NVTA (2019 - Q1)

Good afternoon. My name is Gabriel, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Invitae First Quarter 2019 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there’ll be a question-and-answer session [Operator Instructions] Ms. Laura D'Angelo you may begin your conference. Laura D'

Thank you, operator and good afternoon everyone. Thank you for joining us for our first quarter 2019 financial results earnings call. Joining us today are Sean George, our CEO; Shelly Guyer, our CFO; Bob Nussbaum, our CMO; Lee Bendekgey, our COO; 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 on 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, and our investment in our infrastructure and operations, 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 guidance. Our guidance on future company performance assumes among other things that we do not conclude any additional business acquisitions investments, restructurings or legal settlements. We refer you to our 10-K for the year ended December 31, 2018 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 as 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 cash burn. We encourage you to review reconciliations, which are available in the press release. With that, I will turn the call over to Sean.

Invitae is now a decade in to the execution of a contrarian movement showing that heavy investment into harnessing technology to drive down the cost curve and expand the utility of genomic information can create massive value for billions of people in healthcare systems worldwide. We're driving an entirely new vision with the most fundamental personal health information once genetics is available to everyone who can benefit from it. To achieve this, we've pursued an innovative business model novel amongst our peers, albeit one that has been proven out in other industries, a model that anticipates technological advances far outstripping the industry's capacity to take them up. As we continue to add content to our platform, we will also now see the emergence of rapid change in the delivery and support models, associated with genetic information, until indeed this vital most personalized of health information is available as an everyday mainstream part of medical care. The turning of our strategic flywheel accelerates. With the addition of eight partnership programs to our network in just one quarter, we now have a growing network of more than 40 biopharma partners. The growth of these programs is allowing us to correctly diagnose more people than ever and then upon including them in our network, introducing them to partners across the healthcare continuum that can bring their capabilities to health. We envision this trend accelerating into the foreseeable future as monitoring, screening and prevention strategies as well as therapies, become more tailored, better targeted, more cost effective and result in better outcomes. In March, we raised nearly $200 million with the stated intention of making 2019 a year of investment to further accelerate the expansion of our business. One of the areas we have committed to investing in is the commercialization of a direct channel for patients and clinicians alike, making our diagnostic, reproductive health and proactive genetic information more readily available. These new channel capabilities will allow us to expand access to the highest quality genetic testing, currently relied on by the world's leaders in genetics as well as drive ever-increasing commercial leverage for the company. We are on track to start on this journey by quarter's end. In a very short period of time, we have ramped up commercial insurance coverage to now more than 270 million lives in network. More importantly, the payers are now starting to engage more strategically given the growing importance of genetics in the provision of healthcare. We were honored to be named one of only seven companies in UnitedHealthcare's Preferred Lab Network effective July 1. We continue to believe that broad capabilities, quality, transparency and price matter, especially in health care. As more and more payers start to evaluate the various tools available by partnering with the best providers for their genetic information needs, we will continue to execute and invest to further position Invitae as the leader in advanced medical genetics. Given the pushback and roadblocks we encountered when we started the company we are proud to have grown from just 229 samples and few hundred thousand dollars revenue in 2013 to more than 300,000 samples and $148 million in revenue in 2018 and we expect to deliver more than 500,000 samples and more than $220 million in revenue this year. And the investments we've been making for these many years in lowering the cost of our platform while at the same time rapidly adding capabilities as well as the investments we are currently making; continue to deepen and widen our competitive moat as we now make it even easier to access genetic information needed across all stages in life. The results of this quarter, reflecting our continued execution give us confidence that we are on track to exceed our 2019 guidance. We are one step closer to our aspiration of serving more than one million patients and generating more than $500 million in revenue in 2020 and ultimately making genetic information a part of mainstream medical care for all. I will now turn the call over to Shelly to highlight our financial results for the quarter.

Thank you, Sean. Volume is the best real-time indicator that our business is healthy and we are pleased to have posted a 47% growth in volume over the first quarter of last year. We accessioned more than 94000 samples this quarter with billable volume of approximately 87000. Notably we again experienced strong volume from international markets which accounted for over 10% of the total volume accessions with a nice uptick in carrier testing internationally. Domestically we began to see success in our cross selling of our recently introduced non-invasive prenatal screen, pulling through carrier testing in our OB/GYN accounts. In the first quarter we generated $40.6 million in revenue helped by strong third-party payer collections which represents a 47% growth in quarterly revenue year-over-year. While billable tests this quarter were essentially flat with the fourth quarter the revenue was down due to several changes. Let's break this down. First, this quarter we did not have any tailwinds and one-time pick-ups as we did in the fourth quarter with $1.9 million in Medicare payments for Lynch del/dup. Second, we did see some headwinds including our Medicare rates were reduced under PAMA by the annual 10% cutback starting January 1, adjustments to expected payments from acquisition-related reproductive tests and we reviewed the institutional pharma buckets and determined that we needed to reduce the expected collections due to payer mix changes within the category. Third, as we've pointed out in the past, the gap between accessions and billable volume and seasonality are factors that affect our revenue. We've included a slide in the appendix that illustrates these factors. I urge anyone modeling our business to take these factors into account when breaking out our annual guidance into quarters. Fourth, our average revenue per test was down coming in at $455. This was buoyed by strong collections in the third-party payer space both from Medicare where the payments for both HBOC and Lynch remain healthy given the payment for del/dups that are now part of our reimbursed rates and from other contracted third-party payers where we saw very strong collections. Payments from third-party payers accounted for over two-thirds of our revenue in the first quarter of 2019 with the remainder from institutions, pharma and patient pay. But an important change is accounting for the decrease in the average revenue per test. The rate was brought down by a shift in payer mix. This quarter, we again experienced an increase in the proportion of total billable tests from patients and an uptick in the institutional pharma test as well. Patients now account for just under 15% of billable tests up from under 10% at the end of 2017. This is exciting and shows that our model is working as more patients have access to our tests. But due to the lower average price that patients pay, this is bringing our average revenue per test down. This was anticipated and is factored into our annual guidance. Given the revenue for the quarter, we are reiterating our revenue guidance of at least $220 million for the year. In the first quarter of 2019, we reduced COGS to an average cost per sample of $226 down from $279 in the first quarter of 2018 representing a 19% reduction year-over-year. Our cost of goods was essentially flat in absolute dollars compared to the prior quarter and yet we accessioned nearly 7,000 more tests this quarter. This shows the power of increasing volume. For COGS volume is critical. By continuing to contain and reduce COGS we have more ability to work on the pricing side of the equation and still maintain our target 50% gross margin. Just a reminder of my comments on COGS moving forward, we expect that COGS will fluctuate as we balance the introduction of new content and features with driving down cost per sample. Importantly, new products we introduce will have worse margins early on and depending upon the uptake of those products could put pressure on our COGS. We improved gross profit by more than 100% from the previous year generating $19.3 million in the first quarter of 2019 versus $9.6 million in the first quarter of 2018. This quarter our gross margin was 48% up from 35% in the first quarter of 2018. As discussed last quarter, we are investing in several areas of the business to foster our growth this year and beyond enabling us to scale, offer additional products and reach one million patients in 2020. For the quarter, we incurred operating expense, which excludes cost of revenue of $55.5 million, an increase of about 20% from the $46.1 million in the first quarter of 2018. We continued our investment in selling and marketing begun in the fourth quarter by increasing our headcount as we drive volume in existing and new accounts, particularly in reproductive health now that we have a non-invasive prenatal screen offering to complement our expanded carrier screen. Our sales headcount was 170 as of March 31. In R&D, we are also adding headcount focused on scaling our business, preparing for future content expansion, improving the customer experience and driving costs down. Cash burn a non-GAAP measure, totaled $29.6 million in the first quarter of 2019. On the fourth quarter call, we indicated that we would increase our burn due to two factors. First, the Q1 is always a high burn quarter for us due to annual costs on big-ticket items occurring in the first quarter. And second, that our personnel costs would increase as we felt the full effect of bringing on employees late last year and early this year in sales and R&D to hit our aggressive volume and revenue growth goals. Both bore out. Finally, we enhanced our cash position ending the quarter with cash, cash equivalents, restricted cash and marketable securities with $287.1 million. So why the raise? Our main rationale for our March raise was to fund the further acceleration of our investments in some very specific areas as we transform the genetics industry. We raised nearly $197 million in gross proceeds and our cash position sits at over $287 million at quarter end. So we are well funded for the foreseeable future. Rather than drive toward near-term profitability, we have elected to make the investments that will put even more distance between Invitae and our competitors and allow us to reach our aspirational 2020 goals. And our investors agreed. Where will we focus? We have laid out three main areas: the expansion of our oncology offering, more aggressive commercialization of our direct channel, which we will launch this quarter and further investment in our engineering capabilities to reduce costs, add new content and enhance quality. So what does this mean about our burn? We will continue our investments throughout the year and into 2020 and no longer plan for the burn to come down in the back half of 2019. In fact, on a quarterly basis our burn per quarter may increase. For the year, we anticipate burning up to 50% more in 2019 when compared to 2018. While we've elected to push our path to profitability out we are positioned to get the company to profitability with the capital we have on hand and our access to additional debt should we elect to do so. We continue to demonstrate our ability to execute and with this recent raise we are well-positioned to scale the business to be the leader in advanced medical genetics. With that, I will now turn the call over to Bob to highlight the latest results of our clinical research program.

Thank you, Shelly. Every year just in the United States more than 1.7 million people are diagnosed with cancer, but only a fraction of them are getting the genetic information they need to guide their care. We're very proud of the recent progress we've made in demonstrating the importance of offering comprehensive genetic testing for everyone with cancer. Based largely on data Invitae generated in our collaboration with TME Breast Care Network published in the Journal of Clinical Oncology, the American Society of Breast Surgeons recently announced that genetic testing guidelines for hereditary breast cancer need to be revised and called for genetic testing to be available to all patients with a personal history of breast cancer. Similarly, we're working with clinicians to generate data showing the utility of genetic testing in other cancers beyond breast cancer. In a recent study of the largest dataset of prostate cancer patients published to date in JAMA Oncology researchers from Tulane Cancer Center and Invitae showed that 17% of prostate cancer patients carry genetic variance associated with higher risk of various cancers in the patients themselves as well as in their relatives. The analysis also found that guidelines in place at the time of the study missed patients with actionable genetic variance. Each year more than 60,000 women are diagnosed in the United States with endometrial cancer or uterine sarcoma. At last week's American College of Obstetricians and Gynecologists' annual meeting researcher from Invitae and Mercy Medical Center Gynecologic Oncology in Baltimore presented their collaborative study of genetic findings in endometrial cancer patients. In a cohort of over 6,500 consecutive patients with endometrial cancer tested with a large hereditary cancer panel, 15% had disease causing variance in a hereditary cancer gene, three times higher than the 5% that's widely quoted. In addition, one-third of the variance were in genes that are not typically analyzed in endometrial cancer patients, thereby, highlighting the importance of multi-gene panel testing versus traditional more limited approaches. Additionally the study showed that 80% of patients with a positive genetic test would be eligible for precision medical interventions such as FDA-approved treatments or participation in a clinical trial. All of these study findings suggest that broader testing is warranted and genetic testing guidelines should be broadened. As we continue to work with academic and community health systems to develop and publish data in support of broadening who should be offered genetic testing for hereditary cancer syndromes we see the number of oncology patients undergoing genetic testing will continue to grow. Invitae has demonstrated that not only can more people benefit from genetic testing across all stages of life, but that artificially high prices and restrictive policies for such testing impose unnecessary limits on the number of people that can receive the genetic information they need thereby causing harm to patients and their families. Beyond cancer we have found exactly the same to be true in other areas of medicine. More people should have access to genetic testing to inform their health care choices. For example, of the six million pregnancies in the U.S. per year only a small percentage of those currently benefit from the full suite of genetic information that can be of great value for the health and well-being of both the mother and baby. I personally think it's unconscionable that even with the technology and testing available today, more often than not the way a couple learns they are at risk of having a child with a serious genetic illness is by having a child with that illness. From carrier screening, preferably done before pregnancy when the parents to be have the most reproductive options, but at least during pregnancy to our recently launched non-invasive prenatal screening to follow diagnostic prenatal testing, Invitae will continue to make it as easy and as cost-effective as possible to put this information into the hands of all those who can choose to use it to have a healthy and successful pregnancy. Invitae also believes there's a clear benefit in making genetic health screening available to those without a strong personal or family history that would traditionally warrant testing. With the launch of our proactive offering a number of years ago, we opened up genetic testing to a completely new set of customers. Our approach is gaining ground. For example, some of the genes on our proactive offering were recently described by the Office of Population Genomics of the U.S. Centers for Disease Control as a tier one screening test appropriate for adult population screening. Finally, the broader commercial launch of our direct channel will enable consumers for the first time ever to order the same testing that experts have been able to access through Invitae. We consistently hear from genetic counselors, clinicians, and patients about the roadblocks they face when seeking clinical grade testing. Too often these barriers prevent patients from receiving the clinical testing they need. At the same time, direct-to-consumer genetic testing has continued to grow in popularity among the patients who mistakenly turn to them for health information despite high rates of clinical false negatives, the potential for misinterpretation, leading to false positives and the need to just get tested again anyway, regardless of the outcome of the DTC test with a clinically valid comprehensive test, such as those offered by Invitae. Combined with our low prices, a very competitive self-pay option and a carefully designed program to connect people initiating a test with clinicians, who can provide guidance and follow-up counseling and referrals as needed. This new channel fills the needs of anyone seeking genetic information in the face of the many obstacles to obtaining such information currently operating within our healthcare system. With more and more data, supporting the broad utility, and value of genetic information across all stages of life, and our success in lowering the barriers to people gaining access to comprehensive clinical grade testing. We are bringing about the day, when one's own personal genetic information is considered a necessary part of everyone's routine health care. With that, I will now turn the call over to the operator for Q&A.

Thank you. [Operator Instructions] Your first question comes from the line of Doug Schenkel from Cowen. Please go ahead. Your line is open.

Okay, good afternoon, everybody. And thank you for taking my questions. So thanks for all the detail. Volume has been growing at a sequential rate of about 13% per quarter, over the last four quarters. Even if I strip out the first quarter of last year, it's been a double-digit sequential rate we've seen over the last several. This moderated to 8% this quarter. I guess the simple question is why and was this as you expected?

Yeah. And the short answer is it was roughly in line as expected. In fact I think we had a single-digit quarter of growth in Q3 last year. And this is why we for many years have pointed out there is a seasonality in the business. We put a slide just to kind of put a finer point on it, in the appendix. And indeed the volume is on pace to exceed the 500,000 annual target for this year and basically in line with our expectations given the seasonality for the Q1 volume number.

Okay. A couple more on the quarter itself, was volume impacted or for that matter reimbursement impacted by uncertainty associated with the NGS, NCD?

The short answer is no. There was some -- again we had a one-time revenue upside in Q4 of last year from kind of the dynamic of the coding and pricing around Medicare Breast and Lynch Syndrome testing. So that was kind of heading into Q1 that was a bit of a hurdle there. And then of course the known and anticipated 10% impact from PAMA, but other than that there was nothing specific and it certainly as far as the NCD is concerned we have seen zero change in behavior from our MAC in terms of payment.

Okay. And then, maybe a Shelly question. If I divide billable volume by a session volume, I guess 93% this quarter in terms of the ratio. The past three quarters that's ranged between 96% to 99% why did this drop this quarter?

Yeah. So, good question. That's why I put the slide in the appendix to the slide deck. And what we see is that, that falloff between accessions I do it sort of what's the diminution off of accessions. And that goes anywhere from zero to 10%. And what we show in the graph on the last slide in the presentation is that, in fact this quarter, it was higher and it was somewhat like 9% the way I calculate it. And you'll see also, that the first quarter of last year had a similar impact and so did the first quarter of the year before. As I mentioned a little bit in the prepared remarks, this is largely because of timing of how much you have from a spillover in the fourth quarter that is not fully accessioned and that you would get in the first part of January versus what you leave March with. And so because of the dynamics of what's happening in December and what's happening in March, we find in the first quarter that we have more falloff and not all those reports get pushed out in the first quarter and become billable. As revenue now tracks very closely to those billable given 606 and our revenue recognition criteria it has a direct impact upon our revenue in the first quarter. Does that help?

Okay. It does. And I'll think a little bit more about that and talk about it in the follow-up. But I think I get it. And then maybe if I could just sneak in one more not about the quarter, but really looking ahead. Could you just talk a little bit about what you need to happen for you to get to that more than one million patient number in 2020 and the more than $500 million in revenue? Is that predicated on new product launches more acquisitions; successful expansion of guidelines? I guess it's just kind of what are there building blocks to get there? Is it a combination of all those things or can you get there with what you have right now?

Yeah. No. I think there’s a couple of things we are counting on for this year for the 500,000 $220 million to exceed that as we've suggested on the call we're off to a pretty typical Q1 start. We have confidence that we'll exceed the guidance for this year. And there really is kind of not a whole lot as we've discussed kind of single event happening that really affects our expectations there. We are counting on our reproductive tests all across from kind of preconception to pediatric to pick-up more substantially in the back half of the year. We are anticipating our – recent NIPS launch to help drive that along and pull over a lot of cross-selling in both carrier and cancer and proactive. We are counting on a modest contribution this year from our direct channel development but it really frankly in the noise for this year. Next year however when we're talking about getting a million – more than a million samples and $500 million in revenue, we are definitely going to count on more and robust growth in the reproductive health from start to finish. And we are expecting a significant contribution from our direct channel, which again we're building, and testing, and refining throughout this year. But we do expect that to be a contributor next year. And if you're asking today kind of what are the – those are the major things that we think need to fall into place. There are some basic tailwinds that we also are counting on, but I would say, we haven't necessarily kind of pointed to a discrete number or a discrete growth. One is as Bob went through all of the data that is now coming out all these publication, guidelines are changing really rapidly and frankly Doug physician behavior is changing even more rapidly than the guidelines. And so that is – that is pushing volume in the space. The elasticity curve is being tested and we don't see a bound for it. And as more and more of this data is produced, we see that happening more of which we are counting on, over the next two-year period of time. And then the other which we kind of noted, we had pretty strong international growth with fairly limited investment in that. I think we may see some more of that in the next year timeframe. We think there's a lot of untapped potential there. And then the pharma partners continue -- we continue to add more and they continue to evolve in kind of their reach, their complexity, how it will affect our business. I mean, a really great example and it's one of our oldest we've talked about a lot is this Behind the Seizure program. We added a couple more partners to that. We expanded the criteria for testing. And at the beginning of this year, we saw over a two-month period of time we basically saw a sevenfold increase in volume with the addition of those extra partners. And that's a dynamic there again. Again, what you're actually seeing is positioning of -- by that program there's a lot of voices out there now, suggesting how important genetics is for the care of these patients. And we're actually seeing behavior -- physician behavior change very, very rapidly there. And that's one example in one disease area with one program with a handful of biopharma partners. And we expect to see that also accelerate and contribute on a 24-month period timeframe. Yes, we do anticipate that that's going to help drive those volume and revenue numbers for next year.

Okay. Thank you very much.

All right. Thanks.

Next question will come from the line of Puneet Souda of Leerink. Please go ahead. Your line is open.

Yeah. Hi, Sean. Thanks for the questions. So -- and I appreciate the detail, so let me ask an ASP question first. Just trying to understand in terms of you have NIPS placing some pressure on ASP. You have patient-direct testing doing the same. You have PAMA and I appreciate the details around that. But just give us a sense for the rest of the year you're keeping guidance still at $220 million. What gets you there? Do you think volume will continue to make up for that or just give us the cadence of improvement in the ASP here for the rest of the year. And then my second question sort of following up on that and going into the next year again, how should we think about that? Because I think you alluded to somatic adding more volumes as those volumes come onboard. So, again, how should we think about the ASP, because that seems to be a big question here?

Yeah. So Puneet, let me get the second one first and then Shelly can follow-up on both years for the detail on the ASP. So, a couple points. First, somatic next year I think we actually think can contribute. But compared to the direct channel, the reproductive health and the biopharma partners, I don't think it's going to be one of the bigger swings next year. We do expect great things from it. And I think people are starting to realize just how vibrant and quickly growing that opportunity is with the number of players in it and, of course, there are plenty of pharma partners really interested in that as well. So that's -- it’s not a major driver for next year, but it is up there. It's obviously something we're investing heavily in. Now as for the ASPs again, I think the ASP kind of imputed from our current guidance we're still well on -- in fact we are on the track toward. And then, of course, our aspirations for next year, I think you can also imply. You can take from that what we expect to happen at ASPs. Shelly, is there any more detail on this quarter versus the year?

Yeah. I think it's important just to step back and say what did we give as guidance for the year. And we gave over $220 million in revenue and over 500,000 in units. That implied $440 per test. And so, obviously, as we put those numbers out there, either of those two can change as we gain more information, have a better line of sight. But fundamentally what we were saying was, we don't think that the ASPs necessarily will go up during the year. And that's largely a question of mix. And so I talked about from the third-party payers, the mix was something like two-thirds from the insurance payers at this point. And we're doing extremely well in those collections and being able to collect more and more of those rates. But at the same time that you're able to do that and that we have the Medicare going up due to the payments for del/dups both in Lynch and HBOC, we're seeing that the mix is changing overall and we are getting more patient pay, which moved from under 5% to about 10% in volume this year of billable tests. And so as that increases with time, especially as we make it more affordable and we're able to have the direct channel to those patients that will increase, which will put pressure on the ASPs over time. But as I said in my comments, we really like that. That's what we want is for patients to have access. And I think the final place is the mix that is the institutional/pharma. And we have been seeing internationally it is somewhat lower, and because that ASPs are somewhat lower, because that is a growing part of our business, you'll have a little pressure there. But all of those are intended and all of those are helping to have more patients use the test with time and is completely predictable. Next year, we haven't given guidance that far out, but I would think that you not see huge diminution in the ASP, but probably something that you should not expect that it will reverse trends from this year and go back up next year. Does that help?

Okay. Yes. That's very helpful. Let me touch on somatic if I could squeeze in one more question. In terms of the somatic ramp, so just to give us a sense of timing. Clearly spend is going to increase on that end. And then just around that space is more regulated compared to the germline side. So I just wanted to get a sense of are you committed to going down then NCD FDA path yourself? And I suppose this is majority of these tests are going to be in the metastatic setting. Thanks.

Yes. So first I just want to clarify, it's actually not any more regulated than any of the other LDT space. The positive development with somatic over the last few years is the FDA has taken a very proactive approach and found ways to get what we think is extremely high reimbursement for a clear -- for a test that is obviously very useful and will be even more useful in the future for people with cancer. So while the regulatory framework hasn't changed, we are very pleased with the position and the intent of the FDA of late. Of course, as we've said we are in discussion with them and we would anticipate in one form or probably many forms, our testing menu to have some form of FDA approval and we're sorting that out certainly with them. It's a fairly complicated thing given the breadth of the menu. But the short answer on somatic is, yes, absolutely. That makes a ton of sense. And the criteria are quite clear to get that relatively high reimbursement. And again, we'll take the moment as we often do to remind everybody that I would anticipate there will be a patient pay offering that is lower than that reimbursed amount. There's two million cancer patients just in the U.S. alone still of which many do not have the benefit of this molecular characterization of their cancer to help guide the next steps in monitoring and treatment paradigm they're in. So yes, it will be part of the equation and as we've said we're in discussions. But timelines are -- we've a long time ago come off of timelines with the government agencies and we'll keep it that way for now.

Okay. Great. Thanks for all the details.

Your next question will come from the line of Tycho Peterson of JPMorgan. Please go ahead. Your line is open.

Hi. This is Saloni on for Tycho. Thanks for taking our questions. Sean, maybe to start what's the commercial status of the patient initiating offering today and does your guidance assume contribution starting in 2Q? Then separately congrats on being selected to UnitedHealth Preferred Lab Network. Are you expecting any incremental volume impact from this development in the back half of the year, once it comes into effect?

Thanks. So the two questions so I'll start. The first one, we are in early commercial access for that patient-directed or kind of the building of our direct channel. That will pick-up steam toward in the June timeframe. And again, I think, our expectations for volume and revenue contribution this year are modest and we don't anticipate on a whole a significant contribution to our guidance this year. We hope to be pleasantly surprised. But again that direct channel effort will be a very targeted effort. We aren't blasting prime time. It's going to be very targeted, very digital and we're going to learn where the best leverage is and then start pushing that hard for next year. Nonetheless, we're excited about it for all the reasons Bob mentioned. Many of our clients have many, many month wait period for people that get in and get access to genetic testing. There are whole disciplines urology, for example, where there just isn't time in the workflow to appropriately assess genetic risk. And given the increasing awareness around the impact of it these kind of workflow capabilities we think are going to be really important for more people in the future. But this year, we're keeping it modest. Let's see so the second one on UnitedHealthcare yes, and I think this UnitedHealthcare Preferred situation is something that I think, might get lost in the mix of everything. If people will recall many years ago when we came on the scene with the proposal to have the broadest menu highest quality testing fastest turnaround time and a really low price; perhaps we were as surprised as everybody that that wasn't met with a lot of enthusiasm nor preference by anybody in the third-party or government payer community for that matter. Truth of it is these customers of ours have big fish to fry and they have their eye on a lot of things. Genetics is ever increasingly becoming one of them. And this I think represents the beginning of a phase where much like the payers work preferentially with partners and/or with therapies based on a cost value equation this would seem to be the new paradigm for genetic testing the very beginning of it. Which yes, we think will contribute -- will help our commercial leverage. This has kind of always been part of our business model is that at some point the third-party payers would help us in that we're providing more value for the dollar for them. And we would expect that. I think, I would -- with that however, I would caution. We've seen a lot of payer programs in the past. We've also seen the other side of the payer programs. If everybody recalls the AIM and Beacon, I would call it, turbulence of Q3 of last year. And what we know is, sometimes these payer programs aren't executed swiftly. Sometimes they take a while. Our general sense is that, the intent is there that over time this will indeed help drive volume to preferred partners. But we -- I'd be reticent to chalk it up to anything this year, if your question is, kind of, do we anticipate that contributing a lot to the back half of this year. I think we would respond with, we'll see how that goes. Nonetheless, I really do think it's an important development in the space. And yet again, another factor really contributing to the concept that, hey, this business model works. And that's a key and late-breaking piece of evidence that I would offer.

That's helpful color. One last one, in terms of where you're seeing -- you're driving volume, could you quantify how much of this quarter's volume is attributed to biopharma partners? And then separately, international is now 15% of billable tests. How are you seeing growth in these markets and how big of an ASP gap are you seeing?

Yes. So, first -- so international is about 10% of our business this quarter. And then the pharma volume we break out as institutional, the exact, Shelly can?

Yes. We put the pharma partnerships within the institutional and we actually do remark upon those as revenue and that was about -- it's always been about 20% to 25% as part of revenue. This quarter it was about 22% or so.

So those are the two -- this is the breakdown for the two. In terms of ASP, international is exclusively patient pay or institutional bill. So we like the cash flow dynamic of that business. We really like the cash flow dynamic of that business, even if the ASP is slightly lower than our insurance contracted rates here in the U.S. And the pharma partnerships, again, it really depends on when -- for what -- well, for what, how and ever increasingly, when we get paid. On the total, those partnerships are still very appealing to us in both the ASP and especially the timing of payment. So we like both of those businesses and, yes, I would expect we're going to continue to see what we can do to drive increasing growth in both of them.

I think one thing to note and Katherine might want to chime in here, but we mentioned before the BioMarin program and then the expansion to include two other partners Stoke and Xenon. And the growth, specifically, in that from the partnerships, but also the doctors have become very engaged in using genetics to help at the front end of making their decisions, as opposed to having it be the last possible test when they've tried everything else. And so, I think, these programs do have a knock-on effect to allow us to both accelerate, not only within the programs, but with doctors who then learn how valuable this information can be and then utilize it widely as opposed to very sparingly.

Yes. I think that program in particular starts to show what we talked about early on, which is building a genome network and a network effect. From a patient perspective, it clearly has incredible benefits in terms of being able to not only diagnose sooner, but offer multiple potential treatment options now that we've added two additional partners. And as Shelly and Bob mentioned, it is helping to expand the utility and accelerate the utility of genetic testing amongst pediatric neurologists. So -- and that helps to inform then additional biopharma partners and patient advocacy groups. So you're really starting to see the foundation of a network effect that we're seeking to build throughout all of the clinical areas over time.

Great, thank you.

[Operator Instructions] Your next question will come from the line of Bruce Jackson of Benchmark. Please go ahead. Your line is open.

Hi. Thank you for taking my question. I wanted to discuss the patient initiated testing program very quickly. You mentioned that digital is an important part of the marketing strategy. Are you contemplating any other types of promotion like direct-to-consumer advertising? And can you tell us just kind of what the budget impact might be in the second half of the year?

Sure. So as Sean had mentioned, out of the gates, we're going to be doing some really targeted marketing efforts, largely digital, but also working with some partners including advocacy groups and clinician groups alike. So we'll be learning pretty quickly. These are all very measurable approaches to being able to figure out how we can effectively reach the patient populations that we're seeking to reach, while also being able to leverage this channel with our sales force with clinicians who are looking to be able to provide this sort of service without providing the -- without having the genetics expertise in clinic. So I think throughout 2019, it's going to be about learning what works, how we can cost-effectively reach and motivate the right patients to be able to initiate ordering. And then we'll start to figure out which levers we want to start pulling and investing in later in the year from a marketing perspective to set the foundation for significant growth as we look at 2020, and what that channel maybe able to deliver in terms of volume.

So from a model and a budget perspective, yes, it's in there as part of the expanded spend that I talked about earlier. But we will wait and see what those early efforts both in marketing and in advertising yield and the ROI before we do bigger spends.

Okay. That’s helpful. Thank you.

Thank you.

There are no further questions at this time. I will now turn the call back over to Ms. Laura D'Angelo.

Thank you for joining us today. We look forward to catching up with you soon at upcoming conferences.

And this concludes today's conference call. You may now disconnect.