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spk00: Hello, everyone, and welcome to the Invitae First Quarter 2023 Financial Results Conference Call. My name is Emily, and I'll be your conference coordinator today. After the prepared remarks, there will be the opportunity to ask any questions by pressing Start, followed by the number 1 on your telephone keypad. I'll now turn the call over to our host, Hokie Luke. Please go ahead.
spk02: Thank you, Operator, and good afternoon, everyone. Thank you for participating in today's call. Joining us today are President and CEO Ken Knight, our CFO, Roxy Nguyen, and our Chief Science Officer, Dr. Robert Daber. Before we begin, I'd like to remind you that various remarks that we make on this call that are not historical include 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 rate, and future products, services, our product pipeline, and their timings. Certain points we make will 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 10Q and 10K, in particular to the sections titled Risk Factors, for additional information on factors that could cause actual results to differ materially from our current expectations. These four looking statements speak only as of the date hereof. To supplement our consolidated financial statements prepared in accordance with generally accepted accounting principles in the United States or GAAP, we monitor and consider several non-GAAP measures. We encourage you to review our gap to non-gap 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 sections of the company's website at ir.mbj.com. Today's panel will discuss our Q1 highlights and our 2023 growth plan. Dr. Dabur will discuss our recent clinical updates related to BCM, and Roxy will cover the financials and key metrics from the first quarter, as well as our 2023 guidance. We will then conclude the call with Q&A. With that, I'll turn the call over to Ken.
spk06: Thank you, Hokey, and thank you all for joining us today. In the first quarter, our team continued to execute against our plan. We posted $117.4 million in revenue, which is approximately 10% year-over-year growth on a pro forma basis, along with year-over-year improved gross margins and reduced cash burn. On the operational side, We saw an encouraging readout on our PCM technology via a publication in Nature, launched new partnerships, and benefited from enterprise-wide revenue and capital management efforts. We believe that the macro drivers for growth in our space remain robust, and the opportunity for utilizing genetic information and genomic testing has substantial upside. With recent advances in technology, clinical validation, guideline expansion, and reimbursement, The industry is poised to grow. And Invitae has been a leader and a catalyst in driving many of these advances. We have industry-leading variant interpretation capability that is a result of serving nearly 4 million patients across a diverse spectrum of clinical areas. This is bolstered by our machine learning and functional modeling capabilities. We are best positioned to provide the highest quality of interpretation at an industry-leading scale. We have a strong commercial presence. For example, we are respected and well-regarded among genetic counselors and major oncology centers alike and have become a provider of choice. Our approach to science and innovation is addressing the largest market opportunities and includes revenue growth with our deep data and partnerships, and most importantly, Our dedicated team is relentless in pursuit of our mission of bringing comprehensive genetic information into mainstream medicine with great products that lead to better patient outcomes. As we look closer at our business, profitable growth continues to be the foundation of our plan. And we are allocating our capital in key areas that will lead to growth in 2023 and beyond. Let's start with oncology. Our oncology sales include hereditary cancer testing and fee-for-services business with BioPharma. On a pro forma basis, our oncology revenue in the first quarter was $60 million compared to approximately $62 million a year ago. Our fee-for-service revenue was lower year over year due to contract flow and timing, which vary. In hereditary cancer testing, we saw low single-digit growth year over year in both revenue and volume for this quarter. With guideline expansion, improved outcomes, and reimbursement practice showing signs of improved adoption for hereditary cancer testing, we are determined to assist in the adoption of non-genetic expert providers. These efforts are underway and showing improved traction with April year-over-year growth ahead of Q1 rates. We also recently announced some exciting clinical updates on our MRD franchise. as our PCM platform technology benefits were published in Nature. We are optimistic that this will further drive PCM's adoption and additionally underscores our efforts to gain reimbursement support from payers. Dr. David will cover this in more detail. Looking at our ongoing efforts for the medium term, we see valuable synergies between our hereditary germline and our somatic products. Together, they will anchor one of the most comprehensive offerings for a physician who is considering options for an individual at risk of or diagnosed with cancer. We will provide critical information for prognosis, treatment, family risk, drug interactions, and monitoring. In the rare disease category, we really saw a solid revenue growth in Q1 of approximately 33% pro forma year over year. driven by pediatric genetics as well as cardio and neuro panels. We have also introduced a number of programs to improve reimbursement rates. Our efforts to drive profitable growth are already yielding improved gross margins in this category. In women's health, we are encouraged to see continued momentum with approximately 18% pro forma year-over-year growth. In particular, Our carrier screening panel is performing well, thanks to our enhanced product that has helped drive adoption. We are also seeing increased productivity with our sales team, along with market share gain in light of industry consolidation. On the data side, we are linking Invitae's genetic data with clinical claims and prescription data to enable researchers and biopharma partners to deepen their understanding of the patient journey. and ultimately deliver a more effective therapy to the most precise patient population. On the partnership front, our data platform has enabled an exciting partnership with Deerfield that we announced in March. The partnership will leverage genetics and clinical data from us and Deerfield's broad drug discovery and development expertise to advance genetics-based drug discovery and development in rare diseases. We are delighted to work together and explore the potential opportunities based on our respective strengths. On top of our growth initiatives, we are also working to further improve our revenue cycle and working capital. Lasi will provide more details and her remarks later. Next, we will go deeper into our recent clinical updates for our minimal residual disease product, PCM. which is demonstrating impressive value for prognosis, monitoring, and surveillance during the cancer journey. But before we dig into PCM, I'd like to say a few words about our recently hired chief medical officer for oncology, Dr. W. Michael Korn. Dr. Korn joined us in March of this year, and he is a luminary at the intersection of clinical oncology and a commercial laboratory. He founded and led the Precision Oncology Initiative at UCSF and later was the chief medical officer at a large commercial genomics laboratory for five years. I'm sure that many of you will be getting to know Dr. Korn in the coming months as we provide additional updates on our oncology initiative. We welcome him to the team. Now, as Hokey mentioned, with us on the call is Dr. Robert Dever, our chief science officer for InVTED. He is here to provide additional insights into the data recently published, as well as other updates on our clinical plans. Dr. Daber has been with Invitae since 2021 and came to us via the acquisition of Genocity, which he founded. Dr. Daber led the development of many of the key technology elements that underlie our current PTM platform. He also has vast experience with both laboratory formation and product commercialization during his career. and we are fortunate to have him helping to lead this important initiative. I'll now turn the call over to you, Dr. Dabur.
spk03: Thanks, Ken, and I appreciate the opportunity to be on the call with all of you today. I would like to shed some color on the recent publication of TRACERx. Let me first spend a minute giving some background on the study. We conducted the research in collaboration with Dr. Charles Swanton and his team at University College London. Dr. Swanton is both a pioneer and a current leader in molecular oncology and the development of MRD as a useful genomic tool. The study involved 197 patients with stage 1 through 3 non-small cell lung cancer, followed for up to five years, and represented the first use of our PCM technology to correlate clinical outcomes with ctDNA presence. The assay we used in the study looked at up to 200 variants. in order to maximize the assay performance. Using the same underlying technology, our currently commercialized clinical LDT has been optimized to include up to 50 variants. The results of the study demonstrated that ctDNA detection via our PCM platform is a sensitive tool for both prognosis and early detection of recurrence. The ultimate goal is to leverage ctDNA to guide treatment decisions. Currently, Prognostic information can be used for intensification of surveillance, while therapeutic interventions can be explored in the context of clinical trials. We view this as key as we work to integrate testing across the cancer journey. At a high level, the paper showed sensitivity and specificity of greater than 99.9%, at a 0.008% AF, with 60 nanograms of cell-free DNA input for a 50-variant panel, largely consistent with our internal findings in other studies. Now, on to some additional detailed results. There were 108 patients available for landmark analysis. Landmark was defined as plasma samples collected within 120 days of surgery. Out of these patients, 51 patients relapsed during the study period. and ctDNA via our PCM technology was detected in about half of the patients. Utilizing the early landmark analysis window to forecast eventual relapse demonstrated a positive predictive value of 93% and a negative predictive value of 68%. Importantly, clinical sensitivity was further improved by continued surveillance beyond the landmark period. In the study, median lead time for landmark positive patients over clinical recurrence detection was more than seven months. As far as the practical value to patients compared to today's standard of care, ctDNA was detected in relapsing patients prior to imaging by a median time of almost four months. Clinical sensitivity and specificity were assessed based on 70 and 61 patients respectively. Specificity was 95%, or 96.7% after removing a patient with known anomalies. The study reported a minimum sensitivity of 84%. Additional filtering of qualifying samples yielded sensitivity of 93.6%. These results delivered a few important takeaways. First, the study demonstrated equivalent, if not better, analytical performance compared to previously utilized technologies with this patient population. More importantly, the results validated the need for products like PCM that create a data-driven treatment process for patients and physicians alike through ongoing cancer monitoring. And in this large cohort of patients, the data demonstrated the value of our PCM technology for prognostic value, as well as early detection of residual disease and cancer recurrence. all of which benefit a patient's overall cancer journey. While there has been a long history of both development and validation of the PCM technology platform, for the purpose of brevity, I will focus my comments on a few recent and near-term developments. Late last year at the San Antonio Breast Cancer Symposium, results of a study of PCM in patients with breast cancer data were presented demonstrating the technology's ability to detect breast cancer recurrence with a lead time of 13.7 months over clinical recurrence detection. There was also a strong association between ctDNA detection by PCM and relapse-free survival. These are important findings in a disease where only limited clinical follow-up studies are routinely done during the surveillance after surgery. Non-small cell lung cancer data from the TRACERx study were published in Nature last month. which validated the clinical impact of MRD assays and Invitae's differentiated PCM technology and its performance. Recently, we also submitted a technical validation study for peer-reviewed publication, which we hope to see in the coming months. So, with these study readouts and technical validation data, what is the impact and what else is to come? There are a few key points to make here. The more validation we deliver on the technology platform, the more effectively we can market the PCM technology for potential fee-for-service customers and research collaborators in the biopharma and biotech community. We anticipate more data will be generated through this activity that will help drive volume and adoption. In addition, more clinical data allows us to continue optimizing our clinical product to achieve maximum performance while balancing real-world patient needs and other commercial considerations. We are currently optimizing our INVITE-sponsored PCM clinical studies, including our prospective MARIA trial design to further validate the clinical benefit of our PCM platform in a multi-cancer environment, as well as other studies that include lung, CRC, breast, ovarian cancer, and other cancer types. In addition, We are expanding our registry study program to obtain real-world data on assay utilization in the adjuvant as well as treatment monitoring setting. We are also working on identifying new collaborators with existing patient cohorts to allow retrospective analyses that will further demonstrate clinical utility in strategic patient populations. Our overall objective is to enhance the impact and robustness of these studies to accelerate the readout timelines and drive a clinically relevant and competitive profile as we address additional cancer indications. We fully expect that our enhanced clinical trial efforts will provide further proof that PCN can potentially become the standard of care for genomic testing before, during, and following many cancer treatments. And with that, I will turn the call over to Roxy to discuss the financials. We look forward to fielding your questions in the Q&A session. Roxy?
spk01: Thanks, Bob. Moving on to our financial results, we had another solid quarter of performance and progress. We're providing revenue breakdowns on the reported and pro forma basis for clarity. In the first quarter of 2023, we generated approximately $117 million of revenue. compared with $124 million in the prior year. The decline reflects the effect of exited product lines, countries, and territories as a result of our realignment last summer. On a performance basis, we grow the business around 10% from last year. Looking at the details of the business category, $60 million from oncology, including hereditary cancer, and fee-for-service PCM testing offered to pharmaceutical partners. On a recorded basis, this category was impacted by the exit of our kids' business and by the timing and size of fee-for-service contracts, which vary from quarter to quarter. $25 million from our women's health business, including NIPS and carrier testing services. $20 million from rare disease, pharmacogenomics, and other testing products, Data and patient network revenue was about $12 million. This includes our sponsor testing programs, data management, and the number of data partnership projects. Now let's look at our revenue growth profile on a performer basis. Overall, we demonstrated approximately 10% year-over-year growth and around 5% quarter-over-quarter growth for the specific business lines. In oncology, Lower PCM revenue in the form of fee-for-service contracts impact our year-over-year performance, partially offset by the modest growth in hereditary cancer. Women's health business grew 18% year-over-year, largely led by our carrier testing panel. Rare business grew around 33% year-over-year, primarily led by our cardio, neural, pediatric tests, as well as revenue management efforts. Data business also rose over 30% thanks to continued growth of our patient identification programs and partnership contracts for our genetic data products. Non-GAAP growth margin in the first quarter was 47.9%, which improved significantly compared to 36.6% in 2022 and improved slightly over the 47.8% in Q4 of 2022. Non-GAAP operating expenses in Q1 of 2023 was $133 million or 113% of revenue compared to $209 million or 169% of revenue in Q1 22 and similar to 111% in the last quarter. Moving on to cash performance, cash, cash equivalents, restricted cash, and marketable securities totaled $389 million on March 31, 2023, compared to $557 million on December 31, 2022. Our total cash and investment position changed by $171 million. which includes the pay down of the $135 million first lien term loan in conjunction with the refinancing in Q1. In the first quarter, we continue to improve our cash burn, and the burn for our ongoing business was about $51 million, which represents approximately 70% reduction from the part Q1. In addition to working capital improvements, in particular inventory management in the first quarter, Ongoing cash burn in the first quarter also benefited from approximately $13 million of AR reduction associated with the realignment of the previous Archer business. Looking at the expected levels for the rest of this year, we still anticipate fundamental improvements through further working capital efforts and are confident that we should be able to deliver closer to the lower end of the cash burn guidance. Lastly, in addition to our strong cash position with a declining burn rate, we also have close to $250 million additional secured vet capacity available to us. Now, stepping to the Q123 business metrics, revenue per patient is measured by total company revenue divided by the number of ordering patients for the quarter. In the first quarter, revenue per patient was $463. The previous three quarters were higher due to the kids' business revenue. When we exclude those revenues for comparison, you can see that the metric has been stable in the last couple of quarters, and we anticipate further improvements against the new baseline in the future. We're also happy to see continued quarter-over-quarter improvements in variable cost productivity, as well as cash burn as a percent of revenue. Moving to our financial guidance for 2023, we're reiterating our guidance for revenue to be more than $500 million, representing low double-digit year-over-year growth. We continue to anticipate the revenue breakdown to be roughly 45 to 48% in the first half of the year and 52 to 55% for the second half. We also gave them additional color as through product mix expressed as a percent of total revenue. Our non-GAAP growth margin is expected to continue to expand from the 47.9 percent Q1 to be between 48 to 50 percent for the full year, thanks to our more focused portfolio, higher quality of revenue, as well as sustained improvements in lab operations, supply chain, and logistics. In 2023, as a result of the voluntary repayment of our term loan, reported cash burn will be higher than the ongoing cash burn figure. On an ongoing basis, we're optimistic that we're tracking towards the lower end of our previous cash burn guidance of $250 and $275 million, but are maintaining our target at this point. This guidance range calls for a more than 45% improvement from the 2022 figures. And it's expected to be driven by our top line growth, improved growth margins, reduced outtakes, as well as continued working capital improvements. Back to you, Tim.
spk06: Thanks, Roxy. To summarize today's call, first, we are on track to achieve our 2023 growth and business execution goals. The growth catalysts for the near term are in focus, including expanding hereditary cancer adoption, through non-genetics expert channels. Our efforts to expand gross margins and reduce cash burn are slightly ahead of plan. Second, our pathway in oncology for PCM is becoming more clear. And the evidence we need to drive physician and payer adoption are being collected in preparation for a commercial launch beyond our current fee for service revenue. And finally, we have recently addressed substantially all of our near-term debt, and improved our balance sheet. We also have additional secured capacity remaining as a potential funding option. So again, same mission, new path. Integrated and connected portfolio, profitable growth, and big bets are the recipe for the next chapter of InVTED. Operator, I'll now hand it over to you for questions.
spk00: Thank you. If you would like to ask a question today, please do so now by pressing star followed by the number one on your telephone keypads. If you change your mind and would like to be removed from the queue, please press star and then two. When preparing to ask your question, please ensure that your device is unmuted locally. And we will just take a brief pause to assemble our Q&A roster. The first question today comes from Puneet Sudha with SVB Securities. Please go ahead, Puneet.
spk05: Hi, you have Michael on for Puneet. Congrats on a healthy start to the 2023. I wanted to start with PCM. I really appreciate the extra color on the long data. I was wondering if you have any, I guess, additional details you could provide on indications you're expecting to submit to CMS and potential timeline for getting some reimbursement through Medicare.
spk06: Hey, Bob, you want to take that question?
spk03: Sure. So this was one of our earlier studies that we had started in lung cancer. We have additional data that we had mentioned was presented last December in breast, and we anticipate that evolving into a publication for us as well. And as we've indicated, this year we're really focusing on generating additional evidence in areas outside of lung, in colorectal and breast and ovarian. And so those are all in... full swing. And what we're doing parallel to that are having conversations with Medicare as well as private payers. Earlier this year, you saw the favorable coverage from Blue Cross Blue Shield in California. And so these are proceeding in parallel, and we're just continuing to generate additional evidence in the form of clinical studies, in the form of abstract presentations at conferences.
spk05: Great, thank you. And then I was wondering if you could offer any color on ASP trends by segment. I know you mentioned rare disease seeing some improvement. I was wondering if you have any, I guess, details on some of the other segments.
spk06: Yeah, this is Ken. I'll take that first part of that. As we've been looking at, you know, the market unfolding, we see a stability happening with ASP, and our efforts have really been working on improving our reimbursement rates. And so we don't see any significant change in ASP, but we are working hard on our reimbursement rates, which is showing up in our gross margin and kind of gross profit performance.
spk05: Okay. Yeah, it makes sense. If I could just have one quick one. Some of your peers also have been highlighting some potential upside to women's health business from expanded care screening and microdeletion guideline inclusion. I was wondering how much NVTAs leverage these opportunities.
spk06: Yeah, I've actually talked about it a little bit. We've seen some definite upside in our carrier business from the expanded carrier product that we launched ourselves, and that's driving better adoption. And in our women's health business in general, we've seen some improvements just due to industry consolidation, and we've been able to grab some share. So far as the micro deletion piece, we're prepared for the way we have our products offering. We're in good shape as that starts to drive more demand of the micro deletion option. And so we're prepared and ready for that if that turns into real demand.
spk05: Okay, great. Thank you very much.
spk00: Our next question comes from Matthew Sykes with Goldman Sachs. Please go ahead, Matthew.
spk04: Hey, good afternoon. Thanks for taking my questions. Roxie, maybe the first one for you, just on the cash burn, just noticing the progress you've made in the $51 million that you've burned in the quarter, the guide that you've put out there would imply a decent step up in that burn, but it sounds like you're making efforts to continue to reduce that. Should the Q1 run rate of burn be something we think about, or is there some seasonality or other impacts later in the year where we should look at that guide as more of a way to look at burn over the course of the year?
spk01: Yeah, so thank you Matthew for the question. We are, you know, we'll continue our cash burn reduction effort and this is something the entire company is very focused on. And so this year as we, you know, reiterating our guidance, we are pretty confident that, you know, the total year hash burn is most likely going to be a bit closer to the lower end of the guidance. And with that being said, Q151, we benefited from some working capital improvement that resulted from the exit of our Archer business, the REO business, and some of the other assets that we, the business units we have. So there's some working capital improvement that's reflected in the $51 million number, but the core business fundamental improvement on working capital as well as cash burn will continue through the end of the year, through the remaining of the year.
spk04: Got it. Thanks, Roxy. And then maybe one for you, Ken, or Dr. Debra, just on the PCM business. You've talked about some lumpiness in the fee-for-service. as I'm assuming contracting with the biopharma companies tends to be that way. But could you maybe talk a little bit about the dynamics within that fee-for-service business and how you see that trending? Do you expect it to remain lumpy as you're starting out, or do you think you could kind of smooth that out as that business grows? And any kind of way you can parse out that PCM fee-for-service business within oncology would be helpful if you're willing to do that.
spk06: Yeah, you know, Dr. Debra is so much closer to this than myself, so I'll let Dr. Debra start with a response, if you don't mind.
spk03: Yeah, so the lumpiness is really due to the nature of the projects. A lot of this work is project-based where, you know, it's a large number of samples from retrospective cohorts, and so just based on the timing of when those samples get released from central labs, we've got a healthy pipeline of projects coming in and new clients coming on board. And so I think as we continue to grow that funnel, the lumpiness will still be there, but just not to the extremes as where it is now with respect to, you know, large swings in numbers of samples on a given, you know, month-to-month basis.
spk04: Got it. Thanks. And any breakout of the fee-for-service within overall oncology? Are you keeping that all within the same group?
spk01: So, Matt, this is Roxy. Just to add to what Dr. Dabur just said, that in the back of the slide deck, in the appendix section, you will see the breakout of our oncology revenue by quarter, starting Q1 of 22, and this quarter included as well. And you'll also see the pro forma revenue by each of the four product categories on the prior page as well.
spk04: Perfect. Thanks, Roxy.
spk06: Yeah. And Matt, I would add, this is Ken. We also have, you know, put some commercial efforts into making sure we show up that pipeline. So, you know, we are, we've got a great product and we're determined to continue to grow that farmer business.
spk04: Thank you very much.
spk00: As a final reminder, if you would like to ask a question today, please do so now by pressing start followed by the number one on your telephone keypad. We'll just take a brief pause to allow any additional questions to come in. At this time, we have no further questions registered, so I'll turn the call back to Ken for closing remarks.
spk06: Well, thank you, operator, and thank you, everyone, for joining us on the call today. We appreciate your continued support and look forward to sharing more updates with you in the near future. Have a great afternoon and evening. Bye, all.
spk00: Thank you, everyone, for joining us today. This concludes our call, and you may now disconnect your lines.
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