Invitae Corp (NVTA) 2019 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to Invitae's Fourth Quarter and Year-end 2019 Financial Results Conference Call. (Operator Instructions)

I would now like to hand the conference over to Laura D'Angelo, Head of Investor Relations. Thank you. Please go ahead.

Thank you, operator, and good afternoon, everyone. Thank you for joining us for our fourth quarter and year-end 2019 earnings call. Joining us today are Sean George, our CEO; Shelly Guyer, our CFO; Lee Bendekgey, our COO; Bob Nussbaum, our Chief Medical Officer; and Katherine Stueland, our Chief Commercial Officer. As you listen to today's conference call, we encourage you to have our press release available, which includes our financial results as well as metrics and commentary on the quarter.

Before we begin, I'd like to remind you that various remarks that we make on this call that are not historical, including those about our future financial and operating results, our plans and prospects, the focus of our business strategy, our plans to integrate and manage businesses we acquire, market opportunities, future products, services, our product pipeline and the timing thereof, demand for and reimbursement of our services and our investment in our infrastructure and operations, constitute forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act.

It is difficult to accurately predict demand for our services, and therefore, our actual results could differ materially from our guidance. Our guidance on future company performance assumes, among other things, that we don't conclude any additional business acquisitions, investments, restructurings or legal settlements. We refer you to our 10-Q for the quarter ended September 30, 2019, in particular, to the section titled Risk Factors for additional information on factors that could cause actual results to differ materially from our current expectations.

These forward-looking statements speak only as of the date hereof. To supplement our consolidated financial statements prepared in accordance with the generally accepted accounting principles in the United States, or GAAP, we monitor and consider several non-GAAP measures. In this period, these non-GAAP measures include cost of revenue, operating expense, including research and development, selling and marketing, and general and administrative as well as net loss and net loss per share and cash burn. We encourage you to review our GAAP to non-GAAP reconciliations, which are available in the press release and -- in Slide 15 through 17 of the earnings deck.

With that, I will turn the call over to Sean.

10 years in on our mission to bring genetics in the mainstream medical care, our confidence continues to grow that the way to maximize the utility of the genome is to transform the genetic testing industry from one where genetic information is used sparingly, on a test by test, indication by indication basis, served by high-margin niche market business models to one where genetic information is used broadly as a medical utility to improve outcomes and lower the health care costs for billions of individuals around the globe. We posted another year of explosive growth and with the momentum we're seeing in the business as well as the accelerating landscape changes driven by our model, we believe 2020 will be a breakout year as we continue to increase the number of individuals who will be able to access their genetic information as a routine course of medical care.

We continue to grow our diagnostic testing and screening franchises across all disease areas. And with more and more genetic information seemingly every week, being ascribed to the diseases that afflict us and our loved ones, we see continued growth in the demand for our services into the foreseeable future. Our network business, focused on biopharma partnerships for now, continues to accelerate. Together with our partners, we can remove barriers to diagnose more patients faster than ever and provide information to researchers and drug developers to bring therapies to market sooner and enroll trials faster.

Since the beginning of Q4, we added 20 biopharma contracts as well as health systems, national physician networks and hospital partnerships. We will continue to invest in broadening this network and deepening the capabilities of our platform within it.

To date, around 10% of Invitae's volume has come from outside the United States. This, with modest commercial effort. Now a few months into our increased international investment, we are more convinced than ever that with our cost leadership, hundreds of millions of individuals and modern economies around the globe can also benefit from their genetic information being put to use for their everyday health.

In addition, the continued investment in our direct channel will allow us to meet the need of specialists that perhaps have not been able to benefit from the daily use of genetic information in the past. Or to answer questions from many individuals today looking for this information, whether to understand the disease afflicting their family, wanting to understand what's at risk when thinking about starting one or simply interested in general health, wellness or longevity.

I will now turn the call over to Shelly to review the annual and quarterly financial results.

Thank you, Sean. I'm going to present the numbers a little differently this quarter, which I think will enhance investors' understanding of our financials. Because most line items on the P&L are affected by acquisition-related charges from amortization of acquired intangible assets, acquisition-related stock-based comp, post-combination expense and income tax benefit, we have provided a much more detailed reconciliation to non-GAAP in tables included both at the end of today's press release and our earnings slide deck on pages 15 through 17. I will refer throughout my discussion of the annual and quarterly results to both the GAAP and the non-GAAP numbers.

We also provide cash burn, which is a non-GAAP measure. Investors are encouraged to review the non-GAAP reconciliations provided in the press release and in the slide deck. Volume remains the metric which best reflects the health of our business. We are pleased to report nearly 60% growth in volume from the previous year, accessioning more than 482,000 samples in 2019, including approximately 148,000 samples in the fourth quarter.

Billable tests are important, given that we accrue our revenue based on the number of billable reports in a period. During 2019, we reported billable volume of approximately 469,000, with approximately 147,000 in the fourth quarter. Volume growth was strong across all segments. The continued increase in our biopharma programs and partners, including Detect, Spark and the Behind the Seizure program were also significant contributors in the year-over-year volume growth. We expect our pharma programs to continue to play a key role in achieving our 2020 targets. Recall that we experienced seasonality in our volumes. The fourth quarter has traditionally been our strongest quarter and the first quarter traditionally has been our lowest.

While our new customer mix may affect the magnitude of seasonality, we still expect that the first quarter will be our slowest quarter in terms of volume growth. Seasonality also affects the relationship between our accessioned and billable volumes. The difference between accession and billable volume in 2019 was 3%, which is consistent with our historical annual range of 3% to 4%. On a quarterly basis, we anticipate a larger gap between the accessioned and billable volumes in the first quarter, historically, around 10%. While the leading indicator of our success is volume, the next key indicator is revenue, we generated revenue of $216.8 million in 2019, including $66.3 million in the fourth quarter, slightly exceeding the revenue we preannounced in early January.

We notched this strong 47% year-over-year increase despite having a difficult comparator. Recall that in 2018, we recognized $4.3 million of revenue related to additional Medicare payments for certain tests. Excluding this amount, our revenue increased by 51% year-over-year.

In 2019, over 70% of our revenue came from third-party payers and just under 30% from institutions, pharma partners and patients. Third-party payer revenue increased by approximately 5% year-over-year, primarily due to an increase in test menu under contract, and our steady improvement in our billing and collections processes.

Consistent with our previous discussion of ASP trends expected in 2019, we've realized an ASP of $453 in 2019, down from $495 in 2018 or $480 in 2018 when excluding the del/dup Medicare payments. ASPs are now primarily driven by payer and product mix changes as well as revenue pickups due to better-than-expected cash collections, which under revenue recognition guidelines yields greater revenues.

In 2020, we will see the ASP trend lower early in the year and subsequently may bounce around a bit. Remember that seasonality affects our revenue too. The gap of accession to billable volume and seasonally lower volume growth in the first quarter, along with resetting of PAMA rates impact first quarter revenue. Keep in mind that this will also impact our gross margin as accessions are tied to COGS.

In 2019, we decreased COGS to an average cost per sample of $245, representing a 7% decrease year-over-year and $248 in the fourth quarter. A portion of our costs in 2019 relate to amortization of intangibles from acquisition activities. When we exclude these costs on a non-GAAP basis, which is more comparable with COGS in 2018, our average cost per sample is $236 for the year, representing an 11% decrease year-over-year.

In general, we intend to invest in further automation and additional medical interpretation improvements to reduce COGS, and we believe that we will again benefit from volume-related cost reductions. We do expect that COGS will continue to fluctuate at or around the 50% gross margin mark as we balance the introduction of new content and features with driving down costs per sample. The key measure of our long-term financial success is the ability to generate sustained positive operating cash flows. In the near term, gross profit growth is a key indicator that our business model is working. We saw a significant increase with a gross profit of nearly $100 million in 2019, representing a 46% increase from the previous year. In the fourth quarter, we reported $29.6 million in gross profit. We neared our stated long-term target of 20% gross margin for the year. In 2019, our gross margin was 46%, and for the fourth quarter, 45%. On a non-GAAP basis, the gross margin was 48% for the year and for the fourth quarter.

Moving to operating expense. We continue to invest in our business, enabling us to ramp our volume, expand the market, address new market opportunities and continue to scale internally to take advantage of the opportunity before us. Total operating expense, which excludes cost of revenue for the full year 2019 was $342.8 million compared to $190.2 million in 2018. Operating expense for the fourth quarter was $108.6 million.

Early in the year, we discussed our intention to make significant investments during 2019, which we did with our spend falling into several areas. First, sales to increase our headcount to facilitate product launches and volume expansion and marketing, to begin branding and advertising to support our direct channel, which we launched in June. Second, research and development focused on scaling our business, content expansion, improving customer experience and reducing COGS. And third, general and administrative to support the growth of the business.

Let's move to the non-GAAP version of operating expense, which eliminates the acquisition-related amortization of intangible assets, acquisition-related stock-based comp and post combination expense. The non-GAAP view is more indicative of the spend for our base business and also makes the comparison with 2018 easier. The non-GAAP operating expense was $293.6 million in 2019 of which $89.2 million was incurred in the fourth quarter. This non-GAAP measure eliminates $39.1 million in stock-based compensation related to the acquisition of Singular Bio in 2019 of which $17.9 million was in the fourth quarter. We also had $10.1 million in acquisition-related amortization of intangible assets and post-combination expense recorded as an operating expense in 2019 of which $1.5 million was in the fourth quarter.

Our net loss for the full year 2019 was $242 million or $2.66 net loss per share and for the fourth quarter of 2019, $76.9 million or $0.79 net loss per share. Non-GAAP excludes an $18.5 million income tax benefit associated with our acquisitions. Please refer to the reconciliations provided.

What is most important is what each of these acquisitions did in terms of advancing our mission and business model as seen on our flywheel for growth. Singular Bio will dramatically reduce costs of our NIPS testing. Jungla expands our content and improves customer experience and Clear Genetics improves customer experience and drives traffic.

Moving to our cash position. At December 31, 2019, cash, cash equivalents, restricted cash and marketable securities totaled $398 million. Net increase in cash, cash equivalents and restricted cash was $39.4 million in 2019 and $315.6 million for the fourth quarter. Cash burn, including various financing and acquisition-related expenses, was $278.3 million in 2019, including $75.5 million in the fourth quarter. When various financing and acquisition-related expenses are excluded, the annual cash burn would've been approximately $153 million in line with what we indicated a year ago. Looking forward to another year of investment, we would anticipate 2020's cash burn will increase from last year's $153 million.

We anticipate that the cadence in 2020 will follow 2019, higher burn in the first 2 quarters, reflecting a deliberate investment in selling and marketing and R&D and then a controlled decrease in the back half as we reap the benefits of these investments. Collections early in the year will be lower as our Medicare rates have reset down 10%. We also anticipate continued rationalization of our industry, and we will continue to assess acquisitions throughout 2020.

I will now turn the call back over to Sean.

Thank you, Shelly. As we continue to lower our cost basis, expand our menu genetic content and improve our customers' experience, we believe we will continue to take market share from incumbents, but more importantly, expand the global market for genetic information dramatically. Indeed, our view is that this is just the beginning. Whether it's for the more than 30 million women every year that are still being told that a carrier screen is a test done during the first trimester, if they're offered one at all, or the 95% of women with high-risk variance or hereditary breast and ovarian cancer testing, who don't know that they have them.

The 60% of men with prostate cancer, who could benefit from genetic information but aren't currently getting it or the untold millions with serious inherited cardiovascular disease threatening their health and the health of their families.

We grow more confident than ever that our model is working, that we will continue to lead the transformation of the genetics industries and that we are uniquely poised as a runaway winner in one of the most exciting and dynamic sectors of health care today.

With that, I will now turn the call over to the operator for Q&A.

(Operator Instructions) Our first question is from Doug Schenkel with Cowen.

This is Subbu on for Doug Schenkel. So if you were to tell us your 2020 guidance philosophy, what would the 3 key metrics be? For example, do you expect sales force productivity to increase by x percent? Are you baking in any cross-selling rates? What are your reorder rates so on and so forth? And I have a follow-up.

Sure. I think -- thanks for the question. I think the way to characterize our 2020 guidance, which, of course, has kind of evolved over time is to simply take the dynamics of the industry that exists today. Our visibility into our current customer base, the addition of sales reps to -- up to -- basically, the number is around 320 or assuming some modest drop off in sales refractivity, kind of, that happens year-over-year as the sales team gets bigger, you move into more accounts.

But we're really not baking much more into our guidance, but that. We do see growth coming across all of our disease areas for both diagnostic testing and screening. We see -- we do see a year where we -- in that screening category, specifically in reproductive health, we expect growth from there. We don't, in our guidance, anticipate a whole lot from our direct channel. There's something we do anticipate but not a large impact baked into our guidance. And we certainly, while new customer segments, specialists that historically have an order launching testing of which there are many of, any number of those could turn on -- we are sure will in the next 1, 2 or 3 years start ordering genetic testing. We aren't assuming a lot of action from those clinicians this year either. So I think it's kind of -- the current market that we see, the accounts that we know and are engaged with, add a new commercial -- additional commercial assets on top of that, and that's what we're calling for the year.

And sorry, on the revenue side, we do have an assumed, just as we have been, every quarter, a slow and steady improvement in third party reimbursement.

Got it. That's super helpful. So Myriad Genetics called out accrual headwinds as a key reason for their lowered revenue guidance. Have you seen these headwinds materialize in your reproductive health business as well? And relatedly, can you provide any color on the progress that you've made so far in moving NIPT in-house?

Sure. So let's start with the latter. We're still on track to get the NIPS offering in-house, which for those who are following closely, means that we'll get both better reimbursement and a lower cost structure. So we're excited to be pulling that in post-haste. We'll just call it -- we'll still call it early in the year. So we're making progress there, on track for that.

To your other question, I think it's probably worth thing is step back, right? This is where the difference in business models really starts to be a very important center of the conversation. We've been leading price for 5 years of commercial activity now. We actually don't have accrual headwinds. We are the price leaders. The headwinds are coming as payers are, I would offer finally after many -- 4 years of negotiating to getting that work and talk about pricing with them. Payers are indeed starting to move to value. And -- so no, we don't see that. In fact, again, our revenue recognition is going the other way as our reimbursement, kind of, like I mentioned, quarterly, stable and steady improvement in our billing and collections machinery, again, across our -- we have more -- now more than 300 million lives in network.

That's a lot of payers across the largest menu in the space. And that's why we just continue to see that slightly improving every quarter as far as we can see for now. But no, that dynamic is not at play with us and primarily because we have been price leading for -- going on almost 5 years now.

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

Maybe just an addendum just for, again, in case it doesn't come up, a reminder to everybody that Q1 has the 10% payment reduction. So for the Medicare portion, the Q1 hit is just like last year.

And your next question comes from Tycho Peterson with JPMorgan.

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

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

Tycho. So if we go back, I think, to the last, really, couple of years as this NCD saga has evolved. There were 3 main concerns that we have focused on as the NCD's language and the interpretation by the folks at CMS have evolved. The first one was a concern that coverage was being pulled back and was going to be limited only to late-stage cancer patients.

The second one was that the NCD would eliminate the discretion of the local Medicare contractors to provide coverage under local coverage decisions, which would have implied a requirement that the parallel review process of including the FDA be a condition to Medicare reimbursement.

And the third was some language that made its way into the NCD, which would have -- in the interest of preventing duplicative and unnecessary testing, with a precluded patients from getting more comprehensive or higher quality testing as it becomes available. All 3 of those have been addressed to our complete satisfaction in the NCD. They don't -- perhaps with the exception of the repeat testing provision, they don't really represent an expansion from where we thought we were when we started all of this 2 years ago. They, in fact, really just prevent degradation or erosion of coverage. So -- and luckily, none of the things that we are worried about ever took effect. They were just proposed. And then in response to feedback from the community, the folks at CMS to their credit listened carefully and thoughtfully and did the right thing.

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

So there are definitely more payers that we're talking to about the preferred status idea amongst others. I mean, again, this is, I think, I don't want to say now is the time because everything in third-party reimbursement land takes a while. But not -- I think there are multiple is now interested in what that could mean by way of real savings on a line item that is growing very rapidly.

And I think even more interestingly, are now the conversations that lead to broader coverage for whole group's populations, patients with high-risk of cancer from start to finish, women of reproductive age from pre-conception all the way through the pediatric check in, those kind of conversations. So yes, preferred network conversations have been happening and even more exciting, the beginning of where we thought this would go in the long run, actually put -- having payers put in play genetic information to improve outcomes and lower cost for whole populations, but we'll -- like I said, that I'm assuming will take a while, but certainly, preferred lab networks. We would assume it will be a feature of the next couple of years.

And then, Sean, can you just give us a -- go ahead.

Sorry, there was a second question, which I forgot the -- oh, the pricing, right. You were asking about the pricing. Again, our price over the last, I'd say, that of the 300 million lives of contract pricing has been pretty stable. Depending on the size of the payer, around $1,000 or slightly under for the largest of payers, and that's about where these third-party discussions -- where we enter them.

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

Yes. So I was -- just really quickly. DTC traction, not -- basically as expected, which is not a large or material amount. The good news is that we know there are a lot of people looking for this information. There are a lot of people will -- I mean, we know there are a lot of people that could use it. We are able to generate a fair amount of interest in traffic. Conversion is what we're working on now. And we expect, at some time in the next couple of years, we are going to be able to dial that in with firm expectation that 3 to 5 years out, that direct marketing channel, both to patients and the clinicians who take care of them will be driving the majority of our volume.

But today, not a really significant amount. And as I mentioned, in the guide this year, we have some expectations but they're not very large at all. It is, however, the kind of thing where if that were to hit earlier, we think it has the potential to drive a fairly large volume. So we'll keep working on it. We'll keep everybody posted. For somatic, we're still on track for this year. And again, in this year, nothing is assumed by way of somatic pickup on the accessioned or the revenue line. The earlier we get it out, it might contribute some, particularly if we can get some larger partnerships earlier. But right now, we're just assuming -- we're still trying to get it out this year. I would say it's probably going to be a back half of the -- half 2 not half 1. And the contribution this year will be minimal, depending on the exact timing.

Your next question comes from Puneet Souda with SVB Leerink.

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

Yes. So I'd say, in general, our reproductive business continues to grow slightly ahead of the rest of everything. We do expect reproductive growth to pick up here in the next year and the years to come, just given this year, size of the opportunity, again, 30 million pregnancies around the globe and the economies we're serving right now.

So we have great expectations for it. Last year, I think as we kind of ran through the year, our NIPS and carrier screening and associated testing did almost as well as we had hoped. Obviously, we wanted to do more. But we were pleased with it. And again, we're sitting in a good place right now. For the exact -- we don't break out exactly what is NIPS only, what the carrier only, what is NIPS plus carrier. But we would reiterate that we do indeed see that the -- having the NIPS offering is a really important piece of the whole reproductive picture. And so we're happy that we invested in launching it. And that really, as we mentioned, kind of investing further in bringing it in-house and ultimately, by way of our Singular Bio acquisition dramatically lowering the cost basis for it.

So I think that's the reproductive health NIPS picture at this point. And again, we've -- that -- those 30 million pregnancies a year, we think could really -- there's a significant chunk of them in the next few years that we can serve much better than they currently are.

On the question of the patient pay versus insurance bill, again, we don't bring that out exactly. What I would say is, it's kind of a pretty typical mix. I don't think there's really a there, there, except that. Obviously, OBs do not have a lot of time to be dealing with a lot of the billing surprises that tend to come.

A lot of the players in the space build pretty extraordinarily high bills. We've seen the OBs in the multiple thousands of dollars even recently for NIPS. By virtue of our $99 patient pay price, we have the ability to have a very clear, straightforward building policy for both high-risk and average-risk women on NIPS and carrier screening. We can put in writing, what the price is, and we can put in writing, what the expected patient out-of-pocket will be. And we think that, that's been -- that has been, and probably in the coming years will be even more important as this market develops. So we're -- we think that we've got the pricing right. The ACOG guidance seems to kind of keep moving off into the future and we're told, in fact, might take even longer, and which is, again, why we just have taken the approach that we've taken. And we're -- we believe we're on the right track.

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

So I'm going to let Katherine jump on to that latter part, and then I'll go and answer the first part.

Sure. Excuse my voice, but we have net sales reps towards the end of last year and early this year. So we're looking at about 320 to be able to cover the breadth of the testing money, both U.S. and internationally. So I think Sean commented earlier on sales force productivity, but that's what we're looking for. It's about the same percentage increase in sales force size as we had the year prior.

And then why don't I hit on some of the priorities for us. If you back out some of the non-GAAP, some of the stock-based comp for the acquisitions and such, you'll see that our R&D, for instance, rose $5 million in the last quarter. And the things that they work on, that I went through when I had my script was, basically things like scaling the business, automation, driving COGS down, customer experience, everything like web access. And then you add in things like Jungla and some of those new acquisitions that really help to enhance the type of product that we're able to present to the customers. And so that is still very much of a focus of ours.

When you look at the selling and marketing, and you strip out some of those extra costs of the acquisitions, it was something like a $2 million increase in the last quarter. And what that goes to is not only new heads during the year, but also some marketing spend for branding and what Sean has talked about in terms of being able to get the direct channel up and running. And that's brand awareness as well as advertising and such. And so those are the key things as well as the customer experience, and that's clear genetics in some of the acquisitions. And so those 2, the R&D and the sell-through marketing work hand-in-hand to be able to enhance our scalability, our product offering, the breadth of the offering and the ease of use for any customer, whether that's a patient or a physician or a new type of physician like a urologist or somebody else. So those are the focus that we look at. And I think also, importantly, some of the acquisitions will add some burn to us, but we tried to walk through why those were so important to us. We make sort of the buy versus build decisions. And so you can look at those as some R&D dollars to be able to accelerate some of those very important projects for us that we've decided that we can buy a company that has a great technology like a Jungla, who are clear as opposed to trying to build it from the bottom-up by ourselves. So those are the types of priorities that we think about. And that's why we evaluate each of these investments on their own to see how rapidly we're going to get some return for those investments.

Okay. Got it. And Sean, if I could -- if you could step back and look at how the germline testing landscape has evolved, and it does speak to your business model and the rationalization of pricing in the space that you have driven. Given where you stand today and you look at the long term priorities, any changes in those long-term priorities in terms of the data you want to gather or overall priorities on menu expansion or areas where you might not be today, and ultimately, where you want to be. If you could elaborate on a long-term view, I think, that will be very helpful.

Sure. No, I think kind of our view of the industry -- and we do think it's getting more dynamic every quarter. So the rationalization is picking up speed. I think there are a lot of exciting developments, technology and kind of application area wise. But our view of the industry and its potential and the approach that we've chosen to take to it hasn't really changed at all. We are still working on adding more and more content as a key part of our strategic outlook on growth. We have mentioned in the past, getting kind of rounding out the menu to really serve, for example, children's hospitals and pediatric centers better. That is for sure, kind of has been and continues to be a major focus. And I would expect that -- more of the same this year.

Rounding out, continuing to add more content and more information to our oncology offering, particularly as we now look to move downstream into not just being the leader in identifying individuals at risk for cancer, but then stratifying the risk and likely characterizing it. And then of course, by way of then monitoring post-therapeutic decision for both recurrence and evolution of the cancer itself. So those are -- continue to be areas that we look to as well as, of course, we've always talked about pharmacogenomics is something that we think is an area that is a particularly growing interest to payers and integrated providers, and that's something that, again, we think, fits right in our wheelhouse with the platform that we've built. And again, we've -- I think that's no surprise. We've mentioned that before, and it's still something that we're interested in working on. So really, no dramatic change in the outlook and no real change to the kind of the content expansion with kind of some of the usual suspects we've been discussing that we hoped to in the next year or so, bring and add to the platform.

Your next question is from Kevin DeGeeter with Oppenheimer.

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

I think I can answer the question really succinctly by saying we certainly haven't baked any large expectations into this year's guide. And I mean, United markets, but it is really modest percent of the total lives. So I think that's the other -- it's still pretty fragmented space on that side of the table. With that said, what we can say absolutely is that there are some obvious benefits of being in the preferred network. Certainly, the mechanics of billing and reimbursement are much, much smoother on our end, which is very important. It's much smoother on the clinician side, which is also very important. It is much easier to order from us versus a lot of our peers in the space by virtue of being kind of the number that -- in that network kind of #1 in a lot of our menu items. So those are all great.

I think we would still offer. It's very difficult to put a number on how much volume growth came from the virtue -- by virtue of that versus just kind of out there commercializing. But I think that probably is a little bit inconsequential. If you take a step back, the bigger picture here, I believe, is that the overall dynamic from the payers is that they are paying attention. Genetics is becoming ever more important as they consider their business and what they do. And the preferred lab network, we think, is probably an example of one of the very first and early moves in a series of moves over the next few years that are going to definitely have an impact on the space and who has access to reimbursement and who doesn't. So that's -- I think that's kind of where I'll leave it. It's hard to put a real definitive material impact on it at this point in time. But I think taking a step back, this and what we would expect many moves to come is actually pretty important to one's view -- certainly, our view of the evolution of this landscape.

Okay. Fair enough. And as a follow-up, there's been a fair amount of publicity around the downsizing of some of the first generation DTC genetic testing companies, recognizing that your direct channel plays in really a very different part of the market. If that dislocation continues or accelerates, does that create any opportunities as you think about plans to build out your direct channel over the next year or 2? And I guess, on a tangential level, from an M&A perspective, is that an area that you have any issue or any interest in potentially being active?

Yes. So I think kind of in order, it is with interest, seeing the announcements from some of the larger DTC players. I'll be honest, we don't know much about what's going on there or why. All we know is that there has been a lot of marketing that's raised a lot of consumer awareness about genetics over the past decade. It's been huge spends by comparison to kind of what our industry typically does on a per-company basis. I honestly can't -- I can't really opine on why interest in those kind of products has tailed off. If it has to offer, if it's just getting more competitive. We really can't say much. We feel that in general, there's been a general awareness lift of genetics as a result of those massive marketing dollars over the last decade. We think that has created an opportunity. You can do -- you're running the market, research will show you that more than half of the individuals who buy those kind of tests are interested in health, and most of them are not super satisfied with the results they get.

So I think there's definitely an opportunity there. Again, probably worth pointing, focusing the conversation back on. This is a channel to drive the very same exact kind of medical-grade testing that we run for the rest of our clients, our core clientele. The channel, that direct channel will be focused for individuals who are thinking of starting a family, individuals who have children with undiagnosed diseases for clinicians who probably are aware that they could be using genetics to the patient's benefits but don't really kind of have the bandwidth nor the -- know where to get started. And we think that's just a very, very different customer segment than where these companies have been active in the past. But there's definitely some overlap there. And it's -- so not to discount it. And I would just kind of say maybe unsatisfactorily, we don't really know what it means. So we're planning ahead with kind of trying to reach those customers the best we can. To the M&A question, though, I think this is where -- maybe this is the only area we can -- no, I'm sure there's more working with the team around the table. We don't have active screens out for GC-type assets we're very much focused on kind of highly positive predictive value and negative predictive value, diagnostic and screening tests that answer questions people have about their health.

The only thing I would add is we've spent 6 years now building a really strong medical brand. And we think that's going to help us really succeed in the broader consumer market and as more mainstream clinicians start ordering testing. And interestingly, what we are seeing is the breadth of our testing menu is being ordered. So as Sean mentioned, there is cardiovascular and cancer screening, there's diagnostic testing, there's reproductive health testing. So we think that we're well positioned in the long-term to be able to serve the increasing interest in being able to bring genetics to inform health care decisions.

Your next question is from Jeffrey Cohen with Ladenburg Thalmann.

So I was wondering if you could further expand upon some of the previous comments as far as automation. So coming more from the equipment side or from the software and analytics side?

Yes. So automation is a key of the OpEx or cash burn, the key component is R&D. Automation, it is definitely correct to think about it, both on the equipment side and the software side. And both in our own R&D and in acquired R&D, we've looked at both. So I think, kind of, the short answer is both are important, both continue to have room to yield benefit to the cost advantage that we think we have and/or improve the customer experience while at the same time, lower the sales and marketing burden of delivering that experience.

So we haven't acquired an automation, kind of, wet lab automation provider to this point. We do continue to invest in what is now getting to be pretty big scale here, unseen scale for the type of testing we do, and automation is going to continue to be a key part there. I would say the Clear Genetics acquisition is pretty clear, a solid example of automation on the front end, which we have invested in over the years. And I think by way of acquisition really represents automation on the customer service side, to very quickly answer questions, identify patients that need for the follow-up, scheduling with their clinicians, scheduling with the genetic counselor, answer questions about billing, move to test ordering, et cetera. Essentially automated on the front end of that and then triaging our customers to the right next step. It's a great example and very important, and I would expect more of that in the years to come.

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

Yes. I think the short answer is, more or less, there are some technical aspects of the Clear platform that we still have a few months of, kind of, software development to get it completely integrated. But I'd say, for the most part, the teams are integrated. They're completely integrated in our development efforts. The principles of those companies are, frankly, leading the respective development efforts within the Invitae development organization. And we love what we see. We have already been able to reclassify a very large number of variants of uncertain significance. And as we stand today with the Jungla platform, we now can say we unambiguously best at resolving these variants of uncertain significance with a completely pure view of approach from start to finish. And that is integrated now and working as we speak.

So that -- I'd say that's pretty much integrated. There are other aspects of the molecular evolution platform that the Jungla team had been working on that will take more time for development, and we're excited to see that come. But for the most part, the initial returns on that have been great. For Clear Genetics, I mentioned it's effectively integrated. And we are excited about what that can do, particularly for a lot of these specialists, who do not have a lot of bandwidth or time to kind of deal with the ins and outs of genetic testing in their daily practice.

And that is, as I mentioned, well, from a development perspective is integrated, I think, from a complete product perspective in the coming months. Every few weeks, we'll get closer and closer, but the time line there looks very short, and we are on track.

Okay. Got it. And then lastly for me, can you talk about the cardiovascular disease study? Is there any update there? Any information you can share?

All right. So that's right, the Apple Watch study. I think Bob can talk about -- what I would say, I can just -- by the way, we're just starting with that. So we're just kicking it off by way of collecting -- getting that longitudinal Apple Watch data in alongside with genetic variant information loaded into that collaboration. I don't know, Bob, if there's any further -- any other...

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

Yes. So early days for that.

Your next question is from Bruce Jackson with Benchmark Company.

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

Yes. So -- just a clarification, it's 10% of volume, it's slightly lower on revenue because the international pricing mix that -- there aren't third-party payers. It's all patient pay and direct bill in some markets where prices are a little more compressed. So it's 10% of volume, it's a lower percent of total revenue. With that said, in our guide, we are assuming about the same exiting this year. We are investing more in our international commercial activity both by way of physical plant in order to take out a lot of the logistics in shipping issues that we have historically encountered internationally, ex U.S.

And we're adding -- our whole -- that 10% of our volume has been generated with a relatively small, modest commercial force, a handful, literally half a dozen business development associates around the globe. And we're upping that -- we're increasing that. I think a dozen or so to really start having in-country business development and support. Now we're confident that, that is a very large untapped market opportunity. We're confident that, that will start growing rapidly in the years to come. It could happen this year, but a lot of that depends on how quickly we can get that property implant deployed and what the selling cycles look like, which, again, for the most part, we've been answering inbound interest. So we're excited, we're optimistic. But like I said, we haven't really baked in anything more than about 10% of our volume for 2020.

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

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

Your next question is from Ophir Gottlieb with Capital Market Laboratories.

I have 2, if you don't mind. Are you providing formal guidance? Are you providing formal guidance for cash burn for 2020, excluding the various financing and acquisition costs or just simply that it's going to be a little bit more than 2019?

Yes. We are not providing formal guidance on it. I think that we're leaving it now as it will be more. We view this as a year of -- everything that we see in front of us indicates to us, this is a year to continue investments and continue extending our leadership in what we think is going to be a winner take most opportunity as, of course, we've covered before. We can kind of put a little more detail on it, which that investment is in -- primarily in commercial and R&D and M&A, which is a -- it's a build by proxy for both commercial and R&D. We think that, that translates over time into an unsalable position in the new landscape that we are building because that commercial leverage, whether it's new customer types moving globally, pushing forward our network business as we have been with our pharma partnerships.

We're building a superior customer experience or extending our cost advantage, that is what kind of helps us do that. As well as thriving at the prices that we've created in building the best, broadest, highest quality menu content. That is what we think the winning formula is now. We think our model is winning. And that's why we're suggesting this year that burn stays on, invest on and for all of those reasons, which, in the long term, translate to massive sustainable operating cash flows in the future. And that's the single financial metric that we're working toward over time. But the investment this year is really targeted at that, primarily at R&D but sales and marketing as well.

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

Okay. And last question. As I understand it right now with the international business. Some patients (inaudible) up to $200 for shipping fees, which, of course, is just friction, doesn't go to Invitae. It's just friction. Is it the case that moving forward, whenever you're completed and moving internationally at some point this year that, that point of friction will just be removed, that extra $200 or 40% of the cost of the test?

I mean, in short, that's the idea. In a lot of these markets to remove the size of that shipping logistics bill is the idea. I'm sure there will be some countries that we cover shipping most, we will not. But by reducing that down significantly. Because you're right, there are examples where the patient institution is almost paying as much in shipping as they are for the cost of the test of the screen. So that's exactly the idea. Really improve the logistics and to dramatically reduce the cost of that. And also, frankly, help out with the turnaround time by things not getting held up in customs and kind of issues like that. Those are the 2 primary reasons. But I think the way you said it is correct. Removing that friction, which is really not benefiting anybody right now, and that's the primary purpose of the physical investment in our ex U.S. infrastructure.

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

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

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