Invitae Corporation

Hello everyone and thank you for joining the invitees third quarter 2022 financial results conference call. My name is Darius and I'll be the operator for today. Before handing over to you host Hokey Luke, I would like to remind you that if you would like to ask a question during the Q&A session at the end of the call, please press star followed by one on your telephone keyboard. I now have the pleasure of handing over to you host Hokey Luke. Please go ahead. Your line is now open.

Thank you, operator, and good afternoon, everyone. Thank you for joining us for our 2022 third quarter results call. Joining us today are our president and CEO, Ken Knight, and our CFO, Roxy Nguyen. Before we begin, I'd like to remind you the various remarks that we make on this call that are not historical, including those about our vision and business model, the company's strategic business realignment, future financial and operating results, expectations of future growth and reduction in burn rates, and future products, services, our product's pipeline and their timing constitute forward-looking statements within the meaning of the safe harbor provisions of the Private Security Litigation Reform Act. It is difficult to accurately predict demand for our services, and therefore, our actual results could differ materially from our state outlook. statements on future company performance assumed, among other things, though we don't conclude any additional business acquisitions, investments, restructuring, or legal settlement. We refer you to our most recent 10Q, in particular to the section titled Risk Factors, for additional information on factors that could cause actual results to differ materially from our current expectations. These four 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 statement prepared in accordance with generally accepted accounting principles in the United States or GAAP, we monitor and consider several non-GAAP measures. We encourage you to review our GAAP to non-GAAP reconciliation 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.nvta.com. Today, Ken and Roxy will discuss Q3 highlights, the continued execution of our realignment plan, updates within our portfolio, financials and key metrics of the third quarter, including our guidance, and concluding the call with Q&A. With that, I'll turn the call over to Ken.

Thank you, Hokie, and thank you all for joining us today. Let me start with an overview of our third quarter performance, which shows solid operational execution against our realignment plan. We're proud of our team's ability to continue to deliver and appreciate their passion for our patients, our mission, and our future. We're working hard and are encouraged by the financial and operational results of this quarter. Revenue for the quarter was $133.5 million, growing almost 17% year-over-year. This was paired with further improvement in our gross margin, with non-GAAP gross margin of 45.9% in the quarter compared to 35.6% in Q3 2021 and 40.1% in Q2 2022. We are well on track to achieve our full-year non-GAAP gross margin forecast of 42 to 43%. Additionally, Our effort to reshape our cost profile has good momentum and is reflected in the reduction of our non-GAAP operating expenses to roughly 112% of revenues compared to 176% of revenues in Q3 2021 and 146% of revenues in Q2 2022. This work helped us to reduce our cash burn to $108 million in the quarter. If we exclude one-time non-recurring items, compared to $169 million cash burn in Q1 2022. Roxy will provide an update later on how we see cash burn for the full year 2022. The reduction in cash burn to $108 million represents an annualized run rate reduction of approximately $245 million from Q1 and reinforces that we are on track to deliver the $326 million in cash burn reduction fully realized in 2023. We have made the tough but necessary workforce decisions, with notifications and reductions pretty much completed as planned. We've also made headway in consolidating our office and lab footprint, including steps to reduce underutilized office space. Regarding the consolidation of our geographic footprint, we have exited all impacted international territories prior to the end of September. In Q3, our ex-US business positively contributed to our improvement in non-GAAP gross margin. Finally, our portfolio optimization work has begun, and we have taken steps to consolidate our offerings, including exiting our pre-implantation products for IVF and exiting other underperforming products and accounts. We continue to pursue divestiture or wind down of our distributed kits business But not much more to report on that at this point. So in summary, we are on track to deliver the $326 million of cash for a reduction. Now turning to core product areas. In hereditary cancer, the Invitae brand is trusted and valued. We've generated an enormous amount of compelling data. And we've used that data to drive changes in guidelines and coverage policies, resulting in broader clinical adoption and more consistent reimbursement. Our most recent contribution includes an Invitae publication in JAMA, underscoring the American Society of Breast Surgeons guideline, recommending that all breast cancer patients receive genetic testing. We also recently highlighted NCCN's decision to expand guidelines in CRC, advocating for universal germline testing for all colorectal cancer patients past and present. Hereditary cancer testing is still underpenetrated, with some estimates as low as 10 to 20% of potential patients being tested. In addition to expanding adoption, we have additional initiatives underway to bring product enhancements and improve workflows for more access and ease of use. We intend to keep the momentum going with the genetic counselor community and are expanding our call points to non-genetic experts with a focus on workflows, education, and decision support in pursuit of the very best outcomes for patients. Our hereditary cancer offering is our highest revenue business with a margin profile well above our corporate average. And our goal is to leverage this to extend offerings into the somatic space. The most recent addition to our somatic offering is our minimal residual disease product. We call it personalized cancer monitoring, or PCM, which is powered by our proprietary AMP technology. As many of you are aware, getting somatic testing incorporated into patient care is a massive opportunity. There are over 18 million cancer survivors in the US. and it's estimated that there are nearly 2 million new cases diagnosed each year. The total addressable market for MRD is $20 to $30 billion, and it's still in the early stages. Widespread clinical use is still on the horizon, and we are actively working through the steps necessary to further facilitate the adoption of our PCM, engaging with clinicians, key opinion leaders, and payers. Our goal is to continue to demonstrate the utility of PCM, to combine it with our other oncology insights, and to be positioned to enable cancer-treating physicians to advance precision oncology in an effort to move cancer into a chronic disease. PCM will provide the speed and accuracy to detect cancer sooner, thus reducing the downstream cost of care and improving patient outcomes. While we're working through reimbursement options and clinical trial results, we are supporting a growing number of top biopharma companies and academic medical centers who are partnering with us via fee-for-service arrangements to conduct research and generate revenue. Moving on to women's health. Recent guideline expansion recommending screening for all pregnancies, including average risk, has created a meaningful tailwind to us and to this segment with a TAM of over $2 billion. As part of our operational shift, we've exited channels with lower quality revenue, as well as implemented better reimbursement practices internationally. In the U.S., changes in our billing policy, improved COGS performance, and better discipline in our contracting have eliminated several underperforming aspects of this business. These factors together have taken our women's health non-GAAP gross margins from deeply negative to positive, and we expect continued improvement into next year. We're sharpening our product positioning, which includes new core and expanded panels, and we are also tapping into additional women's health channels, including OBGYNs and breast surgeons, to expand hereditary cancer testing. On the rare disease and data side of our business, we are seeing growth opportunities bridging our testing and data collection. Our testing business gives us access to multiple disease populations and hundreds of clinician relationships. We now have an emerging capability to combine genomic and phenotypic data, including real world evidence. and are seeing an enthusiastic response to this capability among patients, advocacy groups, researchers, and biopharma partners in the rare disease area. We are excited about the growth of our recent partnerships with Praxis. We used our platform as natural history data to support their IND application for the treatment of pediatric epilepsy. And with AstraZeneca, who is using our platform for real-world data in the research of a rare bile duct cancer. While currently a small part of our total revenue, our data segment is a high growth, high margin, and scalable business, and there are more opportunities in our pipeline. By the way, recent findings in JAMA demonstrate that a positive epilepsy genetic diagnosis leads to clinical management changes in approximately half of patients, and that changes implemented by clinicians based on genetic testing improve health outcomes in as many as three-quarters of patients. This will help adoption and reimbursement of our epilepsy genetic testing product. With that, I'll turn it over to Roxy for financial highlights of our most recent quarter.