Q4 2021 Invitae Corp Earnings Call
It from our non-GAAP operating results as applicable among other items amortization of acquired intangible assets acquisition related stock based compensation post combination expense related to the acceleration of equity grants or bonus payments in connection with the company's business combination adjustments to the fair value of certain acquisition related assets.
The abilities, including contingent consideration and acquisition related income tax benefit.
We exclude from our non-GAAP cash burn as applicable changes in marketable securities cash received from equity financing debt and cash received from exercise of the warrants.
non-GAAP measures may include cost of revenue gross profit operating expense, including research and development, selling and marketing and general and administrative other income and expense, Matt as well as net loss and net loss per share in cash burn and.
We encourage you to review our GAAP to non-GAAP reconciliations, which are available in our press release and in the appendix of the earnings slide deck, both of which you can access by visiting the investors section of the company's website at IR Dot and <unk> dot com with that I'll turn the call over to Sean.
Thank you Jack and good afternoon, everyone. As you will see outlined on our call today, we're tapping into something unique and VK aside from quarterly and sometimes even annual short term revenue fluctuation solid fundamentals back our top line execution and we are well positioned to continue that growth in the years ahead as we hurdle forward to meet the events unmet demand for the use of <unk>.
Information in everyday personal health.
Today's call will be numbers in metrics heavy so I won't go deepened our full year financial performance, but in summary revenue and volume growth were as expected growing at approximately 65% and 77% respectively.
We finished the year with very strong provider account growth and the addition of almost 1 million patients through our platform throughout all stages of life as we continue to develop an integrated solution that health information digital solutions and data services that will shape, the genomic medicine era.
The technology cycle kicked off at the dawn of the genomic medicine now 20 plus years. Following the human genome project is presently set to dominate our industry. The fundamental knowledge of the human genome and its impact in health care is driving the single greatest shift in medicine in recent history.
Shifts to where in time, most diseases, we will have a well understood risks that can be minimized or stays at all.
And if or when they arrived can be rented a chronic condition to be managed for years or even decades of a customer's life.
In 2010 that sounded like science fiction, but if you take a step back and look out at the genomics landscape is.
Is coming into focus quickly and a company that can provide the science infrastructure support and guidance for customers throughout their own personal health journey can lead the shifts with immense impact for customers providers in the industry at large.
To make this feature reality will require investment and time, but we're committed to maintaining sustained high rates of growth and unlocking the value presented by this immense opportunity.
The company that can deliver the capabilities I just mentioned, we will be transforming very large durable and converging markets in health care.
What I mean by converging markets is it soon the provision of any single tests or result at a given call point will become far less relevant than the ability to provide information in the context of the individuals broader personal health journey.
The general tailwind for our growth are picking up.
Coming from rapidly expanding biopharma pipelines full of genetically targeted therapy, a better understanding of the improvement of health and cost outcomes, driving private payers and national health care systems to adopt and.
And changing perceptions and attitudes about the role of the patient in their own health care and engagement from those paying for it.
Virtually every major medical meeting the number of studies linking genetic information to better clinical decisions and outcomes continues to expand.
The concept of genomics as a subset within certain medical specialties is being replaced by the understanding the genetics and multi omics information will be the underpinning for care across all areas of medicine.
As for specific drivers of growth over the next two to three years, we see the following and.
And pediatric disease or Neurodevelopmental delay offering is reasonable launched and we have improvements coming throughout this year, our exome testing moving to an offering based on the customer's Dino.
This combined with improving commercial reimbursement and rapidly growing interest in genetic disease from Biopharma partners set a great backdrop for growth at this stage of life.
In reproductive health, we still see a large unmet need for core genomic offerings for young women having children.
Our broad offering and coming improvements and ease of ordering logistics clinical decision support and patient services will continue to drive growth and improved health for both mom and baby.
For oncology, adding to our leading position in inherited risk for cancer. This year, we will commercialize the cancer monitoring and therapy selection offering that is as good or better than any of the leading companies in the market.
This combined with solid demand for our distributed oncology offering growing demand for comprehensive precision oncology solutions.
And attractive reimbursement set us up well for helping more customers understand their cancer risk and be armed with information to fight and beat the disease.
All of our growth across all of these savings in life fuels, our data and platform services business. We've recently broken this revenue line out and we expect this part of our business to be an outsized contributor to growth as interest grows in a large network of patients who are interested in utilizing their data with ecosystem partners.
I look forward to sharing much more about our investments in the content production digital health tools and patient owned data network capabilities. We are building during our technology day in a few months, but.
But for today, we will focus on the financials for the first time, we will be guiding not just of the top line of our business, but also to gross margin and cash burn.
We will also be introducing some non traditional metrics and key performance indicators for investors to follow on a quarterly and annual basis.
These are the next level of key performance indicators that we run our company again, and we're going to invite everybody to watch these quarter by quarter.
This is a reasonably big shift for the company undertaken primarily for two reasons.
We're building a new category pursuing a novel business strategy and it is an ambitious undertaking.
As such the standard measurement tools used in the specialty diagnostic industry are not helpful in measuring or modeling the business going forward.
We are attempting to be as transparent as it useful to help all investors understand how we're thinking about running the business and follow our thinking and execution at a detailed level.
Second we've got industry, leading growth for many years now pursuing this unique model.
<unk> passed half a billion in revenue will be at $1 billion and then two before we know it.
The size of the numbers at this point is such that instead of pursuing our unique strategy and growth at all costs will be operating the company aggressively and adding targets for gross margin and cash burn reduction providing a clear picture of our march towards generating large sustainable cash flows in the future.
I'll hand, the call over oxy to walk us through this year's results and forward looking metrics.
Thanks, Sean and thank you all for joining us today for the remainder of the call.
non-GAAP numbers, including cash burn as we noted in prior quarter. It is easier to understand our business and financial by providing non-GAAP metrics to allow for comparison of the two tough numbers.
<unk> best estimate view that detailed reconciliation to non-GAAP financials included in today's press release and at the back of a flight back.
In the Appendix section will also include a Q4 billable volume ASP and Cogs per unit data before we move to the detailed financial update I want to note that this will be the last time, we'll provide the blended ASP per unit metric in our quarterly update.
As our business evolves.
The product across all categories.
Each in various stages of maturity aggregate price and cost data will become less helpful to properly model and assess performance.
Secondly, we'll be focusing my comments on revenue growth, our new metrics dashboard and other selected financial data on a quarterly basis, while continuing to hit pause at billable volume data as part of our 10-Q and 10-K.
In 2021 will generate $460 million of revenue and the revenue breakdown what that follow.
Approximately $281 million from oncology, including Germline testing therapy selection and companion diagnostics.
Approximately $83 million from our women's health offering, including our Ips carrier and other reproductive tests.
Approximately $57 million from the rare diseases and other testing covering cardio metabolic.
<unk> Malik and newborn screening.
Data and platform revenue was approximately $49 million.
Data management analytics data as a service and a certain biopharma and patient identification programs.
We include Q4 revenue performance and breakdown in the appendix of the slide deck revenues I'm also areas increased nicely in the fourth quarter and across the past three years.
Moving down the P&L for 2021, non-GAAP gross profit was $168 million, which translate to a non-GAAP gross margin of 36, 6% and 1% decline.
In the fourth quarter non-GAAP gross margin improved slightly to 36, 5% over the Q3 gross margin of 35, 6%.
non-GAAP operating expenses were $771 million or 167, 5% of revenue compared to $457 million or one.
163, 3% of revenue in the prior year. The operating expenses include path from newly acquired.
As we stated on earlier calls.
Rate of growth in spending will come down in 2022.
<unk> two this fall and as they scale the business and manage the return on investment at a total portfolio level.
Moving to our cash position cash cash equivalents restricted cash and marketable securities totaled 1.06 billion at December 31, 2021, compared to $125 billion at September 32021.
Full year 2021, cash burn was $849 million, including cash for acquisitions.
$569 million, excluding acquisition related expenses.
Thank you Ted.
The business model is highly differentiated and ambitious.
Yes.
The effect on the last conference call. We spent the past eight months doing the work and taking the steps necessary to help also visibility into the fundamentals of our business.
Going forward, we'll provide clear visibility to a new set of key business metrics.
Active and develop these metrics based on their operational significance and ability to accurately describe returns on investment. These categories include expansion of our current commercial access points through clinics hospital system or pharmaceutical partners.
All of our patient population and patients available for data sharing.
Revenue for patient testing and services.
New product vitality demonstrate how new product developed or acquired over the last three years to next strategic investment decisions to the freshness of the portfolio.
Last but not least is the category of leverage in addition to the standard Opex metrics. We will report operating cash flow as a percent of revenue too shallow scale and improvement.
Today, our operating cash flow is consistent with our cash flow performance by reaching that operating cash flow is now a dual focus with continued rapid growth. So that we can replace the current form of investment capital with our self funding model at scale.
So these metrics success will not be measured by increase in every category in every quarter and we do not plan to go into detail on every call about every metric.
So dashboard they will signal progress, but also trade offs and even areas that need attention from time to time.
Our objective in sharing this metric is to offer more transparency into a dynamic fast changing business and to provide a consistent balanced perspective on performance.
We intend to maintain on tablets.
Quarterly update as they move forward and I will walk through a few of the highlights here.
And the portfolio growth, our active accounts and active partners.
<unk> increased rapidly over the last CES. Similarly, the number of patients we serve and very often available to share. The data have also expanded nicely.
The new part of that quality has been steady growth from 51% in 2019% to 64% in 2021.
Revenue per patient measure, but the total platform revenue divided by the number of ordering patients for the period grew from $466 in 2019 to $491 in 2021, primarily driven by expansion of the average number of tests per patient and growth in MAU.
Patient specific revenue, including data platform services and oncology kits.
And revenue per patient starts that diverged from AFP. We're encouraged by this early proof point of the future growth potential from the platform we have invested heavily in infection.
Moving to operational excellence non.
non-GAAP gross margins have experienced considerable downward pressure.
Prior to our long term target of 50%.
We have multiple levers in the business that can drive margin expansion and we're already taking some of those actions and expect margins to improve in 2022 and 2023.
Cost productivity measures the efficiency of variable cost relative to the volume growth in the period.
Sample as a variable cost includes last material shipping and labor.
And it is important to note that negative numbers in this metric that present a favorable productivity.
The performance bounced around over the last three years and in.
<unk> 2021, we're seeing a recovery from 2020, when quarterly significantly impact volume driving a decline in productivity.
Gross margin improvement was held back in 2021 as growth in lower margin products more than offset productivity gains.
On our strategic investments around the trend of R&D as a percent of revenue and capital useful M&A, including both passion bolt reflects our followed investment strategy and growth ambitions and the impact of these investments it's partially benefited in our top line growth and new product vitality metric.
As to our guidance for the year will providing revenue growth guidance of 40% or approximately $649 for 2022 as Sean mentioned the combination of the fast growing accessible market and dynamic opportunity, we see for market share capture and.
Strategic activity, we'll always keep our internal growth both at high level for years, but will it be.
Leave the 40% target represents industry, leading growth and <unk> got some room for upside for both organic and inorganic activity.
For gross margin, we expect a steady increase over the course of 2022, so our full year gross margin to be in the range of 42% to 45% and exiting the year at a run rate higher than 45%.
This year end run rate margin guidance chef's showcase our revenue growth and operational improvements throughout the year.
We may choose to discontinue with guidance metrics in future years.
And finally, our cash burn target for.
We're targeting a cash burn of between 600 and $650 million during 2022.
It is important to note that this cash burn target include any cash we'll deploy for acquisition related activities.
And that is a reduction of more than $200 million from the $849 million cash burn in 2021.
We also plan to exit 2022, with a cash burn run rate that enables ongoing reduction as we continue driving the business to positive cash flow in the future.
Now I'll turn the call over to Ken who will tie together some of these metrics in adults with some core operating factors and programs Ken.
Thanks, a lot.
Building a pathway to positive operating cash flow was not a burden that distract us from our core objectives to grow aggressively.
In fact, it has positive operating cash flows that will largely replace the capital markets and providing the jet fuel for our industry leading growth.
We were pleased with the trajectory of revenue from 2020 to 2021.
And our investments to expand our breadth of products combined with our talented sales teams delivered a nice pipeline.
But during that same period gross margins deteriorated as we saw some cost climb with the ongoing global pandemic.
We also experienced unfavorable pricing as a result of uneven demand that was constrained by access to patients.
And we worked through high variation is a supply and demand that drove inefficiency and required unprecedented agility to protect patient and customer experiences.
We were nimble.
And remained focused on servicing our patients and customers, while keeping our people safe and it was not easy.
However, we also kept an eye on the long term, we got deep into the integration of <unk> Dx and made other strategic acquisitions of led Leon citizen and velocity.
Which are expanding our product and digital health platform offering.
We see a path to leveraging our breadth to deliver unquestionable value to our customers.
Have developed a robust list of actions to improve gross margins in 2022.
All of these with key leaders assigned who are accountable for delivery.
Recognizing that opex as a percentage of revenue has increased significantly over the past several years.
We've taken a more critical approach to spending.
To establish priority for IP.
We developed a list of non negotiable imperative against which resources must be applied.
This led to an initial resource reallocation exercise, reducing spending that did not align with the imperatives.
I mentioned several acquisitions earlier, and we have visibility now more than ever the value generation of our M&A.
We are expecting our execution not only for revenue growth, but also for operating cash flow implications.
And finally, there is work underway to expect our reimbursement pricing and product positioning opportunities specifically looking through the lens of improving revenue quality as we grow.
So let's move to slide 17 to look at the framework of how we plan to move from 36% gross margin exiting 2021 to exiting 2022 at 45% growth Mike.
The list of active covers productivity pricing and reimbursement opportunity.
Improvements in supply chain and product driven enhancement benefiting from modernization automation and integration of recently acquired assets.
Recognize the significance of the task at hand, and have operating mechanisms in place to continuously gauge our progress.
As we shift to slide 18 in Opex, you'll see.
A significant reduction in the expense growth curve from 70% growth in Opex in 2021.
To approximately 20% growth in 2022.
While 2021 was influenced by development related to acquisitions and by product launches planned for this year.
2022 investment will be earned by the ability for the cost to drive top line revenue or gross margin improvement this year.
The necessity for the cost to deliver differentiated patient or customer experience.
And the alignment of the cost with unlocking.
Future imperative.
So, yes, there will be trade offs.
But as you have seen in earlier slides, we are still committed to growing at an industry leading pace.
Maturing the overall business fundamentals.
Thanks, and now I'll pass the floor back to Sean for closing.
Thank you Ken.
We've launched this ramp view to our business model in an effort to describe how we see pulling forward the future of medicine.
Our progress in addressing patient needs throughout their lifespan and the burdens of our platform and data services demonstrate progress up the curve into the genome network carrier.
Our genetic information can be shared on a global scale to diagnose more patients correctly earlier and bring therapies to market faster.
The more genetic and other personal health information, we can provide the more patients we can add to our network and are more patients in our network combined with other information we can take in on their behalf the more we and our partners across the health care system can do for them.
When we started this company a little over 10 years ago, essentially nobody was entity benefiting from genomic information in their day to day health and wellness.
10 years from now almost everyone well.
Current market environment. Notwithstanding this is the most exciting time in the most exciting industry transition of our time.
I want to especially thank our employees and the investors who've been with us for years and to support the important work that we're doing.
Is the future of medicine.
A hearty invitation for anyone not involved to get on board and be part of that story.
Now before we go to Q&A I feel the need to point out the obvious that while this company and our mission is the most important thing in every waking moment of our lives today.
It's really a small thing compared to the global geopolitics being played out at the expense of thousands of Ukrainian and Russian People's lives.
There isn't really anything more to say on that but we do have over 5000, Ukrainian customers as well as teammates and business partners in the region will be tending to.
With that I'll pass the call back to Emma for Q&A.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
First question today comes from Dan Brennan with Cowen.
Your line is on mute it.
Great. Thank you thanks, guys.
I guess, maybe the first question Shawn would actually be on the burn guidance, which is which is impressive far better than what we have in our model can you just walk through the opex kind of growth. It's a huge step down and I'm. Just wondering if you can give us a little flavor kind of across your segments, how R&D kind of SG&A.
And kind of how kind of what where does it carry into 'twenty two on those line items and what's the risk that the cuts kind of create.
Pressure point on your top line growth and this is a pretty material change.
Sure I'll actually I'll, let I'll, let Ken answer the majority of it.
Bye.
I would say the closer attention to the top and it's a balance it's getting too.
Like I mentioned, we're going to be pushing past $1 billion and then the 2 billion in revenue the numbers are getting big enough. The attending both top middle and bottom is just makes a ton of sense, but make no mistake. Our current plan has us industry, leading growth for the foreseeable future.
There's far more opportunity for growth out there with a limited capital we would we would continue to chase it but it's just the scale of the company at this time it makes sense.
It's really important to hear from Ken you can kind of speak to each line.
Line item and what and give color commentary on that.
Thanks, Sean what I would say is that as we've described first of all don't don't underestimate the impact of improving our gross margins. That's first and foremost is too.
The focus we have on gross margins and we have a long list of.
<unk> Barry.
Strong and robust actions that are going to improve those margins. So that's going to obviously improve our cash burn.
From an opex standpoint.
The work we did early on to align to our imperative allowed us to do a couple of things one is to reallocate some resources. So we did not.
To grow as much because we reallocated some resources to the higher priority items that are driving the top line. So it's actually.
Good match between driving the top line and making sure we have the resources aligned to those priorities.
And then secondly, it really boils down to making sure that the deliverables.
That we have coming out of our development activities are stay on track and with new products that we're launching this year.
We feel really great about our ability to grow top line, because we have new entrants into the marketplace.
So similarly, we are controlling cost, but we also are not depressing.
Depressing our growth and so we feel good about doing both and I think it's a situation where we can do both and we will do both.
Got it and then maybe if I.
Kind of a follow up on the top line. So so Shaun look 40% growth is around where the street was kind of anticipating could could you give us some color on the oncology business.
We're not going to break Archer out likely material driver within that growth rate can you give us a sense of.
How we should be thinking about growth in your oncology franchise.
2022.
Just give us an update on kind of the archer products and kind of timelines and any any way to think about the impact of those I guess that would be my second question.
And I think I think it's relevant oncology. It's also relevant for the rest of the business. So if you kind of first takes it back.
Our new product vitality, which is why we're trying to break this out which is fueled by M&A.
<unk> new products acquired in the last three years is putting up.
Outsized growth.
Trading in the topline and whatever disease area and I'll call. It included.
Our core growth core product growth are inheriting a leading franchise inherited us and continues to put up very impressive very strong growth numbers. So we can start with a backdrop of foundation of growth from an industry leading perspective.
And add on that we just recently launched IBD kits for therapy selection globally. In addition to some of the Japanese and other local regulatory approvals that have already been in play.
There is.
Increased demand for presented on precision oncology solutions around the globe, which will will.
We will drive oncology growth and the first half of the year, we're launching our.
Monitoring service, we call it personalized cancer monitoring and the second half of the year will include in that.
Exxon based therapy selection.
All of which all of which is contributing to the oncology groups growth.
The decision to not break it out I mean, even just in oncology, it's five or six different key products.
At least.
For the same call points, especially when youre loading geographies.
And we really do think the best way to look at this is look at the oncology topline revenue growth all of those technologies and products will be contributors.
And we will continue to break out that which is the new product versus versus kind of found.
Foundational product offering every quarter here on out.
And that's that's going to tell the story and we're really excited about obviously everybody is excited about the precision oncology market theirs.
Lifestyle from chart recently, Theres, something like 18 or more companies with an offering in screening therapy selection and monitoring.
It's an exciting time for precision oncology.
And we're a little later to the table than most.
But I do think given our.
Very strong brand in medical genetics.
Very strong commercial presence I think we've got is simply any delay 10 days. So what is going to be a really really important opportunities.
Yes.
And if I can sneak one more in I know data.
Okay. Thank you.
Your next question comes from the line of Todd <unk> with SBB Leerink. Your line is now open.
Hi, How's it going thanks for taking the question.
Just related to PCM.
Data can we expect to see in 2022.
Venues, such as Astro coming up can.
Can you highlight some of the ongoing studies and in R&D and sort of how you see these data.
Turning yourself in the market longer term.
Just a moment.
The speaker line for just a moment they are dialing back in right now.
Can you hear me okay.
We are currently having tax definitely technical difficulties your call will resume shortly until that time your lines will be placed on music hold thank you for your patience.
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Thank you for holding.
We'll resume with a question from Chad Woitschatzke with SBB Leerink. Your line is now open.
Thanks for taking the question guys.
Just in terms of PCM I was wondering if what type of data we can expect to see here in 2022.
With some upcoming conferences.
On the horizon and can you sort of highlight how you view.
These large perspective datasets.
With longer follow up times, and how important that will be capturing.
Market share longer term.
Yes, so we've got.
I don't have the graph in front of me, we can actually we can send that out to everybody but between intercept.
Med X 14.
Work going on in the blood pack consortium there'll be.
Info come out throughout the year.
Our performance with us.
Later than a handful of studies going on throughout 2022 towards the end of 'twenty and into 'twenty three.
Kind of seven or eight of them other than they're worth worthy of note.
I think this is exactly the kind of thing where what we know is in the hands of people that are comparing the technologies for sensitivity and specificity and ability to be quantitative.
The technology is as good or better than anybody else out there.
The need for and the number of large prospective trials.
To bring that kind of get guidelines for reimbursement.
We're doing those as well and I think the entire the space is generating enough data there to demonstrate.
Our view in the long run is that the reason that this is going to be applied to every single individual battling cancer is because.
What we know is indeed, if you detect cancer coming early coming back earlier at the molecular level and treat it earlier and adjust that treatment for any new targeted variance targeted ramp or are resistant mutations that show up the patients live longer and I think that the sum total of all of that.
Research and all the trials aimed at a sort of pointing to that basic that basic premise, which again at such principles level from a molecular oncology perspective has already been known for a dozen years or so.
And so to answer your question in the long run.
All of the day, the proponents of data that shows the utility of this <unk>.
These kind of test is going to drive an amazing amount of demand for them and then the companies that have weaknesses since at least the efficacy and the quantitative.
Quite a bit of capability will then be engaged in a market struggle for market share.
That's very helpful. Thank you and just a quick follow up there.
In light of those ongoing clinical trials and the commercialization ramp behind <unk>. So you have a.
New product launches you highlighted what gives you that confidence to be able to guide down to a cash burn reduction that's it. Thanks.
Yes, I mean, a lot of them.
Tim covered in it.
You can see on the slide specific efforts on the gross margin and specific.
Operating leverage the sales and marketing leverage right. It's been showing up last year is a good example, 35% sales and marketing increase with a 65% topline that will continue G&A leverage and then.
A big chunk of it from last year to this year is RMB.
A reduction in total growth, it's still a very large investment in the space. There is a ton of opportunity to chase just.
Just metering that against the against the cash burn that we're doing right now.
With the balance sheet, we've got we feel really comfortable where we are.
To that end.
Thanks again.
Your next question comes from the line of Brian Weinstein with William Blair. Your line is now open.
Hey, guys. Good afternoon. This is Chris Metz for Brian Thanks for the questions.
Maybe just first on <unk>.
Gross margin the guidance I appreciate the.
Higher level commentary on the corporate gross margins can you just frame the gross and operating margins.
Each of the four business segments.
Ultimately where those benefits.
For the corporate margins are going to come from.
Yes, I mean I think.
The gross margin overall can kind of walk through the path.
So the exit rate, we want to get too.
The buy by business area. This is where there is a reason we don't break it out and thats because it.
Fundamentally and in actuality as is.
As a.
A single platform to be honest, it's not quite that simple, but effectively it's a single platform generating the genetic data to deliver these results.
Some parts of production generate results for different parts of those businesses and when you include then where we're going by way of multiple test per patient.
Gross margin per category.
It gets kind of a little bit of losing the forest for the trees.
With that with that said.
All of the improvements.
We are putting in place essentially apply to all of the all of the different business areas.
Obviously in Ips and reproductive health is a little bit different than kind of mainline inherited genetics.
The part of our production platform the therapy selection.
And the PCM the MLB testing that also.
Is different enough.
But then when you start factoring all of the lens and the sign out in all of the demand.
Kind of wet lab production costs.
Does kind of get all mixed in one jumbo so long way of saying essentially no we're not going to break out GM by business area.
But really kind of consistent with the way we view the pricing or are they kind of blended ASP. If it really is the major the real game is what's the overall gross margin and where is it training by the end of the year in that.
We are.
Plenty of levers the pooled.
It's something that we've done.
Over and over and over in past years, and we are confident about where we're going for this year.
Okay understood.
And then.
Just talking about the transition from a lab diagnostics company, a little bit more information.
Information Management company citizen was obviously, a big step there, but what are the other areas do you think you need to round out to ultimately enable this transition.
Yes.
Appreciate the question and again I would point out we've kind of been pretty consistent actually we've been very consistent with the strategy.
And what kind of company. This is for for many years I think it's been now seven years or more in the public eye.
That little cartoon that we show of our business ramp business model ramp has not changed much since then.
We've always imagine this is a product with a new category to really put a gms worth of information into play for an individual from birth to death is fundamentally a more of an information utility than a testing business, we've always been pretty clear about that.
As you've noted we've commented that we're kind of now in the middle of that.
And that progression.
The things that are missing or just continued improvement in the customer experience.
Not just the ordering clinician side on the individual customer themselves.
Better administrative kind of ways to tie in with systems and governments that are interested in providing this kind of information and managing it on their own they're on there.
Patients' behalf.
There is still.
Much more we can do by way of digital tools and clinical decision support.
We're going to see here in the next two to three years is the the clinicians utilizing this information is going to vary dramatically move beyond the specialists or the disciplines that have some comfort with genetic information.
It's going to move all the way out into community oncology, all the way out in the cardiology, pediatrics and maybe even the primary care setting.
And that's where those digital tools and clinical decision support tools are going to be really really important.
You mentioned citizen I think that this is this is also something that we think is really important for the increased utility of the information the more patients than the more information that we can.
Most and make available to other ecosystem partners again, with the patient owning and controlling it.
We think than other ecosystem partners across industries can bring their capabilities to bear, helping those patients out and increasing the utility of information in the first place.
Which then drives a virtuous cycle.
That's kind of what was the old testing business, but then moving forward, even even more rapidly.
Enter into an idea that this information can be managed and put to use at the right place at the right time for that patient throughout their life.
Great. Thanks for the questions.
Your next question comes from the line of CAGR Savant with Morgan Stanley . Your line is now open.
Hi, This is Hugo on for Jason Thanks for taking our questions.
Regarding PCM could you walk us through your thoughts on how youre thinking about balancing cost sensitivity with the ability.
More targets than some of your competitors.
I'm sorry, the first part was.
Tradeoff between which in more targets.
Sensitivity and.
Yes.
That's right that's right so I think our.
Our view is sensitivity specificity and a b.
Being able to be quantitative.
<unk>.
The most important.
Equally the most important just behind that are the is the cost and I think that thats, where the the amp chemistry.
Good.
We've merged and now to our to our technology stack from from Archer from <unk> acquisition.
<unk> has a great and has a great characteristics there.
Very cost effective way to generate that cell free tumor.
<unk> signature.
And yes it is.
It kind of lends itself to being being able to go to a very large number of variance, which is which is really helpful.
And at the same time controlling on the cost side, because and the reason the cost side matters, even though what.
There's a very good news in this in this kind of corner of our business is that reimbursement is extremely high.
For those those indications for which there is available reimbursement.
On the other hand, it's very clear that it's going to be a little this is going to be an interesting path ahead as I would predict oncologists.
People battling cancer are going to demand this kind of information.
Far ahead of reimbursement guidelines broadly developing especially with the commercial payers and certainly around the globe. So this is where the cost basis is going to become really important as we test price out.
To try to get to all 30 million cancer patients battling cancer and the markets we serve.
And just a reminder that the <unk>.
Benefit of that is if indeed, which it looks like these patients live longer as a result.
That.
That's good for our customers. It's also good because in the market get that much more bigger every year those patients' lives for monitoring services, So that's where the cost basis.
It is really important as we look forward in the next two to five years.
Alright. Thank you and then just a follow up.
To clarify when you announce entry into cancer screening efforts later this year via organic or inorganic method should we assume that effort would lead to step up in cash burn this year from the guide or is it already contemplated there.
No. The guide is the guide on cash burn just to clarify.
I don't know if youre, referring to this call are past comments.
Early that early cancer detection is something we're evaluating.
So we had an R&D effort.
Turnell or looking kind of scouting external but whatever we end up doing and timing there and it won't affect.
It's baked into our cash burn guide this year.
Great. Thank you very much.
Thank you.
Your next question comes from the line of Tycho Peterson with Jpmorgan.
Hi, guys. This is Casey on for Tycho.
So you had previously stated that five years' time, your ex U S presence will double to around 30% of revenues just wondering.
Are the CE IBD launches of fusion Plex and liquid flex that you just announced recently enough to get you there.
Ex U S sales force expansion is needed and what will be impacted look like to gross margins.
Yes, so that's a it's a great question.
Actually it's emblematic of the balancing act that Roxanne can walk us all through.
Let's see.
Is it enough to get us there.
Honestly, probably theres enough global demand for that precision oncology distributed solution that it probably could over time.
With that said, we still see demand for inherited testing and other around the globe we have added.
On a percentage basis, we've added.
Significantly to the ex U S business development and sales and marketing effort.
We expect that to pay off.
On the other hand also prices.
Prices are different around the globe and that's something we also a meter.
Particularly as we mentioned in this year, where we're paying attention to managing carefully both top three all three top middle and bottom.
And that that may have a slowing effect on the total.
How fast we get to a 30 plus percent of our revenue from from outside the U S.
But honestly.
I don't think it really changes the story that much those are the moving pieces will continue to invest in.
We received the benefit of that investment after the U S. There's a lot of tailwind behind it.
We will continue on but but yes pricing is lower outside the U S and that's just something to factor in.
Yeah.
Got it Thats helpful.
Just going back to gross margins for a second what sort of leverage are you expecting to see this year from some of the recent tucking deals jumped.
The others other sort of tracking as planned there and then is there anything baked in in terms of inflation or supply chain.
Yes, I'll tell you at all.
I'll answer on <unk> and deploy it the answer is short answer is yes in fact that continues.
To help us reduce our cost basis of signing out ever signing out reporting on in developing patient access for ever increasing sizes of datasets being generated.
Up to including genome, which we're going to switch over to this year and those two acquisitions were are critical for both reducing our costs, reducing the bus right and improving the overall quality and kind of being the <unk>.
Claim on the Vanguard of.
Medical genetics, leading the industry forward.
So those two are very important on that perspective.
On the rest of the.
The rest of the.
Gross margin improvement I think can kind of cover all the major points that today on the call.
Got it. Thank you and then if I could just sneak one last one and how much cash burn.
Is going towards the pack bio partnership and a generally is there anything in terms of milestones for this partnership that we should be paying attention to this year. Thank.
Yes, yes.
We haven't we launched that at the beginning last year. We are not have not been are not disclosing the the financial arrangement.
Suggested look these things with the milestones we're talking about typically take.
$500 million over five three to five years.
When we started it we thought that the first fruits of that would come in at 2% or three year Mark.
It looks it looks to us as the glass joint steering committee looks at us as Ron we're on track for that.
Getting to the point, where a long read genome <unk> can be very close or replace short read or at least kind of be blended into kind of the offer to every patient coming aboard that the longer term objective.
Books continue to look technically feasible continues to look at all the timeline we thought.
Really pleased to be working with them on that it's a really important.
It's a really important.
Development.
As we mentioned there is a lot of lot of disease areas.
Today, the ones that are that are known.
There's more information about the matter.
He is in a particularly show up early in life.
And if you can get increased the diagnostic yield for some of these kids with these undiagnosed diseases. It means it means the world. So we're really excited about that and kind of continued continue working with them to try to accelerate that.
Your next question comes from the line of Mac Sykes with Goldman Sachs. Your line is now open.
Great. Thanks for taking my questions Im sure Youre, probably at more of this with the technology David.
And you've seen pretty significant growth in the data and platform segment.
And obviously still a smaller portion of your overall revenue, but maybe you could just talk about various growth drivers in that business that could help you to continue to achieve that growth that you've been seeing.
Yes.
It is it is new and early.
Albeit it is significant enough we felt it was important to break it out.
I think that the.
We can kind of start with what we're currently doing so and again the first I'll just I'll just point out because I feel obligated to do so this data business that we're building is one it's 100% patient owned and controlled so that the kind of view ourselves as the.
The brokers or the or the ambassadors of the caretakers of that data or whatever however, you want to view it.
Again, I just feel it's always important to keep everybody square on the different approaches to the data business that some companies are taking ours ours is one where the patient's own and control today.
The revenue is generated either by pharma partners looking for patients with specific your answer natural history that are important to trials or to put on therapy. So thats kind of a major chunk of that.
There are also.
Analytics offering that we.
And soon others.
We will be putting on top of that patient data network.
I think it's mostly Biopharma partners now, but we hope in the future other researchers whether they be government or academic or whatnot can pay for a data analysis on on a larger set of.
That patient data.
Included in there as well as some of the other platform services.
<unk> pipeline analysis sequencing services data.
Decision tools or others that other people other other players are using our licensing.
And in the future, we hope to continue to expand the offering we've got a lot of ideas.
Different economic models that can work.
In an ecosystem of what will very likely we think end up being a cooperative co-opetition based ecosystem around that patient network, but those are the major economic activity today, which we would count on for the for the growth for this year and in years out.
We're optimistic about it.
New and creative ways to continue to continue to grow that business.
Got it. Thank you for that and then just given the more measured level of spending how are you thinking about internal capital allocation like specifically what segments of the business, you've maybe seen an increased level of spend and Conversely, where you maybe normalizing spend a bit I guess I'd just like to get some additional color on sort of the reallocation of resources that Ken spoke about.
However, Ross again after that one thank you for the question so if I'm Alan.
Allocation cap allocation perspective already for US this is the balance of <unk>.
<unk>, achieving that 2020 through our near term growth and then concerns about the long term is why he had to change that.
No.
So the future medical medicine, and we're not just with the 11th quarter Bye.
But that balance is important to us so we do have.
And you can sample of mentioned part of portfolio management.
And our approach we're taking in the near term looking at an inheritance or whether it takes out the Delaware the near term, but long term strategic planning thinking about that.
The long term growth, having aircrafts the immense market opportunity will have.
Drilling.
High level approach, we'll take.
Okay. Thank you.
Your next question comes from the line of Dan Brennan with Cowen. Your line is now open.
Hey, guys sorry, thanks for the follow up here.
So I guess the question would be on the on the burn.
The sector has been weak.
<unk> has been weaker kind of towards one of the weakest ones in the burn is one of the things we hear often in terms of the debt load and the burnt. So I'm just wondering with the improvement in the burn could you break out at least for 'twenty two within the $600 50, what the underlying burn is versus what youre kind of assuming for M&A.
And then related to that in terms of the improvement that we're seeing would you help us think about that.
The timeline at which you could get to cash flow breakeven.
Yeah and I appreciate the question. So one I would say the <unk> hundred 50, the target is inclusive of all inclusive. So thats all uses of cash including M&A.
You called out.
The firm target as it were.
Sure.
Let's see in terms of the burn as a question Mark.
It's interesting I think Youll note other.
Anybody who wants to play in the future of medicine that is genomics driving health care as.
Is increasing their burn at this point in time.
We're decreasing our ours because admittedly we've started high.
We've been executing.
A unique strategy to capture what I think is a massive opportunity.
And with that I think we've earned ourselves.
Choices here right now we're at a point where.
Pushing past $500 million 1 billion. So on the 2 billion sooner than later.
And there is the obvious.
Timing to then be able to run on our own cash flow.
If needed.
I think the as we look out.
Our current plan and you think about the ability to reduce burn thereafter, combined with our balance sheet.
We're actually very comfortable with.
We've got the capital we need it we won't we won't be doing that kind of traditional raised in open markets.
And since you mentioned the debt.
There is.
There is plenty of support and.
And plenty of time to.
Do something about that with more than half time before 24 comes around so.
I'd say kind of what our current plan.
The opportunity in front of us.
We're actually sitting pretty comfortably with our balance sheet and feel good about where they are about the next couple of years.
At the time the reason, we don't put a time in the.
Again, given the opportunity in front of us, it's really a growth story.
So depending on the topline growth will then translate to what time, we flip over to operating cash flow positive and again, we'll just neither the meat of the expenses between now and then.
<unk>.
That's the.
The way, we see it certainly by the time, we get $2 billion in top line revenue will be there.
And as a matter of how quickly between between now and then.
It plays up.
Got it. Thank you and then maybe one final one just on M&A.
I mean, it's obviously an important part of your strategy growth strategy.
And you've been quite active.
Filling in areas of need how materially deal.
In 'twenty two do you think in terms of the pipeline that you're seeing your needs.
Any sense on what we should be thinking about from an M&A plan in 'twenty, two and how big you might look to go.
Yes, I think I mean kind of the the thing that has changed the most.
Considering market conditions.
Is the M&A plan, so, whereas we might have considered really interesting technology content paper.
Capabilities that would increase our burn.
That's off the table for now.
Sure.
We're we're kind of like I said, we're serious about the guide top middle and bottom, we're going to stick to that.
With that said I think there is plenty of digital assets technologies pipelines anything out there that can basically really quickly reduce our cost basis.
Further digitized.
The internal operations of the company all of that is still very interesting.
Some have asked recently about.
Revenue or even kind of gross profit that you can bet, we could purchase now that's something in the past, we've never really done, but I think that's something that.
I would just say given given the time, maybe that could be on the table. So that's another change I would say.
But I would I would kind of colors on the on the margin we don't.
Those are those are I believe wise changes to make an M&A M&A approach given the market given the uncertainty of the next year or so.
But like I said, it's all it's all encompassed in the burn forecast.
Great. Thanks, Sean.
There are no further questions at this time. This concludes today's conference call. Thank you for attending you may now disconnect.
[music].
Okay.
Yeah.