NVTA (2019 - Q4)

Ladies and gentlemen, thank you for standing by. And welcome to Invitae's Fourth Quarter and Year End 2019 Financial Results Conference Call [Operator Instructions]. I would now like to hand the conference over to Laura D'Angelo, Head of Investor Relations. Thank you. Please go ahead. Laura D'

Thank you, operator, and good afternoon, everyone. Thank you for joining us for our fourth quarter and year end 2019 earnings call. Joining us today are Sean George, our CEO; Shelly Guyer, our CFO; Lee Bandekgey, our COO; Bob Nussbaum, our 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, 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 don't conclude any additional business acquisitions, investments, restructurings or legal settlements. We refer you to our 10-Q for the quarter ended September 30, 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 as the date hereof. To supplement our consolidated financial statements prepared in accordance with the 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, operating expenses, 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 Slide 15 through 17 of the earnings deck. With that, I will turn the call over to Sean.

10 years in on our mission to bring genetics in the mainstream medical care, our confidence continues to grow that the way to maximize the utility of the genome is 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 healthcare costs for billions of individuals around the globe. We posted another year of explosive growth and with the momentum we're seeing in the business, as well as the accelerating landscape changes driven by our model, we believe 2020 will be a breakout year as we continue to increase the number of individuals who will be able to access to genetic information as a routine course of medical care. We continue to grow our diagnostic testing and screening franchises across all disease areas, and with more and more genetic information seemingly every week being ascribed to the diseases that afflict us and our loved ones, we see continued growth and the demand for our services into the foreseeable future. Our network business focused on biopharma partnerships for now continues to accelerate. Together with our partners, we can remove barriers to diagnose more patients faster than ever, and provide information to researchers and drug developers to bring therapies to market sooner and enroll trials faster. Since the beginning of Q4, we added 20 biopharma contracts, as well as health systems, national physician networks and hospital partnerships. We will continue to invest in broadening this network and deepening the capabilities of our platform within. To-date around 10% of the Invitae's volume has come from outside the United States, this with modest commercial effort. Now a few months into our increased international investment, we are more convinced than ever that with our current leadership, hundreds of millions of individuals and modern economies around the globe can also benefit from their genetic information being put to use for the everyday health. In addition, the continued investment in our direct channel will allow us to meet the need of specialists that perhaps have not been able to benefit from the daily use of genetic information in the past, or to answer questions from many individuals today looking for this information, whether to understand the disease afflicting their family, wanting to understand what's at risk when thinking about starting one, or simply interested in general health, wellness, or longevity. I will now turn the call over to Shelly to review the annual and quarterly financial results.

Thank you, Sean. I'm going to present the numbers a little differently this quarter, which I think will enhance investor’s understanding of our financials, because most line items on the P&L are affected by acquisition related charges from amortization of acquired intangible assets, acquisition related stock based comp, post combination expense, and income tax benefit. We have provided a much more detailed reconciliation to non-GAAP in tables included both at the end of today's press release and our earnings slide deck on Pages 15 through 17. I will refer throughout my discussion of the annual and quarterly results to both the GAAP and the non-GAAP. We also provide cash burn, which is a non-GAAP measure. Investors are encouraged to review the non-GAAP reconciliations provided in the press release and in the slide deck. Volume remains the metric, which best reflects the health of our business. We are pleased to report nearly 60% growth in volume from the previous year accessioning more than 482,000 samples in 2019, including approximately 148,000 samples in the fourth quarter. Billable tests are important given that we accrue our revenue based on the number of billable reports in the period. During 2019, we reported billable volume of approximately 469,000 with approximately 147,000 in the fourth quarter. Volume growth was strong across all segments. The continued increase in our biopharma programs and partners, including Detect, Spark and the Behind the Seizure program, were also significant contributors in the year-over-year volume growth. We expect our pharma programs to continue to play a key role in achieving our 2020 targets. Recall that we experienced seasonality in our volumes. The fourth quarter has traditionally been our strongest quarter and the first quarter traditionally has been our lowest. While our new customer mix may affect the magnitude of seasonality, we still expect that the first quarter will be our slowest quarter in terms of volume growth. Seasonality also affects the relationship between our accessioned and billable volumes. The difference between accessioned and billable volume in 2019 was 3%, which is consistent with our historical annual range of 3% to 4%. On a quarterly basis, we anticipate a larger gap between accessioned and billable volume in the first quarter, historically around 10%. While the leading indicator of our success is volume, the next key indicator is revenue. We generated revenue of $216.8 million in 2019, including $66.3 million in the fourth quarter, slightly exceeding the revenue we pre-announced in early January. We notch this strong 47% year-over-year increase despite having a difficult comparator. Recall that in 2018, we recognized $4.3 million of revenue related to additional Medicare payments for certain tests. Excluding this amount, our revenue increased by 51% year-over-year. In 2019, over 70% of our revenue came from third-party payers and just under 30% from institutions, pharma partners and patients. Third party payer revenue increased by approximately 5% year-over-year, primarily due to an increase in tests menu under contracts and our steady improvement in our billing and collections processes. Consistent with our previous discussion of ASP trends expected in 2019, we realized an ASP of $453 in 2019, down from $495 in 2018 or $480 in 2018 when excluding the del/dup Medicare payments. ASPs are now primarily driven by payer and products mix changes, as well as revenue pickups due to better-than-expected cash collections, which under revenue recognition guidelines, yields greater revenues. In 2020, we will see the ASP trend lower early in the year and subsequently may bounce around a bit. Remember that seasonality affects our revenue too. The gap of accessioned to billable volume and seasonally lower volume growth in the first quarter, along with resetting of PAMA rates, impact first quarter revenue. Keep in mind that this will also impact our gross margin as accessions are tied to COGS. In 2019, we decreased COGS to an average COGS per sample of $245, representing a 7% decrease year over year, and $248 in the fourth quarter, a portion of our costs in 2019 relate to amortization of intangibles from acquisition activities. When we exclude these costs on a non-GAAP basis, which is more comparable with COGS in 2018, our average cost per sample is $236 for the year, representing an 11% decrease year over year. In general, we intend to invest in further automation and additional medical interpretation improvements through reduced COGS. And we believe that we will again benefit from volume related costs reductions, we do expect the COGS will continue to fluctuate at or around the 50% gross margin mark as we balance the introduction of new content and features with driving down costs per sample. 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 key indicator that our business model is working. We saw significant increase with a gross profit of nearly $100 million in 2019, representing 46% increase from the previous year. In the fourth quarter, we reported $29.6 million in gross profit. We neared our stated long term target of 20% gross margin for the year. In 2019, our gross margin was 46% and for the fourth quarter 45%. On a non-GAAP basis, the gross margin was 48% for the year and for the fourth quarter. Moving to operating expense. We continue to invest in our business, enabling us to ramp our volume, expand the market, address new market opportunities and continue to scale internally to take advantage of the opportunity before us. Total operating expense, which is excludes cost of revenue for the full year 2018, was $342.8 million compared to $190.2 million in 2018. Operating expense for the fourth quarter was $108.6 million. Early in the year, we discussed our intention to make significant investments during 2019, which we did with our spend falling into several areas. First, sales to increase our headcount to facilitate product launches and volume expansion and marketing, to begin branding and advertising to support our direct channel, which we launched in June. Second, research and development focused on scaling our business, content expansion, improving customer experience and reducing COGS. And third, general and administrative to support the growth of the business. Let's move to the non-GAAP version of operating expense, which eliminates the acquisition related amortization and tangible assets, acquisition related stock based comp and post combination expense. The non-GAAP view is more indicative of spend for our base business, and also makes the comparison with 2018 easier. The non-GAAP operating expense was $293.6 million in 2019, of which $89.2 million was incurred in the fourth quarter. This non-GAAP measure eliminates $39.1 million in stock based compensation related to the acquisition of Singular Bio in 2019, of which $17.9 million was in the fourth quarter. We also had $10.1 million in acquisition related amortization and tangible assets and post combination expense recorded as an operating expense in 2019, of which $1.5 million was in the fourth quarter. Our net loss for the full year 2019 was $242 million, or $2.66 net loss per share and for the fourth quarter of 2019, $76.9 million or $0.79 net loss per share. Non-GAAP excludes an $18.5 million income tax benefit associated with our acquisitions. Please refer to the reconciliations provided. What is most important is what each of these acquisitions did in terms of advancing our mission and business model, as seen on our flywheel for growth. Singular Bio will dramatically reduce costs of our NIPS assessment. Jungla expands our content and improves customer experience and Clear Genetics improves customer experience and drives traffic. Moving to our cash position. At December 31, 2019, cash, cash equivalents, restricted cash and marketable securities totaled $398 million. Net increase in cash, cash equivalents and restricted cash was $39.4 million in 2019 and $315.6 million for the fourth quarter. Cash burn including various financing and acquisition related expenses, was $278.3 million in 2019, including $75.5 million in the fourth quarter. When various financing and acquisition-related expenses are excluded, the annual cash burn would've been approximately $153 million, in line with what we indicated a year ago. Looking forward to another year of investment, we would anticipate 2020's cash burn will increase from last year's $153 million. We anticipate that the cadence in 2020 will follow 2019’s higher burn in first two quarters, reflecting a deliberate investment in selling and marketing and R&D, and then a controlled decrease in the back half as we reap the benefits of these investments. Collections early in year will be lower as our Medicare rates have reset down to 10%. We also anticipate continued rationalization of our industry and we will continue to assess acquisitions throughout 2020. I will now turn the call back over to Sean.

Thank you, Shelly. As we continue to lower our cost bases, expand our menu of genetic content and improve our customers’ experience, we believe we will continue to take market share from incumbents but more importantly, expand the global market for genetic information dramatically. Indeed, our view is that this is just the beginning, whether it's for the more than 30 million women every year that are still being told that a carrier screen is a test done during the first trimester, if they're offered one at all or the 95% of women with high risk variance for hereditary breast and ovarian cancer testing who don't know that they have them, and 60% of men with prostate cancer who could benefit from genetic information, but aren't currently getting it or the untold millions with serious inherited cardiovascular disease threatening their health and health of their families. We grow more confident than ever that our model is working, that we will continue to lean the transformation of the genetics industries and that we are uniquely poised as a runaway winner in one of the most exciting and dynamic sectors of healthcare today. With that, I will now turn the call over to the operator for Q&A.

[Operator Instructions] Our first question is from Doug Schenkel with Cowen. Your line is open.

This is [Sabu] on for Doug Schenkel. Thanks for taking my questions. So if you were to tell us your 2020 guidance philosophy, what would the three key metrics be? For example, do you expect sales force productivity to increase by x percent? Are you baking in any cross-selling rates? What are your reorder rate so on and so forth? And I have a follow up.

I think the way to characterize our 2020 guidance, which of course has kind of evolved overtime, is to simply take the dynamics of the industry that exists today. Our visibility into our current customer base, the addition of sales reps to up to basically the numbers around 320 or assuming some modest drop offs in sales force productivity kind of that happens year over year, as the sales team gets bigger you move into more accounts. We're really not taking much more into our guidance with that. We do see growth coming across all of our disease areas for both diagnostic testing and screening. We do see a year where we in that screening category specifically in reproductive health, we expect growth from there. We don't, in our guidance, anticipate a whole lot from our direct channel. There's some that we do anticipate but not a not a large impact baked into our guidance. And we certainly, while new customer segments specialists that historically have an order launching testing of which there are many of, any number of those could turn on, or we are sure will in the next one, two or three years start ordering genetic testing. We aren't assuming a lot of action from those clinicians this year either. So I think it's kind of the current market that we see, the accounts that we know and are engaged with, add a new commercial -- additional commercial assets on top of that and that's what we're we’re calling for the year. And sorry on the revenue side, we do have an assumed just as we have been every quarter, a slow and steady improvement in third party reimbursement.

And so media genetics called out of accrual headwinds as a key reason for their lower revenue guidance. Have you seen these headwinds materialized in your reproductive health business as well? And relatedly, can you provide any color on the progress that you’ve made so far in moving in NIPT in homes?

So to start with the latter, we're still on track to get the NIPS offering in house, which for those who are following closely means that we'll get both better reimbursement and a lower cost structure. So we're excited to be pulling out in post-haste. We'll just call it we'll call it -- still call it early in the year. So we're making progress there on track of that. So the other question, I think it's probably worth taking a step back. This is where the difference in business models really starts to be a very important center of the conversation. We've been leading price for five years of commercial activity now. We actually don't have accrual headwinds, we are the price leaders, the headwinds are coming as payers are, I would offer finally after four years of is negotiating in a network and talk about pricing within them, payers are indeed starting to move to value. So we don't see that, in fact, again, our revenue, our revenue recognition is going the other way as our reimbursed income and like I mentioned quarterly, stable and steady improvement in our billing and collections machinery, again, across our -- we have now more than 300 million lives in network that's a lot of payers across the largest menu in the space. And that's why we just continue to see that slightly improving every quarter as far as we can see for now, but know that that dynamic is not in play with us and primarily because we have been price leading for going on almost five years now.

The only other thing that I would add is under revenue recognition. We do break out within our 10-K, which will be filed by the time it needs to be filed in early March. But what we always do is break out what the additional added around is that we are accruing for from additional collections. And so, we've been conservative in what we've been able to accrue for. And this year it's on the order of about $4 million, which is the added amount that we have collected over what we had accrued and anticipated. So we're still on the positive from that perspective in 2019, that's about 2% of our business. And we think overtime that that number will decrease as a percentage of our total revenue and we're getting better and better estimating those collection rates.

Got it.

And maybe, just an addendum just for in case it doesn't come up, a reminder to everybody that Q1 has the 10% net reduction, for the Medicare. Medicare portion that you want to hit is just like last year.

And your next question comes from that Tycho Peterson with JP Morgan. Your line is open.

I'll start with a couple on the payer front. You mentioned the CMS MCD in the press release on expanding genome testing to early-stage breast and ovarian. Can you just talk about, what that could mean in terms of incremental volume benefits for you guys?

We’ll have Lee comment on any potential changes in the size of the market. I think in short, we kind of view it as everything about the same. But I think I'll let Lee comment on what changes we see in the wording and what that could potentially mean with I think the caveat that may --we're not, it's not always certain what that actually means in action.

So if we go back, I think to the last really couple of years as this MCD saga has evolved. There were three main concerns that we have focused on as the MCDs language and the interpretation by the folks at CMS have evolved. The first one was a concern that coverage was being pulled back and was going to be limited only to late stage cancer patients. The second one was that the MCD would eliminate discretion of the local Medicare contractors to provide coverage under local coverage physicians, which would have implied a requirement that the parallel review process of including the FDA be a condition to Medicare reimbursement. And the third was some language that made its way into the MCD, which would have in the interest of preventing duplicative and unnecessary testing would have precluded patients from getting more comprehensive or higher quality testing as it becomes available. All three of those have been addressed to our complete satisfaction and the MCD -- they don't, perhaps with the exception of the repeat testing provision, they don't really represent an expansion from where we thought we were when we started all of this two years ago. They in fact really just prevent degradation or erosion of coverage. And luckily none of the things that we are worried about ever took effect, they were just proposed. And then in response to feedback from the community, the folks at CMS to their credit listened carefully and thoughtfully and did the right thing.

And then just sticking with payer theme with United preferred provider and Sigma in network. Can you just remind us what your payment coverage rate is now? And then are there additional payers you're talking to around preferred status?

So there's definitely more payers that we’re talking to about that preferred status idea amongst others. I mean, again, this is I think -- I don't want to say now's the time because everything in third party reimbursement takes a while, but I think there are multiple parties now interested in what that could mean by way of real savings on a line item that is growing really very rapidly. And even more interestingly are now the conversations that lead to broader coverage for whole groups of populations, patients with high risk of cancer from start to finish. Women of reproductive age from preconception all the way through the pediatric check-in, those kind of conversations. So yes, for network conversations happening in even more exciting the beginning of where we thought this would go. In the long run, actually put -- having payers put in place and get information to improve outcomes and lower costs for whole populations. But we’ll, like I said, that I'm assuming will take a while but certainly prefer lab networks we would assume it will be a feature of the next couple years. [Multiple Speakers] and there was a second question, which I forgot the, oh, the pricing, right, you ask me the pricing. Again, our price of the last -- of the 300 million lives of contract pricing has been pretty stable, just depending on the size of the payers around $1,000 or slightly under for the largest payers, that's about where these third party discussions where we enter them.

And then can you just give us an update on your patient initiated testing traction since launch? How much volume has it generated? What percentages DTC volume is on a subscription pricing model? And then separately, just any update on somatic launch time line?

So just really quickly the DTC traction not basically as expected, which is not a large or material amount. The good news is that we know there are a lot of people looking for this information. There are a lot of people. I mean, we know there a lot of people that could use it. We are able to generate a fair amount of interest and traffic conversion is what we're working on now. And we expect sometime in the next couple years, we are going dial that in with firm expectation that three to five years out that direct marketing channel, both to patients and the clinicians who take care of them, we'll be driving the majority of our volume. But today not a really significant amount and as I mentioned, in the guide this year we have we have some expectations but they're not very large at all. It is however the kind of thing where if that were to hit earlier, we think it had a potential to drive fairly large volumes. So we'll keep working on it. We'll keep everybody posted. For somatic, we're still on track for this year. And again in this year nothing is assumed by way of somatic pickup on the accession or the revenue line. The early, we get it out it might contribute some, particularly if we can get some larger partnerships earlier. But right now, we're just assuming -- we're still trying to get it out this year. I would say it’s probably going to be a backhalf, at least half two not half one, and contribution this year will be minimal depending on the exact timing.

Your next question comes from Puneet Souda with SVB Leerink. Your line is open.

First question on NIPS. Just wanted to get a view in terms of traction in volume growth and more importantly, how is the pricing, the $99 pricing, resonating in the market? And how much of the business is sort of coming from that versus currently getting reimbursed from the payers?

So I'd say in general, our reproductive business continues to grow, slightly ahead of the rest of everything. We do expect reproductive growth to pick up here in the next year and the years to come, just given the sheer size of the opportunity, again 30 million pregnancies around the globe and the economies we're serving right now. So we have great expectations for it. Last year, I think as we kind of ran through the year, our NIPS and carrier screening and associated testing did almost, as well as we had hoped. Obviously, we wanted to do more but we we’re pleased with it and again, we're sitting in a good place right now. For the exact rate, we don't break out exactly what is NIPS only, what is carrier only, what is NIPS plus carrier. But, we would reiterate that we do indeed see that the -- having NIPS offering is a really important piece of the whole reproductive picture, and so we're happy that we invested in launching it and really as we mentioned kind of investing further in bringing it in house and ultimately by way of our Singular Bio acquisition dramatically lowering the cost basis for it. So I think that's the reproductive health and NIPS picture at this point. And you know, again, we've said there was 30 million pregnancies a year we think really -- significant chunk of them in the next few years that we can serve much better than they currently are. On the question of the patient pay versus insurance bill, again, we don't bring that out exactly. What I would say is it's kind of a pretty typical mix. I don't think there's a really there except that obviously OBs do not have a lot of time to be dealing with a lot of the billing surprises that tend to come. A lot of players in the space build pretty extraordinarily high bills. We've seen the OBs in the multiple thousands of dollars even recently for NIPS. By virtue of our $99 patient pay price, we get the ability to have a very clear, straightforward building policy for both high risk and average risk women on NIPS and carrier screening. We can put in writing what the price is and we can put in writing what the expected patient out of pocket will be, and we think that that has been and probably in the coming years will be even more important as this market develops where we think that we've got the pricing right. The ACOG guidance seems to kind of just keep moving off into the future and we're told in fact might take even longer which is again why we just have taken the approach that we've taken in, and we believe we're on the right track.

Shelly, on the spend I was hoping if you could provide a view on the spend priorities in your rank order for the year and areas of investment? Burn rate is growing, as you pointed out. Could you give a view into what maybe that what that means for Q1 here? I don't know if you get that. And also if you could remind us where the sales force is currently and what are the plans to add additional sales force for the year.

So why don’t I let Katherine jump onto that latter part and then I'll go and answer the first part?

We have average sales growth towards the end of last year, and early this year, so we're looking at about 320 to be able to cover the testing money both U. S and internationally. So I think Sean commented earlier on sales force productivity and that's, that's what we're looking for. It's about the same percentage increasing in sales force size as we have the year prior.

And then why don’t I hit on some of the priorities for us, if you back out some of the non-GAAP, some of the stock based comp for the acquisitions and such, you'll see that our R&D, for instance, rose 5 million in the last quarter. And the things that they work on that I went through when I had my script, was basically things like scaling, business, automation, driving COGS down, customer experience, everything like web access and then you add in things like Jungla and some of those new acquisitions that really help to enhance the type of product that we're able to present to the customers. And so that is still very much of a focus of ours. When you look at the selling and marketing and you strip out some of those extra costs of the acquisitions it was something like $2 million increase in the last quarter. And what that goes to is not only new heads during the year, but also some marketing spend for branding and what Sean has talked about in terms of being able to get the direct channel up and running and that's brand awareness, as well as advertising and such. And so those are the key things, as well as the customer experience and that's clear genetics in some of the acquisitions And so those two, the R&D and the sales and marketing work hand in hand, to be able to enhance our scalability, our product offering, the breadth of the offering and the ease of use for any customer, whether that's a patient or a physician, or a new type of physician like a urologist or somebody else. So those are the focus that we looked at. And I think also importantly some of the acquisition will add some burn to us, but we tried to walk through why those were so important to us, we make sort of the buy versus build decision. And so you can look at those and some R&D dollars to be able to accelerate some of these very important project for us that we've decided that we can buy a company that has a great technology like Jungla or Clear as opposed to trying to build it from the bottom up by ourselves. So those are the types of priorities that we think about. And that's why we evaluate each of these investments on their own to see how rapidly we're going to get some return for those investments.

And Sean, if I could -- if you could step back and look at how the germline testing landscape has evolved and it does speak to your business model and the rationalization of pricing in the space that you've driven. Given where you stand today and you look at the long term priorities, any changes in those long term priorities in terms of the data you want to gather or overall priorities on menu expansion or areas where you might not be today and ultimately where you want to be, if you could elaborate on a long term view [Technical Difficulty]? Thank you.

Our view of the industry and we do think, it's getting more dynamic every quarter. So the rationalization is picking up speed. I think there are a lot of exciting developments in technology and kind of application area wise. But our view of the industry and its potential and the approach that we've chosen to take to it hasn't really changed at all. We are still working on adding more and more content as a key part of our strategic outlook on growth. We have mentioned in the past getting kind of rounding out the menu to really serve for example childrens hospitals and pediatric centers better that, that is for sure kind of has been and continues to be a major focus and I would expect more of the same this year. Rounding out continuing to add more content and more information to our oncology offering, particularly as we now look to move downstream into not just being the leader in identifying individuals at risk for cancer but then stratifying the risk and likely characterizing it and then of course by way of then monitoring post therapeutic decision for both recurrence and evolution of the cancer itself. So those are continued to be areas that we look to, as well as of course we've always talked about pharmacogenomics is something that we think is an area that is a particular growing interest to payers and integrated providers, and that's something that again, we think fits right in our wheelhouse with the platform that we've built. And again I think we deal with that's no surprise we've mentioned that before and it's still something that we're interested in working on. So really no dramatic change to the outlook, no real change to the kind of the content expansion with kind of some of the usual suspects we've been discussing that we hope to in the next year or so bring and add to the platform.

Your next question is from Kevin DeGeeter with Oppenheimer. Your line is open.

I just want to follow up on the earlier questions with regard to preferred lab network, and can you just comment about what's your early experience has been in terms of the impact of United’s preferred lab network on dynamics in the market? And as we think about 2020 and I suppose 2021, that still feel like it could be a material lever driving volume put or take? Or is that shaping up to be a more modest impact on your volume growth in the near-term?

I think, I can the question really succinctly by saying we certainly haven't baked any large expectations into this year's guides. And you know, the United States is really modest percent of the total live. So, I think that that's still a pretty fragmented space on that side of the table. With that said, what we can say absolutely is that, there are some obvious benefits of being in the preferred network. Certainly the mechanics of billing and reimbursement are much, much smoother on our end, which is very important, as much on through they're on the clinician side, which is also very important. It is much easier to order from us versus a lot of our peers in the space by virtue of being kind of the number of in that network kind of number one and a lot of our menu items. So those are all great. I think we would still offer, it’s very difficult to put a number on how much volume growth came from the by virtue of that versus just kind of out there commercializing. But I think that probably is a little bit inconsequential if you take step back. The bigger picture here, I believe is that the overall dynamic from the payers is that they are paying attention, if the genetics is becoming ever more important as they consider their business and what they do. And the preferred network, we think is probably example is one of the very first and early moves in a series of moves over the next few years that are going to definitely have an impact on the space and who has access to reimbursement it doesn't. So that's I think that's kind of where I'll leave it. It's hard to put a real definitive material impact on it at this point in time. But I think taking a step back this and what we would expect any on this to come is actually pretty important to one's view, certainly our view of the evolution of this landscape.

And as a follow up there's been a fair amount of publicity around the downsizing of some of the first generation DTC genetic testing companies, recognizing the your direct channel plays and really very different part of the market that this location continues or accelerates, does that create any opportunities for you think about, plans to build out your direct channel over the next year or two. And I guess on a tangential level from an M&A perspective is that, an area that you would have any issue or any interest in potentially being active?

So I think I think in order it is with interest, seeing the announcements from the certainly the larger DTC players, we don't know much about what's going on there or why. All we know is that there has been a lot of marketing that’s raised a lot of consumer awareness about genetics over the past decade. It's been huge spins right comparison to kind of what our industry typically does on a per company basis. I honestly can't, I can't really opine on why interest in those kind of product has tailed off, if it had tailed off but just getting more competitive. We really can't say much. We feel that in general, there's been a general awareness lift of genetics as a result of those massive marketing dollars over the last decade. We think that has created an opportunity. You can do your run of the mill work, market research will show you that more than half of the individuals who buy those kind of tests are interested in health and most of them are not super satisfied with the results they get. So I think there's definitely an opportunity there. Again, probably worth pointing -- focusing the conversation back on. This is a channel to drive the very same exact kind of medical grade testing that we run for the rest of our clients, our core clientele. The channel that directs channel will be focused for individuals who are thinking of starting family, individuals who have children with undiagnosed diseases, for clinicians who probably are aware that they could be using genetics to the patient's benefit but don't really kind of have the bandwidth nor know nowhere to get started and we think that's just a very, very different customer segment than where these companies have been active in the past. But there's definitely some overlap there and so not to discount it. And I was just going to say maybe in satisfactory, we don't really know what it means. So we're playing ahead with kind of trying to reach those customers the best we can to the M&A question though, I think this is where maybe this is the only area we can know -- I'm sure there's more working with the team around the table. We don't have active screens out for DTC type assets. We're very much focused on kind of highly positive predictive value and negative predictive value diagnostic and screening tests that answer your questions people have about their health.

The only thing that I would add is, we spent six years now building a really strong medical brand. And we think that's going to help us to really succeed in the broader consumer market and as more mainstream clinicians start ordering testing. And interestingly, what we are seeing is the breadth of our testing menu is being ordered. So as Sean mentioned, there's cardiovascular and cancer screening, there's diagnostic testing, there's reproductive health testing. So we think that we're well-positioned in the long-term to be able to serve the increasing interest and being able to bring genetics to inform health care decisions.

Your next question is from Jeffrey Cohen with Ladenburg Thalmann. Your line is open.

I was wondering if you could further expand the time on some of our previous comments as far as automation, is it coming more from the equipment side or for the software and analytics side.

So automation is a key of the OpEx or cash burn, component is R&D. Automation it is definitely correct to think about it, both on the equipment side and the software side. And both in our own R&D and in acquired R&D we've booked at both. So I think the short answer is both are important, both continued to have room to yield a benefit to the cost advantage that we think we have and/or improve the customer experience while at the same time lower the sales and marketing burden of delivering that experience. So we've haven't acquired an automation kind of wet lab automation provider to this point. We do continue to invest in what is now getting to be pretty big scale here, unseen scale for the type of tests that we do, and automation going to continue to be a key part there. I would say, the Clear Genetics acquisition is it pretty clear, a solid example of automation on the front end, which we have invested in over the years. And I think by way of acquisition really represents automation on the customer service side, to very quickly answer questions, identify patients that need for follow up, scheduling with their clinicians, scheduling with genetic counselor, answer questions about billing, move the test ordering, et cetera. Essentially automated on the front end of that and then triaging our customers into the right to the right next step, it’s a great example and very important, and I would expect more of that in the years to come.

And could you give us a sense of the integration of both Jungla, as well as Clear Genetics. Are they complete or are they 100% tucked-in into the overall business at this point?

I think that the short answer is more or less. There are some new technical aspects of the Clear platform that we still have a few months of kind of software development to get it completely integrated. But I'd say for the most part, the teams are integrated, they're completely, fully integrated in our development efforts. The principles of those companies are frankly leading, the respected development efforts within the Invitae development organization and we love what we see. We have already been able to reclassify a very large number of variance of uncertain significance. And as we stand today with the Jungla platform, we now can say we unambiguously, best at resolving these variants of uncertain significance with a completely derivative approach from start to finish, and that that is integrated now and working as we speak. So that actually that's pretty much integrated. There are there are other aspects of the molecular evolution platform that the Jungla team and they are working on that will take more time for development and we're excited to see that come. But for the most part, the initial returns on that have been great. For occlusion medics I mentioned it's effectively integrated. And we are we are excited about what that can do, particularly for a lot of these specialists who do not have a lot of bandwidth or time to kind of deal with the ins and outs of genetic testing in their daily practice. And that is as I mentioned well from a development perspective, integrated I think from a complete product perspective and then in the coming months every few weeks we'll get closer and closer. But the timeline there looks very short and we are on track.

And then lastly from me. Could you talk about the cardiovascular disease starting? Is there any update there and information you can share? Thanks.

So the -- that's right -- the Apple Watch study, I think Bob can talk about -- what I would say, I can just tell by --. We're just starting with that. So we're just kicking it off by way of collecting -- getting the -- getting that longitudinal Apple Watch data and alongside with genetic [indiscernible] information loaded into that collaboration. I don't know Bob if there's any further [Multiple Speakers]…

It's very early and we're looking forward to being able to analyze the data when it comes along…

…so early days for that.

Your next question is from Bruce Jackson with Benchmark Company. Your line is open.

So earlier you mentioned that about 10% of your total revenue last year came from international markets. Do you have a sense of where you might be, where that rate might be exiting 2020?

Yes, so -- just -- a clarification is 10% of volume is slightly lower on revenue, because the international pricing makes the -- there's -- there aren’t third party payers, it's all patient pay and direct bill in some markets where price is a little more compressed, so it’s 10% of volume to lower percent of revenue. With that said, in our -- in our guides, we are assuming about the same exiting this year. We are investing more in our international commercial activity, both by way of physical plant in order to take out a lot of the logistics and shipping issues that we have historically encountered in actually ex-U. S. and we're adding our whole -- that 10% of our volume has been generated with a relatively small -- modest commercial force. Handful -- literally half of dozen business associates around the globe. And we're hoping that we're increasing that uniting a dozen or so to really start having in country business development and support. Now we're confident that that is a very large untapped market opportunity. We're confident that that will start growing rapidly in the years to come. Could happen this year but a lot of that depends on how quickly we can get that property implant deployed with the selling cycles look like, which again for the most part, we've been answering inbound interest. So we're excited and we’re optimistic. But like I said, we haven't -- we haven't really baked in anything more than about 10% of our volume for 2020.

And then just a follow-up question, if I could. Does the country mix mirror that of GDP? So is it primarily the larger countries that you're getting the orders from? And then is it -- what is the payment mechanism? Is it private pay? Or is there any healthcare insurance component to that?

Yes, so, this is, I think, the short of it is, the first answer to the first question is, no. It actually does not follow GDP. And that's largely, that's just largely a result of how the single state payers are set up for it and also on specific sample regulations, for examples. England, France and UK, are relatively difficult to just launch -- to have institutes and individuals pay for genetic testing, whereas Northern Europe, Middle East, Israel, Asia Pacific, and all of Latin America, we tend to see a lot more volume there, which is -- so it's not totally weighted by GDP. The payment mix is primarily patient pay or institutional bill, and the way to think about institutional bill ex-U.S is large academic hospitals, large privately run hospitals. And then there also are a mix of clinicians, who are accepting -- think of it, kind of, we don't really have this here in the U.S. But think of it as a supplementary or extra in-health insurance that oftentimes pays for some of these things like genetic testing. So in many of these countries, there's a single payer insurance, government, funded, health insurance program and then people can sign up for additional and sometimes those, are what are being -- those funds, those insurance pools are, what's being used in the clinic to pay for the testing.

And your next question is from Ophir Gottlieb with Capital Market Laboratories. Your line is open.

Hey, guys. Thanks for taking the questions. I have two, you don't mind. You are providing formal guidance for cash burn for, 2020 excluding the various financing and acquisition costs, or simply that is going to be, little bit more than 2019?

No, yeah. We are not, providing formal guidance on it, I think. That we're leaving in now. As it will be more, we view. This is a year of -- just everything that we see in front, of us in the case, that this is a year to continue investments and continue extending our leadership and what we think is going to be win or take most opportunity as of course we've covered before. We can kind of put a little more detail on it, which -- that investment is in primarily in commercial and R&D and M&A which is a it's a build by proxy, for both commercial and R&D. We think that that, translates overtime into an unassailable position in the new landscape that we are building, because that commercial leverage, whether it's new customer types, moving globally, pushing forward our network, business as we have been with our pharma, pharma partnerships. We're building a superior customer experience. Or Extending our cost advantage, that that is what, kind of helps us do that, as well as driving at the price -- the price, that we’ve created and then building the best, broadest, highest quality menu, content that is what we think the, winning formula is now. We think are our model is winning and that's why we're suggesting this year the -- burn stays, on invest on and for all of those reasons which in the long-term, translates to massive sustainable operating cash flows in the future, and that's the single financial metrics that we're working toward over time but the investment this year is really targeted at that, primarily at R&D, EBITDA and sales and marketing, as well.

And, I would, note that there will be some, front ending of those expenditure, so as we talked about, and have been talked about the number of sales people they, were brought on in the fourth quarter and in January and early February. And so you will see before they become corrective, you're going to have those costing things, things with R&D that we brought those folks, on in the fourth quarter and first quarter to be able to, hit a lot of these goals for the year in terms of, scale and other customer experience type, products and content. And so we always have a higher first quarter in burn -- you also pay commissions and you also have the decrease in your reimbursement by the PMA sessions. And so from that perspective, the first quarter is higher and I wouldn't want you to be surprised, thinking this is last year be higher in the beginning of the year and then beginning -- trending down as we get to the second half of the year and those sales people become more productive and we are able to yield the results from the R&D efforts.

And last question, as I understand it right now with the international business, some [Technical Difficulty] that you have up to two hours for shipping fees, which of course is this version doesn't go to envy hate. It isn't the case that moving forward is whenever you're completed with international at some point this year that officials have you removed that extra $200 or 40% of [indiscernible]?

I mean, ensure that the idea allow these markets to remove the size of that shipping logistics, bill is the idea. I'm sure there'll be some countries in, we cover shipping most we will, not but by reducing that down significantly because you're, right there are -- there are examples where the patient institution is almost paying as much in shipping as they are for the cost of the test of the screen, so that's exactly the idea. You really improve, improve the logistics and dramatically reduce the cost of that and also frankly help out with the turnaround time by things not getting held up in customs and issues like that. Those are the two primary reasons but I think the way you said was correct, removing that friction, which is really not benefiting anybody, right now and that's the that's the primary purpose of the physical investment in our in our ex-U.S infrastructure.

This does conclude the Q&A period. And I'll turn things back over to Laura D'Angelo.

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

Ladies and gentlemen, this does conclude today's conference calls thank you for your participation and you may now disconnect.