Q3 2022 Invitae Corp Earnings Call
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Joining us today, our president and CEO , Tim Knight, and our CFO ROTC one.
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 vision and business model.
The company's strategic business realignment future.
Future financial and operating results.
Expectations of future growth and reduction in burn rate.
And future products services, our product pipeline and a timing constitute forward looking statements within the meaning of the safe Harbor provisions of the private Securities Litigation Reform Act.
It is difficult to accurately predict demand for our services and therefore, our actual results could differ materially from our stated outlook.
Statements on future company performance assumes among other things that we don't conclude any additional business acquisitions.
Yes.
Restructurings or legal settlements.
We refer you to our most recent 10-Q 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 of the date hereof.
As you listen to today's conference call. We encourage you to have our press release available, which includes financial results as well as key growth metrics and commentary on the quarter.
To supplement our consolidated financial statements prepared in accordance with generally accepted accounting principles in the United States.
GAAP.
We monitor and consider several non-GAAP measures.
We encourage you to review our GAAP to non-GAAP reconciliations, which are available in the 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 <unk> Dot com.
Today, Ken and Rob can you discuss Q3 highlights.
The continued execution of our realignment plan.
Within our portfolio.
Financials and key metrics of the third quarter.
Including our guidance and concluding the call with Q&A.
With that I'll turn the call over to Ken.
Thank you <unk> and thank you all for joining us today.
Let me start with an overview of our third quarter performance, which showed solid operational execution against our realignment plan.
We're proud of our team's ability to continue to deliver and appreciate their passion for our patients our mission and our future.
We're working hard and are encouraged by the financial and operational results of this quarter.
Revenue for the quarter was $133 $5 million growing almost 17% year over year.
This was paired with further improvement in our gross margin with non-GAAP gross margin of 45, 9% in the quarter.
There to 35, six in Q3 2021 and <unk>.
41% in Q2 2022.
We are well on track to achieve our full year non-GAAP gross margin forecast of 42% to 43%.
Additionally, our efforts to reshape our cost profile has good momentum and is reflected in the reduction of our non-GAAP operating expenses to roughly 112% of revenues compared to 176% of revenues in Q3, 2021, and 146% of revenues in Q2 2022.
This work helped us to reduce our cash burn to $108 million in the quarter. If we exclude one time nonrecurring items compared to 169 million cash burn in Q1 2022.
Lastly, we'll provide an update later on how we see cash burn for the full year 2022.
The reduction in Casper to $108 million represents an annualized run rate reduction of approximately $245 million from Q1.
And reinforces that we are on track to deliver the $326 million in cash burn reduction fully realized in 2023.
We have made the tough but necessary workforce decision.
With notifications and reductions pretty much completed as planned.
We've also made headway in consolidating our office and lab footprint.
<unk> steps to reduce underutilized office space.
Regarding the consolidation of our geographic footprint.
We have exited all impacted international territories prior to the end of September .
In Q3, our ex U S business positively contributed to our improvement in non-GAAP gross margin.
Finally, our.
Our portfolio optimization work has begun.
And we have taken steps to consolidate our offerings.
<unk> exiting our pre implantation products for IVF.
And exiting other underperforming products and accounts.
We continue to pursue divestiture or wind down of our distributed kit business, but.
But not much more to report on that at this point.
So in summary, we are on track to deliver the $326 million of cash burn reduction.
Now turning to core product areas.
And hereditary cancer <unk> brand is trusted and valued.
We've generated an enormous amount of compelling data.
And we've used that data to drive changes in guidelines and coverage policies, resulting in broader clinical adoption and more consistent reimbursement.
Our most recent contribution includes <unk> publication in Jama.
Underscoring the American society of breast surgeons guidelines recommending that all breast cancer patients receive genetic testing.
We also recently highlighted <unk> decision to expand guidelines and CRC.
Advocating for Universal Germline testing for all colorectal cancer patients past and present.
Regulatory cancer testing is still underpenetrated with some estimates as low as 10% to 20% of potential patients being tested.
In addition to expanding adoption, we have additional initiatives underway to bring product enhancements and improved workflows for more access and ease of use.
We intend to keep the momentum going with the genetic counselor community.
And are expanding our call points to non genetics experts.
With a focus on workflows education and decision support.
In pursuit of the very best outcomes for patients.
Our hereditary cancer offering is our highest revenue business.
With a margin profile well above our corporate average.
And our goal is to leverage this to extend offerings into the somatic space.
The most recent addition to our somatic offering is our minimal residual disease product.
We call it personalized cancer monitoring or PCF.
Which is powered by our proprietary <unk> technology.
As many of you are aware getting somatic testing incorporating into patient care is a massive opportunity.
There are over 18 million cancer survivors in the U S and it's estimated that there are nearly 2 million new cases diagnosed each year.
The total addressable market for M D as $20 billion to $30 billion.
And it's still in the early stages.
Widespread clinical use is still on the horizon and we are actively working through the steps necessary to further facilitate.
Adoption of our PCM.
Engaging with clinicians key opinion leaders and payers.
Our goal is to continue to demonstrate the utility of PCM.
Combined with our other oncology insight.
And to be positioned to enable cancer treating physician to advanced precision oncology.
In an effort to move cancer into a chronic disease.
PCM will provide the speed and accuracy to detect cancer sooner.
Reducing the downstream cost of care and improving patient outcomes.
While we're working through reimbursement options and clinical trial results.
We are supporting a growing number of top biopharma companies and academic medical centers, who are partnering with us.
Via a fee for service arrangement.
<unk> research and generate revenue.
Moving on to women's health.
Recent guideline expansion recommending screening for all pregnancies, including average risk is.
That's created a meaningful tailwind to us and to this segment with a tam of over $2 billion.
As part of our operational shift.
Exited channels with lower quality revenue as well as implemented better reimbursement practices internationally.
In the U S changes in our billing policy improved Cogs performance and better disciplined in our contracting have eliminated several underperforming aspects of this business.
These factors together have taken a women's health non-GAAP gross margins from deeply negative to positive.
We expect continued improvement into next year.
With sharpening our product positioning, which includes new core and expanded panel and.
And we are also tapping into additional womens health channels, including Obgyns and breast surgeons to expand hereditary cancer testing.
Yes.
On the rare disease and data side of our business, we are seeing growth opportunities bridging our testing and data collection.
Our testing business gives us access to multiple disease population and hundreds of clinician relationship.
We now have an emerging capability to combine genomic and phenotypic data include.
Including real World evidence and are seeing an enthusiastic response to this capability among patients advocacy groups, researchers and Biopharma partners and the rare disease area.
We are excited about the growth of our recent partnerships with practice, who use our platform is natural history data to support their <unk> application for the treatment of pediatric epilepsy.
And with Astrazeneca, who is using our platform for real world data and our research of a rare bile duct cancer.
While currently a small part of our total revenue our data segment is a high growth high margin and scalable business and there are more opportunities in our pipeline.
By the way recent findings in Jama demonstrate that a positive epilepsy genetic diagnosis leads to clinical management changes and approximately half of patients.
And that changes implemented by clinicians based on genetic testing improve health outcomes and as many as three quarters of patients.
This will help adoption and reimbursement of our epilepsy genetic testing product.
With that I'll turn it over to biopsy for financial highlights of our most recent quarter.
Thanks, Ken.
Third quarter of 2022.
Generated approximately $134 million up revenue and the breakdown what that follow.
Approximately 79 million oncology.
Analogy, including terminal testing therapy selection and TCM sort of thing.
Pharmaceutical partners.
That mean, a 12% growth over the prior year.
Approximately $25 million on.
Women.
Including <unk> carrier and the other way so that had a 19% growth over the prior year.
Approximately $17 million.
Other testing products, 17% growth over prior year.
Data and patient in our revenue totaled 48% over last year. This includes data management data as it further and the partnership projects supported by the citizen patient network.
non-GAAP gross margin was 45, 9%, which is an improvement of over 1000 basis points from the prior year and 580 basis points on the prior quarter.
non-GAAP operating expenses were $160 million or 112% of revenue compared to $200 million, 146% of our revenue in the second quarter of 2022 and 176% of revenue.
The prior year.
As a result of our realignment plan, we also incurred more than one of them.
$25 million restructuring and other onetime expenses.
<unk> employee separation and benefit.
Uh huh.
<unk> and other costs.
These items were excluded from our Q3 non-GAAP operating expenses in todays presentation.
He stated on our first quarter call that we plan to hold our operating expenses at a stable level. Among our July call. We further committed to reduce that to take a significant amount going forward.
Our actions, including reduction in head Count Lab, and office space Third party services as well as exiting certain businesses and geographies.
Founded in the operating expenses reduction up nearly $50 million from the prior quarter.
We expect additional reductions to our quarterly run rate over the next two to three quarters as our cost reduction efforts taking effect.
Moving on to cash performance.
Cash cash equivalents restricted cash and marketable securities totaled $596 million at September 30 of 2022 compared to $737 million at June 30 of 2022.
Our cash position went down by about $141 million compared to the end of the second quarter.
Excluding the inflow.
<unk> $10 million from our ATM facility, a total cash burn at $151 million.
Adjusting for one time items, including approximately $29 million related to the re alignment programs and $14 million related to compensation items for past M&A transactions, our cash burn for ongoing investment will be $108 million in Q3 and meaningful reduction.
My one right at the beginning of 2022.
Flower number with our ATM financing options, we do not intend to use it to solve a bad maturities.
That we continue to have conversations with long term partners, who have a shared vision of our company and the desire to find a constructive solution to our balance sheet.
Now, we have close to $600 million cash and our cash flow trajectory is heading in the right direction aided by the effort they put into place over the past year and accelerated our strategic realignment.
Stepping to the business metrics that are intended to offer more transparency and a more consistent Alan perspective on our performance.
The portfolio grow our active accounts continue to fuel top line growth. Despite active partner being relatively stable in Q3 due to our geographic consolidation and focus on higher quality revenue.
The impact of these efforts will continue to be a slight headwind to this metric.
The number of patients with third and one who are available to share that data continue to expand each grew roughly 48% over prior year and 10% sequentially.
Our new product vitality was down slightly from previous quarters.
A reminder, this metric represents our revenue contribution by new products over the trailing three years as previously communicated.
Pull back in our member, resulting from the slowdown in new product launches in 2020 and pass up 2021.
<unk> per patient measured by total company revenue divided by the number of ordering patients for the period have continued to increase as we have focused our proud of their efforts on achieving higher quality revenue.
Moving to operational excellence, we're seeing continued quarter over quarter improvement in our category cash bearing had a number of onetime items in the quarter cash bearing as a percentage of revenue would have been 81%, excluding one time items.
Moving to our financial guidance.
We are affirming our 2022 revenue and non-GAAP gross margin targets.
We expect full year 2022 revenue growth up low double digits over the prior year and our non-GAAP gross margin to be between 42% and 43%.
For the first quarter as previously communicated we project to have less revenue.
Based on the fact that it's the first full quarter of operations since our re alignment started in mid July .
There will also be some revenue impact depending our final decision and the timing of that decision regarding our distributed kept personnel.
Taking these factors and our current trajectory into consideration, we're maintaining our full year revenue guidance lower double digit growth.
Looking at our cash burn we now expect full year 2020 for cash burn to be between 585 and $625 million.
The improvement from our previous guidance of $600 million to $650 million.
Note that the cash burn guidance include up to $75 million related to realignment activities and this amount has remained the same as our previous guidance.
We're encouraged by our progress to date and are confident in our team's ability to deliver.
Actually you can.
Thank you Rafi.
With that we'll now turn the call over to the operator for Q&A.
Thank you, Steve we would like to ask a question. Please press star for point of London telephone keypad and how have you changed your mind. Please press star followed by two 1%.
As a Christian please ensure your forms and me too long too.
Awesome woman controlled coupons.
Our first question comes from Kevin from Morgan Stanley . Please go ahead.
Okay.
Hi, This is Gary gave Paul on for <unk>.
So I was just wondering if the recent granting a preliminary injunction preventing california from enforcing a requirement of only labs contracting with them would be allowed to perform trisomy screaming screening for California residents and if that would factor in IPD volumes going forward and how we should think about that impact.
IPP providers.
Yes. This is Ken that's a great question.
We obviously were not.
Supportive of the direction that the CVP H was taking.
And so it continues to allow us to operate in the state of California, with our Nics product, which we're excited about.
And so as we as we see the broadening guidelines and expansion of guidelines and making the utility of an Ips more accessible to pregnant women.
There's nothing but upside for us.
Thank you that was very helpful. And then just in terms of your hereditary cancer business. What are you seeing in terms of the shift towards expanded career Scranton screen panels.
And what do you think are the challenges for broader adoption.
Was the question of expanded carrier screening.
Okay.
Expanded carrier screen panels.
Yes, so we have a we have some work underway actually bringing out an expanded carrier.
Screening product here pretty soon.
You know there is a specific utility of expanded carrier screening, it's obviously used or more complicated.
Diagnoses and so we see there's a there's a place for expanded carrier.
But we don't we don't expect that every one of our customers that are ordering carefully screening today is going to pivot to the expanded products. So we will have the option for our customers in the future.
Okay.
Okay. Thank you I appreciate your time.
Thank you.
The next question comes from Matthew <unk> from Goldman Sachs. Please go ahead Matthew.
Hi, this is easy on for Matt.
Could you just talk through the new product vitality metric, which is a little lower on a sequential basis I know last quarter you talked about.
Products coming on in second half of this year, so any update on those would be helpful.
Lastly, once you take that one.
Sure.
Just a quick question. Thank you remind that destination is.
Revenue contribution from our new product or either acquired or internally developed over the last three years. So.
You indicated.
Launches in the schedule and timing of lunch that's happened indication.
Implication on this metric.
Hi.
Some products new product launches at the first half of this year and.
Some of those revenue will come in.
We are.
Not providing our guidance.
For these metrics.
We do recognize that the 2020 in 2021 part of 2021 slowdown is having the impact on the market.
Great. Thank you and then could you talk to pricing dynamics youre seeing in oncology in women's health.
And what impact that might have on margins as we move into 'twenty. Three I know you mentioned more data in hereditary cancer, which is driving reimbursement but.
Additional color would be helpful.
Yeah sure you know, who our women's health products, we've been seeing great improvement in our ability to to get reimbursement.
Expanded guidelines are helping immensely.
Average risk is now covered.
Pretty much with the most made almost all major players in the U S and so that's that's having a tailwind and our average payment per test or nics product.
We've made some some decisions about pricing ex U S and the international marketplace and as I said in my my preamble the benefit of that as we're seeing our ex U S business providing.
Providing positive contribution to our gross margin expansion initiatives, so we're seeing networking as well.
So I'd say from a pricing standpoint.
Reising changes needed to be done we've done those and we've seen great great benefit from it.
Hereditary cancer.
It's been pretty solid I mean, I think the.
Our.
Gross margin performance of our hereditary cancer products is well above our corporate average and it's staying.
Pretty consistent and so we don't see them.
Not necessarily downward pressure on pricing any more than what we are doing in the marketplace. We continue to be the.
The provider who is trying to drive.
More affordable accessible access to genetic testing so we still believe in that part of our of our journey.
But the.
The pricing in the marketplace is pretty solid.
Some concerns about Palmer.
And making some changes, but thats, obviously been held back for now and so.
Overall, we see the quality of revenue for hereditary cancer is growing based upon our reimbursement and internal policies and how we're going to market.
Great. Thanks for the questions.
Thank you.
The next question is from Mark Carden Meso.
<unk> from Jpmorgan Chase. Please go ahead most of them.
Hello, and thank you for taking the question. This is marita entre Julia.
So as it relates to your current mix between oncology women's health and other.
How do you see those mixes evolving over the next year, given the restructuring and how do you see that next settling beyond 2023.
Essentially what are some machining factors impacting that.
Kim.
Yeah.
So I'd say simply put.
As I.
Hereditary cancer product line.
As our highest growth highest revenue product.
And it will continue to be our highest revenue product into 2023.
And so I wouldn't say there is a material shift in mix, that's going to be occurring.
As we have.
We are adjusting our go to market for our women's health, we are getting a higher quality of revenue for each of the.
The test that we're running and so that's going to provide some lift in our gross margin, but I'm not expecting it to shift our mix.
Mix significantly.
Into 2023, so I think our mix is going to continue to be.
More weighted toward hereditary cancer into 2023 and beyond.
Got it. Thank you and then a second question was related to the marquee product that you've mentioned.
Could you just give a little bit more detail about that and how quickly do you think it could drive penetration of that product and what are some of the competitive advantages over the existing products on the market.
Yes sure.
Start with how we see the product itself again, you might recall, we have a tumor specific product and so.
Products that are out there that are tumor agnostic, we have a tumor specific product and we provide a.
Sure.
Panel specific to the patient and the tumor that the patient has which we believe is a superior product that's number one.
Our early data in.
Analysis that we've seen is that our sensitivity and specificity are.
I'm going to be.
Top of the market in terms of how the product will perform.
So we've done we're now in a period of time, where we are.
We've got analytic validity and now we're going in the process of getting clinical validity of our product.
And so we've got several studies better.
That are out there that are.
We expect are going to continue to show the clinical validity of our product.
And as we navigate through that then we'll be moving to kind of getting confidence and the utility of our product.
And ultimately the utilization and reimbursement so the journey is pretty well mapped out we know how to do this.
We're just in the process of getting that done and in the meantime.
We are utilizing our fee for service.
Arrangements with.
Biopharma or academic medical centers and.
And we're getting good good interest in our product and our PCM product and we expect that's going to be a kind of a bridging revenue.
Opportunity for us until we get all the way to commercial utilization and commercial reimbursement.
Yeah.
Great. Thank you.
Yes, we're pretty excited about it so I hope I hope I did as I was answering a question that I wanted to make sure you understand we are very excited about our <unk> product in the space as I said in the opening.
20% to $30 billion of Tam and it's still underutilized and so it's early.
We're excited to be competing in that space are very in a very near future.
As a reminder for any further questions. Please press star followed by one the new telephone keypad.
So that's probably one.
It appears to be no questions registered at this moment I'm going to hand back to the management team.
Well, thank you operator, and thanks, everybody for joining us on the call today, we remain very positive about the opportunities Glenn Vijay.
Certainly confident in our team's ability to execute on our plan. So we.
We appreciate your continued support and thank you all for joining us on our call.
This concludes today's call. Thank you for joining you may now disconnect your lines.
Okay.
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