Invitae Corporation Q1 2023 Earnings Call
Hello, everyone and welcome to the N V taper Scotia 'twenty to 'twenty three financial results Conference call. My name is Emily and I'll be your conference coordinator today.
After the prepared remarks, there'll be the opportunity to ask any questions by pressing star followed by the number one on your telephone keypad will now turn the call over to our highest picky Lake. Please go ahead.
Thank you operator, and good afternoon, everyone. Thank you for participating in today's call.
Joining us today are president and CEO and Knight CFO , ROTC, one and our Chief Science Officer, Dr throws off a deeper.
Before we begin I'd like to remind you that various remarks that we make on this call that are not historical in.
Include those about.
Our vision and business model, the company's strategic business realignment future financial and operating result experts.
Expectations of future growth and reduction in burn rate and future product services I'll talk pipeline and their timing.
Certain points would make 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 updated outlook statement.
Statements on future company performance assumes among other things that we don't conclude any additional business acquisitions investments restructuring a legal settlement.
We refer you to our most recent 10-Q and 10-K in particular to the sections 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.
To supplement our consolidated financial statements prepared in accordance with generally accepted accounting principles in the United States or GAAP.
Yep.
Monitor and consider our stuff on 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.
For which you can access by visiting the investor sections of the company's website at IR Dot media Dot com.
Today's Ken will discuss our Q1 highlights and our 2023 Brooklyn.
<unk> will discuss our recent clinical updates related to PCM, and Ross, who will cover the financials and key metrics from the first quarter.
Our 2023 guidance.
We will then conclude the call with Q&A.
With that I'll turn the call over to Ken.
Thank you Hilton and thank you all for joining us today.
In the first quarter, our team continued to execute against our plan.
We posted $117 $4 million in revenue.
Approximately 10% year over year growth on a pro forma basis.
Along with year over year improved gross margins and reduced cash burn.
On the operational side, we saw an encouraging readout on our PCM technology publication in nature.
New partnerships and benefited from enterprise wide revenue and capital management efforts.
We believe that the macro drivers with growth in our space remain robust.
And the opportunity for utilizing genetic information and genomic testing has substantial upside.
With recent advances in technology clinical validation guideline expansion and reimbursement the industry is poised to grow.
And in this day has been a leader and a catalyst in driving many of these advances.
We have industry, leading variant interpretation capabilities.
As a result of serving nearly 4 million patients across our diverse spectrum of clinical areas.
This is bolstered by our machine learning and functional modeling capability.
We are best positioned to provide the highest quality of interpretation at an industry leading scale.
We have a strong commercial presence for example, we are respected and well regarded among genetic counselors at major oncology centers alike.
And have become a provider of choice.
Our approach to science and innovation is addressing the largest market opportunity.
It includes revenue growth with our deep data and partnerships.
And most importantly, our dedicated team is relentless in pursuit of our mission of bringing comprehensive genetic information into mainstream medicine.
With great products that lead to better patient outcome.
As we look closer at our business profitable growth continues to be the foundation of our plan.
And we are allocating our capital in key areas that will lead to growth in 2023 and beyond.
Let's start with oncology.
Our oncology sales include hereditary cancer testing and fee for services business with Biopharma.
On a pro forma basis.
Ecology revenue in the first quarter was $60 million compared to approximately $52 million a year ago.
Our fee for service revenue was lower year over year due to contract flow and timing which vary.
And our regulatory cancer testing, we saw low single digit growth year over year in both revenue and volume for this quarter.
With guideline expansion improved outcomes and reimbursement practice showing signs of improved adoption for hereditary cancer testing we.
We are determined to assist in the adoption of non genetics external providers.
These efforts are underway and showing improved traction with April year over year growth ahead of Q1 rates.
We also recently announced some exciting clinical updates on our <unk> franchise as our PCM platform technology benefits were published in nature.
We are optimistic that this will further drive pcm's adoption and additionally, underscores our efforts to gain reimbursement support from payers.
David will cover this in more detail.
Looking at our ongoing efforts for the medium term.
C valuable synergies between our regulatory Germline and somatic product.
Together, they will anchor one of the most comprehensive offering for a physician who is considering options for individuals at risk or diagnosed with cancer.
We will provide critical information poor prognosis treatment family risk drug interactions and monitoring.
And our rare disease category, we really saw solid revenue growth in Q1 of approximately 33% pro forma year over year.
Driven by pediatric genetics, as well as cardio and neuro panels.
We have also introduced a number of programs to improve reimbursement rates.
Our efforts to drive profitable growth are already yielding improved gross margins in this category.
In women's health, we are encouraged to see continued momentum with approximately 18% pro forma year over year growth.
In particular.
Our carrier screening panel is performing well.
Two our enhanced product that has helped drive adoption.
We are also seeing increased productivity with our sales team.
Along with market share gains in light of industry consolidation.
On the data side, we are linking and visa is genetic data with clinical claims and prescription data.
To enable researchers and Biopharma partners to deepen their understanding of the patient journey.
And ultimately deliver a more effective therapy to the most precise patient populations.
On the partnership front, our data platform has enabled an exciting partnership with Deerfield that we announced in March.
The partnership will leverage genetic and clinical data from us.
In Deerfield broad drug discovery and development expertise to advanced genetics based drug discovery and development in rare diseases.
We are delighted to work together and.
And explore the potential opportunity based on our respective strengths.
On top of our growth initiatives. We are also working to further improve our revenue cycle and working capital.
Lastly, we'll provide more details in her remarks later.
Next we will go deeper into our recent clinical updates for a minimal residual disease product PCM, which is demonstrating impressive value for prognosis monitoring and surveillance during their cancer journey.
But before we dig into PCM.
I'd like to say a few words about our recently hired chief Medical officer for oncology.
W. Michael corn.
But the corn joined us in March of this year and he is a luminary at the intersection of clinical oncology and the commercial laboratory.
He founded and led the precision oncology initiatives at UCSF.
And later was a chief medical officer at a large commercial genomics laboratory for five years.
I'm sure that many of you will be getting to know Dr. Cohen in the coming months as we provide additional updates on our oncology initiatives.
We welcome him to the team.
I was hoping you mentioned.
Also on the call is Dr. Robert <unk>, our Chief Science Officer for <unk>.
He is here to provide additional insights into the data recently published as well as other updates on our clinical plans.
Dr. <unk> has been with <unk> since 2021.
And came to us via the acquisition of velocity, which he founded.
Dr. <unk> will lead the development of many of the key technology elements that underlie our current PCM platform.
He also has vast experience with both laboratory formation and product commercialization during his career.
And we are fortunate to have them, helping to lead this important initiative.
I'll now turn the call over to you Dr. <unk>.
Thanks, Ken and I appreciate the opportunity to be on the call with all of you today I would like to shed some color on the recent publication of trace Eurex.
Let me first spend a minute, giving some background on the study.
We conducted the research in collaboration with Dr. Charles and his team at University College, London, Dr. Spartan is both a pioneer and a current leader in molecular oncology and the development of MRV as a useful genomic tool.
The study involved a 197 patients with stage one to three non small cell lung cancer, followed for up to five years and represented the first use of our PCM technology to correlate clinical outcomes with <unk> presence.
We used in the study looked at up to 200 variants in order to maximize the assay performance.
Using the same underlying technology. Our currently commercialized clinical ODT has been optimized to include up to 50 variants.
The results of the study demonstrated that Cte DNA detection by our PCM platform is a sensitive tool for both prognosis and early detection of recurrence.
The ultimate goal is to leverage Cte DNA to guide treatment decisions.
Currently prognostic information can be used for intensification of surveillance, while therapeutic interventions can be explored in the context of clinical trials.
We view this as key as we work to integrate testing across the cancer journey.
At a high level, the paper showed sensitivity and specificity of greater than 99, 9% at a 0.008% with 16 nanograms of cell free DNA input for 50 variant panel Lara.
Largely consistent with our internal findings in other studies.
Now onto some additional detailed results.
There were 108 patients available for landmark analysis.
Landmark was defined as plasma samples collected within a 120 days of surgery.
Out of these patients 51 patients relapsed during the study period and Cte DNA via our PCM technology was detected in about half the patients.
Utilizing the early landmark analysis window to forecast eventual relapse demonstrated a positive predictive value of 93% and a negative predictive value of 68%.
Importantly, clinical sensitivity was further improved by continued surveillance beyond the landmark period.
In the study median lead time for landmark positive patients over clinical recurrence detection was more than seven months.
As far as the practical value to patients compared to today's standard of care Cte DNA was detected in relapsing patients prior to imaging by a median time of almost four months.
Clinical sensitivity and specificity, where assessed based on $70 61 patients respectively.
<unk> was 95%.
We're 96, 7% after removing a patient with known anomalies.
<unk> reported a minimum sensitivity of 84%.
Additional filtering of qualifying samples yielded sensitivity of 93, 6%.
These results delivered a few important takeaways.
First the study demonstrated equivalent if not better analytical performance compared to previously utilized technologies with this patient population.
More importantly, the results validated the need for products like TCM that create a data driven treatment process for patients and physicians alike through ongoing cancer monitoring.
And in this large cohort of patients the data demonstrated the value of our PCM technology for prognostic value as well as early detection of residual disease and cancer recurrence.
All of which benefit a patient's overall cancer journey.
While there has been a long history of both development and validation of the PCM technology platform for the purpose of brevity I will focus my comments on a few recent and near term development.
Late last year at the San Antonio breast cancer Symposium results of the study of PCM in patients with breast cancer data were presented demonstrating the technology's ability to detect breast cancer recurrence with a lead time of $13 seven months over clinical recurrence detection.
There was also a strong association between Cte DNA detection by PCM and relapse free survival.
These are important findings in a disease, where only limited clinical follow up studies are routinely done during the surveillance after surgery.
Non small cell lung cancer data from the <unk> study were published in nature last month.
Validated the clinical impact of <unk> assays and in V taste differentiated PCM technology and its performance.
Recently, we also submitted a technical validation study for peer reviewed publication.
Which we hope to see in the coming months.
So with these study Readouts and technical validation data what is the impact and what else is to come.
There are a few key points to make here.
First the more validation, we deliver on the technology platform. The more effectively we can market the PCM technology for potential fee for service customers and research collaborators in the Biopharma and biotech community. We anticipate more data will be generated through this activity that will help drive volume and.
Adoption.
In addition, more clinical data allows us to continue optimizing our clinical product to achieve maximum performance, while balancing real world patient needs and other commercial considerations.
We are currently optimizing our <unk> sponsored PCM clinical studies, including our prospective Maria trial designed to further validate the clinical benefits of our PCM platform and a multi cancer environment as well as other studies that include lung CRC.
Breast ovarian cancer and other cancer types in.
In addition, we are expanding our registry study program to obtain real world data on assay utilization in the adjuvant as well as treatment monitoring setting.
We are also working on identifying new collaborators with existing patient cohorts to allow retrospective analyses that will further demonstrate clinical utility and strategic patient populations.
Our overall objective is to enhance the impact and robustness of the studies to accelerate the readout timelines and drive a clinically relevant and competitive profile as we address additional cancer indications.
We fully expect that our enhanced clinical trial efforts will provide further proof that PCN can potentially become the standard of care for genomic testing before.
During and following many cancer treatments and with that I will turn the call over to Roxy to discuss the financials. We look forward to fielding your questions in the Q&A session.
Roxy.
Thanks, Bob moving onto our financial results, we had another solid quarter outperformance in progress.
We are providing revenue breakdowns on the reported and pro forma basis for clarity in the first quarter of 2023, which generated approximately $117 million revenue.
Paired with $124 million in the prior year. The decline reflects the fact of exited product lines country and territory as a result of our realignment last summer.
On a pro forma basis, we grow the business around 10% from last year.
Looking at the details of that business categories.
<unk> million dollars from oncology, including hereditary cancer and fee for service PCM testing offered to pharmaceutical partner on a reported basis. This category was impacted by the exit of our kit business and by the timing and size of fleet.
Our service contract, which vary from quarter to quarter.
$25 million from our womens health business, including Ips and carrier testing services.
<unk> million dollars from rare disease.
<unk> genomics and other testing product.
Data and patient networks revenue was about $12 million. This includes our sponsored testing programs data management and the number of data partnership projects now.
Now, let's look at our revenue growth profile on a pro forma basis overall, we demonstrated approximately 10% year over year growth and around 5% quarter over quarter flows.
The specific business lines.
In oncology lower PCM revenue in the form of fee for service contract.
Our year over year performance, partially offset by the modest growth in hereditary cancer.
Women's Health group business grew 18% year over year, largely led by our carrier testing panel.
We are a business grew around 33% year over year, primarily led by our cardio neuro pediatric pads as well as revenue management efforts.
Data business also rose over 30%. Thanks to continued growth of our patient identification programs and partnership contracts for our genetic data part.
non-GAAP gross margin in the first quarter was 47, 9%, which improved significantly compared to 36, 6% in 2022 and improved slightly over the 47, 8% in Q4 of 2022.
non-GAAP operating expenses in Q1 of 2023 with $133 million.
Or 113% of revenue.
Compared to $209 million or 169% of revenue in Q1, 'twenty, two and similar to 111% in the last quarter.
Moving on to cash performance.
Cash equivalents restricted cash and marketable securities totaled $389 million on March 31, 2023, compared to $557 million on December 31st 2022.
Our total cash and investment position changed by $171 million, which includes the pay down of the $135 million first lien term loan in conjunction with our recent means in Q1.
In the first quarter, we continued to improve our cash burn and the burn for ongoing business was about $51 million, which represent approximately 70% of these actions on the part to it.
In addition to working capital improvement in particular inventory management in the first quarter ongoing cash burn in the first quarter also benefited from approximately $13 million of a reduction associated with the realignment of the previous our trip isn't it.
Looking at the expected levels for the rest of this year, we still anticipate fundamental improvement through further working capital efforts and are confident that we should be able to deliver closer to the lower end of the cash burn guidance.
Yes.
Lastly, in addition to our strong cash position with a declining burn rate. We also have close to $250 million of additional secured debt capacity available to us.
Now starting to the Q1 'twenty three business metrics.
For patients as measured by total company revenue divided by the number of ordering patients for the quarter.
In the first quarter revenue per patient was $463.
Previous three quarters were higher due to the kit business revenue when we exclude those revenue for comparison you can see that the metric has been stable in the last couple of quarters and we anticipate further improvements against the new baseline in the future.
Also happy to see continued quarter over quarter improvement in variable cost productivity as well as cash burn as a percent of revenue.
Moving to our financial guidance for 2023.
Reiterating our guidance for revenue to more than $500 million.
Representing low double digit local out.
We continue to anticipate the revenue breakdown to be roughly 45% to 48% in the first half of the year on 50% to 55% for the second half.
We also gave an additional color as to product mix expressed as a percent of total revenue.
Our non-GAAP gross margin.
It will continue to expand from the 47, 9% Q1 to be between 48% to 50% for the full year. Thanks to a more focused portfolio higher quality of revenue.
Sustained improvement lab operations supply chain and logistics.
In 2023 as a result of the voluntary repayment of our term loan reported cash burn will be higher than the ongoing cash burn figure.
Ongoing basis, we're optimistic that we're tracking towards the lower end of our previous guidance of 250 and $275 million.
But maintaining our target at this point.
Guidance range calls for a more than 45% improvement from the 2022 and is expected to be driven by our topline growth.
<unk> gross margin reduced opex as well as continued wasn't happened 12 months back.
To your point.
Thanks Rafi.
Some of our today's call.
Yes.
We are on track to achieve our 2023 growth and business execution goals.
The growth catalyst for the near term are in focus.
<unk> expanding hereditary cancer adoption <unk> genetics expert channels.
Our efforts to expand gross margins and reduced cash burn slightly ahead of plan.
Second.
Our pathway in oncology for PCM is becoming more clear.
And the evidence we need to drive physician and payer adoption are being collected in preparation for commercial launch.
Beyond our current fee for service revenue.
And finally.
We have recently address substantially all of our near term debt and improved our balance sheet.
We also have additional secured capacity remaining as a potential funding option.
So again.
Same mission new path.
Integrated and connected portfolio.
Ratable growth and big bets are the recipe for the next chapter of <unk>.
Operator, I'll now hand, it over to you for questions.
If you'd like to ask a question today. Please do so now by pressing star followed by the number one on your telephone keypad. If you change your mind I would like to be removed from the queue. Please press star and then two what's.
Turning to ask your question. Please ensure that your device is unmated lately.
And we will just take a brief pause to assemble all Q&A roster.
The first question today comes from Puneet <unk> with SBB Securities.
Please go ahead <unk>.
Yeah.
Hi, Michael on for Puneet, Congrats and a healthy start to the 2023.
I wanted to start with PCM I really appreciate the extra color on the lung data I was wondering if you have any.
Additional details you can provide on indications youre expecting to submit to CMS and potential timeline for getting some reimbursement.
For Medicare.
Hey, Bob you want to take that question.
Sure.
So this was one of our.
Earlier studies that we had started in lung cancer. We have additional data that we had mentioned was presented last December in breast and we anticipate that evolving into a publication for us as well and as we've indicated this year, we're really focusing on generating additional evidence in areas outside of it.
One in colorectal and breast and ovarian and so those are all in full swing and what we're doing parallel to that or having conversations with Medicare as well as private payors.
Earlier. This year you saw the favorable coverage from Blue Cross Blue Shield in California, and so these are proceeding in parallel and we're just continuing to generate additional evidence in the form of clinical studies in the form of abstract presentations at conferences.
Great. Thank you and then.
I was wondering if you could offer any color on ASP trends by segment I know you mentioned rare disease.
Some improvement I was wondering if you have any.
I guess.
The details on some of the other segments.
And they carry a product that we launched ourselves and that's driving better adoption and and and I went to south business in general we've we've seen some improvements just do the industry consolidation and we've we've been able to grab some sure.
So far as the micro deletions piece, we're prepared for the way we have our product offering.
We're in good shape.
Start to drive more.
Demand that Michael deletion option, and so we were prepared and ready for that if that if that turns into a real demand.
Okay, great. Thank you very much.
Our next question comes from Matthew Sikes with Goldman Sachs. Please go ahead Mackie.
Good afternoon, and thanks for taking my questions Rush, maybe the first one for you just want the cash burn just noting Tennessee the progress you've made in the $51 million that you burning the quarter. The guy that you've put out there would imply a decent step up and that burn, but it sounds like you are making efforts to continue to reduce that should the queue on run rate of burn.
Something we think about or is there some seasonality or other impacts later in the year, where we should look.
Look at that guide is more of a.
A way to look at burn over the course of the year.
Yeah.
Thank you. Thank you Matthew for the question we are so.
So that will continue cashback action at first and this is something the entire company is very focused on and so this year as we.
Guidance.
Pretty confident in that.
Yeah, Ashburn, it most likely going to be.
Posted to the lower end of the guidance and would that being said Q1 51, we benefit.
Some working capital improvement that we thought it.
Alright Archer business.
Are your business and some of the other I set that way.
We we accident in queue for so there's I'm working capital improvement that's.
<unk> in the 51 million other number but the core business fundamental improvement now working capital as well as cashback will continue through the end of the war.
Yeah.
Got it thanks Roxanne.
Do you want for your cat or a doctor David just on a P. C M business.
Talked about some lumpiness in the fee for service.
I'm, assuming you know contracting with the Biopharma companies as it tends to be that way, but could you maybe talk a little bit about the dynamics within that fee for service business and how you see that training do expect it to remain lumpy is just starting out or do you think you could kind of smooth that out as the business grows in any kind of way you can parse out that <unk> fee for service business with an oncology would be hell.
So if you're willing to do that.
Dr. <unk> is so much closer to this than myself, so I I <unk>.
The neighbors thought with response, if you don't mind.
Yeah. So the Lumpiness is really due to the nature of the projects a lot of this work is project based where it's a large number of samples from retrospective cohorts and so just based on the timing of when those samples get released from Central Labs, We've got a healthy pipeline of projects coming in.
And new clients coming on board and so I think as we continued to grow that funnelled. The lumpiness will still be there, but just not to the extremes as where it is now with respect to large swings and numbers of samples on a given month to month basis.
Got it thanks, and any any breakout of of the fee for service with an overall oncology or you keeping that all within the same group.
Matt This is rodriguez to add to talk about that that they look as sad and in that at the back of the <unk> Appendix section you will see the break out alright.
<unk>.
I could have starting to one of 22.
In this quota included as well and you'll also see to perform that the new by each of the four.
Categories on the prior patient as well.
Perfect. Thanks for asking.
Yeah and that I would add this is can we also have you know put some commercial efforts into making sure we show up that pipelines, though.
We are we've got a great product.
Determined to continue to grow that bomber business, though.
Thank you very much.
As a final reminder, if you would like to ask a question today. Please decide now by pressing start followed by the number one on your telephone keypad.
We would just take a brief posed to allow any additional questions to come in.
At this time, we have no further questions registered chemical back to Ken for closing remarks.
Well, thank you operator, and thank God. Thank you everyone for joining us on the call today.
Be sure to continue support and look forward to sharing more updates with you in the near future have a great afternoon and evening style.
Thank you everyone for joining us today. This concludes our call and you may now disconnect your lines.
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Mmm.