Welcome to Natera's 2021 Second Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode. Following management’s prepared remarks, we will hold a Q&A session. [Operator Instructions] As a reminder, this conference call is being recorded today, August 05, 2021. I would now like to turn the conference call over to Michael Brophy, Chief Financial Officer. Please go ahead.

Thanks, operator. Good afternoon. Thank you for joining our conference call to discuss the results of our second quarter of 2021. On the line is Steve Chapman, our CEO; and Paul Billings, our Chief Medical Officer; Solomon Moshkevich, General Manager of Oncology will be joining for Q&A as he's dialing in from overseas. So Steve will give his prepared remarks today. Today's conference call is being broadcast live via webcast. We will be referring to a slide presentation that has been posted to investor.natera.com. A replay of the call will also be available at investor.natera.com. 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 financial 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 release dates, reimbursement coverage and related effects on our financial and operating results. We caution you that, such statements reflect our best judgment based on factors currently known to us and that actual events or results could differ materially. Please refer to the documents we file from time-to-time with the SEC, including our most recent Form 10-K or 10-Q and the Form 8-K filed with today's press release. Those documents identify important risks and other factors that may cause our actual results to differ materially from those contained in or suggested by the forward-looking statements. Forward-looking statements made during the call are being made as of today. If this call is replayed or reviewed after today, the information presented during the call may not contain current or accurate information. Natera disclaims any obligation to update or revise any forward-looking statements. We will provide guidance on today's call but we'll not provide any further guidance or updates on our performance during the quarter, unless we do so in a public forum. We will quote a number of numeric or growth changes, as we discuss our financial performance and unless otherwise noted, each such reference represents a year-on-year comparison. And now, I'd like to turn the call over to Steve. Steve?

Thanks Mike. Good afternoon, everyone, and thank you for joining us. Let's get into the recent highlights. As we covered in our pre-announce, we had another phenomenal growth quarter. Q2 was the fastest year-on-year growth for both volumes and revenues we've had as a public company. And that's on a volume base that is now more than four times larger than when we went public. I'm pleased to announce that we've exceeded the top end of our pre-announcement ranges in unit’s processed, total revenue and product revenue. We processed 376,000 tests in Q2, which was approximately 61% growth over the same period last year. Total revenues and product revenues were both up 64% and approximately 71%, respectively over the same period last year. That acceleration is being driven by continued strong growth in the Women's Health business and big contributions from oncology and transplant. Those businesses are now large enough to contribute meaningfully and really shift our growth rates upward. Given all this momentum, we are excited to be raising the revenue guide for a second time this year. We started at $500 million to $525 million then upped that range to $550 million to $575 million in May. We are now raising our guidance once again to $600 million to $620 million in revenues for this year, up almost $100 million versus where we started in March. As we are having success with our new product launches we are also needing to accelerate investments we had planned to make over the next two years, which we are very happy to do. Mike will cover the full guide later in the call. We were also very excited to see the Women's Health business got to cash flow breakeven in the quarter. This was one of the top goals I announced…

Thanks, Steve. The next slide here is just a summary of the financial results for the quarter. Steve covered a lot of the trends on volumes and revenues. I'll just note again the acceleration we saw on the top-line. Our year-on-year volume growth rate was 48% in Q1 and now 61% in Q2. Product revenue year-on-year growth was 36% in Q1 and now 71% in Q2. ASP stepped up in the quarter. And as Steve mentioned more of that increase was really driven by volume mix as the new higher-priced products start to have more of an impact on our blended average selling price. Women's Health ASPs were also slightly higher in the quarter. And as Steve mentioned, I think we still have room to run over the next several quarters there. We got a substantial boost from improved reimbursement in our commercial insurance volumes if you compare where we are now on ASPs versus this time last year in the Women's Health business. And we've had some positive contracting decisions that we think can benefit the reimbursement for example in our managed Medicaid volumes over the next few quarters in Women's Health. I think it's important to note that we think there is significant upside in the current oncology ASPs which can improve over time just as the product launch matures. While the majority of our volume is in the colorectal cancer indication, we have seen many community oncologists really adopt Signatera for a broader range of cancer types. We are happy to see that because we think the data supports broad use. And we think we have clear line of sight to reimbursement in additional cancer types via the umbrella local coverage decision from CMS. As we've discussed in the past, we anticipate getting coverage for immunotherapy response…

Thank you. [Operator Instructions] Our first question comes from the line of Tejas Savant with Morgan Stanley. Your line is open.

Hey, guys. Good evening and congrats on a nice quarter here again. Just one question here on Signatera, Steve. On the ADLT code upside, you're expecting a nice bump here on your Medicare volumes. But at some point I believe next year at the end of the first quarter that trend will normalize under the PAMA process yet you've got offsets to that. So can you just walk us through the longer-term ASP trend dynamics here? And also how getting that ADLT code can help with the competitive moat within MRD for you?

Yes sure. That would be great. So the ADLT is a very significant advantage and it's only available to the first mover who has an innovative test on the market. So we're very glad that we were accepted into the program, and we were able to increase that recurrence monitoring price from $795 now up to $3,500 because over time as the flywheel effect of getting patients into recurrent ordering program occurs, you're going to have more and more and more of the patients at that recurrence monitoring time point. So it's critical that you maintain a high ASP in that time point. Now the way the program works is there's a time period. I believe it's roughly nine months where they look at your commercial claims. During that time period, you get paid the list price of $3,500. And then after that they look at your commercial claims and they'll reset your price based on the median weighted reimbursement from commercial parties. Now the good news is that we've been very strict about how we negotiate with private payers and we've successfully negotiated rates that are at or above this $3,500 price point with private payers. So we don't expect to see any price reductions on an ongoing basis through the PAMA process. Of course, it has to pay out -- play out over time, but at this stage all the rates we've negotiated are at $3,500 or higher and we expect to maintain the price point or have an increase.

Thank you. Our next question comes from the line of Tycho Peterson with JPMorgan. Your line is open.

Hey, thanks. First question on the back of the financing and congrats on getting that done. Can you just talk a little bit more about the MRD road map for multi-cancer? You talked about four million tests in the near term 9 million longer-term? But maybe just talk a little bit about use of proceeds and how quickly you think you can scale up some of these efforts.

Yes. So there's a lot of work, I think to roll out each of the different indications. The good news is that the most important thing to being successful in the Signatera market is generating the right data. And we started that process of generating the data a long time ago five years ago roughly. You look at some of these trials, they were ongoing for that period of time. We had teams of people out hunting for clinical trials that we could get into five years ago. So now the studies are reading out and they're being published. That's the most important thing in order to unlock usage in a particular tumor type and to unlock reimbursement in a particular tumor type. So when we look at where we are in colorectal today stage II and III we're seeing a lot of volume come in. We're seeing a rapid increase in ordering on the clinical side, which is great and in line with our expectations. We've now generated this data in oligometastatic stage IV colorectal deepening our penetration in the colorectal space and that data looked excellent. I mean, really good data with overall survival as well, which is really the next step down in kind of raising the bar for what type of data is required to move the needle. I think we're going to continue to penetrate colorectal. We're on market with an immunotherapy monitoring product, which is going very well. We're seeing increases consistently in the usage there. We've also shown muscle-invasive bladder, lung, neoadjuvant breast, ovarian, multiple myeloma. Now we just had a publication in esophageal cancer. So all those areas where we generated data and we have published data, I think over time we'll be rolling out those indications. We're actually seeing usage today…

Thank you. Our next question comes from the line of Catherine Schulte with Baird. Your line is open.

Hey, guys. Thanks for the question. I guess first just on the guide, you mentioned being cautious on ASP outlook and not baking in a significant increase in NIPT. I guess in theory shouldn't we see this bump up as some of the plans that updated their policies last year moved to accrual accounting? And when do you expect that that might happen in a more meaningful way?

Yes, we -- yes, yes I was going to say -- Mike why don't you take that?

Yes. No. Thanks Catherine for the question. Yes. So, we have seen some of that benefit. You kind of -- if I look back to kind of NIPT ASPs prior to any of those coverage decisions last year versus now, we have gotten a good step-up on the NIPT contracts in terms of the fraction of times we've gotten paid. I think that's true primarily in our commercial business although it's starting to look more and more, true through the Medicaid volumes as well. I do think that there is still room to go on the NIPT front in particular. Just as I look at the fraction of claims that are still unpaid for some reason like a prior authorization policy that we think can get removed or myriad other rationales that payers may have state Medicaid plans that aren't yet adherent to the new ACOG practice guideline for example. So, I think there's room for that the NIPT ASP to improve. I think there will be some benefit just by debt of the accrual as you mentioned. Just as you get more history with more and more payers, there is a kind of a natural momentum to that. So there is some modest ASP improvement in the guide there. A lot of that though in terms of kind of impact to ASPs on a blended company basis just comes from the fact that hey, we didn't have the ADLT really in a meaningful way in Q2 and we'll have it in Q3 and beyond. And to the extent we've got Medicare volume in Signatera colorectal cancer stages 2 and 3 then we'll get a bump from that. And the other piece is that on the Signatera ASP that there's kind of a natural progression where now that we have this ADLT the ASP -- the blend of ASPs that product can improve as you get more and more patients into the kind of the longer tail of recurrence monitoring tests versus kind of the upfront test as well. So that's a trend that can start to benefit us in the second half. All this requires a certain amount of forecasting. And as most of you know who followed the company for a while, we're just trying to be on the side of caution when it relates to the guide and in particular forecasting ASP. So, somewhat more of a philosophical point than anything else.

Thank you. Our next question comes from the line of Mark Massaro with BTIG. Your line is open.

Hey, guys. Thanks for the questions and congrats on the quarter, the raise and all the data that you've been publishing. I guess a couple of weeks ago when you guys did the deal the financing, you indicated that you expected to make some significant announcements in the organ transplant business and potentially beyond, which I believe might be screening. Today you talked about simultaneous pancreatic-kidney transplant. So, I guess I'm just curious, if you could elaborate on any potential plans for expansion beyond kidney testing, would that obviously include pancreatic and some of the others? And then, any thoughts you have on early cancer detection? Just the development work you've been doing and I think previously you talked about plans to do colorectal cancer screening.

Yes. Thanks Mark. Yes. So on the organ health side things are going really well. I think we're beating our plan, as we said, ahead of our expectations. We're starting to see some good data come out. We show this head-to-head study, which I think is now the second head-to-head study that's been performed where we've outperformed on the detection of rejection using the validated 1% cutoff. We showed now I think that our platform test works well in other organs. So the simultaneous pancreas-kidney pancreas alone transplants which is good. I think that essentially shows that we're going to be able to transport into other organs. And now that this LCD has been put in place, which is essentially an umbrella LCD that will allow us to go get reimbursed, if we choose to go into other areas. So I think the groundwork is all there. The sort of proof of concept is there. And I think we'll be in a good position to sort of make those moves in the future if that's an area that we decide to go into. I think when we look sort of across business, we have to kind of decide where we want to make the investments and so forth. But, certainly the kind of framework is in place there. On the early cancer detection side, we've basically said that we've developed a platform. We have some data that looks good. We have access to a significant number of samples and we're going to package all that up and describe it to everybody in the future when we're ready to. We just haven't done that yet. And so I think, that announcements will be coming where we're going to describe, what we're doing, what we have so far, and what our plans are. But we're just not rolling that out today. But we feel very good about the opportunity we have.

Thank you. Our next question comes from the line of Dan Leonard with Wells Fargo. Your line is open.

Thank you. This is Lou on for Dan. Just a quick questions on the organ, and then also oncology part. I think in the prepared remarks, you were talking about there is like -- you started to see contribution from those two business. Can you quantify, a little bit in terms of the volume or the type of revenue? And then also on the Women's Health I think you also mentioned the share gain. Can you also like talk a little bit more about the share gain opportunity, especially after one of your competitor exited the market? Thank you.

Yeah, sure. So why don't I talk about the share gain, and then maybe Mike you can talk about like, how we're managing breaking stuff out. So, on the Women's Health side, we have been just crushing it. I mean, we're accelerating. You can see the growth over the last couple of years, and sort of what we're doing now. I mean, it's a whole definite level of growth. So we're in a fantastic position. We've got a great technology. We've made significant improvements to the technology that have been launched this year with Pano AI that's playing out very, very well in the field. Great customer feedback. We've now got the largest prospective trial that's ever been done in the field of NIPT, where the results in a real-world setting held up and actually were better than our validation data. So that's super strong. I think some of the big academic centers and maternal-fetal medicine practices that hadn't been using us before considering a switch are now looking at the data. And they're excited about it, because this type – this quality of data just hasn't been produced before. So yeah, we are having competitive wins, but we're also seeing the market penetrate. And so those two things simultaneously happening are causing an acceleration in the Women's Health growth. The market today, we believe is about 30% -- maybe 35% overall penetrated. So there's a long way to go just simply riding the wave of penetration in the market. And even, if we weren't seeing competitive wins our business would grow just simply from penetrating that market. We think in the next three years that NIPT market is going to get to 90% growth – or excuse me, 90% penetration. So that's a very significant growth. But on the competitive side, we're outpacing everyone else from a growth standpoint. We're taking business from competitors. You saw one main competitor exit the market and they were a very strong competitor for a long time. When they announced our sales team went to work and we've done exceptionally well. I think converting that business to Natera. Based on the numbers we're seeing, we believe we got more than our share of that business. So we're feeling very good about that. I think we're in a good position. So Mike, do you want to maybe comment just on how we're breaking out organ health or oncology from a unit and revenue standpoint?

Yeah. So our current plan has been just to describe the business on a total company basis now. That's largely for competitive reasons as it relates to the new product launches. We've had the experience in the past of giving very, very granular disclosure, which is easier for us and easier for you all, I appreciate, but we've seen it time and again actually harm the opportunity as competitors are able to kind of dial in for exactly how well we're doing and then redouble their efforts. So we're not inclined to give that at the moment. I think the other piece is that, we're still relatively early in these launches. I mean, we're a little over a year and little over six months in Oregon Health and Signatera respectively. And so we're still getting a handle on exactly what does the launch trajectory what does the growth curve look like in these businesses ourselves. And so I mean, over the relative near term, I think we'll be in a position to give more color there. I think on a total company basis, so you can kind of – you start to see some of the impact. I mean, a lot of the beat – well, all of the businesses are growing kind of ahead of our internal expectations. You don't raise guide from – $100 million from $500 to $525 million to over $600 million for total revenues without some new products really launching above your expectations. And so I think, you can see that in the guide and also just as a product revenue growth year-on-year. So clearly, it's having an impact on the business and stay tuned.

Thank you. At this time, I would now like to turn the call back over to management for closing remarks.

Great. Thank you very much for joining the call today. We appreciate it. Take care.

Thanks everyone. Cheers.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.