Invitae Corporation
Q1 2017 Earnings Call Transcript

Published: 8 May 2017

[Operator:]

Good afternoon. My name is Jessie [ph], and I will be your conference operator today. At this time, I would like to welcome everyone to Invitae's First Quarter 2017 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Kate McNeil, Head of Communications and Investor Relations, you may begin your conference.

[Kate McNeil:]

Thank you, Operator, and good afternoon everyone. Thank you for joining us for our first quarter 2017 earnings call. Joining us today are Sean George, our CEO; Lee Bendekgey, our CFO; Katherine Stueland, our Chief Commercial Officer; and Randy Scott, Executive Chairman. 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 metrics and commentary on the quarter. Before we begin, I'd like to remind you that various remarks that we make on the call that are not historical, including those about our future financial and operating results, our plans and prospects, the focus of our business strategy, market opportunities, feature product services, our product pipeline and the timing thereof demand for and reimbursement of our services, and our investment and 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 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 year ended December 31, 2016 in particular to the section entitled 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. With that, I will turn the call over to Sean.

[Sean George:]

Thanks, Kate, and thanks everyone for joining us this afternoon. We started off 2017 with more than twofold year-over-year volume growth, continued improvement in COGS, solid progress with payers and continued improvement to our platform capabilities and additional services for our clients. We are willing to raise the scale in our industry, and we are well on our way to accessioning 110 to 120,000 samples, and reaching between $55 million and $65 million in revenue. This quarter we added meaningful new content to our platform, including our exome offering which is one of the most affordable on the market to better serve clinicians who are dealing with some of the most challenging diagnostic [indiscernible] particularly in children's hospitals. With that, we have grown our test menu from offering more than 200 genes in 2013 to more than 20,000 genes today. We are also seeing acceleration in our genome network following our January acquisition of AltaVoice, and the subsequent launch of our Patient Insights Network. This has led to several new biopharma partnerships, which are focused on increasing the number of patients correctly diagnosed and speeding up time to market for therapies, and we see a rapidly developing funnel of enquiries from new potential partners. Our advantage in cost infrastructure investments combined with our rapid growth are translating into true advantages of scale, and today we are the fastest growing company in the dynamic and rapidly evolving medical genetic sector. As in our last call, we will focus today's discussion on briefly providing a summary of our key business metrics, and try to provide some insights into the trends that are driving our progress against them. We have started the year strong with volumes of samples accessioned in Q1, exceeding 26,000, this reflects not only continued year-over-year growth, but better than anticipated sequential growth. As you know, we recently expanded our sales force roughly doubling since last quarter. While the new expanded team is operational mid-quarter, it typically takes six to nine months to see new reps impact volumes, so we are looking forward to the full force of their contribution as the year progresses. With the pickup in first quarter volume, you can see we have now achieved an annual run rate in excess of $100 million more than double where we were a year ago, while this reflects our expected billings for the quarter without regard to collectability, it clearly points to healthy underlying business and points to the revenue growth we anticipate in the coming quarters. We continue to make progress with payers and now have more than 187 million contracted lives. This reflects signing contracts with several regional private payers and the addition of several state-wide fee from service Medicaid agreements in the first quarter. We are also deepening our relationship with payers for example signing a contract with Blue Shield of California to cover our new exome testing. Revenue for the quarter was $10.3 million up over 150% year-over-year and nearly 12% sequentially, this is in line with our expectations and we're on track to meet our full year revenue guidance. The trajectory of our revenue growth for this year ties back to when we signed contracts in 2016 as you'll recall we brought on a majority of our cover lies in the third and fourth quarters of 2016 and we're now in the process of operationalizing those contracts. Our current year collectability is roughly correlated to the cover lies reported in the second quarter last year since then cover lies are roughly double and we expect to reach more predictable collectability by Q3 or Q4 of this year. As you look at 2017 we expect the trajectory of our revenue to continue to improve in Q2 and accelerate thereafter. Resulting revenue they'll be more heavily weighted in the second half of the year. It's worth noting that we're also starting to see revenue from our genome network. Right apologies everybody we're back it's worth noting that we are also starting to see revenue from our genome network contribute to the bottom line coming those in the form of non test revenue shown on our income statement as well as revenue generated in testing for our pharma partners. In Q1 revenue collected per quarter delivered at 90 days payable was $502. As a reminder we calculate this metric by dividing current quarter revenue by our prior quarter volume which roughly reflects the timing of our collections. That said there are factors in natural limit that precision most notably delays in invoice processing and payment as a new payer contracts get implemented. This quarter's drop as expected as we were implementing new contracts with two major payers, delaying the payment on invoices for those accounts. While we expect this number to improve going forward, we do expect it will continue to vary from quarter-to-quarter until we have succeeded in fully operationalizing all our major payer contract. We are winning the race to scale in this industry. Our rapid growth has allowed us to put in place systems and automation that are difficult to retrofit into large existing operations and impossible to justify at a smaller scale and as the industry begins to consolidate just becomes self reinforcing. Our cost structure sets us apart and we continue to invest in our scalable infrastructure as a key competitive differentiator. Lining our advantage and positioning us to capture even more volume. Our early lead here has allowed us to aggressively drive down our COGS at approximately $360 you can see we reduced our COGS per sample more than 40% year-over-year and about 10% from last quarter. During the quarter we had some significant content enhancements including the launch of exome along with new and expanded panels for proactive genetic tests inherited metabolic immune system disorders and a unique test for spinal muscular atrophy. As we continue to roll out new content on our platform we expect COGS to continue to vary quarter-to-quarter but we're in confident in our ability to reach 50% positive gross margins with such a high growth quarter in which wine significantly outpace revenue. We were pleased to maintain gross margin positivity during the first quarter that our cost structure and continued improvement in COGS sustain gross margin positivity and over 26,000 samples while we are not yet fully operational on some major payer contracts give us confidence in the durability of our margin model. In the first quarter of 2017 operating leverage has continued to improve. We incurred operating expenses excluding the cost of reports delivered up $28.3 million of which about 24% were general administrative expenses,35% were research and development expenses and 41% were commercial expenses. First quarter operating expenses included approximately $5.6 million in non-cash expenses. During the quarter we took measures to strengthen our balance sheet. In February we completed a 60 million debt transaction drawing down the first 40 million tranche that enabled us to extinguish approximately 12 million outstanding debts and top up on cash. This allowed us to end the quarter with $101.5 million dollars in cash reflecting $22 million in cash used for the operations in Q1 of significance in the quarter in which we doubled our sales force our operating cash flow improved $2 million year-over-year. We're now clearly well capitalized to reach cash flow positivity by the end of 2018 and we'll continue to focus on increasing operating leverage relative to the scale of our business as we move forward. We describe the business opportunity we pursue I think including three distinct yet synergistic components. The genetic testing business, the genome network and genome management this quarter we've demonstrated continue leadership in the aggregation and consolidation of generic pass into a single platform and are on track to becoming the world's leading genetic information provider. Now, a critical mass with the success of our testing business the acquisition of AltaVoice and our continued test menu expansion, we are well-positioned to connect patients with treatment options through our biopharma and advocacy partners as the genome network business takes form. The addition of exome analysis to our offering combined with our broader testing capabilities and genome network partners provide the foundation for our genome management efforts as we move from testing for individual conditions in specific situations the managing genetic information for all patients in modern healthcare systems over the course of their lifetimes. Our strategic flywheel now turns with self reinforcing momentum. We believe our growth strategy positioned in detail to be one of the most destructive forces in the advancement personalization of medicine. With that, I will now turn the call over to the operator for Q&A.

[Operator:]

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

[Adam Wieschhaus:]

Hi. This is Adam Wieschhaus on for Doug. Thanks for taking my question. You mentioned the ASPs were down in the quarter to the implementation of two major payers, are those payers been fully implemented at this point? And you think you'll fully operationalize across all major payers by the second half of year?

[Sean George:]

So let's go, Lee.

[Lee Bendekgey:]

The answer to the first question is yes, those two payers are now regularly paying although they were not for much of Q1, and yes, by the second half, we would expect all of the major payers contract to be operational and paying consistent.

[Adam Wieschhaus:]

Okay, thank you. And maybe a quick one that I may have missed, did you say how many test [indiscernible] you delivered in the quarter compared to overall test [indiscernible]…

[Sean George:]

Yes, we didn't get a test delivered, it is a little over 24,000.

[Adam Wieschhaus:]

Okay, great. You mentioned on the last call that you expand [pg] your sales force in part due to addressing the institutional contract, what was your progress with institutional contracts in the period and did that new exome offerings have any meaningful into this contract? Thank you.

[Sean George:]

Yes, Katherine, why don't you go ahead and take that one.

[Katherine Stueland:]

Yes. So, we doubled the size of the sales force in January of this year. We onboarded them at the end of the year, and they've trained up, I would say, earlier in the year. So we're just starting to see the beginning of the investment in those efforts. In terms of exome, we introduced that at the beginning of this quarter, so it's early days with exome, we priced it very competitively, and we have attractive turnaround time. So we're in the early days of the launch there, but very similar to our panel testing. The feedback that we're getting is very positive from children's hospitals and beyond there. So, I would expect that throughout the course of this year, we will see some meaningful progress with children's hospitals, and otherwise in terms of the kind of growth that we see and then non-oncology side of the business.

[Adam Wieschhaus:]

Okay, great. Thank you, very helpful.

[Operator:]

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

[Puneet Souda:]

Yes, hi, guys. Thanks for taking my question. Sean, maybe, Lee if you could just help us understand you know the two pairs that obviously shifted, I get that they will be back into the -- you know into the second half of the year, but as other pairs shift into a network as -- could we expect some choppiness here through the rest of the year in ASP as we go through the rest of the year?

[Sean George:]

Lee, you want to go ahead.

[Lee Bendekgey:]

So as we started saying I think it really in Q3 when we started seeing major payer contracts signed who need we indicated that the process of the contracts becoming effective and then operationalizing the contracts requires between six and nine months typically depending on the lag time in terms of when the contract becomes effective. So, for that reason sometimes you have some lumpiness. In this case we had a couple of major payers who were reasonably well out of network, and then we had a couple of months while we were holding invoices and they were paying essentially not at all. And now they're back to paying regularly. We expect that process to be with the major payers to be largely complete by the middle of this year, and so, Q3 and Q4 it, should be smoother but hopefully our expectation as with Q2 will be the last potentially lumpy quarter.

[Puneet Souda:]

All right, got that. Thanks for that. In terms of the [indiscernible] if I could ask, you are ramping up on newer instruments, and hopefully that will help you drive down some of the costs, but could you maybe help us understand the timing of that [indiscernible] takes time getting these things in place, could you give us a sense of when that benefit could come through the rest of the year?

[Sean George:]

Sure. So I'll let Lee answer that; and again before that timing it's just a good -- it's a good time to point out you remember the COGS stack is moving significantly to where the non-sequencing components are becoming an ever larger part of the driver, particularly medical interpretation and skill. So that, kind of that really is more of the factor in COGS in the years to come. With that said, sequencing is still one of the single biggest components of the COGS fact. So, Lee on the [indiscernible] seeks.

[Lee Bendekgey:]

Yes. So, at this point, my expectation is that [indiscernible] seeks will begin to come online in the second half of the year and you will start to see some impact there. Frankly, what we're really excited about with regard to [indiscernible] seeks is what they enable in terms of exome sequencing, and in terms of really making that a competitive process, and so, we can look forward in future years to the day when for pretty much every patient we may sequence an exome and then interpret and report out of panel retaining the balance of the information and really opening us up for genome management. So, that's really the long-term benefit that we get from our scale, which enabled us to justify acquiring the [indiscernible].

[Puneet Souda:]

Okay, great. Thanks for taking my questions.

[Operator:]

Your next question comes from Tycho Peterson with JPMorgan. Your line is open.

[Tycho Peterson:]

Hey, thanks guys. I want to maybe just dive into this sequential uptick in volumes a little bit more you know any way you can kind of parse out how much of this was sales force expansion versus you know maybe the market doing all the better versus kind of continue in the new expansion?

[Sean George:]

I think the bottom line across the board is a little of everything. Let's start with the first in the sales force expansion, we do typically expect six to nine months to burn and with that said you know this, this crop we've got some really good talent that kind of you know got going a lot or a lot earlier in some cases so, that certainly contribute a little bit to it the market is indeed growing very rapidly. This is something going on now with right of people looking at it as well as our own, our own feel for what's going on in kind of between current account sales and new accounts sales. That is definitely a contributing factor and then yes as we, as we expand menu and particularly this time around our genome network business to contribute kind of a synergistically with some, some uplift in the non-cancer areas. So I think it's across the board is the answer to kind of what contributed that jump, it's no one single thing but I think everything you mentioned is in the, in the yes category there.

[Tycho Peterson:]

And I guess on the oncology front you know, we've seen, stabilized a little bit you know using anything different competitively in that market in particular?

[Sean George:]

Sorry, if how the market growing and…

[Tycho Peterson:]

Yes, within the oncology market any change in the competitive dynamic there I guess given what we seen out of your biggest competitor there in terms of things stabilizing a little bit in the last two quarters?

[Sean George:]

Yes, Katherine.

[Katherine Stueland:]

Yes so, I think as Sean mentioned over the past three years and market's grown pretty considerably has to be estimated it was about 250,000 and its now are well north of 400,000 we think based on information that we've gotten from payers. I would say the dynamic is changing quite a bit and cancer specific, specialty centers particularly among genetics experts we're really moving from being kind of the second line choice to more commonly be a first line choice for clinicians. So I think our overall offering and our overall quality and cost competitiveness is really contributing nicely to the way that clinicians your product and clearly the continue payer progress that we've made is opening up I just no access for after as well, so I think we're seeing a grow that the market of fast grow and then our positioning in the market improve with time.

[Tycho Peterson:]

Okay. And then, on the menu expansion priorities, can you talk a little bit about what's driving the prioritization presume is the request from the medical community. Can you just talk a bit about everything about the new expansion of their particular areas that are and we watching than others?

[Sean George:]

Sure. I mean we do in these kind of drive the prioritization off of clients in front of us and where we think the greatest unmet need sits today. With that said, right, our strategy is to aggregate all the world's genetic in a single platform, and so we approach it from a better look what's being requested here and now versus stepwise what brings us the capabilities to address all of the testing market. So we'll continue to invest in building out everything starting with our cancer cardio and they're offering today we just recently launched metabolic and are going to be running up the pediatric menu all the way up to a leading into exome this is where that if the quote put a long tail of testing were each individual disease might be pretty rare but in aggregate it's actually a very large, we've got a very large group of individuals out there that need testing. And I think it also set this up as we've mentioned we watch the acts on the foundation for genome business, those are also the areas that lend themselves to the question of what information can be used in manage on the half of the individual, starting from the early very early life newborn through the rest of their, early childhood development and the rest of life. That's kind of a preview of we're heading and why but again it's hard tend to go after all it.

[Tycho Peterson:]

And then just lastly obviously the initial or the subsequent I guess look at health care appeal mixed into pre-existing condition still obviously going to get and what happens there, but any just any thoughts on the backlash from the genetic community on that part of the post repeal plan?

[Sean George:]

What I think it's so early and we certainly expect very little of any of it to survive the legislative process that we haven't given it too much thought. I would say that it doesn't, in our view it doesn't change that much any of the concerns that are already out there and we don't feel an impact the utility or the desire to get access this information in the future. With that said, I mean obviously as with everything going [technical difficulty] and keep everyone posted as we see it impacts our business.

[Tycho Peterson:]

All right, thank you.

[Sean George:]

Thanks.

[Operator:]

Your next question comes from Raymond Myers with Benchmark. Your line is open.

[Raymond Myers:]

Thanks taking the questions. Your cost for sample continues to decline very nicely, what trend do we expect that to continue?

[Sean George:]

Yes. Lee?

[Lee Bendekgey:]

Well, we agree with the trends it will continue to go down the precise timing of the declines vary, but we are right now we are focusing a lot of our attention on the medical interpretation the sign out which as we've said all along overtime as the cost of sequencing goes down, eventually the cost of interpreting and managing the data becomes the tallest tempo, and so that's an area that we're focused on one of the earlier callers mentioned improved sequencing technology there are commercially available. I would say the one near term potential countervailing phenomenon which could dampen declines I don't expect, but I don't expect that it will reverse the trend but it acts on comes on strong because the sequencing of the cost of interpretation exome in the near term is higher than for a panel test. So that could affect the continued declines, but we have a very long list of opportunities and we're continuing the beat on all of them.

[Raymond Myers:]

That's great and maybe tried from a different angle as well. As you look to the end of next year when you're guiding to be testable breakeven, what type of cost per sample are you expecting in that forecast?

[Lee Bendekgey:]

Lower than today. And we expect to get paid better than today I mean if you think about it the we are getting into, we're approaching the 50% gross margin territory right now. And we certainly think that we will be there, when we achieve cash flow, positive cash flow and so at that point it's really not so much is really a question of scale and volume if we're at the 50% gross margin level to basically absorb your non-COGS OpEx. So yes, we're approaching that already.

[Raymond Myers:]

Right. Let we shift with different topic; you've done a great job getting managed care coverage in 2016, now that you have a majority of payers, what can you do to get the payers to favor Invitae over your major competitor, or is it just you let the cards fall within May?

[Sean George:]

Right. So I think we'll start with you again it has been a major left in a recent one to get everyone in contract and we are for certain or have been certainly focused on that and that's been first and foremost what we've been focused on doing to get that collectability up as we said we'll start to sort through much more predictably by the end of this year. With that payers are very much more in the past few months paying attention to their genetic testing line is even as it is a year ago they began noting to us that it was one of their fastest growing line items and I think that right the corresponding with what we saw in the market growth. So it is something that they're interested in and something that I would say we've chosen a different tack than kind of maybe the traditional company in our industry we've really treated them like a customer like our other customers and then working with them closely and we think that will pay off in the years to come using working with some of the true commercial part. None of those good work that, we've been just focusing exclusively and getting them in contract and really working with them on the actual operationalizing of them. So a lot of that has and how that happens today but it's something we do in the work with them on individuals.

[Katherine Stueland:]

Once again, I would answer that is Sean mentioned we really did treat payers like our one of our main customers and we focused a lot on deepening our relationships to them. He mentioned in the comments earlier we have secured contacting for our exome with Blue Shield of California that was pretty soon after our launch of exome. So I would say that we feel really pleased with the progress that we've made. We had proven that we are a trustworthy partner. We do not [indiscernible] more than $1,500, they know that, and so I think the fast move on the coverage of exome is reflective of the quality of relationships that we've built there.

[Raymond Myers:]

Very good. Last question is around your sales force, can you detail how many sales people do you have now, and what is your expectation for the sales force exiting this year?

[Sean George:]

Sure. Katherine?

[Katherine Stueland:]

So we have doubled the size of our sales force so all in we have about 60 individual across the country. That majority of them focus on our oncology selling the remainder focus on children's hospital as well as cardiovascular that cardiovascular conditions, so I would expect at this point given the fact that we're just starting to see the fruits of those investments that we expect it will remain pretty steady at that level. So I don't expect that we're going to be expanding anytime soon.

[Raymond Myers:]

Very good, thank you.

[Operator:]

Your next question comes from Amanda Murphy with William Blair. Your line is open.

[Amanda Murphy:]

Hi thanks, we'd answer the question on the accrual cast dynamics in the quarter if you could go over that. And then just thinking about how to think for their particularly given. I don't know the exome sounds like that's being incorporated into some contracts but if that ramp how would you think about that changing and then I guess with the Medicaid or the Medicaid as you have as well.

[Sean George:]

Yes. So, in terms of accrual at this point we are our policy is to have at least a couple of quarters with a contract or with a contract and so right now we're accruing primarily for our, our roster billing our institutional customers and Medicare is now on accrual and we are going to as I said with each pair. And based on product categories where we have, where we see consisted payment will begin to accrue and that'll be on a quarter-by-quarter basis. Medicaid I would expect until next year will likely be cash we're just adding the payers now. And I would expect it's likely that we'll have sufficient history with an individual Medicaid. These really we're focused on the managed Medicaid but I would expect the unlikely that will have submission history. To begin accruing, accruing those payers with regard to exome as Sean and Katherine mentioned it's very early days and as we accrue we will accrue on a product-by- product basis. So the one exception to that will be if we have a roster customer and institutional customer that starts buying exome and they have a history of paying, ordering exome and they have a history of paying us then I would see those flipping to accrual. But at this point it's early enough I probably wouldn't devote a ton of energy to modeling that.

[Amanda Murphy:]

Got it. Okay, and then I had another question I guess following up to some of the prior questions about sales force were not so, you've laid out some longer term goals in terms of volume doubling things like that so, not you know I don't and it's don't ask you to give guidance but I just wanted to kind of ask you to think and are provide some more context on the model. As you kind of think you know 24 months out so, obviously you've had a lot of traction with on the institutional side and some of the Cancer Centers but I'm just wondering is that you know it kind of did you feel like the infrastructure haven't been placed now give you that longer term doubling or do you need to kind of expand more into the community setting to kind of get those longer term goals.

[Sean George:]

Right, so I think you know in short it will probably be a mixture of both although again our commercial model is to long term spend 15% to 20% of revenue on sales and marketing and not perhaps more traditional 40% working off of an 80 to 90% gross margin, I get to related to at least about 50% gross margin so, I would say right now we don't see and insight. In the combination of commercial activities that we're deploying to continue to grow volume both in oncology and in other disease areas and in the future we know there will be a different mix of commercial activity in particular as the margin compression and the prices move throughout the rest of the industry. The fundamental game that has being played out there will be, will be a different one we think you know you mentioned 24 months were fairly confident within the 24 month time frame. The commercialization as industry will move beyond the kind of specialty from very heavy relationship driven sale into something that reflects something that looks a little more scalable at the margins will be the reality of the day.

[Randy Scott:]

I would just add, Amanda, this is Randy, that we see enormous opportunity for market growth across the board and all these areas. We think there's a really large population of high risk women who even today aren't getting genetic testing and by make it more quotable and accessible. The patients that's really opening up the thinking for a lot of clinicians you're seeing new areas like prostate cancer open up. I wouldn't be surprised within a couple years if it doesn't become commonplace to do genetic testing across every metastatic patient which seems to be enriched in term line use patients, same thing across cardiology, neurology, Pediatrics. So as the cost come down and I think the insurance industry realizes that there is a company that can provide genetic testing without stack in codes to sometimes guidance of the $100,000 plus through even then it's going to become a little more reliable for the industry in the clinical community to start broadening out their usage and I think you're seeing that already today which is explain some of the extraordinary growth that we've seen is just overall growth in markets and detail as provider of the new start thinking about; rolling this out to more, more patients.

[Amanda Murphy:]

Okay, that's helpful. And then I guess last one on the Genome network is wondering how it's sounds like that, helping the could you contributing the bottom line so, may be just help us think about how you're thinking about monetizing that going forward is that more just, kind of getting access to new business just broadly or is that something that you think you can you know fundamentally monotype going forward?

[Sean George:]

Yes, I mean that again that it works, it's a core part of our, of or your business planning for the years to come and work synergistically with our testing business so, the answer is both that you know there is testing volume itself which is driven by these partnerships which is obviously part of that, that network business but then there are you know the fees additionally that we mentioned that contributed income statement you know there are fees for access the data for contact with patients for survey data for getting other phenotypic information and symptomatic information on a logical basis. Tracking those patients so we see it a mix of all of those our bottom line assumption is that getting, getting therapies to market faster is incredibly valuable or the ability to help you get therapies market faster is incredibly valuable and we will be for taking some of that years to come.

[Amanda Murphy:]

Okay, thanks very much.

[Sean George:]

Thanks

[Operator:]

There are no further questions over the phone. I'll turn the call back over to Kate McNeil.

[Kate McNeil:]

Thank you. Okay, so we can get a couple of questions coming through email. So, I'm going to kick this of here. Guys ready. Sean, my big areas concern is on coding and 81432, can you clarify with the paying on in the market in terms of what you're billing versus your competitors?

[Sean George:]

Right, and I think this is you know that the CPC code question I think we always and now we always start with let's remember that commercial insurers are driving the prices of the price makers here and all of commercial insurers are paying for the genetic tests at around $1000. Regardless and they all tend to use their own code or a different you know their own combination of codes so, that's really the driving factor on where pricing is going it's going to around a $1000. And then in terms of in terms of the specifics around 81432 and the CMS Max that's an area where, yes we would agree there's been some confusion on that but we would also it's pretty clear it has been made clear that's been in our Mac, all of these [indiscernible] sorry; hereditary breast and ovarian cancer test are to be billed at 81432 and get reimbursed at 9931.

[Kate McNeil:]

Okay. Moving on, Sean, I also be interested to hear how about PEMA so some area it's where going to be a positive?

[Sean George:]

Right, and so I think PEMA of another one of those areas where you know PEMA legislation is specifically written to defend against price accretion in a world where we actually think prices are stabilized you know for a while but then in the distant future think had the other way so like how PEMA relate specifically to inherited genetic testing. It's actually difficult for us to see again I would step back to the position that you know look at the real, the real driver of pricing in the genetic market is going to be the commercial insurers. And again we've been working with them a last couple of years and there are, there are, there all coming in the network overall of these different tests, over all the disease there is for panel testing around a $1000 and our sent that they are going to act independently wherever PEMA sets Medicare floors.

[Kate McNeil:]

It appears with the exome well eventually become standard touch with patient using the current standard disease but disease, is that the case how long it will takes of it, exome touch to reach the depth analysis the current disease by disease test?

[Sean George:]

Right, so I think this is interesting question, two parts are, I think one is, one is long term and I would say yes absolutely as we see the sequencing costs come down and as we see our ability to scale medical interpretation improved ultimately we do see a world where everybody in monetized healthcare systems gets an exome run and then affirmation is managed on their behalf you know replacing the current indication-by-indication, test-by-test kind of market that exists. So that definitely is something that's a trend that we see beginning now we're really starting and then you know over the, over the years to come we will continue but the second part of the question about, kind of how long to match the depth of analysis, I think that's in relation to kind of the common coverage question and yes going to today exome that they offered are covered on a per basis less than, more highly sensitive and specific panel test. That's just the nature of a being so much larger in terms of the sequencing real estate covered. That would remain the case for a while. And now what I would say to that however is that both sequencing cost and our investment in other ways particularly in [indiscernible] pipeline analysis to improve sensitivity and specificity while reducing coverage, requirements will help bring that day forward, but today and certainly for the next -- solely for the next 18 months I would say that -- I see those deltas would continue to exist just because of the sheer size of the exomes being sequence.

[Kate McNeil:]

Right. Can you revisit more broadly the ecosystem, consumer angle as your menu become quite comprehensive? Also are you doing digital labs, we're noticing them as part of the consumer outreach effort?

[Sean George:]

I'll let Katherine take this one.

[Katherine Stueland:]

Sure. So first and foremost, the business that we're in today is core medical genetics. And so the clinicians are coming to us today to help them solve a problem that they're patient needs, and answer for immediately. So we're committed to working through the clinicians and through the medical community to be able to provide high quality affordable genetic testing to their patients, to be able to provide a diagnosis sooner. With the emergence of our genome network business, that enables us to go a step further and potentially connect patients not only with the diagnosis, but with that treatment for their diseases or through a clinical trial or through an FDA approved therapy. So they also have the opportunity to join one of our patient insight networks. So we are going to begin focusing more on consumer outreach there, but the [indiscernible] option is to talk your doctor. So, that is near-term strategy in terms of digital and in terms of our relationship with the consumer it will continue to [indiscernible] the clinician.

[Kate McNeil:]

Great. Okay. Looks like the final question, why not partner with someone who has a big OB-GYN presence and could [indiscernible]?

[Sean George:]

Right, I think this is an interesting question, but right now I would say we have some interesting plans for the segment, this particular segment of the market not really ready to go into in-depth now, but obviously as we continue to develop our unique capabilities across all genetic testing from preconception up to including new born and early childhood testing, this will become an important area for us, and I would say to just something to just keep tune, stay tuned, and we will keep everyone posted as we continue to build our business.

[Kate McNeil:]

Okay, great. Thanks everyone for joining us today. That concludes our call. We look forward to catching up with you soon at the upcoming conferences.

[Operator:]

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