike samples in our lab, and we think we work as well, or better, or we are more sensitive," or whatever the metric might be, "as Signatera." Unfortunately, when a lot of these companies, and this is over the last five years, have run clinical trials, their data has not matched up to the Signatera data. Why? It is complicated. This is hard. Is it patient selection? Are there too many false positives? Are they picking up some signal that does not correlate to an actual relapse? There is no shortcut to just getting to the outcomes data. Oncologists are very well accustomed to this dynamic because they have got to be on the cutting edge with new drugs that are getting approved all the time, and you just do not switch patients to new treatment regimens without the benefit of those types of outcomes data. That is, I think, an appropriate and fairly entrenched practice in the community. The challenge is simple, produce excellent outcomes data, and I think any assay would have a right to help patients as they should. Okay. Got it. Now, with Medicare coverage, you have not really received a new indication to be covered since maybe early 2025. I think that was in lung cancer. So it has been some time. You do have, I think, seven or so indications that could be reimbursed. So you have already submitted to MolDX. That is like a next 12 months or 18 months type thing. I think it is like $150 maybe dollars to the ASP as a tailwind, potentially. Why is it taking so long, maybe? Does that mean that MolDX is maybe thinking about, say, pan-cancer coverage or something like that? Well, I think our base case has always been that the expectation should be that we just continue to grind additional coverage decisions, tumor type by tumor type. We are in the zone of all of the critical mass of the most common tumor types are largely covered now by Medicare. That is a huge win. What we are doing now is we are working on the important but less common cancers with them. I think that the timing of that is just well within the natural error bars of this process. It is good that it is a rigorous process, and that you have got to produce a lot of data, and there is a lot of back and forth, and we absolutely welcome that. The interaction with MolDX has been really nothing but positive for us. This is now year seven or eight of our consistent interaction with them. ASPs for clinical Signatera is, I think, $1,275. This could add, let us say, $150-$200. Then you have the Japan approval recently in CRC, and then maybe in MIBC over time. But in CRC, what is the next steps with pricing and reimbursement- Yeah over there? Yeah. We got the Japanese FDA approval, which was a huge milestone many years in the making. Now that we have the Japanese PMDA approval for the assay itself, now the task of getting approvals for additional cancer types is more focused on generating the data for those cancer types. We announced we have already submitted for coverage in bladder cancer, for example. We have great ambitions to continue to submit rigorous outcomes data sets to Japanese PMDA and continue to stack up the number of indications for Signatera covered in Japan. We are right on track for the launch in Japan, and we have always said that is an early 2027 event, and that seems like that is on track given that we have the Japanese PMDA approval. The next step is to interact with the agencies there to establish number of time points that will be covered and then a price point. I expect that to be resolved here in the second half, so we are excited about that. Okay. Maybe talk about your plans or your history recently of expanding the lab, new sequencing, CapEx, things like that. There is a lot of different options nowadays with high throughput sequencers, so Yeah I am sure, what is going on there? You wear your expertise very lightly. Not every investor will go and look at the cash flow statement for us. But if you go and look at it, if you just look at cash flows from operating activities, you see that just continuing to ramp. Then investing activities, we still generated cash, but it was more modest. Why is that? First half of last year, we had about $45 million in CapEx, and first half of this year we had about $85 million in CapEx. So what is going on there? Well, we had a press release in the spring that announced that fairly soon, when we are done with the expansion that we have underway, that the Natera Austin, Texas, lab will be the largest genomics lab in the entire world. We will take the title back from a lab in China there. We are very proud about that and very proud of the huge number of Texans that we employ in that lab. That ranges from a lot of hourly folks earning a very good wage all the way to the PhD scientists and engineers. It is a fantastic operation. That is a continuous piece of the business. I do not think that we need to have CapEx at that level. $160 million a year in CapEx is not sustained CapEx. It is probably more like $60 million a year, kind of keeps you very comfortably supplied with Signatera. Very comfortably. What you have in addition there are some of these bubble costs and some of these very ambitious projects we are taking on in the immediate term. Okay. All right. In the last few minutes, I do want to just ask you about transplant or organ health really quickly. The final LCD update, effective August 30th, I think it is more favorable than the draft in terms of frequency of testing. I think you guys called out like an ASP to volume tailwind, potentially. I feel like that is like a $150 million, $200 million business a year maybe. Was that any impact to your guidance on the increase for this year? Yeah, the guide this year from here to the end of the year was really just based on a volume forecast. We held the ASP steady for the purposes of that guide. Qualitatively, I generally think that is appropriate for a diagnostics business. This is a tough business, so you should, when possible, make room in a guide for some price erosion. Not because I am seeing any particular price erosion in any of the products, but that is just because it is that tough of a business. Nonetheless, I think ASP steady is a safe place to be for the guide. The volume growth, I think, gets you into that range. We said on the call we feel great about hitting that guide, even though it is a massive step up from the prior guide. It is a complete re-rating of the revenue guide. We feel like with all the momentum we have going in Q2, that we are really rolling, even without any incremental ASP improvements, which could well come, and we are trying hard to make that happen. Okay. On early cancer detection, I wanted to talk about that. FIND-CRC is reading, I guess enrollment will be completed relatively soon, 40,000 patients at the high end. When that reads out, I think we would assume something pretty solid given PROCEED-CRC looked pretty good, especially on AA. Yeah. I guess you would go to FDA approval. Maybe there's a guideline used by USPSTF assay or something. But we're looking at maybe in the 2028 or 2029 timeframe, you're going to hire a lot of sales reps potentially in that business if all goes well. That could burn hundreds of millions of USD a year. How do you guys kind of reconcile this cash kind of conversation we just had with that burn? Well, I think it's worth understanding just how difficult it is to launch a blood-based early cancer detection test in the United States. You've got to have the technical expertise to design an assay that actually works in this population, which is extremely difficult to do. You got to design and execute an enormous clinical trial. All of that, just doing that piece of it, along with interacting with FDA and all the relevant agencies, you probably got to spend something like $500 million before you can even sell a single test. That creates a dynamic where there's just not that many labs that can get to the starting line here. Okay? Then once you're at the starting line, I think the incremental spin there, obviously, as you alluded to, is you've got to build a commercial operation in a primary care setting. I think that the way that we're going to pursue that is very similar to the way that we've pursued the build of all of the very successful sales teams that we've built. That is, we've legged into it. We don't have immediate plans to just hire 1,000 sales reps and hope that it works out and burn hundreds of millions of dollars while we're trying to figure. We're going to hire a contained number of reps, drop them into the zip codes that we think, based on our decade plus in primary care already, we think are most productive, and we're going to show some good initial results. Okay? When we show those good initial results, two things happen. One, we get that information, then we are able to have confidence that incremental sales force expansions have a high ROIC, just like what we just did with Signatera. It should also give investors confidence that they have got some metrics that they can rely on. The fact that you do this in stages makes that sales force expansion more self-funding than it would be if you just started with a Field of Dreams type approach and had 1,000 reps at the start. I would just point out, and we tried to make this point on the earnings call, we are very happy to be planning to launch in early cancer detection. We think that is a fantastic growth vector for the business and meets a critical unmet need for patients and for doctors. If we were not doing it, I think the share price would be a lot higher today, right? Because right now we are right in the zone of spending $100 million plus on the operating expenses to run the clinical trial and do all the development work, and it contributes absolutely nothing to revenue or gross profits today. When you look at corporate margins or you look at our overall business, it is just a boat anchor on the core business. That is going to resolve itself as we launch and we start to generate revenues from the asset. I think it is just worth understanding that as you evaluate the P&L. Ex that investment, I think even with that investment, you see losses narrowing, and you see lots of good evidence of us getting scale on all of our ambitious growth plans. But if you take that investment out, it really looks like an interesting picture for the core business. On that note, this year definitely elevated ECD-related spending. How should investors think about next year's spending on that area in particular, especially if you think about expanding to lung or multi-cancer? Yeah, I think to your point, one should presume that Natera is going to continue to be ambitious, particularly on the R&D spend. I mean, SG&A, interestingly, given that we did a big sales force expansion last year, you see the dividends that that is paying already. Obviously, I think it is clear that those are very high return on invested capital dollars. SG&A this year compared to last year is much, much more stable. It is relatively flat as per the guide, okay? So that shows you that we can get leverage on commercial operations. I think given the scale of the markets that we are pursuing, we feel like we can remain ambitious in R&D investments and also deliver the necessary scale for investors. In addition to more Signatera studies going on. Yeah. Look, the Signatera studies is a very important component of the business. I think in the context of $2 billion in operating expenses, I think that there ought to be plenty of room to be very ambitious on Signatera clinical trials. I will give you one example, and that is this series of trials that we will be running, known as the SIGNAL trials, where we are going to design and execute first-class prospective interventional, in many cases, studies that are designed to answer key clinical questions that would change guidelines in favor of patients, okay? So the first example of the series of SIGNAL trials is in HR-positive breast cancer, where there is a set of patients that are, in addition to their hormone therapy, they are getting a CDK4/6 inhibitor. So we are going to take a set of Signatera negative patients in that category, and we are going to see if you deescalate them from the CDK4/6, we are going to see how they do. You can see what a huge benefit that would be for patients and how much cost that could potentially take out of the system. That is the type of study that requires either an academic consortium to run or requires us to run, and we feel like we are best positioned to drive those types of cost-saving studies as quickly as they should be run. Okay, and final question. You received IVDR approval for Signatera in Europe. That in addition to Japan. You are expanding globally. What is the timing, I guess, to expand in Europe, and how do you size the totally global, international, as well as U.S. market or TAM for MRD? Yeah, there is a huge amount of demand in Europe for Signatera. Just that use case that I just described, I think, gives you an example. For national health systems in Europe that would like to deliver the latest and frankly, most expensive therapeutics to the patients that really need them, there is a huge unmet need for a tool like Signatera to target the right patients for the latest and greatest treatments, to have the most bang for your investment dollar for a national health system that has a lot of priorities to handle. We are running a bunch of very interesting clinical trials in Europe. CIRCULATE-France is one that I would bring up that I think is incredibly interesting. Big ambitions in Europe over time. I think in terms of sizing the market in Europe, I think it is not really all that constructive to try and size global market. I think you have just got to go almost country by country and use case by use case and build up what are the use cases that are reimbursable that are really important to that system and to that population. Japan is kind of the first example where colorectal cancer is just a huge unmet need. You see you have the attendant urgency from the relevant stakeholders in Japan to support it. Got it. Okay. All right. Thanks, Mike. This was great. Appreciate it. Yeah, thanks for the time. Good to see you guys.