Q4 2019 Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to many meetings fourth quarter and year end 2019 financial results Conference call.
At this time, all participants are in listen only mode.
After the speaker presentation, there will be a question and answer session.
You ask your question during the session you will need to press star one on your telephone.
If you're part of any further assistance please press star Zero I.
I would now like to hand, the conference over to lower the Angelo head of Investor Relations. Thank you. Please go ahead.
Thank you operator, and good afternoon, everyone. Thank you for joining us for fourth quarter and year end 2018 earnings call joining us today, our Sean George our CEO Shelly Guyer, our CFO leave index. He our CEO, Bob that's on our Chief Medical Officer, and Katherine Stueland, our Chief commercial officer.
As you listen to today's conference call. We encourage you to have our press release available which include our financial results as well as metrics and commentary on the border before we begin I'd like to remind you that various remarks that we make on this call that are not historical including those about our future financial and operating results our plans and prospects.
The focus of our business strategy I plan to integrate and manage businesses, we acquired market opportunities future products services or product pipeline and the timing there as demand for it and reimbursement of our services and our investment in our infrastructure in operation constitute forward looking statement.
Within the meaning of the Safe Harbor provisions of the private Securities Litigation Reform Act.
It is difficult to accurately predict demand for services and therefore actual results could differ materially from our guidance.
Guidance on teacher company performance assumes among other things that we don't conclude any additional business acquisition investment restructurings or legal settlements.
We refer you to our 10-Q for the quarter ended September Thirtyth 2018 in particular to the section titled risk factors for additional information on factors that could cause actual results to differ materially from our current expectations. These forward looking statements speak only as a dangerous.
To supplement our consolidated financial statements prepared in accordance with the generally accepted accounting principles and the United States or gap, we monitor and consider several non-GAAP measures. In this period. These non-GAAP measures include cost of revenue operating expense, including research and development selling in May.
Marketing in general and administrative as well as Netlist and net loss per share and cash right. We encourage you to review our GAAP to non-GAAP reconciliation, which are available in the press release and in slide 15 through 17 of the earnings deck.
With that I will turn the call over to shine.
10 years in our mission to bring genetics and the mainstream medical care, our confidence continues to grow that the way to maximize the utility the genome it to transform the genetic testing industry from one where genetic information is used sparingly.
On a test by test indication by indication basis served by high margin niche market business models.
So one where genetic information is used broadly as a medical utility to improve outcomes and lower the health care costs for billions of individuals around the globe.
We posted another year of explosive growth and with the momentum were seeing in the business as well as its hillary landscape changes driven by our model.
We believe 2020 will be a break out here as we continue to increase the number of individuals who will be able to access to genetic information as it routine course of medical care.
We continue to grow our diagnostic testing and screening franchises across all disease areas and with more and more genetic information seemingly every week being ascribed to the diseases that affords us and I loved ones. We see continued growth of the demand for our services into the foreseeable future.
Our network business focused on Biopharma partnerships for now continues to accelerate together with our partners. We can remove barriers to diagnose more patients faster than ever and provide information to review to researchers and drug developers to bring therapies to market sooner and a role trials faster.
Since the beginning of Q4, we added 20, biopharma contracts as well as health systems National physician networks and hospital partnerships, we will continue to invest and broadening this network and deepening the capabilities of our platform with it.
To date around 10% of an VTS volume has come from outside the United States. This with modest commercial effort.
Now a few months into our increase international investment, we are more convinced than ever that with our cost leadership hundreds of millions of individuals and modern economies around the globe can also benefit from their genetic information being put to use for their everyday health.
In addition, the continued investment in our direct channel will allow us to meet the need of specialists. The perhaps have not been able to benefit from the daily use of genetic information and the path.
So to answer questions for many individuals today looking for this information whether to understand the disease affecting their family wanting to understand whats at risk when thinking about starting one or simply interested in general health <unk> wellness for longevity.
I'll now turn the call overshot lead to review the annual and quarterly financial results.
Thank you, Sean I'm going to present, the numbers a little differently this quarter, which I think will enhance investors' understanding of our financials because most line items on the piano are affected by acquisition related charges from anniversary nation of acquired intangible assets acquisition related stock based comp post combination expense and income tax benefit.
We have provided a much more detailed reconciliation to non-GAAP and tables included both at the end of today's press release, and our earnings slide deck on pages 15 through 17.
We'll refer throughout my discussion of the annual and quarterly results to both the gap and the non-GAAP numbers. We also provide cash burn which is a non-GAAP measure investors are encouraged to review the non-GAAP reconciliations provided in the press release and in the slide deck.
Volume or lets means the metric, which best reflects the health of our business. We're pleased to report nearly 60% growth in volume from the previous year access running more than 482000 samples in 2019, including approximately 148000 samples in the fourth quarter billable tests are import.
Given that we accrue our revenue based on the number of billable reports in a period. During 2019, we reported billable volume of approximately 469000.
With approximately 147000 in the fourth quarter volume growth was strong across all segments.
The continued increase in our bio pharma programs and partners, including detect spark and the behind the Fisher program. We're also significant contributors in the year over year volume growth, we expect our afirma programs to continue to play a key role and achieving our twentytwenty targets.
Recall that we experience seasonality in our volume the fourth quarter has traditionally been our strongest quarter and the first quarter traditionally has been our lowest well our new customer mix may affect the magnitude of seasonality, we still expect that the first quarter will be our slowest quarter in terms of volume growth.
Seasonality also affects the relationship between arc session and billable volumes the difference between accession Unbillable volume in 2019 was 3%, which is consistent with our historical annual range of 3% to 4% on a quarterly basis, we anticipate a larger gap between this session unbillable volumes in the first quarter.
Historically around 10%.
While the leading indicator of our successes volume. The next key indicators revenue, we generated revenue of 216.8 million in 2019, including 66.3 million in the fourth quarter slightly exceeding the revenue we pre announced in early January we notch this strong 47% year over year end.
Chris despite having a difficult compared or recall that in 2018, we recognized $4.3 million of revenue related to additional Medicare payments for certain tough excluding this amount our revenue increased by 51% year over year [laughter] in 2019 over 70% over revenue came from.
Third party payers and just under 30% from institutions pharma partners and patients.
Third party payer revenue increased by approximately 5% year over year, primarily due to an increase in test menu under contract and our steady improvement in our billing and collections practices.
Consistent with our previous discussion of ASP trends expected in 2019, we realized an S.P. a $453 in 2019 down from $495 in 2018 or $480 in 2018, when excluding the Dell do Medicare payment.
Yes, Peter now, primarily driven by payer and product mix changes as well as revenue pick up due to better than expected cash collection, which under revenue recognition guideline fields greater revenues in Twentytwenty, we will see the S.P. trend lower early in the year and subsequently made them around a bit.
Remember that seasonality effects or revenue to the gap of exception to build both volume and seasonally lower volume growth in the first quarter, along with resetting of Pam arrays impact first quarter revenue keep in mind that this will also impact or gross margin as exceptions are tied to Cogs.
In 2019, we decreased Cogs to an average cost per sample of $245, representing a 7% decrease year over year and 248 hours in the fourth quarter a portion of our costs in 2019 relate to amortization of intangibles from acquisition activities.
When we exclude these costs on a non-GAAP basis, which is more comparable with Cogs in 2018, our average cost per sample is $236 for the year, representing an 11% decrease year over year.
In general we intend to invest in further automation and additional medical interpretation improvements to reduce Cogs and we believe that we will again benefit from volume related cost reductions, we do expect to Cogs will continue to fluctuate at or around the 50% gross margin Mark as we balance the introduction of new content and features.
With driving down costs per sample.
The key measure over long term financial success is the ability to generate sustained positive operating cash flows.
In the near term gross profit growth is a key indicator that our business model is working we saw a significant increase with a gross profit of nearly $800 million in 2019, representing a 46% increase from the previous here in the fourth quarter, we reported 29.6 million in.
Gross profit.
We neared our stated long term target of 20% gross margin for the year.
In 2019, our gross margin was 46% and for the fourth quarter, 45% on a non-GAAP basis. The gross margin was 48% for the year and for the fourth quarter.
Moving to operating expense, we continue to invest in her business, enabling us to ramp our volume expand the market address new market opportunities and continue to scale internally to take advantage of the opportunity before us.
Total operating expense, which excludes cost of revenue for the full year 2019 was $342.8 million compared to 190.2 million in 2018 operating expense for the fourth quarter was $108.6 million.
Early in the year, we discussed our intention to make significant investments during 2019, which we did with our spend falling into several areas first sales to increase our head count to facilitate product launches and volume expansion and marketing to begin branding and advertising to support our direct channel, which we launched.
In June.
Research and development focused on scaling our business content expansion, improving customer experience and reducing Cogs and third general and administrative to support the growth of the business.
Let's move to the non GAPP version of operating expense, which eliminates the acquisition related amortization of intangible assets acquisition related stock based comp and post combination expense.
Non-GAAP view is more indicative of the spend for based business and also makes a comparison with 2018 easier. The non-GAAP operating expense was 293.6 million in 2019 of which 89.2 million was incurred in the fourth quarter.
This non-GAAP measure eliminate $39.1 million and stock based compensation related to the acquisition of singular bio in 2019 of which was 17.9 million was in the fourth quarter. We also had 10.1 million in acquisition related amortization of intangible assets and post combination expense.
Recorded an operating expense in 2019 of which 1.5 million was in the fourth quarter.
Our net loss for the full year, 2019 was $242 million or $2.66 net loss per share and for the fourth quarter of 2019 76.9 million or 79 cents net loss per share non-GAAP excludes an 18.5 million dollar.
Income tax benefit associated with our acquisitions.
Please refer to the reconciliations provided.
What is most important is what each of these acquisitions did in terms of advancing our mission and business model as seen on our flywheel for growth.
Singular bio will dramatically reduce cost over and I P. S testing.
John glass expands our content and improved customer experience.
Include genetics improved customer experience and drive traffic.
Moving to our cash position at December 31st 2019, cash cash equivalents restricted cash and marketable securities totaled $398 million.
Net increase in cash cash equivalents in restricted cash was 39.4 million in 2019, and 315.6 million for the fourth quarter cash burn, including various financing and acquisition related expenses was 278.3 million in 2019, including $75.5 million.
Fourth quarter.
When various financing and acquisition related expenses are excluded annual cash burn would've been approximately $153 million inline with what we indicated a year ago looking forward to another year of investment we would anticipate Twentytwenty is cash burn will increase from last year's 153 million we anticipate.
That's a cadence and 2020 will follow 2019 higher burn in the first two quarters, reflecting a deliberate investment in selling and marketing and R&D and then a control decrease in the back half as we reap the benefits of these investments.
Collections early in here will be lower as our Medicare rates have reset down 10%.
We also anticipate continued rationalization of our industry and we will continue to assess acquisitions throughout 2020.
I will now turn the call back over to Sean.
Thank you Shirley as we continue to lower our cost basis expand our menu genetic content and improve our customers experience. We believe we will continue to take market share from incumbents, but more importantly, expand the global market for genetic information dramatically. Indeed, our view is that this is just the beginning.
Whether it's for the more than 30 million women every year that are still being told that a carrier screen as a test done during the first trimester if they're offered one at all or the 95% of women with high risk variance for hereditary breast and ovarian cancer testing, who don't know that they have them.
60% of men with prostate cancer, who could benefit from genetic information, but aren't currently getting it or the untold millions with serious inherited cardiovascular disease, threatening their health and health of their families.
We grow more confident than ever that our model is working.
We will continue to lead the transformation of the genetics industries and that we are uniquely poised as a runaway winner in one of the most exciting a dynamic sectors of health care today.
With that I'll now turn the call over to the operator for today.
Again, ladies and gentlemen in order to ask a question you do you need to press star one on your telephone please standby will be compiled accumulate roster.
Our first question is from the Doug Schenkel with Cowen Your line is open.
Hi, This is the ball on production goal thank for taking my questions.
If you want to tell us your Twentytwenty guidance philosophy will put the three key metrics me. For example, do you expect sales force productivity to increase by experts and are you baking in any cross selling the what are your reorder the phone and so forth and I have a formula.
Sure.
I think thanks for the question I think the way to characterize our 2020 guidance, which of course is kind of evolved over time is to simply take the dynamics of the industry that exist today, our visibility into our current customer base.
The addition of sales reps to up to and basically the numbers around 320.
We're assuming some modest drop off until its reflectivity kind of that that happens year over year as the sales team gets bigger and moving to more accounts.
Well, we're really not Ics, we're really not baking much more into our guidance, but that we do see growth coming across all of our disease areas for both diagnostic testing and screening.
We see we do see a year, where we in that screening category specifically in reproductive health, we expect we.
We expect growth from there.
We don't in our guidance anticipate a whole lot from our direct channel. It. There's some that we do anticipate but not a on a large impact baked into our guidance.
And we certainly.
While.
New customer segments.
Specialists that historically have in order to lunch and testing of which there are many of.
Any number of those could turn on our we are sure will in the next one two or three years start ordering genetic testing.
We aren't assuming a lot of action from from those conditions this year either.
So I think it's kind of that the current market that we see the accounts that we.
No and are engaged with.
At a new commercial additional commercial assets on top of that and that's that's what work that's what we're calling for the year.
Oh Im sorry on the revenue side, we do we do have a we do have an assumed just as we have been every quarter, a slow and steady improvement in third party reimbursement.
Got it that's that's super helpful.
That's a media genetics called out accrual headwinds as a key reason for the lowered revenue guidance have you seen these headwinds multi delays in you on reproductive health business as well and we literally can you provide any color on the progress that has made so far and moving and IBT in house.
Sure. So let's start of the latter we're still on track to get the.
This offering in house, which for those who are following closely means that will get both better reimbursement in a lower cost structure. So we're excited to be calling that in.
Post haste.
Well just call it will still call it early in the here.
So we're making make progress there on track for that.
As for the other question I think it's probably worth taking a step back right. This is this is where the difference in business models really starts to.
Be a very important.
Center Center of the conversation.
We've been leading price for five years, a commercial activity now.
We actually don't have accrual headwinds we are the price leaders.
Headwinds are coming as payers are I would offer finally after many after four years of negotiating to getting network and talk about pricing with them payers are indeed, starting to move to value and.
So so.
No we don't see that in fact again our revenue our revenue recognition is going the other way.
As our reimbursed.
I mentioned quarterly stable and steady improvement in our billing and collections machinery.
Again across our we have more now more than 300 million lives in network.
That's that's a lot of heres across each of the largest menu in the space.
And that's why we just continue to see that slightly improving every quarter as far as we can see for now but.
But know that dynamic is not at play with us and primarily because we have been price leading for going on almost five years now.
The only other thing that I would add is under a revenue recognition, we do breakout within our 10-K, which will be filed by the time it needs to be filed in early March but what we always do is break out what the additional added around is that we are accruing for from additional collections and so we've been can.
Serve it is and what we've been able to accrue for and this year. It's on the order of about $4 million, which is the added amount that we have collected over what we had accrued in anticipated. So we're still on the positive from that perspective in 2019, that's about 2% of our business.
And we think over time that that number will decrease as a percentage of our total revenue and we're getting better and better estimating those collection rates.
Got it Okay, and then maybe maybe just an addendum just for again.
In case it doesn't come up reminder, to everybody that Q1 has the 10% hammer reduction so for the Medicare Medicare portion that the Q1 hit is just like last year.
Your next question comes from Tyco Peterson with JP Morgan Your line is open.
Hi, Thanks, I'll start a couple of the payer front you mentioned the CMS NCD in the press release on expanding Germline testing early stage breast and ovarian can you just talk about that could mean in terms of incremental volume benefits for for you guys.
Sure.
Well, we comment on any potential changes in the size of the market I think in short.
We kind of view it as everything about the same but I think I'll, let me comment on.
The.
What changes we see in the wording and what that could potentially mean with I think the caveat that.
That may [laughter], we're not we're not it's not only certain would that actually means and in action.
Oh, Hi, Tyco, so if we go back I think.
To the last really couple of years as this and CV saga has evolved.
There were three main.
Concerns that we have focused on as as the and see these language and the interpretation.
By the folks that CMS have evolved the first one was a concern that coverage was being pulled back.
And was going to be limited only to late stage cancer patients.
The second one was that the and see the.
I would eliminate discretion of the local Medicare contractors to provide coverage under local coverage decisions, which would have imply a requirement that.
That the parallel review process of including the FDA BA condition to Medicare reimbursement.
The third was some language that made its way into the and see the.
Which.
Would have in the interest of preventing duplicative an unnecessary testing.
Precluded patients from getting more comprehensive or higher quality testing as that becomes available all three of those.
Have been addressed to our complete satisfaction.
And the and CD, they don't perhaps with the exception.
Repeat testing provision they don't really represent an expansion from where we thought we were when we started all of this two years ago. They they in fact really just prevent.
Degradation or erosion of coverage so.
Luckily none of the things that we're worried about average took effect. They were just proposed and then.
In response to feedback from the community the the folks CMS to their credit listened carefully and thoughtfully.
And did the right thing.
Great and then just sticking with pair theme with United preferred provider and Cigna and network can you just remind us what are your payment coverage rate is now and then are there additional payers you know you're talking to around preferred status.
So there are there they're definitely more pairs that we're talking too about the preferred status idea.
Amongst others I mean again this is I think I don't want to say now is the time, because everything and third party reimbursement land pigs takes awhile.
But not enough I think there are multiple parties now interested in what that could mean by way of real savings on on a line item that is growing really very rapidly.
I think even more interestingly, our now the conversations that lead to broader.
Broader coverage for for a whole groups.
Populations.
Patients with high risk of cancer from start to finish.
Women of reproductive age from preconception, all the way through the pediatric checking those those kind of conversation so yes.
Preferred network conversations have happening and even more even more exciting the beginning of where we where we thought this would go.
In the long run.
Yes, actually put having pairs put in play genetic information to improve outcomes lower cost for whole populations.
It will like I said that that I'm, assuming will take awhile, but certainly prefer Latin networks, we would assume it will be a feature of the next next couple of years.
And then jump start just give us Oh God.
Sorry, there was the second question, which I forgot the older pricing right you estimate the pricing.
You know.
Again, our price.
The last.
Two of 300 million lives a contract pricing has been pretty stable just depending on the size of the pair.
A rally around $1000 or slightly under for the largest to payers and that's about where these third party discussions.
We're where we enter them.
And then can you just give us an update on your patient initiated testing traction since launch how much volume has a generated what percentage of DTC volume is on a subscription pricing model and then separately just any update on somatic launch timelines.
Yes, so I, just really quickly the DTC traction not not basically as expected which is not.
A large or material amount.
The good news is we know there are a lot of people looking for this information there are a lot of people I mean, we know there are lot of people.
That could use it.
We are able to generate a fair amount of interest and traffic conversion is what we're working on now and we expect at sometime in the next couple of years, we are going to be able to dial that in.
With from expectation that three to five years out that direct marketing channel.
Both to patients and the clinicians who take care of them, we'll be driving the majority of our volume.
But but today.
No not really significant amount and as I mentioned.
In the guide this year, we have we have some expectations, but they're not they're not very large at all.
It is however, the kind of thing.
Were you know if that were to hit earlier.
We think it has the potential to drive a fair fair fairly large volume so we will.
Well keep working on it and we'll keep you posted.
For some addict, we're still on track for this year and again in this year.
Nothing is assumed by way of somatic pickup on the on the Accessioned or the revenue line.
The early we get it out it might contribute some particularly if we can get some larger partnerships earlier.
But right now we're just assuming we're still trying to get it out this year I would say is going to be a back half half too.
Not not half one.
And the contribution this year will be will be minimal.
Depending on the exact timing.
Okay. Thank you.
Thanks.
Your next question comes from underneath soda with SPP Leerink. Your line is open.
Yeah, Shaun surely thanks.
First question on and I P S.
I wanted to get a view in terms of.
Fraction volume growth and more importantly, how is the pricing the $99 pricing resonating in the market and how much of the business is sort of coming from Dod versus currently getting reimbursed from payers.
Yes, so I'd say in general the reproductive business continues to grow slightly ahead of the rest of everything we do expect reproductive growth to pick up here in the next year in the years to come just given the sheer size opportunity again 30 million pregnancies around the globe and the economies were serving right.
Now.
So we have we have great expectations for it.
Last year, I think as we kind of ran through the year, our NPS and carrier screening and associated testing you did almost as well as we as we had hoped.
Obviously, we wanted we wanted to do more.
But we were pleased with it and again, we're we're sitting at a good place right now for the exact Brett we don't break out exactly what what is in that he has only what his carrier only what is an IPO plus carrier, but but we would reiterate that we do indeed see that the having the NPS offering.
As a really important piece of the whole reproductive picture and so we're happy we're happy that we invested in launching it in a really.
As we mentioned kind of.
Investing further in bringing in house and ultimately by waiver single bio acquisition dramatically lowering the cost basis for it so.
So I think that the that's the reproductive health and I PS picture at this point and again we've that.
There's 30 million pregnancies a year, we think we think could really theres the significant chunk of them in the next few years that we can serve much better than they currently are.
On the on the question of the the patient pay versus insurance Bill again, we don't break that out exactly what I would say as it is kind of a pretty typical mix I don't think there's a really of their there except that.
Obviously abuse do not have a lot of time to be able to be dealing with a lot of billing surprises that tend to come a lot of players in the space Bill pretty extraordinarily high.
Bills, we've seen he'll be using the multiple thousands of dollars even recently for an IPO us.
You know by by virtue of our $9 patient pay price, we have the ability to have a very clear straightforward building policy for both high risk in average as women on NPS and carrier screening.
We can put in writing what the prices and we can put in writing what the expected patient out of pocket will be and we think that thats been that has been and probably in the coming years will be even more important.
As this market develops or where we think that the.
But we've got the pricing right.
The ECOG guidance seems to kind of just keep moving off into the future and we're told in fact.
Mike I take even longer and it which is again why we just have taking that approach we've taken in and we're we believe we're on the right track.
Okay. Thanks.
Certainly on the spend was hoping if you could provide a view on the spend priorities in your rank order for the year.
In areas of investment burn rate is growing as you pointed out.
Could you give the view into what maybe that what that means for Q1 here I don't know if you give that and also if you could remind us where the salesforce is currently and what are the plans to add additional sales force through the year.
So when I know, what Catherine jump onto that latter part and then I'll go and answer the first part.
Sure So excuse my voice that we.
Have anatels rats and towards the end of last year in early this year. So we're looking at that 320.
And to be able to cover that frac testing money, though I mean, you asking internationally. So I think someone commented earlier on sales force productivity, but that's that's how we're looking for its about the same percentage increase in sales for size.
Their prior.
And then why don't I hit on some other priorities for us if you back out some of the non-GAAP some of the stock based comp for the acquisitions and such.
You'll see that our R&D for instance, rose 5 million in the last quarter and the things that they work on that I went through when I had my script was basically things like scaling the business automation driving Cogs down customer experience everything like web access and then you added and things like Joe.
Lie in some of those new acquisitions that really help to enhance the type of product that we're able to present to the customers and so that is still very much of a focus of ours. When you look at the selling and marketing and these strip out some of those extra costs of the acquisitions.
It was something like a 2 million dollar increase in the last quarter and what that goes to is not only new had during the year, but also some marketing spend for branding and what.
Sean has talked about in terms of.
Being able to get the direct channel up and running and that's brand awareness as well as as advertising and such and so those are the key things as well as the customer experience and Thats clear genetics and some of the acquisitions and so those two the R&D and the so getting work hand in hand to be able to enhance our skin.
Stability, our product offering the breadth of the offering and the ease of use for any customer, whether that's a patient or physician or a new type of physician like a urologist or somebody else. So those are the focus that we look at and I think also importantly, some of the acquisitions will add some burn to us, but we tried to walk through.
Why those for so important to us we make sort of the buy versus build decision and so you can look at those as some R&D dollars to be able to accelerate some of these very important projects for us that we've decided that we can buy a company that has a great technology like a John glass, who are clear as opposed to trying to build it from the bottom.
By ourselves. So those are the types of priorities that we think about and that's why we evaluate each of these investments on their own to see how rapidly we're going to get some return for those investments.
Okay got it thanks, and Sean if I could a if you could step back and.
Look at how the Germline testing landscape has evolved and it doesn't speak to your business model and the rationalization or pricing in the space that you have driven.
Given where you stand today and you look at the long term priorities any any changes in those those long term priorities in terms of.
The data you want to gather or overall.
Priorities on menu expansion or areas, where you might not be today, and ultimately where you want to be a if you could elaborate on on a long term view very helpful. Thank you.
Sure No I think.
Our view of the industry.
We do think it's getting more dynamic every quarter. So the rationalization is picking up speed.
I think there there there are a lot of exciting developments technology and kind of application area wise, but our view of the industry and its potential and the approach to that weve chosen to take to it hasn't really changed at all.
We are still working on adding more and more content.
As a key key part of our strategic outlook.
Outlook on growth.
We have mentioned in the past getting kind of rounding out the menu to really serve for example, children's hospitals in pediatric centers better that that is for sure kind of has been and continues to be a major focus and I would expect that more of the same this year.
Rounding out continuing to add more content and more information to our oncology offering, particularly as we now look to move downstream into not just.
Being the leader in identifying.
Individuals at risk for cancer, but then stratifying the risk in molecular characterizing it and then of course.
By way of and monitoring post therapeutic decision for both current recurrence.
And evolution of the of the cancer itself. So those are continue to be areas that we look to.
As well as of course, we've we've always talked about pharmacogenomics is something that we think is.
An area that is of particular growing interest to payers and integrated providers.
And that's something that again, we think fits right in our wheelhouse.
You know with a platform that we've built and again, we've I think that's no surprise, we mentioned that before in it so something that were.
We're interested in working on so really no dramatic change the outlook no real.
Change to the.
To the kind of the content expansion with kind of some of the usual suspects weve been discussing that we hope to hope to the next next year or so bring bring to bring and add to the platform.
Okay, great. Thank you.
Your next question is from Kevin Degeeter with Oppenheimer. Your line is open.
Hey, Thanks for taking my questions.
I just wanted to follow up on the earlier.
Questions with regard to preferred lab network and.
Can you just comment about you. What's your early experience has been in terms of the impact of.
United is preferred lab network on dynamics in the market and as we think about 2020 and I suppose 2021.
That's still feel like it could be immaterial lever, you're driving volume put our take or is that.
Shaping up to be more modest impact on on your volume growth in the near term.
You know I think I think I can answer the question really simply by saying, we certainly haven't baked any large expectations into this years guide.
And the United.
It is fairly modest percent of the total the total lives. So I think that's the other it's still pretty fragmented space on that side of the table.
With that said, what we can say absolutely is that there are some obvious benefits of being.
In the preferred network.
Certainly the mechanics of building and reimbursement are much much smoother on our end, which is very important it's much on through there on the clinician side, which is also very important.
It is much easier to order from us versus a lot of our appears in the space by virtue of being kind of the number that in that network.
Kind of number one and a lot of our menu items. So those are all those are all great.
I think will we would still offer its very difficult to put a number on how much volume growth came from the virtu beverages that versus just kind of out there commercializing.
But I think that probably is a little bit.
Inconsequential, if you take step back.
The bigger picture here I believe is that the overall dynamic from the payers is that they are paying attention. It's a it's genetics is becoming ever more important as they consider their business and what they do.
And the prefer lab network. We think is probably example, one of the very first and early moves in a series of moves over the next few years.
That are going to definitely have an impact on the space.
Who has access to reimbursement it doesn't.
So that's I think thats kind of where I'll leave it it's hard to put a.
A real definitive material impact on it at this point in time.
But I think taking a step back this and what we would expect many movies that come is actually pretty important.
Two ones view I, certainly our view of the evolution of this landscape.
Okay fair enough and as a follow up and Theres been a fair amount of obesity around the.
You know downsizing of some of the first generation DTC.
Genetic testing companies.
You are recognizing that your direct channel plays and really very different part of the market.
Yes that dislocation continues or accelerates does that create.
Any opportunities as you think about.
Plans to build out your direct channel over the next year too.
And I guess on an tangential level.
From an M&A perspective is that you know.
Area that you would have an issue or any interest in.
Potentially being active.
Yes, so I think I think in order.
It is with interest.
Seeing the announcements from some of the certainly the larger DTC players all be honest, we don't know much about what's going on there are white hall, we only knows that there has been a lot of marketing that's raised a lot of consumer awareness about genetics over the past decade, it's been huge spends by compare.
Listen to kind of what our industry typically does on a per company basis.
The.
No.
I honestly can't I can't really opine on why interest in those kind of products has tailed off if it has tailed off or if it's just getting more competitive we really can't say much.
We feel that in general there has been a general awareness lift of genetics as a result of those massive marketing dollars over the last decade, we think that has created an opportunity.
You can do your run of the mill what market research will show you that more than half of individuals who buy those kind of test are interested in health and most of them or not super satisfied with the results again, so I think.
There's definitely an opportunity there.
Again, probably worth pointing focusing the conversation back on.
This is a channel to drive.
Very same exact kind of medical grade testing that we run for the rest of our clients our core clientele.
The channel that direct channel will be focused for individuals who are thing you're starting a family individuals who have children with undiagnosed diseases for clinicians, who probably are aware that they could be using genetics to debate patients benefits, but don't really kind of have the bandwidth nor the nor nor were nowhere to get started.
And we think Thats, just a very very different customer segment than where these company has been active in the past.
But there's definitely some overlap there and it's so not to discount and I would just kind of say, maybe and satisfactorily, we don't really know what it means.
We are planning ahead with kind of trying to reach those customers.
The best we can to the M&A question, though I think with this is where maybe this is the only area. We know I'm sure. There's more [laughter] looking as if he around the table. We we don't have active screens out for.
Type type assets were very much focused on kind of highly positive predictive value and negative predictive value diagnostic in screening tests that answer questions people have other health.
The only thing I like to adding.
Spent six years now building a really strong medical brand.
And we think that's going to help us really succeed and the broader consumer market and as more mainstream clinician start ordering testing and interestingly. What we are saying is that the breadth of our testing menu is being ordered tell as John mentioned that create vascular cancer screening and diagnostic testing as free product.
How testing so we think that were well positioned and a long term to being able to serve the increasing interest and being able to brain.
Genetics 10 form healthcare decisions.
Thanks for taking my questions.
Thank you.
Your next question is from a Jeffrey Cohen with Ladenburg Thalmann. Your line is open.
Hi, Thanks for taking the questions firms Wonder if you could further expand upon so my previous comments as far as automation.
Coming more from the RV equipment side or from the the softer and analytic sorry.
Yes, so automation is a key of the of the opex or cash burn.
Yeah.
It is R&D.
Automation.
It is definitely correct to think about it both on the equipment side and the software side.
And both in our own R&D and in acquired R&D, We've we've looked at both.
So I think kind of the short answer is both are important both continue to have room to yield benefit to the to the cost advantage that we think we have and or improve the customer the customer experience while at the same time lower the sales and marketing burden.
Delivered that experience so.
We have an acquired and automation.
Kind of wet lab automation.
Provider to this point.
We do continue to invest in what is what is now getting to be pretty big scale here unseen scale for the type of testing, we do and automation is going to continue to be a key part there.
I would say the clear genetics acquisition is a pretty.
It is clear.
Yes, but solid example of.
Automation on the front end, which we have invested in then over the years and I think by way of acquisition really represents.
Automation on the customer service side.
Two very quickly answer questions identify patients that need to follow up scheduling with their clinicians getting with genetic counselor answer questions about billing moved to test ordering et cetera.
Essentially automated on the front end of that and then Triaging.
Our customers the right into the right next up it's a great example, and very important and I would expect more of that in the years to come.
Got it could you give us a sense of the or the integration of both true we're as well as crude genetics or they are they completed or the 100 for sure.
Sure Jim into the audio brokers and should the sport.
Yes, I think the short answer is more or less there are some there's some new technical aspects of the clear platform that we still have a few months of.
Kind of you know.
Software development to get a completely integrated but but I'd say for the most part the teams are integrated.
You know there they're completely completely integrated in our development efforts.
The principles of those companies are frankly, leading.
The respective development efforts within the Nvidia development organization.
And we love what we see we have already been able to reclassify.
Very large number variants of an uncertain significance and as we stand today with the Jumblatt platform. We now can say, we we unambiguously.
Best add resolving these variance on certain significance with a with a completely period of approach from start to finish and that is integrated now and working as we speak so that I'd say that's pretty much integrated.
There are there other aspects of the molecular evolution platform. The jumbo team had been working on that will take more time for development and were excited to see that come but for the most part the initial returns on that had been great.
For clear genetics, I mentioned, it's effectively integrated.
And we are we are excited about what that can do particularly for a lot of these specialists, who do not have a lot of bandwidth or time to to kind of deal with the ins and outs of genetic testing in their daily practice.
And.
That is as I mentioned well from a development perspective is integrated I think from a complete product perspective, and then in the coming months every few weeks, we'll get closer and closer but the timeline there looks very short and we are on track.
Okay got it and then lastly from me could you talk about.
Cardiovascular disease, starting user in New York curator and information you can share.
Yes.
All right so the.
That's where the Apple watch.
Study.
I think Bob can talk about what I would say I could just held by the borrowings were just starting with that so for sure.
Kicking it off.
By way of collecting.
Getting the getting that longitudinal Apple watch data in alongside with generic.
Gary and information loaded into that collaboration I don't know bother theres any further than any other it's very early and we're looking forward to being able to analyze the data when it comes along.
Yes, so early days for that.
Perfect. Okay. That's it for me thanks for taking my questions.
Thank you were next question is from Bruce Jackson with Benchmark Company. Your line is open.
Hi, Thank you for taking my question. So earlier, you mentioned that about 10% of your total revenue last year came from international markets.
You have a sense of where you might be where that rate might be exiting 2020.
Yes, so just a clarification is 10% of volume it slightly slightly lower on revenue because the international.
Pricing mix that Theres, there aren't third party payers, it's all patient pay and direct bill in some markets work prices a little more compressed so it's simpson a volume to lower percentage total revenue.
With that said.
In our in our guide.
We are assuming about the same exiting this year, we are investing more in our international commercial activity, both by way of physical plant.
In order to take out a lot of logistics.
In shipping issues that we have historically encountered internationally.
Ex us and we're adding real.
Our whole that 10% of or volume has been generated with a relatively small modest commercial fortunately a handful literally half a dozen.
This development associates around the globe and we're hoping that we're increasing that you're writing a dozen or so.
To really start having in country business development and support now what we're confident that that is a very large untapped market opportunity. We're confident that will start growing rapidly in the years to come.
Could happen this year, but but a lot of that depends on how quickly we can get that.
Property implant deployed and with a selling cycles looked like which.
Again for the most part we've been answering inbound interest.
So we're excited we were optimistic.
But like I said, we haven't we haven't really baked in anything more than him about 10% of our volume for 2020.
Okay, and then just a follow up question if I could.
Does the country mix mirror that of GDP. So is it primarily the larger countries that you're getting him a the orders from and Dennis.
What is the payment mechanism as it private pay or is there any.
Healthcare insurance component to that.
Yes. So this is the I think that the short of it is the first the first answer. The first question is no. It actually does not follow GDP and that's largely.
That's just largely result of how the single.
State payers are set up for it and also on specific.
Sample.
Several regulations for example, England, France, and UK are relatively difficult.
To to just launch to have have institution individuals pay for genetic testing, whereas northern Europe Middle East Israel Asia Pacific and all of Latin America, we tend to see a lot more volume there, which is so it's not totally weighted by GDP.
The payment mix is primarily patient pay or institutional bill and the way to think about institutional bill ex us is large academic hospitals.
Large large.
Private LTE run hospitals.
And there and then there also are a mix of clinicians who are accepting.
You think about kind of we don't really have this here in the U.S., but think of it as a supplementary or extra in health insurance that oftentimes pays for.
Some of these things like genetic testing so in many of these countries. There's a single paired.
Insurance.
Government funded health insurance program, and then people can sign up for additional and sometimes those are those are what are being those funds those those insurance.
Pools or what is being used in the in the clinic to pay for the testing.
All right that's it for me thank you very much.
Okay. Thank you.
Your next question is from over your Goldleaf capital market laboratories your lines open.
Hey, guys. Thanks for taking my question I have to online.
Another thing are you providing formal guidance.
We are providing formal guidance for cash burn for 2020, excluding the various financing an acquisition costs are simply that it's going to be little bit more than 2019.
Yes, we're not providing formal guidance on it I think that we're leaving and now as it will be more we view this as a year event. This everything that we see in front of US indicates that this is a year to continue investments and continue extending our leadership in what we think is going to be a winner take most opportunity as a.
Of course, we've.
Covered before.
Well.
We can kind of put a little more detail on it which is that investment is in primarily in commercial and R&D.
And M&A, which which is a it's a build by proxy for both commercial and R&D.
We think that that translates over time and do it on the sale will position and the new landscape that we're building because that commercial leverage whether it's new customer types moving globally pushing forward our network business, Kevin as as we have been with our pharma pharma partnerships, we're building a superior customer experience or extending our cost advantage that.
That is what kind of helps us do that.
Well as you know thriving at the price the prices that we've created and building the best brought us highest quality menu content that.
That is what we think the winning Formula is now we think our models winning.
And that's why we're suggesting this year.
Burn burn stays on invest on.
And for all of those reasons, which in the in the long term translate to massive sustainable operating cash flows in the future.
That's the that's the single financial metric that were working toward overtime.
But you know the investment this year is really targeted at that the primarily at R&D EBITDA. So the marketing as well and I would note that there will be some.
Ending up those expenditures so as we talked about and Catherine talked about the number of salespeople. They were brought on in the fourth quarter and in January and early February and so you will see before they become productive you're going to have those cost same things with R&D that we brought those folks on.
In the fourth quarter in first quarter to be able to hit a lot of these goals for the year in terms of scale one another.
Customer experience type products and content and so we always have a higher first quarter in burn you also pay commissions and you also have the decrease in New York reimbursement by the Panama.
Saturates and so from that perspective, the first quarter is higher and I wouldn't want you to be surprised same cadences last year be higher in the beginning of the year and then they get it will trending down as we get to the second half of the year end those salespeople become more productive and we are able to yield.
The results from the R&D efforts.
Okay. Thank you.
Last question.
As I understand there right now with international business.
Some patients to have up to $2 for shipping fees, which of course is just friction doesn't go to envy tasers friction. It isn't the case that moving forward whenever you are completed and with internationally at some point this year that.
Point of frictional, just be removed that extra $200, a 40% of cost in test.
I mean ensure that the idea in a lot of these markets to remove the size of that shipping logistics Bill is the idea.
I'm sure there'll be some countries that we cover shipping most we will not but by by reducing that down significantly because you know you're right. There. There are there are examples where the.
The patient institution is almost paying as much in shipping as they are for the cost of the test of the screen. So thats exactly idea.
Really improve improve the logistics and to dramatically reduce the cost of that.
And also frankly, how about the turnaround time by things not getting held up and customs and kind of issues like that those are those are the two primary reasons.
But you know.
I think the way you said it is correct removing that friction which is really not benefiting anybody right now and that's the that's the primary purpose of the physical investment in our in our ex us infrastructure.
Okay. Thank you very much.
Great. Thank you.
This does conclude the Q and a purees and I'll turn things back over to you lowered the Angela.
Thank you for joining us today, we look forward to catching up with you soon at upcoming conferences.
Ladies and gentlemen, this does conclude todays conference call. Thank you for your participation and you may now disconnect.
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