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Invitae Corp (NYSE:NVTA)
Q3 2019 Earnings Call
Nov 6, 2019, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen thank you for standing by and welcome to InVitae's Third Quarter 2019 Financial Results Conference Call. At this time all participants are in a listen-only mode. After the speakers' presentation there will be a question-and-answer session. [Operator Instructions]. I would now like to hand the conference over to your speaker today Laura D'Angelo with InVitae. Thank you. Please go ahead.

Laura D'Angelo -- Investor Relations

Thank you operator and good afternoon everyone thank you for joining us for our third quarter 2019 financial results earnings call. Joining us today are Sean George our CEO; Shelly Guyer our CFO; Bob Nussbaum our CMO Lee Bendekgey 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 would 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 strategies our plans to integrate and manage businesses we acquire market opportunities future products services our product pipeline and the timing thereof demand for and reimbursement of our services and our investment in our infrastructure and operations constitute forward-looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act.

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

These forward-looking statements speak only as of the date hereof. To supplement our consolidated financial statements prepared in accordance with Generally Accepted Accounting Principles in the United States or GAAP we provide non-GAAP research and development expense non-GAAP general and administrative expense non-GAAP operating expense non-GAAP net loss and net loss per share and cash burn. We encourage you to review these reconciliations which are available in the press release. With that I will turn the call over to Sean.

Sean George -- Co-founder and CEO

Thank you Laura. Ten years ago we started InVitae to get genetic information incorporated into mainstream medical use for everyone around the world in modernized economies. While we have many years to go the transformation of the generics industry is under way and we believe our 26th quarter of on average double-digit quarter-over-quarter growth serves as an indication of a new trajectory a new model for personalized medicine as we move this industry beyond the more than 1.7 million people in the US diagnosed with cancer per year into all of the equally impactful genetic disorders affecting those we serve.

As we drive adoption of state of the art genetics to benefit fully healthy mom and baby for the six million pregnancies in the US every year and and as we lead the way into the new but potentially immense opportunity in proactive genetics utilized at the system level. We are currently investing to position InVitae as the only company with the broad capabilities to partner with clinicians and patients to benefit from genetic information throughout all stages of life.

Of note in the third quarter in InVitae acquired and integrated Jungla whose capabilities in addition to lowering interpretation and reporting costs put us on the cutting edge of interpretation reporting for variants of unknown significance allowing us to provide the most certainty at the time of testing compared to anybody else. We have completed the integration of Singular Bio with our combined development teams creating a path to drive down cost to a level that will support the adoption of this technology to benefit healthy mom and baby for the 20 to 30 million pregnancies in modern healthcare systems worldwide.

We added nine partnerships to our growing network of nearly 60 partnership programs the growing genome network allows us to diagnose more patients than ever faster than ever and introduce them to partners across the healthcare continuum to help with appropriate treatments therapies and clinical trials. For our biopharma partners quite simply it allows them to enroll trials faster and pull forward peak year sales for the thousands of important rare often genetic-based diseases.

Also it was announced this morning a program with the University of Vermont Health Network to offer genomic DNA testing to Vermonters as a part of their routine clinical care. While a small first step we feel this is an important sign of things to come as health systems around the globe look for a partner to deliver genetic information and manage that information for the benefit of the individual at population scale. We also added 16 million covered lives in network status. In rapid succession InVitae has become the leading genetics provider for government and commercial health plans with approximately 295 million covered lives and network.

Having contracted with all national commercial payers in 47 states for Medicaid InVitae services are now in network for the vast majority of Americans. When we started this company many advised the price doesn't matter and healthcare and that the historical institutionalized game of high pricing opaque coding aggressive selling aggressive billing was the only way to win.

We feel that this recent milestone achieved by the newest of the companies in the landscape is an important indicator of the future evolution of the space. In six short years InVitae has grown from 229 samples and a few hundred thousand dollars in revenue in 2015 to tracking toward our 2019 annual guidance of more than 500000 samples and $220 million in revenue.

While the investment in our broad capabilities to deliver that outcome was determined years ago consistent with our long-term strategy it is now of course the focus for our commercial and operating functions to pace out the remainder of the year.

As we continue to invest in technologies that enable InVitae scale we deepen and widen our competitive moat as we now make it easier than ever to access genetic information needed across all stages in life. I will now turn the call over to Shelly to highlight our financial results for the quarter.

Shelly Guyer -- Chief Financial Officer

Thank you Sean. For some time we have noted that volume is a key metric by which we judge the velocity of the growth of our business. Again we have seen strong growth this quarter accessioning more than 129000 samples a 65% increase this quarter over the third quarter of last year. While the third quarter is normally one of our slower-growth quarters we achieved 16% sequential growth from the second quarter higher than last year's 7% sequential growth.

Notably we experienced growth across all segments especially strong volume from international markets which again accounted for over 10% of the total accession volume and we saw a pickup in our reproductive test volume in general led by increases in our NIPT testing and our pharma testing including our Detect programs. We reported billable volume of approximately 124000. In prior calls we have made comments about the relationship between accessioned and billable volumes.

This quarter there was a 4% difference between accessioned and billable volumes which is in line with our historical experience in the third quarter and what we suggested in our last earnings call. We expect that due to seasonality there will be a smaller gap between accessioned and billable volumes in the fourth quarter. And how are we tracking to our guidance with approximately 334000 accessions year-to-date we stand at about 67% of our annual guidance in the first nine months of the year. Typically fourth quarter volumes are highest due to seasonality despite the timing of some key medical meetings for our customers.

This year we expect further strengthening due to several additional factors the newly introduced NIPS product a increase in recently launched partnering programs and the timing of sales force adds throughout the year. We reiterate our guidance for the year of over 500000 accessions samples. Now turning to revenue we generated $56.5 million in revenue in the third quarter which represents a 51% growth in quarterly revenue year-over-year.

As with last quarter over 70% of our revenue came from third-party payers and just under 30% from both institutions including partners and patient. The continued high percentage from third-party payers is largely due to higher Medicare payments on our cancer tests and better payments from commercial third-party payors as we continue to get more tests in the contract and collect more on each test from these payers as a group. Consistent with our discussion of ASP trend last quarter and our express goal of bringing testing to more patients we realized an ASP of $448 this quarter down from $471 in the second quarter and $490 in last year's third quarter.

The decrease was primarily attributable to payer and product mix changes. While third-party payers again contributed more than 70% of revenue this quarter there is a 4% decrease in third-party billable test volume. Strong increases in billable volumes from both institutions and patient pays made up the difference. This trend was expected due to our introduction of the Detect testing programs part of our pharma efforts and the uptake of our NIPS product line both of which enabled more patients to have access to testing and both of which carry lower ASPs.

Movement in our ASP is also due to how much we picked up in the quarter due to revenue recognition guidelines. We had an increase of $1.2 million additional benefit from our change in estimate on excess cash collections during the third quarter compared to $2.4 million in the second quarter. As we gain more history under the 606 standards we expect that the magnitude of future benefits in any quarter will decrease with time.

Taking these changes into account we believe that our ASPs will bounce around a bit but that we will see the ASPs trend lower in the near term as our payer and product mix changes. As we continue to get more tests in the contract and collect more from third-party payers we expect small quarterly increases in ASPs but this will be offset by lower pricing in areas that are growing like our patient pay and international businesses. We also expect that our changing product mix will put downward pressure on our ASPs in the near term.

So in summary we are on track with our annual revenue guidance. Our year-to-date revenue is over 68% of our full year revenue guidance. Consistent with our historical experience we expect a strong fourth quarter due to seasonality in both the underlying billable volumes and collections from payers. We reiterate our annual guidance of over $220 million in revenue. In the third quarter of 2019 we reduced COGS to an average cost per sample of $249 down from $252 in the second quarter of 2019.

Recall that in the second quarter COGS included an approximate $13 per sample stock-based compensation expense for annual retention and merit-based RSU grants which we did not have this quarter. The product mix changes including processing more NIPS and exomes which are relatively more expensive given their lower volumes and are not yet bringing our cost savings put upward pressure on COGS. These specific tests costs per sample are expected to decrease with time.

We also had an uptick of about $7 per sample due to intangible amortization costs related to Jungla's developed technology acquired. We will continue to amortize over the 10-year life of this intangible asset but the dollar impact per sample will decrease as volumes increase. Just a reminder of my past comments on COGS. We expect COGS will continue to fluctuate as we introduce new products and bring new technologies online.

Importantly new products we introduced will have lower margins early on and depending upon the uptake of those products could put pressure on our COGS. We made a commitment to make 2019 a year of investment and we intend to InVitae's newly acquired technologies and products and continue to target 50% gross margins. We improved gross profit by 44% from the previous year generating $24.4 million in the third quarter of 2019 versus $16.9 million in the third quarter of 2018.

This quarter our gross margin was 43% down from 45% in the third quarter of 2018 and 48% last quarter as a decrease in the ASPs quarter-over-quarter outweighed the decrease in the average cost per sample. We expect that gross margin will fluctuate with the coming quarters and will trend toward our 50% goal. As discussed last quarter we are investing in several areas of the business to foster our growth this year and beyond enabling us to scale and offer additional products across all stages of life and we have completed two acquisitions both of which impact operating expenses and need to be teased out.

For the quarter we incurred a GAAP operating expense which includes cost of revenue of approximately $101.4 million compared to $47 million for the third quarter of 2018. This quarter's operating expense includes $47 million in research and development $32.7 million in sales and marketing costs and $21.7 million in general and administrative costs. But it's important to understand where the non-GAAP operating expense of $79.8 million is more indicative of the spend for base business eliminating the stock-based compensation and post combination expense related to our two recent acquisitions.

So what are the key drivers of OpEx this quarter? First research and development costs were $47 million including $18.6 million in stock-based compensation for the inducement RSUs granted to Singular Bio employees as part of the acquisition. Our spend on the base business increased by $5.7 million compared to the second quarter of 2019 primarily due to continued investment in R&D including headcount expansion focused on scaling our business content expansion improving the customer experience and reducing COGS.

Second sales and marketing costs were $32.7 million which includes $4.2 million in branding and advertising costs related to our direct channel campaign launched in June of this year. Third general and administrative costs were $21.7 million fairly flat from the prior quarter we incurred over $3.5 million in cost for the acquisition of Jungla in the third quarter. Finally stock-based compensation during the quarter includes $3.1 million related to the management incentive plan which we will continue to see in future quarters.

Now let's move to our cash position. At quarter end our cash cash equivalents restricted cash and marketable securities totaled $473.5 million. During the quarter we raised $19.5 million of net proceeds from our ATM and $339.9 million in net proceeds from the convertible debt offering. Cash burn a non-GAAP measure totaled $140 million in the third quarter of 2019. This includes a $15.4 million cash payment in connection with the acquisition of Jungla and an $85.6 million payment to extinguish the Oberland debt which includes 1.3 million of accrued interest on our third quarter 2019 quarterly interest payment.

On an apples-to-apples basis and how we have talked about the burn over the past year in the absence of these cash outflows the cash burn would have totaled $40.3 million in the third quarter of 2019. On the second quarter call we indicated that we would continue to invest in our business throughout the year and into 2020 and that our quarterly burn would increase throughout the year.

For the year we stated that we anticipated burning up to 50% more in 2019 when compared to 2018 our burn could be as high as $150 million in 2019. Excluding the impact of Oberland and the acquisition related cash payments we have burned $103 million year-to-date. I will now turn the call over to Bob.

Robert L. Nussbaum -- Chief Medical Officer

Thank you Shelly. In InVitae we're committed to advancing science and improving the practice of evidence-based genetics. As Sean mentioned the acquisition of Jungla's advanced modeling is an important addition to our very interpretation capabilities. Many people undergo genetic testing and get neither a positive nor negative result instead they receive a varying of uncertain significance or VS meaning there is a change in the gene but we do not yet know what it means.

This is frustrating to both patient and provider because it leaves them in limbo. Jungla is a powerful technology that will help to reduce VSs and substantially enhance InVitae scalable genetic variant interpretation so we can deliver more informative results to patients. In addition to the Jungla acquisition we were also busy launching InVitae's Detect programs in five conditions for which testing is underutilized but can improve diagnosis and treatment.

Importantly we are seeing biopharma partners showing interest and coming on board with our Detect programs demonstrating the important role that genetic information can play in bringing patients and biopharma resources together to improve clinical care. We also presented a wide range of clinical studies and research highlighted at the American Society for Human Genetics and the National Society of Genetic Counselors.

Of note we continue to publish research demonstrating the expanding number of people that can benefit from access to medically actionable genetic testing and as such we're seeing testing guidelines continuing to expand. It is critical to InVitae's mission to continue to open up access for all those that can benefit from understanding the genetic information and how it impacts their health.

We're pleased that the University of Vermont Health Network announced their partnership with us on our testing program to offer the InVitae proactive genetic screening as part of routine clinical care for people in Vermont. We have ample evidence that one in six people have a medically actionable genetic condition they are not aware of. The University of Vermont program will grow into a populationwide project to evaluate the impact of such genetic testing for actionable conditions on a large-scale.

Such testing will also be embedded within healthcare system so that patients and providers have the medically actionable generic information needed to manage their health. This testing program demonstrates the future of genetic testing as we continue to further the integration of genetics into medical care and public health. I'll now turn the call over to Sean.

Sean George -- Co-founder and CEO

Thank you Bob. We have a strong balance sheet. Our investment-to-growth profile is on track and we see essentially unbound potential ahead of us leading the generics industry transformation in the years to come. We also feel that we are approaching a bit of a transition point in the industry. When we've been counting on and driving to for many years in which the adoption of advanced technology surrounding genetics starts delivering ever increasing value to individuals around the globe at an accelerated pace relative to that of the historical diagnostic industries.

We remain focused on our model of rationalizing the testing business expanding our genome network and moving to genomic information management in the future. The best indicator of our success remains the top line volume growth and our focus in the future will increasingly be on the absolute gross profit growth that translates into operating cash flow. All of which are financial metrics that drive the business forward and ultimately benefit the clinicians and patients we serve. With that I will turn the call over to operator for Q&A.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Your first question comes from the line of Doug Schenkel from Cowen. Your line is open.

Doug Schenkel -- Cowen -- Analyst

Hey good afternoon. Thank you for taking my questions. I want to start with a long-term financial target question and then come back to the more near-term to break down 2019 guidance a little bit. So starting on the long-term financial targets a couple of years back you set 2020 financial targets at processing one million tests and at an AST of $500.

We can all do the math on what that would take you to in revenue next year. Current 2020 revenue sits well below those targets. And I would argue that the current stock valuation doesn't imply that you're getting a lot of credit from the Street for that target. With that in mind what's the right way to think about the 2020 target as we sit here with two months to go in 2019?

I would love to get your thoughts on that. And keeping in mind consensus as well below your prior 2020 target would you be willing to comment on whether or not you are comfortable with the consensus sell side revenue forecast for next year as we sit here with two months to go in the year? Thank you.

Sean George -- Co-founder and CEO

Yes happy to. Thanks Doug. Appreciate the question. I think the truth of it is next year's numbers will play out in large part as a result of investments made two years ago or longer. It's not always easy to predict the three to six month window as to when those play out which of course I know that you know but I do think worth stating not as a dodge but as in front of that question.

Now with that said we are in truth still finalizing our commercial operating investment plan for 2020. So we'll stick to the practice of giving guidance in January. As far as the Street 2020 numbers I mean fair question. And what I would say is it would be premature for anybody to change their 2020 models now until we provide the guidance for the year which again we'll get to in January.

And I do think taking a setback in context the numbers that we are talking about this million samples $500 million those were laid out as aspirational over a couple of years ago. When the question and the dialog was whether or not there was a real time, to justify the investment in our technology segment we suggested that it is indeed huge and that many years of high growth lie ahead.

At the time very few people believed this we're currently on a trajectory that no one else is on and I am in the conviction of the value we're building in this company. I understand it's not a direct answer but I'm hoping that shed some light on our position at this time.

Doug Schenkel -- Cowen -- Analyst

Okay that's helpful. Sean and not to belabor this but maybe they say what you said in a different way would you object to somebody saying OK based on what Sean just said 2020 financial target's still possible but a few things going to get your way for that to happen. In the meantime there is nothing going on in the business that would suggest what the Street's modeling for next year is off the mark. Is that a fair synopsis?

Sean George -- Co-founder and CEO

That's right I'd say. Like I said I'd advise there is no impetus to update models at this time. If there were we would say it. As is our practice we are growing now a very large business very rapidly and are continuing to drive the business as such but always want to have our guidance to be something that we know is achievable and so within that context I absolutely agree I think your summary is as good as any.

Doug Schenkel -- Cowen -- Analyst

Okay that's helpful. Thank you. So a couple of questions as we think about trends heading into year-end. I believe you've increased your sales force headcount by about $0.60 at the beginning of the year. I'm curious what you're seeing when it comes to productivity with new hires. And I guess to some extent how to view this in the context of full year guidance? I was just doing some quick math hopefully I'm not messing this up but your revenue per rep was I think around $340000 to $350000 per rep per quarter in Q2 through Q4 of last year.

To get to full year guidance you need to be a little bit better than that in the 4th quarter but not much better. So on one hand that makes me feel pretty good about your ability to get to Q4 numbers. On the other hand I think productivity would actually need to improve by about 25% relative to what you did in Q3 using the same metric just based on the fact that I think because you're ramping new people the productivity is a little lower than it was last year.

So I'm just hoping you can help us out what are you seeing when it comes to productivity that can make us feel better about you getting to 2019 guidance?

Sean George -- Co-founder and CEO

So I think that's fair question. Q4 has traditionally been the strongest quarter. Oftentimes by lot and we expect the same thing for this year. Look I mean obviously we would like to have been closer to that the annual guide Mark at this day or at the end of Q3 then we are. No doubt about that as per my previous comments of how we'd like to approach guidance.

With that said as you pointed out it's the same whether you consider how much volume and revenue remains in the year what the Q3 to Q4 growth profile needs to look what the rep productivity increase needs to look like. The statement you made is the right one. It's in line if not a little bit higher than a tiny bit higher than past year's profiles to get there. And so with that said this year we had some additional contributors the sales team ads they really kind of finish out in the second quarter and really got to full productivity in August of this year.

That whole entire team continues to be highly motivated to run to the tape to the end of the year. The NIPS launch that we did in the spring we knew would be an end of the year contributor and indeed we are seeing the OB accounts pick up and that effect is something that different from last year is a back-end weighted effect as an aside when we expect to continue into next year. And then of course the additional pharma programs we've picked up the pace of pharma programs addition we've launched a handful of our own and those also if you consider the timing of all those those are also things that we feel and see are contributing toward the back end of the year.

So I think that general statement of the remainder to go is a similar profile that we've had in the past. We've got these three things that we think contribute and give us confidence that we're tracking. And again I can't not also throw in our ability to hit this year again that was investments made over two years ago. And yes it's now in the hands of our commercial and operating teams as they run it out.

But you take a step back and the momentum in the business and when we think about the momentum of where we've been where we are and what next year looks like especially when you consider the past the recent new incoming technologies we've developed and acquired for example Jungla Singular Bio etc. This is where we're taking a step back. We really like what we're seeing now. Even as it like I said it's a commercial and operating team game now as we run out the remaining two months of the quarter.

Doug Schenkel -- Cowen -- Analyst

Okay that's great. And if I could just tackle one more topic. Just some recent developments on the coding front. So first as I'm sure you're aware one of your peers in the space Myriad materially missed their quarterly results and materially cut full year guidance due largely to what they attributed to as being coding changes with a multi-year move to the newer NGS CPT code. It doesn't seem like that had any impact on your business.

I just want to make sure that was something that was completely Myriad-specific for whatever reason and not something that would impact your business. And then the second coding related question is I'm just curious what your thoughts are on the new NGS NCD that was proposed by CMS? It seems to require FDA approval for use of an NGS-based germline test in breast and ovarian cancer. I don't actually think that exists. So practically speaking what do you think happens here to the extent that this does hold up where are you and your efforts pursuant to FDA approval?

Sean George -- Co-founder and CEO

To answer really quickly because there is a ton of noise confusion the short answer is none of that we feel has any impact on the future of our business. Now with that said Lee can walk through both those questions in more detail and give you some more flavor for it.

Lee Bendekgey -- Secretary & Chief Operating Officer

Hi Doug. The first question had to do with coding changes and private payers. And as I understand the issue that has been raised that has to do with the retirement of couple of old bracket one and bracket two codes and it is true that a revision to the coding manual earlier this year retired those codes. At its heart though this is not a coding problem.

This is a contracting and pricing problem. We have said for many years now that as we made our presence felt in contract negotiations with private payers that prices would come down it has taken longer than any of us likely would have imagined a few years ago but it is happening and it is not done yet and you are correct to say it doesn't affect us because we are probably the major contributor to it. So I think that answers your question about the impact of third-party contracting on our prices.

With regard to the recent draft National Coverage Decision. Not to go into the labyrinthine history of all of this but as you'll recall some months ago there was widespread concern that in earlier version of this National Coverage Decision was being interpreted to apply for germline cancer testing only to late-stage patients. And at the time we expressed the view that was resulted from misunderstandings on the part of the folks at CMS.

And as we expected there was a uniform reaction among the professional science society the industry and advocacy groups suggesting that that was a wrong turn and indeed the revised National Coverage Decision reflects that and is no longer limited to late stage cancer patients. We have a new anomalous piece of language in there that as you said seems to suggest that reimbursement would be available only for NGS tests for germline hereditary breast and ovarian cancer would only be available if the test where FDA-cleared or approved.

We like you are not aware of any such test and we do not for a minute believe that that's really what CMS intended to essentially render all germline testing for HBOC syndromes non-covered. And so we expect that there will be a similar universal reaction on that point based on preliminary conversations we've had with a bunch of people. This is either just a somewhat loose use of language or it's possible that what they meant was that companion diagnostics would need FDA approval. Now to our knowledge there are also no next generation sequencing companion devices that are approved by the FDA.

Those that have been approved are all I think PCR. But in any case that may be what they had in mind since the original NCD was based on the FoundationOne test which is also essentially a companion test. So it may be that that's what they have in mind but I don't for a minute think that the outcome that people are worried about is what CMS intended or what will result when the NCD is finalized.

Doug Schenkel -- Cowen -- Analyst

Understood. Okay super helpful. Thanks for all the color.

Operator

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

Unidentified Participant

Hi thanks. This is Julia on for Tycho. So maybe could you give us more color on the Vermont partnership and the moving in network with Cigna? How should we think about the volume ran from those two progress there is and the impact on ASP are any of those contributions embedded in your 4Q outlook?

Sean George -- Co-founder and CEO

Yes I'll go there let's start with Cigna that one I would say roughly yes. It's something that we've been working on for I don't know how many a while and it's finally happened and there is no impact of volume that just is an impact of how much we get paid. Our third-party insurance reimbursement has been improving steadily over the past many quarters. And this will be yet one more thing that contributes to that steady improvement of that third-party reimbursement line. So not necessarily a volume impact per se.

There is always a little bit of an increase when it gets a little easier to answer questions for clinicians about out of pockets and what not once you're finally in network and in contract but for the most part that's a revenue gain which is consistent with past few quarters. On Vermont my apologies Dr. Nussbaum had to run off he is flying out to NSGC. I would have loved for him to answer more about that but the bottom line on Vermont is this is in this category of testing our proactive or preventive genetics.

We are not really forecasting this line much in our business at all. So this is one where we feel the proactive use of genetics and mainstream medicine is something that we it's a newly developing market we think of the three that we serve diagnostics reproductive health and proactive. This is the largest one it is in everybody's monitors and healthcare systems. So super excited about this super excited about working with this system to do it to do it right there are all kinds of implications for the future in the future model.

With that said these things will take time and so we're not going to be as a result of a single one of these or frankly the dozens to come. I think it will be like the rest of our business has been for the past six years it's an operating business we add on clients we add on volume volume per clients goes up over time. I don't anticipate a huge jump in any given quarter as a result of any of these things.

Maybe I'm just thinking of making the point to distinguish it from for example a lot of population sequencing-type programs where volumes or revenues are recognized that single pops this will look like the rest of our business and will phase in overtime.

Katherine Stueland -- Chief Commercial Officer

Julia the one other thing I would add on Signa. As you know under the revenue recognition criteria we have to see those expect rates that were much lower when they were out of contract we have to actually see those collections pop up. Since December 1st is the effective date I don't know whether we will see that in the fourth quarter and be able to account for that effect in the fourth quarter but we would expect that the Signa pricing and what they will pay us will be going up.

It's just a question whether we'll be able to recognize that in the fourth quarter or whether it will come in the first quarter.

Unidentified Participant

That's very helpful. And then maybe just on margins. I mean we certainly appreciate that there are a lot of moving pieces in the near-term that could lead to fluctuations from quarter-to-quarter given the pace of your NIPS win and the pharma partners there certainly a dilutive effect there. But in the meantime going in network with Cigna should help on the positive side.

How should we think about your near-terms of gross margin trajectory? I mean we get that you mentioned you expect the general trend to be sort of moving toward 50% goal but as we look toward next year without necessarily asking for a guidance but do you think there are any chance that we could go maybe lower from current levels in the near-term?

Shelly Guyer -- Chief Financial Officer

It's Shelly and I'll answer that. I would note that the 43% this quarter had a 2% dimunition based on the Jungla amortization of the intangible part. And so we will continue to feel that. There was $7 per COGS per sample and that was about 2% so it would have been 45% gross margin which is slightly down but not badly down from the prior quarter and that is as you know because of product mix change.

I would expect that we would get higher ASPs in some areas from the third-party payers but that will be offset by some of the lower prices in areas such as the institutions international and the patient pay. So I would expect that this year we will continue to see some perhaps downward floating of that rate but that with time as we begin to collect more and as some of the Detect programs and other things yield higher ASPs that may switch in the next year.

So it will move around a bit and it will trend back up to 50% and as we've always said it will be fluctuating depending on also the COGS side of it not just the collection side. So we will continue to work actively on trying to bring down that COGS things such as automation and our medical interpretation things such as the Jungla acquisition and some of the variance reading capabilities will all drive that COGS down.

I would expect that the ASPs may stay somewhat where they are. But the COGS will be driven down over the next several quarters. So some improvement in the near term but over time it's still fluctuating.

Lee Bendekgey -- Secretary & Chief Operating Officer

This is Lee. The only thing I want to add to what Shelly said was that and I think this was a two or three quarters ago when we were right around 50%. We made the point that we were probably going to focus more on adding content and delivering new content than we were on reducing COGS in the near-term having approached our margin model and that's what we have been doing for the last couple of quarters really for much of this year.

But I would expect we are continuing to work on COGS reductions and so that is also one of the reasons why you might see it vary a little bit from quarter-to-quarter based on how much new content is being launched.

Unidentified Participant

Got it. That's very helpful. And then lastly from me I was just wondering if you could give us an update on the patient-initiated testing since it was launched? How significant was the volume contribution to date? And how about the mix of proactive versus carrier screening versus diagnostic versus expectations? And how does the testing depth compared to those tested generates from our sales channel? Thanks.

Katherine Stueland -- Chief Commercial Officer

This is Katherine. We kicked off the offering of our direct channel at ASCO this year in June and thus far it's going about as well as we would have expected. We expected minimal contribution to the overall volume numbers for this year and we expect that over time that's going to grow. As we think about it we're learning a lot through the work that we've been doing with initial digital marketing and I think one of the key growth areas for us is going to be in terms of really capturing the mindshare of women as really a gatekeeper of health.

So that's going to be a big focus for us moving forward in terms of our carrier and cancer offerings and beyond that. I think what's been really interesting to see though that we've seen ordering from across our testing menu. And I think that's one of our big differentiators in addition to the strong medical brands that we've built over the past six years that is going to help us to succeed and driving volume through that channel.

We've also seen a lot of interest from clinicians in terms of being able to utilize the channel with their patients. So all in all I'd say it's been successful introduction of that channel. We don't anticipate that we're going to be spending to the level of consumer-based companies in terms of marketing but we do think that this is going to be a really important growth driver for us over the next several years.

Unidentified Participant

Great thank you so much, guys.

Operator

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

Puneet Souda -- SVB Leerink -- Analyst

Yeah, thanks Sean Shelly and Lee. My first question is on the guide. I appreciate you're keeping the guide intact for the year end but that does imply what seems like a significant ramp here. Correct me if I'm wrong but I'm looking at about 30% sequential increase here. And in terms of accession volume you just delivered 16% and the number is mid-teens to maybe a high-teens that you have sort of delivered in the past and I appreciate that the fourth quarter is strong.

And you have sales force productivity here and in addition to that you were hoping to get other test added NIPS potentially growing. But maybe just help me understand where do you get the confidence in terms of the volume and what segment is it is it mostly NIPS is it mostly market share? One of your competitors reported they are doing now a double-digit growth in their volume.

So I'm just trying to understand what gives you the near-term confidence here in getting to the full-year guidance or an exception volume?

Sean George -- Co-founder and CEO

Sure, Yeah. I appreciate the question. So again I would state you can look at it by volume in revenue Q4 versus the rest of the year you can look at the sequential growth rates and while there is Q4 needs to be a very strong quarter. It has historically always been a strong quarter. Those numbers whether it's 33% remaining in the year versus 28% or 27% in past years.

It's a little more but it's not that much more. The sequential growth quarter-over-quarter has been not last year but in prior year in the high '20s. And I think like I mentioned on the previous question we've acknowledged that there is a big Q4 ahead and we expect to have a big Q4. The three major reasons are we have the salesforce ads came in and are now only in August fully ramped up and productive and the whole team is now having motivated focus on the end of the year.

Our NIPS launch is driving volume and increasing our account take in account penetration in the OB segment. You mentioned another competitor I think Council for many years had 15% to 30% growth year-over-year. We would never expect that to immediately turn off into zero. With that said as I've also pointed out confidence on the reproductive spaces that of the six million pregnancies in the US every year there is only one to two million of them to get carrier or expanded carrier screening or non-invasive prenatal screening and/or both.

So the former counsel business continued to perform pretty well as well as Natera Progenity and the smallish Quest and LabCorp businesses and we still feel that there is plenty of room to grow in reproductive. And then the third that we mentioned again we accelerated the pace of and kicked off a handful of pharma programs middle of the year which we do expect to contribute toward strong volume even as we close out this year and move into next.

So those are the three contributors to our view of the relatively back-end weighted as I did mentioned before yes we'd love to be in a more comfortable perch to hit our annual guidance. With that said we are presently tracking and it's in the hand of our commercial and operating teams to execute the next six seven weeks.

Puneet Souda -- SVB Leerink -- Analyst

Okay. Thanks. And if I could touch on NIPS overall. Singular Bio promises significant cost reduction here and I'm just trying to understand when do you start benefiting from that? And how are you tracking versus your expectations for Singular Bio to ramp up and take some of the NIPS volume?

Sean George -- Co-founder and CEO

So when we acquired the company we expected 18 24 months to really start to begin incorporating it into production. That's still our view on track to that. And again it's not so much a volume play. It's a cost play and again pointing to the six million pregnancies in the US every year of which only two million are served by an IPS. We think that's an opportunity there to immediately begin generating a ton of volume eventually bringing the cost way down.

And more importantly the 20 million to 30 million pregnancies globally in modernized healthcare systems we feel will only be served at prices that we're seeing it about technology can afford at 50-plus percent gross margin which is our target for that. Timeline still is as we had anticipated and we're excited to get that going. Like I mentioned the teams are integrated the development teams are working now.

I think we're getting even for a relatively young company we've now done a handful of acquisitions we're getting better and better at integrating them. It's great to get injection of new talents small-focused dedicated teams so far they love joining the larger effort and things are going well there.

Laura D'Angelo -- Investor Relations

On COGS Puneet I would just add in that there is an interim step between here and getting to the COGS. With Singular Bio is we will be bringing in-house the technology and that will be a step down as we InVitae that technology and bring it into our stack to be able to drive the costs of goods down. So that currently send out then we'll bring it in-house and then we'll move to Singular. That was the plan when we acquired Singular and that's still currently our plan.

Puneet Souda -- SVB Leerink -- Analyst

Okay. And on the tech programs. Can you remind me if that is still no charge genetic testing program? And are you bearing the full cost of that and what's the expectation here in longer term in terms of volume? Thank you.

Sean George -- Co-founder and CEO

Yes the Detect programs are either similar to and-or pulling in our other pharma programs. The payments vary pretty dramatically for whether people are paying on a per sample basis or for identifying patients or contacting them or for data analysis and that's no different than Detect program. In the five Detect programs we lined up however some of them did go out ahead of time knowing full well who is interested in those patients whereas in the past couple of years we've only done that with partner in hand and cash on the barrel HUD as it were.

Our feeling at this point it was with enough experience there the economics are obviously better. It's great for us and it's like we said it's a win-win-win for everybody the physicians patients when you get to diagnose more of these individuals than ever more rapid pace for our pharma partners we're essentially shortening clinical trials and pulling forward peak year sales.

And then of course for us it's a expansion of the market which as you know we're all about here at InVitae. So if those are roll along and we think when you asked by way of volume contribution as we've said yes we do think that the pharma programs will contribute outsized growth compared to some of the other testing lines but we haven't broken much specifically. But yes optimistic about how that will play out in the years to come.

Shelly Guyer -- Chief Financial Officer

Yes. And to answer one of the prior questions about where we see gross margin going. It is important that there is a lag in this and we would expect that we would have higher payments for those programs in the future. So we are able to get those patients onto our program at this point. And then later to find those corporate partners.

And so you will see next year that we will reverse some of those where we're getting lower pace now as you get one 2 three or four partners in each of those programs to enable you than to pay a sufficient amount to cover those programs and more. That just takes a little time.

Operator

Your next question comes from the line of Kevin DeGeeter from Oppenheimer. Your line is open.

Kevin Michael DeGeeter -- Oppenheimer & Co. -- Analyst

Thanks for taking my question. Can you just talk a little bit there's been some discussion recently about the RNA-based testing and calls for variants of unknown significance. Just your general thoughts on the topic and more specifically the work you're doing. Do you feel you now have the right configuration of technology and tools to reduce the manual call component of assessing those variants of unknown significance? Thanks.

Sean George -- Co-founder and CEO

That's the fun question. The short answer is yes we absolutely believe that we are on the cutting edge very interpretation particularly when it comes to vast resolution. Our portfolio now we would argue on a percentage of patient impacted basis far more important than RNA analysis is the molecular effect predictors in the AI classifiers that we have acquired incorporated with Jungla. That's already had an impact.

Allowed us to recall some verses and clarify some things for some individuals as we mentioned in our pilot program with them and reduced reverse rate by 40% across a variety of disease areas. That's a wild improvement and really valuable for our customers. And on top of all that we also offer the RNA analysis which yes for some supply sites variance can help resolve the verses that's in your sub percentage of the cases but nonetheless customers like it and we are about customers.

And so we offer that as well but are kind of taking a step back our entire suite of both our core vary interpretation pipeline and specifically now our ability to resolve as we think is world-class.

Kevin Michael DeGeeter -- Oppenheimer & Co. -- Analyst

And then just one more from me. You did call out a couple of times the impact of NIPS with regard to contribution in the quarter as we think about the kind of take this fourth quarter session volume question from a different perspective. Would you care to comment on the baseline contribution for NPIS currently? So maybe we can size out the potential magnitude of impact of that business's potential as it grows in the fourth quarter and into 2020. Thanks for taking my questions.

Sean George -- Co-founder and CEO

Thanks Kevin. Again I know unsatisfactory for the crowd. We don't break out the specifics of our different business lines. With that said our reproductive business has been pretty steady since our acquisitions more or less 30% of the business bouncing around over time but roughly. And yes our NPIS launch has enabled us to start growing that more rapidly and so it is contributing. We are able to pick up will all the accounts.

With that said against the backdrop of everything else whether it be the disease testing in cancer cardio neuro pediatric exome whether it'd be carrier screening etc. I would say it's not worth calling out as a huge swing in our numbers one way or the other at this point in time. I think that's the best view of it.

We have pointed to and I think we continue to believe that next year reproductive health will be an outsized grower because of the sheer numbers involved our offering our broad offering our pricing being the easiest on the market to work with. But again breaking out specifics. We're not here to point where we can do that.

Shelly Guyer -- Chief Financial Officer

One thing I would add is we know that being able to provide one product or a clinician drive utilization of another product which drive utilization of another. That's the benefit of having the comprehensive offering. So having an NIPS offering helps drive carrier volume that helps drive our cancer volume. So I think there is a compounding effect of all of the various products that we're offering within the clinician offering.

Operator

Your next question comes from the line of Jeffrey Cohen from Ladenburg Thalmann. Your line is open.

Jeffrey Cohen -- Ladenburg Thalmann -- Analyst

Thanks for taking the questions. I just had two if I may. So firstly could you talk a little more about the OUS business more specifically in any geographies you're willing to call out areas of strength and weaknesses and specific channels which are kind of gaining traction?

Sean George -- Co-founder and CEO

I'm happy to sure I didn't mention solid again solid and growing contribution from our OUS business. I think our general sense is we are now at the price point where that broad landscape is now the time the time is now to address it. We in our last capital raise indeed use of proceeds is specifically to go after that. We've begun hiring I wouldn't say major commercial expansion but modest commercial expansion to having country customer service biz dev support that kind of thing.

And then also some really kind of basic logistics sure kind of investment in regions where it will really help take care of the trade tariffs and shipping and whatnot. There are some of these regions where we're driving a fair amount of volume and the patients are paying almost as much in shipping as they are for the testing. So that's a kind of job number one is to clean all that up and we think just those two things alone will start to give us some more volume xU.S. And then frankly we'll go from there.

Regions of history they're interesting about what is going into Latin America is particularly strong. Northern Europe and of course Middle East and then Asia Pacific. Those are the regions that were the strongest and we'll be focusing mostly on over this next year.

Jeffrey Cohen -- Ladenburg Thalmann -- Analyst

Okay got it. And then on the expense side could you provide any further commentary as far as the stock compensation. I know that you had a 12 million piece from the Jungla from the quarter and some management. What would you expect going forward?

Sean George -- Co-founder and CEO

Shelly can kind of get in the details. I can offer the color commentary that this is like given our trajectory and given how we think the next couple of years are going to go. This is likely the beginning of the further divergence of GAAP reporting and what is actually really important for modeling your business and tracking it. And so with that said Shelly can sort of digging into the details on that.

Shelly Guyer -- Chief Financial Officer

So the queue is provided today also and there is a chart in there that will give you a lot more information on this but as I indicated the acquisition stock-based comp for Singular was about $18.6 million. Recall that last quarter that was only about $2.6 million and the reason that went up is we had only closed that offering late in June and so we only had a small proportion.

So you can use this quarter's 18.6 as being sort of a proxy for what it will be moving forward. Remember that we had about $90 million that was compensation in that was the acquisition price the earn out price. So take that out for 18 to 24 months and that gets you sort of that $80 million. We will be marking to market. It's a $1 amount that we will be paying them for each of those. And it's the probability of success of meeting those milestones as well as some time based and so that's the largest chunk of it that you need to consider.

And then we did also call out some of the stock-based comp for the executive management and that was higher in this quarter because it was new and you will continue to see that over the next several quarters also So there is a breakdown in the queue. And those are the key components of it.

Operator

Your next question comes from the line of Ophir Gottlieb from Capital Market lab. Your line is open.

Ophir Gottlieb -- Capital Market Lab -- Analyst

Hey, guys, thanks for taking my question. I want to talk about next year then possibly the ban of your existence but I'm going to try anyway. With the new convertible debt offering and after the elimination of higher that you were looking about $0.5 billion in cash $470 million in cash as of September 30.

Given your reach for the continued growth next year are you able to say that you're going to have sufficient cash to not do a capital raise for the next four quarters and seven weeks? Without going too far out can we say that there is no point and capital raises through the end of 2020 while hitting accelerated standpoint revenue growth rates and maintaining system by gross margin at or near 50%? Thank you.

Sean George -- Co-founder and CEO

So I think the quick answer to that is as per the targets on the like what we're aiming for on the top line the same. The gross margin target the same. We've got a lot of dynamism and momentum in the business that we are pushing on we since last fall when you think about our first debt instrument from that point time on we have operated with the kind of the Aegis that we are now operating under is that we will always maintain enough cash on the balance sheet to tip the company to operating cash flow positive if needed and that is almost weekly probably more quarterly realistically reflection of the investment thesis.

Our assumed return on that investment and investors' appetite to continue one growth profile versus another. So maybe a long way of saying we've got all the capital we need. We're going to keep it that way. And to the extent the burn goes one way or the other that will be entirely based on the landscape.

The evolution of the landscape in front of us and where we think the right market is a dial it in to continue executing the long-term strategy of the business which we are confident is building and creating immense value in the long term. So that's why I would leave that one on the next year cash question.

Ophir Gottlieb -- Capital Market Lab -- Analyst

But do you still maintain the guidance that if you had to use the term cash flow positive essentially within a quarter having already disclosed that your cancer business which is your largest business is already a profitable business?

Sean George -- Co-founder and CEO

Yes. The short answer is yes. I would say as we're getting bigger and bigger I don't think the timeline for the turn is not quite as short as it used to be. Yes we did do that. We did make that move a while back and dropped the burn in half and demonstrated we can clearly do it really quickly.

At this point it would take at least two or three quarters. With that said we've got X quarters of cash on hand. So we've got a lot of time to sort that out but that generally your sentiment is exactly how we view it at this point in time.

Operator

There are no further questions at this time. Ms. Laura D'Angelo I turn the call back over to you.

Laura D'Angelo -- Investor Relations

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

Operator

[Operator Closing Remarks]

Duration: 66 minutes

Call participants:

Laura D'Angelo -- Investor Relations

Sean George -- Co-founder and CEO

Shelly Guyer -- Chief Financial Officer

Robert L. Nussbaum -- Chief Medical Officer

Lee Bendekgey -- Secretary & Chief Operating Officer

Katherine Stueland -- Chief Commercial Officer

Doug Schenkel -- Cowen -- Analyst

Unidentified Participant

Puneet Souda -- SVB Leerink -- Analyst

Kevin Michael DeGeeter -- Oppenheimer & Co. -- Analyst

Jeffrey Cohen -- Ladenburg Thalmann -- Analyst

Ophir Gottlieb -- Capital Market Lab -- Analyst

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