UBS Global Healthcare Conference - BILLIONTOONE INC

All right. Good afternoon. I'm Doug Schenkel with UBS, and it's my pleasure to welcome Okazan Ate, co-founder and chief executive officer of Billion to One. Thank you for being here. I appreciate you making the trip. So BilliontoOne brings a compelling scientific foundation to important clinical questions, from prenatal screening with Unity to cancer care with Northstar, lots to talk about, lots of exciting things going on in the company. Today, what we're going to do is we're really going to explore the growth runway, adoption, and really the balance between investment in growth, investment in science, and profitability. In terms of just, you know, essentially the discussion arc for today, I want to spend some time on platform differentiation. I wantto talk a little bit about the quarter. Then we'll go product category by product category. So we'll GoUnity, Northstar, and then we'll wrap up with some financials. So that's the roadmap. app. Just to start off, high level, what unmet need inspired Billion to One? What inspired you to advance the science, advance the technology, and where does the QCT backbone that supports precise quantification create the greatest clinical and economic advantage relative to other solutions that are out there how free DNA is a truly remarkable biomarker it is the microcosm of the entire body but it is also a very rare you know entity biomarkers and what we realized was that you know as a scientist we were seeing how and, you know, maybe for the first time an academic idea can turn into a very impactful clinical outcome very quickly. I was at Stanford and looking at the evolution of cell-free DNA field, you know, seeing firsthand how an academic research can impact millions of lives, change standards of care, we started looking into, you what more cell-free DNA can be used for. We realize that the most common genetic disorders in the world are not, trisomies are not Down syndrome or aneuploidies, they are these single gene conditions and in particular sickle cell disease and beta thalassemia. We realized that to be able to detect sickle cell disease and beta-thalassemias and other single gene condition directly from a maternal blood sample, you have to get down to single molecule level sensor and you need to remove all sorts of other noise. So you know that is what QCT technology allows us to do but of course as soon as we built the technology we knew how it would be transformative not just for prenatal testing but across the board for cell-free DNA testing. You know it can unlock a tremendous clinical value especially as the problems become more difficult as we go from large chromosomal abnormalities to single gene conditions and from late stage cancers to early stage cancers and even early detection, the problem is no longer the signal. The problem is the noise. And we see this from actually the different approaches that different companies take to these more difficult technical problems. So if you are looking at something that is 0.01% of the total DNA or lower. It is no longer about trying to sequence more. It's no longer about trying to look at more and more locations because you are not limited by the signal. You are limited by the noise that that process brings in. And that is why, regardless of what approaches that the others are taking, if you look at the clinical results for tissue-free MRD or early detection, performances are very similar, and they are not enough. They are not at the levels that we want them to be for them to truly be standard of care. And this is where I think QCTs, by being able to reduce the noise, allows us to tackle those clinical problems that no brute force, kind of let sequence as much as possible approach can solve. In simpler problems, it allows us to have, you know, industry-leading, you know, low level of COGS. So the advantage of QCT technology, when we are solving a problem that another methodology can solve, for instance, either directly or indirectly, the COGS of solving it in other ways is going to be substantially higher than what we can do it for. But as we go into more and more difficult problems, especially in cancer, it's not even just a COGS question. It becomes much more of a capability question. Right. Differences in limit of detection, the resolution that you can look at things with. You know, it is interesting. And a different discussion earlier today, you know, and again, I am not a scientist, but I have looked at a lot of papers. I play one on TV No, but when you look at a lot of the cell-free DNA approaches, you do start to see certain areas where some of the technologies that have been advanced, some of them are traditional approaches, if you can talk about it that way, given we're still at a pretty early stage in the industry. but the biology does seem to lead you to sort of the same conclusions in terms of what the limit of what you can do is toggling between sensitivity and specificity. What you're describing is an approach that obviously, because of how it treats noise, can basically do better than those approaches. But it does seem like some of those approaches are hitting their ceiling. It doesn't sound like you feel like you're at a point where you're hitting the limit of what you can do with your approach factoring in the biology. Is that fair? That's fair. I mean, if you think about, you know, tumor-informed MRD as a category, you know why does anyone do tumor- informed MRD? Right, the concept of tumor-inform MRD is that when you sequence the, you now, cell-free DNA, You see real mutations, but you see all sorts of PCR errors, amplification errors, sequencing errors. It becomes very difficult to differentiate what is real or what is not. That is the sensitivity specificity trade-off in tissue-free MRD and early detection. If you call them, your sensitivity increases, but your specificity decreases. And that is why there are so many more tumor-informed approaches, because it solves the noise problem. If you sequence the tissue to begin with, now you know which mutations are real, so you can just look at those mutations in cell-free DNA. But of course, you know, tumor-informed MRD has logistical challenges, you know, other problems. Of course, we can't do tumor- informed, you know, early detection. Right. You know, you need to do it in a tissue-free manner, and this is where, you know, our technology, I think, is going to shine the most, because we don't even have to compete with the tumor-informed approaches. One more high-level question, and this is really interesting. So we've talked about, and we're going to go into more detail about your journey in reproductive health, your advancements in cancer. With this approach, logically, there's other areas you could participate in the long-term again, you got a lot to work with what you have now, but the QCT, the approach lends itself well to other areas, presumably including screening. Is that something on your long-term roadmap? Absolutely. I mean, if you think about tissue-free MRD and early detection, they are essentially equivalent problems. In fact, there are others where in backbone, the same assay is being used for tissue- free MRD in early detection. Because the problem is the same. You don't know what the tumor is and what you are trying to do, you are trying to detect infinitesimal level of tumor in blood and differentiate someone who has cancer from someone who doesn't have cancer. So the problem statement, technical problem statement is exactly the same for tissue-free MRD and early detection. So from that perspective, once you solve one of them, actually you have solved the other problem as well. And that That is why we are so excited about our nuclear launch, because it de-risks that potential for screening. Okay, that's great. All right, so we're going to come back to cancer in a few. I want to start on Unity as we talk about the different businesses. So this is, for those who don't know, your blood-based prenatal screening portfolio. It includes single-gene fetal risk screening, and it anchors really the core, the major generator of revenue today. You grew, I think it was over 40% in the third quarter. So momentum continues to be strong. Building off of what we've already talked about, beyond panel breadth, what differentiates unity confirm and fetal risk screen, you know, in terms of clinical evidence, reportable results, workflow, economics? How do you think about the differentiation and what matters most to clinicians? You know, the, in term of differentiation, it is all of them, right? In terms of the gross margin and the profitability of our prenatal business, it's completely unmatched, not just compared to other prenatal businesses, but in molecular diagnostics in general. It is the engine that allows us to invest, you know, so heavily into our growth, into our clinical studies, into our oncology, while staying profitable. But of course, from a clinician perspective, that is not, you know what drives the value for them. And there, I think workflow has been a really critical differentiation for us. Because our single gene NIPT is really the only single gene in NIPP that is designed for general population use, that intended use where partner testing does not have to be done, that it makes that workflow so much easier for, you know, all these physicians. But also, there are unique components of this that serves different parts of the, you know, different stakeholders in the clinician, you know, journey. If you think about, you are fetal antigen and IPT, which is only about 0.5% of patients, but those are the highest risk patients where it can truly save lives. And if you think about from the perspective of a maternal fetal medicine specialist, they see more alloimmunized patients in that category than the high-risk patients for aneuploidies that they get referred to. So for them, it's a game changer. And for them, it is more important than any Florida testing. So we get these very strong advocates due to different parts of the portfolio workflow that allow us to really bring in these accounts because the maternal fetal medicine specialist who is getting referred patients is advocating for the test. And the OBs love the workflow of being able to have one test that covers not just all of their needs, but the needs after the patient is referred. When you get that advocate on board, they presumably move everything over to you, right? You argue and demonstrate an advantage in a certain area. For the most part, that's going to lead to full capture of share in that account. is that a reasonable way to think about it? It usually is. You know, maternal fetal medicine specialists are so specialized that they might still rely on other tests for certain other indications, but you become the test that they tell their OBGYNs who are referring their high risk patients to them to use as frontline. And that is why I think the expansion of unity fetal risk screen was so important because we had, you know, OBGYNs who absolutely love the portfolio, the products that we offer, right? The workflow, you Know, covering ACOG recommended conditions, the, you know, ease of use, and then the MFMs with the fetal antigen testing, you know, you need to confirm game changing products for them. But what we didn't have something that, you know, completed that portfolio with larger panels, because, you we didn't even have a large carrier screening panel, let alone, you know, fetal risk screening with the cell-free DNA for the baby. We weren't even testing the mother and the father in the traditional sense with large panels. And while that is not something that most OBGYNs, you know, would typically use in their practice, it is something that genetic counselors absolutely need because they take care of the rare conditions. And so when you are going into health system, which is the, you know, a lot of the remaining value, remaining opportunity is in the health systems for us. We had a lot to support from OBGYNs and MFMs, and not always from genetic counselors when we didn't have these larger panels. And I think, you now, having now the full portfolio of products really make a big difference in advancing those. convoy? In terms of competitive response, so Natera has expanded fetal focus. They can bundle offerings. How's Unity positioned as Naterа and other more established providers, you know, essentially respond to what you've brought to market? I think part of this is that, you we have so many other advantages in addition to single gene NIPT that we continue to have a strong product advantage but the other part is that we are the ones with peer-reviewed publications and the last peer- reviewed publication which is a prospective multi-site intended use population study, it was five years in the making and that makes a difference when two products are trying to be positioned in the same way. But the other discussion that we have with providers is about those competitive products and how they are designed. Because they are primarily designed to look at, for instance, linked locations across the genome. They are not directly finding the causal variant. They they are looking at the correlations. And that can actually become a problem if the partner testing is not done. So even the tests that are designed are not actually designed to truly match the use cases that we can offer. From a guideline standpoint, when we think about single gene fetal risk screening, there's still some evidence and access hurdles. How should we think about those? So, in general, you know, the coverage is not really there, but because this is a test that is done after the carrier testing, the fact that the insurance doesn't always cover it actually doesn't limit any of that. You still want to do this test. Yeah, you still want the new test. You know, It doesn't result in, you know, additional patient responsibilities or costs. And that is because we have designed this so that it can be accessible, you know, to every patient, regardless of their insurance, regardless of their socioeconomic status. And that isn't, you know, the beauty and the power of the QCT platform. But we can actually offer this broadly while being, you know, a profitable company. Whereas I think it's very difficult for others to do the same. That said, you know, what we are really excited about, you know, in single gene and IPT is that, you know, if TAMA is in place, right, in January 1, 2027, single gene and IPTE will get more than a hundred percent increase in its clinical lab-free schedule. In the short term, without coverage, that might not mean a a significant ASP lift. But it's there. But it is there. In the long term, if there is coverage, that can result in 20% revenue increase overall for the company that would become 20% profit margins as well. So that's a good lead-in to my last Unity question. So keeping in mind prenatal revenue rose 42% in the quarter. your gross margins are quite robust as you think about some of the things we just talked about is can you preserve the margin profile and can the margin profiling actually get better as mix evolves because there's there's some good guys and bad guys but it does seem like as you describe things and we think about the growth and where it's coming from you might be able to preserve this margin if not expand it yeah i think in prenatal you know, we can not only preserve this margin but expand it, but we also are doing this truly with a long-term perspective. You know, I think there is this potential misunderstanding that every test volume, every test is equal to each other. Right. That is absolutely not the case. And I think, you know,, if you truly take a kind of on the long- term perspective to this, there are going to be even accounts that you walk away from. And we don't see competitors doing that typically. Whereas we take a very long-term view, and when we are making an investment, let's say that we are opening up a low-term service center to be able to access an account, we need to make sure that that has at least an ROI of 5 to 1 or 10 to 1. Whereas others might actually do that at negative margins. So we don't make those decisions, and I think that really allows our prenatal to have both growth, but the profitability, which we then can use for both growing our prenatural business and expanding our product portfolio and other things, but also invest in oncology and oncology's growth. All right, so let's talk about Northstar. So this is your blood-based oncology portfolio. Select is therapy selection, response is treatment monitoring, and clear is your move into MRD. Um, and, um, this has been growing very robustly, uh, across the portfolio, obviously from different starting points. Um, let's, let'S start overall for Northstar. And we've talked about the differentiation of the overall platform, but here you're selecting profile. Well, basically, there's, you're looking at genomic alterations to inform therapy selection with select response, tracks treatment response through serial blood draws. What's different from the incumbents? I mean, some of it is what we talked about in terms of the technology. Are there other attributes we should be contemplating that are helping you win? Of course, I think, you know, from a clinician perspective, technology by itself doesn't matter as much. You know, it is about what that means for the patient and their patient. So with respect to therapy selection, you Know, what we have been able to show with a head-to-head study, you Know, against the incumbents, that we can detect 50% more actionable therapy. This is such a surprising number that sometimes physicians don't even believe us. Like, you know, they have been using these incumbents for years, and how can you come in and detect, you know, so many more actionable therapies? And, you know, are these real therapies? Do the patients respond to them? And what we have been able to do is actually to offer, you know, research pilots in these clinics themselves so that they can see for themselves that we are truly better and that the patients are responding to these things. So that, I think, not only creates a user, that creates an advocate. And you know, our, really our growth in oncology is all about access. Once you have access, and once you can do these, you know pilots, once you can prove that you are so much better, you are going to get physicians to switch them, because every patient who is sitting in front of them, you know, has cancer, they are dying. They need better therapy. This is different from some of the prenatal discussions. In prenatals discussions, even if you have absolutely remarkable tests, and even if everything else is terrible, not that they are terrible, but even if they are, you are maybe helping one out of 100 patients, right, that has that condition. Yeah, every patient who's ordering. Yeah, so it's like in cancer, it's different. Every patient needs a better test. So from that perspective, oncologists are actually a lot more passionate about the tests that they do, especially if you can show that you are differentiated, that you can offer their patients something better. And that is why I think, you know, as we are getting into more and more of these clinics, actually our biggest drivers become referrals from the physicians who experience this. And that opens up even more doors. And that's why we are seeing an acceleration of test volume growth. And that' s true of both select and response. Certainly. I think there are actually a lot of synergies between select and response, right? They kind of see how powerful the response is, how it can detect the patient progressing even before scans. Then they might order another therapy selection test to see what might be driving that increase, change the therapy. So, the combination actually becomes very powerful. Sometimes response becomes a wedge to get into an account, but then, you know, as they see that progression, they use a select test, or it might be the select head that gets you into account, but then response allows you to get repeat testing. Understood. Interesting. All right, let's talk about Clear and your positioning in MRD. So, this is a tissue-free MRD test. It's scheduled to launch in a few weeks, right? December 15th. Yes. How do you think this is differentiated? I think I know what the answer is going to be, but we had an MRD panel yesterday, and one of the panelists, he was an evangelist for MRD. He loved it. He's been using it, and his group is using it in every cancer. They've been an early adopter, but he made the point, listen, tumor-informed is always going to be better. There's logistical challenges, but it's always going to be a better. It sounds like you believe this is positioned to close that gap, so maybe you can walk us through that. Exactly. I think, you know, today, if you speak with oncologists, right, they have to make this trade-off. There is the tumor-inform tests that are believed to be the kind of gold standard, more sensitive tests, But then the logistical challenges, dealing with the tissue, turnaround time, QC fail rates become really a big issue. And they become, you know, bigger and bigger issue as you move away from colorectal cancer. You know, the primary use case of MRD today is in colorector. Right. You know. Three, four, five years from now, other cancer types are probably going to be as big, if not bigger, in utilization. For us. Exactly. And in those other cancer types, it becomes an issue to use tumor-informed tests. If you see fail rates are higher, the turnaround time becomes a problem. And in some community oncology settings, they just logistically cannot deal with the tissue. So what we are finding is that tumor-inform market, I think, is going to get very competitive and in some ways commoditized. But if you can have a tissue-free test where you don't have to sacrifice the sensitive, it becomes a game changer, especially for community oncology settings where ease of use is so important. And that is 80% of where the eventual MRD utilization is going to be. So this is how we are positioning it. It is not about, we are not saying we are the best tissue free test. We are going beyond that. We are saying that you don't have to sacrifice the sensitivity. We have on par or better performance than, you know, some of these tissue-informed tests that you have been relying on, you know, for years now. How do you get people to understand? I think the clinicians are going to understand the concept. How do your builds, how do you more buy-in that you're the solution to this problem? I think head-to-head is critical, right? I think, you know, we can and we will need to generate and we have been, you know, doing studies in the background across, you know, all these different cancer types that, you know when we are saying that the patient is going to you know progress that they are going to progress you know we will need to be able to have, you know, great clinical outcomes and separation between you know patients who are ctDNA positive and ct DNA negative. but that's not going to be enough by itself, right, because that's not, you know, no study is truly head-to-head, right, in, you, know, so even if you have great clinical outcomes, it's not going to convince the community, you know, the oncologist that, you know, this is as good as their tumor-informed test. This is where I think head- to-head comes in. And if you can show in head- to- head studies that this is on par or better than tumor- informed test, I think that becomes especially for not everyone but for majority of the providers, the evidence that you need. And of course, they are not going to trust you on day one. They are going to try you. They are gonna use you along with some tumor informed tests. They are going see it for themselves. And we have already done that on the select side though, right? As we kind of have these publications, show the policy. Okay, you haven't been – you're not afraid of doing the head-to-head? No, we are not afraid to do any head- to-head. All right, so that's the playbook. Playbook. Origin's a tissue of origin prediction add-on to select. How important is that capability? And then going back to the question I asked about screening, I got to imagine there's some connection between this add-on and demonstrating your capabilities in different areas. What we have found, you know, initially, we thought that tissue of origin is not a huge problem. Right. We thought that, you Know, looking at the literature, only 3% of patients should have this issue where they have truly an unknown primary, which is causing the oncologist not know how to treat the patient, and they tend to have much worse outcomes compared to when they know what the tissue of origin is. What we have found, though, is that in community oncology settings, the number is actually higher, because all of the studies are typically coming from more academic oncology, top institutions where they have so much access to additional tests, great pathology workups, where, yes, true tissue of unknown origin is 3%. But if you talk to community oncologists and see uncertain diagnoses, it becomes closer to 10% to 15%. 10 to 15% is large enough that if you ignore that population, it becomes difficult for them to use you as your primary test. So, this is why, you know, we found that tissue of origin is a very important add-on for those patients where this makes a really big difference. And, you Know, we've talked a little, you Now, a lot about community oncology. What I want to clarify here is also, you We actually get a lot of academic oncologists as well as community oncologists that are using our tests, and both of them are very important. But what we find is that when academic oncologists are using us, they are sending us their most difficult cases. Whereas when community oncologists start using us if they believe that they are going to be helpful to their most typical cases, they will use you for the vast majority of their patients. Yeah, they're not there. If anything, they want to do manual consolidation, right? A Q3 question. And oncology clinical testing revenue rose 96% to $17.1 million in the quarter. Have you disaggregated, you know, how much of that was select versus response? How much of it was new physician ads versus repeat testing? It's early, but have you spoken to any of those metrics? So I'm just going to do a quick math. we get about two response tests to one select test okay but in terms of the revenue contribution select ASP is close to five times of the response ASP okay so from that perspective I would say that you know probably you know you do the math like five to two ratio in terms in terms of like where the revenue is, but that also shows the great opportunity with response. Okay. 2027, I'm not gonna, I mean, I'd love a feed guide, but that's not what I'm gonna ask. But how should, is there a framework we should think about in terms how much growth we can get from prenatal versus oncology? So I think, you know, in prenatals, If we ignore any kind of big events like guideline changes or other things that can be full astronomical in terms of how much it would add, if we kind of ignore those things, if we ignore health systems, which is actually a bigger opportunity for us as we look at potentially next year, but in the long term, even if we just look at the single specialty clinics and how much we can grow and how many we have been growing, I think prenatal, with some of the ASP improvements that we have seen as well, the contribution can get to still about 20% growth on that business without any of those potential additions that would come. Then oncology, I think, you know, test volumes are growing faster than 100% year over year, and we are seeing acceleration. So, you Know, I Think We Will See Similar Growth In Oncology, And That Is Not Even Taking Into Account, You Know, Clear, As Well As Some Of The ASP Lifts That We Might Have For Response. So I think as we get closer to the second half and, you know, end of 2027, actually more and more of the stories about oncology, because the revenue contribution as well as the sequential growth will be very significantly oncology-oriented. OpEx rose 56% in the third quarter we should be thinking you're still very much in an operational investment phase well into next year I think it is fair I think one of the important notes about that growth is also we have become public about a year ago So there are certainly some investments that we have to make for public company operations, accounting, finance, audits. All of those have to be significantly uplifted as part of the IPO. And we are continuing to invest in a lot of product launches, both across prenatal oncology as well as a lot on oncology clinical studies. So I think we'll continue to invest, but we want to invest in a way that creates significant long-term value. Every investment that we make is not just ROI positive, but 5 to 1, 10 to 1 ROI positive. So that long-terms, we are not just optimizing for growth, but мы оптимизируем для комбинации быстрого роста и выносливости. and you can hold on to the gross margin, which on the reproductive side was north of 70. I think it was 71% in the quarter. Oncology is still 45%, but with more reimbursement, that gets better. So with volume, with gross margin improvement, and seeing some return on the growth investments you're making at the OpEx line, you can see over time how this gets better? I think prenatal is 75, oncology is 45, blended was 71. I don't know whether we are always going to be at 71 because oncology is growing faster. It is going to depend on prenatals' continued growth as well as the coverage decisions around response and how fast MRD scales. But the good thing about all of this is that we realize that even if the gross margin in the short term has one or two percentage point decreases, that is going to be really good news because that means that oncology is growing even faster than projected. And it's not going to impact the bottom line profitability because of the COG structure of our product. So as opposed to many other MRD products here, MRD even by the end of first year should have around, you know, close to gross margin breakeven. So that is not going to result in, you know, negative profitability. That's a burn, right? That's not happening. I know we're out of time. That being said, if we're sitting here a year from now, what do you think we're going to point to that was the biggest thing the investment community is missing on billion to one? Could be one year, could be three years. I think in the long term, what is really, I don't know whether this is missing, but these are markets both in the tissue-free MRD response monitoring and early detection, where having the combination of a tissue- free approach and the sensitivity is critical. These are markets where it is going to take time. It's not going to be turning overnight. But over long term, I think the winners are going to be the companies that can grow rapidly, combine it with profitability, whether any of the volatility in the markets so that they can continue to invest and have the best products, not necessarily the ones that are first to market. All right. Let's leave it there. That's great. We really appreciate the time. Thank you. Thank you,