Invitae Corporation

Good afternoon and welcome to the invitee third quarter 2023 financial results conference call. My name is Carla and I will be your operator for today's call. We will have a Q&A session following your host's remarks. To register your question, please press start followed by one on your telephone keypad. If you wish to revoke your question at any point, please press start followed by two.

Thank you, operator, and good afternoon, everyone. Thank you for participating in today's call. Joining us today are President and CEO, Ken Knight, and our new CFO, Anna Schrank. Before we begin, I'd like to remind you the various remarks that we make on this call are not historical, including those about our vision and business model, future financial and operating results, future products, services, our product pipeline and the timing, expectations of future growth, reduction in burn rate, and discussions with our stakeholders. and operational improvement in cost reduction efforts. 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 state outlook. Statements on future company performance assume, among other things, that we don't conclude any new business acquisitions, investments, restructuring, or legal settlements. We refer you to our most recent 10-Q and 10-K, 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 far-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 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.mbj.com. Today, Ken will provide an update on recent events and operational news during the quarter. Ana will cover the financial details and key metrics, as well as our 2023 guidance. We will then conclude the call of Q&A. With that, I'll turn the call over to Kim.

Thank you, Hokie, and welcome everyone who joined us today. Q3 was another productive quarter for us, where we met or exceeded consensus estimates and key performance metrics. Our pursuit of higher quality revenues and lower unit costs resulted in continued gross margin expansion. We have improved our non-GAAP gross margins for nine consecutive quarters. and hit 52.4% this quarter, which represented a 250 basis point sequential expansion from Q2 2023. Operational improvement efforts and expense control have resulted in a reduction in ongoing cash burn of approximately 60% in the first nine months of 2023 versus the same period last year. We are on track for our full year 2023 cost reduction commitment. Revenues for the quarter were $121.2 million, an increase of approximately 4% year-over-year on a pro forma basis, and an improvement from the second quarter, which saw roughly 1% pro forma growth. Rare disease led the way with 44% year-over-year revenue growth, followed by women's health with 21% growth. Oncology saw a 7.5% year-over-year pro forma decline. influenced by lower fee-for-service revenue as we work to rebuild that pipeline, and impacted by commercial insurance payment headwinds for hereditary cancer. Oncology did see a 3.3% sequential revenue growth from Q2 2023 and was bolstered by an 11% volume growth for hereditary cancer in our U.S. market on a pro forma basis. Regarding the commercial payment headwinds, we have devoted significant resources to tackle this issue to improve payment collections, and we are seeing progress. In the second quarter, we reported a negative impact of approximately $5 million to the revenue line, and that number decreased to about $2.2 million in Q3. We believe that we are going to continue to see positive results in the fourth quarter and into next year. We are encouraged by these improvements and also recognize there is still much work to do on our journey. Today, you will see going concern language in our 10Q. Since our realignment in July 2022, our entire team has been executing on the initiatives and actions needed to improve the health of the business. Those efforts have been productive and will continue. We are creating plans that will, over the next 12 months, further reduce operating cash burn and improve the company's liquidity. This is a top priority, and we are actively engaging with our stakeholders in seeking constructive feedback and solutions. Our board of directors has formed a special committee to focus on addressing our capital structure needs. With our board, we are exploring a number of options, which could include raising capital, addressing our debt, selling certain assets, and continuing operational improvement and cost reduction efforts. Moving to slide six, I want to highlight a few of our recent wins. In the third quarter, we secured the first of its kind, SBA authorization for our common hereditary cancer panel. We are proud of this accomplishment, as Invitae was able to establish a new category of device based on our technology and methodology. We submitted a de novo application in 2021 using this panel as an example of a methods-based approach to validation. It was a voluntary submission, and our goal was to guide the agency's understanding through the submission and review process. As such, the FDA worked closely with us to review the test and our supporting data, which led to this market authorization. Meeting the agency's stringent requirements is a testament to our product and to our labs, processes, and quality. Importantly, this decision sets the bar for expected performance and the associated data required for future regulatory approval of similar products. As for the next step, our teams are working through the implications of offering an FDA authorized assay as it relates to our operations, development, and potential commercial benefits. We also believe that this decision serves as a proof point that we will remain very well positioned should the regulatory landscape surrounding laboratory-developed tests change in the future. In the third quarter, we also reached 4.4 million patients served across a diverse spectrum of clinical areas. Of these patients served, 64% are available for data sharing. We continue to believe that this breadth of patient data will further strengthen our variant interpretation capability, and we are well positioned to provide the highest quality of clinical interpretation at an industry-leading scale. And as I already mentioned, our efforts to improve revenue cycle management and cash collections also continue to gain traction during the quarter. Finally, we recently had an exciting update in which we received clear approval on our submission for our enhanced personalized cancer monitoring assay. On to slide seven. The enhanced PCM assay is expected to benefit our customers and patients as well as our business. And all migration steps required for the chemistry and internal processes have been completed seamlessly. We are running the enhanced assay going forward And here are a few of the benefits. We have reduced the number of steps in the PCM workflow, increasing capacity and lowering the burden of materials and labor costs. The process now lends itself to automation, enabling scale and supporting our future growth. From a performance perspective, we were able to lower our limit of detection, potentially improving lead times. This enhanced assay is able to achieve the same sensitivity as the prior version with less cell-free DNA, enabling us to test samples that may have previously been rejected. As part of the submission, we have also validated whole exome sequencing as a standalone comprehensive genomic profile to permit reporting of tumor profile, enabling us to add new products to our oncology menu. And finally, We are confident that the enhanced chemistry addresses the primary matters arising from the ongoing Natera litigation, providing us an even more differentiated solution. Overall, we continue to have strong confidence in our ability to operate, and most importantly, our ability to continue offering PCMs to pharma partners and patients as we rebuild our fee-for-service pipeline. Longer term, We continue to see synergies between hereditary germline and somatic products. Study after study concludes that the combination of the two datasets results in superior decision-making in cancer care. Our ability to do both types of testing on one platform anchors one of the most comprehensive offerings for a physician and patient considering treatment options for cancer. Before I hand the call over for the financial discussion, I'll note that we have added some fantastic talent to our executive leadership team since our last call. Over the past few months, we announced the appointment of Robert Geigle as our chief commercial officer, Anna Schrenk as our chief financial officer, and David Sholovar as our incoming chief operating officer. They each bring extensive and relevant experience. And I'm confident that they will deliver long-term value to our team. And with that, I will turn to Ana to discuss the financials. Ana?