NVTA (2021 - Q3)

Ladies and gentlemen, thank you for standing by. My name is Brent and I will be your Conference Operator today. At this time, I would like to welcome everyone to the Invitae, third quarter 2021 financial results conference call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, we will have a question-and-answer session. . I would now like to turn the call over to Ms. Amy Hadsock, please begin. Amy Hads

Thank you, Operator, and good afternoon, everyone. Thank you for joining us for our Third Quarter 2021 Financial Results Call. Joining us today are Sean George, our CEO, and Roxi Wen, our CFO. We're also joined today by two leaders within our Oncology Group, Mitchelle President of NVTA Oncology, and Dr. Rakesh Patel, a founder of Medneon and now serving as of Invitae's Chief Medical Officer Digital Health. 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 future financial and operating results, plans and prospects, focus of our business strategy, plans to integrate and manage businesses we acquire, market opportunities, future products services, our product pipeline, and their timing, demand for and reimbursement of our services and investments in our infrastructure and operations. These statements constitute forward-looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act. It's difficult to accurately predict demand for our services and therefore actual results could differ materially from our stated outlook. Statements on 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, 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 of the date hereof. As you listen to today's conference call, we encourage you to have our press release available, which includes financial results, as well as key growth metrics and commentary on the quarter. To supplement our consolidated financial statements, prepared in accordance with the Generally Accepted Accounting Principles in the U.S. or GAAP, we monitor and consider several non-GAAP measures. We exclude our non-GAAP operating results as applicable among other items, amortization of acquired intangible assets, acquisition-related stock-based compensation, post-combination expense related to the acceleration of equity grant or bonus payments in connection with the Company's business combinations, adjustments for the fair value of certain acquisition-related assets and liabilities, including contingent consideration and acquisition-related income tax benefits. 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. non-GAAP measures may include the 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'll turn the call over to Sean.

Thank you, Amy. Before we get started, I want to emphasize that towards the end of our call, Roxi will be outlining a set of key business metrics we will be using going forward as a dashboard for our business model's success. As our platform is developed and our business expands from testing services into other areas, we've been working to provide smarter, more relevant measures in addition to those used traditionally in life science sectors. We will refer to those several times on this call and we'll rely on that new dashboard heavily going forward. To headline the quarter, revenue growth -- revenue grew more than 65% over last year's Q3 period, which with all things considered, keep us comfortably within our longer-term growth targets and number of patients we serve grew by 89% over last year's third quarter, up about 3% over this year's second quarter. During the summer months we typically experience some seasonality, as you can see on the charts, but this year's slowdown was a bit more pronounced and longer lasting than the past couple of years. It is difficult to determine how much of that was unusual seasonality and how much of that was COVID - related. We're seeing some pickup in recent weeks, but are being cautious with our guidance for the remainder of the year in case those impacts persist. Reflecting on the long-term view, as you can see, the year-over-year top-line growth across the platform demonstrates our continued progress toward meeting the immense unmet demand for the use of genetic information in healthcare. The takeaway here, aside from any short-term revenue fluctuation, is that we're tapping into something unique at Invitae. Since the advent of genomic medicine, now 20 years ago, we're in the midst of a fundamental shift in not only medicine but in how we view our health and wellness, family planning, disease management, and ageing. In view, is a time when many diseases will have a well understood risk that can be minimized and even staved off? And therefore, when they arrive, can be rendered a chronic condition to be managed for years or even decades. But that future is only a reality with genetic information derived through testing early and often. And the benefits will be accelerated with attracting, storing, analysis, and understanding of health and health-related data for individuals, families, and populations. While the investment to make that future reality is large and the timeline is long, the value of that can be created is immense. We believe that the ability to identify those at risk for disease, detect and diagnose the onset for those diseases earlier, use that information to guide preventive measures or targeted treatment, and monitor the success of that treatment will be the standard of care for individuals throughout multiple stages of life. The Company that can deliver that standard will be transforming very large and durable markets in healthcare. Furthermore, those large, durable markets are all increasing in size. In each of these 4 primary life-cycle areas of fundamental drivers of adoption over the next 2 to 3 years are quickly coming into focus and will create the need for our services that we believe far the ability of today's system to better treat or even outright prevent disease. Much of the tailwind is coming from the rapidly expanding BioPharma pipelines full of genetically targeted therapies. Some is coming from a better understanding of the improvement to outcomes and costs utility of using this information. Some is coming from changing perceptions and attitudes about the role of the patient in their own healthcare and engagement from those paying for it. And much of it is coming from the exponentially growing volumes of evidence that this shift is a shift to better medicine. For example, a study being presented today at the American Heart Association meeting, that found broad genetic testing identified clinically relevant variance for 1 in 5 patients suspected of having a heritable cardiovascular condition. 2/3 of them were more projected to have clinical management implications and more than 10% of which would've been missed using a narrower testing approach. A little over a week ago, I read a Washington Post article about how a 34-year-old marathoner, new mom to a 10-month old son, dropped to the pavement at mile eight of the race. Thankfully, kept alive by medically trained spectators that happened to see it. Her father died of a heart condition at 53 and -- but for a brief call out to that fact, really nothing to note about the role of how genetic information could be used to prevent such a narrow escape. That will change, we believe rapidly, and as an example the market for the use of genetic information in cardiovascular and cardiopulmonary disease could be as large as that for oncology. Which can give insight to our formula for growth? We are building a platform that can help our customers move through risk assessment, screening, prevention, or therapy selection, and ongoing monitoring. And that platform will help that individual make the most informed decisions about their health, as well as generate the real-world data and network connections needed to put effective next steps in their hands. Today, our business can be measured by the progress along that front in oncology, reproductive health, pediatric, and rare disease, and in addition, we've recently broken out the part of our business that utilizes patient own data and patient connections generated every step along the way. In the future, we will be adding more information that we can provide for the patient at each stage, more capabilities to our data platform and partner network, as well as adding new disease areas or stages of life such as cardiovascular disease I mentioned a few minutes ago. As I mentioned before, and very importantly later in the call, Roxi will lay out the key business drivers and financial metrics that will be using to measure our overall progress against our model. I'm hoping that using these as sign posts, we will be able to map for everyone the journey from where we are today to the future we are certain is coming. Given just how much is going on at Invitae, any given month of the year, it's not possible to cover it all on our quarterly calls. But we'd like to at least give a little more insight into the near-term drivers of our business. So each quarter, we'll spend a little more time on one of our key areas of revenue growth. This month, we'll focus on our Oncology platform, which is especially relevance since the products and services coming online from that group will be important drivers of revenue and margin growth in the coming years. Vishal Sikri leads our Oncology business, and I've asked him to provide some additional clarity on the product plans and clinical trial activity that underscores our potential to walk our customers from risk to hopeful remission in the near future. I've also invited Doctor Rakesh Patel, our Chief Medical Officer for digital health, to join us today. Rak is an oncologist and was practicing physician for more than 17 years before becoming an entrepreneur, co-founding the Medneon Digital Health platform, which Invitae acquired in the second quarter of this year. Rak will outline how those products and studies dovetail with our digital health platform to benefit patients, physicians, families, and the broader healthcare ecosystem. I'll hand it over to you first Vishal.

Thank you, Sean. In oncology, we have an active pipeline to support testing across a patient's journey. I will provide an update on the product road map, which includes a vibrant combination of tests that have been part of the NVTA portfolio for years, innovative tests acquired with the ArcherDX integration and new tests on the horizon. And a germline testing category where Invitae has been a leader for years, we added an RNA offering to our DNA germline tests this year and plan to expand into pologenic risk score in 2022. Germline testing showed impressive growth in '21 and with our expanded offerings, we expect growth to continue through 2022. These additions are a different , given the multitude of recent third-party clinical studies, verifying the benefits of combining germline and somatic testing in defining risk and the best course of treatment. Invitae is the only Company developing and combining germline and somatic testing on one platform. On the research use-only front or RUO, we plan to launch our expanded DNA-based kit offerings by the end of this year. That offering will include testing for microsatellite instability, also known as MSI, addressing a growing demand from clinicians. We're also expanding our RUO offerings to include tumor mutation burden or TMB, an important biomarker for therapy selection. We continue to innovate on the centralized lab offerings front with a series of laboratory developed tests being stood up in the coming year. In 2022, we plan to launch our clinical offerings for personalized cancer monitoring, PCM, which is our tumor derived test. While our initial body of research demonstrate the accuracy of our MRD tests to monitor and detect a recurrence in lung cancer, we'll be pushing forward the PCM as a pan-cancer offering, giving us what we believe -- view as a distinct advantage in this emerging and important market. Later in the year, we plan to expand or centralize somatic offerings to include a comprehensive therapy selection test that is informed by DNA, RNA, and proteins. This therapy selection capability is similar to Archer stratified offering, but we will be using alternate trade names as we stand up our LVT offering due to commercial IP brand and other factors. Finally, in 2022, we plan to kick off our development work on an early detection assay for cancer screening purposes. On the invitro diagnostics or IVD front where demand for de -centralized genomic testing is growing, we're moving towards creating product and service beachheads where no competitors are today. We plan to launch our first CE marked IVD kit products in select European markets in Q1 of 2022. These first tests will include our FusionPlex DX and our LiquidPllex DX tests. Both tests will enable any facility with sequencing technology and our solutions to accurately profile solid tumors and blood samples for therapy selection at their facilities. This is a major step towards satisfying the pent-up demand for local and regional genomic testing capabilities, particularly among EU countries and leading academic cancer centers. It will allow us to expand our customer base in Europe and parts of Asia. Outside of the EU, we're submitting additional claims for IVD solutions in Japan in 2022, which will help labs running the test, get higher reimbursement, therefore, increase adoption. With the launch of our IVD products outside the U.S., we expect strong adoption of our tests, especially in countries where testing is heavily decentralized. While we're launching these products for customers in Europe and Asia, we will continue to work with regulators in the U.S. to finalize the requirements for a launch of those kits and a decentralized commercial strategy here in the U.S. Based on the feedback from the FDA, we believe that we have a good road map for FDA approval for our IVD products, including a path forward as an IVD for our PCM tests. In the past, Invitae has avoided highlighting ongoing individual studies. But the fact is the Company is making substantial investments in resources to partner with KOLs from across the globe to better understand and highlight our approach to personalized medicine and the use of clinical data in driving the patient experience and better outcomes. Altogether, we believe these studies underscore the value of our current products and our new product launches planned for 2022. On a high level, this year we expanded the case for our hereditary cancer tests with multiple publications, including intercept, a collaboration of germline testing across tumor types. And we demonstrated the importance of our Archer met IVD test for met excellent 14 detection. In 2022, we anticipate a wealth of data to support our PCM product including TRACERx presentations and publications, data readouts from retrospective multi-tumor PCM studies with academic partners, including MassGen and MSK, as well as early signal from our perspective PCM studies, including ICAP and Maria. In 2022, we have additional hereditary publications planned as well as furthering our support of the intercept trial with tumor profiling and multiple cancer types. Then in 2023, additional perspective PCM trials are expected to be blossoming, including MRD -guided trials. Meanwhile, we continue to -- we intend to continue our participation in important projects, pushing for our best practices in our field, including the blood pack consortium, Friends of Cancer Research, HRD project, and the Personalized Medicine Coalition. I will conclude by highlighting the Maria trial, which is being initiated by the end of next month. Maria stands for MRD assay value-rich recurrence in response by our tumor derived assessment. It is an Invitae lead study, working with academic and community collaborators to use PCM as a means of risk stratification of surveillance tool, and a therapy monitoring tool across multiple cancer types. This will be a global study and we expect initial readout in 2022. I will now hand the floor to Dr. Rakesh Patel, who will walk us through how our expanded end-to-end testing portfolio integrates with the cancer patient and provider journey, as well as the importance of digital health and data platform. Rak.

Thank you Vishal. The emerging practice of precision clinical oncology involves multiple applications and molecular testing across a patient's lifetime. From before they're ever diagnose to well after they're treated and achieve remission. First of all, mutation analysis is now routinely utilized for diagnosis of hereditary cancer syndromes. For already diagnosed patients, biomarker profile testing of the primary tumor to detect actionable mutations has become an integral part of cancer therapy. Since the molecular makeup of a tumor may significantly evolve over time during treatment, monitoring the patient is critical to be able to detect resistance mutations as early as possible and adjust therapy when needed. Tumors almost always shed their fragments into patient’s bloodstream. So-called liquid biopsy, or the analysis of circulating DNA, holds a great promise for non-invasive detection and molecular markers. It can be used as an alternative that tissue based testing when biopsy is not an option or the quality or quantity of the tissue sample is not sufficient. It can also be used for early cancer detection, to predict the likelihood of relapse at diagnosis, or to monitor response to neoadjuvant therapy, recurrence after adjuvant therapy, or treatment resistance. We believe Invitae can provide critical knowledge that will guide and facilitate every stage of a patient's cancer journey. From an oncology practitioner's perspective, the Digital Health platform is just as critical with complex preventive measures and a ray of testing capabilities and rapidly expanding treatment pathways, cancer is the most decision dense disease. We're building an end-to-end platform that keeps providers informed, and in turn, empowers a patient for share decision-making. Importantly, cancer risk assessment in genetic testing is not a one-time event. As not only does an individual’s medical and family history change over one's lifetime, but a single individual may benefit from multiple types of genetic tests, both before or after and after a cancer diagnosis. There's a large amount of genetic information in novel therapies that are now available in keeping providers updated of the rapidly changing guidelines is challenging. Since patients relocate or change their providers frequently having a trusted, direct patient-engagement over time is paramount. The most effective way to treat a cancer is to never get one. And in that context, we have developed a robust capability focusing on population health, genetic cancer risk assessment, and predictive analytics ideally before a cancer is diagnosed with the goal of preventing it all together. Outcomes are usually better when disease is caught early and there's -- early disease detection remains a core focus area. Once a cancer is diagnosed, clinical decision support tools for an accurate diagnosis, leveraging multi-disciplinary oncology expertise, and molecular profiling of tumors is key to develop a unique treatment plan for each patient with targeted precision therapies. Following multi-disciplinary treatment, staying connected to the patient to monitor outcomes is just as important in order to identify sub-visual cancer burden, which again allows early intervention re - personalizing of the treatment plan. In effect, turning a once terminal clinical situation for most into a chronic disease for many with the potential of durable remission extended life expectancy. From frictionless collection of health records into a secure patient wallet with citizen to patient education and AI based patient engagement with , to point-of-care risk assessment, medical necessity retesting, and personalized management insights for providers by Medneon. Medication management with YouScript, along with therapy guidance, Virtual Tumor Board capability, and several platform modules enacted development to support our expanding testing portfolio. The NVTA Digital health strategy will boast through our mission to bring genetics to mainstream medical practice. We will provide an integrated clinical decision support platform capabilities for coordinated and personalized tech-enabled care coupled with a seamless real-world data strategy. Leveraging active, longitudinal, provider and patient engagement, and efficient clinical workflows for all stakeholders. Thank you. Back to you, Sean.

Thank you, Rock and thank you, Vishal. We're looking forward to active and important months ahead for oncology effort as we bring new patients under the platform, introduce new tests and services for those patients, and drive the scale necessary for financial performance and to build what we believe will be the most robust datasets for research and discovery available anywhere. Before we go to Q&A, I'll hand the call over to Roxi Wen to cover the financial results and discuss the important business drivers and key metrics for NVTA. Roxi.

Thanks, Sean, and thank you all for joining us today. Billable volumes of approximately $296 in the third quarter of 2021 were up 89% from the third quarter of 2020, and 3% sequentially from the second quarter of this year. Internationally, we saw volume growth that was slightly ahead of our U.S. businesses and represented over 21% of total billable volume of the quarter. Overall, ESP trended down 3% to $377 in the third quarter, from $388 in the second quarter of 2021. This week, we flex the mix increase in Q3 to women's health and international testing sales, which have lower ASPs compared to other products. Looking ahead to 2022, we expect AFP to benefit from our launch of broader LDT and IVD testing for therapy selection, and MRD testing for monitoring a All of which have higher reimbursement rates. I did notice in prior quarters, it is easier to understand our business and financials by providing non-GAAP metrics to allow for the comparison of the two sets of numbers. We urge investors to review the detailed reconciliation through non-GAAP financials included in today's press release and at the back of this slide deck. For the remainder of the call, we'll discuss non-GAAP members including cash burn. Our non-GAAP cost per unit defined as total non-GAAP cost of revenue divided by the number of billable units, improved to $249 in the third quarter from the $261 in the second quarter, due to a continuing progress with efficiencies in our overall operations and inventory management in the Oncology business. Non-GAAP gross profit was $49 million in the first quarter, which translate to a non-GAAP gross margin of 36%, a slight improvement over the Q2 gross margin of 35%. We expected progress as we continue to execute our margin expansion road map in pricing, product cost down, variable cost positivity, and revenue cycle management. Moving down the P&L, non-GAAP operating expenses was $201.8 million in the third quarter as compared to $199.2 million in the second quarter. The third quarter operating expenses include costs from newly acquired businesses. As we stated on our Q2 call, the rate of growth in spending is expected to come down in the second half of the year. We continue to be committed to this goal as we scale the business and manage return on investment at the total portfolio level. We continue to invest in our business in the following areas, research and development, which was up by approximately 146% year-over-year, but down by $3.4 million sequentially. The year-over-year growth was mostly driven by costs from acquired businesses, Including our ArcherDX, headcount and stock-based compensation, as well as problem costs such as the Pac Bio collaboration. In addition, selling and marketing was flat sequentially, but up by 45% year-over-year to support a high-growth rate over 2020. G&A expenses increased $5 -- $8 million over the second quarter, mostly due to higher legal expenses and the investment in our ERP capabilities. Looking forward, we're planning for the growth rate of operating expenses to begin declining in the fourth quarter and into 2022, benefiting from continued top-line growth and various margin improvement initiatives. This year should mark the highest annual non-GAAP OpEx as a percent of revenue as the investment levels stabilized or even slowed down in key areas. Moving to our cash position, cash equivalents, restricted cash, and the marketable securities totaled $1.25 billion as September 30th, compared to $1.54 billion at June 30th. Cash fund was $286 million in the third quarter, including cash paid for finance and clause acquisition. Excluding acquisitions and related expenses, our for the quarter would have been $148 million. We generated $114 million of revenue in the third quarter, a 67% from the growth -- increase from the third quarter of 2020. The revenue breakdown by product groups in the third quarter was as follows: Approximately $69 million from oncology including germline testing, therapy selections, and companion diagnostics. Approximately $21 million from our women's health offerings, including , and other reproductive tests. Approximately $50 million from the rare diseases and other testing covering cardio, neuron, and metabolic and newborn screening. Data and platform revenue was approximately $10 million. This includes data management, analytics, data-as-a-service, and certain BioPharma in-patient, out-of-patient program. Revenue from all four areas increased nicely year-over-year in the third quarter and across the past two years. take business model is highly differentiated, complex, and ambitious. During the initial listening tour, shortly after I joined the team, many of you expressed the desire to better understand our business as we continue to grow and scale. We appreciate your support and are taking a number of steps to help also our visibility into the fundamentals of our business. First we plan to continue to provide revenue trend analysis with each of our categories. Second, our placements, our business leaders and subject matter expert will be joining our quarterly calls to provide deeper insights into the business as Vishal and rock half today. Third, going forward, we'll be providing clear visibility to a set of key metrics of our business. We selected and developed these metrics based on their operational significance and the ability to accurately describe returns-on-investment internally and for M&A activities. These categories include expansion of our commercial access points through clinics, hospital systems, or pharmaceutical partners, growth of our patient population and patients available for data sharing. Revenue per patient for our testing and services business and in the future, annual recurring revenue as our business ramps up. New part of vitality measured by revenue contribution of new products developed or acquired over the last 3 years. This will also connect strategic investment decisions through the freshness of the portfolio. We'll continue to measure our ability to expand margins by trajectories of gross margins and variable cost productivity. Last but not least, the category of leverage. In addition to the standard operating expenses metric, we plan to report operating cash flow as a percent of revenue to show scale and improvement. Our future objective is to focus on net operating cash flow. It is important to know that success will not be measured by increasing every category in every quarter. If this is to be a useful dashboard, it will signal both progress, an area that needs attention as time goes by. Our objective in sharing these metrics within the framework is to offer more transparency into a complex, fast-changing business and to provide a consistent, balanced perspective on performance as we continue our journey to bring genetics to the people. We intend to roll these out at the end of this year and maintain our quarterly update as we move forward. As to our guidance for the year, in August we provided a revenue guidance range of between $475 and $500 million for 2021. The result of Q3 and the greater than expected seasonality this year has led us to be slightly more cautious and to adjust this projection to a range of between 60% to 70% growth for the year, were revenue between $450 and $475 million. Back to you Sean.

Thank you, Roxi. We've long shown this ramp view of our business model in an effort to describe how we see the evolution of global genomic medicine. Our progress in addressing patients’ needs throughout their life span, and the emergence of our platform and data services demonstrate progress up the curve into the genomics 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 we can cover 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 ecosystem can do for them. The next steps 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 staff 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. With that, we'll now turn the call over to the Operator for Q&A.

keypad. We'll pause for a moment to compile the Q&A roster. Your first question comes from the line of Dan Brennan with Cowen and Company. Your line is open.

Great. Thank you. Thanks for taking the questions, guys. I guess first question just more near-term, obviously seasonality with COVID, and it's going to persist into the fourth quarter. Can you just give us a sense of maybe pacing in the quarter? What's baked in on the fourth-quarter and were there any issues with supply chain that made it -- that kind of impacted your ability to meet customer needs?

Yes. Thanks, Dan. I appreciate it. No real comment on Q4 except the typical seasonality pick up. Typically there's a pickup from Q3 to Q4. We are indeed seeing that. With that said as we stated, it's coming off from a little bit of a as it were from that summer seasonality, picked up a week or two later than we typically see. And while it's difficult to ascertain there's definitely some COVID baked in there, so we're just kind of being a little circumspect coming off of that end of Q3 into the rest of the year. But we don't see anything unusual now about Q4 in front of us. As for the supply-chain, Roxi I'm not sure if there's anything new on that.

No, I think it's pretty consistent with the previous quarters.

And then kind of across for -- yes, sorry. I'll go ahead. I was going to ask --

Go ahead, Dan.

Natural. Sorry. I'm going to ask if kind of across the four segments. Really oncology women's health, mainly and then obviously the other two. Were any of the businesses impacted more acutely than others, and could you give us some sense? I know you don't guide by segment, but maybe just stepping back big picture when we think about the Gulf aspirations for Invitae, any sense on how we should be thinking about between oncology in women's health, how those fit in as we look out within the context of your long-term growth points?

Yeah, I would look at those growth areas like end-market product categories. And across-the-board in Q3, we didn't really see 1 particular area we corresponded pretty consistent indication that we had traffic and longer seasonality issues in Q3 that we experienced. In going forward from a revenue perspective, again we look at these goal-forward as revenue guidance from a revenue perspective. We also do not see a change in trend. And also this quarter we started to introduce some metrics, concept of metrics, and going forward, will be some data to help you understand how to predict and measure the success of the platform across all the key categories. That will be in the number of patients that come in to our platform and revenue per patient, as well as at the access points -- account level growth.

And then maybe one final one. You put up the slides on all the timing for all the cancer products coming out across therapy selection and MRD, is anything new there in terms of the timing? I'm not as close to exactly -- there's a lot of products that we didn't -- just wondering from what you previously communicated about timing, is everything on track, anything super advanced, maybe just some color on that.

I'll start and let Vishal finish. Nothing new. The -- we had talked earlier about the public invisible stratified FDA application, and as we've laid out, that is now actually two or three different discussions with the FDA that will progress. So that is old news, but reflected in Vishal's review today. Else that, nothing really new. We tried to put a little more detail, but behind the kit launches, the different regional approvals. One of the main events is our MRD, we call it personalized cancer monitoring testing. That is in-market now as we speak, and then the road map which Vishal spoke about. Looks forward to when we hit that part commercially. We do expect revenue impact that for -- impact our revenue for -- materially for next year, not necessarily for this year, even the end of this year. But nothing new there. Vishal, anything I missed?

No, I think you captured it. We're on track.

Okay. All right guys. Great. Thank you very much.

Your next question comes from the line of Tejas Savant with Morgan Stanley. Your line is open.

Hey, guys. Good evening. So Sean, I do want to go back to the earlier question on the guide. I know you -- last time we had spoken, you had mentioned baking in Delta uncertainty into the numbers and absent in impact. You were expecting to come in at or above the high-end. Since then you've now lowered the midpoint by about $25 million. So can you just help us build the bridge there? I mean, was it was it very concentrated 2 or 3 weeks and August perhaps that you saw much greater weakness than you had anticipated? And in terms of the bounce back, are you calling for a V-shape recovery here essentially or a more metered ramp back to normalized volumes as we head into '22?

Yes, absolutely. And I can give more color on that. On our last call, we were checking in little hang up to the day or two before, and saw really strong growth, new account formation, et cetera. Made an estimate of both seasonality and anything COVID impact. We did see -- as Roxi mentioned, it hit all categories -- product categories equally, which is -- it's the typical signature of the seasonality, that's a seasonality signal. And also, you can also see relative geographical locations, ex-U.S. verses U.S. The thing is, we saw that I'd say it came a week, a week and a half early and it persisted a good 2 to 3 weeks later than we usually see it. And that gave us some pause as we look to the end of the year. Again, we -- it -- because it looks like a seasonality signal, we don't know how much to ascribe to COVID. In the detail volume loss data though, or volume loss calls from the sales team, it clearly had to do with either people not being at offices or not going into offices and so obviously there's a COVID impact there, it's just really hard to tease out. As then as we look at Q4, this is where -- given where we can enter the quarter, we were just going to take a circumspect view and adjust our view to the end of the year. We are at a different spot than we were just last quarter. But the only thing that reflects it, that bit of a dent in our annual number that Q3 delivered. We do see signs of recovery, we expected to perform seasonally within range and get on -- continue with our relatively industry-leading growth.

Got it. And then a couple of one’s sort of looking forward to '22. It's been a couple of quarters now where you've called out international outpacing U.S. growth. How do you expect that business to trend on a go-forward basis? And any particular pockets of strengths there you'd like to highlight? And then on the early detection assay development front for cancer, any incremental color there versus the timeline that you mentioned of '22?

Yeah. So ex-U.S. particularly led by -- when Vishal walked through all of the ex-U.S. country by country or even regionally specific approvals for therapy selection and monitoring, the kits - obviously that's a high-growth area. There is a lot of pent-up demand there and it's also a market where they centralize service based of the U.S. isn't going to be the best thing to serve those clients. So we're -- we expect that to contribute more. The other thing is our pharma-sponsored patient identification programs, the more global to reach the better. And we would expect those also they could continue -- they do continue to put more momentum in all regions. They're happy to find patients wherever, but it does allow us to look more outside the U.S. than the more traditional clinical testing business with the U.S. payers and Medicare reimbursement, etc. So those are the drivers there. We think that will continue to support notably our ex-U.S. revenue. We'll continue to see that as an important part of the growth story. I think your second question was on early detection and I just want to be clear, we're not calling out a launch of early detection in '22. We're both currently doing our own work on what the -- our own technologies will look like in the trials and validations, and also of course, looking at the bio scenario as well. But we don't have them. Most of the action -- certainly our action for next year is going to be in risk assessment, therapy selection, monitoring, and really taking our product portfolio through that end from start to finish for our oncology patients.

Got it. And then one final one for me. Sean, as we think about the price versus volume offset heading into '22 in light of the PAMA cuts on the hereditary cancer testing piece of the business, what are your expectations there?

It's a good one. So the PAMA impact is going to be a little different than in past years. Without going to the details, they won't affect all of our hereditary cancer business. It's not important why. I will just say like there will be some but it won't be the full impact. We'll probably do a little more work on that to try to guess exactly what that will be. But I think in the context of our overall cancer business, overall cancer revenue -- oncology revenue, it's becoming less and less of an impact. I wouldn't -- I don't think it's going to be immaterial next year, but it's certainly going to be a lot less material than it used to be. And I think going forward after that; it'll decline to the point of immateriality. As I mentioned, it won't be across-the-board and we're still working on the details on that as we speak.

Got it. Very helpful. Thank you.

Thanks.

Your next question comes from the line of Tycho Peterson with JP Morgan. Your line is open.

Hey, thanks. Can you help us think about gross margins? Coming out of 2Q, you said 45 to 50 per year you're now kind of coming out at 35.5 for the third quarter. So how do we think about gross margins after the fourth quarter and going forward?

Yeah, no, we are not where we want to be on gross margins. There is -- a little bit that is volumes, some of that is still some inventory stuff pulled through from acquisitions. But the biggest thing there is a mix on pricing. There hasn't been a change in relative growth rates of our different revenue buckets. The fact that reproductive is growing faster, we are getting more -- growing more market and taking more share there for NFPS in particular, but also carrier. It drags down price a bit. And I'd say over the last couple of years, our investment needle has moved much more towards market creation, volume growth, new products, etc., and less as focused on fundamental COGS take out, as perhaps in years, take 3 to 5, and 6 years ago. And so we're not exactly where we want to be. And with that said, with between series of new products that we know will be higher price higher margin are own work on COGS improvement. And then just good old-fashioned volume -- economies of scale. We're confident that we'll start showing progress back to our 50% target and people will, as Roxi laid out in our business dashboard, people will see that every quarter as measured against our other key business metrics.

I mean -- I guess along those lines, are you able to -- I know you're not for '22 yet, but just on OpEx, are you able to give us a rough sense of how you're thinking about OpEx for next year overall? And as you think about screening, are you going to start to spend on studies and do you need to do 10,000-patient studies like everybody else or how do you think about the magnitude to spend around screening?

Let's do -- Vishal why don't you screen first on where we are, and then and then Roxi will speak to the next year, is that -- if we now reverse.

On the screening side, we're right now looking at multiple different avenues on what we need to do there. The goal here is not necessarily to invest in 10,000 patient studies or anything like that. It's really to see, what we need to do to be successful in this area. And as Sean mentioned, do we build or do we buy in this area? So that's something that will become a lot of our clear at 2022 at this point. Roxi?

On the OpEx front, we're not guiding that yet, but we're very focused on driving the best balance between the strength of our Balance Sheet as well as long-term growth on investments across that facility, not to trade long-term, the short-term or vice versa. So that balance is something we're very focused on. We'll continue to invest in our business and in some of the long-term strategic initiatives we've been doing, and also keep a keen eye on the returns and early signals of the effectiveness of those investments. That being said, our business has scaled to a level that revenue and OPEX investments are both large enough to have enough levers for us to achieve -- to be very focused and have some drivers, identify drivers to focus on our operating cash flow objectives. And so it's a long way to say you should expect growth in investments in key areas and continue to grow the operating leverage from OpEx should see some improvement there from starting Q4 and next year for sure.

That's helpful. And then last one from me just on citizen, you never broke out revenues from the acquisition. I'm just curious if you can give us any rough sense and how you think about synergies with the rest of the business.

The citizen revenue, it's small enough, it's not set calling out alone. But with that said, last quarter, we broke out our data, essentially our revenue on our -- from our platform, that data, data analysis services, other services. The citizen revenue will go in there, and that's what fits nicely with a lot of our other data analysis services. And we do have a good view to that line growing more rapidly than the other revenue buckets in the quarters and years to come. And I feel that will be really important, as kind of pointed out; this is a really important part of growth story. We're hitting that middle era of our business model with these assets as a key part of it.

Okay. Thank you.

Yes.

Your next question comes from the line of Matt Sykes with Goldman Sachs. Your line is open.

Hi everybody thanks for taking my questions. Sean, let me just the first one kind of big picture, looking at the chart you usually show that -- the last chart on slide on the evolution and where you are and where M&A was part of your strategy. And then coupling that with the comments on more rationalized spend to a certain degree, I'm just wondering from an M&A perspective, should we expect a bit of a pause here maybe a shift towards more organic related investments going forward or is it still, if opportunities come up and they are attractive and makes sense for the business, you'll still examine them. Just trying to wonder where you're thinking in terms of organic versus inorganic as we move into '22.

I appreciate the call and good opportunity to provide more clarity. Just to be clear, we still believe corp development M&A as a key part of the growth strategy going forward. As Roxi pointed out, we are -- in our metrics dashboard, we are looking at operating leverage, cash flow as a percentage of revenue. And as we've always said, the single financial goal is massive and dependable operating cash flows. And so that's where we're heading. But just to be clear that that is in the context of growth and investment. That's a ratio -- as a ratio of our revenue growth, ratio of our revenue. So we're tailing off the investment growth but the absolute investment underneath our very high revenue growth is still going to be quite high. And M&A will still be a part of it. There's only -- there are only so many targets out there. We take a look at a lot of them to the extent people are looking for context of, as we finish the call, I mentioned the digital capabilities, patient workflow capabilities, digital health and clinical decision support tools. Those are things we are really active in and see great opportunities in. With that said, we're always of course interested in things that we can integrate into our platform and drive new to these areas, new content, and further fill in for an individual from birth to death, the stages of life, which we think genomic information can be most impactful.

Great. Thanks for that. That's very helpful. And then Vishal, maybe one for you. On your timeline, you spoke about the kits rolling that out internationally then the U.S. I'm just wondering, how important do you think is driving that de -centralization of testing to the overall business as you see it?

I actually think it's quite important. If you look at the number of cancer patients that are outside the U.S., logistically EU5 as an example, we're talking about just as big of a market or even bigger from that perspective. And in the EU countries in particular, but also in Asia where you can use the CIBT as your mark, you find that decentralized play is a very, very key role, especially in the somatic therapy portion. And we also know from one of the studies I referenced in my call was the MED14, exon 14 study out of Japan that showed the value of our products compared to the competition in terms of accurately MED14. I think all of this will tie together. But getting that IVD registration done is a key part of our growth strategy from the Oncology somatic side.

Thanks for the time. Appreciate it

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

Hi Sean, Roxi. Thanks for taking the question. So first one on ASP and I don't know if you've covered it already, but how did the ASP trend into throughout the quarter and how should we think about that sort of going forward? Because on one hand you have somatic that has promised for higher reimbursement, but unfortunately it's going to obviously take some time to come in. So there's a little bit of a gap here where obviously we're seeing impact in the quarter. So how should we think about ASP in this near to midterm till we get to the other side when we have more somatic NGS, both tissue and potentially liquid, and PCM as well?

Yeah we're -- thanks for the question. ASP is a relevant measure for us is certain testing products and we're paying attention to the trend, without goes without saying. And we're doing a lot of work in areas such as pricing and revenue cycle management and people manage the life cycle, life science industry manage these type of metrics and then practices. We're doing a lot of work and paying a lot of attention to it. In addition, as you said, the certain new product we plan to introduce in 2022 have the potential to give us a higher price point. But going forward, we will give you a more consistent and balanced perspective in addition to -- as we continue to measure yet -- in addition to ASP provide you with a set of metrics to help you measure the progress of the entire platform in number of patients, as we said, coming into our network -- and revenue per patient and number of patients that are giving us consent agreement for external data sharing. And down the road the set ARR. All these measures will over time will depart from the ASP calculation.

Got it. Okay. And then in terms of MRD, obviously this market is rapidly expanding, obviously there is significant potential. But as we think about China, as we think about the positioning of PCM in that market and the differentiation that it brings to the market. Just trying to understand, I mean, you gave details around Maria trial a couple of other areas where you are investing into data and trial so that's really helpful, but just trying to understand how does the sort of differentiate? I know things are early right now but how does this differentiate either in performance or in the adoption that you expect from PCM versus the two other competitors that are in the place -- in the marketplace right now and potentially others coming to this market?

Yeah. I appreciate the question. I think again, to set context, we're fairly certain that like a lot of the disease areas that we are getting into or into, overtime, and again, we think this is soon, we'll see. We believe this will shift to identifying who is at risk in the first place, and then setting them up to better monitor and better prevent that disease. Then direct targeted therapy, when the disease diagnosed and then that will lead directly into the follow-up monitoring of that disorder. And it is our genuine belief that the companies that can provide those services across that arc of care, we'll be in a position and can help the clinicians, not just the world's experts in Molecular Oncology, but all oncologists understand -- they their patients what to do next. It's going to be the key -- it's really going to be the key to getting this information used as standard of care. So, one answer to your question is in the context of the broader act of patient care and all of the digital tools and services that Roxi covered on the call. That's one part of how we intend to have our -- the provisioning of our genomic information used to a differential advantage for a given patient. For the actual head-to-head, I think actually, Vishal was just at the TMB Conference and I'll let him kind of speak to some observations. Fresh off a discussion with all the they're in.

Yes. Thank you for the question. It's an interesting time for us here at Invitae. The whole MRD concept is really starting to -- both oncologists and surgeons are trying to pay a lot of attention to it now, but it's still very much starting. There's a lot of opportunity for growth for all companies in this space. And I think the big question that you asked is, what differentiates you guys from what other people are doing? And I say here, it's like everybody talks about sensitivity and specificity but what's really important here is to make sure that you can have something that is tumor-derived, which is something that we do. We make sure that you can be sensitive enough by having a large number of variants that can be detected, which we can. And the third thing obviously is to reduce the risk of a false positive result which we can with the app technology that we got out of the ArcherDX acquisition. So all of them together and then on top of that, you put it all together and then you go, how do you enable testing to occur. We can do that both in a centralized model and a decentralized model through a kit-based approach. So I think all tied together with the tools that Rakesh was talking about with the software tools which then allow for the patient outreach to be there, the education to be there, I think we can actually -- we're well-positioned to be successful in this space.

All right. That's super helpful. And if I could also just ask my last question on, Sean, traditionally, Invitae has been a price rationalizer in the market if I could say, especially in germline setting. So now, as you look forward to next year and beyond, should we start viewing the Company as some -- well-positioned into both competing on data and price rationalization or? Just help me understand that dynamic based on what Vishal and Roxi have provided today?

Yeah. No, I think no. I appreciate the question. I think first it's worth noting that where our price exists, NVTA has always taken that price, where we have used price to grow volume or used price to grow markets, it's where there is no reimbursed criteria for a given service that we actually think is really valuable for extending life of our customers. So I just want to make that distinction first and foremost. The price game and our cost advantage, we have put to use to grow markets and grow volume and get this information in the hands of individuals who otherwise the system -- our industry wasn't going to serve. We view it very much similarly in oncology going forward. The nice thing here is there is well established and very high pricing for the specific tests and services that Vishal mentioned. There is an immense amount of pent-up demand and the Digital Health tools that Roxi mentioned, we think they're going to be essential to unlock the utilization of that information. Because frankly, as Vishal pointed out, there are very few leaders that are actively thinking about the monitoring and use of the monitoring information. Even while as Roxi pointed out, there's -- most oncologists are coming around to the perspective that the genomic variation in the patient with cancer has something to say about how it's treated. But very few of them are really comfortable with actually having that conversation. And if any of you are listening to this call has had a loved one try to battle cancer, trying to get them that information in a timely manner to make decisions. It's still very much a workflow in data issue at this point in time. So we think both are important, but just to be clear, really high pricing offered by CMS and anybody else, we will take. And then for the remaining 28 million cancer patient around the globe that don't have reimbursement coverage that's where our cost advantage and our distribution we think can really come into play. Whether serving at the individual or the government level.

Great. Thank you.

Your next question comes from the line of Brian Weinstein with William Blair. Your line is open.

Thanks for taking the question, guys. Good afternoon. So obviously, I mean, genetic testing is not as routine as it should be and you guys are clearly focused on improving that. I'm curious on studies like the American Heart Association study that you talked about, how meaningful are these studies? Do you have any information about how genetic custom changes on any of these. Do you have any information on what the uptake is and how many customers in key disease states, and then second question is around the DTC stuff that's going on I don't know how Broadway it is but here in Chicago, I can't turn on my TV and watch NVTA had on TV talking about the importance of genetic information. So can you talk about the thoughts behind that strategy and any returns that you're seeing on that at this point. Thank you.

Great. Thanks Brian. So let's see for -- I'll tell you what I can answer the second one right now. Our DTC efforts -- in fact, you happen to be living in our pilot core target region. So for all of you who are thinking, wow, I don't see any Invitae ads. That -- that's because we specifically targeted the city of Chicago. And that's in an effort to test out a variety of different media and direct marketing approaches. Which we do think are in long-term going to be essential as we start talking about everybody in modern medicine not just folk that are in -- are a healthcare provider, sales effort can get out. So that's I would take on the still early days and we're learning and evaluating and adjusting the upfront workflow and support needed to stand up patients and also thank the clinicians that respond to direct marketing. That's what you're experiencing there and that's, like I said, learning and incorporating into our longer-term sales and marketing road-map. Oh, sorry. I just I'm sorry. The first part of your question, the utility of the studies as AJ One, yes. So here's where -- our view is that these are incredibly important. And I think if we can just go back many years, one point in time were met with the question that, with a total market size of 250,000 hereditary breast and ovarian cancer patients a year, why would we even bother with the idea in the first place? And it is because of those studies, the study is just like that one that we have contributed to year-after-year-after-year, we have seen the addressable market for hereditary breast and ovarian cancer expands dramatically. Recently, with guidance coming from keeping the leaders in the space that very likely coverage extension at least input being given is that reimbursement should go for anybody with hereditary breast and ovarian cancer testing. And that is a gain that is only achieved by just those studies. We've seen that in prostate cancer as well. We see it another cancers accordingly. And then also on the pediatric medicine side, just getting the data out there and publishing just how impactful genomics can be from a health-economics perspective. And showing the diagnostic yields to 40%, 50% for a lot of kids with these rare disorders. That -- we feel essential activity to growing the size of the market. Unfortunately, it doesn't show up right away and it doesn't turn into addressable, highly reimbursable market right away. But it does over time. The good news is we've been at it for over a decade and we'll just -- we'll continue down that path.

Thank you.

Your final question comes from the line of Dan Leonard with Wells Fargo. Your line is open.

Hi, good afternoon and thanks for all that detail on the oncology pipeline. So just a couple of questions. First off on PCM, what's holding you back from putting more commercial resources behind the sooner?

Yes, I'd be -- a little bit of it wants to get the COGS profile right. And we spend a little bit time on COGS today. There's a constant balance between us driving revenue volume north and incurring the cost, particularly of new product introductions, I think as Roxi pointed out. Our mature product lines are pushing 7% growth margins, the new ones tend to be lower. And even a product with good reimbursement, it tends to be lower COGS as we kick it out. So that's 1. 2 is the scale of the operation. It's a little more complicated operation to get up and running than just getting saliva blood samples. We want to make sure and get that right, have the customer experience be where it needs to be. And then also as we pointed out, we get our view on reimbursement for our offering in January of next year, and driving too much volume before then again leaves the probably mentioned before. So those are the factors going into the decision on how hard to push it commercially.

That makes sense. And then Sean it was unclear from the graphics -- from a data perspective, what data you'll have that launch in Q2 of '22. The TRACERx Maria, looked like that could come out at any time in 2022.

Yes, I can try and answer that. So the TRACERx publications are already -- part of it is out already on the lung cancer space and there will be more of it coming out by very close to launch or right after launch. And then as we get some of these retrospective studies done, that are in process right now, we expect lot of that to come out in the early part to middle part of 2022.

Helpful color. Thank you.

There are no further questions at this time. Mr. George, I turn the call back over to you.

Thank you. And thank you again for joining the call today. Look in many ways. Is the future in which genetic information drives everyday medicine is coming into view? And we'd like to offer the diversity and growth across our entire business and the kind of the emergence and increase growth profile from our data business, we believe will be a significant driver of value for patients, providers, all the steak helped stakeholders in the modern healthcare ecosystem. So thanks again for joining us and look forward to next time on the call or future conferences.

Ladies and gentlemen, thank you for your participation. This concludes today's conference call. You may now disconnect.