Invitae (NVTA) Q3 2020 Earnings Call Transcript

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Invitae (NYSE:NVTA)
Q3 2020 Earnings Call
Nov 05, 2020, 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 2020 financial results conference call. [Operator instructions] I would now like to hand the conference over to Laura D’Angelo. Thank you. Please go ahead.

Laura D’AngeloHead of Investor Relations

Thank you, operator. And good afternoon, everyone. Thank you for joining us for our third-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, and Jason Myers, president of our oncology business area.

As you listen to today’s conference call, we encourage you to have our press release available which includes our financial results as well as metrics and commentary on the quarter. Before we begin, I’d like to remind you that various remarks that we make on this call that are not historical including those about our future, financial and operating results, our plans and prospects, the focus of our business strategy, our plans to integrate and manage businesses we acquire, market opportunities, future products, services, our product pipeline and the timing thereof, demand for and reimbursement of our services, and our investment in our infrastructure and operations, 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 slated outlook. The statements on future company performance assume, among other things that we don’t conclude any additional business acquisitions, investments, restructuring or legal settlements.

We refer you to our most recent 10-Q in particular to the section titled Risk Factors for additional information on factors that could cause actual results to differ materially from our current expectations. These forward-looking statements speak only 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 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 GeorgeChief Executive Officer

It’s been a busy and exciting few months both at Invitae and around the industry at large. While there is a lot to discuss if we leave you with one key take away from the call today it would be to orient or reorient everyone to our mission; the long game at Invitae. Q3 was a great quarter for us and key performance metrics all indicate that we can and in time will return to our pre-pandemic growth trajectory. In fact September turned out to be our strongest month ever.

Despite the uncertainty and headwinds of the pandemic last quarter we saw much stronger tailwinds in the form of broader adoption public and private payer decisions and expanding guidelines. We continue to expand our addressable markets and improve our ability to grow into them faster. We see no change in the global demand for our platform and fully expect to return to a high growth trajectory and maintain it for many years to come. On this call we’ll cover significant developments and future outlook but, first Shelly will walk us through the quarterly financial results.

Shelly GuyerChief Financial Officer

Thank you, Sean. Given the recovery and growth we’ve seen amid the pandemic our intent remains the same to exit the year with a rapidly growing business that is positioned as an even stronger competitor in the expanding genetics market. As a reminder we close the ArcherDX deal on October 2. I will touch only briefly on key cash considerations related to the close because most of the impact will be reported on our fourth-quarter call.

We’re pleased to have accessioned approximately 170,000 samples in the third quarter of 2020 representing a nearly 32% growth in volume over the previous year’s third quarter. Our volume bounced back from the COVID lows in the second quarter increasing 42% this quarter over last quarter. As the business develops, billable test volume has become a more relevant metric than an important benchmark given that we accrue our revenue based on the number of billable reports in a period. This quarter billable volume was approximately 157,000 tests, a 27% increase from the same quarter in 2019.

International volume remains steady at about 11% of billable volume. Overall, our volumes product offering and mix continue to trend back toward or exceed pre-COVID levels. However, we continue to urge some caution on expectations for growth over the next few quarters as we enter the flu season and COVID-19 hot spots emerge that could lead to regional shutdowns. Our accession to billable volume spread was 8% for the quarter higher than our historical 4% in the third quarter; the impacts from COVID-19 were the primary driver of this change.

We generated $68.7 million of revenue this quarter compared to $56.5 million in the third quarter of 2019 representing a nearly 22% increase. The third quarter over 68% of our revenue came from third-party payers and nearly 32% from 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 and NIPF tests. After seeing consecutive quarters of declining ASPs we realized an ASP of $429 dollars this quarter, up from $399 in the second quarter of 2020.

This increase is primarily driven by product mix changes which bounce back to pre-COVID levels with cancer and CNP, Cardio Neuropes returning to higher proportions of our overall business. We saw increases in third party payer ASPs driven by our NIPF offering after bringing the test in house in July. Offsetting these increases was a shift in our payer mix from third party to institutional and patient payers with lower ASP. The addition of Archer should increase the ASPs as we move into 2021.

One final note, the rising ASPs over time due to payer progress represent a notable source of leverage. Our many investments in our platform and willingness to provide early access to patients ahead of the payer adoption curve is bearing fruit. As we’ve noted in prior quarters the pace of M&A activity and other factors make it easier to understand our business and financials by providing non-GAAP metrics. Most line items on the P&L are affected by acquisition related charges primarily acquisition related stock base comp, amortization of acquired intangible assets and fair value adjustments to acquisition related liabilities.

To allow for the comparison of the two sets of numbers, we urge investors to review the detailed reconciliation to non-GAAP and tables included in today’s press release and at the back of this slide deck. For the remainder of the call, we will refer non-GAAP numbers including cash burn which we believe provide a more relevant depiction of the operating business dynamics. Our non-GAAP cost per sample was $247 in the third quarter of 2020 down significantly from the second quarter. The per sample cost was impacted by mixed changes as well as some remaining excess capacity early in the quarter and higher stock based compensation charges that were non-acquisition related.

Now, we have a reproductive health test in-house that had previously been performed via a send out. We expect our COGs to benefit moving forward. Non-GAAP gross profit was $26.8 million which translates to a gross margin of 39% in the third quarter of 2020 excluding amortization of intangibles. The gross profit improved dramatically compared to last quarter due to increased volumes, better ASPs and reduced COGs.

We expect to trend back to our target 50% gross margin as we exit the year. Moving to the operating expense we continue to invest in our business while simultaneously moderating our operating spend. Non-GAAP operating expense which excludes cost of revenue for the third quarter was $102.6 million as compared to $105.7 million in the second quarter. As we highlighted on our last earnings call to navigate the new COVID reality, we took actions to significantly scale back our expenditures which included both a reduction in force and a salary decrease for remaining employees.

Due to this in the quarter a significant decrease in opex quarter to quarter was obscured by a $6.8 million stock based compensation charge due to a special equity grant to show remaining employees our appreciation of their hard-working commitment as the COVID impact came into focus. Eliminating this we actually saw an appreciable decrease in our opex in the third quarter of nearly $10 million. We intend to continue to make prudent investments in projects programs and companies that further our business strategy and admission such as the closing of the archer transaction just after the quarter close. Cash burn was $64.9 million in the third quarter which included approximately $7.1 million acquisition cost paid in the quarter.

Moving to our cash position. Cash, cash equivalents, restricted cash and marketable securities totaled $368 million at September 30th compared to $428.5 million at June 30th. When considering our cash position I note that the ArcherDX transaction closed early in the fourth quarter. Concurrent with the closing we consummated a $275 million pipe and a $135 million credit facility.

After subtracting the $325 million in cash to close the Archer, we added $85 million without deducting the cost of the deal in cash thereby entering the fourth quarter with an enhanced cash position. The cost reduction initiatives we implemented earlier in the year resulted in a reduction in the third-quarter burn and those changes will yield continued savings as we exit the year. However, in the fourth quarter we expect more significant fees and costs related to closing the Archer transaction and integrating the two companies. On a housekeeping note, we’ll be providing our traditional metrics for the remainder of the year but with the complexity and interrelated elements of our platform we will be working to streamline and refine some of those reporting metrics.

For example, we will be moving to a single volume metric versus providing accession and billable as we move into 2021. These changes will be intended to provide a simpler line of sight to the key factors driving the overall health of the business and the long-term success of our model. Now, I will turn the call back over to Sean to discuss additional strategic activities and progress.

Sean GeorgeChief Executive Officer

Thank you, Shelly. I’d like to take some time to highlight our vision and goals at Invitae and why they are more important and attainable than ever. The recent notable acquisitions undertaken by industry-leading companies like Illumina and Exact Sciences underscore the notion that the future of molecular medicine will not be dictated by any single technology, test or segment of the market but rather the ability to deliver the full range of accurate, accessible and actionable genetic information when and where it can best be used by physicians and patients to benefit their health even their survival. This is the model we have been pursuing for 10 years now here at Invitae.

We continue to view routine and constant use of genetic and other molecular information as the new vital signs of personalized medicine for the next hundred years and as such it will be a combination of information technologies in the delivery platform reaching both physicians and patients that will ultimately determine the winners in this newly dynamic ecosystem. Key strategic and clinical milestones from the past few months demonstrate continued significant progress in the execution of that vision. Two days after the end of the quarter we closed the acquisition of ArcherDX. The Archer technology team and approach fit perfectly with the Invitae culture and mission of delivering genetic medicine to everyone that can benefit no matter where they need to be treated.

On that note, I would like to extend a warm welcome to Jason Myers co-founder and CEO of Archer and now Invitae’s president of oncology who has joined us today on the call. Jason will play a pivotal role in leading the oncology effort here in Invitae and on a personal note Jason is not only a proven executive with a resume of accomplishments but he’s also the kind of roll up your sleeves hands-on person who fits well with the way we try and do things here at Invitae; a fact that made the combination of these two companies even more attractive. Jason?

Jason MyersPresident, Oncology Business Area

Thanks, John. Now that the transaction has closed it’s great to be digging in as part of the Invitae team. While it’s only been a month since the close it is already obvious that the Invitae platform will be the ideal home for the Archer team, technologies and service offerings. It is abundantly clear to me that if molecular medicine is to become the standard it will need to be delivered in a broad systemic and accessible fashion.

With both centralize and distributed capabilities on board Invitae is now uniquely positioned to provide flexibility in meeting customers whatever their specialty and wherever they choose to practice and serve their community. The addition of Archer’s differentiated solution provides optionality to the comprehensive menu from liquid and tissue biopsies to early stage cancers and somatic and germ line testing. We estimate the comprehensive menu and address a $45 billion global market opportunity. More importantly that market will expand as our capabilities expand to inform the treatment of all cancers at all stages in any location around the globe.

It’s truly an exciting time to be involved in molecular medicine and I’m thrilled to be leading the oncology team in the effort to make genetic testing and monitoring the everyday standard for every cancer patient which is a perfect leading to discuss the recent research and publication that are making waves throughout the oncology community. So with that, I’ll hand the call over to Bob Nussbaum. Bob is the person directly responsible for some of that research and he can best fill you in on study findings and their significance as we look forward to the continued importance of genomics and mainstream patient.

Bob NussbaumChief Medical Officer

Thank you, Jason we’re delighted to have you on the Invitae team. I’d like to briefly touch on three recently published studies that underscore that genetic information is rapidly becoming standard of care in cancer patients. First, we publish data that address the importance of both germ line and somatic testing in oncology; a study performed in collaboration with researchers from Stanford and the University of California, San Francisco showed tumor-only genetic sequencing of cancer patients misses medically actionable genetic variants that germ line genetic tests will identify suggesting both tumor and germ line testing are required to provide the most complete and actionable genetic profiling to inform cancer treatment. A number of patients in whom a germ line variant was missed by somatic testing had second cancers that patients and their providers would have known about and might have prevented or anticipated if the germ line testing had been done at the same time as their primary tumor somatic testing.

It is clear that both types of testing are needed to conduct truly personalized medicine and the good news is that this information so important to patient care is becoming more accessible every day. Secondly, a new study of 4,000 men with prostate cancer found one in 10 are the genetic germ line changes linked to hereditary cancer syndrome. Three-quarters of the patients with positive findings met criteria for changes in their cancer management or treatment based on their genetic finding. It’s clear that we must continue to explore how we can make genetic information more available and accessible for men with prostate cancer.

Increased genetic testing of men will clearly benefit the millions who find themselves battling prostate cancer as well as informing their relatives including both their sons and daughters of significant health risks. I should note that we also began patient enrollment in a national study to explore the role of current guideline in either ensuring or interfering with prostate cancer patients receiving testing that can identify clinically relevant genetic variants that can inform prognosis and support access to targeted therapy. And just last week a landmark study co-authored by our team and researchers from the Mayo clinic was published that evaluated universal testing among all patients with solid cancer. Results showed one in eight had an inherited cancer-related gene barrier half of which would not have been detected using a standard approach for deciding who merits genetic testing based on current guidelines.

Mayo is now incorporating these study findings into the care of all patients who come to Mayo for treatment which will substantially benefit the care patient with cancer and their family. Taken together these studies demonstrate the importance of making the acquisition of genetic information standard of care. Genetic medicine has labored for far too long under only complex and overly restrictive testing guidelines that are based on outdated cost-benefit analyses that pre-date indeed having accomplished one of its core missions writing down the cost of testing thereby making it more accessible and improving care for more people by allowing their providers to bring genetic information to bear and clinical decision making. Invitae continues to be a leader in advancing research like these studies and others to break the old mold and allow clinicians to bring to bring genetic into mainstream care.

I will now turn the call back over to Sean.

Sean GeorgeChief Executive Officer

Thank you, Bob. The studies Bob just walked through, further demonstrate the ever expanding role of genetics as standard of care. And with that feature in mind that we continue to invest in expanding our capabilities to execute on our long-term plan. We generally think of our offering to customers in three categories; the new services and platform.

And we invest and integrate new capabilities, we look at how we can optimize across these three categories to drive increased value to customers in the coming years. Let’s take a look at the last year of investment. Genelex and YouScript accelerated our entry into pharmacogenetics. With Genelex, we had a PGx testing capabilities.

Some of these cut, we added a clinical decision support tool focused on PGx’s result and patient impact. Together, they enabled us to offer pharmacogenetics with a software infrastructure to further expand its use. Next, we roll on in integrating deployed in its computation engine moon and doing Invitae. As I recall, moon is AI software which further advances are very interpretation and reporting platform and ability to quickly and efficiently turn large amounts of data and seem to take information into actionable results.

One notable area growth this also got the ability to address the needs of patients with autism, developmental delay and intellectual disability who are underserved worldwide. Clear Genetics which we acquired a year ago has been fully integrated and contributes both serves and platform enhancements. Clear got a clinical chatbot Gia which has become a critical tool for clinicians practice and telemedicine during the COVID pandemic. Gia guide patient to back on information and education remotely.

Gia will continue to evolve and grow as an important tool for all our coalitions and the patients in the years ahead. Looking at our most recent acquisition, after doing this important strategic value across all three categories, the new services and platform. The legacy the Archer technology and the flexibility to provide it by distributed model who’ll allow customers that have the facilities to perform this testing in the community offering unique advantages in the marketplace eventually not just for cancer but for content across the entire Invitae platform. As you did see our investments in Invitae platform, have enabled us deliver genetic information through a broad set of tests, screen, services, technologies, channels, customers and geography.

Our thirst to achieving our mission have been consistent and straightforward. We will continue to pursue new segment that is enormous in growing market which already totals more than a $100 billion across the patient life cycle. We are uniquely positioned to support clinicians and their patients around the world to accelerate the adoption in genetics in the routine care. And we’re just getting started.

While we maintain a disciplined approach to M&A activities and see to timeless activities with market development. We are not looking to slow down our pace any time soon. The unmet need remains a mess and we continue to position Invitae as a runaway leader in genetics across all areas of healthcare. Before we open up the call for questions, I’ll take a minute to share some news about our team.

We’ve begun the process for Shelly to move into a new one leading Invitae’s environmental sustainability and govern its initiatives. The change represents the combination of Shelly’s lifelong commitment to environmental causes as well as Invitae’s goal to increase our progress toward becoming a leader in ESG efforts. Shelly’s leadership has been transformational for the company helping us scale our team, raise capital, and navigate the acquisitions of nine companies, all of which has helped drive our growth and improve our ability to meet the needs of patients who depend on us. She’s been in the meeting sure of her role for the company and I’m looking forward to continuing new benefit from her leadership as she does the same for ESG efforts.

Which is no rapidly growing in importance for us here in Invitae, our investors and it is already at large. The transition will be that for one commencing with a funnel search during which Shelly will continue to serve as CFO and work with the team to the final on the 10-K and some period of time thereafter to ensure a seamless transition. We will now turn the call over to the operator for Q&A.

Questions & Answers:

Operator

[Operator instructions] Our first question is from Sibu Nimvi with Cowen. Your line is open.

Unknown speaker

Hey, good afternoon. This is actually Doug. Hope you are all well and before launching into my questions, I want to congratulate Shelly on the new role and thank you personally for all your help in efforts over the years. I know you’ll be just as good in the new role as you were in the last role.

So congrats and thank you again. So, that now for the questions. First, really just starting on Archer. I’m curious what the earlier reaction has been from our key constituents like closed healthcare systems as well as growing list of pharmaceutical partners in terms of what they think about the combination.

Specifically, I’m just thinking about the fact that you have a uniquely broad menu as we just kind of think about how the combined Invitae’s position relative to old Invitae and really your broader peer group. So, I’m just wondering if the combination is already opening more doors to some of these key constituents.

Sean GeorgeChief Executive Officer

Sure, Doug. Thanks, Doug. Although I’m the first one in and let Jason with respond for the Archer kind of current Archer customers. As we had point out for a while, our kind of our oncology clients for at least a couple of years now have been kind of asking us the quarter.

And we’re kind of get — in the foundation medicine game and Invitae has it that it were. And so I kind of the responses in positive and in bit of — OK. And can we get started from the current sort of with the clients which of course were working on their top version priorities. But I’ll let Jason speak for any feedback, any input we’ve gotten from the current Archer claim.

Jason MyersPresident, Oncology Business Area

I think, it’s a good question to Doug. I think there is increased excitement. So, when you look at what we have been doing, it was creating optionality for our customers and optionality was spread across the gut or tissue biopsies with early or late stage cancer patients. Really the platform that enabled us to provide not only to customers in the clinic.

But the pharma, the ability to give in the answers that they need it. So, it was really about getting the right information at the right time. And now we see even greater flexibility and optionality. As you heard from Bob, the increased demand for understand both inherited and somatic variance in a patient is becoming extremely important.

And that will become — it will become important in drug development. And then you layer on the ability for us to really meet the patient where they’re at, whether that’s a patient in a trial or a patient being treated with either letting the testing happen locally or letting the testing happen in a centralized facility.

Unknown speaker

Thanks for that, guys. And I should have said in my lead into the questions, welcome Jason and congrats to join in the team and bringing so much to the Invitae family. Kind of building off of what you buys built. Just describe the at the end you talked a bit about your really germ line inherited risk and it’s notable that there does seem to be a pick-up and focused among pharma on the role of term line in cancer.

In a way, it kind of seems like a little bit above or back to future, back to the future development in that sense. I guess I’m just wondering specific to the prostate program. What comes next? How big a study or program are you contemplating? And anything you could share on timelines? And for that matter, yes whether it makes sense to take on the kind of similar initiatives and other cancers would be of interest.

Sean GeorgeChief Executive Officer

Yeah. So, I think that the short answer is we continue working with and looking for more areas to publish just that kind of research. Again, I think kind of going back. We already note that, I think we come from an advantage position that we already know the math.

We know the little frequencies of all thes variance, all of these that effect all these different diseases. And it’s really a matter just giving the collaborates together and getting the sample, and getting the patient cohorts to really kind of elucidate and publish it. So we kind of yes when you already know the answer it’s easier to line up the felt to work with that kind of bring there. Bring the right publications and hardly per view.

So, they’re announcing with that set of course, we couldn’t do that level of research on all diseases. They are just 4,000 different types of diseases, all the cancers and this is a lot. You know what, is going to you’re going to, will continue to do that work you’ll see, and you see more publications like that. I would point out we’re also kind of exclusively prioritizing a lot of the diseases we cover.

A portion of population, they really underrepresent in the genomic all of the various locus specific databases, disease databases, and national databases. So, you’ll see a kind of a more investment there than in the past, than the norm. But other than that, like I said, more to come.

Unknown speaker

Great. Yes, please.

Bob NussbaumChief Medical Officer

If I could just add two other comments if I could to stop about in the sense. One is for example on our prostate cancer program, we’d looked at people referred outside or before the program was in place who are self identifies African-American versus those that self identifies African-Americans. And it’s more of a two-fold increase once we open this program up. So, I just want to emphasize and sort of underline what Sean just said.

The other is that this research is important for patient care that has another use and that use is the change their minds of clinical guidelines writers as well as third-party payers. They need data. And so, one of the areas that we’re going to be getting into is kind of be more emphasis working with outside collaborators due to health outcomes and health economic research.

Unknown speaker

Thank you, Bob. Super interesting. Maybe the last one is just — I don’t know. It may be early to ask this and I know you just closed on Archer, and it’s a big deal.

But recognizing the vision for Invitae likely goes beyond the broad menu you’ve already built. I’m just wondering how do you would describe the readiness for more from an infrastructure standpoint?

Sean GeorgeChief Executive Officer

Yeah. So I think that there’s not really a short answer to that, but I — as short as possible, we’ve been acquisitive for some period of time now. I think really early considering depending on the company, we began putting in place the process and infrastructure to both run an active M&A screening program and then work with partners to pull the deals into fruition and then execute on them. We’ve now — I guess this it’s over 10 companies now.

We’ve acquired the — I mean, obviously, it’s — we are a high-growth machine and there’s always — there’s always something to fix or improve. But I’d say, we’re reasonably comfortable that we can continue doing this. And given the market opportunity here, you’re talking just in the stuff that we are commercializing today, it’s more than $100 billion market across any given patient stages in life with a lot more to come, the data kind of like Bob had just represented. The interest from pharma, which kind of Jason covered, and certainly, we’ve seen increase.

We just kind of don’t really see that, that opportunity contracting at all. In fact, it’s just seems to be growing exponentially. So I think you’re going to expect us to keep the pacing and keep going. We’re really disciplined about what moves we make, the use of capital and the investment.

But we do have a relatively short two to three year idea of the return on any given investment. But barring that, I think given the opportunity and the numbers involved, we intend to stay at it. That’s kind of generally what you could expect from us.

Unknown speaker

Got it. OK. Thanks, team.

Sean GeorgeChief Executive Officer

Thanks again, Doug.

Operator

Thank next question is from Tycho Peterson with J.P. Morgan. Your line is open.

Unknown speaker

Hi, guys. This is Casey on for Tycho. I guess my first question revolves around cash burn. Should we still expect the $130 million to $150 million forward cash burn that was called out in 2Q now that Archer is closed? Burn $65 million in 3Q pre Archer and we can probably expect Archer’s burning around $50 million or so themselves.

So just wondering how you guys are thinking about that $130 million to $150 million burn right now.

Sean GeorgeChief Executive Officer

Yes. No, thanks. It’s good to touch base. It’s been a pretty dynamic year.

COVID and raising an acquisitions and all, so it’s good on such base on it. I would say, we’ll kind of get the formal annual guidance on the burn in January. There is certainly kind of — if you — as we did then, if you take a forward look and you put the two companies together, that is certainly a range that we think it could look like. I think, however, between now and then, we’re probably going to ask ourselves with kind of — upon closing of the deal with $400 million in the — on the balance sheet as it were — is that the right number given the opportunity, given the growth opportunity, all of them, I’m not certain right now.

And we’ll be doing that work between now and January to sort that out. But I would say that very well could be the number, and I think we’re looking at, what, upside growth looks like and what the investment to get there needs to be, and we’ll get back to everybody in January on that.

Shelly GuyerChief Financial Officer

Yeah. I think what this quarter showed us was that, as you noted, it was $65 million, but there was about $7 million that was cost of the acquisition. And if you take those out, we did see a decrease in the quarterly burn. So we are seeing some of the benefits for what we did when COVID hit.

I think the question is, what are the good investments to be making over the next several quarters and several years that will really have the return on investment that Sean mentioned before. So that’s what we’re really weighing at this point with sufficient cash in the bank now. And how much do we want to spend to be able to really keep our foot on the accelerator. And we’ll talk about that in January.

But we have proven that we can moderate it, control it and then be very smart about which investments to make.

Unknown speaker

Got it. Thank you for that. And then on the ACOG endorsement for average risk, how quickly do you see private payers following suit? And maybe how quickly do you see greater coverage in this area? Any sort of color you can give there?

Lee BendekgeChief Policy Officer

Hi. This is Lee Bendekgey. We’re already seeing making progress both in the private and public payers. It will roll out over time.

But I will say it is happening a little faster would have predicted. I think everyone knows, Aetna is currently covering average risk. We are seeing actually rapid adoption among Medicaid state Medicaid and some of the smaller payers are starting to pick it up. So we expect that it will roll through the third-party payer landscape.

Unknown speaker

Got you. And then just last one for me. There was a comment earlier that some product offerings were trending above pre-COVID levels. Can you just maybe give us some more color on where those — where you saw the biggest volume trends here in the quarter? And then how is that trending now that you have some liability in 4Q? Thanks.

Sean GeorgeChief Executive Officer

Yes, go ahead.

Shelly GuyerChief Financial Officer

Yes. So I think, as Sean mentioned, September was the best month ever and maybe Katherine wants to jump in a little bit here. We also did see trending back toward the cancer and CNP. As I mentioned, cardioneuropathy, which are more of the pure diagnostic-related products.

As you recall, during COVID, we saw a lot of more durability in the reproductive side, and we are still seeing exceptional growth in those reproductive products. It’s just a question of how fast or some of the diagnostic products coming back, which is strong and back to — prior to COVID levels. So the mix is changing a little bit as the reproductive is still growing very fast. But we are seeing firming up in the cancer side.

I think it’s fair to say also that a lot of the physicians have learned how to deal with some of these shutdowns and how to work with telehealth and especially with Gia, and maybe Katherine wants to talk a little bit about that. So that’s sort of where the numbers are showing up and the types of products. Katherine?

Katherine StuelandChief Commercial Officer

Yes. Thanks, Shelly. Yes, we saw growth across all of the product areas, and that’s both U.S. and international.

So we were really pleased to see the strength in September. And I do think that the addition of Gia is most certainly helping us continue to bring on new accounts and maintain and grow new customers. So we expect that we’ll continue to drive Gia as a method for being able to improve our commercial leverage over time. So across all areas, both U.S.

and international and aided by Gia as well.

Unknown speaker

OK. Thank you.

Operator

Our next question is from Puneet Souda with SVB Leerink. Your line is open.

Unknown speaker

Hi, guys. Good afternoon. This is actually Wes on for Puneet tonight. I wanted to just start with the performance in the quarter on the volume side of things.

It seems like a pretty strong quarter over quarter and both year over year. Just curious, kind of following on the last questions, what the puts and takes here are. I know Shelly, you mentioned kind of the business is moving back to the normal steady state between the reproductive health and the hereditary cancer diagnostics business. But just curious to — how you think the ACOG guidelines are going to play into volumes? And then also on that note, the ASPs as well.

I mean, how do you think the patient pay option is going to be trending as the average risk coverage starts to come in?

Sean GeorgeChief Executive Officer

Yes. No, I’d say it’s a good question. I think kind of, again, our portfolio is now getting broad enough where kind of whether we’re talking miscarriage analysis, carrier screening, noninvasive prenatal screening, whether it includes microdeletions or doesn’t include microdeletions, whether we’re talking amnio, CBS, newborn testing, cancer, cardio, neuro, pediatric, metabolic, therapy selection, cancer. I think kind of, in general, the answer is like, Katherine, all areas are growing.

Some, in a given quarter, are going to grow faster than others. We’ll probably next year, start moving to just general top-line growth, patient numbers, clinician numbers, etc. For now, it’s all growing. In the reproductive health segment, in particular, as you — if the question is, kind of do have the ACOG guidelines change volume trajectory? The answer is no.

Kind of noninvasive prenatal screening has been kind of been in play for now in many years. I think that the ACOG guideline as a single catalyst in the space story. I’m not sure it actually really playing out that way. There were a lot of payers picking up coverage before they had guidelines.

They are now, as Lee just mentioned, there are picking it up. We’re particularly excited about, for example, state Medicaid programs picking it up. But it’s all part of a larger trend. We have no doubt in three to five years, all 30 million women having children on an annual basis in the markets we serve, we’ll be getting kind of access to this basic — this genetic information for health and modest baby.

And I think that kind of — that’s pretty much it. On the patient pay side, there are still will be women in many payer systems that are out of criteria. They will be uninsured and certainly, outside the U.S., the payment landscape is more variegated. And as always, whether it’s an individual payment, institutional, self-insured employer, that pricing will become — will continue to be important.

It’s hard to say really. I think our mix outlook payer type is probably weighted toward insurance — self insurance in the U.S. markets for NIPS. Again, that’s going to take some payers a while to catch up and that pricing is attractive for a much needed service.

So I think we’re just going to have to see.

Lee BendekgeChief Policy Officer

This is Lee. On the — with regard to ASPs, I think Sean answered on with regard to the potential impact on volume. But with regard to ASPs, if I’m not mistaken, I believe we have been running on our current NIPS volume about half average risk and half heightened risk. And so the women with — in the average risk category, to the extent that they have been ordering from us have been paying patient pay.

So with improved coverage, we would expect to see our NIPS, ASPs continue to improve. Obviously, it’s early days. So I don’t think we can say what it might look like, but there should be a positive ASP impact.

Unknown speaker

Great. Thank you. I appreciate that. And then, I guess, just looking at COGS, I mean Invitae has done a really good job at reducing COGS in the hereditary business, testing it now in-house.

I guess, how should we view the cadence of this cost reduction with the addition of Archer’s portfolio just in the near term, I guess? Thanks.

Sean GeorgeChief Executive Officer

Yes. I mean in the near term, gross margins on the Archer product line kind of historically have been in 60% range average, a little bit higher. So — and it’s part of the appeal of the technology. Essentially, it’s a very cost-effective way to get such accurate information both for fair perception and monitoring.

I would say, kind of we are now squarely — we are now kind of operating in a long-term trend to kind of reach and maintain 50% gross margins across the entire platform. In the near term, the Archer margins will hold that and may even pull it up a little bit. But again, in the long term, we’re targeting 50% gross margins for across the entire platform.

Unknown speaker

Great. And then just last one, quick one for Jason. If you could provide us any updates on the timing of stratified and PCM, anything that we can be expecting in the near-term in terms of filings approvals and then data would be good.

Sean GeorgeChief Executive Officer

Yes, stratified as has been communicated to be submitted this year, and that is on track. PCM is also still on track. We haven’t given exact time lines, but I think you’ve seen from press releases that there’s ongoing work with AstraZeneca, and that continues to move forward as we predicted it would.

Unknown speaker

Great. Thank you.

Operator

Our next question is from Tejas Savant with Morgan Stanley. Your line is open.

Unknown speaker

Hi, guys. This is Edmund on for Tejas. Thank you for taking my questions. Just to circle back on the ASP question, thank you for the color and the detail on the dynamics in the quarter and the additional details just provided.

But thinking back, you guys mentioned that biopharma collaborations would be a contribution to improving ASPs. And I think last time you mentioned 16 new contracts in the quarter for a total of 105 partnerships. Were there any new additions this quarter? And what is your backlog if you include the biopharma work from the dollar point of view heading into 2021. And similarly, you guys also mentioned this time, the increase — the inclusion of Archer will also improve ASPs.

How should we be thinking about that?

Sean GeorgeChief Executive Officer

Yes. I think I’ll answer high level. So the biopharma contracts do indeed are — they do help pull up ASPs. The Archer business also.

There’s very attractive pricing for — honestly, everybody knows what their pricing for therapy selection is out there for CMS and we’ll see where the payers follow. So there’s no doubt that’s going to help as well. And likewise, biopharma investment, with 90% of biopharma oncology pipelines full of targeted therapies, that biopharma investment into technologies to identify patients guide therapy and then look for recurrences, we have no doubt, will continue to be a source of good high paid business in the future. So all of that is definitely still part of the outlook.

I would say we’re now — when you add it all now, it’s starting to get to be a number of biopharma companies. I think next year, we’re probably going to stop keeping track of everyone we tick through. This quarter…

Shelly GuyerChief Financial Officer

We added 33.

Sean GeorgeChief Executive Officer

33 this quarter.

Shelly GuyerChief Financial Officer

So about 105 last quarter. So it’s getting up there and it’s probably not worthwhile considering the count.

Sean GeorgeChief Executive Officer

It’s a lot. I think that’s the thing. And a lot of it now, we’re getting a lot of repeat collaborations or extensions. So now it’s — like I said, I think next year, we’ll probably just start sticking with the amount of business coming from biopharma or something like that as opposed to a genuine deal.

But yes, it’s a great, very rapidly growing part of our portfolio and we’re really pleased with its development.

Shelly GuyerChief Financial Officer

Yes. And I would just say, one way to look at it and where it is in our 10-Q is that it’s part of the institutional bucket that we have, we directly bill those clients. And it’s about 50% to 65%, and increasing percent of that is institution bucket. And probably somewhere between 10% and 15% of the Invitae business and revenue at this point.

So it is nicely growing. We did say that the ASPs would be increasing in dollars. It’s not tens of dollars, and the increase in ASP is due to those pharma partnerships. But each one that we layer on to a new program or each one that joins one of our detect programs does help to bring up those payments in general for the biopharma partnerships.

And so how we think about it is, in general, institutional payers and that we just keep watching that we can cover the various programs allow people to have access to these tests so that we are able to service many, many more patients, but on our own.

Unknown speaker

Got it. Thank you. That was very helpful. And maybe just a couple of questions for Jason on Archer.

What were your third-quarter revenues looking like? And how did they grow sequentially along with year over year? And can you kind of give us an idea of your COVID impact and what your exit rate looks like in September relative to pre-pandemic level?

Shelly GuyerChief Financial Officer

I think — this is Shelly. The 9/30 numbers have not yet been issued. We will be filing an 8-K A with the pro formas that will include those 9/30 numbers. So I think it’s premature for us to speak in a lot of detail.

So Jason, maybe you can give a general tenor of how the third quarter went for Archer.

Jason MyersPresident, Oncology Business Area

So I think you — I mean we can say we’ve had continued success, both in the U.S. and outside the U.S. across loud customers or customers using the technology in their labs as well as continued progress with pharma that includes clinical trial assay work companion diagnostic development as well as some technical feasibility and translational work.

Unknown speaker

Got it. Thank you. And Jason, just one last one. How should we be thinking about Archer sales to both KGA? If I’m not mistaken, I think that was about 50% of Archer’s revenue and the trials are mostly completed here.

So how should we be thinking about this going forward?

Jason MyersPresident, Oncology Business Area

Yes. I think, again, as Shelly pointed out, the details there. I think we’ll have to be covered in the future. But I think the way to think about it is there’s a very large pipeline of targeted therapies out there.

And I would argue that most of our multinational partners have a very deep pipeline. And so there’s continual evolution of the customer base and who’s — which customers are feeding into the total pharma revenue that is generated from again, clinical trial assay, companion diagnostic development as well as feasibility and translation award.

Unknown speaker

Got it. Thank you, guys very much for the time.

Operator

Our next question is from Kevin DeGeeter with Oppenheimer. Your line is open.

Kevin DeGeeterOppenheimer and Company — Analyst

Hey, thanks for taking my questions. Just kind of following up maybe on the pharma topic a bit more. We’ve heard from a few companies that the general trajectory of COVID-related rebounds for pharma is maybe a bit more measured than they’re seeing in the clinical market. So can you maybe comment with regard to the third quarter and to the extent you had experienced in the fourth quarter, relative to going into COVID, how we should think about rebound in the pharma relative to clinical?

Sean GeorgeChief Executive Officer

Yeah. We saw kind of what you saw with everybody else that pharma patient recruit — patient identification, patient recruitment business did indeed recover later in the game of the kind of — if you kind of take the time line starting March, call it, March 15, until now that, yes, that pharma stuff was a laggard in terms of the recovery, the V-shape recovery that we’ve shown. With that said, with September — like we mentioned, September was a record — all-time record month. So the program by program, state by state, country by country kind of COVID impact is getting it’s getting hard to now see in the noise.

I’ll just be honest with you. Even with some like recent new shutdowns, it’s not as obvious anymore. Some places, some of our clients have put in the measures and can react to it now. I think our pharma program is included.

And so while we know that there’s got to be some kind of impact coming here as we kind of go through flu season now with COVID. It does look to us like it’s going to be muted compared to the last one. And it’s, like I said, against the backdrop of the higher growth, I’ll be honest, it’s harder to tell for sure. But we didn’t — that trend you mentioned, we did experience as well.

And I think we’ll still see recovery into it. It’s just hard to say what the COVID outlook is.

Kevin DeGeeterOppenheimer and Company — Analyst

And on a different note, can we just talk a little bit — I mean, we had in the past about the opportunities to go directly to large companies for health, wellness plans, etc. Just any update on that strategy to bring the segment of the business for self-insured companies and sort of disaggregate some of the larger third-party payers.

Sean GeorgeChief Executive Officer

Yeah. I would say it’s still very early days on that one, Kevin. We spent most of the effort with large self-insured employers working on direct benefits for access to genetic information and in kind of giving kind of an institutional type of offering. Really like the — if you saw the Christ Hospital announcement have been working with hospitals — whole hospital systems about basically incorporating genetics as a kind of routine part of the cross-continuum care.

We, of course, these teams spend a lot of time with self-insured employers when it comes to trying to suggest improvements of medical coverage guidelines at payers in certain locations. And I’ll be honest, that’s where most of the action is. We do, however, see those third-party intermediaries popping up that are looking to package entire genetic and subsequently targeted treatment packages for self-insured employers. Those are some interesting conversations.

We are with some of the self-insured employers talking about especially the ones that are kind of weighing in heavily on what they want their plans to look like, talking about alternative ways to do that. They’re really really early stage conversations at that point on that front. And we spend most of the time kind of talking about kind of direct business and/or kind of collaboration/pressure on the payers.

Kevin DeGeeterOppenheimer and Company — Analyst

Thanks for taking my question.

Operator

Our next question is from Bruce Jackson with The Benchmark Company. Your line is open.

Bruce JacksonThe Benchmark Company — Analyst

Hi. Thanks for taking my question. So there was a Brooklyn institution study that talked about a potential drop in the birth rate due to COVID-19. And I was just wondering how much of the business right now is exposed to reproductive testing? And are there any mitigating factors that could offset the drop in the birth rate?

Sean GeorgeChief Executive Officer

Yes. So I think that — we’ve kind of seen that — when we’ve seen those reports, I would say our — we’re a relatively new player in the reproductive health space. And our kind of market share taking, I think, is going to — if you’re going to kind of — it’s going to be hard to see that birthrate drop affect our business given kind of the share take we’ve been experiencing. And also the share creation, right? Again, in the U.S., there’s 6 million pregnancies, maybe two — a little over two million get served by any one of the current leaders in reproductive health, Progenity, Natera, Council, which now part of Myriad.

There’s just so many more women out there that aren’t getting this information. But our general sense is even a one or two year drop in birth rate is getting it washed out by the increased utilization of these technologies.

Bruce JacksonThe Benchmark Company — Analyst

OK, thank you very much.

Bob NussbaumChief Medical Officer

This is Dr. Bob, can I just add one more thing. Most of our testing in the reproduction space is occurring in the first trimester. And so the birth rate is probably not as important as the pregnancy rate.

Because it’s early in the pregnancy that this testing is being done. So if there was a drop-off in the conception and pregnancy rate earlier in the COVID pandemic, what I see is that it’s starting to recover?

Bruce JacksonThe Benchmark Company — Analyst

Okay, that’s helpful. Thank you very much.

Operator

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

Ophir GottliebCapital Market Laboratories — Analyst

Hey, guys. Thanks for taking the question. Congrats, Shelly. That’s very cool news.

I have two questions. First is, given the distributed capabilities of Archer now, this opens a materially larger addressable market of, let’s call it, a larger addressable customer internationally. So do you see that international germ line business growing as soon as Q4, so essentially right now? And maybe if you could give a little color on the margins there too.

Bob NussbaumChief Medical Officer

Yes. The transfer is no. We’re — as much as we’d love to dump more on that, we’re going to take it in turn focusing first on therapy selection, getting the cancer monitoring up and running and fully globally commercialized, both distributed and centralized. So it’s not that the rest of our business and benefiting that addition to our platform of the distributed kitting and pipeline and cloud interpretation of reporting is going to kind of start getting developed and rolled out starting next year, all throughout the year after.

And it’s not for lack of a excitement, it’s just kind of priorities first things first. But that is definitely something that we will be investing in and pushing on. And I think it’s something that we’re really excited about. There’s much of the world for one reason reason or another.

We’ll be running their own genetics locally. I have encouraged people and I don’t mind putting the plug-in again. The U.K., the NHS, just put out a few weeks ago, a report about what that country cell systems view of genetics and its central role and healthcare is going to look like. I suspect it’s going to serve as a model globally.

It’s — I mean, I don’t think unfair to say. It’s essentially an honor for the Invitae business model to soup the nuts. And that’s a great example. In NHS public health laboratories, they’ll be running their own stuff and that’s where the Archer capability is on that.

There’s — the technology and the IP is amazing. And then — and there’s an awful lot of really great know-how on how to package incredibly complex assays up and basically shipping around the globe in one single room temperature box. So yes, we’re excited about that, but it is going to — it is kind of second — primary therapy selection and cancer monitoring game.

Ophir GottliebCapital Market Laboratories — Analyst

OK, thanks for that. And then my second question is a little broader. I’m just trying to understand the cash burn direction and your view of essentially COVID and the impact on Invitae. The cash burn was pulled back due to COVID uncertainty, which was the sort of the conservative and smart thing to do.

And I think that was the plan until there was some sort of clarity on what the impact of COVID would be. Now, it sounds like you have seen enough clarity with respect to the business and the impact of COVID so that perhaps this cash burn reduction rate isn’t necessarily on for 2021. I don’t know if you’re commenting on that.

Sean GeorgeChief Executive Officer

Yeah. I think — yeah, the short answer is we’ll be explicit about it in January, but you’re definitely on the right path here. So you kind of take COVID happens, we pulled all the levers. It’s like — we’ve suggested we know exactly where to pull to reduce cash burn.

We did. And the cash burn did indeed go down. But there’s another thing. Then, however, we acquired Archer, which then introduces deal costs, Archer cash burn, etc.

So our — what we had in mind as a kind of COVID reaction cash burn outlook for the year, that did change when we announced the the Archer acquisition. And indeed, now we have a decent view of what the final net cash from the financing supporting the deal was. We’re just rounding up what the deal costs are. We’ll know in January, the Q4 impact in total of Archer cash burn.

So that’s changed, number one. And then, yes, I’d say kind of where we are on visibility in COVID, seeing how customers are reacting to return of COVID. But I honestly, I think, honestly, ultra is broader trends in the business. You’re seeing the world react to some of our moves in the game and it’s — the TAM is obvious.

The players are after it in whole position, and we intend to stay there. And I think that’s the mindset people should be considering as we roll around here. We’re going to be sure about it, right? You’ve got two things to make sure we’re sure of it of what the COVID impact is, get the Archer transaction, get the Archer integration off running good understanding of what our investment there is going to be. And then the broader market.

But like I said, I think we’re kind of all three of those things — those time points in the year are leading to us. I think we’re now more thinking about the TAM and our growth into it as the primary objective.

Ophir GottliebCapital Market Laboratories — Analyst

OK, thanks. That’s great color. I appreciate it.

Sean GeorgeChief Executive Officer

OK, thanks.

Operator

[Operator signoff]

Duration: 62 minutes

Call participants:

Laura D’AngeloHead of Investor Relations

Sean GeorgeChief Executive Officer

Shelly GuyerChief Financial Officer

Jason MyersPresident, Oncology Business Area

Bob NussbaumChief Medical Officer

Unknown speaker

Lee BendekgeChief Policy Officer

Katherine StuelandChief Commercial Officer

Kevin DeGeeterOppenheimer and Company — Analyst

Bruce JacksonThe Benchmark Company — Analyst

Ophir GottliebCapital Market Laboratories — Analyst

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