NVTA (2021 - Q2)

Good day. Thank you for standing by, and welcome to Invitae's Second Quarter 2021 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. [Operator Instructions] Thank you. I would now like to hand the conference over to your speaker today, Ms. Laura D'Angelo. The floor is yours. Laura D'

Thank you, operator, and good afternoon, everyone. Thank you for joining us for our second quarter 2021 financial results call. Joining us today are Sean George, our CEO; Roxi Wen, our CFO; Ken Knight, our COO; and Shelly Guyer, our Sustainability and ESG lead. 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 Q2 preliminary financial 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 stated outlook. Statements on future company performance assume among other things, that we don't conclude any additional business acquisitions, investments, restructurings or legal settlements. We refer you to our most recent 10-Q, 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. As you listen to today’s conference call, we encourage you to have our press release available which includes preliminary financial results, as well as key growth metrics and commentary on the quarter. We are currently finalizing the accounting treatment for certain acquisition-related liabilities and stock-based compensation amounts reserved against the acquisition of ArcherDX last year. Outstanding adjustments are necessary we would expect to decrease in our reported liability, while also resulting in an increased gain in our adjustments to the fair value of contingent consideration. The primary growth metrics we are reporting include revenue, volume, ASP, cash and any non-GAAP results are not expected to be affected by any investments. But we want to direct your attention to the preliminary nature of cost of revenue, operating expense and net loss as they are not presented as of today. To supplement our consolidated financial statements prepared in accordance with Generally Accepted Accounting Principles in the United States, or GAAP, we monitor and consider several non-GAAP measures. We exclude from our non-GAAP operating results as applicable, amortization of acquired intangible assets, acquisition-related stock-based compensation, post-combination expense related to the acceleration of equity grants or bonus payments in connection with the company's business combination, adjustments to the fair value of certain acquisition-related assets and liabilities, including contingent consideration and acquisition-related income tax benefit. We exclude from our non-GAAP cash burn as applicable changes in marketable securities, cash received from equity financing and debt and cash received from exercises of warrants. In this period, our non-GAAP measures include; cost of revenue, gross profit, operating expense, including research and development, selling and marketing and general and administrative, other income expense, net, 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 the appendix of the earnings slide deck. With that, I will turn the call over to Sean.

Thank you, Laura, and good afternoon, everyone. We are pleased to report another strong quarter of top-line growth across the platform, demonstrating our continued progress toward meeting the immense unmet demand for the use of genetic information in mainstream medicine across all stages of life for our patients. An important milestone for us is Invitae has crossed with now over two million people receiving genetic information, many of whom would never have done so as we not pursuing our mission so aggressively. With an ever growing number of people seeking genetic information to inform health risk and medical decision, we are committed delivering the most comprehensive and affordable genetic information accessible to all patients at the standard-of-care. The rate of adoption of genetics in mainstream medicine is on the rise as demonstrated by new data to be presented for multiple cancer types at the 2021 ASCO Meeting. As one example, the landmark INTERCEPT study conducted at the Mayo Clinic showed that nearly one in six patients with pancreatic cancer had genomic alterations and importantly, genetic testing was associated with improved survival. This outcome is consistent with almost every study that we've got this area and we believe that Invitae is uniquely positioned to meet the growing need and markets for combined somatic and germline genetic information across all cancer types. To headline the quarter, we continue to execute well on all our growth measures. Both revenue and billable volumes showed triple-digit growth over last year's Q2, which was impacted significantly by the COVID shutdown. Demonstrating a continued exit of the COVID impact period and increasing momentum, we do a double-digit sequential growth in both revenue and billables from Q1. As to our guidance for the year, our Q2 growth and the macro trends we see have us confident that we will exceed the high end of our 50% to 60% target plan for revenue growth this year. In January, we gave guidance of more than $450 million revenue for the year given the strong growth we've seen in the first half of the year, we're confident on our ability to deliver revenues of between $475 million and $500 million and that's including uncertainty from the recent increase in COVID cases resulting from the delta variant spread. With that, I am excited to introduce the newest member of our executive team. Roxi Wen is Invitae’s newly appointed Chief Financial Officer and she is here with us this afternoon. We are thrilled to have her join the team to help scale this business globally. She brings a new perspective on financial management modeling, as well as capital deployment and of course supporting all of you. Roxi’s decades of success as financial executive and global tech and med tech companies allows great insights into how the enormous opportunity of the convergence of these sectors could be capitalized. Roxi, maybe you could say a few words about your first few weeks before you provide some detail on the Q2 financials?

Thank you, Sean. While, this is my first quarterly conference call, I’ve had almost a month to engage with the team and speak with some of you. It is a real pleasure to join Invitae as we try to do the important things necessary to improve the health of the population. I would like to thank Shelley and Ken for their help supporting my transition. It is a rare benefit to have the predecessor CFO available to consult and is making the transition much more effective. I’d also like to thank those of you who had reached out to wish me well and to offer your perspectives on how we can continue to serve the needs of investors. We take your input and guidance seriously and look forward to a collaborative relationship going forward. Before I recap the results and preliminary results of the quarter, I’ll say a few words about the topic Laura touched on and that was explained in today's press conference. As we conducted our customary close of quarter analyses, we determined that we may need to reverse some of the liability associated with ArcherDX transaction milestones. Practically speaking, this accounting adjustment should have happened, would have no impact on our key performance metrics, such as volume, revenue, ASP, cash and all non-GAAP financial results. If implemented, this accounting adjustment would significantly reduce GAAP net loss in our adjustments to the existing fair value of contingent consideration and acquisition-related stock-based compensation. We expect to complete the process over the next coming days, and we look forward to filing our Form 10-Q. So now I’ll turn to the second quarter performance. As Sean mentioned, we continue to see strong growth across the board. Revenue of $116.3 million was generated in the second quarter, a 152% increase from the second quarter of 2020, which of course heavily impacted by the COVID-19 shutdown. More relevant was the 12% sequential increase from this year's first quarter, a great result and indication of continued momentum into the second half and performance against the ongoing goal of 50% to 60% annual growth rates. Billable volumes of approximately $287,000 in the second quarter of 2021 were up 154% percent from the second quarter of 2020, but also grew a strong 11% sequentially from the first quarter of this year. Internationally, we saw volume growth that was slightly ahead of our U. S. business and represented nearly 19% of total billable volume for the quarter. Overall ASP trended up slightly to $388 in the second quarter, up from $383 in the first quarter of 2021. Steady progress with third-party payer relationships and policies are benefiting both pricing and collections. We also continue to see rapid growth in sales of our women's health products, where average price per test is generally lower than the current oncology products and where we also expect to see pricing improvement over the coming quarters. Looking ahead to 2022, we expect ASP to benefit as we stand up and continue our launch of the broader LVT and regulated oncology testing for therapy selection and MRD testing for monitoring and surveillance, both of which garner higher reimbursement rates. Preliminary cost of goods sold in the second quarter was impacted by approximately $5.3 million of inventory impairment charges due to our decision to discontinue offering COVID testing and the write-down of inventory associated with our oncology business. We do not anticipate significant ongoing financial impact from this issue. For the remainder of the year, we expect progress in COGS and gross margins in both Q3 and Q4 and are targeting a non-GAAP gross margin between 45% and 50% as we exit the year tracking towards our long-term 50% target margin. As we projected, non-GAAP operating expenses was sequentially up coming in at $198.2 million in the second quarter, as compared to $155.4 million in the first quarter of 202,1 driven primarily by headcount growth and increase in stock-based compensation. We continue to invest in our business with a focus on long-term value creation opportunities, including scaling the business and modernizing the platform, building our content across all ARCs, improving efficiencies and therefore margins and operating leverage and creating a more patient-centric experience, benefiting all constituents of healthcare care system. We also know that we expect spending growth rate to decline for the rest of 2021 as this year should mark the highest annual non-GAAP operating expense as a percent of revenue as investment levels stabilize or even slow in key areas. Moving to our cash position, cash, cash equivalents, restricted cash and marketable securities totaled $1.54 billion at June 30, compared to $681.9 million at March 31, an increase profit of approximately $858 million. Cash burn was $256.8 million in the second quarter, including cash paid to finance and close acquisitions. Excluding acquisition and related expenses, our burn for the quarter would have been $136.7 million. Now back to You, Sean.

Thank you, Roxi and great to have you on board. Before I hand it up to Ken for an operations update, we thought it would be helpful to provide a snapshot of how the platform and business are evolving and how that ties into our long range vision for the industry. There are a couple of big picture takeaways worth noting. The first, because Invitae revenue and business mix grows across all testing categories. Our approach has always been and will continue to be; to build a platform that can serve up all genetic and genomic information needed to identify those at risk disease; detect and diagnose the onset of those diseases earlier; use that information to guide preventive measures or targeted treatment; and monitor the success of that treatment. It is our view that if we can accomplish this, genetic and genomic information will be used across all of disease areas at all stages of life to improve the lives of billions of people on the planet. The second is the size of the opportunity and the importance of our growth engine. Even though because of difficulties and setback last year, we have maintained an average growth rate of more than 50% demonstrating resilience of the business, execution by the team, and validation of both the opportunity out there and our ability to choose entry points to grow the market, as well as take share. And when considering the sizes of the addressable markets we are pursuing, combined with the accelerating pace at which genetic information is being utilized, one can get a sense of the scale at which we believe this platform needs to operate. Our perspective on the size of addressable market, and our view of how to aggregate and transform genetic testing with a broad menu for all stages of life informs our view of how to lead the transformation of our industry. We've long shown this ramped view of our business model in an effort to describe how we see the evolution of global genomic benefits. Our progress in addressing patients’ need throughout their life lifespan and the emergence of our platform and data services demonstrate progress up the curves into the genomic network era, where genetic information can be shared on a global scale to diagnose more patients correctly earlier and bring therapies to market faster. We continue to believe that these new connected capabilities are best developed, delivered and supported from an integrated platform. The more of the landscape is covered by way of genetic test content, the more patients we can add to our network and the more patients in our network combined with more information we can provide or ingest on their behalf the more that we and our partners across the healthcare system can do for them. Our business is expanding exactly along these lines and we believe the time is right to attempt to provide more visibility into the key drivers of that growth. In addition to our sizable and rapidly growing revenue from oncology, reproductive and women's health and rare disease or other genetic and genomic testing services, we will be including a new different category in the mix we’re calling platform and data services. This category includes data management, and analytics, interpretation and Data-as-a-Service, certain biopharma programs and patient identification efforts among others. We anticipate this part of the business will be one of the fastest growing elements of our business over the next five years, fueled by our continued building across disease areas and acquiring the capabilities, combined with access to the rapidly growing number of new patients entering our ecosystem at all stages of life. Revenues derived from those services were about 2% of total three years ago. But they've been growing rapidly in this past quarter moved to past 8% of total revenue. While it's still early in the game, the impact of this set of business activities on our model is hard to overstate. As we began to publicly track progress in this important part of the business, it's worth restating our basic tenets since the company's inception. First, patients own and control their data. And second, that data is more viable when shared. At Invitae, we worked very hard to build and maintain a foundation of trust when it comes to security, privacy, portability, and consent. We believe these intangible assets will be essential for leading the ongoing transformation into genomic informed personalized medicine, benefitting patients, clinicians, payers, researchers, and biopharma partners alike. The next step in building out our platform include continuing investment in the development of our data analytics and real-world evidence capabilities. Over many years, we've built an extensive technical stack of processing pipeline, interpretation, reporting and customer service capabilities. And we continue to acquire an integrated portfolio of digital products and services that enhance customer experience through personalized insights, improved workflow and other tech-enabled services. To that end, we've been especially active in the first half of 2021 and I am thrilled to announce our acquisition of Medneon, the latest addition to Invitae’s data and digital solutions platform. Medneon combines guidelines, real-world evidence and personal and family history to rapidly identify an individual’s short-term and lifetime cancer risk. Once determined, clinicians are informed with their patient’s eligibility for genetic testing and supplemental energy. So that preventive action may be taken. As you move into the second half of 2021 and beyond, you can expect to see additions in all of our testing areas with a growing emphasis on time and all altogether via data collection, analytics, applications delivery and improved customer experiences. With those introductions, I'll turn the call over to Ken to go through an update on our operations.

Thanks, Sean. Halfway through 2021, we felt this was the right time to provide an update regarding operational scale and innovation and how they're being leveraged to bring our long-term business model to light. COVID-19 has kept us on our toes with suppliers and transportation partners struggling periodically to keep up with our growth and our increasing demand. To stay nimble over the last six months, we have brought on new supply and transportation partners, even when additional validation steps were required to deliver. Cost in some cases have been negatively impacted as a result of intermittent shortages and we have not yet fully returned to normal flows. However, we were still able to lower material costs for our non-invasive prenatal screening test by 14% year-to-date through process innovation and supply chain modification. This work has also brought along a 300 basis point improvement and sent on time delivery patients. And there are further improvements in the pipeline. As Roxi highlighted earlier, Q2 non-GAAP cost of goods sold was impacted by full ahead investments in labor and inventory in preparation for second half 2021 growth. Still, non-GAAP COGS in the second quarter improved year-over-year by 23% and Q3 and Q4 should deliver further improvements along with expected volume growth. The acquisition of Genosity in Q2 has been one of our best moves from a strategic and integration execution standpoint. In a short timeframe, the team has accelerated access to personalized oncology testing and monitoring, playing a key role in standing up the LVT for MRD testing that Sean mentioned. This success has us super excited about delivering a level and range of precision care to patients that we believe is unparalleled. And more to come on this later this year. We also recently welcome One Codex and Medneon me on to the Invitae team as we build out our strategy. To support our overall growth, we have active expansion plans on the way of 75% of our existing lab operations. And our plan to deliver our new North Carolina facility is on track for a mid-2022 go live. Reflecting our scaling efforts, we collected record cash in Q2, an increase which was closely aligned with the Q2 increase in revenue. Commercial leverage improved by 100 basis points quarter-over-quarter and 45% year-over-year. The focus on improving leverage has continued within across all functional areas as a key component to generating cash for reinvestment into our growth. And we are growing. Thanks to our patients, our customers and our people. Our operating mechanisms are providing clarity for decision-making and the focus on our mission is clear. I'll now turn the call back over to Sean.

Thanks, Ken. I hope that a major impression for anyone listening this call is that we are playing to win. Our strategy is unique and our vision is ambitious. A feature that sees genetic information driving mainstream medicine is coming into view as a reality. So the time for ambitious and decisive actions is now. Our strong cash position allows us to deploy resources thoughtfully to extend our reach into new geographies, accelerate commercial launch plans and pull exciting development programs forward under platform. The growing opportunity of platform and data services is highly relevant. And the diversity and growth in that part of the business should become a significant driver of value for patients, providers, and all stakeholders in a modern healthcare ecosystem. And of course, our long-term shareholders are uniquely positioned to benefit as we continue to execute against our plan. Before we move to Q&A, I'd like to take a minute and thank Shelly Guyer with us here today who for many years and right up a few weeks ago served as Invitae’s CFO. It's been a massive transformation of the company during her tenure, and I wanted to express my and the whole team's appreciation for her tireless commitment to excellence to our mission. She will now be leading our ESG programs going forward. I am excited to have her working with you all as we push forward on these essential efforts in the future. With that, we'll now turn the call over to the operator for Q&A.

[Operator Instructions] You have your first question coming from the line of Dan Leonard from Wells Fargo. Your line is now open.

Thank you. And thanks for all that detail. My first question, could you elaborate on your early efforts commercializing PCM as an LVT? What type of organizational resources are you committing to that effort?

I am sure, Dan. So the - we in the acquisition of Genosity as Ken mentioned, we are able kind of integrate that quickly and get the Archer PCM technology up and running as an LVT. Most of organizational energy was spent on doing that. The commercializing of it, we wanted to get it as early as possible, but given the hands a few clients for the spaces that work and get ready to scale it up between now and the end of the year. We've got some more scaling of that process we do. We want to put in some more cost containment and we will get it ready for full blown commercial launch at least by early next year. So that's kind of – that’s it where we are much of it is spent on operating and development side of it and more and more commercial execution as the year goes on.

Understood. Thank you. And just a quick follow-up on the women's health business. Specifically on average risk NIPT reimbursement, when do you expect improved reimbursement flows through to ASPs at the corporate level?

The short answer to that is ASPs have been improving for NIPT for many, many, many months now. It's been a slow and steady climb and payers have been picking up reimbursement and not just for high risk but for average risk. In the past, call it, the past year or so, that is also on top of us being relatively new again with the payers. So, kind of there is both process-oriented to increase in questions and reimbursement, combined with more payers picking up average risk - average reimbursement, which more are doing. The pace of the payers picking that up has indeed increased. But it wasn't a binary inflection footprint with the ACOG guidelines coming out. And I would expect it to continue throughout the end of this year and probably – frankly, there will probably be some, some payers that refuse to cover this for many months to come possibly even into the end of next year. But a slow and steady trend there. And again, we do think that that's an overall positive on the reproductive health business.

Okay. Thanks for the color.

Okay.

Next question is from the line of Puneet Souda from Leerink. Your line is now open.

Yes. Hi, Sean. Thanks for taking my question. So, wanted to just understand a little bit in terms of the guidance, maybe if I can ask it this way, where do you stand in terms of in-person sales details by reps versus online? I mean, obviously, we're hearing that there is access issues and challenges in the space, but we are still emerging out of COVID. And so, maybe could you talk to us on that and in line of the - in light of the guidance that you have actually raised, do you feel confident that this access will sort of continue to improve and where does it stand today?

Yes. I appreciate the question. To be clear, the guidance isn't a signal of any kind of mix in demand generation. We still are testing. We're still applying our direct channel. It still continues to improve over time. It's also still a pretty minor point of the total demand generation. This is our kind of sales and marketing team checking and seeing how the year - first half for the year went current momentum in accounts. All of this informs our view between now and the end of the year. There definitely is a shift in access kind of pre-COVID and then whatever, call this kind of post-COVID era. We cycle in it access is not as high as it was pre-COVID. But nonetheless, combination of our kind of sales, marketing, customer service capabilities will continue to drag on volume and that's all baked into that outlook. The range it reflects - a little uncertainty there. Not – there is still COVID delta variant, whatnot that’s the range, but otherwise, it reflects kind of current momentum in our outlook on that continuing.

Got it. And then on Archer, I am sorry, if I could ask on stratified VPN. What sort of ASP lift are you at expecting here? And could you just elaborate on the timing for PCM and PCM as an - potentially as an FDA approved product and also stratified as an FDA approved product? And I'm wondering if you along those lines, if you can also elaborate a bit on PCM pursue the ABLT route? We've seen - here in the space that has done that. And I am just wondering if you need to go that route and you do it with an LVT, or do you need an FDA approval for that? Thank you.

Yes. So, yes. So a good question. I think - and this is where it's really and this is where it's essentially to separate it out bunch of concepts that are admittedly for many companies that are trying, but for actually for us are not so much. So, first, I would say, the pricing for the PCM or MRD kind of monitoring services and pricing for therapy selection stratified, et cetera in our therapy selection development. The pricing has already set. It’s set in the $3,000 plus range for certain indications, certain stages of cancers, certain types of cancer. That - we have no doubt we will get the same pricing there that the other players is the market do. As for as impact on ASP, that's where there is a little bit more of a dynamic question here. So first, we have a broad menu at many different prices, everything ranging from low hundreds for patient pay prices at various tests to $4,000 to $5,000 for what currently offered by way of testing sometimes and that we'll see kind of what the reimbursement is coming down for MRD services. Right? So is that's going to be a range of tests across a lot of different DRAs. So, the overall combined ASP impact, because of those two products and their higher pricing. Frankly, it's difficult for us to forecast. And that's a lot of that is baked – a lot of baked into that is the fact that while we'll take the same price that everybody else gets on kind of tests that are approved and within the reimbursement guidelines, we're more understating the 40 million cancer patients in the markets we serve that - what I’ll call it 38 million cancer patients in the markets we serve that won't have access to those. And we'll be testing our different price points, of course, always targeting our 50% gross margin that we're on the platform. So, by way of saying, the price is one thing will be kind standard whatever else is getting. The ASP impact, I think we'll have to see together over the next couple two, three years when those kind of our volume were for sure it's going to drive more volume - for sure it's going to be a upward lift on ASP where exactly again that we're not certain. And then, the regulatory component that is assured and also distinct accepting the census hiding with the dual track reimbursement and approval. But yes, the ADLT approach is available to us. We haven't kind of publicly talking or committing one way or the other. FDA’s ADLT and/or as laboratory developed tests, the market and the customers in the market demand different things. And sometimes we are tied to pricing more often than not they are not. And so, we will keep all those options available. In general, yes, we're pursuing regulatory approval for both [Indiscernible] and cancer modern. And then, the exact form of it and exact timing is something that it's going to be, we're going to test, these are quarter-to-quarter. And at least on a variable given all of all the factors involved. But nonetheless, we'll be driving the top-line of the oncology business. We expect ASPs to be an upward pull and certainly contribute to our kind of what we think is a really high growth rate for the years to come.

Got it. Okay. That's helpful Sean. And Roxi, welcome onboard.

Thanks.

[Operator Instructions] Next question is from Tejas Savant from Morgan Stanley. Your line is now open.

Hey guys. Thanks for the time. This is Edmond on for Tejas. Just a few questions for me tonight. The first one, in light of Omniome announcement of [Indiscernible] how do you guys see that influencing your collaboration with them? And I guess on a long term, what are your views for the opportunities for a single converging both long and short read sequencing?

Sure. No, I appreciate the question. First and foremost, and I think as we kind of look forth Ken touch upon overall, we spend in a lot amount of time looking at cost of goods, input costs and how we can better and more efficiently run our services and support our products around the globe. Our collaboration with Pac Bio is a good specific example of an investment with a partner on doing so? We kind of talked earlier in the year about the benefits of patients and the one way genomes, particularly in pediatric and rare disease cases obviously having a short read option, as well is even more - even more exciting in terms of the different options for different specific different tests that use sequencing. And to the extent that we can use the two efforts together to either improve the quality of the sequencing or lower the cost. We of course are looking to that. To your question of whether they go in one box or not? I'll leave that to - again you're talking to one of our customers that is not particularly concerned with the form factor, which is partly a lower of the development arrangement that where we are focusing on pushing forward the core technology faster than ever. As for that, all that in one box, I honestly, expect some it's better left to our partners over at that trial. Nonetheless, the capabilities combined are absolutely interesting to us. How do we get more genome for few dollars. We are convinced there is essentially no end to the demand for raw sequence data in the applied markets. And so we're really excited for – to see that trend continue in the years to come.

Got it. And then, just one question on your guidance. And I know you guys are not breaking out the Archer business specifically. But how should we think about the REO reaction volume in terms of your guidance for $470 million to $500 million? I mean, in terms of what we're assuming for a full year, if we assume about 225k, to 225k reaction volume would that be somewhere in the ballpark range? Too high too low or any color on sort of guardrails will be super helpful.

Yes. I think the best answer to that is, we certainly do and include that kind of level of estimate in our guidance and then, whether it's REO reaction, LVT – sorry REO reaction, regulatory approved reaction, FDA or other or otherwise or an LVT test again, we are completely indifferent. The amp chemistry driving our PCM MRD services and products, as well as our therapy selection, we are indifferent as to where it comes out and I think it's probably best of view oncology revenue as simply oncology revenue. Two will sort of be a mix of different levels of regulated kits, as well as different services, everything from - sample to answer services, all the way to sample interpretation and reporting services. And also there is oncology revenue and that's what we think is no important looking forward.

Understood. Thank you for the time today.

Next question is from Doug Schenkel from Cowen & Company. Your line is now open.

Hey. Good afternoon. Let me just get my three questions out of the way and then I'll listen. The first is, regarding pacing in the quarter, can you just talk about how things went from the beginning to the end? And then, as you move into the second half of the year, if you are seeing any impacts on as it relates to physician access or overall demand to the delta variant? So that's the first question. The second, on the accounting adjustment, I admittedly haven't had a chance to spend a lot of time on that and you guys are very helpful in your prepared and remarks. This does relate to Archer. So, I just want to make sure that this doesn't tell us anything regarding whether or not Archer is tracking to plans. Clearly, you'd rather be making milestone payments or not making milestone payments. So I just want to make sure there is nothing to read into there. And then the third relates to a comment Roxi and welcome Roxi, a comment made on operating spend decreasing as a percentage of sales as we look beyond 2021. Does that tell us anything about how you're thinking about M&A? Is there increased focus on leveraging infrastructure investment that you have and are making as you try to move towards profitability over the coming years and if so, does that kind of change how we should think about M&A strategy? Thank you.

All right. Thanks, Doug. I'll tell what I'll do. I'll do one, and then I'll do a quick treatment of two and three. Roxi could take two and then Roxi and Ken can take three. So, I'll go first on the pacing of the quarter, I would say there was nothing unusual about the pacing of this quarter. We had noted Q1 was particularly soft in the beginning of the quarter and then kind of had at a strong drive towards the end. Pacing this quarter, I would just characterize as standard. No real story there throughout the quarter, which is frankly I see. We - it looks to us overall that some of our vacation for a lot of folks may have come a week or two earlier this year. But other than that, there is really nothing - no story there. On the access side, I think that's where there definitely is a story in the long-term. There are still accounts in whole systems that I think are going to - maybe I’ll refrain. I think there is - without getting into it or voicing my opinion one way or the other, clearly, some of our accounts, some of our clients with the year, a fewer people walking around are going to keep it that way. And that's probably a permanent picture for the industry. Nonetheless, we don't - I think we are set up to generate demand and serve customers we don't – we certainly don’t see the role of the boots on ground that’s going away. And we certainly believe we can continue to drive volume and support customers even with the kind of a permanent modestly reduced access. Putting a figure on that is, unfortunately I guess, it’s we couldn't really do just yet. I think maybe a few quarters go by, we might have a better general sense. But that's I think generally, yes, with a little reduced access, but nothing we're overly concerned about. On the accounting adjustment, I'll let Roxi, do you want to those? My top-line is that, whatever it is most definitely does not affect our outlook for oncology business and there is a material impact in what we think that way of growth revenues going forward. But I'll let Roxi and Ken tackle the accounting adjustment and then the OpEx question.

All right. So, on the accounting adjustment, as you know, there is a set of pretty complex accounting rules as it relates to acquisition-related liabilities, especially contingent liabilities and stock-based compensation for ongoing purpose. So every quarter, we actually - every quarter we need to do this assessment and based on the information we have and this happens to be a pretty complex quarter and a allowing this information coming in as we move through the quarter close process. It's just really a timing and issue and we ask for patients for days and we will have a lot of disclosures if necessary in timing. So, as Sean mentioned, this period accounting and doesn't really reflect underlying business and any of the outlook we have.

Yes. This is Ken relative to the comment about OpEx as a percentage of sales and was that signaling any change in focus on? And then, I'd say absolutely not. What we see - the point we we're making is that, we've may quite a bit of investments into the future growth of our company and serving our patients and we expect that that investment is going to generate sufficient amount of revenue into the future. And so, the way we’re looking at our investment portfolio is we think that as a percentage of sales. We probably hit the high point. But we have an aggressive revenue expectation. Well, again the 50% to 60% growth on an annual basis. And so, we expect that the company will continue to grow. We will continue to invest in the business just not as a percentage of sales as we have done over the last couple of years.

[Operator Instructions] Your next question is from Ophir Gottlieb from Capital Market Laboratories. Your line is now open.

Hey guys. Congrats on the quarter. Thanks for taking my question. I have two. First, I want to talk about the new platform and data services category. So first, how is it used by the patient? How is it sold? And is it a recurring revenue product? And I have a follow-up if I could please?

Sure. So the first, it varies. More often than not that is either services connecting patients already identified with certain variance with pharma companies that have a therapy or a trial. Sometimes that's interaction directly put that patient through their portal. Sometimes it’s a part of a testing program that they are involved in. And the other portion of that comes from services that we are receiving revenue for either for data analysis and exploration, that was part of a research collaboration for example, or services that are part of our customer-facing tech stack that we are essentially leasing or selling to other players, other healthcare providers in the space who would like to use that factor their customer support, their patient and take workflow management, what have you? So in those cases, you know the patient's experience is part of kind their healthcare journey with that particular clients. As for recurring, yes, some of it’s recurring by way ‘subscription access or recurring contracts databases’. Some of it is recurring by way of the licensing of the – it’s not licensing per se because it’s signing up for the services and paying. Paying for continued access. We don't have a significant portion of that that is a patient signing up for a subscription per se directly, but we are certainly planning on that and more of - more of that to come. But that's a high level commentary. What all those in there and what looks like on behalf of a patient or other customers?

Okay. Super helpful. And then, as a follow-up, same subject, what are you can describe it, what are the margins on this piece? It feels like it would be substantially higher than a core testing business. And also can you share any kind of growth rates that don't go back to 2018? I don't know if they're relevant yet, but 8% of revenue is starting to be any material, which is not the same? Thanks.

Yes. Yes. I think, we won't – we probably won’t delve into the margin of this category per se and I would - I'll say it’s variable, right? A lot of this we're testing out, some of it is new offering. Some of it is tied a fair amount of development that still being kind of a charge on cause and going forward. And I would say that, needless to say as you look forward, it's going to be relatively higher margin revenue. I think that's maybe the way that I could put it as we sit today. And apologies, Ophir. The second part of your question was?

Yes, can you share any kind of growth rates, but don't grow quite beyond 2018, like I don’t know you are. Sorry.

Yes, that’s - no, that's right. I think the - for this particular sector, we don't have a specific or we are not going a guide do a specific outlook for it. We have noted the embodiment of this in past conversations is largely focused around the pharma sponsored testing programs or the pharma teach and identification programs. And as we noted that pharma paid line has been growing a good many points above our overall growth. So, kind of – again, and this is all just been off to couple - we'll certainly - we'll be able to see the growth rates together going forward. But yes, that data services is each one of that’s growing north of 60% year-over-year. And we're excited about excited about continuing investing there and excited about what it means for patients. And to your point, it's getting big enough where we feel it's kind of break out that category and can look at it on its own versus the straightforward testing revenue.

Great thank you.

Next question is from Bruce Jackson from the Benchmark Company. You may ask your questions.

Hi. Thank you for taking my question. So the international sales mix has been building nicely here. Do you have a rough idea of where that could be by the end of 2022? And is it being driven by any particular geography or any particular product offering?

Yes. I think we - like our data services a different kind of the businesses by geography and yes, the ex U.S. volume of revenue has been growing. Typically, every quarter grows a little bit in advance of the whole. The geographies we serve just by reasons of history and also our targeting of the customers there and the price points there, they tend to be the strongest ones are Latin America, Northern Europe, Middle East - and it’s basically Middle East and the doctors are – you can’t minus China. That's driven primarily by interest in reproductive health offering and cancer screening and cancer testing. Those are - so those are the largest and fastest growing geographies for us and those are the product lines that are the highest sellers there. We are really excited now – now that we've got a lot more business now. For example, Japan is a good example with direct selling kits into the national health laboratories running that kind of - kind of the therapy testing there. We are excited to push more - start pushing more of that and we suspect that the geographical mix will change along with the product mix. But for right now, it's primarily those geographies and those tests that's been driving it.

Okay, great. Thank you.

Your last question is from Brian Weinstein from William Blair. Your line is now open.

Hey guys. Thanks taking the question. I just decided to jump in late here just to clarify a couple of things. Just on the – excuse me – on the guidance raise here, I don't think you talked specifically about kind of what areas if there was one or two that were specific that was sort of driving and so you are seeing better performance in oncology, reproductive rare disease, anything like that? Also as it relates to that, does the guidance take into consideration, any potential takeaways from a player in the space that's exiting on the reproductive side? And there were some Genosity revenues I think that you saw are going to go away, but is there anything for Genosity that sort of built into the guidance now that was not built in when it was announced?

Yes. So I'll go on go kind of backwards and nothing - not trying to say anything and there is probably nothing to read into about Genosity revenue. Now again, I think as is our practice we - Genosity revenue now is hard to say is it, Genosity revenue, BT revenue or Archer revenue, because right now, we think over the next couple years, the bulk of the revenue and revenue growth is going to come from our version of MRD testing from the PCM product. Now that we certainly expect to be a major contributor next year. But this year, this year probably not in the margin. Outside and then suggest specifically about that that's the answer there, there definitely is no clear view on any one product area one disease area performing differently either in this quarter or our outlook therein. It looks to like all of them are kind of growing roughly at pace. And we don't really see a story there. Reproductive health continues as it has in the past two or at least two or three quarters we talked to. Reproductive health is growing faster than some of the others. I do think to your question about an exit in the space that definitely is - definitely I think going to continue to provide opportunity for us to take share there is no doubt others will also take share there. And again, in the reproductive, I continue to point to the total market penetration to all six months pregnancies per year in the U.S. Alone it's probably going to be the major driver of that story anyway over the next two to three years. So, yes, so, no, no disease area - product area specific thing that interest of Genosity just kind of a true - kind of exit the COVID period. And we're not to not going to claim this business back to normal, back to usual, but it is just – we mentioned it’s picking up and wanted to just point that out to everybody.

Got it. Thank you. And then, last one, the inflationary pressures that you guys had talked about, you kind of outlined those. But we are able to quantify kind of the impact that those are having on your business and your confidence that you are going to have an ability to offset that here in the short-term. And if there is any other kind of detail that you want to provide any of the inflationary pressures on the cost or on the product or even on wage inflation and we've been hearing a little bit about that, as well. So, just there anything else on inflation that you guys are seeing? Thanks.

Sure. Ken, or Roxi, do you want to – Ken you’ve been staying on our input cost closer than anybody else, any commentary on that?

Yes. I mean, I think, we've seen what everybody else is seeing is that, it's getting harder to hire for certain roles. And so there has been some adjustments in terms of wages. But in aggregate from what we have our business plan landed at, we don't see any abnormalities associated with the inflation that is of a specific the concern to Invitae. And so, we are monitoring this. And that’s honestly why we have such a clear focus on our operating mechanisms and clear line of sight about how revenue and cost are moving, so that we can be proactive in that space. But, the answer to your question we're seeing some of the same pressures that everyone else is seeing in terms of the inflationary piece. I think the bigger impact that we see happening watching the day that the auto industry is losing, shutting down facilities because of chip shortages and things like that. I think those are having as much of a material impact as anything. And so that's why I talked about earlier, we will be focusing on our supply base, our transportation partners and trying to stay ahead of a little bit of the uncertainty that's going on in the marketplace. That are the two supply and demand and so. That's probably how I see it.

Okay. Thank you guys.

You are welcome.

Thank you.

That ends our question and answer session. I'll turn the call back over to Laura for closing remarks.

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

That concludes today's conference call. Thank you all for participating. You may now disconnect.