Natera Inc

NASDAQ:NTRA

Earnings Call Analysis

Revenue and Margins Grow; Focus on CKD Testing

The company has presented strong lung cancer studies results, supporting the launch of their FoundationOneTracker covered by Medicare. This year, they have seen a 27% growth in total revenues year-on-year, and a 33% growth in product revenues, reflecting a concerted effort to improve reimbursement processes. Gross margins, at 45%, indicate organic growth and possible steadier gains in 2024. A focus on infrastructure improvements should help maintain this trend and assist in reaching cash flow breakeven next year. In women's health and organ health, the company reported robust volume growth. Notably, their Renasight kidney disease test showed 20.8% diagnostic yield, with one in five patients receiving a genetic diagnosis for polycystic kidney disease (PKD), promising advances in personalized care and treatment for CKD patients.

Strong Clinical Performance and Coverage Support Growth

The company has recently highlighted its strong clinical performance in lung cancer treatments, showcasing the significant potential of its immunotherapy monitoring. Two important studies were completed in collaboration with Foundation Medicine, leading to a broader clinical launch and Medicare coverage for the new FoundationOneTracker. This exemplifies the company's commitment to advancing cancer care.

Volume Growth and Revenue Uplift Across Key Product Areas

There has been a notable volume increase across major product areas, particularly in women's health and organ health, despite strategic efforts to forgo volume from accounts with unstable reimbursement potential. This disciplined approach has not hindered but rather contributed to the 27% year-on-year growth in total revenue and an even higher 33% growth in product revenue, suggesting robust underlying demand for the company's offerings.

Improving Operational Efficiency

The company has implemented several operational initiatives to improve reimbursement and billing operations, which have started to positively impact financial results. This focus has contributed to gross margins increasing to 45% in Q3, up from previous dips to 41% and 39%, with further improvement expected through 2024.

Expansion In Nephrology and Oncology

The company is making strides in nephrology, where its Renasight product has undergone a 1,600 patient study yielding impressive results indicating strong potential for treatment personalization in chronic kidney disease (CKD). In the oncology sector, clinical Signatera volumes soared with adoption from new physicians, reinforcing the product's position in the market and pointing to ongoing growth potential.

Upward Revenue Trajectory and ASP Improvements

With steady improvement in the average sales price (ASP), particularly for Signatera, the company has set a short-term goal to uplift ASP above $1,000. The financial guidance for the year has been updated accordingly, showing a positive trajectory with an expected $1.035 to $1.050 billion in revenue and an anticipated reduction in cash burn to $260 million to $280 million.

Optimism for 2024 and Beyond

Looking ahead to 2024, the company aims to replicate its current growth momentum, buoyed by stable sales rep productivity and ongoing improvements in ASP. The anticipation is to sustain unit growth equal to this year's performance without trading off growth for innovation. Strategic comparisons with the hereditary cancer testing market, which has seen similar growth patterns, indicate the potential for continued expansion in CKD testing as well.

Earnings Call Transcript 2023-Q3

[Operator]

Thank you for standing by, and welcome to the Natera, Inc. Q3 Earnings Conference Call. [Operator Instructions] As a reminder, today's call is being recorded.

I will now hand today's call over to Michael Brophy, Chief Financial Officer. Please go ahead, sir.

[Mike Brophy, executive]

Thanks, operator. Good afternoon. Thank you for joining our conference call to discuss the results of our third quarter 2023. On the line, I am joined by Steve Chapman, our CEO; Solomon Moshkevich, President of Clinical Diagnostics; and [indiscernible], General Manager of Oncology and Chief Medical Officer. John Fesko, President and Chief Business Officer, is also on the call and 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 potent investor.natera.com. A replay of the call will also be posted to our IR site as soon as it's available.

Starting on Slide 2. During the course of this conference call, we will make forward-looking statements regarding future events and our anticipated future performance such as our operational and finance outlook and projections, our assumptions for that outlook, market size, partnerships, clinical studies, opportunities and strategies and expectations for various current and future products, including product capabilities, expected to release base reimbursement coverage and related effects on our financial and operationg results.

We talk to you that such statements reflect our best judgment based on the factors currently known to us and 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, 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 successive the forward-looking statements. Forward-looking statements made during the call are being made as of today, November 8, 2023. If this call is replayed or reviewed after today, the information presented during the call may not contain current or accurate information. [indiscernible] 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 form. We will quote a number of numeric or growth changes as we discuss our financial performance and unless otherwise noted, each reference represents a year-on-year comparison.

And now I'd like to turn the call over to Steve. Steve?

[Steve Chapman, executive]

Thanks, Mike. I think our Q3 results demonstrate the strategy we're paying off, and I'm excited to share the highlights. We generated [ $215 million ] in total revenue and product revenues were up 33% versus last year. Volumes were stronger again across the business. With strong year-on-year growth in women's health and [indiscernible] versus Q3 of last year and a nice sequential recovery quarter for organ health.

Signature volume growth, particularly continues to exceed our internal forecast and this was the second best quarter ever in terms of the absolute unit growth in the clinical panel. As good as those top line metrics are, I'm most encouraged by the margin and cash on results. We talked about the focused effort to improve ASPs and I think that effort started to pay off this quarter.

Gross margins were 45%, you'll recall, we also had 45% gross margins in Q2, but we noted it was closer to 43% on a normalized basis as it had some onetime benefits. In contrast, we think this quarter represents an organic 45% based on ASP and COGS improvements. We flagged our tax burn dramatically in the quarter as well, almost a 50% reduction compared to last quarter.

Clearly, we are getting leverage as revenue grew rapidly, while operating expenses was essentially flat and margins have improved. Our efforts to improve ASPs is also leading to getting reimbursed more quickly on average from payers. Mike will talk about this later in the call, but we think this is a good sign that more ASP improvements are in store for future quarters. These results in the continued strong trends we are seeing so far in Q4 put us in a position to significantly improve our annual guidance across the board.

We are raising the revenue guide once again to a completely new range and now expect to come in between $1.035 billion and $1.050 billion in total revenue for the year. We are tightening the gross margin guide to the top end of the range and are now expecting full year gross margins to land between 43% and 44%, which we think implies the strong Q3 gross margins are repeatable in Q4.

Finally, we are dramatically reducing our tax burn guidance for the year, now expected to be $250 million to $280 million. This represents a more than $200 million reduction in cash burn versus 2022. The momentum we are seeing leaves us even more confidence that we are in a good position to repay cash flow breakeven quarter next year and we do not believe we need any guideline changes in order to hit that milestone. The significant reduction in cash burn has largely been achieved because our core strategy is working.

We are growing revenue rapidly while reducing COGS and improving ASPs, we are keeping OpEx stable, though at very competitive levels, allowing us to maintain a strong commercial team and continue to focus on clinical and innovation road maps. For example, over the past few years, we've made investments into technology development, product enhancements and clinical trials, and these investments are now resulting in an excellent pipeline of new products and new indications to go after within our core businesses.

As a result, in 2024, we expect to announce new MRD-related products and updates along with other major innovations that empower future growth. In addition, on the clinical side, we have major randomized controlled trials that we expect will be read out in 2024, some of which have taken investments over 5 or more years to get to this point. So we think we are positioned very nicely for the future. We're on a rapid revenue growth path while moving quickly to cash flow breakeven and doing so with our previous multiyear investments driving potential major near-term catalysts.

On top of our financial results, we had several big wins during the quarter. I'll start with [indiscernible], which has proven to be a landmark study for us in an area that we believe can drive significant growth over time. Last week, we announced the study public as in Jason, a leading nephrology [indiscernible] and also share the results at the ASN Kidney Week conference. As a reminder, arena care is a large real-world prospective study of more than 1,600 patients that looked at the impact of genetic testing within chronic kidney disease. The finding is coating strong clinical and diagnostic utility profile for Renasight or genetic test to identify causes of CKD. The results also exceeded clinical precedents for the implementation of genetic testing within an at-risk population, for example, hereditary breast cancer, which we think is a good proxy for comparison.

I don't spend too much time on this now as Solomon will cover it in detail later in the call, but I'll just note that we're very excited to see where we go from here. Feedback from nephrologists has been positive and we believe these results lay a strong foundation for increased adoption and coverage. The market opportunity is potentially large and notably underpenetrated with 37 million people affected by [ PD ] in the United States. There's a significant need for reliable and actual genetic information to turn these patients and we think Renasight could be that driver backed by the strong clinical evidence we reported in the study.

In oncology, we presented key colon cancer data at ESMO from the Galaxy arm of the CIRCULATE study. Notably, this analysis included 2,000 patients, which was like as many as the Nature Medicine paper as well as significantly longer follow-up at 24 months. The data provides significant insights to the predictive and prognostic value Signatera and CRC with ongoing excellent performance by Signatera. Separately, while MRV has historically been focused on the initial adjuvant draw and the adjuvant chemo decision-making. The initial MRD timepoint represents only a tiny fraction of the overall MRD opportunity. More and more, we are leading the way in a new area that we call treatment on molecular relapse, which is where patients can actually receive a drug upon becoming ctDNA positive with Signatera in the surveillance setting, rather than waiting for radiologic evidence of recurrence.

This is part of our key vision for how the serial use of Signatera to transform cancer care and ultimately save lives. And we see it gaining real momentum now with sponsorship from both pharma and academic consortia. In fact, Long term, this might be the single biggest MRD opportunity and 1 where we believe Natera has a meaningful first-mover advantage with multiple Phase II and Phase III trials already underway term, which have been ongoing for several years already.

So Alex will describe treatment on molecular relapse a little bit later in the call, including describing the new [SREP] CTDNA study which seeks to show the benefits of treatment on molecular relapse in early-stage breast cancer. This is a randomized Phase III trial conducted across 120 sites in 12 countries led by the European Organization for Research and Treatment of Cancer, otherwise known as EORTC. We also published a digital data in lung cancer, strengthening our leadership position in the patient population.

In 2023 alone, we publicly presented the results for 4 key lung cancer pro across the neoadjuvant, adjuvant and metastatic treatment study and we've seen very strong performance. Two of these were conducted in collaboration with our partners at Foundation Medicine and demonstrated strong clinical test performance for immunotherapy monitoring. These studies helped to support the broad clinical launch and Medicare covers their FoundationOne tracker, which we also announced in October.

As many of you know, Tracker is a [indiscernible] asset at Signatera with a focus on patients with advanced stage cancers. We're very excited about the launch and believe this new offering will help oncologists make the best possible decisions about the pace of care through actionable and personalized data. Gregson with that, let's get into some of the business trends on the next slide.

We saw continued strong growth in volumes across the major product areas as I described. In women's health, we had strong growth compared to Q3 of last year. The strong growth, particularly given our ongoing efforts to reduce some volume from account where we don't see a path to stable reimbursement over time.

In Organ Health, we were pleased with the return to growth. As a reminder, earlier this year, reimbursement can act created some uncertainty for transplant cents about when they should order across Beru. That uncertainty has now largely been resolved. And in Q3, we saw coming our larger customers recurring to prior levels. Both Organ Health and Women's Health represent large underserved base of population that have a critical need for the type of testing we offer.

Solomon will cover the oncology volumes later in the call, where the trends continue to be positive. On the next slide, you can see that our revenue growth is getting a significant boost from improved reimbursement in addition to our volume growth. The left chart of total revenues, which grew 27% year-on-year and I think that growth rate actually understates our good progress because we recorded a large onetime licensing payment in Q3 of last year.

The product revenues on the right-hand side of the page, we adjust for that. And as you can see, product revenues were up 33% year-on-year. We made a decision last November to redouble our efforts on reimbursement and billing operations, making sure that we navigate all the operational hurdles required to get reimbursement for covered service. For example, doing better on appeals when a service is denied or chasing down missing insurance information. Since then, we've made a significant investment in new processes. We've added new team members and we've identified systems and engineering opportunities. While we're still at the very early stages, it's great to see that we're starting to see these efforts come through in the financial results, and there's still a long way to go.

Of course, these improvements benefit both revenue growth and growth margins, as you can see on the next slide. Gross margin dipped to 41% in Q4 of last year and then to 39% in Q1 of this year as we executed growth on the initiatives that we've described in the past. On the Q2 call, we described that gross margins were helped a bit by some onetime factors. In that time, we estimated the organic gross margin to be about 43% on a normalized basis. In Q3, our 45% gross margin is largely organic. We are seeing modest improvements in the NIPT and carrier ASPs and have outperformed our expectations in Signatera. For each of these products, we have put in place multiple operational initiatives whose effects have not yet been fully recognized in revenue approval. So we're cautiously optimistic that we can deliver steady gains in the gross margins throughout the course 2024.

Another interesting byproduct in older is that our cap election cycle noticeably improved in Q3 compared to prior quarters, which helped drive the significant reduction in quarterly cash burn along with the revenue growth and gross margin improvement. Finally, we continue to hit our marks on cost of goods sold as we've expanded our Signatera Exton laboratory and executed COGS projects across the company. We've got a full slate of these lab infrastructure projects, and we expect to launch many of them during 2024. This has been a big area of investment within our R&D budget, and it will be nice to see that investment pay off.

In addition to the above card project, we've also passed some key validation and regulatory milestones with an alternative NGF provider. We validated the Signatera technology on an alternative NGS platform and in partnership with a major pharmaceutical company achieve a regulatory milestone using that alternate platform. In addition, we validated NIPT on alternative NGS platform and past the regulatory milestones, which we may now launch a version of in our centralized laboratory. All of these factors give us confidence that we are on track to get to a cash flow breakeven quarter next year.

And with that, let me turn it over to Solomon, who will dive deeper on the results from RenaCARE in the Oncology business. Solomon?

[Solomon Moshkevich, executive]

Thanks, Steve. I just got back to the weekend from the American Society of Nephrology ASN Annual Conference in Philadelphia where renal genetics was a hot topic and where the RenaCARE paper was well received. Many doctors expressed the belief that nephrology is at the beginning of a new wave of personalized medicine, similar to where oncology was as it feels 15 to 20 years ago. There are about 37 million people in the U.S. living with CKD or roughly 1 in 7 adults. CKD is also a significant burden on the health care system, with roughly $85 billion of Medicare spend related to its management. Natera launched the RenaCARE study back in 2019 in collaboration with leaders from Colombia, Yale, NYU, Mayo Clinic and several other leading institutions, with the goal of determining what personalized insights can be gained from genetic testing with impaired Renasight product, with 380 disease-related games.

And how often a genetic diagnosis we can attain in treatment. More than 1,600 patients were enrolled across 31 sites in this real-world prospective study. The results were impressive. Some of the key headlines, as you can see on the slide: 1 in 5 patients tested positive for a genetic cause of PKD, meaning that a pathogenic or likely pathing variance was found in their germline DNA. Out of the positive, 1 in 2 paces received a new or reclassified diagnosis and of the positive 1 in 3 reported pain and treatment plan.

At a high level, when thinking about Renasight's diagnostic yield of 20.8%, let's compare it to hereditary cancer testing like the classic BRCA 1 and 2J. Where studies tension a test positive rate of between 5% and 17%, including in cohorts that meet NCCN criteria for being high risk and that have received Medicare or commercial insurance coverage. We all know the germline DNA testing in oncology has become standard practice.

So given the high yield, we've seen for Renasights together with a significant clinical utility, we see a great opportunity here for exchanging standard practice in nephrology, with strong potential for clinical guidelines and insurance coverage. To that end, we recently submitted an application to MolDx for coverage of Renasight. So we look forward to their feedback, particularly given the strength of the RenaCARE studies. Its a little bit deeper now on study findings. 1 of the key stories unfolding here is that genetic testing is useful not only in the 8% or 9% of patients without a diagnosis but also in patients who have already been given a clinical diagnosis. For background, CKD has a vast spectrum of underlying causes. The current diagnostic protocols generally rely on basic measurement of kidney punting as well as imaging and biopsy. This approach has left significant gap. For example, diagnoses that are nonspecific, meaning that the kidney disease may be inaccurately attributed to diabetes or hypertension, when in fact, those may be comorbidity that mask the true cause of a patient with CKD.

Similarly, in the case of cystic disease, it contains clinical management to now the subtype of disease, whether it's driven by PKD1 or PKD2, for example. In many cases, we also found that timely genetic testing could have helped the patient avoid an unnecessary invasive biopsies. There are more than 20 drugs already addressing gene-specific CKD targets on the market and approximately 270 clinical trials. So having a specific diagnostic information can really enhance targeted treatment options, they can open doors for participation in clinical trials and ultimately, it can improve outcome. For people who want to learn more, we just published a good white paper on our website.

In summary, the RenaCARE study provides solid evidence demonstrating that Renasight testing is useful and appropriate in the vast majority of patients presenting with PKD that it can lead to an earlier and more accurate diagnoses in standard of care practices and frequently same or refine an existing diagnosis and it can enable clinicians to tailor treatment decisions. We're very enthusiastic about the future pence of this product to help millions of people with CKD.

Moving to oncology now, where we had a great quarter. Clinical signature volumes shown on the right, had 1 of its best quarters to date in terms of absolute growth. This growth reflects a strong increase in new patient initiation, continued perial testing by existing patients and significant adoption by new physicians who had never ordered Signatera before. We believe over 35% of all U.S. oncologists ordered Signatera in the quarter. The left-hand chart includes all clinical volumes and pharma units.

As a reminder, we had a site in pharma units in [indiscernible], which we discussed in our call in August. So we broke out the clinical volumes separately this time relative to the pharma business, which is doing well, but is a bit more lumpy as expected. We recently closed some big pharma projects across various cancer types, including prospective, retrospective and real-world data studies. There continues to be significant interest such that we are now expanding capacity in the RUO labs. Back to clinical Signatera, we've also continued to drive steady improvement in the average sales price, outpacing our initial expectations.

In Q2, our ASP was in the 800s. In Q3, it was in 900s and now we see a near-term path getting above 1,000. This road map is being driven by better operational execution as well as anticipated Medicare coverage of new indications and expanded coverage among private payers. As a reminder, Signatera is in a unique economic position with its advanced diagnostic lab status, or ADL, which is very hard for other MRD labs to replicate. We believe all the data that we've been announcing and the studies underway will help drive ongoing volume growth over the near and long term.

So with that, let me turn it over to Alex to provide a closer look at some of those studies. Alex?

[Alexey Aleshin, executive]

Thank you, Solomon. We recently presented updated 24-month data from the Galaxy cohort at this year's ESMO 2023 conference. The data continues to support and strengthen our 2 Seneca hypotheses that have implications to change how CRC is managed, namely, the MRD-positive patients benefit from treatment, while MRD-negative patients do not. On the right-hand side of the page, CK negative patients continue to show vestinal disease-free survival regardless of adjuvant treatment.

No significant differences in DFS at 24 months were observed for CPA negative patients receiving ACT compared to those without ACT. We believe this data further dereslkomahar definitive randomized Vega study, which seeks to tablet the de-escalation strategy as a standard of care in early-stage CRC.

On the left-hand side of the page, we see CPAs positive patients treated with ADP have significantly improved DSS compared to patients who undergo observations. This effect even after adjusting for all possible confounding convictions. The randomized arm of this trial, known as Altera, the scheduled the readout in mid-2024, which will further assess whether the disaPAS-102 on top of chemo can further improve DFS and MRD-positive patients.

We believe that if the study is positive, it would establish a pathway for a new standard of care in [indiscernible] treated with prive intent or tested with Signatera. As a reminder, the data on this page reflects outcomes based on single segmentary time points, within 8 weeks post surgery. The delta study is a key component in the protocol that allows enrollment of patients who were initially negative, but then term positive in the surveillance setting up to 24-month pose surgery. This is a new concept in MRD and is what we are calling treatment on molecular recurrence.

The majority of trials and data in the MRD space today have been focused on additive and decision-making based on the first 1 or 2 time points immediately post surgery. However, we believe the largest market is Premion molecular relapse defined as initiating treatment based on positive CCDA status in the surveillance setting, instead of waiting for clinical or radiologic recurrence.

In this space to be multiple orders of magnitude larger and potentially revolutionize treatment by providing patients a second camper before avert recurrence is detected on a stand. We have seen tremendous interest in this strategy from clinic and patent pharmaceutical companies. The study take years to design and run and we recognize this opportunity over 5 years ago, and we now have multiple studies that are rolling in this space, including the ones listed below.

I want to highlight a new study recently announced the Phase III tectDNA trial in early stage breast cancer that is being done and collaborate with the ERP consortium. The primary objective of the study is to evaluate whether Menararini's oral endocrine monotherapy or third and delay and/or prevent occurrence of distance metastases or death. In patients with current Signatera positive in delay surveillance setting. The study is expected to create approximately 1,900 taken across more than 120 sites. And if successful, the results of the study could award broad recommendation for terial monitoring with Signatera in positive HER2 negative breast cancer patents.

Additionally, we continue to see strong interest in the bar and LEADER studies. They are also examining treatment on molecular recurrence in breast cancer patients and could be reading out in the 2024 to 2025 time frame. We continue to generate new clinical data to support Signatera reimbursement and an expanding list of indications.

Today, we want to highlight non-coal cell lung cancer. In 2023, we have generated multiple presentations and public patents in the neoadjuvant, ad events and metastatic settings, including radiotherapy and immunotherapy treatment response [indiscernible]. We have seen immunotherapy transition from being utilized primarily in late-stage falcell lung cancer to earlier stages of disease. With the recent approval of the [indiscernible] in the neoadjuvant, adjuvant and perioperative setting. This has resulted in a significant expense of I-O treatment eligible pace. Setting where Signatera is well positioned given the strength of our data and existing reimbursement for IO monitoring.

In the active and surveillance setting, we continue to exceed exceptionality approaching 100% across multiple studies, a key performance metric that many competitors have struggled with. In the recently published Levo study was 1 to 3 lung cancer patients. We observed an 82% detection pretreatment and a 100% minded final sensitivity to a recurrence with a median of 162 days lead time. This bill previously presented data in the AVO study going a 93% longitudinal sensitivity to recurrence. Broad set of data, so a very strong performance across all key metrics. We believe these various data sets are critical to establishing clinical utility, excluding reimbursement and maintaining market leadership in emerging indications like non-fault cell lung cancer.

The strength of the data has led to interest in prospective clinical trials with the first Signatera trials in the state now being launched. We plan to provide further updates on our prospective Avidan generation strategy during eater call. Lastly, we want to highlight that we are now expanding our data generation efforts with partners like Fontan Edison, where the cracker product was utilized either exclusively or in combination with Signatera in both the EM POWER1 and IMPower-131 studies.

Building on the strength of this evidence and the recently announced Medicare coverage for IO monitoring, we are excited to highlight the Foundation 1 tracker product that is now available across the U.S. This innovative assay combines the genomic information derived from the FoundA8n-1CDX icas comprehensive genomic profiling test with a personalized assay design and ctDNA analysis from Natera. We believe this is a great win for patients, given this product will enable greater access to impair core technology when it may be limited or previously exhausted. We are excited for the additive effect of the partnership for our core monitoring business and excited to present additional clinical data to support the value of integrated informed PPD monitoring into routine clinical practice.

Now handing it over to Mike to review our financial detail. Mike?

[Mike Brophy, executive]

Thanks, Alex. The first slide is just our standard results slide. we can see again that revenues were up substantially versus last year despite the fact that we had a very large licensing quarter in Q3, as Steve mentioned. So that really highlights how strong our product revenue growth has been over the last year and also gives me some confidence that the gross margins are sustainable.

Operating expenses for some modest growth versus Q3 last year. But this year, we've been effectively flat in sequential quarters, now even as we delivered significantly faster revenue growth. The balance includes proceeds from the equity raise in September, though we remain in a very strong capital position.

The next slide highlights the cash burn dynamics we've seen in the last year and a half. You can see we were burning roughly $115 million to $120 million a quarter on average in 2022 as we set up all the infrastructure needed to deliver a first-class launch of Signatera. We stepped down to $80 million to $90 million a quarter burn as volumes and reimbursement grew rapidly. And now we've put that at burn roughly in half in here in Q3. As Steve described, we placed a lot of emphasis on getting reimbursement recently for covered services. And while we are still in the early innings of that effort, we do think you'll be getting some results here in Q3. Days sales outstanding fell dramatically in the quarter and now stand in the low 90s. I'll offer the standard caveats here. We fully expect cash burn to fluctuate quarter-to-quarter and given our COGS projects are all on track, we do have some large topic than we planned in Q4.

However, I think the trend you see here in the car dinette continued progress, and we expect to see more of that next year. Great. Let's get to the 2023 guide on the next page. As Steve described, we are once again in a position to completely rerate the revenue guide upwards and now expect to come in at $1.035 billion to $1.050 billion. We are pleased to be tightening the original gross margin guide drop into the range. And since the OpEx guide is remaining unchanged, that means we cannot significantly reduce our expected cash burn guide for the year and now expect it to be $260 million to $280 million.

For many of you that have followed us for some time, you'll know that we try to set forecast that requires good but achievable execution. And I think that's what this guide implies. We've got to continue to grow margins, and they clean the ASP improvements, we obtained this year. This guide does not imply however, continued growth in ASP. Obviously, we are focused on making that happen, but there's always some uncertainty around the specific timing of ASP improvement, which is why we are reserving that as upside to the guide per our usual practice.

As Steve described, we are feeling very positive about 2024, and we feel like we've got the right-sized sales team to continue driving growth, given units are largely a function of sales rep productivity and rep counts are remaining stable next year. I think repeating the same unit growth we achieved this year is a good target. This will require good execution because our commercial team will ultimately to manage a larger book of existing business at the same time as they're growing those units.

In addition to this particular volume upside, we are now starting to see revenue increase at a faster pace as ASP improves. So if our strong ASP trends continue, that could be another factor helping us in '24. On revenues, we've got the [ political ] for a number of further upside tailwinds that I would regard as upside to our base forecast. We are cautiously optimistic on 2022 and broad panel carrier screening guidelines and footnote inclusion in NCCN guidelines. Based on the [indiscernible] of meetings we've been publicly announced from these guideline committees, we would expect update relatively early in 2024. I'll say it again that we do not need the fit our tax flow breakeven targets in order to continue making progress on ASP which could support steady improvements in the gross margin over the course of the next year.

We expect operating expense to be relatively stable in 2024 compared to 2023. We've talked about the commercial team, and we are rapidly getting operating leverage on our lab infrastructure for Signatera. Holding R&D expenses study will still allow us to make critical investments in prospective clinical trials and contingent sold reductions. We are also planning to launch a leader compelling new products, and we are looking forward to talking more about those in the future.

Our overarching goal in 2024 is to get to pace breakeven without sacrificing growth and innovation. Given that objective, we're planning to spend only about $15 million next year on early cancer detach. That investment will still allow us to deliver 2 significant data readouts, 1 of it will come by either the end of this year or very early in Q1 and the other in the first half of 2024. If those data was very strong and pass-through investment criteria, then we would evaluate moving forward with the program. Given the goals we have in front of us in our core products, we will only put further into this area in the future if we see excellent results that we think can be market leading, and we're hitting our cash flow goals. So we're really excited to be talking about the future of Natera and with that, let me open it up to Q&A. Operator?

[Operator]

[Operator Instructions] your first question is from the line of Tejas Savant with Morgan Stanley.

[Tejas Savant, analyst]

Congrats on a great quarter. Steve, Mike, just in light of your comments that you didn't really have any benefit from onetimers year in the quarter on either revenue or gross margin. Can you just help us contextualize that implied fourth quarter guidance. It looks like you're pointing to sort of flattish growth sequentially and flattish gross margins as well for my quick math. So any color on sort of any offsets that we should think versus the typical year-end seasonality.

[Mike Brophy, executive]

Thanks for the question. It's Mike here. Yes, look, on the guide, I think on the gross margins, I think that's just tightening to the top end of that range implies similar or better gross margins in Q4. As you know, as you guys know, we don't kind of guide specifically to quarters. So there's kind of a level of caution there. I don't think that should be taken as a message about concerns about underlying trends. As you've heard in the prepared remarks, the underlying trends that really across the business remain incredibly strong.

I echo this similar sentiments on the revenue line. Volumes typically follow a pattern where Q2 and Q3 are kind of our weaker quarters in terms of the seasonality from the women's health business. Q1 is our strongest quarter, but usually, Q4 is kind of -- is also a good quarter as well. So we felt we're off to a good start with. As I mentioned in my prepared remarks, I mean kind of our approach to providing guidance is always to try to provide kind of good but achievable benchmarks for financial guidance, and we hope to be able to exceed this.

[Steve Chapman, executive]

Yes. I'll just add. This is Steve. We're off to, I would say, an incredibly strong start in Q4, and we're continuing to see, I think, acceleration in ASPs and in volumes.

[Tejas Savant, analyst]

Got it. That's super helpful color. And then guys, a couple in terms of the follow-up, your 1 on Signatera. Can you just update us on your status with BSA. And I know this is a material part of revenue, but it's a question that we've gotten from investors here. And how do you sort of juxtapose that with the biomarker bill being passed in California, you've got the F1 tracker opportunity coming up as well. So any color on that? And then my second part of the follow-up is actually on Renasight. Given the really strong results here in RenaCARE. How are you thinking about the slope of that adoption curve? I think in the past, Steve, you had mentioned about -- you mentioned the 37 million patient population, but about 750,000 newly diagnosed annually. So just any in terms of the slope of the uptake there and early feedback from payers and nephrologists would be fantastic.

[Steve Chapman, executive]

Yes. So I guess, first, just on sort of commercial payers and the biomarker bill, I think some of the other groups that have presented have talked quite a bit about that. We're obviously monitoring things. We're taking a little bit of a more cautious approach. We want to see how things actually come through. But the reality is the biomarker builds are in place now and paste in a significant number of very critical states. So we think that it could serve as an opportunity I think, to quicken the traditional pace that you see for commercial coverage. And obviously, with California passing, that's resolved things with Blue Shield of California. But overall, I would say this biomarker bill is a net positive. It's something that is sort of unique for its time period and not an opportunity that's been available previously. So frankly, this might end up being the quickest path to get commercial coverage versus what we've seen historically. From a Renasight standpoint, I think the -- the RenaCARE study, we think, is a real inflection point. We've already previously said about 40% of nephrologists have used the product we've done tens of thousands of tests at this stage and the excitement from the nephrology community and the interest is incredible. I mean it's like something that I haven't experienced before, where nephrologists are really welcoming this product in with open arms.

They're very engaged they -- it's like they've been starving for a product like this. So we're excited about that. With that said, any time you're introducing something new, it does take a while to get protocols in place and get that type of market penetration that could be impactful. When I think about the market size, I think a very direct comparison here can be made with hereditary cancer testing. There, you have a very similar situation where you have the sort of incident and prevalent pools. And frankly, they're a similar size. And hereditary cancer testing today is an incredibly large opportunity. And so we think we're laying the groundwork for something similar.

[Operator]

Your next question is from the line of Puneet Souda with Leerink Partners.

[Puneet Souda, analyst]

So first 1 on ASP, then I have a follow-up on guidelines -- on ASP, I mean, it's good to see the improvement. And I appreciate you giving the details on Signatera. But could you talk about what -- how much was the ASP improvement on the Panorama and Horizon side? And sort of what should we expect there -- and then on Signatera, could you outline what's the ceiling here given the ADLT rate you have, the reimbursement, the indication expansions that you're seeing and potentially guideline and inclusion ahead as well which could help with commercial payers. So maybe just talk about ASP.

[Mike Brophy, executive]

Thanks, Puneet. I appreciate the question. So yes, first on the ASPs, we saw in addition to continued pretty rapid improvement in the Signatera ASPs, which we covered. We also saw some very encouraging improvement in the women's health ASPs. I mean I think and that's both for Panorama and for carrier screening. You may recall that earlier in the year, we actually guided assuming some erosion in the ASPs in that category. And at the time, I said, look, it's not because we're seeing it but it's kind of more of a [indiscernible] point. And frankly, we haven't seen that erosion. And indeed, we've seen some we've actually seen some improvement. Now where does that improvement come from?

It really comes from a variety of sources, and it's small contributions from a range of the efforts that we've been we've been really making over the last year, and Steve covered in some detail on the call. So leading the guidelines aside, which I think could be very impactful, I'm actually quite encouraged about the trajectory that we're seeing right now on ASPs in women's health, I have to say nothing of the rapid improvement we've seen in the signatory ASPs, which we did expect.

Second question, can you just remind you again, just give me a follow-up again 1 more time.

[Puneet Souda, analyst]

Yes. Just what is the ceiling for Signatera and how you think about that with the ADLT indication expansions?

[Mike Brophy, executive]

Yes, yes. So I think Solomon covered it in the prepared remarks that just based on what we're seeing right now, just on the current coverage dynamics that we have on our current tumor types, we feel like there's a path beyond $1,000, just through kind of grinding and blocking and tackling and making sure that we get paid for covered services. And we clear all of the myriad kind of administrative hurdles that 1 typically encounters in this space. So that's a lot of room to run from where we are now. I wouldn't put a ceiling on that per se. I mean, I think at about the time that we're reaching those levels, we're going to have more data. We're going to have feedback from NCCN and then also we'll have prospective randomized data, we'll have data in a number of different sources. Steve touched also on the biomarker legislation. So there's some other other potential catalysts that are going to hit roughly contemporaneously. So I would expect kind of a fairly smooth trajectory to say the areas piece, which is really encouraging.

[Steve Chapman, executive]

Yes. I'll just add too. I think 1 of the things that is really exciting is, as we're looking now at this very clear path to cash flow breakeven in '24 and a very strong revenue growth ahead that we're not really incorporating any of the upside opportunity from guideline changes, things like or any of the upside opportunity from biomarker legislation, which was just asked about a minute ago. So the model that we're looking at really just includes sort of status quo and blocking and tackling and billing operations improvements, but all of those other things are really upside, potentially very significant upside that we just don't need to get to cash flow breakeven and have another good year.

[Puneet Souda, analyst]

Got it. That very helpful. And then on guidelines, wondering maybe a part A and B to this question. Could you clarify on the women's health side, Mike, did you say you're expecting to see 22 Q guideline update in early 2024. I just wasn't sure if I heard that correctly. And then on the NCCN for the Signatera side, could you maybe elaborate -- given the number of data sets that you have already with Altair and treat ctDNA coming up. I guess the question is when does this translate into NCCN guideline inclusion, what that guideline inclusion can look like? If you could -- maybe Alex or Solomon can elaborate on that.

[Steve Chapman, executive]

Yes. First, let me just talk about women's health. So of course, we don't have any information on exactly what happened and so forth. But we do know that there was a guideline committee meeting. I think in September, from ACOG. And if you start to think about just sort of the time line that you might see the results from that, I think that could be in Q1. We don't know either way. Whether things will be positive or negative, but we feel really strong about the fundamentals behind 22 Q testing that are outlined in the SMART study and behind the fundamentals of expanded carrier screening.

So we'll just have to stay tuned and see what happens there. From the NCCN side of things, when you look at kind of the -- I think there was a meeting in August, we're expecting to kind of hear an outcome from that maybe later this year or early next year. We do know that the circulate 18-month data was included in the review because it was submitted in time. But of course, we don't know the outcome. Now the great thing for Natera is because we started working on randomized controlled trials in the escalation setting, for example, all care, more than 5 years ago.

In 2024, we will actually have the results initial results from Altera reading out. So regardless of what the guideline committee says this year with respect to the Circulate study next year, the Altera results will be out. And so it's just really a matter of time, assuming the trial reads out positively, and that's why we feel very positive about things. And when you look at what setting is Altera. I think it has sort of 2 settings. One is treatment escalation. But then the other is a treatment on molecular recurrence components where patients from the Vega study that are initially negative are being monitored with CTDA. And when they screen positive, they flip over into the Altera arm and are randomized at that time. and then are either treated or not treated. So we're excited about that treatment on molecular recurrence readout as well, which we think, I think is another reason why surveillance testing is important. So look forward to having both of those read out. Alex, Solomon, would you like to add anything else?

[Operator]

Your next question is from the line of Catherine Schulte with Baird.

[Catherine Ramsey, analyst]

Congrats on the quarter. I guess, first, Steve, I think you mentioned planning to launch some new MRD products next year. Could you give any additional details on that Will that be additional indications? Or are you more referencing a new platform like the potential for a liquid exome or tumor-naive kind of off-the-shelf version?

[Steve Chapman, executive]

Yes. So we're going to have multiple new things that are coming out, not just in MRD, but across the business. And we've been investing heavily in research and development and innovation really the entire history of the company, but particularly over the last couple of years. And I think that's now going to start to bear fruit as we have a significant number of product launches and updates next year. So on the MRD side, I would expect to hear multiple different opportunities, both new products and product updates.

[Catherine Ramsey, analyst]

Okay. Great. And then you mentioned validating Signatera and [indiscernible] an alternative NGS provider. Any additional color you can give there? What's the time line to rolling out NIPT on the alternative sequence here in your central lab? And is the plan to switch all of your volumes over.

[Steve Chapman, executive]

Yes. So I think you guys sort of know the history here of the evolution of sequencing. And really, over the last several years, we've seen the market open up quite a bit and now we've done work on multiple different instruments, and we think there's many different groups out there. So it's great that we've been able to meet regulatory milestones and in collaboration with pharma partners validate Signatera and independently now validate NIPT on these alternative platforms. We're focusing on reducing our COGS and getting to cash flow breakeven and so we're going to make the best decision for Natera on what provider we use based on the service level, the price and the quality.

[Operator]

Your next question is from the line of Rachel Vatnsdal with JPMorgan.

[Rachel Vatnsdal Olson, analyst]

Congrats on the quarter you guys. So first off, nice to see the coverage of the Foundation One tracker in the U.S. last month. Can you just kind of walk us through how should we size that opportunity? And then how quickly can it become a meaningful contributor here.

[Mark Massaro, analyst]

Yes, Solomon, why don't you take that?

[Solomon Moshkevich, executive]

Sure. Yes, thank you for the question. We were very excited about getting that coverage for Medicare and we thought it was appropriate given the great data that's already been generated to support the tests. FoundationOne Tracker is very well positioned for patients in the advanced cancer setting who are already getting a FoundationOne CDx test and want to monitor response to immunotherapy without needing to send another tissue sample for development of Signatera, and that's especially useful for patients where tissue might be scarce already exhausted after the first analysis for genomic profiling. So that's exciting, and we look forward to rolling that out that commercialization being led by Foundation Medicine and helping a lot of patients.

[Rachel Vatnsdal Olson, analyst]

Great. And then my follow-up, I just want to ask about the pending lawsuits that you guys have with Rabgen in the upcoming trial in early next year. You have 1 peer that had to pay out in the high $200 million range, but other peers have settled out of court. You had 1 peer earlier this week flagged that their payout is going to be in that like $30 million range all in. So can you just walk us through what are the potential range of outcomes that we could see for tissue? And any color on dates leading up to that trial?

[Mike Brophy, executive]

Thanks for the question. So just like all the intending litigation, unfortunately, I just can't get into a lot of details on ongoing litigations -- we clearly believe we don't infringe. We don't think the patents are valid, and we feel that we've got some very strong defenses. And that's kind of where we've got to leave it for now. But we look forward to providing more updates as they become available.

[Operator]

Your next question is from the line of Dan Brennan with TD Cowen.

[Daniel Brennan, analyst]

Maybe the first one, Mike, you talked about some of the screening data that's coming out later this year and early next year, and you talked about if the data looks very strong, you would evaluate and move forward only excellent results. Can you give us a sense of what we expect to see here coming up in these 2 studies? And just any more color around the level of evidence you would need in order to push ahead?

[Steve Chapman, executive]

Yes. So this is Steve. I'll take that. So we've said before we have a case-controlled study that's coming out probably at the end of this year, maybe in early January. And then we're following that up with an additional study looking at advanced cetinoma. And once we have both of those in hand, we're going to sort of see how we measure up to others that are out there. And I think there's sort of 2 decision points there. There's -- how do we compare to the competition and where are we on our trajectory to cash flow breakeven and how do the financials look. And we're not going to do anything at all that's going to impact our ability to get to cash flow breakeven. So we think we're taking the right unmeasured approach and phase-gated approach, where we're waiting to hit key milestones before we decide whether we're moving the ball forward or not. And if we do move the ball forward, the -- I think the next steps would really be in 2025 in 2026, where we'll be operating in a different environment where we think we'll be cash flow positive.

[Daniel Brennan, analyst]

Got it. And then maybe just another 1 on NTCN, just if you are successful getting an inclusion, maybe as a footnote in the current update that you expect early next year, like what would that -- what does that mean? Obviously, commercial coverage could start and you'd likely I guess, see a volume benefit to maybe just clarify and then as a related question, obviously, the Galaxy 24-month data and the MRD positive arm looked really impressive. How much does that derisk ALTAIR? I know you kind of mentioned -- but I think the regimen might be a little bit different ALTAIR. Just wondering how much of confidence that gives you in ALTAIR positive readout.

[Steve Chapman, executive]

Yes. Let me just talk quickly about guidelines, and then I'll have Alex comment on the circular data. So the -- why do you -- you need guidelines to grow volume and to get commercial reimbursement. And we're growing volume right now at a really fast pace. And we're also now seeing commercial reimbursement coming on and because of the biomarker bill, we think that's going to continue. So at this point, it's -- I think guidelines obviously would quicken the pace of those things. But we're going to get really far along here without guidelines coming in. And I think importantly, for Natera, we don't need guidelines to achieve cash flow breakeven and continue to significantly grow the business. So we'll wait and see what happens -- but if we do end up getting it this time around, we have the ALTAIR study coming out, and we'll be in a great position. So Alex, do you want to comment on the Circulate data, whether that's derisked ALTAIR Vega.

[Alexey Aleshin, executive]

Yes, absolutely, Steve. So we definitely have seen continuation of separation of the curves in the CTA positive arm in the CIRCULATE study. And furthermore, we've seen that in the CTA negative arm we continue to see very little, if any, benefit from adjuvant chemotherapy. And that absolute difference has shrunken and actually, we've seen those curves now reverse. We think actually both of those help derisk not just the ALTAIR study, but also the Vega study. And since Altera is coming up just around the corner, I think the way we are extrapolating these findings is that CT positive patients have almost 100% risk of recurrence without treatment. We've seen that adjuvant chemotherapy helps reduce that risk, but does not eliminate that. And the way that health care is designed

We are adding a known active agent, TAS-102, that's already approved in colorectal cancer and is none to have efficacy even in the second and third-line setting. So by adding that and randomizing patients to either get that drug or get placebo, we are pretty confident that there will be an effect that should be able to bear out from that study. Again, we won't know the results until the study is unblinded. But I think given the study design, given the findings so far from the circular data, we're very positive. But we should be able to see something if the effect is there.

[Operator]

This does conclude a lot of time that we have for question and answers. I will now hand the call back over to our presenters for any closing remarks.

[Mike Brophy, executive]

Thanks, operator, and thanks to everyone for joining us today. We're really excited about these results, and we're very pleased to share with you. So thanks again for joining.

[Operator]

This concludes today's call. Thank you for joining. You may now disconnect your lines.