Natera, Inc. (NTRA) Earnings Call Transcript
August 12, 2026
Earnings Call Speaker Segments
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. And just for background, Natera is a leading provider of cell-free DNA-based testing for women's health, oncology, and organ health. So thanks all for joining us. Appreciate it.
Thanks for having me.
Let's start with the second quarter results you guys announced last week. It was -- I think you beat by like $100 million or so, raised the guidance. Just walk through the puts and takes of the quarter, and then we'll get into some specifics.
Yes, had a fantastic Q2, just read it out last week. Outstanding volume quarter across the board, very strong momentum in organ health and had an outstanding Q2 in women's health, which is sequentially seasonally down for us usually. And then sequentially, we were really strong. And that was, kind of, high single-digit growth year-on-year, which is quite difficult to achieve in such a penetrated market. But 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. So that's quite a move up, and we can, kind of, dig into some of the puts and takes on that. But I think overall, the business is really firing on all cylinders, to use that cliche. 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 stay very aggressive on the investment front. And I think we're very well positioned for a great run over the next few years here.
Okay. Maybe just like quickly on women's health first. So the single-digit improvement, the growth, how much of that is driven by focus and some of the newer improvements to the platform?
Yes. I mean I think -- 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 very good uptake for that. So 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, kind of, a difficult area for performance for noninvasive prenatal testing. And 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 time frame, 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's a long runway to grow in this, kind of, range basically for this business.
Well, I wouldn't -- it's not -- I didn't include it in the guide to keep ramping like this. I mean this was truly an outstanding quarter. I typically -- 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. So there's still work to do there. This is obviously a step function higher than that. So we'll see how we do, but we're really excited about the momentum.
Yes. Awesome. All right. Now on MRD on Signatera in oncology. So you had like 283,000 clinical units, and that is the growth of 34,000 quarter-over-quarter -- or I guess, yes, 34,000. I mean that's huge to 25,000 or so that you were -- the trailing 12 months must have been in that 20s or so, but it's -- but you had some, kind of, one-offs, or kind of potential inflationary kind of factors there. There were some claims that were pulled from, I think, the first quarter to the...
Let me summarize. Yes, I'll just summarize that. So in Q1, I think, in retrospect was a little bit understated just because of the weather impacts that the entire world saw in Q1. So looking back on it, we think something like 2,000 to 3,000, maybe 4,000 units that would have normally come in the door in Q1. We just didn't get them in Q1. And that just means as we're 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, and we did that. So even stripping that out, it's still an absolute blowout of a quarter. And that's really fundamentally driven by a couple of factors. One is just the continued evolution of the outcomes data that we continue to produce. So 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. So not really a driver for Q2 per se, but I think augurs very well for the rest of the year. Along with -- we completed a large commercial expansion in roughly April of this year that took us about a year, 1.5 years to execute. So Q2 was -- although those new reps that we added were contributing volumes in Q4 and Q1, I think Q2, you see, kind of, the full effect of those reps kind of 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.
And then in terms of the -- maybe the mix in the quarter or the growth units, any of that is like, genome, maybe Latitude is not reimbursed, but I feel that's not a huge impact, but...
Yes. Neither the Genome nor the Latitude represent a huge piece of that. I mean it's de minimis relative to the overall -- I mean you're talking like a couple of thousand units out of like 283,000 units. So that's actually quite small. However, I do think that having Latitude and the genome available as part of the 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 2 product launches, kind of, punch above their weight as measured by their own volume in the contribution to the overall effort.
And I guess when you roll out the phased variant detection version of Signatera, that's higher sensitivity, I guess, like does that move the needle as well?
I think it does along the lines of the way that I just described. I mean I think that just harkening back to women's health for a moment, and I think we're on version 10 of the Panorama test. And if you ask our most loyal customers, what are the technical differences between version 10 and version 6, 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, and then we continue to deliver excellent clinical trial data to support that supposition. And that's part of why we've been able to maintain a leading position in the women's health space is that we just -- we're never satisfied. We're continually improving what we offer to patients and physicians. And so 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. And the data that we read out over time, it will have phase variances, it will have different technical components that make the assay even better than it is today.
Yes. I think on the top of different versions and things like that. So I think that you guys first announced like an FDA goal, let's say, in like 2022 or something like that. And obviously, now you have CDx for MIBC. Is the goal to get FDA approval for, like, multiple cancer types? Or how does that -- why MIBC basically?
Well, why in MIBC is we happen to be running an FDA-enabling trial for a drug. So we ran this Phase III clinical trial for atezolizumab. And just as a bit of background, atezo had been run in muscle invasive bladder cancer in an all-comer setting in an initial Phase III in IMvigor010. And unfortunately, the drug did not meet its primary endpoint on all-comers. But when you double-click in on the Signatera-positive patients in that cohort, those patients had an amazing response, 40% treatment response. And so the second Phase III trial in 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 are randomized plus or minus atezo. And so that's what led -- what drove -- that's what drives the FDA approval for the drug. And 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 FDA-approved assay. So 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. And then on this topic of MIBC, you've got the NCCN guideline inclusion recently with Category 1. That's the third. You also have -- or I guess not you, but, like, MRD also has Merkel cell and B-cell lymphoma. Maybe talk about how volume changed or could be changed through guideline inclusion, if you've 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. I mean 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 Signatera was likely going to be in the label for the drug. And so we had a number of centers call 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. So I do think it's an important growth vector for the business to get into guidelines. And we're honestly just at the beginning in terms of guideline inclusion. We've 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.
Yes. 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 like how much is in the pipeline basically. So maybe just give us a flavor for just how differentiating that is and how long would take to really generate that for some competitors now.
Well, it takes years. I mean you can just look at our own experience. There's a chart in the earnings call deck that has the one curve. I think it's a blue line that started really ramping 3, 4, 5 years ago and is now kind of just going up at a 45-degree angle. And that line is cumulative number of prospective studies that were launched, okay? And then you have a phase shift out to the right because these things take years to read out. And now you're seeing a sharply upward sloping line, a red line, which is prospective studies that have been read out. So 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've been incredibly impactful. The reality is we're really at the early stage of that flywheel. A lot of the studies that were initiated in '23, '24, '25 are slated to read out in '26, '27, '28, '29. So we're -- as much progress as we've made up to this point, we're poised to see that progress really accelerate because of all the investment we've been making over the last couple of years in clinical trials.
Okay. A hypothetical question for you. If there was an MRD test that was said -- was shown to be -- to perform as well as Signatera, let's say, didn't have nearly as much data, but it was at a price point that was like a quarter or like 10% of the price point. Was that possibly be successful? And what would that be like?
Well, I think we would have to ask the question, like how does one show that type of equivalence. I mean I would want that to be shown in a prospective setting. I mean I think it's easy -- and we've seen this in a bunch of different settings over time. It's much easier to make a PowerPoint slide that says that you meet certain technical performance requirements. It's a very different thing to then translate that PowerPoint slide into outcomes data. And there's a lot of failures between point A and point B. It's simply not enough to say we work -- we did some spike samples in our lab, and we think we work as well or better or we're more sensitive or whatever the metric might be at Signatera. Unfortunately, when a lot of these companies, and this is over the last 5 years, have run clinical trials, their data has not matched up to the Signatera data. Why? Well, it's complicated. This is hard. Is it patient selection? Is there some -- are there too many false positives? Are they picking up some signal that doesn't correlate to an actual relapse? There's no shortcut to just getting to the outcomes data. And 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 don't switch patients to new treatment regimens without the benefit of those types of outcomes data. That's, I think, an appropriate and fairly entrenched practice in the community. And so 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 haven't really received like a new indication to be covered since early '25, I think that was in lung cancer. So in time, you do have like, I think, 7 or so indications that could be reimbursed. You've already submitted MolDX. That's like a next 12 months or 18 months type thing. I think it's like $200 -- $150 maybe to ASP as a tailwind potentially. Why is it taking so long maybe? I mean does that, kind of, mean that MolDX is like maybe thinking about, say, pan-cancer coverage or something like that?
Well, I mean, I think like 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. And we are in the zone of all of the critical mass of the most common tumor types are largely covered now by Medicare. So that's a huge win. What we're doing now is we're working on the important but less common cancers with them. I think that the timing of that is just within -- well within, kind of, the natural, kind of, error bars of this process. It's good that it's a rigorous process, and then you've got to produce a lot of data and there's a lot of back and forth, and we absolutely welcome that. And the interaction with MolDX has been really nothing but positive for us. This is now kind of year 7 or 8 of our, kind of, consistent interaction with them.
Okay. ASPs for clinical Signatera, I think, $1,275. This could add, let's say, $150 to $200 the Japan approval recently on the CRC and then maybe in MIBC over time. But in CRC, what's the next steps with like pricing reimbursement over there?
Yes. So 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. So we announced that we've already submitted for coverage in bladder cancer, for example. And so 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 is covered in Japan. We're right on track for the launch in Japan. We've always said that that's an early '27 event, and that seems like that's on track given that we have the Japanese PMDA approval. The next step is to interact with the agencies there to establish a number of time points that will be covered and then a price point. And I expect that to be resolved here in the second half. So we're excited about that.
Okay. And maybe talk about like your plans or your history recently of expanding the lab, sequencing CapEx, things like that. And if you -- there's a lot of different options nowadays with high-throughput sequencers. So what's going on there?
You wear your expertise very lightly. So there's like -- if you -- not every investor will go and look at the cash flow statement for us. But I mean if you go and look at it, if you just look at cash flows from operating activities, you see that is continuing to ramp. And then investing activities, we still generated cash, but it was more modest. And why is that? First half of last year, we had about $45 million in CapEx. In first half of this year, we had about $85 million in CapEx. So like what's going on there? Well, we had a press release in the spring that announced that fairly soon when we're done with the expansion that we have underway that the Natera Austin, Texas, lab will be the largest genomics lab in the entire world, and we'll take the title back from a lab in China there. So we're very proud about that and very proud of the huge number of Texans that we employ in that lab, and that ranges from a lot of hourly folks earning a very good wage all the way to the PhD scientists and engineers. So it's a fantastic operation. So that's a continuous piece of the business. I don't think that we need to have CapEx at that level. $160 million a year in CapEx is not sustained CapEx. I mean it's 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're 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. So the LCD, the final update effective August 30, I think that's more favorable than the draft in terms of like frequency of testing. I think you guys called out like an ASP to volume tailwind potentially. I feel like that's like a $150 million, $200 million business a year. Maybe any guidance on increase for this year?
Yes. I mean the guide this year is really 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. I think that's -- qualitatively, I generally think that's 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'm seeing any particular price erosion in any of the products, but that's just because it's that tough of a business. Nonetheless, I mean, I think ASP steady is a safe place to be for the guide. And then the volume growth, I think, gets you into that range. We said on the call that we feel great about hitting that guide, even though it's a massive step-up from the prior guide, it's a complete re-rating of the revenue guide. We feel like with all the momentum we have going into Q2 that we're really rolling even without any incremental ASP improvements, which could well come, and we're trying hard to make that happen.
Okay. And then on early cancer detection, let's talk about that. So you have FIND 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 was -- looked pretty good, especially on AA. I guess you would go at the approval, maybe there's a guideline to ask or something. But we're looking at like maybe in the 2028 or '29 time frame, you're going to hire a lot of sales reps potentially in that business if it all goes well. And that's -- could burn hundreds of millions of dollars a year. What's your -- 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. And 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. And so that creates a dynamic where there's just not that many labs that can get to the starting line here, okay? And so then once you're at the starting line, I think the incremental spend 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. And 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 -- 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? And when we show those good initial results, 2 things happen. One, we get that information and we're able to have confidence that incremental sales force expansions have a high ROIC, just like what we just did with Signatera. And then it should also give investors' confidence that they've got some metrics that they can rely on. So the fact that you kind of do this in stages makes that sales force expansion more self-funding than it would be that if you just started with a field of Dreams-type approach and add 1,000 reps at the start. I would just point out, and we tried to kind of make this point on the earnings call, we're very happy to be planning to launch in early cancer detection. We think that's a fantastic growth vector for the business and meets a critical unmet need for patients and for doctors. If we weren't doing it, the shares -- I think the share price would be a lot higher today, right? Because right now, we're 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 profit today. So when you look at kind of corporate margins or you look at our overall business, it's just a boat anchor on the core business. That's going to resolve itself as we launch and we start to generate revenues from the asset. So I think it's 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 kind of getting scale on all of our ambitious growth plans. But if you take that investment out, I mean, it really looks like an interesting picture for the core business.
And on that note, this year, definitely elevated kind of 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?
Yes. I think -- well, I think to your point, I think one should presume that Natera is going to continue to be ambitious, particularly on the R&D spend. I mean, SG&A, interestingly, I mean, given that we did a big sales force expansion last year, you see the dividends that that's paying already. I mean, obviously, I think it's clear that those are very high return on invested capital dollars. And SG&A this year compared to last year is much, much more stable. I mean it's relatively flat as per the guide, okay? So that shows you that we can get leverage on commercial operations. And I think given the scale of the markets that we're 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?
Yes. I mean, 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, very ambitious on Signatera clinical trials. I'll give you one example, and that is the 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's a set of patients that are -- in addition to their hormone therapy, they are getting a CDK4/6 inhibitor. And so we're going to take a set of Signatera-negative patients in that category, and we're going to see if you deescalate them from the CDK4/6, we're going to see how they do. And you can see what a huge benefit that would be for patients and how much cost that can potentially take out of the system. That's the type of study that requires either an academic consortium to run or requires us to run. And we feel like we're best positioned to drive those types of cost-saving studies as quickly as they should be run.
Okay. And final question. You received like IVDR approval for Signatera in Europe in addition to the Japan, I mean if you're expanding globally, what's the plans -- what's the timing, I guess, to expand in Europe? And how do you size the global -- total global international as well as U.S. market or TAM for MRD?
Yes. I mean there's a huge amount of demand in Europe for Signatera, just that use case that I just described, I think, kind of gives you an example. I mean, 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's 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. So we're 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. So big ambitions in Europe over time. I think in terms of sizing the market in Europe, I think it's not really all that constructive to try and size like global market. I think you just got to go almost country by country and use case by use case and build up like what are the use cases that are reimbursable that are really important to that system and to that population. So Japan is kind of the first example where colorectal cancer is just a huge unmet need. And 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.
Yes. Thanks for the time. Good to see you guys.
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