Natera, Inc. (NTRA) Earnings Call Transcript & Summary

Welcome, Day 2 of the TD Cowen Global Healthcare Conference, 46th Annual. I'm Dan Brennan, I follow Tools and Diagnostics. Pleased to be joined here on the stage with CFO of Natera, Mike Brophy. Mike, welcome.

Thanks for having me.

Awesome to have you. So yes, I thought a good way to kick it off would just be since we just finished 4Q not that long ago, you guys had a terrific 4Q, set the guide, a bit above consensus. Maybe just give us a sense of how you thought the year finished up and just kind of key priorities for 2026, and then we'll dig in.

Yes. We had a fantastic year in 2025, finished the year with a really, really strong Q4. Obviously, the volumes and the revenues were well ahead of our own internal expectations. Of particular note, the gross margins were really outstanding in the quarter. I mean we grew gross margin something like 240 basis points, stripping out the true-ups, just sort of underlying organic gross margins were close to 64% in the quarter ex true-ups and 67% with the true-ups added in. We had another really strong quarter really across the portfolio in terms of growth. Signatera was another standout, had another kind of record quarter for absolute units and just the change in kind of the unit growth was another quarter once again, had a bunch of amazing clinical trial data readout last year that I think holds us in good stead for '26. We also made a lot of just massive investments in the business in 2025. I mean even as we're kind of scaling the business, we're getting -- we're sustainably kind of generating free cash flows, getting closer on operating profitability going forward. We were just continually doubling down in the business, both in the R&D operation. But we also made a large expansion of our commercial channels in '25. And I think that puts us in a really good position for '26 and beyond. So we're really excited about where we're at.

So when you think about the guide for 2026, you kind of looked at the fourth quarter trailing 20,000 sequential Signatera units, you actually beat that in the fourth quarter. Just kind of give us a flavor. Obviously, you've seen this sequential momentum continued penetration is so low. You guys are a leader. But -- anything changing in terms of maybe the mix of tumor types, academic, local. I think we shared last night at the dinner, Mass General here. I know we started to test MRD across breast and colon and a year ago, they weren't. So is there anything like incrementally changing driving the acceleration that you're seeing.

I mean these things are kind of qualitative. But I mean, just -- I know a lot of people in the audience have done this as well, but just walk around some of these academic conferences where I would walk around them 3 or 4 years ago, and I would be concerned, hey, are we going to be able to fill out the -- we've got a dinner series. Are we going to fill the seats or are people going to be interested. And now that's just -- that's not a concern. The fire department is getting called because we have too many people at the -- in a room for the speakers. I also just think that the acceptance of minimal residual disease and recurrence monitoring as a category has just kind of undergone kind of a qualitative change over the last period of time to where you feel like when you walk around the academic conferences that this is something that's much more broadly accepted than it was just a few years ago. And you see that kind of you referenced the customer, but you're seeing that kind of in the customer adoption for Signatera, where previously, you'd have accounts that would perhaps start with colorectal cancer and then kind of gradually build their way to other tumors. And while that still happens, I mean, you're starting to see a lot more customers that adopt Signatera more broadly in their practice. You see on the back of the IMvigor data from last year in muscle invasive bladder cancer, you see systems wanting to just implement the protocol for Signatera that we use in that study for their MIBC patients kind of in their practices and in their systems. So you kind of see the -- what we would have hoped for a couple of years ago, kind of the flowering of this market and the benefit to patients. So it's been great.

You guys still have 50% of oncologists, I think, that don't use Signatera. Kind of what's -- where was that a year ago? And do you expect that -- like are we in acceleration in terms of the new doctor usage.

Dan, glass half empty man don't use. What about the 50 that do use it. Yes, I'm kidding. No, the -- look, I mean, I think we're kind of in a place now, and we should update that stat at some point on an earnings call. We're north of 50% of physicians that ordered a Signatera test in the last quarter. And I think that adoption is just kind of confident with those kind of qualitative trends I was just describing. I mean you're going to just continually see broader and broader adoption. There's kind of 2 components to penetration very broadly that I would call out. And one is physicians starting to order Signatera, like order one Signatera test in the quarter. But then beyond just kind of penetrating total percent of doctors that ordered a test, there's a huge opportunity in terms of just depth of penetration within a given account, and there's a lot of room to run basically in all of our accounts on that score as well.

So you doubled the size of your sales force last year. The guide reflects continued really strong growth by 2,000 -- or 20,000 tests sequential, up from, I think you started last year at like 13,000, so a meaningful increase. But arguably, I would still think doubling the sales force is going to be probably an acceleration coming beyond what you've guided to. How do you think about the productivity benefit of these salespeople and what's in the guide.

Yes. Well, I think it's important not to just count on there just being like a linear one-for-one contribution like sales rep to units. I mean these things happen kind of in a lumpier way than that, right? You'll have -- it does stand to reason though that when you have a meaningful expansion of the commercial channel that we ought to be able to reach more patients and physicians. And that ought to be an important driver to the expansion of Signatera, not just this year, but over the next kind of couple of years. I'm pretty excited about that because I just feel like I referenced in kind of my initial remarks that we made a lot of investments in the business and operating expenses in '25. And you see even in our guide for '26, it's pretty obvious how we're -- already we're kind of getting scale. We're getting some leverage on those 2025 investments. And the commercial channel is a great example where the expansion of the commercial team is going to be a lot smaller, if at all, this year compared to last year, and yet the volumes are continuing to ramp.

So on the pan tumor application for MolDX, I think as we spoke about it, I think it was cited $100 million, whether it was on the Q4 call or maybe the Q3 call about the opportunity. I think Steve mentioned it would be kind of revenue and gross profit. I think you said maybe you got to tighten that up a little bit. I mean, doing the math, it feels like it could be a lot bigger. Maybe could you just speak to a little bit about what this opportunity is for pan tumor. And kind of when do you think we'd hear about it.

Yes. Just some background. I mean, we -- something like 1/3 of our volumes in a given quarter will be volumes that we -- that are ordered by Medicare patients, either Medicare fee-for-service patients or Medicare Advantage patients. And we are broadly covered within Medicare. We've got a bunch of different coverage decisions, but we're not -- we don't have kind of pan coverage across all tumor types. As you see the kind of the rapid growth and adoption of Signatera really kind of within a practice, you kind of mentioned the customer's kind of using it much more broadly. We're seeing a big uptick in like a broader range of tumor types. And that just means that, hey, we've done a lot of good things there. We've generated data. We've gotten the test to the office. We've delivered it successfully to the patient. And if it's a tumor type that we don't have covered within Medicare, then we still can't get reimbursed on that. So huge opportunity just to kind of broaden out the fraction of time we get paid just within our Medicare patient population. A couple of different pathways to do that. I mean we've referenced on previous calls that, hey, we've got something like 7 submissions for additional tumor types that we're submitting to MolDX this year. I'd expect to start getting coverage decisions second half of this year and then first half of next year. I think as a base case, I think that's the way to go -- that's kind of the way to kind of think about how that rollout happens. And if there's a way to do that more rapidly, of course, we'll do that, and that would be meaningful upside to the business.

And they, I mean, just the context of it, did you -- at some point, you guys have said pan tumor would make sense. Did you proactively reach out? Or did MolDX come back to you and say, "hey, I want you do a pan tumor?"

Well, it's been just kind of an ongoing dialogue with MolDX. And look, we'll see what happens there. I mean I think like your base expectation has got to be kind of the tried and true method that we have taken over the last 5, 6 years where you submit for a particular tumor type, you get the coverage decision back. And so we'll see what happens this year.

Which are the 1 or 2 that are biggest incidence opportunities out of those 7?

I don't know if I -- each of these -- those next 7, they're kind of in that next tier of incidents where it's -- is it 30,000 to 70,000 new patients a year. So very meaningful opportunities and just like a step down from like colorectal cancer or breast or some of the like very common cancer types.

Okay. On tumor-agnostic, you filed Latitude with MolDX. Just -- I think you've kind of quantified it as like it's still going to be niche, right, maybe in the 5% of patients where there's tumor insufficiency. Nonetheless, Guardant is seeing really rapid growth with Reveal. So just how do we think about, a, the profile of that test? And then b, is if we're standing here a year from now, what kind of contribution could you be having?

Yes. I mean, look, it's an awesome product, and I think it definitely -- it serves a need in the market. I mean one example of how Latitude, I think, is helpful to our patients and physicians is as follows. So you may have a physician that is, for whatever reason, concerned about the logistics of getting a tumor-informed MRD test. Now I think over the last like 5, 6 years, that used to be a very major concern of all participants, shareholders and doctors. And I think we've shown that actually the logistics are quite solvable and you can get a personalized MRD test quite efficiently from us. Nonetheless, that can still be kind of an open concern. And you will have the occasional patient for whatever reason where the tissue access is just not the most convenient thing. You've got an older lung cancer patient and you're just not going to go access the tumor tissue from that patient. And in those situations, it's great to have a high-performing test like Latitude available. So one, you kind of -- you address the concern of, hey, what about my occasional patient that there's just not access to tissue. And it also addresses the concern about kind of an in quote concern about, well, are the logistics going to be inconvenient for me in my practice. What you can then say to the physician is, look, you can order your Signatera test with a plan to reflex to the Latitude test. If for whatever reason we do run into some logistical issue, we'll deliver you this very high-performing Latitude test. And in the background, we'll continue to work the problem, and we'll get the patient on to Signatera for the next time point. So we found that to be a very compelling value proposition for the physicians.

Okay. Just on whole genome, obviously, the Foresight deal, what's the plan there? When will that be kind of included. And I think you've always been of the mindset, obviously, like Signatera 16 mutation exome dominates all the publications, so whole genome will feather in over time. But chatting with Alexey, I think you talked about in 3 years, maybe the whole -- all of your volumes could be whole genome. So how do we think about the timing? And what's the kind of impact do you think of whole genome over time?

Yes, it's impossible to know. And part of our strategy is not to try to know. We're not going to try and be smart about kind of predicting that. Our strategy has always been just be the best you can and just solve any potential desire that the patient, the physician might have, any need that they have. And one way that the evolution of MRD and recurrence monitoring might go, it might be an evolution toward a genome product or might be an evolution towards more and more sensitive assays. I do think that that's kind of over enough -- given enough time, I do think that's kind of inevitable that the product is going to continue to get more and more higher performing. I mean one kind of case study is like in NIPT in Panorama, I think we're on version 10 of that test. It's an amazing test compared to what we had launched in 2015. We've just continued to iterate. The workflows have continued to improve. The test performance has continued to improve. No different here. This is an example of how one could evolve Signatera over time to 10 years from now, you'd say, "Yes, I ordered Signatera like I used to, but Signatera has gotten -- has continued to get better." And I think that's a reasonable expectation to have.

And will you publish more? So far, the whole genome has very limited data out, a couple of posters, things like that. Will there be more publications.

Yes, it just takes -- yes, it takes -- one of the things about data is it just takes forever to read out prospective data sets, you have to just wait for the -- to see how the patients do over the course of months and years to kind of get the outcomes data that physicians need to really kind of evolve the standard of care. So we've had that time to do that with Signatera over the last 5 years. And it's just as you kind of iterate on the product itself, the subsequent versions of the test will show up more and more in subsequent data sets. So that will kind of feather in over time would be my expectation.

So would it be more -- like could we see a couple this year, do you think or it's more '27.

I think you could see some posters and you could see some data this year. And I think like the more time goes by, the more time we have to actually have the outcomes data that I think is really impactful.

Got it. So pricing guide I think you guided to $50 of increase back at Q3 by year-end '27. I think you got already like $30 in Q4, and you kept the guide. So it assumes -- I think that's right, maybe it's...

$20 in Q4 than $30.

Excuse me, right. So it seems like a modest increase. It sounds like you guys are still cranking on getting better payment, all the rev cycle stuff. So just talk a little bit about the pricing guide. I know you had some changes on some of the rates from Medicare as well?

Yes. I mean, consistent philosophy from us in terms of setting initial guidance, we want to set a bar that is high but achievable to start the year. And then hopefully, we can execute and continue to underpromise and overdeliver on that score. There's a lot of potential upsides to Signatera pricing this year, realized pricing. A couple of the categories include just better execution on Medicare Advantage. So coverage service, Medicare Advantage patient should be no debate. When it's a Medicare fee-for-service patient, we are reimbursed 99% of the time. And then frustratingly, that's more like 80% -- 75%, 80% for Medicare Advantage. Well, why is that? Well, we've got to partner with that payer to clear up whatever the misunderstanding is that this is absolutely a covered service. So we can continue to turn the crank there. We've talked a fair amount on various earnings calls on execution in states where there's a biomarker law in place. So that's something that we've always expected that to be kind of a linear kind of grind and it's a similar process at a high level as what I just described for the Medicare Advantage payers, it's just a broader population. And I think that will be a contributor. Those 2 things will be a contributor this year. And I think reasonably good progress is what I'm contemplating for that kind of an incremental $30 growth in realized pricing this year. Beyond that, I mean, we've talked already about expanded coverage decisions. I mean, we have excellent data in these additional tumor types. There's no reason why we can't get additional coverage, broader coverage for Signatera from MolDX and for Medicare. And that's something that if we were able to get that, I think that would be upside. I would caution you that just the timing of when you get those coverage decisions affects how you would think about pricing throughout the course of the year. I expect to start to get those in the second half. But yes, I mean, I'm on balance, I'm kind of -- I'm biased toward the upside on the realized pricing versus the guide, but it's something that we just got to go execute on.

So Guardant continues to push, the smaller players, Personalis, private players, Tempest. There's a lot of players continue to view this market very attractively. I know you made analogies to NIPT in the past, but how do you think about Natera share 2030. You've got 90% share today. What kind of share do you have in MRD in 2030?

Yes, I don't know. I mean it's -- it almost -- I would argue that if we just do the things that we've always done, then the share will kind of take care of itself. And so the things we've always done is just start with what the patient and the doctor needs and work backward from there. So if we keep having new iterations of the test that just blow prior iterations out of the water, if we keep having very ambitious prospective outcome studies reading out in an excellent way, if we keep on investing in our kind of customer service and commercial channels to make it easy to order the test. I think that whatever the share is, it will be great for investors. And more importantly, there's just going to be -- this Signatera and more broadly, MRD and recurrence monitoring will be something that has gone from a term that we wrote on a whiteboard at Natera in 2016. Now when you go to the academic conferences, it's kind of like an obvious thing that's happening. But if you fast forward to 2030, 2035, it will be something that everyone gets. Like you won't believe -- it would be like today saying, "hey, like I had cancer, I never got a CT scan." You'd say, what do you mean, you didn't get a CT scan. This will be what recurrence monitoring and MRD will be. And that's -- there's -- incidentally, there's room for more than one player to be successful there, and we welcome that.

So maybe one more final one on that, and then we'll jump to women's health and screening. But in terms of -- so you've rolled out whole genome, you bought Foresight. So you have that. You've got a tumor-agnostic assay now. So what are the other areas? And when you think about switching, why doctors would switch, maybe there's a more sensitive test, maybe you don't have the whole menu. What are the other areas you think doctors would switch? I guess if you're in the MR, we viewed it as someone has to be better or different. What are the other areas? I mean we talked a little bit about CGP bundling. Is that something that's a focus for you guys to enhance that CGP offering?

Well, I think that -- I think in the spirit of just kind of working backward from what can be useful to the doctor, I think is a good way to kind of get at your question is like, well, what are some different ways to enter the market. Well, what are some problems that we can solve. We do have a high-quality tissue comprehensive genomic profile that's available right now. A lot of the big centers have their own offering there. But -- so if you're practicing rounding at MD Anderson, maybe that's like less compelling. But if you're out in Lubbock, it can be quite convenient to order both Signatera and the tissue CGP for us. I think that's starting to evolve where more and more physicians will want to order a CGP. I think that is -- there's another kind of secular trend happening there where genomics is becoming ever more kind of front and center to the -- understanding what the patient's journey ought to be with their cancer. So I think that's inevitable, and we're going to keep investing in that. So there's an ecosystem of additional products to offer alongside Signatera that I think would make the experience better, and we're going to try and do that.

So maybe to jump into women's health. So maybe just talking about Fetal Focus, right? So Fetal Focus driving new doctor usage, it's expanding the ordering base. Just can you elaborate on what that product is doing. And that product is not reimbursed, correct? Fetal Focus, right.

That's right.

So just talk about the importance of that and what kind of impact it's having on your women's health business?

I should say it just doesn't have -- there's not like formal coverage decisions. I mean there's potential to get reimbursed ahead of the formal coverage decisions. I think the path to kind of getting Fetal Focus kind of into -- or single-gene NIPT into the standard of care is a long road, and you've seen us kind of traverse that journey over the last 15 years with NIPT, where it's gone from something that's kind of a niche kind of new thing to something that is pretty boring and pretty boring in a good way, right? Like everyone gets this thing because it's so good. I think we're excited about the Fetal Focus launch. It's an interesting solution for patients. And there's a meaningful segment of patients and doctors that want to have that as an option and want to avail themselves of that product in certain situations. So I think it's been kind of consistent with what we've always done. I mean if you look back over our history, once a year, once every 18 months, we have an important new product launch in the women's health space. I mean I think the one prior to this one would have been the RH launch that we were able to put together in the face of what was a really problematic RhoGAM shortage in the United States. And that was incredibly important for us and had all the kind of the commensurate benefits to us in terms of share gains and things like that. And I think Fetal Focus has the potential to have that kind of impact as well.

Maybe just moving over to PDNORO. I think on your website now, you posted that you've got a whole suite of -- you have a whole pamphlet discussing your offering there. Just where do you stand there? Is that product in beta? Just what are your plans on entering that rare and union disease for pediatric neurologists and kids?

Yes. I mean I think we have a really interesting product there and an offering that can be quite competitive. I think our standard practice with -- when we're launching in new areas is to go get the product together, get the data sets together and then go and interact with customers, get a launch going, see what we learn. And so as we kind of -- we get through that learning phase, I'd anticipate on an earnings call, at some point in the relatively near future, we kind of sit down and once we've had that learning, we'll be able to integrate it, come back to investors with a longer-range vision for that product. But we're pretty excited about it. .

And maybe just one on that front. The leader talks about a massive database they have, really gives them an edge in kind of making the right calls. Like do you view that as a competitive disadvantage for you guys entering?

I think it remains to be seen. I mean I think that's part of why we want to get out here with the launch. I mean, there are a number -- we've got a deep history of offering these types of products in various call points over the last kind of 15 years. We've launched a carrier screening test that's been very successful. We launched Renasight. That's been very successful. I do think that, that kind of deep history in, for example, kind of curation of variance can be -- is very important for differentiating the product. And I think we've got some points of differentiation there. And I'm looking forward to getting the feedback from the field.

Okay. Maybe just jumping over to screening, the proceed PROCEED-CRC study, you've got -- you had really nice AA sensitivity, I think, 22.5% at low 90s spec. I think you had a standard deviation of 15% to 31% on AA. So you've been really confident the degradation risk on your study is going to be less than prior studies, although each of the companies that have come out have kind of said the same thing and then it's been worse, right? So talk about the FIND study, like what's your enthusiasm, management sounded positive. Does that enthusiasm remain for CRC screening? And what do you think ultimately where that AA will land?

Yes. Well, first, I mean, there's a reason why you got to run the actual FDA outcome study is that like if the preliminary study was good enough, then we just get an approval. So I don't want to prejudge the results of the outcome study, you run it for a reason. And so we're going to get what we get. On the point of the read-through from a preliminary study to an FDA-enabling study with the important above caveat, I think the only point that we're trying to make is that given that we've seen some meaningful degradation between these kind of initial studies and the FDA-enabling study readouts, we've tried to do -- make a good faith effort to understand why that might have happened to the field given that we're not the first study to read out now. We ought to learn from that, and we ought to try to be a little bit more rigorous or just make our best effort to make the preliminary study as real world as we possibly can in order to limit that. Now what the ultimate result is, we'll see. I mean I would just note that the standard dev that you quoted is very important. I mean I think the midpoint was centered around like 24% sensitivity and then like one standard dev is like 16% to 30%. Why so wide. It's only a couple of thousand patients. That's why you got to run 25,000 to 40,000 patients to kind of tighten that up. So we'll see how that goes. Very excited about this, though. I mean, this is a very important unmet need. I mean this is another -- in addition to kind of understanding how to run the clinical trials, this is something that I think the field, like the companies in the space and really the world has kind of learned more about. If you go back a couple of years, you might have thought that, look, like AA sensitivity in the mid-20s, like there'd be an open question as to whether or not that's even viable. I don't think that's a question anymore. I think there's a better understanding that there are 40 million people in the United States that are just going to go unscreened for their colorectal cancer because for a variety of reasons, they're not going to avail themselves of a colonoscopy or the stool test. And so the default is nothing. And that's not good enough. I mean we can make a really meaningful improvement to public health if we can offer a high-performing plasma test that has -- is much more likely to be complied with, right? So it's really tough to build one of these things and to run the enormous clinical trial that you've got to run. So it looks like there's only going to be a handful of companies that are able to really offer a high-quality test, and we're looking forward to be one of them in a really, really large market. One of the ways I've noticed we've been able to really deliver benefits for shareholders is when we've been able to internally develop a product that is very relevant to a huge number of people, and we start to grow it, right? We get -- it's a high-quality test. The data looks good. we get a commercial launch out with an initial set of field reps and then it starts to grow. And you're just going from 0 to growth on top of all the other amazing growth drivers we have in our existing business today, I think that can be very exciting for shareholders to say nothing of the huge benefit we can have for patients in this setting.

What kind of operating margins. I mean, I think the gross margins you've commented, given the pricing you guys are excited about. But on the operating margin standpoint, I know you maybe talked about leveraging your OB/GYN channel. Could you elaborate a little bit on what you think that might look like.

Yes, you got to monitor that. I mean I think that's been one of the criticisms of the field is that you can make a big difference for patients and get a lot of people screened. But if every nickel has to go back out the door on marketing, then it can be a tougher business and how do you manage that. I think what I'm focused on in the first couple of years post the launch is the scale of the need, the size of the market relative to where we are, which is at 0, I think you can show a lot of promise there for a long period of time and show a lot of growth as you kind of mature the commercial operation. So I think there's a long stretch of time there where it can be a very positive story for the company. And I do think that longer term, it's a classy problem, but you've got to get to a place where the awareness of the test is such that the businesses can sustainably kind of offer the test and generate some kind of operating margins. I think that's -- we're kind of early stages of that market right now, so to be determined.

Maybe a final question as we wrap up, just on margins. Gross margins have expanded dramatically, you're free cash flow positive. But at the same time, you realize the benefits of investing in R&D, investing in sales because the market is really focused on growth, volume growth. How do we think about the evolution of your margins over the next -- by 2030. Like is it still going to be -- do you prefer to like stay just barely profitable and just really invest and then at some point, you hit the switch? Or could we see some meaningful expansion over the next 4 years?

I think you see meaningful expansion. That doesn't require your management team to change the philosophy. The philosophy is not going to change. The reality is that I think we've shown over the last couple of years that the way to kind of get to operating margins that investors want is to grow the top line with excellent products and just get the scale on the channel. You see that even in our guide for this year. We're continuing to just be very ambitious in our goals for the R&D operation. At the midpoint, we're going to add another $175 million in investment just this year on top of what was last year a major expansion in our R&D efforts. So continue to double down on R&D. And yet on the SG&A line, pretty stable. It doesn't mean it will be exactly flat. You'll see what happens through the course of the year. But obviously, there's a huge delta between what -- where the commercial channels are needing to grow in terms of growth rates versus where R&D needs to grow and to say nothing, where the top line can grow much, much faster than that. So it's just a natural evolution of the business where we're going to grow our way to profitability. That's a very healthy place to be because you just think about -- you look at particularly for like MRD and recurrence monitoring, the scale of the investment we're making in the future for the patients and physicians puts us in a great position to continue to be really differentiated in that area.

Awesome. Well, with that, Mike, I think we're out of time. Thanks a lot for being here.

Thanks for the time.

Appreciate it. Thanks, everyone, in the audience.