Wednesday, January 17, 2024

Natera at JP Morgan: Big Lessons on Reimbursement Strength


Header: Among the genomics industry, Natera was one of the lead presentations at JP Morgan last week.   What I caught, from news reports and the transcript, is that reimbursement is a major core competence at Natera.


The chart above, used by Natera at JPM, shows year-on-year growth in Q4 revenue alone - from $67M in 2018, to $300M in 2023.   They highlight average sales price - a reimbursement issues - as a key driver.   Not shown here, Natera's bar chart for test volumes looks similar - from 670K in 2014 to 2,490K in 2023.   

Like many genomics players, they've had high burn rates.  But in Natera's case, there's a strong trend downward, from $162M in 1Q2022 to $38M in 3Q23, 7 quarters later.   This cash burn has decreased as revenue and margins have climbed - and [nearly] all their revenues come from "reimbursement."  Their market cap is $8B and Natera's share price is up from $17 (2019) to about $70 (today).

The transcript makes it clear that "reimbursement" isn't something that's delegated five levels down at Natera - it's something that has a large share-of-mind, including the hands-on details, at the CEO level.

The Reimbursement Ecosystem - Policies, Price Lists, Guidelines, and State Laws

What is Natera doing right?  It's clear from the transcript [fn1] and from coverage at Genomeweb, that Natera views "reimbursement" as an ecosystem, which includes coverage policies (driven by publications and guidelines), price lists (leveraging special rules like Medicare's ADLT pricing rule), guideline positioning (which drives both CMS and Commercial coverage), and State biomarker laws - which Natera's CEO referred to several times, suggesting it's really got share-of-mind for him.

Here's how different parts of Natera's half-hour presentation were brought together to capture reimbursment topics, at Genomeweb:

GW: Improving reimbursement has been a key focus for Natera, and the company has taken strides to boost test payments. It has improved its billing operations to further raise its ASP, Chapman said. "Just in the core business, without new guidelines coming in, without new Medicare coverage, without going and getting new commercial coverage, we're getting paid a higher percent of the time because we're operating better." 

The firm has also made multiple submissions to Medicare's MolDx program to expand Signatera into further cancer indications that will hopefully boost reimbursement, said Solomon Moshkevich, the firm's president of clinical diagnostics. "These are areas where we're already doing a decent amount of testing commercially and just not collecting as much as we will after getting the approval [the additive types of Medicare cancer approval(s) will boost the corresponding types of commercial cancer collections]."

Reimbursement Ecosystem includes State Laws and Medical Guidelines

Chapman also emphasized that state biomarker laws could start having a substantial impact on reimbursement, although he cautioned there were no guarantees and it's a novel policy space.  This would be most impactful on the 60% of Signatera MRD tests that are going to commercials with uncertain payments before those state laws take hold.  The laws will, it's expected, require commercials to more often match Medicare coverage.   

Guidelines are also a priority to watch at Natera.   The company highlighted for investors updates at the American Collge of Medical Genetics on 22Q11 testing in the prenatal space.  But it required that burn rate, in this case, involving a 20,000 patient registry called "SMART."

 CMS Pricing Rules

Natera noted that it understood the ins and outs of CMS pricing regulation. Chapman remarks,

We also have a unique status, which is the Advanced Diagnostic Laboratory Test designation [ADLT], and that's allowed us to get pricing on the clinical lab fee schedule of $3,500 per recurrence monitoring Signatera test. Now, there's one other competitor that has a tumor-informed test that's been priced on the clinical lab fee schedule and their rate is $795. So this ADLT is a very big differentiator and, in fact, the price point for 2025 has already been determined as well and the price will be back at $3,900 in 2025.

Improving Billing Operations Means Operating Better

Finally, in the "core" of reimbursement, the claim hitting the payor and an adjucated payment returning to the lab, let's close with these remarks from the transcript:

I think we did see volume improvements in ASP, strong Signatera growth. I think it's just that core execution of the business is what's driving the revenue beat. 

We've been saying for a long time that we think there's some improvements in the average selling price that we can hit just by turning the crank and improving the billing operations.

I've personally been working on that, along with Mike and others for now over a year, and so we're starting to see just in the core business, without new guidelines coming in, without new Medicare coverage, without going and getting new commercial coverage, we're just getting paid a higher percent of the time because we're operating better. Then, with that, we're seeing improvements in Medicare Advantage and I think all this is leading to increased revenue

A New White Paper on Genomics Due Diligence

For a primer on how all this fits together for genomics valuations, see my January 2024 white paper, 
"Agile Due Dilegence in Genomics."  Here:


[fn1]  Like many publicly held companies, Natera posted an audio file of its JPM presentation on its financials and investors website.  This file, along with its 16-page JPM PPT, are usually posted for a period of days.  For an AI picture of this blog, which I didn't use, here.