NVTA - Invitae Corporation (NVTA) Annual William Blair Growth Stock Conference Call

2023-06-07 17:40:25 ET

Invitae Corporation (NVTA)

Annual William Blair Growth Stock Conference Call

June 7, 2023 13:40 PM ET

Company Participants

Ken Knight - President and Chief Executive Officer

Hoki Luk - Investor Relations

Conference Call Participants

Andrew Brackmann - William Blair

Presentation

Andrew Brackmann

Hi, everyone. Good afternoon. Thanks for joining us here. If you don't know me, my name is Andrew Brackmann, I cover diagnostics for William Blair. This afternoon, we have Invitae joining us. We have President and CEO, Ken Knight, and Head of Investor Relations and Capital Markets, Hoki Luk, joining us. Thanks team for being here.

Just a quick couple of pieces of housekeeping here. Following this presentation, we'll be hosting the breakout that'll be in Jenny B upstairs. And then finally, for my compliance officer, I am required to tell you that for a full list of research disclosures and potential conflicts of interest, please see williamblair.com

So, with that out of the way, I'll turn it over to, Ken. Thanks, Ken.

Ken Knight

Tied up here. Well, thank you for the introduction, Andrew, and good afternoon, everybody. Appreciate the opportunity, Andrew, to be here with the team, and thanks for putting together a great conference. And, thank you all for joining us today.

As we come into the end of Q2, it's really time for us to turn our attention to the second half of 2023. It's been a busy year for Invitae, the pace of progress has been brisk, and we've been pretty pleased with the work we've done. Before we get started, obviously, just know that the Safe Harbor statement is included in a deck, as well as we will be talking about non-GAAP financial measurements as well.

For the reminder, if you're not familiar with Invitae, we may not be in a reminder, but our mission is to bring comprehensive genetic information to mainstream medicine to improve healthcare for billions of people. I mean, the mission is bold. I often say it's audacious and it's long been our purpose, what we call our [why] (ph). And we're very much committed to it, and that's what it really attracted me to come to Invitae by the way.

So, in the decades since Invitae was founded, the utilization of genetic information has become arguably the single largest change in medicine. I'm reminded with the COVID global pandemic that just occurred, knowing the genetic information of the virus is one of the reasons that the vaccines will be able to be created as quickly as they were. So, genetic information, single largest change in medicine. It's also impacting numerous clinical areas, particularly oncology and rare disease diagnostics treatment and management, and our work at Invitae has led to improved healthcare for millions of patients, which is why we work tirelessly to deliver that information every day.

And we're building a future of healthcare, a future that focuses on prevention, better outcomes, and the potential for disease eradication, all of these are fueled by knowing more about the patient, at the individual and genomic level than we knew before. And tomorrow's discoveries will require it knowing even more. We'd like to think we're in the information business, and Invitae is poised and determined to continue to help architect that future. Yes. We're still early in this journey. We've accomplished a lot at the forefront of change, and I'm excited about where we're headed. The developments will be impactful.

Now we now know the value of delivering the fundamental knowledge of the human genome into healthcare throughout life from inception to new birth and through the golden years of old age. There's value in that information. And today, we provide that information at many points, including our products and services in support of hereditary cancer, rare disease, and pediatrics, pharmacogenomics, and women's health before and through pregnancy.

We're super excited about our recent entrant into personalized cancer monitoring and surveillance of minimal residual disease product. Each of these engagements generates data and insights at different stages of life. And by way of different patient needs, aggregating these data and insights into solutions for providers, patients, policy makers, and other partners is where the next phase of the transformation will occur.

So, Invitae has been a pioneer and a leader in genetic testing at scale, and we're determined to maintain that leadership position going forward. And what we've built over a 10 year period of time is truly impressive as you can see by the growth in terms of patients served. And we've become a valuable and trusted reliable provider in genetic testing.

On the left, you see estimates of $500 million of revenue and non-GAAP gross margins of 48% to 50% which is what we've guided 2023 for. And as you can see on the right, the patient growth is now we've served over 4 million patients in total, and nearly 2.5 million of those patients have entrusted us to responsibly share their genetic information, enabling additional research.

The other thing about the depth of our genetic data is leading the insights which could provide further benefits to the lives of these patients, their families, and the healthcare ecosystem as a whole. So, yes, the volume growth has been impressive, and we've built our flywheel as a mechanism to drive profitable growth going forward.

Our flywheel is a dynamic system with reinforcing nodes like the number of patients served and the impact of insights and solutions provided which drive momentum, new partnerships and acceleration. And just as importantly with the flywheel, adoption and customer experience provide necessary balancing feedback.

We're driven to scale our growth in a profitable manner, with operational excellence in cash generation to fuel our future. A future where genetic insights are more accessible and affordable for many. And so, while we show this flywheel, I want to dive into a few elements of that flywheel. So, we see customer experiences in order to our long-term growth strategy. It's an underutilized catalyst to move genetics into mainstream medicine. How do you get something like genetics to be used by billions of people around the world?

So, great service and ease of use, comprehensive choices, and reliable turnaround time are important for physicians. Particularly through an encouraging adoption for the non-genetics experts with many early adopters, we focused on the genetics expert community but to really get this thing into mainstream, we really have to address the non-genetic experts who like all of us are time constrained and likely to benefit from others learning and expertise.

We believe we need to help keep them up to speed with rapidly changing best practices and treatment options. So, expanding adoption is not a hope. It is actionable. And there are new levers for us to discover that will move the needle.

Another area is what we call lower cost and higher reimbursement. The upper note of the flywheel creates positive and reinforcing momentum resulting in high growth and a number of tests performed. But as our network continues to scale, we will lower our operating costs and increase our margins. And by the way, we've shown the ability to do that in really short order, since our realignment in 2022.

So, we're going to continue to pursue affordable prices and drive accessibility of genetic information. High volumes, good margins, affordable prices is a winning combination when it's executed correctly. However, this will also be balanced by our success in improving reimbursement and cash collection, which demands that we are unapologetic, and our expectation to be fairly compensated for the tremendous value that we deliver.

To achieve this, our team is focusing on generating scientific evidence and proactively engaging with stakeholders to prompt better payment and additional coverage. The final component of the flywheel, I want to highlight is our insights and solutions. So, in parallel with our internal R&D efforts to bring new tools and products to the market, we know that our unique and deep combination of genotypic and clinical insight also makes our partners more nimble and precise, as they bring their own insights and solutions forward.

We can solve more puzzles together than any of us can do alone. So, more solutions feed improved customer experiences, which in turn feeds more answers per patient, which feeds greater adoption, which brings on more partners and the flywheel continues to spin on. So, we’ve built a differentiated skill of versatility at Invitae, with strong current and upcoming core products. Within each of our business areas, the versatility of our pipeline, workflows, and tools are enabling growth in these markets.

In oncology, we're working from a large and [boring] (ph) base of customers who trust our hereditary cancer testing, including our risk assessment. To further grow that business, we're adding to our capabilities in somatic cancer monitoring and building and expanding set of workflow, clinical, and digital tools that make ordering our tests easier for physicians and staff, matches reimbursed tests with the patients who benefit from them.

We also determined to deliver our oncology offerings to a widening network of specialist in cancer care providers by adding call points to non-genetic expert cohorts to grow the size of the pie. Oftentimes, people talk about its very competitive, it is, if the pie doesn't grow. I wouldn't get so fixated on competition, as long as there is still space to grow, and we know we can grow the pie.

So during Q1, we generated approximately $60 million in oncology. In women's health, in addition to cancer risk, we are expanding our carrier and prenatal screening capabilities to bring a more comprehensive solution with improved workflows and tools. And in Q1, we generated approximately $25 million in revenue in women's health.

In rare disease, our cardiology and pediatric rare disease products are growing nicely. It fueled a year-over-year growth of approximately 33% in this segment in Q1. We continue to push forward with expanded marketing, better reimbursement and cost reduction programs, while launching updates to our neurodevelopmental disorders offering in the short-term.

Optimization and development of our whole exome and whole genome sequencing and unlocking pharmacogenomics adoption and reimbursement in the future, will be future growth drivers for us in this segment. So in Q1, we generated approximately $20 million in revenue in rare disease.

And then finally, in our data business, we're focusing our commercial energy on expanding our biopharma customer base, delivering patient ID programs with drug manufacturers and exploring partnerships with others who can benefit from enriched, fully permissioned patient data.

Linkable genomics is our most recent addition to our portfolio, where we're 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.

In Q1 in our data and platform services segment, we generate approximately $12 million of revenue. So, our team continues to execute against our plans. From an operational side, we've improved gross margins and benefited from enterprise wide revenue and capital management efforts. We are respected and well regarded among genetic counselors and major oncology centers, and continue to be a leading provider of choice for hereditary cancer testing.

We've addressed substantially all of our near-term debt, and have improved our balance sheet. We launched Tyrer-Cuzick Breast Cancer Risk Assessment and an updated Neurodevelopmental Disorders of assay.

We ultimately 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. So 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 also announced some clinical updates to our MRD franchise, our PCM platform, and they were published in nature, and the benefit of our product was published in nature. We are optimistic that this will further drive PCM's adoption and additionally underscores our efforts to gain reimbursement.

We have gotten support from payers like Blue Shield of California, who has already indicated commercial coverage support. And our process of science and innovation is addressing the largest market opportunities, includes revenue growth with our deep data and partnerships.

And we think about oncology, oncology care I think is a promising base case for the continuum of precision medicine, care that encompasses the entire cancer patient journey in a connected system. And we want to be an asset for that cancer patient journey by determining a genomic risk for cancer.

By informing options for personalized therapy selection based on both germline and somatic profiles, our detecting therapy response and recurrence well before the current modes of imaging through our patient specific minimum residual disease product, and then by overlaying decision support tools like pharmacogenomics to better inform clinicians and patients. Because we think about how we're doing, our PCM platform technology benefits were recently published in nature.

These results delivered a few important takeaways. First, the study demonstrated equivalent, if not better analytical performance compared to previously utilize 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. We are optimistic that this will further drive PCM's adoption and additionally underscores our efforts to gain reimbursement support from payers.

Now in addition to the nature publication, results of a study PCM in patients with breast cancer were presented in December 2022 at the San Antonio Breast Cancer Symposium. It demonstrated our technology's ability to detect breast cancer recurrence with a lead time of 13.7 months. 13.7 months lead time, over clinical recurrence detection today. In this study, there were also a strong correlation between our circulating tumor DNA detection by PCM and relapse free survival.

This clinical data is encouraging for our efforts to gaining adoption and reimbursement as I've talked about before, but it also allows us to continue optimizing our clinical products to achieve maximum performance while balancing real world patient needs. So now I've talked about some of the products. Let's kind of take a look at Q1 performance, financial highlights.

In the first quarter 2023, we generated approximately $117.4 million of revenue compared with $124 million in the prior year. Of notice, the revenue decline mostly reflects exited product lines, countries and territories as a result of our realignment last summer. So, on a pro forma basis, we grew the ongoing business around 10% from last year.

Non-GAAP gross margin in the first quarter was 47.9%, which improved significantly compared to 36.6% in 2022. Non-GAAP operating expense was a $133 million or a 113% of revenue compared $209 million or 169% of revenue in Q1 of 2022.

Cash, cash equivalents, restricted cash, and marketable securities total $389 million at the end of Q1, compared to $557 million on December 31, 2022. So, our cash position changed by a $171 million in Q1, but it included the pay down of a $135 million of term loan, which improved our balance sheet.

So, as I said the moment ago, we posted a $117.4 million in revenue, 10% year-over-year growth on a pro forma basis, along with improved gross margins and reduced cash burn. In quarter-over-quarter, the growth was 5% and is really kind of in-line with what we see seasonality from Q4 to Q1.

So we have a few key metrics that we've been kind of rolling out with the financial community, and you see those metrics shown here, notice the revenue per patient in the first quarter was $463. And when we exclude the impact of the exited businesses, you can see that this metric has been stable in the last couple of quarters, as we anticipate further improvement against the new baseline. So we made changes in the second half of last year, and those changes are durable in terms of what we're seeing for revenue per patient.

I think we're going to next slide. Yep. So, to further illustrate the progress we've made, I wanted to show you kind of the path we've been on for cash burn for the last six quarters, no doubt about it, we're encouraged by this trend, and the work that we're putting in, is showing up in terms of improving the health of the company.

So, if we kind of look beyond the short-term, how do we envision the future of Invitae? I mean, currently, we're setting up the business to evolve from what is traditionally been a one patient, one test norm that has been the foundation of the industry to-date. And we're integrating our model and our go-to-market strategies, we're shifting to a scenario where each patient test provides many opportunities to deliver solutions and information for them, for their families, and for others in the ecosystem. So, one patient multiple insights.

And then ultimately, the ability to leverage the data from our integrated platform will allow for collective insights for many patients to provide multiple solutions for multiple use cases and customer types globally. Has this network gains traction? We will see leverage from each test that can generate a multiplying value proposition. And we believe we are uniquely positioned to do this, not simply because we think it's the right thing to do, that makes sense, because patients will demand it. And so we're just getting after it.

Thank you for your time, and look forward to talking to you a little bit more later.

Question-and-Answer Session

Q -

For further details see: