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Edited Transcript of NVTA earnings conference call or presentation 5-May-20 8:30pm GMT

Q1 2020 Invitae Corp Earnings Call

SAN FRANCISCO May 28, 2020 (Thomson StreetEvents) -- Edited Transcript of InVitae Corp earnings conference call or presentation Tuesday, May 5, 2020 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Katherine A. Stueland

Invitae Corporation - Chief Commercial Officer

* Laura D'Angelo

Invitae Corporation - Head of IR

* Lee Bendekgey

Invitae Corporation - COO

* Robert L. Nussbaum

Invitae Corporation - Chief Medical Officer

* Sean E. George

Invitae Corporation - Co-Founder, President, CEO & Chairman

* Shelly D. Guyer

Invitae Corporation - CFO

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Conference Call Participants

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* Bruce David Jackson

The Benchmark Company, LLC, Research Division - Senior Equity Analyst

* Casey Rene Woodring

JP Morgan Chase & Co, Research Division - Research Analyst

* Doug Schenkel

Cowen and Company, LLC, Research Division - MD & Senior Research Analyst

* Jeffrey Scott Cohen

Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research

* Kevin Michael DeGeeter

Oppenheimer & Co. Inc., Research Division - MD & Senior Analyst

* Puneet Souda

SVB Leerink LLC, Research Division - MD of Life Science Tools & Diagnostics and Senior Research Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by. And welcome to the Invitae's First Quarter 2020 Financial Results Conference Call. (Operator Instructions)

I would now like to hand the conference over to your speaker today, Laura D'Angelo, Head of Investor Relations. Thank you. Please go ahead.

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Laura D'Angelo, Invitae Corporation - Head of IR [2]

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Thank you, operator, and good afternoon, everyone. Thank you for joining us for our first quarter 2020 earnings call. Joining us today are Sean George, our CEO; Shelly Guyer, our CFO; Lee Bendekgey, our COO; Bob Nussbaum, our Chief Commercial Officer (sic) [Chief Medical Officer]; and Katherine Stueland, our Chief Commercial Officer.

As you listen to today's conference call, we encourage you to have our press release available, which includes our financial results as well as metrics and commentary on the quarter.

Before we begin, I'd like to remind you that various remarks that we make on this call that are not historical, including those about our future financial and operating results; our plans and prospects; the focus of our business strategy; our plans to integrate and manage businesses we acquire; market opportunities; future products; services; our product pipeline and the timing thereof; demand for and reimbursement of our services; our investment in our infrastructure and operations; and finally, the outcome of ongoing conversations with our auditors regarding the accounting associated with acquisitions, these statements 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 slated outlook. The statements on our future company performance assume, among other things, that we don't conclude any additional business acquisitions, investments, restructuring or legal settlements. We refer you to our 10-K for the year ended December 31, 2019, 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 forward-looking statements speak only 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. In this period, these non-GAAP measures include cost of revenue, gross profit, operating expense, including research and development, selling and marketing and general and administrative, as well as net loss and net loss per share and cash burn. We encourage you to review our GAAP to non-GAAP reconciliations, which are available in the press release and in Slides 10 and 13 of the earnings deck.

With that, I will turn the call over to Sean.

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Sean E. George, Invitae Corporation - Co-Founder, President, CEO & Chairman [3]

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Thank you, Laura, and thank you all again for joining us on the call. We continue in our mission to transform the genetic testing industry from one where genetic information is used sparingly on a test-by-test, indication-by-indication basis, served by high-margin niche market business models, to one where genetic information is used broadly as a medical utility to improve outcomes and lower the health care costs for billions of individuals around the globe.

The year started off in dramatic fashion with an exceedingly strong Q1, right up until mid-March when volumes fell around 50%, prompting us to suspend our guidance while we understand better the near-term impact of the COVID-19 pandemic. I do think it's worth noting that the trajectory we were on for the first 10 weeks of the year would have had us well on the path to exceed around 850,000 samples for the year and handily beat our revenue expectations.

More importantly, we don't see any structural systematic changes in the demand for genetic information and are getting a general sense that perhaps, when all is said and done, the importance of diagnostic information may actually appreciate faster. And in fact, each week in April, up to and including this week in May, we see steady daily average volume increases. While early and really only happening on a regional level, we view this as evidence supporting our scenario outlook of the COVID recovery period and, more importantly, the essential nature of genetics in mainstream medicine.

What we are seeing in the near term is that now more than ever, the way people access health care is changing. Invitae has been investing for some time on this front and is uniquely positioned to help clinicians deliver care to their patients through this pandemic. Our production facilities are fully operational, and we continue to add to our enhanced capabilities in telemedicine and at-home solutions as well as supporting our clinicians with professional education when transitioning to telehealth. Our Gia chatbot, recently integrated from the Clear Genetics acquisition last fall, has played a key role in scaling these capabilities. And our direct channel development is timely given the number of couples trying to conceive or are currently pregnant at this time. This week, we will be launching a marketing campaign educating consumers about this capability and just how easy it is to access genetic information for healthy mom and baby from the comfort of their own home. We are all adjusting to a new reality. And we believe this new normal should be one where all of our customers have access to the genetic information they need but even more accessible and delivered in new, more efficient and safer ways. And Invitae is better poised than anyone to lead this effort.

I will now turn the call over to Shelly to highlight our quarterly financial results.

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Shelly D. Guyer, Invitae Corporation - CFO [4]

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Thank you, Sean. Just a quick comment before I begin. We noted in today's release that interest and other expense net and net loss are preliminary and subject to change as we finalize acquisition-related adjustments. These adjustments will be incorporated in Invitae's Form 10-Q to be filed with the SEC on or before May 11. We don't expect the impact of any change or reclassification to be material. Importantly, any reclassification would not impact revenues, volume or cash balances for this or prior periods.

Volume remains a metric which best reflects the health of our business. And as Sean mentioned, we had a very strong quarter of growth. We reported nearly 64% growth in volume over the previous year, accessioning more than 154,000 samples in the first quarter of 2020. We accessioned more this quarter than the full year 2017.

Billable tests are important, given that we accrue our revenue based on the number of billable reports in a period. This quarter, we reported billable volume of more than 151,000, which represents a 74% increase over the first quarter of 2019. Volume growth was strong across all segments with higher growth in reproductive tests and biopharma programs. Additionally, international volume was strong, now running at 11% of our billable volume. Recall that we experienced seasonality in our volumes. The first quarter has traditionally been our lowest. And we believe the record volume this quarter, despite the last 2 weeks being affected by the pandemic, along with the early signs of recovery, are indicators of continued future growth potential.

We generated $64.2 million of revenue this quarter, a 58% increase from the first quarter of 2019. In the first quarter, over 68% of our revenue came from third-party payers and just over 30% from both institutions, including pharma partners and patients. The continued high percentage from third-party payers is largely due to higher Medicare payments, despite the known 10% PAMA reduction on certain cancer tests effective January 1. Additionally, we continued to see steady improvement in commercial third-party payer performance.

Consistent with our discussion of ASP trends last quarter, we realized an ASP of $418 this quarter, down from $443 in the fourth quarter of 2019. This decrease was primarily driven by payer and product mix changes, which will continue to impact ASP going forward.

Because most line items on the P&L are affected by acquisition-related charges from amortization of acquired intangible assets and acquisition-related stock-based compensation, we have provided a detailed reconciliation to non-GAAP in tables included both at the end of today's press release and on this slide, on Slide 13 of this deck.

Our GAAP financials for the first quarter are provided in the table on this slide as well as in our press release and regulatory filings and were average cost per sample of $262, gross profit of $23.8 million, gross margin of 37% and operating expense of $121.6 million.

Throughout the remainder of the discussion of the quarterly results, we will refer to non-GAAP numbers, which we believe are a more relevant depiction of the business dynamics and the decisions we are making going forward. We also provide cash burn, which is a non-GAAP measure. Investors are encouraged to review the non-GAAP reconciliations.

Our cost of revenue per sample was $245 this quarter, a 10% increase from the first quarter of 2019. The increase in cost of revenue per sample was driven by the higher incurred costs of newer content offerings and mix changes, offset by investment in cost reductions and the growing impact of scale on our cost structure. While the path forward to pre-COVID volumes is unknown, we do expect to see higher cost per sample through the second quarter and a trend back towards 50% gross margins by the end of the year.

The key measure of our long-term financial success is the ability to generate sustained positive operating cash flows. In the near term, gross profit growth is a reasonable substitute indicator. Gross profit was $26.5 million, an increase of 35% over the comparable number a year ago. The gross margin for the quarter was 41%. The ASP declines from product and payer mix shifts, the increase in COGS per sample due to product mix, along with the increase in accession to billable volume gap due to seasonality, impacted our gross margin.

We provide a reconciliation on this slide to show the adjustments to get from the cash flows in our financial statements to the non-GAAP numbers investors are accustomed to us presenting.

Moving to operating expenses. We exited 2019 and began 2020 in investment mode, and the early months of the year exhibited very strong growth. We continued to invest in our business, and operating expenses for the first quarter were $101.9 million. Our first quarter spend fell into several areas: First, sales to increase head count and facilitate product launches and volume expansion and marketing to support our direct channel; second, research and development, mostly head count increases, to facilitate scaling our business, content expansion, improving the customer experience and reducing COGS; and third, general and administrative, to support the growth of the business.

With the changes brought on by COVID and as we highlighted in our last public call, we significantly scaled back our expenditures starting at the end of March and into the second quarter by pulling back on investments in future projects, instituting a reduction in force and other personnel expense reduction measures. The company is continuing to closely monitor the impact of the pandemic on testing volume, which is highly varied based on clinical area, geography and clinician type. And we will continue our efforts to calibrate our spend as appropriate.

Cash burn, excluding acquisition-related expenses, would have been $66.2 million.

Moving to our cash position. At March 31, 2020, cash, cash equivalents, restricted cash and marketable securities totaled $301 million. Several important events occurred at the beginning of April which affected our cash position. We closed on our pharmacogenomics acquisitions, YouScript and Genelex, using around $25 million in cash. We completed a public offering of common stock, yielding $173 million in net proceeds. And these events, combined with our cash on hand at March 31, meant that we started the second quarter with around $450 million on the balance sheet.

With the cost-reduction moves mentioned above, which we have made given our current scenario outlook, we are targeting a total cash burn of less than $200 million for 2020 and an exit burn rate of less than $30 million a quarter. We have more than enough capital to withstand a variety of downside COVID scenarios and emerge out of the coming quarters even stronger for it.

I will now turn the call over to Bob Nussbaum to highlight some of our recent data.

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Robert L. Nussbaum, Invitae Corporation - Chief Medical Officer [5]

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Thank you, Shelly. Invitae is committed to contributing research to the medical community to better health care for all of our patients. Among Invitae's data at the World Congress of Cardiology virtual meeting, we presented a study showing that 96% of individuals genetically positive for a cardiomyopathy would be falsely reassured by a negative result provided by limited genotyping testing strategies commonly available in direct-to-consumer services. In contrast, comprehensive genetic testing identifies actionable variance in a substantial portion of cardiomyopathy and arrhythmia patients that may confer eligibility for gene-specific precision therapies and guide implementation of established management recommendations.

Among Invitae's 13 abstracts at the American College of Medical Genetics and Genomics annual virtual meeting just last week, we presented research from the Invitae Detect Prostate Cancer program that found that 1 in 7 patients have a positive genetic result, independent of whether examination of tumor tissue showed there was intermediate, high-risk or very high-risk disease present. In addition, half of patients with actionable findings had no family history of disease. This indicates that overly narrow testing criteria based on the degree of severity of the disease or on whether there was a positive family history of prostate, breast, colon or ovarian cancer deprive nearly half of all patients who could benefit from testing from having their testing performed and covered by insurance. Our research collaborations, by showing increased yield from broadening testing criteria, identify more patients with actionable findings with clinical implications such as qualification for approved therapies or clinical trials.

This data also highlights that several partners are coming on board to be a part of Invitae's Detect programs to provide no-charge genetic testing for conditions in which testing is underutilized but can improve diagnosis and treatment, thus highlighting the importance of Invitae's growing network of biopharma partners. In the first quarter alone, we added 12 new biopharma partnerships, bringing the total number of partners to more than 90. These sponsored testing programs are also important for patients who have recently lost insurance coverage or cannot afford the cost of genetic testing.

I will now turn the call back over to Sean.

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Sean E. George, Invitae Corporation - Co-Founder, President, CEO & Chairman [6]

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As Bob mentioned, our growing network is a huge contributor to our ability to bring genetics into mainstream medicine. And across the board, our diversified products, services, technologies, channels, customers and geographies mean that we are well equipped to support clinicians around the world through these trying times in which we aim to be of service however we can to our customers. We're certain our aggressive investment in ways to access the platform position us better than anyone to support clinicians and patients using the clinic-from-afar model. We have had telehealth options in place for some time now. And our past investments and acquisitions in our customer workflows have enabled a transition to telemedicine that has been rather seamless. Over the many years, we've developed and/or acquired new content, much of it just now starting to contribute to the business, leading to the broadest menu available, which is making it easier and easier for our network partners, health systems and governments around the globe to look to one place for all of their genetic information needs. And even as we respond to present challenges by pulling back on some of our future investments, we continue in the relentless pursuit of our mission to better deliver genetic information to billions of patients worldwide and the clinicians that serve them.

Even in times like these, there are cancer patients, people with cardiovascular diseases and families afflicted by other genetic disorders that need this information. For the women that are trying to conceive or pregnant, they need access to genetic information from the comfort of their home, from conception through the pediatric 1-year check-in. The importance of genetic information and diagnostics in general and their impact on population health is only growing faster. The unmet need is immense.

The challenges surrounding this pandemic will subside, and we continue to position Invitae as a runaway winner in one of the most exciting and dynamic sectors of health care when it does.

With that, I will now turn the call over to the operator for Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from Puneet Souda of Leerink.

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Puneet Souda, SVB Leerink LLC, Research Division - MD of Life Science Tools & Diagnostics and Senior Research Analyst [2]

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So my first question is on, Invitae has driven market share growth and captured market share over time. With this disruption ongoing, a number of cost effort -- cost-reduction efforts that you're doing across the organization, how are you thinking about sort of emerging from this? And how are you looking at the broader landscape of the peer group of germline testing companies? How do you think Invitae emerges out of that? Because traditionally, you invested into menu expansion and reducing the cost. And obviously, the lever you can pull here is reducing the cost more aggressively. So just help us understand how do you position into that, as some of these tests that are hereditary, obviously, elective on a certain time scale, though. What's your expectation here as you emerge from this crisis in the second half?

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Sean E. George, Invitae Corporation - Co-Founder, President, CEO & Chairman [3]

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Yes. So I think the -- as we mentioned, we do see some -- over the last few weeks, some recovery in daily average volumes. It definitely is -- it's really hyper-regional and is a little over the map. So we're calling it early -- or too early to really call anything.

In terms of emerging out on the other side of a COVID impact scenario stronger for it, what we've done is essentially pull back on a lot of future investments and alter the mix of investment. The short of it is, is to favor near-term gross profit generation, which I think is -- that's no surprise to anybody. That's a natural move you would make. So we've made the OpEx moves. We stopped hiring. We've let some people go. So we've done all of the basics of housekeeping.

And on the investment front, we've really been focusing on COGS improvements, product improvements that allow us to kind of take immediate share, like where we see immediate share opportunity -- share capture opportunity, we're focusing on those product improvements. Any of the frontline kind of customer-facing, both clinician and patient portal capabilities that ease -- remove friction from the workflow, enable a lot of the legwork to be done for clinical genetics upfront and out of the office, we're prioritizing those efforts, and other investments in systems that help us scale the business with better operating leverage. And so I think the -- it's really not that different from the balance of our kind of -- if you consider portfolio management of R&D investments, if you will, over time, albeit with the challenges on the top line from this COVID period, the OpEx moves we've made and will continue to make, those investments are being targeted and more towards near-term gross profit generation.

And then I think that -- so we'll continue on serving clients through the period, customers through the period. And I think as things come back, again, we'll emerge with the broadest menu. The capabilities that allow us to serve those customers with the least amount of friction domestically and around the globe.

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Puneet Souda, SVB Leerink LLC, Research Division - MD of Life Science Tools & Diagnostics and Senior Research Analyst [4]

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Okay. That's helpful. Shelly, if I could ask on burn reduction here. As you look at the number of acquisitions that you have done over the last year and recently in Diploid, in YouScript and Genelex, how much of that reduction is sort of -- if you could lay out for us the order of priorities in terms of cost reduction? Where is the majority of this coming from? And where do you stand currently on the total sales reps? And I would -- should we expect a reduction in those acquisitions that you had done? Or is it going to be more of the core business reduction or the reduction in the core business for hereditary and others where you had invested before?

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Shelly D. Guyer, Invitae Corporation - CFO [5]

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Yes. So I think, as I highlighted, we had been on an investment mode, and that was a lot of additional R&D heads and others to do some of the things that Sean talked about as well as some in the sales force, et cetera, and in G&A to help us to scale the business. So across the board, we cut back. We did not focus on cutting back on any of the recent new acquisitions. I think that would be shortsighted. Our goal is to integrate those quite quickly. If we can get some savings from that, that would be great. But that is not an area of focus for us in terms of cash reduction and cost reduction. I think more important is to integrate those really rapidly.

And as you recall, Clear Genetics had a small number of people, as did Jungla and Diploid. So it is not like there are a lot of heads and a lot of extra burn that comes from that. But again, on those three, the critical -- getting those integrated in to be able to increase the sales level and have the top line improving and enabling that customer service side and access to the tests. And so all of those are priorities for us, not in terms of reduction of cost but in terms of growing on the top line and being able to offer enhanced products and services. And then I'll let Katherine talk about specifically sales force.

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Katherine A. Stueland, Invitae Corporation - Chief Commercial Officer [6]

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So we ended the first quarter with approximately 300 people in the field, both U.S. and internationally. And while in April we did tighten up that team a bit, I would say that team has really been predominantly focused, as Sean mentioned, on being of service to our customers today and really being a good partner for genetic counselors who are trying to navigate how to provide care while not being able to do it through their normal course of duty. So the team is super focused, I would say, on making sure that we're being of service to our customer base, utilizing and deploying Gia to be able to make sure that accounts are getting set up with that service because we know that, that provides access for patients to their clinicians. And we know that, that's going to be a service that provides an important lever in terms of reorder rates moving forward.

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Puneet Souda, SVB Leerink LLC, Research Division - MD of Life Science Tools & Diagnostics and Senior Research Analyst [7]

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And if I could ask a last one on Gia and telehealth expectation. Can you quantify sort of how much of the business currently is coming from telehealth versus traditional call-ins and other methods from genetic counselors? And longer term, Sean, how do you think about genetic counselors moving to telehealth even more aggressively after this sort of the telehealth renaissance that we have seen across health care? And how do you smoothen that process when it comes to reimbursement and especially situations where genetic counselors are maybe licensed by the state and can't consult outside their state? So how do you work through those? And what's your expectation here for genetic counselors using telehealth longer-term and driving business to you?

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Sean E. George, Invitae Corporation - Co-Founder, President, CEO & Chairman [8]

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Yes. Let me start, and then I'll answer the kind of the impact. Katherine can kind of go through some latest developments of genetic counselors in the -- I'd say in our infrastructure. And then I think Lee can address the reimbursement side.

So really quickly, on -- to answer the first question, the impact of Gia is a difficult one to quantify, specifically as a standout. We have invested for some period of time now with our patient portal, our clinician portal, and have always been adding features that make it easier and easier and easier to do that, not with a rep in the clinic walking the clinician through it or pulling charts or filling out information and having to do it in the clinic. So that's been in development for some time. Gia has definitely accelerated that. But it's just hard to say kind of if the majority of our orders are through our online portal, how much of that now is uplift from Gia versus -- it's difficult to say. But I would say kind of like we can definitely see, even in the very early days, it is having a positive impact in the ability to drive more volume, have clinicians get greater throughput through their clinics, eliminate a lot of the activity that otherwise would take time in person. So we're pretty pleased with how it's going.

And then, Katherine, I think you had a question specifically about how genetic counselors are using it and then the billing. So Katherine can speak to the GC part.

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Katherine A. Stueland, Invitae Corporation - Chief Commercial Officer [9]

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What's really interesting is initially, we thought Gia was going to be most supportive in clinics that did not have a GC on-site. And certainly, amongst the OBs and cancer centers, we're seeing -- since the introduction of Gia's capabilities just about a month ago, we're seeing a strong demand in terms of people interested in getting set up. But GCs, actually because of the pandemic, have been really interested in figuring out how to work with Gia in order to ensure that moving forward, they can be as efficient as possible. One of the things that we know genetic counselors have long struggled with are wait lists. And so if Gia can be of service in terms of trying to really help identify which patients are in the most dire need to see a genetic counselor sooner, then that's really how genetic counselors are seeing Gia as being a help to their clinical care. So overall, I would say it's a really interesting development, just given the current situation in terms of restricted access to clinicians. Gia's being helpful across all 3 of those customer segments.

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Lee Bendekgey, Invitae Corporation - COO [10]

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And Puneet, this is Lee.

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Sean E. George, Invitae Corporation - Co-Founder, President, CEO & Chairman [11]

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Go ahead. Well, on the reimbursement -- Puneet, on the -- you asked about the reimbursement question. I think it's a pretty interesting and important development. Maybe, Lee, you can...

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Lee Bendekgey, Invitae Corporation - COO [12]

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So Puneet, this is Lee. On the reimbursement side, I think Gia and tools like Gia that we have been working on help in a number of ways. The first thing they do is they make it more likely that our customers will order via the portal, and keeping in mind that the Holy Grail for reimbursement is having a clean record to bill with no errors and all the information that the payer requires. So we have much lower error rates when our customers order via the portal than when they do via paper reqs. And we have much less missing information, obviously, when people use the portal. So that's one difference. The second difference is that we have found that where we have the opportunity to interact directly with the patient, which Gia facilitates, we can get information quicker, and it's more accurate. So if we're missing information, and we can reach out to the patient. We're likely to get that information, and we're likely to have the right information. So those are the primary reasons why Gia helps reimbursement. And as an aside, because it drives more towards the portal, it helps reduce operating expenses because the paper reqs are more manually -- are more head count -- they require more head count.

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Sean E. George, Invitae Corporation - Co-Founder, President, CEO & Chairman [13]

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And sorry, Bob, I think I cut you off. But...

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Robert L. Nussbaum, Invitae Corporation - Chief Medical Officer [14]

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Yes. That's fine. No, this is fine. I just wanted to add that this issue of the relationship between Gia and genetic counseling, we're in the process of preparing a manuscript of the experience of Gia for over 37,000 patients in clinics like mammography screening, routine colonoscopy screening or annual well visits to OB/GYN, where there is no genetic counselor. The vast majority of those practices don't have a counselor there at all, and Gia was able to identify 1/4 of those healthy individuals should have genetic testing. So it is having a major impact not just around the genetic counseling world, but it's extending way beyond what we generally think of as being the world of genetic counseling.

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Operator [15]

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Your next question is from Doug Schenkel of Cowen and Company.

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Doug Schenkel, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [16]

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Let me start with a volume question, so -- I guess, in multiple parts. Is it fair to assume that cancer testing has initially been more resilient than reproductive testing? The second thing is, you said volume was down 50% at the end of March, I believe that's what you said. Was that year-over-year versus trend versus Q4? And then the third part is, it sounds like you saw a consistent improvement week to week since the end of March. So would you be willing to give us something in terms of how you exited April, maybe framing it the same way you framed your comments on the end of March?

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Sean E. George, Invitae Corporation - Co-Founder, President, CEO & Chairman [17]

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Yes. Sure. So let's do it. First, to clarify, the -- in fact, in the early kind of -- as soon as we saw daily average volume falling off in the first -- early 2 -- first week or 2, in fact, it was reproductive across the board that held up the best, getting hit somewhere in the 20-ish-plus percent range. And it was a lot of the other disease areas that got to hit the most, so for cancer, included in there, anywhere between 30% and 50%. The detail on that is where it gets interesting, that kind of there were clearly some accounts, acute -- large cancer care centers, acute cancer care centers, late-stage, that did not get impacted at all. And then on the other hand, there were others that did. And this is where the regional aspect of this really started to become apparent early on. But nonetheless, generally, at a high level, reproductive got hit the least, other disease areas did get hit more, with some kind of acute care, obviously, still continuing. And then in terms of the 50%, that is a -- versus trend. I think that's a key clarification. When we say down 50%, we mean from the prior week's daily volume -- daily average volume. So that was kind of like we were on a path. And then overnight, we saw a 50% reduction off of the path, not compared to last -- the same time period last year or last quarter.

And then on the last part, kind of related in terms of the recovery, it's kind of a similar answer as the initial impact. The recovery, again, this is just a few weeks and it's looking at daily average volume, which is pretty stochastic, and it's the same kind of thing where depending on the client and almost really down to the ZIP code now and certainly globally, country by country, it's still a bit back and forth. So I just think it's really too soon to call a trend for the foreseeable future. We would expect that Q2 is going to be impacted. The volumes are going to be impacted from the COVID period. There's -- that -- no matter how quickly this comes back on current trend lines, Q2 will be impacted both by way of the volume. And then, of course, that flows through primarily on the COGS side of things. But then after that, it's really too early to tell.

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Doug Schenkel, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [18]

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Okay. So that's helpful. And I guess as I think about Q2, just building off of what you just said, Sean, at the end of Q1, relative to trends, you were down about 50%. It sounds like things are moving in the right direction. But I really don't have any idea how to, even with a wide band of possibilities, model Q2 because we have those facts that you shared. On the flip side, Q2 is usually stronger than Q1. And again, you talked about week-to-week improvement. Is there anything more you can share to maybe help us model out a range of different outcomes here as we're updating our forecasts?

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Sean E. George, Invitae Corporation - Co-Founder, President, CEO & Chairman [19]

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Yes. I mean there's a little -- unfortunately, not a lot more but I think a little bit more. We could -- you're definitely right. Q2 is typically bigger than Q1. Again, it's a new year. We've got new customer types. It's getting harder for us to kind of look to the past with all the new product areas and the new customer types. It's a little bit more difficult to look back to historical seasonality. Nonetheless, yes, I think we don't expect -- if -- depending on how long the impact goes, you can kind of call a 50% reduction off of trend that would slightly improve. I think that's kind of how we would view it. And slightly, we do mean slight. The encouraging thing is that we are seeing recovery, not a continued trough at 50% reduction and no further degradation. But just to clarify, by slight improvement, we do mean slight. And the fact is one by one by one, accounts are opening up and coming back.

So I think if we had to summarize the Q2 outlook, it would be, call it, what we'd -- probably we're on track to do minus -- a little less than 50% and then flow through the according COGS, and you'll get the kind of the same impact on the bottom side and the gross margin side. And it's -- beyond that, it's really hard to say anything else. We are -- the scenario outlook that we're kind of dealing with here anticipates something around that, some kind of recovery later in the year. Again, our details on that are as hazy as you might imagine, so can't offer really a whole lot there. But I think our Q2 outlook, that's roughly where we're kind of thinking Q2 is going to play out. And that's -- again, the moves that we've made are to accommodate that because by the time you account for the top line hit, the COGS resulting, the burn is going to be higher, right, as we flow through all of the expenses and charges with the OpEx moves we've made, then some -- between recovery and cost savings accruing, that burn will go down toward the end of the year. That is the only thing we're sure of, the extent to which and the pace of which and the path -- the exact path to get there is still pretty -- it's pretty uncertain.

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Doug Schenkel, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [20]

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Okay. Understood. Last one for me, just on YouScript and Genelex. I believe one of the key strategic rationales for these acquisitions was not just to add pharmacogenomics, but to have an important offering that would appeal especially to closed health care systems and allow you to basically use that as a way to more forcefully get in the door and potentially be the vendor of choice for all your solutions. If I'm thinking about that right, on one hand, I could see where that just completely stalls in the early going, given what's going on. On the other hand, I could see where maybe there's some instances where demand for pharmacogenomic testing actually increases, given there is some association between pharmacogenomics and some of the early treatment options for COVID-19. So I guess the question is, is it too early to say that this is working given what's going on? Or are there some signs that even in the midst of a pandemic, you're making progress?

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Sean E. George, Invitae Corporation - Co-Founder, President, CEO & Chairman [21]

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I think it's the latter. And I want to give credit where credit's due, right? We've been stewards of that capability for all of 2 weeks now. The teams -- Kristine and Chris and the teams at YouScript and Genelex had been doing a lot of prep work ahead of time. And so the short answer is, it's the latter. A little more color on that is we had mentioned -- and actually, I do want to answer your question. There is an aspect of adding pharmacogenomics, which is just simply when we state as our mission to aggregate all the world's genetic information, we need all the world's genetic information. And PGx is genetic information. Therefore, we added it. Now that's kind of a throwaway comment. The timing and the rationale kind of came as we observed, I'd say, as PGx enthusiasts for the last 15 years, as we observed the inbound demand over the last 1.5 years, it did become clear that, in particular, integrated systems, ACOs, payers, anybody footing the cost of polypharmacy in adverse gene drug events were all of a -- in the last year or so, we saw demand and inquiry, in-bound inquiry of that increase. So we noticed our customers asking a lot more about this. And the teams at YouScript and Genelex were actually making pretty good headway marching toward getting reimbursement, having defined broader panels for broader sets of genetic information, clinical decision support for not just gene drug but gene drug-drug polypharmacy. And in fact, in the very early days, we've -- we are now signing health systems at large for that polypharmacy in addition to the rest of our menu, seeing interest of integrating it into a comprehensive reproductive arc -- reproductive genetics arc, comprehensive cancer care package. And we're pretty -- we like what we see there by virtue of those same -- those types of customers being very interested in this, integrating it, widely as well as payers and governments. And so yes, I think while it's a relatively rough time to kind of get all that integration going, we're liking what we see so far. And again, we'll see what we can do in pharmacogenomics going forward.

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Operator [22]

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Your next question is from Tycho Peterson of JPMorgan.

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Casey Rene Woodring, JP Morgan Chase & Co, Research Division - Research Analyst [23]

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This is Casey on for Tycho. First question is, can you talk about what the cumulative revenue contribution was in the quarter from the Jungla, Clear Genetics and Singular Bio deals?

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Sean E. George, Invitae Corporation - Co-Founder, President, CEO & Chairman [24]

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The short answer is that -- well, we can say the Singular Bio deal answer is none. We're not going to -- that capability we have coming out sometime next year. And then again, Jungla and Clear, Clear, it's very difficult to break out what additional revenue the volume we're driving, although, again, as Katherine mentioned, we do see pickup in new customer accounts and new account types without genetic counseling. But we don't break that out as a kind of subsection of our business. And Jungla, while we can say anecdotally some key deals we've won as a result of having the capabilities that Jungla team got, again, it's difficult to say amongst the broader feature sets what -- how to allocate revenue because of Jungla for that. Albeit we can say, as we mentioned before, it does save us, especially where VUSs are -- in the case of labor to call VUSs and report on them, it saves us about 40% of the time, which translates directly to cost. So those are the financials that we can attach to those 3 acquisitions. Again, I view -- we view them really much more as capabilities in integrating the platforms. They continue to allow us to take more share and reduce costs to have a kind of definitive and lasting cost advantage for an ever-increasing menu of genetic information.

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Shelly D. Guyer, Invitae Corporation - CFO [25]

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Speaking of integration, we actually have been able to integrate the Jungla technology to reissue reports for some of those that we had historically and now be able to call some of those variants of uncertain significance as well as use that technology as we move forward. So we have integrated that content. And although you can't see that we've won a particular client or another, maybe Bob can talk a little bit about how that is working and how that's received in the market.

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Casey Rene Woodring, JP Morgan Chase & Co, Research Division - Research Analyst [26]

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Okay. And then my other question was, how has the COVID-19 pandemic affected the somatic launch time line, if at all?

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Sean E. George, Invitae Corporation - Co-Founder, President, CEO & Chairman [27]

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Yes. So we mentioned a pullback on future investments. That would be one of them. I'd say -- and maybe we can just categorize in general future investments, we're -- as we entered the year, we were in hyper-growth mode. A fair amount of what we are investing in on the development side of things are actually things that we don't really discuss publicly. It's just early enough where it's not something to talk about with it. There's no real value in talking about it. So there's a lot of that, that was pulled back. The majority of it was that type of development investment. But indeed, we did some shifting resources to near-term gross profit generation. We did -- we have slowed down, for example, somatic development and some others that we've talked about working on. And again, that's just a balance there to kind of see which side of our COVID scenario outlook we're going to end up on. With any fortune here in the coming months, we'll be on the earlier side of it. We can get back at it at full speed, we think we'll have a -- we think we can do in somatic testing exactly what we've done in inherited genetic testing for cancer. But right now, we're just being really conscious, kind of, as Shelly pointed out, really calibrating the operating -- to the top line.

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Operator [28]

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Your next question is from Kevin DeGeeter of Oppenheimer.

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Kevin Michael DeGeeter, Oppenheimer & Co. Inc., Research Division - MD & Senior Analyst [29]

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I guess can you just comment about your relative appetite for business development? I get it, we're definitely in a cost-constrained mode. But you had sort of alluded at various points to looking at large transactions that would move the needle from an operation perspective. And if one were to think about that in the context of getting to greater scale more quickly, is that strategically more palatable in light of some of the difficult decisions you've had to make around COVID? Or is it just operationally more difficult to foresee how one would implement a transaction and create a more kind of structural change perhaps to the Invitae business model?

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Sean E. George, Invitae Corporation - Co-Founder, President, CEO & Chairman [30]

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Yes. No, it's a really intriguing question. Kind of as we've talked about M&A being a key part of the growth strategy and the types of M&A we would do, we've -- we definitely, in the current uncertainty in our scenario outlook for COVID impact and certainly as we kind of experience altogether the economic ramifications, yes, I think acquisitions that add to our platform, albeit generate cash flows in the distant future, are probably things that we'll put off or delay. Acquisitions which purely buy us market share, I think, are still things that we are careful about. Not sure that's the best use of shareholder equity to buy what we have so far demonstrated we can take.

With that said, I think the idea that there are acquisitions or are opportunities out, particularly in the next probably a year, 1.5 years, that could actually in a very short period of time lead to both greater operating leverage, a better top line and improved gross profit generation, of course, I mean, those are absolutely things that we'd be interested in because I think, if anything, we're really starting to experience in our P&L dynamic the benefits of scale, the benefits of diversity and the benefits of a wide -- a broad product offering. And I think that's kind of that silhouette that you identified is definitely something that we're still considering because we just think it's advantageous on all fronts.

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Kevin Michael DeGeeter, Oppenheimer & Co. Inc., Research Division - MD & Senior Analyst [31]

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Perfect. One more then, then I'll get back in the queue. And can you just comment about trends for the international markets? I guess 11% of volume in the quarter, are you seeing similar general magnitude of decline and recovery? Or are there different trends we should consider when modeling out that portion of revenue?

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Sean E. George, Invitae Corporation - Co-Founder, President, CEO & Chairman [32]

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I think it's -- international is growing slightly better than the rest of our entire domestic business. We have -- as we mentioned, we have invested in that a little more seriously in recent months. We're not pulling back on that investment as much and -- just because we think there's so much unmet need there. With that said, kind of on a country-by-country basis, it really is a pretty -- it's a diverse set of impacts and recoveries that we're seeing. And so I think on the whole, it basically is going to look like everything else, even though on a country-by-country basis, it's wildly different. I'd say the difference between countries is much more dramatic than, for example, the difference between states and ZIP codes on the domestic side. But when you average it all out, it's basically the same.

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Operator [33]

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Your next question is from Jeffrey Cohen of Ladenburg Thalmann.

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Jeffrey Scott Cohen, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research [34]

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Bob had previously spoken about the World Congress of Cardiology, the paper that was presented. And I wondered if you could talk a little more about the cardiology space and cardiomyopathy, which we know is a few million patients. And if you could talk with us or walk us through what you're expecting here in cardiology as far as any future studies and competition with DTC and potentially payers, and how they may fit in on guidelines now and in the future.

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Sean E. George, Invitae Corporation - Co-Founder, President, CEO & Chairman [35]

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Yes. Sure, Bob. Happy to.

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Robert L. Nussbaum, Invitae Corporation - Chief Medical Officer [36]

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Yes. Sure. I'll be happy to. So first, the cardiomyopathy and arrhythmia Detect program has allowed us to have thousands of patients, who probably would not have been tested, come into Invitae to have comprehensive testing done. And we're finding approximately 20% to 25% of those patients have a clear pathogenic or likely pathogenic mutation, primarily in hypertrophic cardiomyopathy genes and some dilated cardiomyopathy genes. I think what's -- there's a couple of things driving this. First is, the availability of treatment for cardiac amyloid is driving the need to make a -- not only a specific diagnosis but a genotypic diagnosis to know that -- is it a mutant form of TTR? Is it a wild-type TTR? What is it that's being responsible? Because there's different medications for these different applications.

The other is that cardiologists, I think after many years of not really wanting to do genetics from the point of view of dealing with a family, they really just wanted to take care of the patient in front of them. That is changing. There's a growing number of genetic counselors who are focused on cardiology. I'd say there were -- 6 or 7 years ago, there may be a handful. Now there's a bunch, there's a whole cardiology interest group that meets at the Heart Rhythm Society and meets at the American Heart Association meetings, et cetera, and that is growing. And the recognition that your patient is a member of a family and that there's important information, not only finding other people in the family who might be at risk but also being able to tell other people in the family that they're not at risk for a problem such as ARVC or hypertrophic cardiomyopathy. So I think cardiology is probably somewhere around 10 to 15 years behind oncology in its adoption of cancer -- of genetic testing. Part of that is driven by the fact that there has been less precision medicine available in cardiology, but that is now changing. And part of it is just a difference in perception. The impact of hereditary breast and ovarian cancer, an awareness of hereditary cancer has been enormous and has now spread into pancreatic, prostate, colon. And that awareness is now just starting to infiltrate cardiology. So I think the opportunity is enormous.

In terms of DTC, it's very clear. When you use a genotyping platform to pick a few common variants that are found in a couple of the genes, essentially, 96% of the time, patients that we diagnose at Invitae as having a pathogenic or likely pathogenic mutation in a cardiomyopathy gene, 96% of them would have been missed if they had simply taken the DTC test. So the DTC test, not just in cardiomyopathy but also in familial hypercholesterolemia and a variety of other areas, are just grossly insensitive and are not really doing the people who are taking those tests a medical or clinical service.

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Sean E. George, Invitae Corporation - Co-Founder, President, CEO & Chairman [37]

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Yes. And Jeff, just to sum it up on numbers, call it around 420 million cases of cardiovascular diseases in the global markets we serve, 30% of them have a direct link to genetics. And so kind of as Bob has laid out that picture, if you think about it, even though cardiovascular testing is a really nice and growing segment of our business, it's basically not even started yet. So it's very big, and that's when we point to that opportunity just in cardiovascular, let alone the other diseases, we definitely see a lot of potential there.

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Jeffrey Scott Cohen, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research [38]

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Got it. Okay. And then secondly for me, if you could talk about the -- you had some commentary about the at-home tests and saliva tests. Can you talk about specific trends in growth in tests there? And perhaps current tests and platforms which could be transitioned also for home, if that includes saliva and/or blood collection at home?

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Katherine A. Stueland, Invitae Corporation - Chief Commercial Officer [39]

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Sure. So our team's been highly focused on transitioning all of our ordering clients and their patients over to saliva. And so that's been a really important shift that I think has helped us maintain the volume during this period. So that's been the main focus, in addition to the deployment of Gia in early April. Those 2 efforts really are what's driving the continuity of care during this time and what we think is going to help us throughout the future of this pandemic, ensure that people still have access to genetic testing. I think it's encouraging now that cancer centers are starting to open again regionally. We'll be able to see more volume coming from those areas as well.

The at-home testing through our direct channel, we've seen kind of a steady utilization of that, particularly for women who are trying to conceive or who are pregnant. So the carrier testing in that channel has been really the focus. We are launching a campaign this week to consumers, educating them about the ability to order testing and have it delivered to their home, specifically for that carrier segment. So more to come on that as we launch that campaign.

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Operator [40]

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Your next question is from Bruce Jackson of Benchmark.

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Bruce David Jackson, The Benchmark Company, LLC, Research Division - Senior Equity Analyst [41]

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You mentioned that there's some regional patterns in terms of the ordering. And I was wondering if it -- if you could give us some color on the -- how you classify those regions? Is it the stay-at-home orders? Is it the restrictions on elective procedures? Or is there something else that differentiates the different regions?

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Sean E. George, Invitae Corporation - Co-Founder, President, CEO & Chairman [42]

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Yes. Again, I think it's pretty hard to peel away. But in general, it's the -- if you think on a country level, ex U.S. or call it state or even kind of metropolitan area, local level, that domestic -- county level, domestic, it really -- it does seem there is some correlation to stay-at-home orders' relative degree of kind of severity of impact in new cycle. But -- so that's generally it. But I would say -- I would just caution everybody, we have also seen in the same counties 2 similar kind of equipped size in your medical institutions, one which barely dropped volume at all and one which almost dropped 100% of the volume. And then we've seen some ZIP codes or states where we've seen stay-at-home orders lifted or ignored, and a lot of volume comes back and others where that has happened. And still, nobody is heading into the clinic. So there's definitely -- it's a very, very complex equation as to what leads to people coming back. And it's clear when we look account by account, and I think that's why it's also -- I think, as we're all looking at it, what we would advise people is pegging volume or revenue recovery to stay-at-home orders being lifted is what we do know in the weeks -- the last 3 or 4 weeks, that is not the exact equation. But as we see more and kind of get a better trend line, we will be -- we will, of course, be letting people know. But right now, it's pretty difficult to tell what is the equation for volume coming back on an account-by-account basis.

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Bruce David Jackson, The Benchmark Company, LLC, Research Division - Senior Equity Analyst [43]

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Okay. That's helpful. And then a follow-up question on the home collection kits. Is this becoming a bigger part of the mix as the test volume comes out of the COVID-19 trough? And can you tell us a little bit about -- do you have -- is there any sort of margin advantage to having the home collection kits versus the standard collection?

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Sean E. George, Invitae Corporation - Co-Founder, President, CEO & Chairman [44]

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Yes. The short answer to the last part is not really. Kind of all else being equal, it's kind of a similar COGS stack when you consider the shipping, the logistics, the kit costs and all that. It's about the same. However, the more of that we move to our online stack, I think as Lee pointed out, the more of that, that goes online, we do get better OpEx leverage, better customer service leverage, sales, sales support, account follow-up, and our billing is cleaner, which translates to better billing performance with the payers, which, of course, as 70% of our business, a little less than 70% of our business, is a good thing. So the costs themselves are not that much better, but everything else is better when it's done online, on the full, when all the information can be gathered electronically. And again, I think we've certainly experienced -- we've had accounts that have been, I would say, maybe reluctant either by -- for specific reasons or just habit. To do this kind of thing in the force environment actually are enjoying shorter wait times, shorter wait list to get into the office, higher account throughput or clinic throughput, patients they can serve. And there -- everything else is easier. We've invested in the ability to take a lot of their legwork on a patient-by-patient basis off of their shoulders. They don't get paid for it anyway, and I think that could be a silver lining in all this, is that we might see a structural shift coming out of this to more online, at-home remote. I think we're guessing that's where it's going to come out. Again, it's a little early to say, but I think that probably will be the short answer. The long answer to your question is, it's about the same cost, improves our operating leverage, and we think is probably going to be a trend that is different coming out of COVID than going into it.

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Robert L. Nussbaum, Invitae Corporation - Chief Medical Officer [45]

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Okay. Sean, can I just add one comment to that? I've done about 6 webinars over the last 5, 6 weeks with genetic counselors around the country, probably constituting a couple of hundred have called in. And it is very clear that the home genetic counseling and the ability to get testing done at home is extremely attractive to patients. Patients feel like they -- it's like we've gone back in time to when doctors made house calls. And so our ability to support counseling and testing from home, I think, is going to be an ongoing benefit and a plus, even after the stay-at-home business starts to go away.

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Operator [46]

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There are no further questions at this time. I will turn the call back over to the presenters for closing remarks.

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Laura D'Angelo, Invitae Corporation - Head of IR [47]

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Thank you for joining today's conference call. We look forward to speaking with you with -- at upcoming conferences.

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Operator [48]

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This concludes today's conference call. Thank you for your participation. You may now disconnect.