Natera (NTRA) Q4 2019 Earnings Call Transcript

Natera (NTRA -0.24%)
Q4 2019 Earnings Call
Feb 26, 2020, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Welcome to Natera's 2019 fourth-quarter financial results conference call. [Operator instructions] As a reminder, this conference call is being recorded today, February 26, 2020. I would now like to turn the conference call over to Michael Brophy, chief financial officer. Please go ahead.

Michael Brophy -- Chief Financial Officer

Thanks, operator. Good afternoon. Thank you for joining our conference call to discuss the results of our fourth-quarter and full-year 2019. Also on the line is Steve Chapman, our CEO; Bob Schueren, chief operating officer, Solomon Moshkevich, general manager, oncology; and Paul Billings, chief medical officer.

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 guidance for the full-year 2020, our assumptions for that guidance, 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 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 will 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 Chapman -- Chief Executive Officer

Thanks, Mike. Good afternoon, everyone, and thank you for joining us. I want to give a brief recap of 2019, discuss our strong annual and fourth-quarter results and lay out the key goals we expect to achieve in 2020. I'll then have Mike walk you through our financials and 2020 guidance.

The next slide is a snapshot of the most visible achievements in 2019, which was clearly a transformational year for us across all focus areas. We delivered financial results above the top of our previous guidance. In reproductive health, we expanded our leading market share with strong volume growth, new features and new peer-reviewed data. We grew average selling prices in each quarter sequentially from Q1 through Q4, and we significantly reduced cost of goods sold per unit.

In organ transplant, we achieved each of our stated milestones. We published compelling peer-reviewed data, successfully executed our CLIA validation and received a positive final coverage decision from Medicare, all of which lays the foundation for a commercial launch in 2020. In oncology, we published groundbreaking clinical validity data in multiple cancer types, signed significant commercial partnerships with Foundation Medicine and Beijing Genomics Institute, exceeded our ambitious goal for total cumulative contracted value with pharma partners and secured draft coverage decision from Medicare in colorectal cancer. It took us years of work to get to this point, and I know many of you have been with us for that journey.

We appreciate your support and continued input. On the next slide, you can see how our momentum coming out of 2019 forms the backdrop for our 2020 goals. In reproductive health, our 2020 goal is to drive the business toward cash flow breakeven while extending our leadership position. We intend to do that by continuing to drive volume growth while improving our unit economics.

In transplant, we are very excited about receiving final Medicare coverage for Prospera, and our goal is to have a successful commercial launch in 2020. In oncology, we have an opportunity to make Signatera the standard of care for minimal residual disease and recurrence monitoring. And our goal in 2020 is to execute the first major product launch in colorectal cancer while continuing to be the partner of choice for major clinical trials that can define this space in the coming years. Now let me jump into the Q4 and 2019 results.

The first slide shows our long-term track record of driving volume growth in our reproductive health business. We had another very strong year in 2019. Q4, in particular, was a great sequential growth quarter versus Q3 of 2019, and we are again seeing strong growth so far in Q1. We believe we are well-positioned to have another solid growth year in 2020.

I'm very pleased to announce that we've exceeded the top end of our 2019 annual guidance with $302 million in revenues and a 42% gross margin. That was guidance that we had already raised twice during 2019. In addition, we crossed over $300 million in revenues for the first time as a company. As a reminder, we sold our Evercord business in the middle of the year.

So pro forma for that sale, our revenues would have been even higher. Q4 also exceeded our expectations financially as we posted strong revenue and gross margin growth versus last year. Revenues were up 24% year on year in the fourth quarter from $67 million to $83 million, and gross margins were up 1,100 basis points from 36% to 47%. A key driver for this performance was volume growth, combined with improving unit economics.

On the next slide, you can see a snapshot of our average selling price and cost of goods sold per unit -- on a per-unit basis over time. We were pleased to see continued momentum in our ASP. Recall that in Q4 of 2018 and Q1 of 2019, we took a significant ASP hit in response to several factors, including the expansion of prior authorization policies. And we described a series of efforts that we were pursuing to improve the fraction of time we are reimbursed for our tests.

This was a very substantial and focused effort to identify and fix gaps, and it was a major investment by our team. So we are pleased to see our ASP improving on this slide. I'd also note that the Evercord business contributed about $10 in ASP to the -- in the previous quarters. So on an apples-to-apples basis, we are now in a better place on accrued revenue per test than we were before, and we have a number of initiatives under way that could further improve ASPs this year.

Note that this ASP chart does not give us the benefit of any partner revenue recognition or revenue true-ups from prior periods in order to give a sustainable sense of our insurance-reimbursed revenue per test. On the right side of the slide, you can see our COGS trajectory. Over time, we've significantly reduced cost of goods sold, and we are pleased to reach a new low in Q4 of about $224 per unit. That's a step down from the mid-$230 range we saw for most of 2019.

Back when the COGS were in the $270 range, we set a target to be below $200 per unit. And we think we can achieve that goal based on funded active R&D projects we are currently pursuing, and we expect those projects to complete throughout 2020. We said on the Q4 call last year that we need to generate roughly $180 million in gross profit to cover our operating expenses in the reproductive health business, and one way to do that would be to get $200 margin per test with 900,000 units. A number of variables make it hard to predict precisely when we will cross that threshold, but we moved significantly closer in 2019 and have a path to get there in the relative near term.

Overall, in reproductive health, we're executing very well on volume, ASP and COGS. We feel very positive about our ability to extend our leadership position and drive the business toward cash flow breakeven in the near term. OK. Shifting gears to transplant.

Just as a reminder, there are roughly 20,000 kidney transplants per year and about 180,000 patients living with a transplanted kidney. Within the first five years, about 30% of recipients will lose their kidney. And within the first 10 years, roughly 50% will lose their kidney. Our test, Prospera, uses our proprietary technology to detect donor-derived cell-free DNA in the plasma as a biomarker of organ rejection and significantly improves on the performance of the currently available biomarkers.

We think that this market can be very significant over time, and we estimate that the market today is less than 5% penetrated. The chart on the right gives you a sense of the revenue potential over time. If you assume 20,000 new transplants per year in the United States, seven tests per year in the first year and then quarterly for the next two years, you can see a range of estimated annual revenues that could be achieved at a reasonable market penetration rate. Even at these conservative penetration levels, the revenue has the potential to make a meaningful impact on Natera's business.

I've had the chance to meet with several transplant centers recently, and one key takeaway from those meetings is that the vast majority of centers are in the very beginning stages of using donor-derived cell-free DNA as a tool in their patient care. We plan to grow our share by tapping into this greenfield opportunity and by winning market share in clinics that are already using donor-derived cell-free DNA testing. The next slide is just the same chart we've shown since we announced the presentation of our validation data. We've hit every milestone toward a commercial launch on time so far.

We've now made the necessary preparations for our full launch and are just awaiting the Noridian local coverage decision and final pricing before we execute the full commercial launch. As a reminder, Noridian follows the guidance of the MolDx program where we've already received a final positive coverage decision, and we expect Noridian's final coverage decision to issue very soon. We believe we're in a good position to be successful given the outstanding performance of our test versus the first-generation donor-derived cell-free DNA test. As a reminder, our clinical validation data compared favorably against the first-generation test across many aspects of performance, including the detection of T cell-mediated rejection, the ability to detect subclinical rejection where there are no other clinical signs and the overall area under the curve.

Our study was approximately two times larger than the competition and has now been evaluated by independent experts at Medicare who rated our strength of evidence more favorably than the first-generation test. In our conversations, we find that transplant physicians are responding positively to these data. We previously announced our planned proactive registry study, which, to our knowledge, is the largest prospective donor-derived cell-free DNA study ever performed, led by Dr. Jonathan Bromberg from the University of Maryland; and a second study, led by Dr.

Phil Halloran from the University of Alberta. We're excited to be working with these key opinion leaders, and we're actively recruiting for these studies. We are really pleased with the interest thus far, and we look forward to providing updates in the future. OK.

I will now turn it over to Solomon to discuss our significant progress in oncology. Solomon?

Solomon Moshkevich -- General Manager, Oncology

Thanks, Steve. I'd like to start with a review of our pharma business then our clinical testing business focused on colorectal cancer and then touch on our key commercial partnerships. We made excellent progress in 2019 with our pharma business. We outperformed our goal with over $55 million in cumulative signed contracts.

We see that business accelerating now because we were able to clear a number of rigorous, technical, operational and intellectual property reviews with our largest biopharma partners. The publication of significant clinical data across multiple disease types also played a role and finally because of the growing consensus on the utility of our personalized MRD approach for enriching and accelerating clinical trials. Our technology is changing drug development, enabling pharma companies to bring novel treatments out of the metastatic setting straight into the adjuvant and neoadjuvant settings for patients with early stage disease. Because most early stage patients are already cured by surgery alone and therefore would not derive any benefit from a novel treatment, drug trials in this setting are historically very large, risky and expensive as one would have to treat so many patients to benefit just one.

In fact, there are multiple examples of immunotherapy trials in the adjuvant setting where the trial failed and where we believe those trials may have been successful had they been enriched with Signatera. With Signatera, drug developers can focus their trials on the patients who have residual disease after surgery or early signs of molecular relapse. And they can read out the trial faster by using Signatera as an early end point to evaluate therapy effectiveness, testing for clearance of that residual disease upon treatment. This concept is gaining traction now as we have signed and recently announced several prospective Phase 2 trials in addition to multiple projects involving the analysis of specimens collected and stored from previous clinical trials.

In addition to our growing pipeline of pharma trials, we are also focused on extending our leadership in data and clinical development in early stage colorectal cancer. One of our key wins there was our deal with AstraZeneca, which was previously described. Another was our deal with the National Cancer Center of Japan, running the Japanese arm of the CIRCULATE-IDEA trial in over 100 sites across Japan. This was designed to be a practice-changing study.

Its objective is to show that Stage 3 colorectal cancer patients, if they test MRD negative with Signatera after surgery, may completely forgo adjuvant chemotherapy. Today, the guidelines are clear that all Stage 3 patients in colorectal should receive chemotherapy after surgery, though treatment duration has been an area of hot debate. But it requires a randomized trial like this to change those guidelines. This is the type of trial that can establish a new standard of care in Japan, which we feel very positive about.

We also launched the BESPOKE CRC registry study, aiming to collect data on 1,000 patients tested with Signatera as part of the clinical practice under the criteria established by Medicare in its draft coverage policy. This study is important because we worked with our principal investigators who are leading GI oncologists in the field to establish a recommended testing protocol with six tests in year one after surgery and four tests in year two. As a reminder, Medicare's draft LCD proposes coverage for the serial use of Signatera in two settings: after surgery to evaluate the need for adjuvant chemotherapy and in the surveillance setting to be used with the same frequency as CEA through year five to detect recurrence and help resolve false positives from both CEA and CT imaging. We received the draft coverage decision last year.

We expect to have the final coverage and pricing in mid-2020, and we are planning a full launch commercially later this year. Early feedback from GI oncologists has been very positive as the unmet need in Stage 2 and 3 colorectal cancer is strong. We believe this clinical indication has the opportunity to translate to about 1 million tests per year, which gives you a sense of the size of these oncology markets that we're just beginning to unlock. Thus far on our reimbursement pathway, we have met all of our major milestones, and we're navigating the process as expected.

The public comment period for this draft LCD was completed in Q4, and we think it went smoothly. So we remain on track to get the final LCD likely in the second half of 2020 based on standard times and our experience between draft and final LCDs, which then would be followed by a pricing decision. In the meanwhile, we're also preparing additional submissions for coverage of new indications. Finally, in addition to our direct pharma and clinical businesses, we are also making significant progress on the co-development efforts with Foundation Medicine and BGI.

We have received positive feedback on the partnership with Foundation Medicine as it will enable both physicians and pharmaceutical customers to access personalized monitoring technology for patients whose tissue specimens have already been analyzed by FoundationOne CDx, and the program is on track. Our efforts with BGI are also moving forward with the objective to make Signatera available in China this year. BGI will handle all the sales and marketing effort and pay Natera royalty on sales. And in some cases, we are also collaborating together with them to win global drug trials.

In fact, the first deal of this nature has already been signed. We believe China represents a large market with roughly 4.3 million new cancer cases annually and that BGI is the ideal partner with its significant scale and regulatory experience. Now let me hand the call over to Mike to talk about the guidance for 2020 and the investments we're making to open up these new opportunities. Mike?

Michael Brophy -- Chief Financial Officer

Thanks, Solomon. Just a few housekeeping items on the next slide that summarizes the quarter. Some of you will notice that we've tightened up some of the disclosure this time. So instead of breaking out Horizon and Panorama in the financials, we are giving overall product revenues, licensing and other revenues and then summing that to total revenues.

We talked about making that change on the Q3 call, and we had originally planned to make that change in Q1. However, because we're the only laboratory disclosing such granular performance data, given the competitive environment we're in, we brought that change forward one quarter purely for competitive reasons. I can tell you that the ASP and volume trends Steve outlined at the beginning of the call were consistent across both products and clearly very strong. We booked about $3.8 million in development revenue from our strategic partners in Q4.

Also in Q4, we benefited from about $3.4 million in revenue true-ups from cash collections from prior-period accruals, the majority of which is also stripped out of that ASP slide that Steve presented. And that's because the goal of that ASP slide is to give you a view of ongoing insured reimbursement ASPs for our products. Some of you will recall back in 2018 when we started to book revenues on an accrual basis that we've tried to accrue with some conservatism, and I think the revenue true-ups now and in the last couple of quarters demonstrate that we followed through on that approach. The rest of the P&L you see here, I think, is largely in line with our other disclosures.

The SG&A line did grow meaningfully versus Q4 2018 as we've invested in the initial commercialization steps in our new business, which we talked about on the Q3 call. OK. Now on to the 2020 guide. We are expecting total revenues of $335 million to $350 million, gross margins to be 43% to 49%, SG&A to be $240 million to $260 million, R&D to be $80 million to $90 million and cash burn to be $125 million to $150 million.

Let me give you a couple of assumptions embedded in that guide. First, on the reproductive health business. We are seeing strong volume momentum in Q4 and Q1, as Steve mentioned, and we expect that to continue. You also saw in the slides that we have shown good sequential progress on ASPs, and we have a number of initiatives under way that could drive ASPs higher.

For the guide, however, we are erring on the side of caution in modeling some very modest erosion in 2020. This isn't due to price competition or really any factors we are currently experiencing but rather accounts for the chance that variables like prior auth become more intense during the year, and we need to take a few quarters again to meet new payer requirements as we did in 2019. This approach may prove to be conservative, and we look forward to updating this in future quarters. Finally, we are not modeling any positive impact from increased average-risk NIPT reimbursement or future revenue true-ups, and we'll just leave that as upside.

Because we don't have a history of actuals to use in the forecasts, we are taking a cautious approach to guiding revenue contributions from the new clinical product launches in transplant and colorectal cancer. We've timed these launches to start really at the same time as when we get final pricing and coverage from Noridian. For transplant, we expect that in Q1 or early Q2 of 2020. And for colorectal cancer, we expect that in the second half of the year.

Our past experience generally indicates that it takes a sales rep time in the field to really get productive, so we factored that productivity ramp into our model. This is another variable that could prove conservative, and we look forward to giving updates through the course of the year. Finally, on the partner channels. We booked $16.4 million in licensing and development revenues in 2019.

So we do expect a modest amount of revenue recognition from that effort this year but less than what we saw in 2019, just because a meaningful proportion of the revenue to be recognized in the development phase of these deals was booked upfront as licensing revenue when we signed the deal. OK. Let me go on to the next slide and walk through the planned investments for the year. On the reproductive health side, we've completed a number of projects last year that drove down our cost of goods sold per test from the $270 range down to $224 that we see now in Q4.

And now those resources are rolling over to a new set of initiatives that are designed to drive us to our COGS goal of $200 per test. Because we are using the same core technology across all of our businesses, these advances generally also drive future benefits for oncology and transplant as well. On the sales and marketing side, we are maintaining our level of investment to ensure we continue to expand our market leadership position and grow volume. Steve summarized the path to cash flow breakeven in his section, so I won't reiterate that.

But you can see we made real strides toward that target in 2019, and we remain on track. In oncology and transplant, we are making planned investments for two major product launches. The unit economics in these areas are compelling, and the markets are large. We think the potential for creating shareholder value in these areas is significant, and we raised capital in October specifically to make sure the commercial launches are fully resourced.

The R&D effort in these areas are focused on clinical trial spend, designed to establish these tests as the standard of care and to scale the products effectively. So to summarize, we're pleased to have had a strong Q4, and we feel like we're in a strong position to execute our 2020 goals across the business. Now I'd like to open the line for questions. Operator?

Questions & Answers:

Operator

[Operator instructions] Our first question comes from Max Masucci with Canaccord Genuity. Your line is now open.

Max Masucci -- Canaccord Genuity -- Analyst

Hi, good afternoon. Apologize for any airport noise in the background. So first, on the guide, can you just give us some additional color around your guidance philosophy for 2020 with the sale of Evercord, Signatera and transplant ramping up? And can you comment on the key assumptions and the pacing included in the guide?

Michael Brophy -- Chief Financial Officer

Yes. Thanks, Max. So as we noted on the call, overall, we're taking a cautious approach to revenue contributions in the model from the new products. In terms of the pacing of that revenue, really, you won't see revenue coming into the model until we get final pricing and final coverage decisions from Noridian.

We gave out timing in the prepared remarks. We expect -- for Prospera, we expect that first-half Q1 or early Q2 and second half of the year for Signatera in colorectal cancer. So obviously, that will drive also the pacing of volumes -- the pacing of revenues. So the revenues are -- volumes for Prospera, we're modeling a cautious ramp as we kind of get actuals and we start that process.

Same for Signatera. And then the revenues translate once we have pricing kind of Q2 for Prospera and second half of the year for Signatera.

Max Masucci -- Canaccord Genuity -- Analyst

Great. And then -- so earlier this week, one of your competitors in -- with the biopsy monitoring spoke about their intention to invest heavily in monitoring data, trials, additional capabilities. Can you just speak to how you're balancing the right level of investment in monitoring with reasonable cash management?

Steve Chapman -- Chief Executive Officer

Yes. So this is Steve. Thanks for the question. I mean, if you look at some of the increases in investment we've made going into 2020, a lot of it is in expanding our R&D capabilities, specifically around investments in clinical trials.

Of course, for the new businesses, we have this investment in commercialization as well, but a lot of the other increase we've seen is in the space of clinical trials. So specifically, in colorectal cancer, we've now announced this COLUMBIA 2 trial with AstraZeneca, the CIRCULATE-IDEA trial with Japan and this very large BESPOKE colorectal trial. So we feel like we're putting our focus in the right areas that can deliver significant revenue growth and guideline changes in the future.

Max Masucci -- Canaccord Genuity -- Analyst

Great. And then one more if I can. So gross margins beat us in Q4. 2020 guide is a bit ahead of where we were thinking.

Can you just highlight any specific factors that are helping to drive gross margin expansion and then expectations for the timing and the impact of automation?

Michael Brophy -- Chief Financial Officer

Yes. So I think the No. 1 driver for the gross margin guide is really the trajectory on COGS, and so we've laid that out on the slide. We are pretty pleased to have a very strong cost of goods sold quarter in Q4, and we've got projects launching through the course of 2020 that we think can get us to our target.

Now whether the target actually shows up in a quarter in 2020 is really a function of just the timing of when we can get projects launched. So that's the No. 1 variable. I would just also just keep in mind partner revenue recognition and things like that that did boost margins somewhat ahead of schedule in '19.

Max Masucci -- Canaccord Genuity -- Analyst

Thanks, guys. Congrats on a great 2018.

Operator

Thank you. Our next question comes from Doug Schenkel with Cowen. Your line is now open.

Doug Schenkel -- Cowen and Company -- Analyst

Good afternoon, guys, and thanks for taking the questions. Maybe again, just starting on Signatera, I know you've mentioned this in answering the last question. I just -- hopefully, I got it right. I think you talked about a midyear to early second-half LCD finalization for Signatera.

Given you already have the draft LCD in hand, is the timing of that a little longer than you might have expected originally? And if so, why? And then how long do you expect it to take from finalization to actually getting paid? And then I guess a third part to this one, any thoughts on the need for a registry study there?

Steve Chapman -- Chief Executive Officer

Yes. This is Steve. I'll make a couple of comments. So the time line, that sort of second-half 2020 is absolutely within the expected time frame, and I think that that's what we've indicated before.

There's a window in which Medicare has the opportunity to take the draft to final, and we're still well within that window. So we feel confident about that. With respect to the registry trial, we are doing a registry study. That's the BESPOKE trial.

Paul, maybe you want to make additional comments on BESPOKE?

Paul Billings -- Chief Medical Officer

Yes. Doug, if you're asking about the BESPOKE CRC trial, so we outlined that. And that's going to be -- that's a big investment for us, over 1,000 patients where we're going to be tracking all the clinical data and the outcomes data for patients who are using Signatera under the criteria spelled out by Medicare in Stage 2 and 3 colorectal cancer. So I think that's going to be important for a lot of reasons, and it's going to help us establish this as a key indication for MRD testing going forward.

Doug Schenkel -- Cowen and Company -- Analyst

OK. Super helpful. I guess the one other part of that, which maybe we got it, just in terms of what's implied in guidance. But I guess, Mike, are you expecting shortly after the finalization of the LCD that you're going to get paid right away? Or are you expecting some delay?

Michael Brophy -- Chief Financial Officer

Steve, you want to take that?

Steve Chapman -- Chief Executive Officer

Yes, I'll take that. So once Noridian issues the final LCD, you can effectively start billing patients that are drawn after that date. So there's a 60-day waiting period where there -- it's sort of an administrative process where they're loading the test and the code, but you can backfill for all those patients. So as soon as we get the Noridian LCD, we should be able to monetize the test going forward.

Doug Schenkel -- Cowen and Company -- Analyst

And presumably, you're not assuming any catch-up payments, but it's possible, yes, that you could get those down the line?

Steve Chapman -- Chief Executive Officer

No. There's only catch-up payments back to the date to which Noridian issues the LCD. There's no catch-up payments for periods prior to the issuance of the LCD. And I mean, the real commercialization efforts start after we get that final LCD.

Doug Schenkel -- Cowen and Company -- Analyst

OK. On BGI, a modeling question. Given some of the associated revenue is tied to work that's being done over at BGI and milestones and working with them, given what's going on in China with COVID-19, does it make sense to assume that anything that's coming in from BGI this year, at least for now, is going to be a little bit more back-end loaded?

Michael Brophy -- Chief Financial Officer

Well, it's going to be more muted than it was in 2019. It's got nothing to do with coronavirus. It just has everything to do with the fraction of the cash that we booked as revenue by virtue of the signing of the license deal versus the fraction of the cash we'll book as revenue via doing the ongoing work. It's really -- it's not a coronavirus deal.

Doug Schenkel -- Cowen and Company -- Analyst

Well, understood. And I heard what you said in your prepared remarks about it being lower this year than last year because of that, the upfront. But I also thought that some of the additional funding that was going to come in, the revenue was tied to them actually doing work. So that does comment, Mike, mean that you're not assuming any -- that right now, there's no reason to assume there's any disruption related to anything that you're seeing right now?

Michael Brophy -- Chief Financial Officer

We don't expect any disruption, and they're still going to work, and they have been great. So --

Doug Schenkel -- Cowen and Company -- Analyst

OK. And then last one, obviously, Foundation and BGI were nice developments in 2019. Doesn't sound like you're assuming in your guidance that any more types of deals like that come in. But is there bandwidth and potential for more of those types of deals in 2020 that would potentially drive upside to what you're targeting for revenue this year?

Steve Chapman -- Chief Executive Officer

Yes. So over the years, if you look at sort of Natera's history, I mean, we have a very novel technology that is proprietary and can be used in many different ways. And of course, we're always involved in various business development discussions, whether that be with partners or now with pharma, where we've done extremely well in driving our total contracted value. And now we're seeing that accelerate, and some of those are sort of more unique projects.

So there's nothing necessarily that you should bake into the guidance, but this is always an aspect of the business that we're working on and we keep a keen eye on.

Doug Schenkel -- Cowen and Company -- Analyst

OK. Super helpful. Thanks, guys.

Operator

Thank you. Our next question comes from Will Quirk with Piper Sandler. Your line is now open.

Rachel Vatnsdal -- Piper Sandler -- Analyst

Hi. Good afternoon. This is Rachel on for Bill. First question, can you give us an update on the second oncology test in your conversations that you've been having with CMS?

Steve Chapman -- Chief Executive Officer

Yes. So we said previously that we had had a second pre-submission meeting. I mean, if you look at the total available market for Signatera, it's enormous. So colorectal cancer, we project to have a potential of over 1 million tests per year, which would make it one of the largest specialty diagnostic tests ever approved by Medicare on its own.

And that's just colorectal cancer. So when you look at the data that we generated in breast, lung, muscle-invasive bladder and now recent data that was presented at ASCO and ESMO last year on therapy effectiveness monitoring, there's lots of different opportunities for us to expand using the same tool with very limited additional research and development work to open up a lot of new markets. Now with respect to our pre-submission meeting, we had very positive discussions with Medicare. We haven't released specifically what our second indication is going to be, but there will be many indications in Signatera in the future.

Rachel Vatnsdal -- Piper Sandler -- Analyst

Great. And then next question, can you just give us the latest on ACOG and if you've had any conversations with them about endorsing average risk? I know we've been waiting on it a while, but if you have any update, that would be great.

Steve Chapman -- Chief Executive Officer

Yes. So we said previously that we have heard that there's a guideline coming. We haven't heard anything contrary to that, but we really don't control the time line, and we don't have a lot of insight into the time line. When we look at some of the factors that are happening in the background, there's a lot of positive momentum.

So a year ago, there was really no state Medicaid plans that we're covering average-risk NIPT. Today, there's roughly 15 or so that cover a significant portion of the breast in the United States. And we're now starting to see national payers covering average-risk NIPT through their managed Medicaid program. So one of the two national payers who doesn't cover the test commercially has now issued a coverage policy for one particular managed state Medicaid.

So all of these things start to add up over time and are sort of pointing in the right direction. Again, we feel positive about it, but we really just don't control the time line. Now the great news for Natera, because we've done such an awesome job reducing our cost of goods sold and managing some of these prior authorization policies, we do not need average-risk NIPT to come in to get the women's health business profitable. And we have not included it in our guideline -- or excuse me, in our guidance in 2020.

Rachel Vatnsdal -- Piper Sandler -- Analyst

Great. That's it for me. Thank you.

Operator

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

Catherine Schulte -- Baird -- Analyst

Hey, guys. Thanks for the question. I guess, first, you've talked about seeing some of your Signatera pharma discussions accelerating. Do you guys have an updated goal in terms of where total contracted value could be by the end of this year?

Michael Brophy -- Chief Financial Officer

Hey, Catherine. Thanks for the question. Yes. So we're not -- we're going to sunset that goal discussion.

We put that out there last year because the business was really nascent, and we were just responding to investor questions about just trying to frame what the opportunity can be. So we beat that goal, and we're no longer going to focus on that as a metric. You can see from where we landed, though, that the demand is really meaningful and can be a serious contributor to our business. So what we saw over the course of '19 is that that business accelerated through the course of the year, and we're seeing continued momentum here in '20.

Catherine Schulte -- Baird -- Analyst

OK, great. That's helpful. And then I guess also, with some of these new products launching later in the year, and I think you've also historically seen some seasonality impacts in the first quarter, can you just help us frame how to think about first-quarter revenue?

Michael Brophy -- Chief Financial Officer

Yes. So I think there's a couple of puts and takes there. On balance, though, because you've got new products coming in kind of in the second half of the year, I think that is -- as I think about kind of seasonality of the revenues, I think that's going to be something to keep in mind. The other thing to keep in mind as it relates to Q1 is just the puts and takes around revenue true-ups, which we've had a couple of good quarters here where we've gotten some true-ups.

We had some in Q4. I don't think -- that's not included in the guide. I wouldn't necessarily bake that into quarters into '20. And then as I mentioned with Doug, I don't expect the partner revenue recognition to be as substantial in '20.

So I think what that sets up for is a modest back-end weighting to the revenues through the quarters of the year.

Catherine Schulte -- Baird -- Analyst

OK. And then last one for me. On Foundation, any updated thoughts on when we could see the clinical version of that test come to market? And how should we think about the check marks along that path to commercialization and from a reimbursement perspective?

Steve Chapman -- Chief Executive Officer

Yes. Catherine, just one last comment on the previous question as well. I mean, the -- as Mike said in the prepared remarks, the volumes are looking very strong in Q1, as we've seen in historical years. And you can see, just looking at the quarter-over-quarter growth between Q3 and four, that there's an acceleration going into the beginning of the year, like we've seen in previous years.

So Solomon, do you want to just comment on the Foundation partnership, which is going really well?

Solomon Moshkevich -- General Manager, Oncology

Yes, happy to. So as we announced at the time of the deal, the initial focus of the partnership is to enable personalized ctDNA monitoring in biopharmaceutical trials, and we expect that to be enabled this year. We're on track for that. I think that's where the companies are staying focused as a first step.

As we've got new information, we're going to share that.

Catherine Schulte -- Baird -- Analyst

Great. Thank you.

Operator

Thank you. Our next question comes from Alex Nowak with Craig-Hallum. Your line is now open.

Alex Nowak -- Craig-Hallum Capital Group -- Analyst

Great. Good afternoon, everyone. Steve or Mike, your competitor here had a bit of a blowup due to prior authorizations. But can you just confirm you're not seeing any sort of change in this payer environment so far into February? You're just being prudent here, putting some sort of conservatism into the 2020 assumption?

Steve Chapman -- Chief Executive Officer

Yes. So I'll comment just briefly on sort of some of the billing operation stuff, and then Mike can talk about what's in the assumptions. And if you go back and look at our ASPs sort of as we turned the corner into 2019, you saw a pretty significant drop-off, both some reductions in Q4 2018 and then a pretty significant reduction in Q1 of 2019. And so we dealt with a lot of these prior authorization and coding change issues at that point, and we worked super hard over the course of the year with daily standup meetings and a lot of initiatives to try to put ourselves in a better position.

And we're pleased to see the fruits of that effort now, as we showed on the slide. Mike, do you want to talk about the conservativeness in the guidance?

Michael Brophy -- Chief Financial Officer

Yes. Just -- Alex, you did hear that correctly. That's not a reflection of anything we're seeing currently. It's been a pretty stable environment over the last few quarters.

And it's just that we're just erring on the side of caution as it relates to forecasting for the full year.

Alex Nowak -- Craig-Hallum Capital Group -- Analyst

OK. Got it. And then I get Noridian hasn't issued the final decision here for Prospera. But shouldn't there be a price out by Palmetto given the LCD is effective February 3? Again, I understand that Noridian needs to have their policy out there and final for you to get paid, but I've got to imagine Palmetto must have mentioned something around pricing here.

Steve Chapman -- Chief Executive Officer

Yes. The discussions are sort of in the later stages. I mean, they're very positive. We'll be announcing something in the near future.

We're feeling good.

Alex Nowak -- Craig-Hallum Capital Group -- Analyst

OK. Understood. And then, Mike, can you just say what the mix of the incremental $120 million of opex spend is for 2020? What is the mix for prenatal, transplant and cancer roughly?

Michael Brophy -- Chief Financial Officer

So overall, so the contribution of opex in women's health business is remarkably stable, and that's consistent with what we said previously. We feel like we can continue to deliver volume growth for a relatively stable level of investment, and then the incremental total opex spend is really dedicated to both oncology and transplant.

Alex Nowak -- Craig-Hallum Capital Group -- Analyst

OK, understood. Well, congrats on a great end of the year.

Michael Brophy -- Chief Financial Officer

Thanks, Alex.

Operator

[Operator signoff]

Duration: 45 minutes

Call participants:

Michael Brophy -- Chief Financial Officer

Steve Chapman -- Chief Executive Officer

Solomon Moshkevich -- General Manager, Oncology

Max Masucci -- Canaccord Genuity -- Analyst

Doug Schenkel -- Cowen and Company -- Analyst

Paul Billings -- Chief Medical Officer

Rachel Vatnsdal -- Piper Sandler -- Analyst

Catherine Schulte -- Baird -- Analyst

Alex Nowak -- Craig-Hallum Capital Group -- Analyst

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