Invitae Corp (NVTA) 2021 Q4 法說會逐字稿

Good afternoon. My name is Emma, and I will be your conference operator today. At this time, I would like to welcome everyone to the Invitae Fourth Quarter 2021 Financial Results Conference Call. (Operator Instructions) Thank you.

Jack Finks, Investor Relations, you may begin your conference.

Thank you, operator, and good afternoon, everyone. Thank you for joining us for our 2021 fourth quarter and full year results call. Joining us today are Sean George, CEO; Roxi Wen, CFO; and Ken Knight, COO.

Before we begin, I'd like to remind you that various remarks that we make on this call that are not historical, including those about future financial and operating results, plans and prospects, focus of our business strategy, plans to integrate and manage businesses we acquire, market opportunities, future products, services, our product pipeline and their timing, demand for and reimbursement of our services and investments in our infrastructure and operations. These statements constitute forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act. It 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, the section titled the Risk Factors for additional information on factors that could cause actual results to differ materially from our current expectations. These forward-looking statements speak only as of the date hereof. As you listen to today's conference call, we encourage you to have our press release available, which includes financial results as well as key growth metrics and commentary on the quarter.

To supplement our consolidated financial statements prepared in accordance with generally accepted accounting principles in the United States or GAAP, we monitor and consider several non-GAAP measures. We exclude from our non-GAAP operating results as applicable, among other items, amortization of acquired intangible assets, acquisition-related stock-based compensation, post-combination expense related to the acceleration of equity grants or bonus payments in connection with the company's business combination, adjustments to the fair value of certain acquisition-related assets and liabilities, including contingent consideration and acquisition-related income tax assets. We exclude from our non-GAAP cash burn as applicable changes in marketable securities, cash received from equity financing and debt and cash received from exercisable warrants.

Non-GAAP measures may 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. And we encourage you to review our GAAP to non-GAAP reconciliations, which are available in the press release and in the appendix of the earnings slide deck, both of which you can access by visiting the Investors section of the company's website at ir.invitae.com.

With that, I'll turn the call over to Sean.

Thank you, Jack, and good afternoon, everyone. As you will see our line on our call today, we're tapping into something unique at Invitae. Aside from quarterly and sometimes even annual short-term revenue fluctuation, solid fundamentals back our top line execution, and we are well positioned to continue that growth in the years ahead as we hurdle forward to meet the immense unmet demand for the use of genetic information in everyday personal health. Today's call will be numbers and metrics heavy, so I won't go deep into our full year financial performance.

But in summary, revenue and volume growth were as expected, growing at approximately 65% and 77%, respectively. We finished the year with very strong provider account growth and the addition of almost 1 million patients to our platform throughout all stages of life as we continue to develop an integrated solution of health information, digital solutions and data services that will shape the genomic medicine era.

The technology cycle kicked off at the dawn of the genomics medicine, now 20-plus years following the human genome project, is presently set to dominate our industry. The fundamental knowledge of the human genome and its impact in health care is driving the single greatest shift in medicine in recent history, a shift to where in time, most diseases will have a well-understood risk that can be minimized or stays off. And if or when they arrive, can be rendered a chronic condition to be managed for years or even decades of a customer's life.

In 2010, they sounded like science fiction. But if you take a step back and look out at the genomics landscape, is coming to focus quickly and a company that can provide the science, infrastructure, support and guidance for customers throughout their own personal health journey can lead this shift with immense impact for customers, providers and the industry at large. To make this future reality, we'll require investment in time, but we're committed to maintaining sustained high rates of growth and unlocking the value presented by this immense opportunity. The company that can deliver the capabilities I just mentioned will be transforming very large, durable and converging markets in health care.

What I mean by converging markets is it's soon the provision of any single test or results at a given call point will become far less relevant in the ability to provide information in the context of the individual's broader personal health journey. The general tailwinds for our growth are picking up, coming from rapidly expanding biopharma pipelines full of genetically targeted therapy, a better understanding of the improvement of health and a cost outcome driving private payers and national health care systems to adopt and changing perceptions and attitudes about the role of the patient and their own health care and engagement from those paying for. At virtually every major medical meeting, the number of studies leaking genetic information to better clinical decisions and outcomes continues to expand. The concept of genomics is a subset within certain medical specialties is being replaced by the understanding that genetics and multi-omic information will be the underpinning for care across all areas of medicine.

As for specific drivers of growth over the next 2 to 3 years, we see the following. In pediatric disease, our neuro-developmental delay offering has recently launched, and we have improvements coming throughout this year, our exome testing, moving to an offering based on the customer's genome. This combined with improving commercial reimbursement and rapidly growing interest in genetic disease from biopharma partners set a great backdrop for growth at this stage of life.

In reproductive health, we still see a large unmet need for core genomic offerings for young women having children. Our broad offering incoming improvements in ease of ordering, logistics, clinical decision support and patient services will continue to drive growth and improved health for both mom and baby. For oncology, adding to our leading position in inherited risk for cancer, this year we will commercialize the cancer monitoring and therapy selection offering that is as good or better than any of the leading companies in the market. This, combined with solid demand for our distributed oncology offering, growing demand for comprehensive precision oncology solutions and attractive reimbursement set us up well for helping more customers understand their cancer risk and be armed with the information to fight and beat the disease.

All of our growth across all of these stages in life fuels our data and platform services business. We've recently broken this revenue line out, and we expect this part of our business to be an outsized contributor to growth as interest grows in a large network of patients who are interested in utilizing their data with ecosystem partners. I look forward to sharing much more about our investments in the content, production, digital health tools and patient-owned data network capabilities we're building during our Technology Day in a few months. But for today, we'll focus on the financials.

For the first time, we'll be guiding not just to the top line of our business, but also to gross margin and cash burn. We'll also be introducing some nontraditional metrics and key performance indicators for investors to follow on a quarterly and annual basis. These are the next level of key performance indicators that we run our company against, and we're going to invite everybody to watch these quarter-by-quarter.

This is a reasonably big shift for the company undertaken primarily for 2 reasons. First, we're building a new category, pursuing a novel business strategy, and it's an ambitious undertaking. As such, the standard measurement tools used in the specialty diagnostic industry are not helpful in measuring or modeling the business going forward. We are attempting to be as transparent as is useful to help all investors understand how we are thinking about running the business and follow our thinking and execution at a detailed level.

Second, we've crossed industry-leading growth for many years now, pursuing this unique model, pushing past $0.5 billion in revenue, will be at $1 billion and then $2 billion before we know it. The size of the numbers at this point is such that instead of pursuing our unique strategy and growth at all costs, we'll be operating the company aggressively and adding targets for gross margin and cash burn reduction, providing a clear picture of our march towards generating large sustainable cash flows in the future.

I'll hand the call to Roxi to walk us through this year's results and forward-looking metrics.

Thanks, Sean, and thank you all for joining us today. For the remainder of the call, we'll discuss non-GAAP numbers, including cash burn. As we noted in prior quarters, it is easier to understand our business and financials by providing non-GAAP metrics to allow for comparison of the 2 sets of numbers. We urge investors to review the detailed reconciliation to non-GAAP financials included in today's press release and at the back of the slide deck.

In the appendix section, we also included Q4 billable volume, ASP and cost per unit data. Before we move to the detailed financial update, I want to note that this will be the last time we'll provide the blended ASP and cost per unit metrics in our quarterly update. As our business evolves with dozens of products across all categories, each in various stages of maturity, aggregate price and cost data will become less helpful to properly model and assess performance. Consequently, we'll be focusing our comments on revenue growth, our new metric dashboard and other selected financial data on a quarterly basis while continuing to disclose our billable volume data as part of our 10-Q and 10-K filings.

In 2021, we generated $460 million of revenue, and the revenue breakdown was as follows. Approximately $281 million from oncology, including germline testing, therapy selection and companion diagnostics. Approximately $83 million from our women's health offerings, including NIPS, carrier and other reproductive tests. Approximately $57 million from the rare diseases and other testing, covering cardio, neuro, metabolic and newborn screening. Data and platform revenue was approximately $39 million. This includes data management, analytics, data as a service and certain biopharma and patient identification program. We included Q4 revenue performance and breakdown in the appendix of the slide back. Revenue from all 4 areas increased nicely in the fourth quarter and across the past 3 years.

Moving down to P&L. For 2021, non-GAAP gross profit was $168 million, which translates to a non-GAAP gross margin of 36.6%, a 1% decline from the prior year. In the fourth quarter, non-GAAP gross margin improved slightly to 36.5% over the Q3 gross margin of 35.6%. Non-GAAP operating expenses were $771 million or 167.5% of revenue compared to $457 million or 163.3% of revenue in the prior year. The operating expenses include costs from newly acquired businesses.

As we stated on earlier calls, the rate of growth in spending will come down in 2022. We're committed to this goal and as we scale the business and manage returns on investment at the total portfolio level.

Moving to our cash position. Cash, cash equivalents, restricted cash and marketable securities totaled $1.06 billion at December 31, 2021, compared to $1.25 billion at September 30, 2021. Full year 2021 cash burn was $849 million, including cash for acquisitions, or $569 million, excluding acquisitions and related expenses.

Invitae's business model is highly differentiated and ambitious. As discussed on the last conference call, we spent the past 8 months doing the work and taking the facts necessary to help offer visibility into the fundamentals of our business. Going forward, we'll provide clear visibility to a new set of key business metrics. We selected and developed these metrics based on their operational significance and ability to accurately describe returns on investment. These categories include expansion of our current commercial access points through clinics, hospital systems or pharmaceutical partners, growth of our patient population and patients available for data sharing, revenue per patient for our testing and services business. New product vitality demonstrates our new products developed or acquired over the last 3 years connects strategic investment decisions to the freshness of the portfolio.

And last but not least, is the category of leverage. In addition to the standard OpEx metric, we will report operating cash flow as a percent of revenue to show scale and improvement. Today, our operating cash flow is consistent with our cash burn performance by reaching net operating cash flow is now a due focus with continued rapid growth so that we can replace the current form of investment capital with a self-funding model at scale. So these metrics success will not be measured by increasing every category in every quarter, and we do not plan to go into detail on every call about every metric.

To be a useful dashboard, they will signal progress, but also trade-offs and even areas that need attention from time to time. Our objective in sharing this metric is to offer more transparency into a dynamic, fast-changing business and to provide a consistent balance perspective on performance. We intend to maintain and publish these as a quarterly update as we move forward, and I will walk through a few of the highlights here.

Under portfolio growth, our active accounts and active partners both increased rapidly over the last 3 years. Similarly, the number of patients we serve, a number of them who are available to share their data have also expanded nicely. New product vitality has been steady growth from 51% in 2019 to 64% in 2021. Revenue per patient measured by the total platform revenue divided by the number of ordering patients for the period grew from $456 in 2019 to $491 in 2021, primarily driven by expansion of the average number of tests per patient and growth in non-patient-specific revenue, including data, platform services and oncology kits. As revenue per patient starts to diverge from ASP, we're encouraged by this early proof point of the future growth potential from the platform we have invested heavily in since inception.

Moving to operational excellence. Non-GAAP gross margins have experienced considerable downward pressure as compared to our long-term target of 50%. We have multiple levers in the business that can drive margin expansion, and we're already taking some of those actions and expect margins to improve in 2022 and 2023. Variable cost productivity measures the efficiency of variable costs relative to the volume growth in the period. Examples of variable costs include lab material shipping and labor. And it is important to note that negative numbers in this metric represents favorable productivity. The performance bounced around over the last 3 years. And in 2021, we've seen a recovery from 2020 when COVID significantly impacts volume, driving a decline in productivity. Gross margin improvement was held back in 2021 as growth in lower-margin products more than offset productivity gains.

On the strategic investment front, the trend of R&D as a percent of revenue and capital used for M&A, including both cash and stock reflects our bold investment strategy and growth ambition and the impact of this investment is partially demonstrated in our top line growth and new product vitality metric.

As to our guidance for the year, we're providing revenue growth guidance of 40% or approximately $640 million for 2022. As Sean mentioned, the combination of the fast-growing accessible market and dynamic opportunity we see for market share capture and strategic activity will always keep our internal growth goals at high levels for years. But we believe that 40% target represents industry-leading growth and gives us some room for upside for both organic and inorganic activity. For gross margin, we expect a steady increase over the course of 2022 to a full year gross margin to be in the range of 42% to 45% and exiting the year at a run rate higher than 45%. This year-end run rate margin guidance should showcase our revenue growth and operational improvement throughout this year, and we may choose to discontinue this guidance metric in future years.

And finally, our cash burn target. We're targeting a cash burn of between $600 million and $650 million during 2022. It is important to note that this cash burn target include any cash we deploy for acquisition-related activities and that it is a reduction of more than $200 million from the $849 million cash burn in 2021. We also plan to exit 2022 with a cash burn run rate that enables ongoing reduction as we continue driving the business to positive cash flow in the process.

Now I'll turn the call over to Ken, who will tie together some of these metrics and goals with some core operating factors and programs. Ken?

Thanks, Roxi. Building a pathway to positive operating cash flow was not a burden that distracts us from our core objectives to grow aggressively. In fact, it is positive operating cash flow that will largely replace the capital market and providing the jet fuel for our industry-leading growth. We were pleased with the trajectory of revenue from 2020 to 2021 and our investments to expand our breadth of products, combined with our talented sales teams delivered a nice top line. By during that same period, gross margins deteriorated as we saw some cost climb with the ongoing global pandemic. We also experienced unfavorable pricing as a result of uneven demand that was constrained by access to patients and we worked through high variations in supply and demand that drove inefficiency and required unprecedented agility to protect patient and customer experiences.

We were nimble and remained focused on servicing our patients and customers while keeping our people safe, and it was not easy. However, we also kept an eye on the long term. We got deep into the integration of ArcherDX and made other strategic acquisitions of Medneon, Ciitizen and Genosity which are expanding our product and digital health platform offering. We see a path to leveraging our breadth to deliver unquestionable value to our customers and have developed a robust list of actions to improve gross margins in 2022. All of these were key leaders assigned who are accountable for delivery.

Recognizing that OpEx as a percentage of revenue has increased significantly over the past several years, we're taking a more critical approach to spending. To establish priorities for our team, we developed a list of nonnegotiable imperative against which resources must be applied. This led to an initial resource reallocation exercise, reducing spending that did not align with the imperatives. I mentioned several acquisitions earlier, and we have visibility now more than ever into value generation of our M&A. We are inspecting our execution not only for revenue growth, but also for operating cash flow implications.

And finally, there is work underway to inspect our reimbursement, pricing and product positioning opportunities, specifically looking through the lens of improving revenue quality as we grow.

So let's move to Slide 17 to look at the framework of how we plan to move from 36% gross margin exiting 2021 to exiting 2022 at 45% gross margin. The list of actions covers productivity, pricing and reimbursement opportunities, improvements in supply chain and product-driven enhancement benefiting from modernization, automation and integration of recently acquired assets. We recognized the significance of the task at hand and have operating mechanisms in place to continuously gauge our progress.

As we shift to Slide 18, in OpEx, you'll see a significant reduction in the expense growth curve from 70% growth in OpEx in 2021 to approximately 20% growth in 2022. While 2021 was influenced by development related to acquisitions and by product launches planned for this year, 2022 investment will be earned by the ability for the cost to drive top line revenue or gross margin improvement this year, the necessity for the cost to deliver differentiated patient or customer experience and the alignment of the cost with unlocking our key future imperatives. So yes, there will be trade-offs. But as you have seen in earlier slides, we are still committed to growing at an industry-leading pace while maturing the overall business fundamentals.

Thanks. And now I'll pass the floor back to Sean for closing.

Thank you, Ken. We've long shown this ramp view to our business model in an effort to describe how we see pulling forward the future of medicine. Our progress in addressing patients' needs throughout their lifespan and the emergence of our platform and data services and demonstrate progress up the curve into the genomics network era, where genetic information can be shared on a global scale to diagnose more patients correctly, earlier and bring therapies to market faster. The more genetic and other personal health information we can provide, the more patients we can add to our network. And the more patients in our network, combined with other information we can take in on their behalf, the more we and our partners across the health care system can do for them.

When we started this company a little over 10 years ago, essentially nobody was benefiting from genomic information in their day-to-day health and wellness. Ten years from now, almost everyone will. Current market environment notwithstanding, this is the most exciting time, in the most exciting industry transition of our time. I want to especially thank our employees and investors who have been with us for years and who support the important work that we're doing. It's the future of medicine, and I extend a hearty invitation for anyone not involved to get on board and be a part of that story.

Now before we go to Q&A, I feel the need to point out the obvious that while this company and our mission is the most important thing in every waking moment of our lives today, it's really a small thing compared to the global geopolitics being played out at the expense of thousands of Ukrainian and Russian people's lives. There isn't really anything more for me to say on that, but we do have over 5,000 Ukrainian customers as well as teammates and business partners in the region we'll be tending to.

With that, I'll pass the call back to Emma for Q&A.

(Operator Instructions) Your first question today comes from Dan Brennan with Cowen.

I guess maybe the first question, Sean, would actually be on the burn guidance, which is impressive, far better than what we have in our model. Can you just walk through the OpEx kind of growth? It's a huge step down. And I'm just wondering if you could give us a little flavor kind of across your kind of segment to R&D, kind of SG&A and kind of how kind of -- what is it currently in '22 on those line items? And what's the risk that the cuts kind of create a pressure point in your top line growth since this is a pretty material change?

Sure. I'll let Ken answer the majority of it. I would just -- I'll end that I pay the closest attention to the top, and it's a balance. It's getting to -- like I mentioned, we're going to be pushing past $1 billion and then to $2 billion in revenue. The numbers are getting big enough that tending both top, middle and bottom is just makes a ton of sense. But make no mistake, our current plan has us industry-leading growth for the foreseeable future. There's far more opportunity for growth out there, with some limited capital, we will continue to chase it, but it's just the scale of the company this time makes sense. I think it's really important to hear from Ken though, he can kind of speak to each line item and give commentary on that.

Thanks, Sean. What I would say is that as we've described, first of all, don't underestimate the impact of improving our gross margins. That's the first and foremost is to the focus we have on gross margins. And we have a long list of, I think, very strong and robust actions that are going to improve gross margin, so that's going to obviously improve our cash burn. From an OpEx standpoint, the work we did early on to align to our imperatives allowed us to do a couple of things.

One is to reallocate some resources. So we did not have to grow as much because we reallocated some resources to the higher priority items that are driving the top line. So it's actually a good match between driving the top line and making sure we have the resources aligned to those priorities. And then secondly, it really boils down to making sure that the deliverables that we have coming out of our development activities stay on track. And with new products that we're launching this year, we feel really great about our ability to grow top line because we have new entrants into the marketplace. And so summarily, we're controlling costs, but we also are not depressing our growth, and so we feel good about doing both. And I think it's a situation where we can do both, and we will do both.

And then maybe kind of a follow-up on the top line. So Sean, the 40% growth is around what the street was kind of anticipating. Could you give us some color on the oncology business and why you're not going to break Archer out, it's likely a material driver within that growth rate? Can you give us a sense of how we should be thinking about growth in your oncology franchise in 2022? And just give us an update on kind of the Archer products and kind of time lines and any way to think about the impact of those? I guess that would be my second question.

Yes. And I think it's relevant to oncology, it's also relevant to the rest of the business. So if you kind of first take a step back, our new product vitality, which is why I was trying to break this out, which is fueled by M&A. The new products acquired in the last 3 years are putting up outsized growth, contributing to the top line and whatever disease area you're in, and oncology included. Our core growth -- core product growth, our leading franchise inherited testing continues to put a very impressive, very strong growth numbers.

So we can start with a backdrop, the foundation of growth from an industry-leading perspective and add on that, we just recently launched IVD kits for therapy selection globally in addition to some of the Japanese and other local regulatory approvals that have already been in play. There's increased demand for precision oncology solutions around the globe, which will drive oncology growth. And in the first half of the year, we're launching our monitoring service, we call it personalized cancer monitoring. And the second half of the year we'll include in that exome-based therapy selection, all of which is contributing to the oncology group's growth. The decision to not break it out, I mean, even just in oncology, it's 5 or 6 different key products, at least, for distinct call points, especially when you load in geographies.

And we really do think the best way to look at this is look at the oncology top line revenue growth. All of those technology and products will be contributors. And we'll continue to break out that which is new product versus kind of foundational product offering every quarter here on out, and that's going to tell a story. We're really excited about, obviously, everybody is excited about the precision oncology market. There's -- I saw some chart recently. There's something like 18 more companies with an offering and screening, therapy selection, monitoring. It's an exciting time for precision oncology. And we're a little later to the table than most. But I do think given our very strong brand in medical genetics, a very strong commercial presence, I think we've got a chance as any delayed scientist for what is going to be a really, really important opportunity.

We will resume with the question from Chad Wiatrowski with SVB Leerink.

Just in terms of PCM, I was wondering if what type of data we could expect to see here in 2022 with some upcoming conferences on the horizon? And can you sort of highlight how you view these large prospective data sets with longer follow-up times and how important that will be in capturing market share longer term?

Yes. So we've got -- I don't have the graph in front of me, we can actually send that out to everybody. But between INTERCEPT, METex14, work going on the BloodPAC consortium, there'll be inflow come out throughout the year of the performance with that later than a handful of studies going on throughout 2022, toward the end of '22 and into '23, kind of 7 or 8 of them that I think are worthy of note. I think this is the kind of thing where what we know is in the hands of people that are comparing the technologies for sensitivity and specificity and ability to be quantitative. The technology is as good or better than anybody else out there. The need for and the number of large prospective trials to bring in the kind of guidelines for reimbursement.

Yes, we're doing those as well. And I think the entire of the space is generating enough data there to demonstrate. Our view in the long run is that the reason that this is going to be applied to every single individual battling cancer is because what we know is, indeed, if you detect cancer coming early -- coming back earlier at the molecular level and treat it earlier and address that treatment for any new targeted variants, targetable variants or a resistant mutations to show up, the patients live longer.

And I think that the sum total of all the research and all the trials going into this, according to that basic premise, which again at first principle levels from a molecular oncology perspective has already been known for a dozen years or so. And so to answer your question, in the long run, the -- all of the data, preponderance of data that shows the utility of these kind of tests is going to drive an amazing amount of demand for them. And then the companies that have the sensitivity, specificity and the quantitative capability will then be engaged in a market struggle for market share.

And just a quick follow-up there. In light of those ongoing clinical trials and the commercialization ramp behind PCM, some of the new product launches you highlighted. What gives you that confidence to be able to guide down to a cash burn reduction. And that's it.

Yes. I mean, a lot of it Ken covered, and you can see on the slide, specific efforts on the gross margin and specific efforts on operating leverage. The sales and marketing leverage, right, has been showing up last year is a good example, 35% sales and marketing increase with a 65% top line. That will continue G&A leverage. And then a big chunk of it from last year to this year is R&D reduction in total growth. It's still a very large investment in the space. There's a ton of opportunity to chase. Just metering that against the cash burn that we're doing right now. And with the balance sheet we've got, we feel really comfortable where we are to that end.

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

This is Griffin on for Brian. Maybe just first on gross margin, the guide. I appreciate the higher level commentary on the corporate gross margins. Can you just frame the gross and operating margins on each of the 4 business segments and ultimately where those benefits for the corporate margins are going to come from?

Yes. I mean I think the gross margin overall can walk through the path to the exit rate we want to get to. By business area, this is where -- there's a reason we don't break it out, and that's because it's fundamentally and in actuality is a single platform. To be honest, it's not quite that simple, but effectively, it's a single platform generating the genetic data to deliver these results. Some parts of production generate results for different parts of those businesses. And when you include then where we're going by way of multiple tests per patient, the gross margin per category gets kind of a little bit of losing the force for the trees.

With that said, all of the improvements that we are putting in place essentially apply to all of the different business areas. Obviously, NIPS in reproductive health is a little bit different than a kind of mainline inherited genetics part of our production platform. The therapy selection and the PCM, the MRD testing, that also is different enough. But then when you start factoring all of the limbs and the sign out and all of the kind of [non-wet] lab production costs, it really does kind of get all [mixed in one jumble].

So a long way of saying, essentially, no, we're not going to break out GM by business area. They're really kind of consistent with the way we view the pricing or the kind of blended ASP. It really is the major -- the real gain is what's the overall gross margin and where is it trending by the end of the year. And that, we have plenty of levers to pull. It's something that we've done over and over and over in past years, and we're confident about where we're going for this year.

And then you just talked about the transition from a lab and diagnostic company, a little bit more of information management company. Ciitizen was obviously a big step there. But what are the other areas do you think you need to round out to ultimately enable this transition?

Yes. And I appreciate the question. And again, I would point out, we've kind of been pretty consistent. Actually, we've been very consistent with the strategy and what kind of company this is for many years. I think it's been now 7 years or more in the public eye. That little cartoon that we show of our business ramp, business model ramp has not changed much since then. We've always imagined this is a pretty -- this is a new category to really put a GM's worth of information into play for an individual from birth to death is fundamentally more of an information utility than a testing business.

We've always been pretty clear about that. As you've noted, we've commented that we're kind of now in the middle of that progression. The things that are missing are just continued improvement in the customer experience on not just on the clinician side, but the individual customer themselves, better administrative and kind of ways to tie in with systems and governments that are interested in providing this kind of information and managing it on their patient's behalf. There's still much more we can do by way of digital tools and clinical decision support.

What we're going to see here in the next 2 to 3 years is the clinicians utilizing this information is going to very dramatically move beyond the specialists or the disciplines that have some comfort with genetic information. It's going to move all the way out into community oncology, all the way out into cardiology, pediatrics and maybe even the primary care setting. And that's where those digital tools and clinical decision support tools are going to be really, really important.

You mentioned Ciitizen, I think that this is also something that we think is really important for the increased utility of the information. The more patients and the more information that we can host and make available to other ecosystem partners, again, with the patient owning and controlling it. We think then other ecosystem partners across industries can bring their capabilities to bear, helping those patients out and increasing the utility of the information in the first place, which then drives a virtuous cycle of kind of what was the old testing business, but then moving forward even more rapidly into an idea that this information can be managed and put to use at the right place at the right time for that patient throughout their life.

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

This is Yuko on for Tejas. Regarding PCM, could you walk us through your thoughts on how you're thinking about balancing cost and sensitivity with the ability to include perhaps more targets than some of your competitors?

I'm sorry. The first part was the tradeoff between which and more targets?

Sensitivity and…

Yes. That's right. That's right. So I think our view is sensitivity, specificity and being able to be quantitative are probably the most important, equally or the most important, just behind that is the cost. And I think that that's where the AMP chemistry that we've merged in now to our technology stack from Archer, from the Archer acquisition has a great characteristic there. It's a very cost-effective way to generate that cell-free tumor ctDNA signature. And yes, it kind of lends itself to being able to go to a very large number of variants, which is really helpful.

And at the same time, controlling on the cost side because -- and the reason the cost side matter is even though there's a very good news in this kind of corner of our business is that reimbursement is extremely high for those indications for which there is available reimbursement. On the other hand, it's very clear that it's going to be a little -- this is going to be an interesting path ahead as I would predict oncologists and people battling cancer are going to demand this kind of information far ahead of reimbursement guidelines broadly developing, especially with the commercial payers and certainly around the globe.

So this is where the cost basis is going to become really important as we test price out to try to get to all 30 million cancer patients battling cancer in the markets we serve. And just a reminder, the benefit of that is, if indeed, which it looks like, these patients live longer as a result, that's good for our customers. It's also good because the market gets that much more bigger every year those patients live for monitoring services. So that's where the cost basis comes, is really important as we look forward in the next 2 to 5 years.

And then just a follow-up. Just to clarify, when you announce entry into cancer screening efforts later this year via organic or inorganic methods. Should we assume that effort would lead to step-ups in cash burn this year from the guide? Or is it already contemplated there?

No. The guide is the guide on cash burn. Just to clarify, I don't know if you're referring to this call or past comments, the early cancer detection is something we're evaluating solely as an R&D effort, internal or looking kind of scouting external. But whatever we end up doing and timing there in, it won't affect -- it's baked into our cash burn guide this year.

Your next question comes from the line of Tycho Peterson with JPMorgan.

This is Casey on for Tycho. So you previously stated that in 5 years' time, your ex-U.S. presence will double to around 30% of revenues. Just wondering, are the CE IVD launches of FusionPlex and LiquidPlex that you just announced recently enough to get you there? How much ex U.S. sales force expansion is needed? And what will the impact look like to gross margins?

Yes. So that's a -- it's a great question, and it's actually -- it's emblematic of the balancing act that Roxi can walk us all through. Let's see. Is it enough to get us there? Honestly probably, there's enough global demand for that precision oncology distributed solution than it probably could over time. With that said, we still see demand for inherited testing and other around the globe. We have added -- on a percentage basis, we've added significantly to the ex U.S. business development and sales and marketing efforts. We expect that to pay off.

Now on the other hand, also prices are different around the globe, and that's something we also meter, particularly as we mentioned, in this year, we're paying attention to managing carefully both top 3 -- all 3; top, middle and bottom. And that may have a slowing effect on the total of how fast we get to a 30%-plus of our revenue from outside the U.S. But honestly, I don't think it really changes the story that much. Those are the moving pieces. We'll continue to invest and receive the benefit of that investment outside of the U.S. There's a lot of tailwinds behind it, and we'll continue on. But yes, pricing is lower outside the U.S., and that's just something to factor in.

Then just going back to gross margins for a second. What sort of leverage are you expecting to see this year from some of the recent tuck-in deals like Jungla and the others? Are other sort of tracking as planned there? And then is there anything baked in, in terms of inflation or supply change?

Yes. I'll tell you, I'll answer on Jungla and Diploid, the answer is -- short answer is yes. In fact, that continues to help us reduce our cost basis of signing out ever -- signing out reporting on and developing patient next steps for ever increasing sizes of data sets being generated up to including genome, which we're going to switch over to this year. And those 2 acquisitions are critical for both reducing our costs, reducing the bus rate and improving the overall quality and kind of being the -- I would claim on the vanguard of medical genetics leading the industry forward. So those 2 are very important on that perspective. On the rest of the gross margin improvement, I think Ken kind of covered all the major points today on the call.

And then if I can just sneak one last one in. How much cash burn is going towards the PacBio partnership? And then generally, is there anything in terms of milestones through this partnership that we should be paying attention to this year?

Yes. Yes. We haven't -- we launched that at the beginning of last year. We are not -- have not and are not disclosing the financial arrangement. I mean we suggested that these things, what the milestones you're talking about typically take $50 million to $100 million over 3 to 5 years. When we started it, we thought that the first treats of that would come at a 2 or 3-year mark. It looks to us, at the last joint steering committee it looks to us as we're on track for that. Getting to the point where a long-read genome from PacBio can be very close or replace a short read or at least kind of be blended in to kind of be offered to every patient coming in the door. That's a longer-term objective. It continues to look technically feasible, continue to look about the time line we thought. Really pleased to be working with them on that. It's an important development.

As we've mentioned, there's a lot of disease areas today, the ones that are known or that there's more information about the matter, diseases that particularly show up early in life. And if you can get, increase the diagnostic yield for some of these kids with these undiagnosed diseases, it means the world. So we're really excited about that and going to continue to continue working with them to try to accelerate that.

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

I'm sure we're going to probably get more of this at the Technology Day, but you've seen pretty significant growth in the Data and Platform segment. And obviously, it's still a smaller portion of your overall revenue. But maybe if you could just talk about the various growth drivers in that business that can help you continue to achieve that growth that you've been seeing?

Yes. I mean and it is new and early, albeit it is significant enough, we felt it was important to break it out. I think the -- we can kind of start with what we're currently doing. So -- and again, first of all, I'll just point out because I feel obligated to do so. The data business that we're building is 100% patient owned and controlled. So they kind of view ourselves as the brokers or the ambassadors or the caretakers of that data, whatever -- however you want to view it. Again, I just feel it's always important to keep everybody square and the different approaches to the data business that some companies are taking.

Ours is one where the patients own and control it. To date, the revenue is generated either by pharma partners looking for patients for specific variants or natural histories that are important for trials or to put on therapy. So that's kind of a major chunk of that. There are also analytics offerings that we -- and soon others will be putting on top of that patient data network. But I think it's mostly biopharma partners now, but we hope in the future other researchers, whether they be government or academic or whatnot, can pay for a data analysis on a larger set of that patient data.

Including in there as well are some of the other platform services, whether it be pipeline analysis, sequencing services, data decision tools or others that other people -- other players are using or licensing. In the future, we hope to continue to expand the offering. We've got a lot of ideas of different economic models that can work in an ecosystem of what we're very likely, we think end up being a coopetition based ecosystem around that outpatient network. But those are the major economic activities today, which we would count on for the growth for this year and in years out, we're optimistic about new and creative ways to continue to grow that business.

And then just given the more measured level of spending, how are you thinking about internal capital allocation? Like specifically what segments of the business you maybe see an increased level of spend and conversely where you may be normalizing spend a bit? I guess I just would like to get some additional color on sort of the reallocation of resources that Ken spoke about.

Roxi can answer that one.

Yes. Thank you for the question. So from an allocation, cap allocation perspective, really for us is, this is a balance of driving -- achieving the 2022 and near-term growth and then continue to build the long-term growth because we're here to change the still the future of medical, medicine, and we're not here just to deliver the quarter or the year. But that balance is important to us. So we do have a -- Ken and Sean both mentioned the portfolio management and approach we're taking in the near term looking at imperatives or what it takes us to deliver the near-term, long-term strategic planning, thinking about the long-term growth, how do you drive the immense market opportunity we have is really the kind of the high-level approach we take.

Your next question comes from the line of Dan Brennan with Cowen.

Thank you for the follow-up here. So I guess the question would be on the burn. The sector has been weak. Your stock has been weaker kind of towards one of the weakest ones and the burn is one of the things we hear often in terms of the debt load in the burn. So I'm just wondering, with the improvement in the burn, could you break out at least the '22 within the $600 million, $650 million, what the underlying burn is versus what you're kind of assuming for M&A? And then related to that, in terms of the improvement that we're seeing, would you help us think about the time line at which you could get the cash flow breakeven.

Yes. And I appreciate the question, Dan. So one, I would say the $600 million, $650 million, the target is inclusive, all inclusive. So that's all use of the cash, including M&A. Call that the firm target as it were. Let's see. In terms of the burn as a question mark, it's interesting. I think you'll note other -- anybody who wants to play in the future in those, and that is genomics driving health care is increasing to burn at this point in time. We're decreasing ours because admittedly, we've started high, and we've been executing a unique strategy to capture what I think is a massive opportunity.

And with that, I think we've earned ourselves some choices here, right? We're at a point where, again, pushing past $500 million, $1 billion, going to $2 billion sooner than later. In there is the obvious timing to then be able to run on our own cash flow, if needed. I think the -- as we look out our current plan and you think about the ability to reduce burn thereafter, combined with our balance sheet, we're actually very comfortable that we've got the capital, we won't be doing that kind of traditional ways in the open markets.

And since you mentioned the debt, there is plenty of support and plenty of time to do something about that with more than enough time before '24 comes around. So I'd say kind of with our current plan and the growth opportunity in front of us, we're actually sitting pretty comfortably with our balance sheet and feel good about the next couple of years.

On the time, the reason we don't put a time in the -- again, given the opportunity in front of us, it's really a growth story. And so depending on the top line growth, will then translate to what time we flip over to operating cash flow positive. And again, we'll just meter the -- we'll meter the expenses between now and then. I think that's the way we see it. Certainly, by the time we get to $2 billion in top line revenue, we'll be there. And it's a matter of how quickly between now and then it plays out.

And then maybe one final one, just on M&A. Just how -- I mean, it's obviously an important part of your strategy, your growth strategy and you've been quite active filling in areas of need. How material a deal in '22, do you think, in terms of the pipeline that you see in your needs? Any sense on what we should be thinking about from an M&A plan in '22 and how big you might look to go?

Yes. I think, I mean, kind of the thing that has changed the most considering market conditions is the M&A plan. So whereas we might have considered a really interesting technology, content, capabilities that would increase our burn, that's off the table for now. We're kind of -- like I said, we're serious about the guide; top, middle and bottom. We're going to stick to that. With that said, I think there's plenty of digital assets, technologies, pipelines.

Anything out there that can basically really quickly reduce our cost basis, further digitize the internal operations of the company. All of that is still very interesting. Some have asked recently about revenue or even kind of gross profit that you can -- that we could purchase. Now that's something in the past, we've never really done, but I think that's something that I would just say, given the time, maybe that could be on the table. So that's another change, I would say. But I would kind of call those on the margin. We don't -- those are, I believe, wise changes to make in the M&A approach given the market, given uncertainty in the next year. But like I said, it's all encompassed in the burn forecast.

There are no further questions at this time. This concludes today's conference call. Thank you for attending. You may now disconnect.