Invitae Corp (NVTA) 2020 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to Invitae's Fourth Quarter and Full Year 2020 Financial Results Conference call. (Operator Instructions)

I would now like to hand the conference over to your speaker today, Laura D'Angelo. Thank you. Please go ahead.

Thank you, Operator, and good afternoon, everyone. Thank you for joining us for our fourth quarter and year-end 2020 earnings call. Joining us today are Sean George, our CEO; Shelly Guyer, our CFO; Ken Knight, our COO; and Katherine Stueland, our Chief Commercial Officer.

As you listen to today's conference call, we encourage you to have our press release available, which includes our financial results as well as metrics and commentary on the quarter. Before we begin, I'd like to remind you that various remarks that we make on this call that are 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 and our product pipeline and the timing thereof, demand for and reimbursement of our services and our investment in our infrastructure and operations constitute forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act.

It is difficult to accurately predict demand for our services, and therefore, our actual results could differ materially from our stated outlook. Statements on future company performance assume, among other things, that we don't conclude any additional business acquisitions, investments, restructurings or legal settlements. We refer you to our most recent 10-Q, in particular to the section titled Risk Factors, for additional information on factors that could cause actual results to differ materially from our current expectations. These forward-looking statements speak only as the date hereof.

To supplement our consolidated financial statements prepared in accordance with generally accepted accounting principles in the United States, or GAAP, we monitor and consider several non-GAAP measures. We exclude, as applicable: one, amortization of acquired intangible assets; two, acquisition-related stock-based compensation; three, post-combination expense related to the acceleration of equity grants or bonus payments in connection with the company's business combination; four, adjustments to the fair value of certain acquisition-related assets and liabilities; and five, acquisition-related income tax benefit.

In this period, our non-GAAP measures include cost of revenue; gross profit; operating expense, including research and development, selling and marketing and general and administrative, other income expense, net; as well as net loss, and net loss per share, and cash burn. We encourage you to review our GAAP to non-GAAP reconciliations, which are available in the press release and in the earnings slide deck.

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

Thanks, Laura, and good afternoon, everyone. We've had an active few months with a lot of opportunities to talk with investors and analysts. Q4 was a great quarter for us and for our key performance metrics, all indicating that we are steadily returning to and even surpassing our pre-pandemic growth trajectory.

Having announced preliminary results in January, I thought we would use today's call to recap 2020, reiterate where we're headed and how we'll get there, and define the metrics we will use to track our progress. It's also a great time to introduce the perspectives of our COO, Ken Knight, on our growth strategy and scaling to accelerate into sizable markets. We hope you'll be as excited as we are as we look ahead.

Before we do that, Shelly will walk us through the Q4 quarterly and full year financial results and outlook for 2021. Shelly?

Thank you, Sean. A quick note before we begin. All of our numbers are still preliminary and subject to change until we file our 10-K, which we expect to be before month end.

As our business evolves and scales, revenue has become the most relevant metric by which we measure the success of our business. In 2020, we generated revenue of $279.6 million, representing a strong 29% growth year-over-year. In the fourth quarter, we generated approximately $100.4 million, marginally above the preannounced number. All of this was accomplished despite facing significant headwinds due to the pandemic throughout the year.

Now that we've closed the Archer deal, it's important to understand how our revenue is presented within our financial statements. Slide 7 includes a mapping of the legacy Invitae and ArcherDX revenue streams to the individual financial statement line items.

In the footnotes to the 10-K, we will disaggregate revenue into some additional categories. For instance, breaking out our biopharma partner revenue from other business-to-business -- or B2B -- customer revenue, both of which used to be bucketed in one category called institutions. We will also be breaking out our revenues by where they are generated, either through a centralized lab or decentralized through the shipment of reactions to biopharma partners and other B2B customers.

In 2020, 66% of our revenue came from third-party payers and 25% from biopharma partners and other B2B customers, primarily hospitals and medical centers, with the remainder coming from patients. The percentage decrease in revenue from third-party payers is driven by the customer mix at ArcherDX, consisting almost entirely of biopharma and other B2B partner revenue.

Excluding Archer, our third-party payer revenue remains strong, largely due to higher Medicare payments and steady improvement in commercial third-party payer performance, particularly with our hereditary cancer and NIPS test.

Our ASP decreased to $413 in 2020, primarily driven by a shift in payer mix from third-party payers to biopharma partners and patients and by an increase in RUO testing with lower associated ASPs, the Archer products. Absent Archer, we experienced another increase in our quarter-over-quarter ASP to $440, a healthy increase from the third quarter of $429.

This increase was primarily driven by stronger reimbursement from our third-party payers for our hereditary cancer and NIPS offerings. Note that we expect ASPs to benefit from the launch of STRATAFIDE and PCM as regulated clinical products in the coming quarters and years.

The rising ASPs over time due to progress with payers represents a notable source of leverage. Our many investments in our platform and willingness to provide early access to patients ahead of the payer adoption curve is bearing fruit.

As mentioned last quarter, as the business develops, billable test volume has become a more relevant metric and an important benchmark, given that we accrue our revenue based on the number of billable reports in the period.

We're pleased to report 41% growth in billable volume from the previous year, with approximately 659,000 tests in 2020, including about 238,000 billable tests in the fourth quarter. International volume increased to about 13% of total billable volume in 2020, which was driven by the strength of ArcherDX internationally and by growth in our base business during the fourth quarter. The fourth quarter international volume topped 17% of all volume.

Slide 9 breaks out our volume for the year and includes our definition of billable units defined as individual test reports released and individual reactions shipped. Historically, Archer measured the volume of reactions defined as a set of reagents customized to perform an NGS test by clinical customers. In the future, we plan to use units interchangeably with the term reagents as used by Archer.

This slide also breaks down the legacy Invitae and ArcherDX billable volume in 2020. We no longer report [accession] volume going forward since they no longer reflect our current business, and we will not break out Archer associated volume moving forward.

Overall, our volume continued to trend back and exceeded our pre-COVID levels across legacy Invitae product offerings, while our test mix remained consistent as compared to the third quarter. That said, we continue to urge some caution regarding expected growth over the next couple of quarters as we still face impacts of the COVID-19 pandemic that could affect our business in the near term.

As we've noted in prior quarters, the pace of M&A activity and other factors make it easier to understand our business and financials by providing non-GAAP metrics. Most line items on the P&L are affected by acquisition-related charges. To allow for the comparison of the 2 sets of numbers, we urge investors to review the detailed reconciliation to non-GAAP in tables included in today's press release and at the back of the slide deck.

For the remainder of this call, we'll discuss non-GAAP numbers, including cash burn, which we believe provide a more relevant depiction of the operating business dynamics. Our non-GAAP cost per unit -- now defined is the total cost of revenue divided by the number of billable units in the quarter -- was $261 in 2020 and $227 in the fourth quarter. The per unit cost was impacted by mix changes, and we expect that with our reproductive health test now run in-house, our COGS will continue to benefit.

Excluding Archer, the non-GAAP cost per unit would have been $250 during the fourth quarter. The Archer COGS have a beneficial impact on our average COGS per test.

A non-GAAP gross profit was $106.8 million in 2020 and $45.5 million in the fourth quarter, which translates to a gross margin of 38% in 2020 and 45% in the fourth quarter. Our mix continues to impact our gross margin. With the increased collection rate on NIPS and the decreased COGS over the next several quarters, our gross margin should again approach our 50% gross margin target in 2021. Recall that our midterm stated goal is margins of between 50% and 60%, a goal set in mid-2020 when we announced the acquisition of Archer.

Moving to operating expense. We noted in the spring that in response to COVID, we would reduce our burn by the time we exited the year. We did so in our base business. Non-GAAP operating expense, which excludes the cost of revenue, was $456.1 million in 2020 and $145.9 million in the fourth quarter.

The fourth quarter contained a full period of Archer activity, which contributed $31.3 million to operating expense. Excluding this activity, operating expense would have been $114.6 million in the fourth quarter compared to $102.6 million in the third quarter. Included in the fourth quarter OpEx were acquisition transaction costs of $14.7 million. But if one takes out the ArcherDX spend and the acquisition costs, our OpEx was down in the fourth quarter versus third quarter.

We succeeded in reducing our spend by year-end for the base business, a goal we set in the early days of the pandemic. Given the stabilization of the markets and opportunities in front of us that continue to grow, including multiple M&A ideas worth assessing, we'll continue to make prudent investments in projects, programs and acquisitions, such as our One Codex transaction just last week. Sean and Ken will comment on that in more detail.

In addition to acquisitions, we expect that OpEx in 2021 will continue to increase as we invest primarily in R&D and marketing. Cash burn was $441.1 million in the fourth quarter, including all of the cash paid to finance and close acquisitions and fund the associated expenses. Without these acquisition costs, our burn for the quarter would have been $74.8 million. This amount includes $29.1 million for ArcherDX and $45.7 million for the base business.

Recall that the comparable base business burn in the first quarter was $66.2 million. So we dropped the burn by over $20 million by the fourth quarter. This again shows our ability to titrate operating spend as market conditions require.

Moving to our cash position. Cash, cash equivalents, restricted cash and marketable securities totaled $360.7 million at December 31, compared to $368 million at September 30. Importantly, we raised additional equity and debt to finance the acquisition of Archer during the fourth quarter and took down cash via our ATM.

In January of this year, we raised additional net proceeds of more than $434 million in an equity offering. Thus, on a pro forma basis, we have nearly $800 million. And to close, in January, we issued our 2021 guidance of over $450 million in revenue. We maintain that guidance.

Now I'll turn the call back over to Sean.

Thanks, Shelly. Global demand for the information we provide continues to expand, and we fully expect to maintain a high-growth trajectory for many years to come. Last year, we executed on the day-to-day business, which obviously included tackling challenges few of us could have anticipated.

We also undertook a series of transformational investments to continue to propel our growth. We integrated new menu, services and platform technologies that increase our addressable markets and will allow us to grow into that more quickly.

Our most recent investment is the acquisition of One Codex, a leading technology and service provider in the growing field of microbial genomics. Their advanced algorithms and curated databases provide the most accurate picture of the complex metagenomic samples. Their customers include top academic labs, biotechnology companies developing live biotherapeutics and clinical laboratories performing infectious disease diagnostics.

We've been watching the microbiome space with growing interest for several years now, as it is yet another genomic tool patients and clinicians can use to assess health and take action. We've been working with the One Codex team on research projects and developed a great appreciation for how their talent, deep domain knowledge and technology can augment our own work in this area to add another important element to our growth engine.

It's been years in the making, and we're delighted to welcome One Codex and to immediately get to work on incorporating their industry-leading technology into the Invitae platform.

As genetics becomes something akin to a new vital sign, our technology backbone, infrastructure and delivery platform will scale as well, allowing us to capture more than our fair share of that growing ecosystem. We've internalized the lessons of hundreds of first-mover companies, which tell us you need to do more than capitalize on early wins and then shift to playing defense thereafter. We recognize the challenges that come with operational complexity and the trade-offs required for continued strategic investments, including scaling our own operations and the pace of M&A activity. That's why last year, we made an important hire to help us continue to scale at the pace required for our industry.

Bringing Ken Knight on board as COO was an organizational milestone for the company, and his contribution is and will be as important as any other hire in the coming years. Ken comes to Invitae most recently from Amazon, where he led various operations, including Amazon's transportation services, global delivery services, global fulfillment and human resources. He brings with him deep experience in global manufacturing, engineering, technology development and operations. As we move into ever larger and more consumer-directed markets, Ken's expertise will be invaluable.

I will now turn it over to Ken to take a few minutes to share first impressions and an outlook on how we continue to scale while delivering consistent growth and financial returns. Ken?

Thank you, Sean. It's great to be here with all of you on the call today. As a former leader at Amazon, Invitae's flywheel model and philosophy are both relevant and familiar to me. Our strategy to reach billions centers on creating a self-propelling flywheel effect to drive growth.

During my time at Amazon, it was the job of everyone from the CEO to the last-mile delivery associate to innovate for scale and to find new ways to serve customers. It was the unwavering commitment to the customer and our mission that attracted me to Invitae with the hope that I could have an impact in health care quality and delivery.

Our first 7 months have been exciting, as you can imagine, and I've been pleased to see the focus on our customers is sharp and getting sharper. The mission of delivering genetic testing as part of routine health care at every age is an enormous task. The scale necessary to do so will require many new capabilities and a new way of doing business that differs significantly from the traditional models of past decades.

Building out these services as a platform differentiates our ability to serve our customers, and I have experienced firsthand the value of getting that right.

When I came on board, Sean made it clear to me that we needed to throw out the standard playbook since our goal was unique, and technology-enabled health information is still in its formative period. In other words, we need to have bold and historic aspirations and then execute against them over and over again to succeed the way we have envisioned.

As I think about scaling our operations to support growth and how the strategy applies, I see some notable strengths for us to build on. First, we have industry-leading science and technology. We provide accurate answers to our patients quickly and at low cost, and our knowledge base is formidable.

Second, the people of Invitae believe in our mission and have a purpose that is bigger than ourselves. And finally, we have big, audacious and historic aspirations.

There are also several areas of focus that have our immediate attention. [The] flexibility, cost effectiveness and technology are core attributes for scale and will improve operating leverage. Now is the time to define our path to scale the business to support ongoing and impressive growth.

Defining how we win by providing answers for patients, providers and clients that others are not able or willing to provide is central to refining our 3- to 5-year plan. And operating metrics provide clarity for decision-making and urgency for action. Cash flow, leverage, volume growth and customer satisfaction are outputs and are the result of managing key inputs. We are now landing those key inputs.

Speeding up the process of delivering cost and revenue value is essential to driving cash generation. We have invested and dedicated teams to drive operational effectiveness, which we see pay off in COGS reduction and faster delivery of product enhancements.

All of our objectives are time bound to recognize we have a finite amount of time, energy and money so we need to use them well. Focusing on cost does not mean we avoid placing big bets. We have to be right more often than we are wrong, but never being wrong means we are either moving too slowly or aiming too low.

Our goal is to generate large, sustainable operating cash flow, fueled by a platform that is sticky and is working for both our customers and for all of us. I'm not prepared today to predict precisely when that will happen, but it's coming and will not be by accident.

I'm excited for our present and for our future. I came here to be a part of transforming health care, and I'm energized by our ability to do just that.

I'll now turn the call back over to Sean.

Thank you, Ken. The future we've long discussed that sees genetic information driving mainstream medicine is coming into view as a reality. Our strategy is unique as we build the single platform to deliver genetic information in the right place at the right time across all stages of life, essentially reorganizing the customer's experience in health care.

We are lining up the right moves, big and small, to extend our leadership with constant innovation. And it is with ongoing investments in menu, services and platform that Invitae will continue its march to utilize genetic information to improve health care for billions of people around the world.

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

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

The first topic is really on PCM for MRD and monitoring. What are the -- could you just provide any updates on the timing of the planned kit launch? What plans are there for actually bringing this kit into the central lab and running it there? To the extent that that is part of the plan, do you believe existing codes that are in place for MRD, such as those used by Natera for Signatera can be piggybacked by you?

And then finally, MRD monitoring, it's a big opportunity and products are just getting launched now. But a number of companies are in the midst of launching products. So you could make a sense, an argument that, on one hand, it's a huge underpenetrated TAM. On the other hand, this is getting to be a little bit more crowded, at least within liquid biopsies. So I'm just wondering over the next few years, how you would anticipate differentiating?

Yes. Sure. Thanks, Doug. So I think the details on the launches -- so the kits are actually -- there are pharma customers now, and some customers in an [REO] or translational setting using them today. So that's kind of going, but the clinical launch will happen, right? We've got the PCM submission, which we are -- FDA submission, which we are on kind of -- on the previous time lines. We're still on track for that submission sometime this year, early next.

The standing PCM [is an LVT] for offering directly to oncologists to our current customers that we're looking to accomplish, the sooner the better, as far as I'm concerned. But there's a handful of ins and outs, but I would call that certainly sometime this year, we'll get that up and running. The -- so those are the time lines for again kits and -- both kits as product kits, regulated products, time line and then, of course, the LVT service stand up.

For -- let's see, the next one on the question of the size of the market versus all the players in it, yes, I mean, there's 44 million, at least in -- the countries we serve around the globe, there's 44 million-odd patients that are battling cancer. It's a huge, huge opportunity. All of them ever increasingly are going to get treated with targeted therapies, and people are going to want to monitor and see how that's working for recurrence changes earlier than ever.

So while I think it's fair to say it's more crowded than it was, I do think there's an awful lot of room. That's kind of one thing I would say. Frankly, the more players that are at it with really great tests, kind of the better for all of them in the market, in general. I think this is anywhere in -- we are anticipating a pretty healthy adoption here coming up by virtue of all the energy going into the space, which, again, I think is good for everybody, most importantly, the people battling the cancer.

And then ultimately, what differentiates, I think that we've kind of long held this view, obviously, the sensitivity, specificity, accuracy, all of these things are going to come into play.

I have a general sense, much like noninvasive prenatal screening, there's going to be a handful of players that have the goods that pass muster with oncologists that are treating patients, and then the rest is going to be determined by ease of use, speed, service levels, compelling nature of the rest of the offering to make it easier and easier and easier for oncologists to use this very precise information to guide patient care. And our view is that's going to ultimately -- when you're talking about the entire addressable market, that's going to be what ultimately differentiates it.

Not to say there aren't going to be specific use cases where the ability to stratify a patient versus trying to actually select therapy might be useful or in many parts of the market, you'll have to actually really be able to kind of determine, early as possible, cancers coming back, what the next best therapy is. So I think it's also, by the way, our view is not going to be one uniform homogenous TAM to put it lightly.

So I think that's going -- and that's pretty consistent with the way we've thought about it in the past. And then sorry, I skipped the coding and billing one.

Yes. Again, I think it's apparently -- I mean -- or I think most people are kind of seeing and coming around to the view the way that the NCDs have been written, the way that CMS is approaching this thing is that, yes, indeed, the codes are now company/test agnostic and more describe the methodologies, this -- the number of genes and size of the family of the approach. And yes, many, many companies, we think, will be likely billing under the exact same codes and receiving the same.

Okay. That's great. And one quick one. The Archer acquisition was motivated in part by a desire to decentralize diagnostics with kits. The PacBio partnership seemed to be a sign that you remain very committed to optimizing the central lab. I know I'm oversimplifying a bit, but to the extent you'll bite on this, could you reconcile these observations? And more importantly, how should we think about these events in the context of your long-term vision for the market?

Yes. Absolutely. And I think what I would say is kind of -- let's keep in mind, the only difference between the lab running at Sloan Kettering doing a specific test and the production engine within Invitae is just a matter of scale and cost and whatnot. So the technology we purchased and the team and the domain knowledge, it's applicable -- that was at Archer, is applicable to both that decentralized ability to plant a kit and a pipeline down at the Sloan Ketterings of the world as well as bringing that up and standing that up in a very high throughput, highly scaled production machine then we can take and offer as a service to places that customers, clinicians that don't have a local clearinghouse for these kind of testing.

So I kind of want to just draw a distinction there. The technology is what's important, the people, the know-how. Now where the patient needs to be met is something that we think in oncology has still got some time to work out. I think you've probably seen there's anywhere from estimates from 20% of the market is centralized to 80% of the market is centralized and kind of everything in between. I think we've been pretty consistent saying, let's just assume for kind of a good 3 to 5 years, will be 50-50, either way.

For certain, in the long run, there are going to be places around the globe, national cancer centers, world-leading cancer institutes that are going to want to continue to run their own samples and run their own data locally. And that will always constitute some important portion of the market even as, again, just the raw and sheer economies of scale and adding new content and whatnot, kind of push the market for -- the send out approach or the centralized approach even as that develops more.

So it will be a healthy mix for some period of time, which is why, again, our view is, it's really important that these 44 million cancer patients get access to this information sooner than later, whether they're at a place that's going to run it in-house or whether they're at a place that's going to send it out. And that informs our thinking on that. And we think in that period of time, call it, the 3- to 5-year time frame, on an operating profit per unit basis, kind of -- that kind of view, we will aim to be indifferent as to kind of the exact market structure in 5 years.

It's -- again, I think we could talk about the ins and outs of why it would go one way or the other, but in the end, our goal is to be indifferent and help that patient wherever they might need to be served.

Our next question is from Tycho Peterson with JPMorgan.

A couple of follow-ups there on Archer. As we think about kind of PCM and the potential to have, could you have breakthrough device designation? Could that accelerate Medicare coverage through the MCIT rule?

Yes, we do, and we think it can. It's kind of a new-ish for a lot of people. So really hard to say exactly what that means, Tycho, and kind of what the reimbursement will look like. But nonetheless, that is definitely an important -- it's an important pathway, and we're certainly working with the FDA on exactly that.

And I'm curious what you need to do on the market development front, just on the kitting side as we think about whether hospitals are actually ready to kind of bring this in-house? I mean, what we constantly hear in the field is the send out model is efficient. It's quick. You get easy to interpret results. So like what do you think -- beyond reimbursement, really needs to happen to drive a decentralized adoption once you do want the kit?

Yes. I think it's pretty clear there are going to be places that want to run it locally regardless of any other factors that might push that decision-making one way or the other. And our view is -- and look, this is very much the Archer team's view has been, and we subscribe to -- is for those players to have it, one single box, room temperature, easy to order, easy to inventory, easy to use.

And then to have that be FDA-approved as opposed to have to stand up every iteration they're in on your own makes it dramatically easy to use. The price matters ultimately, if you're going to turn around and apply for reimbursement. And then it's the ease of use of the box itself and really the ability to have -- if you think about STRATAFIDE, it's a product that answers everything that one of those places would need to know to put a patient on a different therapy than otherwise would be indicated by that -- by the rest of the natural history of that patient.

And that all in one, plus an easy way to -- if it's the approved, then it's much easier to stand up and validate. It's a very different type of validation, much shorter, much easier, with fewer samples involved. And then, of course, the economics work because you can turn around and apply for these, I think, kind of relatively very high pricing that has been established for this therapy selection approach.

And then that's where, again, the price, the economics of the kit come in to help those centralized players do it streamlined as much as they can and do it easiest and the fastest way they can.

And of course, we have designs for the feature to also include all of the requisite variant interpretation of reporting, all of the data infrastructure that then comes along with -- by virtue of working with Invitae, can also be put as available, as a value-add for those places that really do want to run it themselves. But those are kind of -- it's kind of, again, the kit has to work, has to be as be accurate, has to be comprehensive, has to be cost effective.

The economics have to work. And then like I said, I think, in our hands and adding some more data infrastructure, it will be the best experience as possible for the patient as well.

And then a follow-up on PacBio. You obviously announced a deal at our conference. We never really talked about how that deal came together. And I'm kind of curious, as you looked at the sequencing landscape, the technology is changing quickly. There are a dozen-plus kind of third-gen companies incubating. I guess, what got you comfort that they had the right technology?

What got you comfort that it was the right decision to kind of subsidize the instrument development with them as opposed to a range of players in the market that are going to be moving forward? And then I've got one follow-up on that.

Yes. Sure thing. So real quick, there definitely are -- it's a burgeoning landscape of newer players with interesting kind of technologies in path to market. I think there's a distinction with PacBio, a couple of things. One is the proven long-reads is very important, right? It does lead to -- and particularly some of these pediatric indications, a 30-plus percent increase in diagnostic yield.

But also, I think maybe another thing to keep in mind is PacBio has been around a long time. So in fact, a lot of our assay development leadership at the company was at PacBio when RS was developed. So we know it very well, familiar with it. It's been around a long time. It's been put through its paces.

And so it presented to us an opportunity to where we had -- we asked ourselves the question, is this a technology for which simply a very, very focused specification and some energy and capital after a sheer engineering effort is what it will take as opposed to kind of real technology risk. And that's where kind of by virtue of them being around a long time, and us also, over those many years, staying pretty close to them, give us some comfort with that was the right thing to do.

We're not a venture firm. We're not a venture capital investment in tool space kind of play here. It was important that it was purely, in our view, manage a function of time and engineering.

And then, of course, when Christian got there, I think that was, again, someone who has seen what happens when there's a price curve that is written in a certain direction and kind of a like-minded approach to what could be possible if we came up together to really enable those long-read genomes to kind of basically take over as much sample volume as possible.

A very high-quality, long-read genome as the staple of medical genetics is a pretty exciting idea once we got going -- once we've got a full head of steam behind it, so we decided to go ahead and get going on it.

And I guess the other side of it is, what does it take to open up the market for clinical-grade whole genome sequencing? I mean how are you going to get payers over the hurdle there?

I'd say we're actually doing better on that than perhaps even I would have thought. The reimbursement for exomes in the pediatric PICU and NICU space is kind of in the $3,000 to $5,000 per test range. I think that's very healthy.

So that's happening. Now that's -- the reimbursement criteria is still smaller than -- what I think when people see the data that will be coming out in the next 2 to 3 years are going to see is obvious. But that's a very familiar path that we've been on with a lot of our disease (inaudible).

We also do have a fair amount of pharmaceutical biopharma partners who -- for whom those -- that outcome is super important for targeted developmental therapies. And that is, for certain, going to be a part of the reimbursement picture going forward. As well as, frankly, and this is -- again, this is our model at play. There's -- while not $250 like our typical panels, having a patient pay price that is affordable and accessible for families who have no other place to go for answers, that's another piece of it as well.

And I think that's kind of the best way I could explain it. We do think kind of probably a healthier mix of all 3 going forward. But like I said, it's positive on all fronts from that perspective.

Our next question is from Puneet Souda with SVB Leerink.

This is Westley on for Puneet today. Just wanted to start with the guide. I mean, it's been out there for a couple of weeks now, but -- so $450 million from our side gives about a high 30% pro forma growth rate. Seems like a relatively achievable level given the long-term 50% to 60% target and the backdrop of the pandemic last year. So just curious what's baked in there, where we can see upside and how we can bridge the gap to the 50% to 60% CAGR, longer term?

Yes. No, that's a good question. And I kind of fully acknowledge that we've given a guide on this year, and I think there's some question around it, which -- but also pointed to -- and I do think this is the more relevant thing -- that, more importantly, over the next 3 years, we think substantial growth.

Yes. If it means we only come in just above our guide this year means we've got some work to do for the next 2 years. But I'll be honest, I think that's kind of the -- our confidence in the overall picture is exactly that. This year, obviously, we're still pointing to and still see some uncertainty cropping up, whether it be region-by-region or country-by-country from COVID in the ever-evolving COVID saga. And so that uncertainty is still top of mind, it still is impactful on our guide.

In the few weeks since we've been kind of largely active talking, whether it be at the opening of the year or with our recent raise, we have, the last few weeks have only solidified our position in that we feel confident we can meet or beat 450 revenue. Also feel -- I would say, adequately or appropriately circumspect around kind of the choppy potential uncertainty from COVID.

So the single biggest thing, if you're asking in terms of upside is, if the world kind of clears up and COVID impact goes away sooner than later, then there's some uncertainty that it operates, if that happens sooner than later. I will tell you right now, it does not look like that is happening.

Now outside of that, of course, our traction on the kind of the direct market efforts, our traction with new clinicians, the whole new clinical areas, particularly we've been thinking -- looking at and talking about urology, for an example -- as an example of that. Our traction outside the U.S. again, now we're picking up an ever-increasing part of our business is outside the U.S. It's growing very rapidly and particularly strong in 2020. We think there's a lot -- there's even more pent-up demand there. And I think that's where we could really see some potential upside.

And then, of course, we point to I think the last -- it's not that it's obvious, but it's just that the reproductive market is still -- even with all of the really great companies and tough competitors in it, it's still a very shockingly low percentage of women who are having children that are getting afforded insights of advanced medical genetics. So I think that's -- those are areas where we could see some upside to swing things. And those are the areas that we count on over the next 2 to 3 years to provide that aggressive growth; of course, not really affected this year, but in the coming 2 or then when we start adding in therapy selection in cancer monitoring, we think those obviously will be a big part of the story for 2 years following.

Great. That's very helpful. And then just one follow-up on the mix of the business currently. I know legacy Invitae, pre-Archer and pre-pandemic, was around 70-30, I think, between hereditary and reproductive. And I know that inflected a little bit with the pandemic and the resiliency of each of the markets. But just curious where we can expect that to shake out and where we can expect the Archer portion of the combined mix to move, longer term?

Yes. No, it's a great question. I'm just going to admit -- I'm just going to start right up front by saying, we kind of don't know and it also, in a way, it really doesn't matter. With that said and I think it's worth pointing out, we are investing across all those fronts. So we are looking to grow our reproductive. We're looking to grow our pharma paid business, which tends to be more kind of non-cancer inherited genetics.

We certainly kind of see and we'll continue to expand the market for hereditary. Even our oldest line of hereditary oncology, we think has got plenty of room go by way of reimbursement guidelines expanding, like I mentioned, neurology.

And then certainly, as everybody points out, it's a huge TAM for therapy selection in cancer monitoring. The oncology pipelines are 90% full of targeted therapeutics, all -- many of which are coming to market in the next 2 to 3 years.

We would expect, in 3 years' time frame, that that kind of combination of risk assessment, therapy selection and monitoring in cancer could be a very substantial portion of the business.

With that said, there's no -- there's only acceleration in the biopharma pipelines kind of building and running clinical trials and looking for patients for rare diseases across all stages in life. And then, of course, like I kind of keep pointing out is that that reproductive health is a very, very large -- 30 million pregnancies a year in the markets we serve, and, again around the globe -- and a very, very, very small portion of those are being served today.

So it's not a flip answer of we don't know, we don't care. It's -- look, there are a lot -- it's going to be very dynamic in the next 2 to 3 years. It could go a lot of different directions, but we are expecting healthy growth in all of those areas. So I think if you look forward, I think a roughly similar mix wouldn't be out of the question. But we can also see a lot of factors that could move one of these areas much, much faster than others.

And we'll just -- we'll have to see we to see where our kind of market development and selling and marketing efforts yield the most in the near term, and that will ultimately determine that question in the short term.

Yes. Westley, the other thing that I would mention, it's Shelly. The one other thing I would mention is the reason why it's tough, as Sean indicated, to be able to disaggregate the business in the old way that we did -- diagnostic test 70%, reproductive 30% -- is that you do have these products cutting across in very different ways.

But when you look at the fourth quarter, obviously, if something like 15% to 20% of the fourth quarter was the Archer business, we won't give that moving forward, but that sort of pegs it, as we begin this journey together, that piece. And whether you put that in the oncology piece, the diagnostic piece or a piece of its own, we consider all of them as a platform.

And then the final thing I would say is in the fourth quarter, we did see a rebound in the oncology side of the business, as I indicated, on some of the collections and some of those ASPs and such. And so whereas earlier in the year, we found that the reproductive was more durable, we did see by year-end that we were getting more back to sort of the old historical rates that we had been at before, although reproductive is still growing very fast.

Maybe I'll just add one more thing there because I think kind of really relevant is, in the long run -- we've recently, in the last couple public presentations and on our call today -- in the long run, the answer to your question is kind of take the population at kind of the buckets, the phases of life that we've laid out there, and that ultimately is what our mix will look like.

Ultimately, our mix will be the number of individuals that are having genomics and genetic use in daily care at each age group at each stage of life. And I think that's kind of -- it's important. I think it doesn't really answer your question for the next 2 to 3 years, but I think in the 5- to 10-year period, ultimately, that's where we think our mix heads, is very much an entry point into the platform based on the stage of life that the customer is in.

(Operator Instructions) Our next question is from Tejas Savant with Morgan Stanley.

This is [Edmund] on for Tejas. Circling back to the collaboration, the advantages of gaining early access to new long-read sequencing platform is pretty clear, especially when it's optimized for Invitae. When do you guys expect to have access to the first version of the system running your test volumes? And how long will your preferred pricing structure stay in place? And this might be a little early, but looking into the future, how do you expect your utilization of short-read versus long-read to evolve once this platform is completed?

Yes. So I can tell already, I'm afraid I'm not going to have very satisfactory answers because -- but I'll do the best I can. So I think the short of it is, we think the deal the Joint Steering Committee has met, and we are moving toward -- when that's available, it's still hard to see, right?

There's a few decision points coming up here that our teams will be making, there's other iterations of the long-read technology at different kind of price points. And I think we'll probably be together deciding, do we have 3 deliverables or 2 deliverables or 1 deliverable, right, an ultimate deliverable. So unfortunately, we're not quite -- we're at a point where we can kind of -- we don't know, a short answer.

The duration of the cost benefit is something -- it's a detail of the deal that we're not going to be disclosing that. I think what we can say is, it's either/or. It's a duration of time and/or a number of samples.

So hopefully, I think that -- with any luck, that duration is relatively short because there are so many samples, millions of samples we're running on it that it makes it as such. And I think that would be the best for everyone involved. But nonetheless, it works something like that, but the details won't -- not at liberty to discuss.

Suffice to say, it's something that both gets Invitae what we need by way of kind of a compelling reason to build the market out and drive the application of using long-read sequencing for as much as possible in medicine. And of course, the ability for PacBio to then take those learnings, take the platform and kind of the other very high volume, long-read companies up and running.

So I think that's the rough silhouette of how that will play out. And then the aspiration, again, it's -- like I mentioned, there's a significant increase in diagnostic yield when you look at long-read. And how much of the sample volume it could displace is simply a matter of cost, and we're going to find out together just how much that can be.

Got it. That's very helpful. And then switching over to your reproductive health side and in terms of cost reduction, I think you guys mentioned earlier in your prepared remarks that you guys have a reproductive health test out, in-house. And I'm wondering, going forward, how much more cost reduction can we expect? I think you guys said this quarter it was about 250 for X Archer tests? How much more can we expect here?

Yes. So in terms of the COGS reduction in-house, so kind of on reproductive there's carrier screening, non-invasive prenatal screening, there's miscarriage analysis. There's a handful of other specialty type health of PGD, PGT, which are kind of really key tests for assisted reproduction. All of those, we continue to work on lowering the cost.

Certainly, the NIPS, one of the fastest growing products, it was one that we were running. We were outsourcing and then we had brought in-house. And now we have a further step function reduction in COGS as we switch over the bulk of the volume, maybe not all of it, to a different, a new technology.

Yes, we would expect, in general, us to continue attacking COGS quarter-by-quarter on the reproductive line, but there's no one specific kind of thing that I think would make a demonstrable single quarter jump -- single quarter decline in COGS. It's -- again, it's -- if overall, you kind of consider 30% of our business, of which maybe 40% or so is in NIPS.

That's the biggest COGS savings, but we're also working on the cost of goods for all of the rest of the offering. So I think that's -- in general, there's room to go. And again, we'll just continue to target 50% gross margin across the entire platform and have full confidence that we can get there.

Thank you. And just one last quick housekeeping question maybe for Shelly. I think you guys said in the prepared remarks that you will no longer be breaking out Archer volumes. I'm assuming that's the same for other Archer metrics such as ASP and COGS as well, right?

Yes, exactly. So what we wanted to do was to give you all the fourth quarter, since the first, second and third quarters for Archer were already published, both in our S4 and our acquisition documents as well as their prior S1s. And so we thought, complete the year, give you a starting point so that you can model whatever you want moving forward, but that this would be the last time, in part because as we've been talking, we're integrating all of these programs into our other programs.

And so it's not a discrete separate business, and we'll make our decisions based on what's best for the platform and the company and for the patients as opposed to trying to accelerate their particular business because that's what people are expecting.

So I think it's the same as we've done for every other business, which is rapidly integrate them into the whole, into the platform and be sure that we're keeping our eye on what is best for the patients and how rapidly we can get the test out, as Sean was saying, to those 44 million patients who need this test in an acceptable and affordable price.

Next question is from Ophir Gottlieb with Capital Market Laboratories.

Last year, with the Q4 preliminary report and the full year guide, you shared a few new metrics. One was new accounts, and there was something like 71% year-over-year growth. And then there is this other metric, this reorder rate for new accounts, which was up something like 80%. Can you share those organic metrics for 2020, so excluding Archer?

Yes, we haven't -- I tell you what, it's one of those things where -- with everything COVID, it got messy enough where it didn't really make a lot of sense. That is something that we will discuss going forward and will continue to kind of include as a key important thing to show commercial traction, particularly traction with our current accounts. But I'll kind of put that on the altar like with all things COVID, we had most of the field out of the --- most of the reps out of the field for good, if not all of it, depending on the region, it just didn't make a lot of sense to look at it and discuss it broadly. It wasn't a real comparison, but I would offer that as something that we will continue to look at. And I think kind of once we get out of this COVID era, it will be something that -- it's an important thing we talk about publicly.

Okay. So does that mean that the vast majority of growth, even those hampered growth in 2020 was then from existing accounts?

I think that that's a fair assessment. And I think more importantly is we were doing a ton of experimentation with kind of our newly acquired chatbot, a bunch of front-end development in telemedicine and we were able to acquire some new accounts and -- which was interesting, but also the rationale and reasoning behind it was sporadic enough that we just want to be circumspect about what that actually means versus is that durable? Can -- are those accounts sticky or did they just come to us because we were the only one that was nearby with an offering that could do by telemedicine. Those are -- that's generally right, Ophir. There was a lot of same account stuff with some -- new account action taking of toward the end of the year and now kind of once we can get out there. But it's like I said, it's a little murkier than -- it's murky enough that we don't think it's something to point out or kind of have a lot of discourse about, at this point.

And ladies and gentlemen, this concludes the Q&A session. I'll now turn the call back over to Laura D'Angelo.

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

Ladies and gentlemen, this does conclude today's conference call. You may now disconnect.