Please ensure Javascript is enabled for purposes of website accessibility

Invitae (NVTA) Q2 2020 Earnings Call Transcript

By Motley Fool Transcribing – Aug 5, 2020 at 6:01AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

NVTA earnings call for the period ending June 30, 2020.

Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Invitae (NVTA -4.21%)
Q2 2020 Earnings Call
Aug 04, 2020, 4:30 p.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Ladies and gentlemen, thank you for standing by, and welcome to Invitae's second-quarter 2020 financial results conference call. [Operator instructions] I would now like to hand the conference over to your speaker today, Laura D'Angelo. Thank you. Please go ahead.

Laura D'Angelo -- Head of Investor Relations

Thank you operator, and good afternoon everyone. Thank you for joining us for our second-quarter 2020 earnings call. Joining us today are Sean George, our CEO; Shelly Guyer, our CFO; Lee Bendekgey, our chief policy officer; Bob Nussbaum, our chief medical officer; and Katherine Stueland, our chief commercial officer. As you listen to today's conference call, we encourage you to have our press release available which includes our financial results as well as metrics and commentary on the quarter.

Before we begin, I'd like to remind you that various remarks that we make on this call that are not historical including those about our future financial and operating results, our plans and prospects, the focus of our business strategy, our plans to integrate, 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, 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 assumes, among other things, that we don't include any additional business acquisitions, investments, restructurings or legal settlements. We refer you to our most recent 10-Q, in particular, to the section titled Risk Factors for additional information on factors that could cause actual results to differ materially from our current expectations.

10 stocks we like better than Invitae
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.* 

David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and Invitae wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

*Stock Advisor returns as of June 2, 2020

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

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

Sean George -- Chief Executive Officer

Thank you Laura, and thank you all again for joining us on the call. Well, a lot has changed in the past many years, perhaps especially in the past few months, our relentless focus on transforming the genetic testing industry has not. In order to drive genetics into mainstream medical care we are changing the landscape from one in which genetic information is used sparingly on a test by test, indication by indication basis, served by high-margin niche market business models, to one where genetic information is used broadly, as a medical utility to improve outcomes and lower the healthcare costs for billions of individuals around the globe. As we've tackled the cost side of this equation, we've also steadily invested in improving our customers' workflows to increase access to this essential health information.

An early leader in doing so, we continue to develop our front-end capabilities, more recently enabling genetic telemedicine and at home solutions, as well as enabling clinicians with further support in professional education when transitioning to remote solutions for their patients. Our Gia chat bot has played a key role in scaling these capabilities, pushing the envelope of what can be accomplished in making genetic information easier to utilize in all healthcare settings. This quarter, we also launched our direct channel services in Canada for carrier screening in early pregnancy as well as cancer and cardiovascular disease testing. While we are presently seeing our top and bottom lines recover from the Q2 COVID impact, that recovery continues to be very regional and still somewhat sporadic.

It appears to us that even with further uncertainty in how COVID will impact hospitals and clinics around the globe, our customers are better positioned to continue to see patients through the challenge ahead. And with our online and remote capabilities, we can further support them to transition rather seamlessly to this new reality. On the M&A front, early in the quarter, we closed the acquisitions of both Genelex and YouScript, adding pharmacogenomics to the Invitae platform. We've already seen the benefit of incorporating broad pharmacogenomics profiling in discussions with integrated providers, hospital networks and payers, having now already signed with a major health system.

We feel that the time has finally come for the broad adoption of this hugely impactful health information. The costs associated with ignoring it are profound on a societal and personal level. Whether avoiding waste and spending on drugs that don't work, years of office visits and dosing changes while a patient's life is in danger or the high cost of adverse events in all health systems, we look forward to providing solutions as we integrate pharmacogenomic information into all aspects of our screening and testing throughout the years ahead. In June, we also announced that Invitae has entered into a definitive agreement to combine forces with the team at ArcherDX to bring liquid biopsy, tissue profiling and cancer screening capabilities to Invitae's platform.

The prospect of providing patients diagnosed with cancer a full suite of genomic information is a long-awaited reality for us, and we're thrilled to have the opportunity to team up and accelerate Archer's mission of democratizing precision oncology. We see a day, perhaps earlier than most think, where all 43.5 million people battling cancer in the markets we serve can get the essential molecular information they need anywhere they need it, whether trying to understand their risk, getting diagnosed and choosing the best post treatment or monitoring in a comprehensive and durable way, providing the greatest chance for the best individualized outcome. Over the past many years, we've developed a strong track record of adding promising technologies and great talent as we push forward in our mission. Bringing together the right teams with the right capabilities at the right time, accelerates our strategic flywheel, as we work to realize our mission to serve billions of patients around the globe.

Given the similarities and mission, technical capabilities and a determined pragmatic approach to fixing the hard things in healthcare, we look forward to executing this next transformational move with our new teammates at Archer. I will now turn the call over to Shelly to highlight our quarterly financial results.

Shelly Guyer -- Chief Financial Officer

As Sean mentioned, we were hit early in the quarter by the full impact of COVID. But as the quarter progressed, we saw monthly improvements in our most important metrics. We took actions early in the quarter in response to the crisis, not to yield immediate second-quarter savings, but with the objective of managing our burn throughout the remainder of the year and into next. These moves were designed to ensure that we kept foremost in our minds our long-term strategy, to provide access to testing across numerous platforms.

Our intent was and is to exit the year with a rapidly growing business that is positioned as an even stronger competitor in this growing genetics market. To that end, during the quarter, we continued our acquisitions, closing on two deals and announcing the ArcherDX deal. While I will touch on some of the financial implications of these acquisitions to gain a full appreciation of the complexities as they impact our financials including various changes and onetime events, I urge you to refer to the 10-Q which we filed this afternoon. Volume remains a key metric.

We are pleased to have accessioned more than 120,000 samples in the second quarter of 2020. Despite the impacts from COVID-19, we saw an 8% growth in volume over the previous year's second quarter. Previously, we noted overall volumes were down approximately 50% when the pandemic first hit in mid-March and into April. From these lows, we have seen volumes recover in each month of the quarter and through July across all clinical areas.

Our reproductive health offerings remained resilient throughout the year. In areas such as hereditary cancer and CNP, or cardio neuron peas, have recovered nicely with cancer volume back above 40% of the mix in the second half of the quarter. Overall, we are down just slightly from our pre-COVID levels by the end of the second quarter, and July accessions and billable volumes continue to trend to recovery. However, we expressed some caution as hotspots and regional shutdowns continue.

Billable tests are an important benchmark, given that we accrue our revenue based on the number of billable reports in a period. This quarter, we reported billable volume of more than 113,000 which represented a 2% increase from the same quarter in 2019. Our accession to billable volume spread was 6% for the second quarter which was higher than our historical trends. The impacts from COVID-19 were the primary driver of this change.

International volume remains steady at just under 10% of our billable volume and represented over 6% of our total revenue. Volumes are volatile internationally, depending upon which regions are in recovery from COVID versus those still impacted. Our diversified approach is helping to smooth the overall global volume trends. We historically experienced seasonality in our volumes, with the first and third quarters traditionally being our lowest.

The negative impacts of COVID-19 on our volume will change how we look at the rest of the year in terms of volume. We expect to see continued but moderate growth in volume in the third and fourth quarters, and anticipate that our accession to billable volume spread will be tighter in the third quarter compared to the historical trends for the same period. We generated $46.2 million of revenue this quarter compared to $53.5 million in the second quarter of 2019. A decrease in revenue was primarily due to COVID impact on billable volumes and a mixed shift.

In the second quarter, over 67% of our revenue came from third-party payers and just over 32% from both institutions including pharma partners and patients. The continued high percentage from third-party payers is largely due to higher Medicare payments and steady improvement in commercial third-party payer performance, particularly with our hereditary cancer tests. Consistent with our discussion of ASP trends last quarter, we realized an ASP of $399 this quarter, down from $418 in the first quarter of 2020. This decrease is primarily driven by product mix changes which were amplified during the early months of the pandemic as our reproductive offering remains strong, but our more highly reimbursed cancer and CNP diagnostic tests dropped more significantly.

Offsetting this product mix change which moved our ASP down, was a continued increase in ASPs in several areas primarily our pharma ASPs. We anticipate increases in pharma ASPs as we expand our pharma partnerships this year. We expect to see continued volume growth and an increase in ASPs across all payers as we head into the second half of the year. As previously discussed, we have seen the product mix shift back to our higher reimbursed tests during the latter half of the second quarter and this trend continuing into July, and we expect this trend to hold throughout the third quarter, barring any COVID impact that exceeds our current assumptions.

Our reproductive offerings will continue to grow rapidly, and we expect to see uplift in our third-party payer reimbursements for these tests. Finally, regarding income items in the second quarter, we received $3.8 million onetime payment under the Cares Act which is included in other income. We do not anticipate any additional funds under the Cares Act or future COVID-related payments. Again, as last quarter, it is easier to understand our business and the quarter's financials by focusing on the non-GAAP numbers.

Most line items on the P&L are affected by acquisition-related charges primarily acquisition-related stock-based comp and amortization of acquired intangible assets, but also this quarter, some other charges related to post combination expenses, fair value adjustments to acquisition-related liabilities and income tax benefits. To allow you to compare the two sets of numbers, we have provided a detailed reconciliation to non-GAAP in tables included both at the end of today's press release and in this slide deck. Our GAAP financials for the second quarter are provided in the table on this slide as well as in our press release and regulatory filings. Throughout the remainder of the discussion of the quarterly results we will refer to non-GAAP numbers which we believe are a more relevant depiction of the business dynamics and the decisions we are making moving forward.

We also provide cash burn which is a non-GAAP measure. investors are encouraged to review the non-GAAP reconciliations. Our cost of revenue per sample was $318 this quarter, 29% increase from the second quarter of 2019. This increase was driven by volume -- lower volumes to spread our fixed and semi-variable costs across, higher costs due to mix changes and higher stock-based comp charges.

The direction was not unexpected and was noted in our last earnings call. First, on our lower volumes. We maintained staffing levels to ensure we could meet customer needs at whatever volume levels resulted and to protect our on-site workforce. We had significant excess capacity throughout most of the quarter.

Approximately $72 of cost per sample is the result of volume decreases from COVID-19 when compared to accession levels we achieved in the first quarter. Second, on the mix changes, we had proportionately higher reproductive health tests and screens which as a relatively new product area has higher COGS before we bring them up to full scale. Whereas our cancer tests are significantly less costly to run after years of investment in reducing the cost of these tests. And third, as in years past, annual stock-based compensation grants were awarded to employees during the second quarter with the bolus of costs hitting the second quarter.

What changes do we see in the third quarter and beyond? Our capacity is more fully utilized as volumes are returning. On NIPS, in July, we transitioned to performing most of the NIPS tests in-house and we begin -- we will begin to benefit from significant cost savings. The recent increases in the proportion of more established tests like cancer with lower processing costs, will lead to improved COGS. And finally, as a result of our reprioritization of development projects in response to COVID, we have focused on automation, scaling and other projects that will yield cost reductions through year-end.

Gross profit was $8 million and gross margin was 17% in the second quarter of 2020. This was due to factors discussed: First, revenue and ASP declines from product and payer mix shifts; second, an increase in accession to billable volume gap; and third, the increase in COGS per sample due to product mix which all impacted our gross margin. We expect to trend back toward our target of 50% gross margin as we exit the year. Moving to operating expenses.

We continue to invest in our business with multiple acquisitions announced this quarter but moderated our operating spend. Operating expenses excluding cost of revenue for the second quarter, were $105.7 million as compared to $101.9 million in the first quarter. As we highlighted on our last earnings call, to navigate the new COVID reality, we took actions to significantly scale back our expenditures, starting at the end of March and into the second quarter by pulling back on investments in future projects, focusing on cost reduction initiatives and instituting a reduction in force and other personnel expense reduction measures. If one eliminates the large stock-based comp charge this quarter due to our annual stock grants and the fees associated with our acquisitions, totaling over $10 million more this quarter than last, we actually saw an appreciable decrease in our opex.

One other item to note, we had fair value adjustments to acquisition-related liabilities of $25.4 million this quarter which, when netted against the various other charges, resulted in other income of $4 million. The company is continuing to closely monitor the impact of the pandemic on testing volumes and mix, and we will calibrate our spend as appropriate. We provide a reconciliation on this slide to show the adjustments to get from the cash flows and our financial statements to the non-GAAP numbers investors are accustomed to us presenting. Cash burn excluding acquisition-related expenses, would have been $63.8 million compared to $66.2 million in the first quarter.

Moving to our cash position. Cash, cash equivalents, restricted cash and marketable securities were bolstered in the second quarter, totaling $428.5 million at June 30 compared to $301 million at March 31. Several important events occurred in the quarter which affected our cash position. First, given the uncertain impacts of COVID late in the first quarter, we felt it prudent to enhance liquidity and raise funds via secondary offering that closed in April and netted approximately $173 million, as well as a $44.5 million net raised through our ATM facility in June.

Second, in terms of cash outflows, we closed on the acquisitions of Genelex and YouScript which included the use of $25.4 million in cash. Net of the quarterly cash burn, we ended the quarter with a strong cash position of $428.5 million. As Sean mentioned, the ArcherDX acquisition is expected to close in the fourth quarter and we have committed $325 million in cash to close the deal. In connection with the acquisition, we arranged a combined equity and debt financing package that includes a $275 million pipe and up to $200 million in a fully committed credit facility.

Both are expected to close concurrently with the proposed acquisition, subject to the satisfactory of -- satisfaction of customary closing conditions, allowing our current cash to continue funding operations. The cost reduction initiatives I mentioned earlier resulted in some short-term expense recognized in the second quarter. They will have more impact in the second half including a modest reduction of third-quarter burn and a more significant reduction as we exit the year. Changes we have made and are making will yield savings beyond 2020 and into 2021.

We continue to actively manage our quarterly burn, but as you would expect, the realized COVID impacts and the stepped-up acquisition activity over the past quarter will bump up the total burn above our previously stated goal of $200 million for the year. That said, we still expect our cash to be approximately $425 million when the transaction closes depending upon final transaction costs, with an annualized near-term pro forma forward cash burn of approximately $130 million to $150 million. Cash on hand at close will more than cover our needs through expected cash flow breakeven expected in late 2022 or early 2023. We will provide more details on our third-quarter call.

I will now turn the call back over to Sean.

Sean George -- Chief Executive Officer

Thank you, Shelly. The approach to achieve our mission has been straightforward and is not a bit unconventional. By investing and improving our customers' experience, adding as much genetic content as possible and delivering that to as many individuals as possible, we have created a flywheel effect that allows us to use our differential cost advantage to further serve our current customers and, equally importantly, rapidly grow the total number of individuals that can utilize genetic information to their benefit. A decade of investment in the Invitae platform has enabled us to deliver genetic information through a broad set of tests, screens, services, technologies, channels, customers and geographies.

We are uniquely positioned to support clinicians and their patients around the world to accelerate the adoption of genetics into routine care. And with the anticipated close of our merger with Archer, we look forward to making the most advanced in personalized cancer treatment and monitoring a routine reality for all. The unmet need remains immense, and we continue to position Invitae as a runaway leader in genetics across all areas of healthcare. With that, I'll now turn the call over to the operator for Q&A.

Questions & Answers:


[Operator instructions] Your first question comes from Doug Schenkel from Cowen.

Doug Schenkel -- Cowen and Company -- Analyst

Hey. Good afternoon and thank you for taking my questions. It's nice to see the volume bounce back the way it did, seemingly over the course of the quarter. Sean, if we go back to I think your Q1 remarks, before the pandemic hit you indicated you were on track to do over 850,000 tests for the year which, as you noted at that point, was well above your original target for over 725,000 accession samples for the year.

I'm just wondering if the run rate coming out of June kind of got you somewhere between those numbers on a run-rate basis. If I look at Slide 10, it seems like you're in that neighborhood. But again, I'm just kind of taking a line on that chart and extrapolating. So any commentary on that, certainly whether on any annualized, obviously you're back to those target levels would be helpful.

Sean George -- Chief Executive Officer

Yeah. I think -- I mean, as you noted, the year was off to a -- we're actually poised to increase our 2020 over '19 growth rate compared to '19 over '18. And I think as we sit today, we're encouraged by what looks like to be the volume, the top-line recovery. I think we're also really cautioning against any kind of extrapolation for the rest of the year.

There's, like we noted, the volume recovery is sporadic. It seems to also be temporal depending on the region. We do see, even in regions that have kind of subsequently reshutdown, clinicians don't completely shut down. So there's a bit of learning.

And I think adoption -- adoptive -- there's a lot going on with a lot of our clients, even in areas that have kind of reclosed. So I think there's probably -- I think it's probably just best to just assume this -- we'll kind of see it as it comes and as the quarter plays out, in the next quarter. Yes, ideally, we would get back on path which would kind of get us role in there. But I think you just can't -- right now, based on how everything is coming week-to-week, it's really hard to tell.

Doug Schenkel -- Cowen and Company -- Analyst

OK. Maybe a quick follow-up on that, and I appreciate all that commentary. I think Shelly, in your prepared remarks, you've indicated that you expect to see continued but moderate growth in volume in the third and fourth quarters. I think the Street right now is looking for seemingly a little bit more than that in the fourth quarter.

So kind of building off of what Sean just said, should we be tempering our expectations for modest year-over-year growth in both Q3 and Q4 until we get a little more clarity and confidence and more of a robust and sustained recovery?

Shelly Guyer -- Chief Financial Officer

Yes. I would say that's probably a very fair statement. So third quarter, we have more visibility on that, given that we are in the third quarter right now. And we've seen July, so we tried to give a little bit of indication there.

But it's really hard to project out that far. That will be winter. It depends on various international countries. It depends domestically.

And as Sean indicated, just a little spotty. So I would say temper and moderate would be the word I would use.

Doug Schenkel -- Cowen and Company -- Analyst

OK. If I could just sneak in one more topic. You talked about the success of telehealth efforts, the complementary Gia chat bot and really driving ordering through the direct channel over the course of the quarter. Is there any way to frame how much of an impact these tools had on volume in the quarter? And how are you thinking about the longer-term benefits of these initiatives based on what you saw in Q2? Is there evidence to suggest that some of these initiatives that probably got pulled forward a little more quickly than originally anticipated are going to have a more deferrable and notable impact sooner than you would have expected had there been pandemic?

Katherine Stueland -- Chief Commercial Officer

Hey Doug, it's Katherine. I'll take this one. Most certainly, the introduction of Gia and more broadly, the software solutions that we offer people, that's something that we pulled forward in terms of really deploying a strong strategy to get clinicians engaged with that. And I would say if there is a silver lining with the pandemic, that might be that we're able to engage with clinicians more efficiently in that way.

So that is indeed one of the key ways that we see maintaining our customer base, growing volume at existing customers which enables our sales team to really get focused on new account growth. So we think that this is -- it helps us pull forward a key aspect of the commercial strategy that we think is going to help us really develop some stronger commercial leverage in the future.

Doug Schenkel -- Cowen and Company -- Analyst

OK. Thanks again.


Your next question comes from Tycho Peterson from J.P. Morgan.

Tycho Peterson -- J.P. Morgan -- Analyst

Hey. Thanks. Maybe I'll start with the ASP outlook. You mentioned the mix dynamics in the quarter.

I'm just curious going forward, should we assume this is kind of the trough on ASPs? And can you just talk a little bit about how you see that dynamic evolving over the next couple of quarters? I think you mentioned pharma in the prepared comments as an opportunity too, so.

Shelly Guyer -- Chief Financial Officer

Yeah. Why don't I start and then Sean can jump in. So one, product mix really did change that. And so we do think that there are some changes from the perspective of cancer is coming back stronger, we get paid more for cancer.

So we do expect that that will bring it up, one. Two, the reproductive, as we talked about, we are expecting that we will see increases in those. By doing the testing in-house, we anticipate that we will be paid more frequently and also on carrier screen. So across reproductive testing, we would expect that to go up.

Pharma partnerships, as we've mentioned, we signed numerous partners I think 16 this quarter, and so we're up over 105. We're seeing that translate into ASPs are stronger for the pharma partners. So those are all the types of things. And just blocking and tackling on the collection side of things, we're continuing to see third parties pay more as we have nearly $300 million under contract at this point.

So I think those are the key things. Sean, did I forget anything?

Sean George -- Chief Executive Officer

No. I think those are all the -- that's how we see -- the mix is -- we think it's going to improve or the ASPs will improve throughout the year. Again, that's all predicated on kind of -- or not experiencing any other kind of COVID impact that would shift the mix one way or the other which is really difficult to anticipate. So kind of if everything kind of stayed as it was today, that's exactly what we would expect for all the reasons Shelly mentioned.

And understanding the reproductive health kind of reimbursement, kind of dynamic, it seems odd. Just a reminder, we're in network with now over 300 million covered lives. It's more than anybody. And particularly, when you're talking about expanded carrier screening, well, in IPS, we know the deal there.

As we send out, we really can't build full freight on that, now we can. So that's a great uplift we see. That's a tailwind we see. And for expanded carrier screening, since we are in network which is about everybody, we can't play the kind of traditional code stacking, gene stacking games that everybody else does and kind of get through the system.

We've had to do it upfront, straightforward pair by pair by pair which is a middle -- is a bit of a journey, but we are getting there. And so that's where the other source of that reproductive health dynamic changes just because I know it's some folk have asked kind of what is that, where does it come from? Those are the sort of the two major sources of that, the change we see happening. Irregardless of mix, that's what we see happening there. And then like Shelly pointed out, the mix has a big effect, depending on which way it goes.

Tycho Peterson -- J.P. Morgan -- Analyst

And then Sean, on the reimbursement front, on pharmacogenomics, this has obviously been a tough area for at least one of your competitors. You talked about the benefit of incorporating pharmacogenomics profiling and discussions with providers and networks and payers and the major health system that you signed. But can you just talk a little bit about traction and momentum on the payer front there and other milestones we should be paying attention to in the back half of the year?

Sean George -- Chief Executive Officer

Sure. I think -- and Lee is here in the talk -- much, much closer to the action than I can about where we think the payer dynamics are going Medicare and third-party on PDX.

Lee Bendekgey -- Chief Policy Officer

Hi, Tycho. Yeah, the -- as you know, generally, Medicare and the MolDX program are a pretty good for shower of trends in the private-payer industry. And you may have seen there was an LCD that Palmetto came out with today or this quarter on pharmacogenetics. And there are a number of super positive elements of that.

There's still a lot of work to do. But starting with the fact that, basically, any clinician who is prescribing a drug where pharmacogenetics can have an expected impact is now considered an appropriate clinician to order PGX test rather than limiting it to mental health professionals. There are -- there were a number of additional factors in that including beginning to defer for guidelines and evidence to a lot of the professional organizations like CPIC, PharmGKB and AMP. And so we expect that this will continue to be an important trend, particularly as the private payers are focusing on population health, value-based care models.

As you will recall, there was work done by our colleagues, formerly of YouScript and Genelex showing the real impact on patients who are on multi pharmacy, particularly older patients. So those kinds of trends and those kinds of arguments, in terms of the impact, we see beginning to have to get traction, particularly as Sean said on the -- in health systems and ACOs, where the relationship between the payer and the system and the patient is a little bit tighter.

Tycho Peterson -- J.P. Morgan -- Analyst

Thanks. And then just one last one for Shelly on the cash burn. You noted pulling back on investments obviously in the current environment, if that makes sense. But how much of kind of a catch-up should we think of in the third or fourth quarter? And then to Doug's question earlier, do you need to make additional investments in telehealth around Gia or do you have what you kind of need there? Thanks.

Shelly Guyer -- Chief Financial Officer

So I'll let Katherine start on Gia and where we are on that, and then I'll get to the larger cash burn question.

Katherine Stueland -- Chief Commercial Officer

We are continuing to build out Gia capabilities per clinician type. So really expanding beyond OB and certainly with an eye toward being able to provide all of our testing and being able to have Gia help identify the right patient, the right test as we continue to expand that capability. So we see that across all the clinical areas, oncology, reproductive health, pharmacogenetics, so she really will have broad utility in terms of functionality, moving forward. That's already baked into our current stem.

So I'll let Shelly take it from here in terms of overall burn.

Shelly Guyer -- Chief Financial Officer

So on overall burn and cash burn, no, we don't see it transferring to later quarters. Actually, what I'd like to remind folks of is that we took some of these actions that were intended to have benefits later in the year. So for instance, we changed the priorities on where we would focus on some of these project development efforts. And Gia would be a good example of getting that out further and customer experience and all of that, to drive the volume and to drive that revenue.

The flip side is projects that would help us to reduce the COGS. So you don't see those impacts immediately, you will see those over time. Things like the reduction in force, we paid $3.3 million in the second quarter for those who will no longer be with us moving forward. So you'll have those savings.

We're not anticipating doing that again, but you'll have those savings through the third and the fourth quarter. So the combination of driving up the volume and the ASPs, as we've talked about, driving that revenue, driving down the COGS, those were the focus areas that we intended to take, and then pushing off and slowing down, so we wouldn't have to do a lot more hiring for some of those other projects. And as we finish these near-term projects, people go back and flow into those other projects. So we don't see making up at some point.

We see it to be a continuing focus as we move forward. So the total burn, as indicated, we think that it will be higher than the previous level that we had indicated and -- for the year. And that would be over the $200 million that we talked about before, something up like 10% above that let's say but still exiting the year at a much reduced burn rate on the rate that we talked about, $63.8 million, the comparable number, exiting the year between sort of $30 million and $40 million would be our anticipation at this point.

Sean George -- Chief Executive Officer

Yeah. And I think -- just to add on this. That's why our outlook is, as we've talked to, we still see a fair amount of uncertainty out there. It's why we've positioned the company through the measures, Shelly just pointed out, all told, especially when you consider what we anticipate to be our current innovation costs and by the end of the year it will push the burn a little bit higher for this year.

But our outlook puts us in a position to kind of look at it from a perspective of let's say assuming post deal, $425 million or so on the balance sheet and managing both the pro forma burn to, call it $130 million, $150 million for a 12-month outlook. And continue to drop from there. That's what we try to accomplish here in this last quarter of uncertainty. And I think we're feeling good about where that puts us for the next three years, vis-à-vis, pushing the business forward and pushing to operating cash flow positive with the $425 million plus on the end.

Tycho Peterson -- J.P. Morgan -- Analyst

Great. Thanks for the color.


Your next question comes from Puneet Souda from SVB Leerink.

Puneet Souda -- SVB Leerink -- Analyst

Hi. Thanks, Sean and Shelly. First question on NIPS. You mentioned you're bringing NIPS in-house in July.

Would that imply that you're using Singular technology here or is this still a aluminum platform? And what does that mean for the COGS improvement that you're expecting?

Sean George -- Chief Executive Officer

Yeah. So no, the plan has been -- first is getting in-house running with the Illumina core technology. That's what we've currently done. And that's a pretty good cost improvement right then and there.

And perhaps equally importantly, we can get full freight on billing for those patients. And that was the first major move. The Singular Bio milestones are indeed clicking through. And we would expect some time next year to be able, in at least in majority cases, enjoy the cost reduction from the deployment of that technology.

But we still got well into next year for that development effort to really take hold.

Puneet Souda -- SVB Leerink -- Analyst

OK. And then on NIPS as well, you added that capability to whole genome sequencing. Can you just remind us how much is a whole genome as part of the volume? And what's the strategy here in terms of adding an NIPS to it?

Sean George -- Chief Executive Officer

Yes. So the whole genome sequencing is still -- like most of that volume we do is in research and collaborations at this point in time. With the acquisition of Diploid, we had mentioned that we are hastening the day we can replace exomes with genome once that pipeline is totally intertwined with the Invitae pipeline. And that's kind of what we're looking forward to in the months or quarters to come.

But no, right now, our -- any whole genome work that we do is mostly in collaboration and R&D -- in collaboration and validation.

Puneet Souda -- SVB Leerink -- Analyst

OK. And then last one I had was on the sales force. Can you remind us after the recent changes, where do you stand? And how much -- what percent of that sales force is actually serving the -- an IPS market, an overall reproductive market versus there deterred?

Shelly Guyer -- Chief Financial Officer

Sure. Thanks, Puneet. So we have about 270 folks who are outside sales reps. The majority of that team really focuses on oncology and women's health, with smaller segments supporting IVF and our CNPT.

So the majority of those folks are calling on OBs.

Puneet Souda -- SVB Leerink -- Analyst

OK. Great. Thank you.


Your next question comes from Kevin DeGeeter from Oppenheimer.

Kevin DeGeeter -- Oppenheimer and Company -- Analyst

Hi. Guys. Thanks for taking my questions. So I guess, part of the thesis here over the intermediate term has been consolidation within the hereditary cancer market more generally.

Can you just comment with regard to, at least thematically, with the dislocation from COVID, are you seeing that process of consolidation accelerate, essentially unchanged? Any sort of impact on sort of how system stress is impacting consolidation? And on a separate but perhaps related note. I guess, we're -- a little over a year into sort of some of the United and other preferred lab provider experiments. So just general feedback you're getting from payers in terms of the interest in structures that might allow for a payer-driven consolidation across the industry or at least across hereditary cancer.

Sean George -- Chief Executive Officer

Yeah. I think we can go through a bit of that. I would say as for the consolidation in the industry which has definitely been picking up over the years, our view on the COVID thing, I mean, our general sense is this is probably accelerating it. Much of the industry operates outside of the public eye.

So I think, Kevin, you can only get a view to that to deals and proposals flying around and that seems to be picking up lately which I think kind of makes sense, right? It's a little bit of a brush fire kind of going on right now. So they're already accelerating consolidation I would say from our vantage point, it looks like it's picking up. And then as for the preferred networks, I think since Lee is here, he can kind of talked through it. In general, we have been receiving in inbound from a variety of the payers to explore and discuss more.

But Lee can talk more to it.

Lee Bendekgey -- Chief Policy Officer

Sure. So as you mentioned about a year ago, United announced the launching of a preferred lab network program which is intended to identify a handful of high-quality labs and basically use a number of techniques in the arsenal of the payers to try to encourage providers and their patients to work with the preferred labs. So far, United has basically been experimenting with some of these techniques. I wouldn't say that the impact of the PLN with United has been dramatic.

But we are starting to see effects there. And perhaps more encouraging, other payers have noticed. And so we have a handful of small payers that have put us in their preferred lab networks, where we are seeing streamlined. For example, we have small payers that are foregoing prior authorization which is a huge win.

And they are payers who are experimenting with lower co-pays or no co-pays for preferred lab members, as well as steerage which is a way that they reward clinicians for using their preferred providers. So there does seem to be, in terms of the number of conversations we're having about preferred lab status, there does seem to be growing momentum. It's certainly not a tidal wave yet. But it is a trend that is both benefiting from the consolidation that you referred to, in the sense that a lab like ours that has a very comprehensive test menu as well as being very high-quality is an attractive preferred lab for payers.

And then these techniques that they use to drive volume will then tend to reinforce the advantage that a lab like Invitae has.

Kevin DeGeeter -- Oppenheimer and Company -- Analyst

Terrific. And then just maybe one last question for me, and it's sort of following up on Puneet's question earlier, and that is if we were to look at the second quarter and if you had been performing NIPS in-house, is there a quantifiable metric that you can point us toward in terms of the magnitude, either of reduction in COGS or opportunity for improvement in revenue on a consolidated basis? Just trying to get some sort of sense to how to think about the magnitude of that move in-house.

Sean George -- Chief Executive Officer

Yeah. I think kind of the detail of it, I think we'd like to kind of maybe wait and see until we've got a few more weeks of it actually running. But it's significant. It's in the $100-plus for test swing when you're thinking about it, all told, kind of top line and bottom line, if you think about it that way.

And it varies of course every payer has got quite a price for at risk, not at risk. Some pay for both, some don't, right? There's some mix in that institutional pay or patient pay. But I think it's a significant -- it's at least three figures as it were which these days, and that's a huge -- we invest now, a nickel, a dime at a time in reducing COGS. So that kind of swing on a product line is going to be meaningful.

And that's where kind of Shelly pointed out that that top-line impact in terms of reproductive. That's why we're bullish about that toward the end of the year. And that's just a question of what the mix is going to be in it. But I think probably early to put a final put an actual number across the whole average of all the tests.

We probably want to see how it goes a little bit more again particularly on that reimbursement, the payer mechanics side.

Shelly Guyer -- Chief Financial Officer

Yeah. And that's the third quarter is going to take both of those. We have to work through those. So if we just brought it in-house in the middle of July, we have to be able to turn the systems on get the payments coming in for all of those and see what happens.

And that's a month to six weeks before we start seeing those results back to the date of service. So and same thing for the internal COGS. We just have to see when it comes out. So I would assume by the time we're reporting our third quarter that will have better indications for you.

But remember, we don't break out each individual product anyway, but you'll see the impact on the COGS and on the ASPs.

Kevin DeGeeter -- Oppenheimer and Company -- Analyst

Appreciate the additional color. Thanks again.


Your next question comes from Jeff Cohen from Ladenburg Thalmann.

Jeff Cohen -- Ladenburg Thalmann -- Analyst

Thanks for taking the questions. I have two which are somewhat related, and I was hoping you could comment. Firstly, could you talk about backlog or tests which would have, under normal conditions been conducted in April, May and June? And in some cases, are those lost or is there kind of a bolus that you think about going forward? And then secondly, with relation to that, could you talk a little bit about clinician engagement and some of the learnings recently and some of the actions or inactions based on the pandemic and it's continuation.

Sean George -- Chief Executive Officer

Yeah sure. I'll take the first and then I think Katherine can kind of go into more -- kind of on the ground clinician response. In general, we definitely know that there is going to be a pent-up demand effect. We're experiencing this now.

You can kind of see these anecdotally of clients that are getting back to it, and they've got these wait list now that we're helping them kind of burn through. Hard to say exactly the exact percentage of volume that would have come in the last few months that will come over the next year. There is, for certain, going to be a loss rate. Reproductive tests that -- carrier screens and NIPS, those -- I think there's no way to tests women now in their third trimester.

And of course, you've got some of the other disorders. I mean, regrettably, cancer tests, PICU and NICU tests, other diseases where those patients are dead. That percentage will obviously not come back. There will be some drop off.

But for overview, a patient's life being disrupted and dislocation from the pandemic. So it's not going to all come back. With that said, I think the majority of it -- the majority of the testing on the inherited genetic side, the non-reproductive health side, we think is going to push into some kind of pent-up demand mode and we'll see come back over the next year or so. That's kind of our general guess.

And by majority, I don't mean like 80% or more, but somewhere between 60 and 80 in what we're probably thinking. When that comes in, really hard to say. But Katherine can kind of talk through kind of what we've experienced right on the front lines with the clinicians.

Katherine Stueland -- Chief Commercial Officer

I think some of the factors that have really helped us recover quickly in terms of our volume, include the reliability, the reputation that we've built as being reliable, high-quality. The durability of the relationships that we've been able to secure with clinicians and now with the introduction of telehealth, that really helps us provide a more efficient experience for clinicians and their patients. So I think as we look to the future, we're seeing early signs through Gia and other software solutions that clinicians are finding the efficiency that's there to be something that they want to be able to further adopt in the future. And our goal really becomes a more efficient experience for the clinician and the patient.

If the patient can come in and have a conversation with their clinician with the test results already been interpreted, it's a much more meaningful interaction than they're having versus going in and getting tested after doing a follow-up. So we'd like to really be able to work with the clinical community to shift the way that they're utilizing testing to be able to get it done before a patient gets in for a visit with their clinicians. So early signs are very positive across the board, really based on the backbone of high-quality reliability and now efficiency as well.

Jeff Cohen -- Ladenburg Thalmann -- Analyst

Perfect. OK, that does it for me. Thanks for taking the questions.


Your next question comes from Bruce Jackson from The Benchmark Company.

Bruce Jackson -- The Benchmark Company -- Analyst

Hi. Good afternoon. Thanks for taking my questions. Looking at the pharma partnerships, were these new partnerships for existing programs or are they for new testing capabilities? And then if they're joining the existing programs, does that give you any kind of scale efficiencies?

Sean George -- Chief Executive Officer

The answer to the first is it's a mix. There's some new partners that have shown up for new indications. And then of course reups and additions for partners. And some of those are additions on new drugs, new indications with kind of obviously, some of these partners haven't had a pretty wide pipeline.

So a mix of both is the answer. And in terms of the efficiency of the whole program, yes, absolutely. So this is kind of our -- this is the way we think about the world strategically at work. The more of these that we enter into, the better, faster, cheaper it gets for everybody.

The easier it is to communicate about it. The easier is to sign patients up and get them in, the easier it is to get them in touch with the pharma partners and the clinicians that can take care of them or enroll them in trials. And the more pharma partners that sign on to the platform, it gets less expensive for everybody on a per-patient basis. And so again, this is this -- this is the demand side network effect that we've been citing on for a while, and it continues to pick up.

Shelly Guyer -- Chief Financial Officer

Yeah. The only thing I would add is building on what Sean said, the Detect program, I think we've seen a really positive response to that from clinicians. Obviously, it removes the barrier of price for them. It opens up access.

So we end up building a large network of patients that we are able to then tap into with their consent to be able to bring in multiple pharma partners which brings us multiple revenue opportunities then. So we think that those sorts of programs, as we look ahead, are going to be increasingly important as we kind of continue to evolve the model, so it does become more of a network effect over time.

Bruce Jackson -- The Benchmark Company -- Analyst

OK. Great. And then with your cancer business, to what extent is the test fund dependent upon cancer screening? So for example, during the second quarter, mammography has kind of dropped off. And is there like a lag time in the pipeline between when women get diagnosed and when they actually seek out the testing? So can you maybe comment a little bit on that dynamic?

Sean George -- Chief Executive Officer

Yeah. I mean there's -- it's kind of -- it is kind of across the board. Some of the individuals getting testing or getting diagnosed and getting inherent testing all at the same time. Others get diagnosed perhaps at an earlier stage, perhaps less aggressive form albeit at a young age and then they spend some time thinking about whether they would like to get some more information and decide about it.

And I think it kind of -- and then there are some settings where mammography center, radiology center, where as a general order of preventive care, there's some form of screening going on. And we are finding -- and this is especially where, in simplifying the front end of this whole equation, we're finding that ever increasingly a genetic test along with the routine screening, whether it be -- whether it might be imaging or otherwise, we believe is going to be a primary way where we can get -- those three and four women that have an incredibly high-risk of cancer conferred by genetics who currently aren't getting tested to actually get them screened as a part of their kind of routine health screening. So I think that's -- it really is kind of all across the board. But I think ever increasingly, we see this just kind of moving "forward in time" as it were, given the obvious benefits of understanding genetic background for a majority of women that may be a significantly increased risk for hereditary breast, ovarian cancer testing.

And then frankly, that applies to all of the cancers. As we pointed out, 60% of men with prostate cancer could benefit pretty significantly from knowing their inherent genetics surrounding prostate cancer. We do reasonable volume in prostate, but essentially, no men are getting tested at this point in time. So that's another area where we just think the same dynamic will be playing out in the years to come.

Bruce Jackson -- The Benchmark Company -- Analyst

OK, got it. Thank you very much.

Sean George -- Chief Executive Officer

All right. Thank you.


Your next question comes from Ophir Gottlieb from Capital Market Laboratories.

Ophir Gottlieb -- Capital Market Laboratories -- Analyst

Hey guys. Thanks for taking the question. I hope everyone is safe and well. I just want to go a little deeper on the conversations surrounding Clear.

If we assume that the digital transformation is a permanent move. So let's just roughly say the utility from Gia is recognized and therefore, usage increases are maintained and they continue to grow. Will Invitae, as a company, have a better SG&A margin profile than before? And if so, is that sort of a material impact on the future for the company? Thanks.

Sean George -- Chief Executive Officer

Yes, absolutely. So the investment in our -- what we have always broadly termed front end capabilities is all about improving operating leverage, particularly in SG&A. And it is our view that kind of -- to reiterate, our view is when you move from genetics as a ration good, kind of -- in, kind of, low volume niche market, high-margin business models and you move into something where 2 billion people are going to have genetic information used on their behalf as they need it, where they need it, the current sales market model does not work, period, full stop. So we've kind of long anticipated moving to a sales and marketing model which has a lot more leverage in it that currently exists.

And there's no doubt the front end capabilities up to and including Gia and AI-powered chat bot and many things to come in the years ahead are a key part of that transition, absolutely.

Ophir Gottlieb -- Capital Market Laboratories -- Analyst

OK. Thanks a lot.


[Operator signoff]

Duration: 59 minutes

Call participants:

Laura D'Angelo -- Head of Investor Relations

Sean George -- Chief Executive Officer

Shelly Guyer -- Chief Financial Officer

Doug Schenkel -- Cowen and Company -- Analyst

Katherine Stueland -- Chief Commercial Officer

Tycho Peterson -- J.P. Morgan -- Analyst

Lee Bendekgey -- Chief Policy Officer

Puneet Souda -- SVB Leerink -- Analyst

Kevin DeGeeter -- Oppenheimer and Company -- Analyst

Jeff Cohen -- Ladenburg Thalmann -- Analyst

Bruce Jackson -- The Benchmark Company -- Analyst

Ophir Gottlieb -- Capital Market Laboratories -- Analyst

More NVTA analysis

All earnings call transcripts

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

Motley Fool Transcribing has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Invitae. The Motley Fool has a disclosure policy.

Stocks Mentioned

Invitae Stock Quote
$2.85 (-4.21%) $0.12

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.