Invitae Corporation
Q2 2018 Earnings Call Transcript

Published: 8 Aug 2018

[Operator:]

Good afternoon. My name is Christina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Invitae Second Quarter 2018 Financial Results Conference Call. [Operator Instructions] Laura D'Angelo with Invitae, you may begin your conference.

[Laura D'Angelo:]

Thank you, operator, and good afternoon, everyone. Thank you in joining us for our second quarter 2018 earnings call. Joining us today are Sean George, our CEO; Shelly Guyer, our CFO; Bob Nussbaum, our CMO; Lee Bendekgey, our COO; and Katherine Stueland, our Chief Commercial Officer. As you listen to today's conference call, we encourage you to have our press release available, which includes our financial results as well as our metrics and commentary on the quarter. Before we begin, I'd like to remind you that various remarks that we make on this call that are not historical, including those about our future, financial and operating results, our plans and prospects, the focus of our business strategy, our plans to integrate and manage businesses we acquire, market opportunities, future products, services our products pipeline and the timing thereof, demand for and reimbursement of our services, and our investment in our infrastructure and operations 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 guidance. Our guidance on future company performance assumes among other things that we don’t conclude any additional business acquisitions, investments, restructurings or legal settlements. We refer you to our 10-Q for the quarter ended December 31, 2017, in particular, to the section titled Risk Factors for additional information on the factors that could cause actual results to differ materially from our current expectation. These forward-looking statements speak only as of the date hereof. With that, I will turn the call over to Sean.

[Sean George:]

Thank you, Laura, and thank you, all again for joining us. Here at Invitae, we are well on our way in delivering on our mission to integrate genetic information into mainstream medical practice. With an addressable market of more than one billion people in the modern medical systems worldwide, we continue to face a huge opportunity to lead the effort in delivering genetic information to and from health care across all stages of life. We maintained momentum across our key performance indicators, showing a nearly 140% year-over-year volume growth and more than 160% growth in revenue and $16.9 million in gross profit. Delivering on all these fundamentals, while continuing to win on multiple competitive fronts and simultaneously integrating several new businesses speaks to the strength of this company and our ability to execute. We are raising our annual revenue guidance again as a result of our success in the pending payments that were due us from Medicare for deletion and duplication analysis as well as an improvement in collection rates from other third-party payers. With accelerating momentum on volume, reimbursement, COGS and resulting gross profit, combined with our ability to pull multiple levers to manage OpEx, we are confident that we can exit the year with a 40% to 50% reduction in cash burn compared to Q1. With a more than $110 million in capital available to us, we have all we need to further drive the fundamentals of our business and extend our differentiated ability to lead into the future. While we've proven is by offering high-quality, comprehensive, affordable genetic testing, we can better serve existing customers while expanding utilization and a number of individuals who can benefit from this information. It is our intent to replicate this model in the reproductive health space. At the end of June, we were able to leverage our technology infrastructure to introduce an industry-leading expanded carrier screen that we developed in less than three quarters. This rounds out our reproductive offering to better serve those starting a family. As is the case with much of Invitae's offerings, it is one of the highest-quality, comprehensive, flexible and lowest-cost carrier screens available today. This development, perhaps more than any of the other business metrics, demonstrates the differential advantage that our past and ongoing investment in the infrastructure provides. I will now turn the call over to Shelly to highlight our financial results for the quarter.

[Shelly Guyer:]

Thank you, Sean. Volume is the best real-time indicator that our business model is working. This marks our 21st consecutive quarter of double-digit volume growth, with more than 73,000 samples accessioned in the second quarter. This is a nearly 140% increase in annual volume compared to the 30,500 samples accessioned in the second quarter of 2017 and a 14% sequential increase from the prior quarter. Billable tests, now a more relevant metric given that we accrue almost all of our revenue, was more than 72,600 for the quarter, which is a 24% increase from the more than 58,600 billable tests in the first quarter of 2017. We did not report on this metric for 2017. We continue to drive volume based on our ability to better serve clinicians and their patients with high-quality, comprehensive, affordable genetics as well as a larger suite of offerings across existing accounts as well as new accounts. A few areas stand out this quarter. First, it was encouraging to see numerous accounts beginning to order both oncology and reproductive health care and to see a pickup as we entered the OB/GYN space. The ratio is about 50

[Bob Nussbaum:]

Thank you, Shelly. Invitae's success is based on the fact that the provider community knows

[Sean George:]

Thank you, Bob. As Bob's comments illustrate, the rapid growth and the importance of genetic information of across this landscape is undeniable. The evidence is building that today, many more people and eventually, everyone, can benefit from understanding their genetic information. Our on-the-ground experience across all disease areas and all commercial channels leads us to grow more confidence in the unbound opportunity ahead of us. Invitae is leading the effort to provide complete answers to some of life's most serious and complex questions. With that, I'll now turn the call over to the operator for Q&A.

[Operator:]

[Operator Instructions] Your first question comes from Doug Schenkel from Cowen. Your line is open.

[Adam Wieschhaus:]

Hi, guys. This is Adam Wieschhaus on for Doug. Thanks for taking my questions. Your average revenue per test of $498 was an $81 step up from last quarter. And it looks like based on your prepared remarks, the del/dup reimbursement add up about $20 of that increase. Can you provide any color on what the remaining drivers were? So just test mix or improved collections? And just to confirm, it doesn't seem like there were any upward adjustments due to ASC 606. Is that correct?

[Shelly Guyer:]

Let me unpack that a little bit. So no increases due to the true-ups from the prior quarter. That may well happen in the future, but not in this quarter. So you're correct. The ASPs actually went up to about $500 from about $460 before. And a portion of that was from the Medicare, $2.3 million from last year. The other pieces though, are related to doing better on collections, both from Medicare during this year 2018 through the del/dup and from collections from other third-party payers, mostly those under contracts. And we saw that pretty widely dispersed among the major payers and increased mostly in the oncology area. A little flatter in some of the other areas, but we did see a nice pickup in collections. And that's why we have strength moving forward and have the confidence to be able to increase the guidance to $135 million to $140 million range at this time. Did I catch all of your questions, Adam?

[Adam Wieschhaus:]

You did, Shelly. And then just one on carrier testing, can you talk a little bit about how we should think about reimbursment rate of your expanded panel compared to reimbursement rate that could start with receiving? And similarly, how should we think about the COGS between the former product and this newly launched product? Thank you.

[Sean George:]

Yes. I think we can answer briefly. Starting out, we entered into the reproductive health market with the expanded carrier screen as a key addition to that, giving us comprehensive capabilities now pretty much across all stages in life. We've mentioned before that the pricing dynamic is similar to our other diagnostic testing. And that our ability to bring COGS in line is very much rested on the last eight years or so we've been investing in our infrastructure. But I think, I'll let the – talk specifically about what we do know now as the maximum space around carrier pricing and what we think about COGS.

[Bob Nussbaum:]

So as you know, there – at the 2019 CLFS Annual Meeting, there was a consideration of the pricing of a new panel code for extended carrier testing, which won't be effective until 2019. And so in the meantime, we, like everyone else, bill third-party payers when we – when it's a third-party pay, we bill them using the most commonly paid codes, which are, frankly, not very different than how the smaller panels get coded, such as the GeneVu panel, that Good Start we're selling. So the pricing today is not that different per ECS compared to the smaller carrier panel. The big difference for us is that we are bringing the cost in line by doing it ourselves and with our more automated infrastructure. So that's where the near-term opportunity is for us

[Adam Wieschhaus:]

Okay, great. Appreciate all the color.

[Operator:]

Your next question comes from Puneet Souda from Leerink Partners. Your line is open.

[Puneet Souda:]

Yes, hi. Sean, I was just hoping to understand better – in terms of what you had highlighted before consolidation of the space continues to play out. And I just want to get a view from you. With the recent consolidation, does it – it's obviously, somewhat beneficial to the [indiscernible] that's in your position, but at the same time, it creates a more – a larger competitor. Help us just to understand – you obviously have taken share as well as the market has grown. What's your expectation here with the competitor in place?

[Sean George:]

I think, to take a step back – again, consolidation is something we've suggested for a while now. It has become a natural order of things for the industry for the years to come. In fact, I would suspect it's going to start picking up. There are incumbents that either will or will not adopt new technologies and broaden the use of genetic information for everybody who can use it. And of course, it attracted interest in the new company formation. I think we're not the only ones at this point that are seeing the massive opportunity in serving up this information to benefit everybody across all of the health care. As to the kind of day-to-day, or I guess, quarter-to-quarter impact of consolidation, in the past, consolidation has worked to our favor. We've always kind of been able to – or have managed to benefit from other players rationalizing moves. And I think, in general, we've kind of from day one, went out – we've gone out with a better product, better service, highest quality, most flexible. And it's allowed us to take share and more importantly, take more than our fair share of the new market growth. And I think we would continue to expect the same.

[Puneet Souda:]

Okay, thanks for that. And in terms of exome I just wanted to touch base – I don’t know if that was covered already. I know you are having some challenges or there is a turnaround time, where do we stand now on that and maybe if you could give us a sense of how much of that is part of the volume?

[Lee Bendekgey:]

Hi, Puneet. This is Lee. So we are just – we have streamlined our exome process. We have brought our turnaround time back into line with the expectations we sought. And we expect that exome volume will start to grow again as we free up the sales force. But it will continue to be a relatively modest part of our volume and part of our revenue mix. So I think that's what you can expect. It will grow, but as a percentage, it's going to remain small for a while.

[Puneet Souda:]

Okay, thank you.

[Operator:]

[Operator Instructions] Your question comes from Amanda Murphy from William Blair. Your line is open.

[Amanda Murphy:]

Hi, thanks. Just a question, so you mentioned in terms of the volume growth that you were getting some decent traction of new accounts. So I was just wondering kind of maybe just give a little bit of a profile who those accounts are? What kind of moved them to you? And then also, you talked about in the past kind of this idea of having a more lean sales effort relatively. And so I'm just curious if you're getting incremental scale and adding tests to the menu, et cetera, and new – with the mix of your avenue, kind of where do you [Technical Difficulty].

[Operator:]

Amanda, we are no longer able to hear you.

[Amanda Murphy:]

Can you hear me?

[Sean George:]

Yes, I think…

[Amanda Murphy:]

Sorry, did you not hear that, okay. Sorry about that

[Sean George:]

We heard everything…

[Amanda Murphy:]

Go ahead, sorry.

[Sean George:]

Yes. I think we heard everything from the very, very end, so we'll start – yes. In general, again, our strategy is very much based on offering odd comprehensive set of information genetics that is well in process in the life. We have our focus on the core key decision makers, thought leaders, large volume accounts in the space as for our sales and marketing strategy. And I'll let Katherine bring a little more detail, but the short of it is indeed, we are seeing the account pick up as a result of having both kind of a reproductive health offering even if it is on the way in early days in addition to oncology, cardiology, proactive health, et cetera. So in general, yes, it – we're excited about that addition and we expect to work in the future. But I think Katherine can bring in a little more about the – what accounts of the dynamic we suspect is going to play out from here on out.

[Katherine Stueland:]

Yes. So as we look at all of the new accounts, they really are – caused all of the clinicians that we're targeting. So we're seeing it in the oncology setting as well as in the children's hospital setting. And I think what's really encouraging now that we're starting to offer high quality, comprehensive, affordable carrier testing is that the synergies between cancer and carrier are according us new opportunities in the OB/GYN sector as well. So early days, but certainly, we'll see – hope to see it happen as we – when we acquire the new technology. So we're really pleased to see new account growth as well as same-store sales continue to increase across all of the clinicians that we're serving.

[Amanda Murphy:]

Got it. Okay. And then I was wondering if you could speak to the relationship with KEW? And, I guess, effort for – to move into a more semantic side? And any update on thoughts around FDA – I guess, FDA approval for that – for the more comprehensive assay or the cosmetic assay? And generally, just where your thoughts are around FDA's involvement in the space more broadly?

[Sean George:]

Sure. I can do two. So let's start with KEW, and then do the FDA or regulatory. I think KEW, there's really no material update with KEW. We announced a development collaboration with KEW. Our plans were going on almost a couple years now asking us to combine semantic testing with our germline of capabilities. I think kind of – guidelines are pretty quickly moving to where that is going to be the best way to do, like characterization of tumors. Our view is with our clients – with input from our clients, this makes a lot of sense to work with KEW and scale up and reduce the cost in kind of the spirit that we often approach things. There are more than 15 million new patients – new cancer patients worldwide every year, and that is likely if you put all of the rest of disease areas, that is a lot of people that need that kind of characterization of cancer. And that's the purpose of the development collaboration with KEW. As we continue to push up forward, we hope to commercialize the combination to some extent some time next year. On FDA front, or the regulatory front, I think the recent kind of past few months, I think overall are positive. I think any time, there's a coordinated move to provide a clear regulatory pathway and reimbursement for this kind of characterization that's so important to determine next up in therapies and care, prevention. It’s always a good thing. We, of course, whichever direction it takes and to what extent, it takes over different indications and different types of testing, we're as prepared or more so than anybody to operate under that whatever form the regulatory team takes on it. We would say kind of our current business and forecast and expectations anticipate a variety of different ways that could go. We are interested in working with FDA and CMS and trying to provide our perspective and help out if we can, on how this would evolve. I think very importantly, I think we should just make sure – make clear everybody. However, we will not be seeking to deploy a combination of the FDA and CMS in an effort to maintain artificially our price course, the information that could otherwise, like I said, be useful for 15 million new cancer patients a year.

[Amanda Murphy:]

Okay, got it. Thanks very much.

[Operator:]

There are no further questions at this time. I'll turn the call back over to Laura D'Angelo.

[Laura D'Angelo:]

Thank you, everyone, for joining us today. We look forward to catching up with you soon at upcoming conferences.

[Operator:]

This concludes today's conference call. You may now disconnect.