This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk03: Good day and welcome to Invertay's first quarter 2022 financial results call. My name is Brica and I'll be today's event specialist. We will have a question and answer session today. And to ask a question, you may press star followed by one on your telephone keypad. If you have changed your mind, please press star two at any time. And with that, I would like to hand it over to Jack Finks. So, Jack. You may begin when you're ready.
spk07: Thank you, Brika, and good afternoon, everyone. Thank you for joining us for our 2022 first quarter results call. Joining us today are Sean George, CEO, and Roxy Nguyen, CFO. Before we begin, I'd like to remind you that various remarks that we make on this call that are not historical, we know is about our vision and business model, future financial and operating results, expectations of future growth, and reduction in burn rate, future product services, our product pipeline and their timing, and investments 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 stated outlook. Statements on future company performance assume, among other things, that we don't conclude any additional business acquisitions, investments, restructurings, or legal settlements. We refer you to our most recent 10-K, in particular 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 or GAAP, we monitor and consider several non-GAAP measures. Non-GAAP measures may include cost of revenue, gross profit, operating expense, including research and development, selling and marketing, and general and administrative. other income expense net, as well as net loss and net loss per share and cash burn. We exclude from our non-GAAP operating results as applicable, among other items, amortization of acquired intangible assets, acquisition-related stock-based compensation, post-combination expense related to the acceleration of equity grants or bonus payments in connection with the company's business combination, adjustments to the fair value of certain acquisition-related assets and liabilities, including contingent consideration, and acquisition-related income tax benefits. We exclude changes in marketable securities from our non-GAAP cash brand. 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 investor section of the company's website at ir.ndsa.com. With that, I will turn the call over to Sean.
spk11: Thank you, Jack, and good afternoon, everyone. As I said in our press release, we are clearly in an exceptionally dynamic and volatile period in our economy, one that demands that we as a company continue on with our growth aspirations while simultaneously driving operational efficiency and optimized portfolio management for our business. At the same time, the clinical and patient community that we serve is demanding ever more genomic and clinical data to better inform their care. Aggressively pursuing our differentiated approach to an important and relevant mission has driven growth rates that are exceptional in the healthcare sector and among the broader marketplace. And our business is now at a scale with a full suite of technologies that we can tackle both operational and growth demands simultaneously. COVID surge in the first month of the year did indeed restrain patient visits and our Q1 revenue grew by nearly 20% year over year. While we started on the low end of the plan for the year, we have seen improving momentum and new account growth throughout and exiting the quarter. Importantly, this year's plan anticipates a number of product and service improvements in addition to new capabilities launched throughout the year. We have been picking up the pace in new product introductions, and the key efforts here will support accelerated growth throughout the year as we continue to take advantage of expanding and winning in very large markets while we create a new industrial category in which we are uniquely suited to win. Additionally, our broad portfolio across the Invitae platform conveys an advantage in that we are not in a situation where we have only one or just a few products that require massive ongoing investments in both technology and clinical trials. This is important, as we have communicated over the past few quarters that we are exiting the era of a pursuit of growth at all costs to one where we manage to top middle and bottom line targets to the sustainability of our model. And to that end, this quarter marked a very important inflection for Invitae. As we communicated on the year-end call, the company has hit a peak in its cash burn and now sees an increased trajectory of burn reduction ahead. In this quarter, we reduced our annual operating burn by over $100 million, and we see a path to accelerate the efforts therein. There is resolution across the organization to execute and alter course where necessary to ensure this acceleration. Collectively, that means we are ramping up our initiatives around driving higher margin growth, containing and reducing operating expenses, prioritizing and optimizing our product and service portfolio, among other efforts to extend our current cash runway well into 2023 or beyond. Our flexible platform and operating model are able to drive operating leverage while driving aggressive new product cycles into our customer base. This unique capability, we believe, will continue to position Invitae to execute on our vision in this winner-take-most opportunity for personal health information, enabling a new era of medicine. I'll now hand the call over to Roxy to walk us through the details.
spk02: Thanks, John. For the remainder of the call, we'll discuss non-GAAP numbers, including cash burn. As we've noted in prior quarters, it's easier to understand our business and financials by providing non-GAAP metrics to allow for the comparison of the two sets of numbers. We urge investors to review the detailed reconciliation to non-GAAP financials included in today's press release and at the back of the slide deck. In the first quarter of 2022, we generated approximately $124 million of revenue, and the revenue breakdown was as follows. Approximately $72 million from oncology, including germline testing, therapy selection, and companion diagnostics, representing a 11% growth over prior year. Approximately $25 million from our women's health offerings, including NITS, and other reproductive tests, a 39% growth over last Q1. Approximately $16 million from the rare DX and other testing covering tardive, neural, newborn screening, and pharmacogenetics, a 35% growth over prior year. Data and platform revenue was approximately $11 million, grew 16% over last year. This includes data management, analytics, data as a service, and certain biopharma programs. Moving down the P&L, both operating expenses and cash burn outperformed our annual operating plan for the quarter, signaling the beginning of the shift we discussed on the year-end call. Establishing a breaking trend and the inflection in spend across a complex business has been a heavy lift, but doing so has become a principal parity at every level of the organization, We're ingraining that effort into the culture of the company and providing the tools necessary to track costs and drive decision-making in real time to assure control and our ability to make the inflection become the trend. For this year's first quarter, non-GAAP growth profit was $45 million, which translates to a non-GAAP growth margin of 36.6%, a small increase from Q4 21 with early signs of stabilization and encouraging increases as we exit this period. We're still on track to post steady improvements throughout the year. Non-GAAP operating expenses was $209 million, or 169% of revenue, compared to $155 million, or 150% of revenue in per year, and $216 million, or 171% of revenue in the fourth quarter. The operating expenses include costs from acquired businesses. As we stated on earlier calls, the rate of growth in spending will come down in 2022. We are committed to this goal as we scale the business and manage return on investment at the total portfolio level. Moving to our cash position, cash, cash equivalents, restricted cash, and marketable securities totaled $885 million at March 31st, 2022, compared to $1.06 billion at December 31st, 2021. Cash burn in the first quarter of this year was $169 million, compared to $196 million in Q421. That represents a sequential drop of more than $26 million in the burn on a quarterly basis, or over $100 million in annual run rate, giving us a good start on hitting our goal of lowering the overall burn by more than $200 million in 2022. Drilling into operating expenses and cash burn, as Sean pointed out, we are at the inflection point. And due to the internal and external market conditions and the cost of capital and our fundamental commitment to creating a new kind of company, a personal health information company, we are already well into a series of changes designed to extend our current runway and accelerate our pathway to cash flow and independence from the equity markets. Those moves include recent organizational changes that eliminated redundant programs and certain positions. Aside from stock-based compensation, we plan to hold operating expenses at a stable level. In short, we do more with less, and we have the talent and plan to do so. We are engaged in a portfolio optimization process that would generate opportunities to further focus our capital allocation on programs with the most impactful near-term strategic benefits and the highest level of returns over the coming quarters. We are reworking the timelines, pairing and development plans in new clinical content areas and within our data and platform business in order to drive high margin near-term growth while pushing out elements that will not be productive in the coming eight quarters. Mind you, this aspect of our business is a critical part of our future and a huge differentiator at Invitae, but we are being rational as we navigate this environment. The decisions to make these moves and the discipline to execute on them in the short term will decrease our use of cash, increase our runways through 2023 or beyond, and allow for numerous options as it relates to shoring up the balance sheet and bridging the gap between the rapidly growing burn of the past two years through the decreases we posted in Q1 to cash flow positive territory in 2025. Now, stepping to the business metrics we unveiled last quarter in order to communicate operational and financial measures that accurately describe progress, trade-offs, and return on investment. Our objective in sharing these metrics is to offer more transparency into a dynamic, fast-changing business and to provide consistent, balanced perspective on performance. Under portfolio growth, Our active accounts and active partners both continued a growth momentum in Q1. Similarly, the number of patients we served and the number of them who are available to share the data have also expanded nicely. New product vitality saw steady growth from 51% in 2019 to 64% in 2021. However, in the first quarter, we saw pullback in that number to 50%, resulting from slowdown in new product launches in 2020 and parts of 2021, primarily due to COVID disruption. As Sean mentioned, we have a number of product launches either going on now or planned for the remainder of the year, which we expect to improve that metric throughout the year. Revenue per patient measured by total platform revenue divided by the number of ordering patients for the period dropped from $476 in Q4-21 to $416 in the first quarter of 2022, primarily driven by product mix that favors lower-priced testing product lines. Moving to operational excellence, the non-GAAP growth margins have a ways to go as we map our steady return towards the long-term goal of 50%. The entire team is focused on this goal, and we have communicated to our investors that margin improvements will take place throughout the year as our initiatives start paying dividends. Also aiding an uplift in 2022 and beyond will be the contribution from our higher margin products as we become more meaningful to our overall growth. Variable cost productivity measures the efficiency of variable costs relative to volume growth in the period. And it's important to note that negative numbers in this metric represent favorable productivity. While this is an area that is impacted by a number of outside and micro factors such as price increases and supply chain inefficiencies that you see across industries, we managed to continue to deliver favorable productivity in Q1. Our cost initiatives, continued growth, and the increasingly meaningful impact from our higher margin products will be central to continued our cash burn reduction effort. On the strategic investment front, the trend in R&D as a percent of revenue reflects continued strategic investment to fuel our growth ambitions and capabilities, and that the impact of these investments should be demonstrated in our top line growth and new product vitality metric over time. That said, we expect R&D investment as a percent of revenue to come down as we continue to grow while actively prioritizing programs, and rationalizing our portfolio. For capital use in M&A, we were not active in the first quarter. Regarding guidance and our outlook for the year, for revenue, we expect the need Q2 to grow between 15 to 20% over the prior quarter, and we will need to repeat that pattern in the second half, exiting the year on the annual run rate in the area of $800 million. We have planned for a significant lift in the second half of the year. Based on our revenue exit from Q1, our sales force expansion showing early traction, and a number of new product launches, this is doable. For growth margin, we continue to anticipate a steady increase over the course of 2022 for a full year growth margin to be in the range of 42 to 45% and exiting the year at the run rate higher than 45%. On cash burn, we had a good start in Q1 with annualized reduction of more than $100 million. While much of this target is tied to the revenue and margin profile for the year, We are deploying additional measures to decrease faster, hit our 2022 goals, push our cash runway well into 2023, and generating cash flow in 2025. Now I'll turn the call back over to Sean to wrap up our prepared remarks. Sean.
spk11: Thank you, Roxy. When we started this company a little over 10 years ago, essentially nobody was benefiting from genomic information in their day-to-day health and wellness. Ten years from now, almost everyone will. Current market environment notwithstanding, this is the most exciting time in the most exciting industry transition of our time. This is also one of the most challenging macro and sector environments we have faced, as externalities force us to tip the scales of growth and profitability towards the latter. We recognize the extremely negative sentiments in the capital markets, and we know what is needed to extend our runway and get to a position of capital independence, even as we continue to plot a course to the creation of a new, important category in technology meets healthcare to the benefit of all. I want to especially thank our teammates and the investors who have been with us for years and who continue to carry on with the important work we are doing. For many of us, This is so much more than an idea, a job, or an investment for a return. For many of us, this is our life's work. This is the future of medicine, and I extend a hearty invitation for anyone not involved to get on board and be a part of this story. With that, we'll now turn the call over to the operator for Q&A.
spk03: Thank you. We will now begin the To ask a question, you may press star, then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then 2. Our first question today comes from Daniel Brennan of Cowan. So, Daniel, please go ahead.
spk09: Great. Thank you. Thank you for taking the questions, guys. Maybe the first one would just be on, I want to ask a question about the long-term, given a lot of the color you gave it. But just on 2022, given where you started the year, you talked about the exit rate, kind of can you give us a sense of maybe more granularity on what the exit rate was or anything that will give us confidence in the ability to kind of hit the full-year numbers given the You started the year off below both on the top line, the gross margin, and even though the burn looked good, yes, if you annualize the burn, it still looks like it might come up a little short. So maybe just some more color on that front and kind of what you're seeing.
spk11: Yeah. Yeah, sure, Dan. So, again, the important thing, a few quarters ago, we told people we weren't pursuing growth at all costs anymore. We began – taking a look at the business, taking a look at rationalizing our spend, charting, of course, to managing top, middle, and bottom with, you know, pretty aggressive burn reduction for 2022. Now, of course, we're doubling down and making sure that we have the cash to get into the end of 2023 or beyond. And so then the first quarter, which, as I mentioned, was on the lower end of our plan, you know, I think that's the source of the question. We won't break out specifically kind of inflection point of, you know, January, February, March, what March looked like, but just suffice to say that the exit momentum was positive. We were happy to see that, both on kind of the revenue and the margin. And really now we're looking, you know, if we look at our plan for the year, it is back and weighted. That's not particularly unusual for Invitae, particularly in years of adding sales reps and launching new products. and we're really now looking at 15% to 20% left for Q2 to keep us on track.
spk09: Got it. Okay. Maybe a second question would just be then on, you know, you talked a lot about, you know, a better pathway towards free cash flow, I guess, in 2025 on an operating basis. There was a lot of commentary about, you know, kind of pruning programs being really focused on, you know, where the high ROI was. Sean, in that context, is 40% the right way to think about the long-term trajectory of the business? Obviously, you've talked about how big the opportunity is, but at the same time, can you really balance that kind of top-line growth if, in fact, you're managing the cost structure as tightly as you're going to be?
spk11: Yeah, so the – I mean, the – you know, looking to 2025, driving to cash flow positive territory – Just a reminder, that kind of was the middle of last year. The team sat as we looked out to the years as we started pushing past half a billion, billion, moving to $2 billion in revenue. We think it warrants a plan to give the companies a cash flow positive territory by the time we get there. Now, of course, the continued extension of an extremely negative capital markets environment kind of kind of you know has us doubling down and just and and just making sure everybody understands where our head is uh is that extending our cash runway is a top priority we we have a really flexible platform we've got a broad set of products uh we can trim and tailor investment in r d uh depending on the time horizon needed and right now We're looking at things that are generating, you know, ultimately strategic importance to carry on the mission and really focusing on near-term gross profit generation. With that said, you know, this last six months is the first time ever we've been running the business not just for top line at all costs. And there's improvements to be made. All of the efforts Roxy laid out are all in play. And we believe we've got a plan to execute those and continue to meet the 40% growth for the foreseeable future year over year.
spk09: Great. And then maybe if I could just maybe go with one more, and then I'll go back in the queue. Just what's the plan on the 24 converts, you know, $350 million? Is there a plan to refinance those sooner rather than later? How do we think about kind of, I know it's still out there a ways, but, you know, how do we think about the timing at which you might look to do something with those?
spk02: Yeah, Dan, thank you for the question. So I think as we discussed at the year-end call, we continue to have a very strong balance sheet, and we do recognize the market condition is volatile, and, you know, we have a lot of interest parties, and folks continue to have conversations with us. And so we, you know, will find the most opportune uh time and uh constructs to uh to uh you know uh remove this uh overall kind of overhang on our balance sheet and so that our investors and community can focus on the the growth and then this really exciting business worth building great okay thank you i'll go back in the queue thank you daniel we now have
spk03: Teacher 7 of Morgan Stanley. Say please go ahead. I have opened your line.
spk01: Hey, guys. Good evening. Sean, maybe just sort of picking up on Dan's thread there on the back-end loading implied by the guide and your 1Q performance here, is there any way you can quantify for us how much sort of Omicron sort of disrupted the first quarter? And sort of on a related note, I have a follow-up on the pipeline as well, but maybe we'll start with Omicron headwinds that you saw in January and perhaps some some color on the month-over-month improvement?
spk11: Yeah, so there was for sure an impact. And then maybe importantly, there was no other obvious impact. We didn't see big accounts fall off. There wasn't any major lumpy or obviously identifiable issues. So I think that's kind of one thing is We for sure saw that January to February impact. I would say it was real and persisted. With that, as I mentioned, however, as we exited the quarter, we saw a kind of reversal and a push to higher growth, which puts us in a spot on a year that was already back-end loaded to make it even more back-end loaded. And that's where, as we said today, If we look out to the end of the year, taking into account the new sales reps, taking into account new products, and looking at the cadence of the year, it looks to us as a 15% to 20% lift into Q2 will get us on track, keep us there. As I mentioned, we're on the lower end of our performance envelope to hit our plan to beat our guidance this year, and that's where That's what we need to see in Q2. And given what we see as we head through the quarter today, we have no reason to believe we can't do that.
spk01: Got it. Fair enough. And then on the pipeline, maybe starting with PCM, any color you can share on early customer feedback there. And how are you thinking in terms of timelines for reimbursement?
spk11: Yeah, so PCM is launched. It is out. We have customers. And then the details of the process are once you have your first claim, you can submit it. So, you know, we've now had our first patient. We've submitted. We've done that process. It's typically a 45-day at length kind of thing. And then, of course, you start billing. You get to bill in arrears and bill going forward. So I'm actually, you know, really pleased to say we have launched that service, are selling it, have customers, and begun the – begun the reimbursement submission process and we'd expect to hear favorably and be on our way with the Medicare population in addition to then looking for other opportunities to expand that market.
spk01: Got it. And then as you think about the second half of this year, what are you baking into the guide in terms of these contributions from new product launches? I mean, you've got PCM, but you've also got that exome therapy selection panel coming up. And I believe you also launched the IVD kits, right, in Europe. So it would be great if you could just give us some color on what's sort of assumed in the guide in terms of contributions from these pipeline launches.
spk11: Yeah, that's right. I would say as we looked at the guide and looked at the year, with the new sales routes, that's a formula we kind of know, and based on past years, with given the amount, tends to push a back half weight. And I'd say let's call it half of the back end weighting compared to an otherwise straight sales and marketing year. The new product, which you got, you got a lot of them. You got the IVD kits. You got the PCM launch. There'll be therapy selection later in the year. We've launched a neurodevelopmental delay product, which we have high expectations for. We have exome improvements coming later, moving the whole genome at the end of the year, all the way to autism, developmental delay, intellectual disability. Ongoing improvements in the workflow for both reproductive health and oncology, patient care management, additional risk assessment, additional set of capabilities to allow us to push into urology. And improvements, and I would say improvements in both the offering and the workflow and interpretation tools and reporting for pharmacogenomics, all of which we are expecting contribute in addition to the added cells up to the back half of the year. So that's kind of the slew of activity we have coming. It actually is one of the, as I kind of mentioned in my remarks, we've Really spent the last couple of years trying to get our new product, Velocity, going. And I think we're, you know, our plan this year does indeed anticipate reaping some benefits of that.
spk01: Got it. And one final one here for Roxy. I'm not sure you mentioned this in your prepared remarks, Roxy, but on OPEX for the year, are you still keeping to your target of increases at that 20%-ish level year over year?
spk02: Yeah, we are. Thank you for the question. We're planning to hold our ALPACs pretty stable from this moment on, which will translate at the current projection of revenue, will translate half of the year-over-year growth as our guidance will provide it at the year-end call. Got it.
spk01: Perfect. Thanks, guys. Appreciate it.
spk02: Yeah, 20% year-over-year growth. We're looking at stable from here now.
spk01: Got it. Thank you. I appreciate the color.
spk03: Thank you. We now have Brian Weinstein of William Blair. Your line is now open, Brian.
spk08: Hi, guys. Thanks for taking the question. This is Dustin for Brian. Um, just, uh, talking about the product launches later this year, specifically on stratify. Um, just want to make sure that LED is still on track to launch. And just if you have any update thoughts on the competitive positioning on that product.
spk11: Yeah, no, I appreciate it. So the, the, um, the therapy selection, uh, kits, all embodiments of them, including, uh, stratify are, are. are out and launched in IVD, various regulatory formats around the globe. In the U.S., most important is RUO. Europe, obviously, IVD. And then, of course, Japan and others have specific local versions of FDA approval. So, those kits are out, and we are now selling. Personalized cancer monitoring with the stratified technology inside, as it were, is now launched as an LDP, and we are now selling, and we expect that to contribute this year to oncology growth, and especially next year and beyond, given the size of that opportunity. And then the other piece of that technology launched inside of service will come in the middle to the back half of the year in a therapy selection offering running off a whole exome-based therapy selection that is integrated fully with our monitoring. And, you know, again, with the added touch, with the added nice touch of also being fully integrated with our constitutional or inherited genetics, we think that will be the best-in-class oncology offering as we exit the end of this year.
spk08: Got it. Thank you for the clarification on that. And then guidance throughout the year. I'm wondering if we can get trends on your specific platforms and maybe on women's health in particular, in particular how it relates to the noninvasive prenatal screening market, given there was some recent commentary by the FDA on that.
spk11: Yeah, what I can speak to is, you know, as Roxy broke out, women's health, reproductive health is a rapid-growing segment. We would continue to ascribe to that a pent-up market demand. Again, just in the U.S., just as a reminder, there's 6 million pregnancies. Two to three million might get either one, rarely both, a comprehensive carrier screen or NIPS. Again, I know given the sentiment that talking about the future is not, we're not going to spend a lot of time doing it, but I just want to point out that I think that in a short amount of time, it will seem unconscionable that women went through the process of having a child with as much risk on the table that could otherwise be taken off from those two tests. And that is the source of the growth in that segment, you know, that it's a rapid adoption of those technologies to the betterment of those individuals. And that's driving that reproductive health. You're referring to the kind of there was a media event around the NIPS test, the NIPS offering, as you pointed out, you know, I think I can – it's probably worth just summarizing what that was actually about is the very nuanced but very important difference between a test and a screen and how those non-invasive prenatal screens are being marketed and are being – the information being conveyed to patients. We do suspect that that is – what I would say is that is not unusual in our industry. It has happened many times over the past decades and welcome the attention and clarification on this. It's a very important thing, something which, by the way, we have pointed out at the beginning. The reason we launched and marketed as non-invasive pre-no screening was for those very reasons. And then, you know, subsequent to that, of course, the FDA did put out a position statement that these things need to be considered, all of which I would say does not impact our view at all of the future potential or our abilities to be a leader in that space.
spk08: Okay, thank you. And then just one more on M&A. You know, given the capital markets activity, I'm wondering if there are any particular areas you guys are seeing I know the first quarter there was no deployment from you guys at all, but anything you're seeing where you sit today. Thank you.
spk11: Yeah, I think can I, you know, given, and I think the way you started the question is how I'll start answering it, you know, given the capital markets, we've mentioned to people we are, you know, we are, you know, including M&A activity acquisitions in our cash burn reduction plans. And so thus, you know, our M&A screen, we aren't looking at technology developments that are going to add on additional burn, significant additional burn for the coming years. You know, still interested in things that can have near-term cash-generating improvement, operations improvement, workflow improvements, cost out. or scale the business, you know, with better operating leverage. But, yeah, the historical path, a good portion of what our historical path has been, we're not evaluating at this time.
spk08: Okay. Thank you.
spk03: The next question comes from Puneet Sudha of SVB Securities. So please go ahead when you're ready.
spk00: Yeah, hi, Sean, Roxy. Thanks for taking the question. So I'll ask two and then hop back into the queue. So first one is really, you know, quarter was obviously soft versus us. But I mean, I understand the Omicron impact. The second quarter sequentially, as the way you described, is also softer versus us and sort of the street as well. So just trying to understand, you know, what sort of starts to work in the second half. Your pricing is coming in lower as well and on the gross margin line as well. So, you know, just walk us through, you know, how should we think about what are the elements out of the four segments that matter? where you have the most expectations for potential recovery, a stronger recovery, and if you can maybe give us any contribution among the four segments, oncology, women's health, rare disease, and data services for the second half. And then, Sean, I mean, as we look at this industry, we have talked about it a number of times before. Obviously, this is a consolidating industry, so we saw one of your peers acquire another competitor of yours. So, Sean, on the hereditary side and the rare disease side so as you look at this um maybe just help us understand how does that change your competitive landscape and how are you focused on on on trimming some of the products and and focusing on things that are likely to drive growth longer term thanks guys thanks for taking longer questions
spk11: Yeah, absolutely, Puneet. Thank you. Yeah, so I think kind of, again, our year is, our plan is back half loaded. That's, again, that's not unusual, particularly with the amount of new products and the Salesforce expansion. The Q1 was soft, and I'll just say, Q1 was soft, flat, all out, right? You know, I think we, you know, but on the low end of our execution envelope, we do believe we can execute for the rest of the year. That would entail pick up an oncology volume, full stop. That's probably the commentary on there. Continued growth in women's health with better pricing and margin. That's our work to be done on that. In the rare and other, like what we see, and we're going to see more of it with the product portfolio coming out there, and also there's good tailwinds and reimbursement in that area, and, of course, pharma partnership interest, which then leads to the patient identification data and services where this quarter was soft. Especially with our citizen patient network business, that can be lumpy given the contracts and revenue recognition, and that's what we're expecting there is to continue that uh continue that accelerate that effort grow that effort um get the top line synergies uh going here this year and um you know uh we're expecting that lumpiness to start to bake in as it were and contribute so those are the if you go down the the product areas that's what i would ex you know that's what we are expecting to see manifest in q2 which will then contribute like i said if we see a 15 20% Q or Q growth get an improvement in margin toward our year-end target, we're feeling, you know, we're going to be feeling better about it. I think that was, I think that answered the whole question. Yeah. Oh, sorry. No, the other question was on consolidation. Thank you. Emanating consolidation, yes, I would imagine that's going to pick up. I think that is definitely going to pick up here in the next year or two. As for my comments about what we're looking for, we've got a really full suite of technologies and are operating at a scale now where I think we have the benefit of being able to turn the dials on R&D investment and play with timelines of return. So that's a really good thing given our really aggressive cash-out uh, path now that we're on. Um, and, and I think, I think we're going to probably stick to that, uh, vis-a-vis the M&A game. Like I mentioned, some things will make sense to help, help accelerate that. Um, a lot of things won't, and that's where we'll, we'll, we'll stay, uh, in terms of the inherited, the inherited business, you know, like I often think, think about it, you know, across all these disorders, across all of these patients at different stages of life. You know, in truth, the inherited genetics game is one of the more difficult, more and more complex, costly ones with very high stakes in terms of a miss. By miss, I mean missing on the highest quality for a patient readout. And, you know, I think while I would expect to see further consolidation, I also believe that, you know, we have built a really compelling offering with best-in-class economics underneath the hood with really the best service available for patients. And I expect to compete handily even as the consolidation continues and companies with really, really powerful channels and great well-run companies start picking up these assets. I think we're going to hold our own.
spk03: Thank you. We now have Matt Sykes of Goldman Sachs. Please go ahead when you're ready, Matt.
spk05: Thank you. Good afternoon, Sean and Roxy. Sean, maybe just first question, big picture. You've mentioned a few times on the call and the release about portfolio optimization. Just wanted to get any additional color on what you feel would be appropriate, what's on the table, what's off the table, in terms of how you think about your overall portfolio as you progress through the year and beyond, in light of the cash conservation and the move towards profitability eventually.
spk11: Yeah, absolutely. I'll kind of run down our high-level thinking on it. Obviously, there's oncology, reproductive health, and then the rare disease and pediatrics and other. In that, there is a lot of new product and new capabilities that is essentially already paid for. So it's kind of focusing on finishing those, launching those, getting those out, and also investing in making sure to support the continued cost out of the various aspects of the production line to support those businesses. So that's kind of first and foremost. And that translates to all of that, which is the nearest gross profit contribution, whether it comes from accelerated revenue, price, or cost takeout. Then the other important piece that we want to make sure to stay on is the launch of the patient network, the idea that a lot more patient data coming in and being able to be used in the context of all those patients across all of those different disease areas becomes very valuable, not just for the patients themselves or the systems that they're being served by, but also for other partners in the healthcare ecosystem where that patient can find other capabilities that can be put to use for their benefit. And that's something that we're going to continue to invest in that also we believe in the next two years drives to an oversized growth in our data and services revenue, which of course is nice, high margin, and really important for the strategic development of the company. Now, the things that then we either put on hold or significantly slow down are some of the other disease areas, which I know we will get to. Our platform, as I mentioned, our platform is flexible enough and can support the addition of new disease areas pretty cost-effectively. But even as cost-effectively as that is, right now is not the time. And I view it unfortunate, but it's the reality. Cardiovascular genetics is a market that is, in my assessment, or my belief, as large as the oncology market. Just taking the number of families affected and the load, the balanced load of genetics, both rare and common for risk for individuals and families with those disorders. Adult neurodegeneration. I don't know many people who don't have the scourge of dementia, Alzheimer's, Parkinson's, or ALS that affects their families. And again, I think given the aging population, given the distribution of that, it is undoubtedly something that's going to be very important, particularly when you think about all of the medications used to manage those in combination with pharmacogenomics. That is a massive opportunity. Those are two examples where we are putting them on ice. We're going to hold off. We're going to figure that out later. There are some other areas that we've begun early investments in that we have bright ideas and great hopes for the future. Also, which are essentially on ice or in a holding pattern, keeping very focused on a few very specific advanced development outcomes, but otherwise really pulling back on the expenditure there so that we can take all the cash out of the burn of this business. And like I mentioned, the goal now is keep this growth going while at the same time extending this cash runaway out to the end of 23 or beyond.
spk05: Great. Thanks for that detail, Sean. I appreciate it. And then, Roxy, just on the revenue per patient, you noted some of the decline in this quarter was just a mixed shift towards lower price tests. What can you do to impact that mixed shift to ensure sort of a stabilization and a reacceleration in revenue per patient?
spk02: Yeah, I think, you know, revenue per patient is a metric, you know, as we look at looking forward. It's not a metric we're really looking at every quarter to increase it because the dynamic between revenue per patient and number of patients we have is huge. it's uh it's an interesting one that we're looking for the right balance is as an example right in our data business in the future you might have a revenue per patient of 50 that you have a much higher margin because of the nature of the business that bring down the revenue per patient but not necessarily it's a bad business for us to participate in so i'll say you know um but that's that's kind of a longer term strategy of that metrics but you know at this moment realistically we still have majority of our revenue contribution from testing business, yes, the product mix, especially from our women's health and international growth, are negatively impacting this one as well. You know, a lot of the pricing activities we talked about at our year-end call are, in fact, you know, put into place, and we hope for the second half of the year paying dividends to help us, and also the higher margin product growth will help to lift this metrics as well we now have julia quinn of jp morgan so please go ahead when you're ready julia
spk04: Hi, good afternoon. Thanks for taking the question. So a lot has already been covered. I just have two quick follow-ups. First on PCM, can you talk about how you plan to differentiate the product versus competition? And specifically, are you going to focus in the near term on certain beachhead indications, for example, lung, or are you going pan-cancer at the start?
spk11: Yeah, so we're going pan-cancer at the start. And You know, the differentiation, I would say, you know, the technology underpinning that is one of the most widely published technologies, especially when you consider if you include all of the independent peer-reviewed studies around the world. The performance characteristics by way of sensitivity and specificity are pretty well understood and known. The impact of that on the ability to detect tumors, detect the patient's recurrence, and also with a very, very finely threaded, finely needled comb to find any new variants, whether it's resistance mutations or new targetable variants, we think puts that technology in a very good competitive position versus the multiple other technologies out there. And there are dozens, literally dozens of technologies out there. And I think that speaks to the other thing that I think will give us a really credible claim on helping to shape this new market. We have a very good channel, very good relationships to call on the folks who are doing this kind of thing. We have an established brand in inherited genetics. And as I mentioned, when we include our therapy selection in the combination, I think the combination of all those capabilities together will be compelling for oncologists seeking not specifically for one test or another or one answer or another, but to simply understand what is the best course to extend the life of the patient in front of them. And I think that's how we intend to compete here over the next many years in what is going to be an immensely dynamic and rapidly growing market.
spk04: Great, that's helpful. And then in terms of the additional cash burn reduction over the next three years, are you able to comment whether that would impact the development timeline for your partnership with PacBio?
spk11: Yeah, no, of the things that we're very excited to be a part of and will continue with our partners at Pacific Biosciences, You know, the reduction in costs and the improvement in quality of genomes to find more variants and higher diagnostic yields is something that is absolutely essential to our business. So we'll continue working with them on that. You know, the timelines they're in are, as we announced at the beginning when we started this thing, we're fairly far out in nature. They continue to, we continue to track on those, but we don't see a a shift in our involvement with them at this point. We want to continue working with them, bring that to life. Great.
spk04: Thank you.
spk03: Thank you. We now have Andrew Cooper of Raymond James. Please go ahead when you're ready.
spk06: Great. Thanks for the questions. A lot's been asked, so maybe I'm just going to ask something in a little bit different of a way. You know, when we think about the exit rates you talk about for the year, can you give a sense for, you know, when we think about margins, the fact that you say higher margin products becoming a bigger part of the mix are a big piece of that. Obviously that's going to have to do with some of the new products as well. So just help us think through a little bit of the cadence of that and, you know, how much is kind of the current core product set as it exists today versus relying on things that are not yet launched to get to the 45-plus exit rate.
spk11: Yeah, I'd say for the 45 exit rate, you know, keep in mind that the vast majority of that revenue is from the current product portfolio. So a lot of that is scale and cost out, cost improvement of currently offered products. That's the short answer for this year. You know, benefit could come from accelerated uptake and growth from higher margin products. Although, again, we remind people typically that the newly launched products don't typically help out there. They've got to kind of get the scale first. So it really is more that former category improvements of the current higher volume products that we expected to hit our hit our targets for this year, which, as I mentioned, you know, you're, you know, given the. Given the volume that the relatively flat gross margin on this on this quarter isn't isn't overly concerning, but like I said, we've got to see improvement in Q2, which we expect to. And then I think something which, again, given given Given the time, probably not something we want to spend a whole lot of time on, but in case part of the question is looking out beyond that, speaking of cash burn, pushing out cash runaway, we do expect actually some of the higher margin products and particularly our revenue from the data side of things to start allowing us to think about margin above 50%, and certainly that's going to be part of the story as we move out of 22 and look at 23 and 24. Like I said, not really worth talking about now. We've got other near-term objectives to secure, but since you asked, that's something that I think people should keep in mind as we exit this year.
spk06: Okay, great. That's super helpful. And then maybe just One more on kind of PCM and the competitive landscape there. I mean, how much does turnaround time matter or maybe not matter on the initial, you know, tumor-informed kind of process there when you are out there in the field talking to customers? I mean, we can see your turnaround times on the site and see some other folks as well. So I just want to get a sense for what is that sweet spot where you need to get an answer to a patient as they're done with surgery and about to start therapy or kind of how do you view the importance of speed?
spk11: uh speed at this company is always important uh we we were uh i just and i don't know i'm gonna try to take a victory lap or anything but we introduced the concept of speed to the to the gen x industry um and yeah it's super important um and i would say you know we're new to the to the therapy selection and monitoring business um one thing to keep in mind is it's the total time Our view of it is it's the therapy selection and monitoring turnaround time that matters. We believe a good chunk of the market is going to use therapy selection tools. And then we think in our hands to have a really nice combined monitoring on the back end of that will be useful. And then if you look at the start to finish time of both of those, we think we're very competitive. And as I mentioned, we just got started, and we will be working on reducing that turnaround time for the years to come.
spk06: Great. I'll stop there. Thanks again.
spk03: We have no further questions registered at this time, so I'd like to hand it back to the management team for some closing remarks.
spk10: All right. Thank you very much. Thank you, everybody. I look forward to seeing you in future conferences.
spk03: Goodbye. Thank you. That does conclude today's call.
Disclaimer