Sequenom, Inc. (NASDAQ:SQNM)
Q4 2015 Results Earnings Conference Call
March 02, 2016 05:00 PM ET
Paul Goodson - Senior Director, IR
Dr. Dirk van den Boom - President and CEO
Carolyn Beaver - SVP and CFO
Bill Quirk - Piper Jaffray
Matt Larew - William Blair
Brandon Couillard - Jefferies
Welcome to the Sequenom Fourth Quarter and Full Year 2015 Earnings Results Conference Call and Webcast. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded.
I would now like to turn the conference over to Paul Goodson, Senior Director of Investor Relations. Mr. Goodson, the floor is yours.
Thank you, Amy. And welcome to Sequenom’s conference call to discuss operating results for the fourth quarter and full year 2015.
Joining me on the call today are Dr. Dirk van den Boom, President and Chief Executive Officer; and Carolyn Beaver, Senior Vice President and Chief Financial Officer. This call is also being broadcast live over the web and will be available for replay through Friday, April 1, 2016 on the Invest tab, webcast and events section of our website at www.sequenom.com/invest.
On the call today we will discuss our current plans and expectations which will include a number of forward-looking statements and non-GAAP measures. Forward-looking statements are not guarantees of performance. Actual results may differ materially from our expectations. Risks and uncertainties that may cause actual results to differ materially from those expressed or implied by any forward-looking statements include but are not limited to those described in Sequenom’s most recent Form 10-Q and our annual report on Form 10-K for 2015, which will be filed later today.
With that, I would now like to turn the call over to Dirk van den Boom. Dirk?
Dr. Dirk van den Boom
Thanks Paul. Good afternoon and welcome to Sequenom’s fourth quarter 2015 and year-end conference call. I would like to begin by reviewing the key strategic goals we have established in recent months, the most consequential of which is getting to neutral operating cash flow before the end of 2017. I hope this background will provide the context to understand our recent results and our expectations for the business, going forward.
Taking the role of Chief Executive Officer late last year, I initiated the top to bottom review of our business and the environment in which we operate. In 2015, we saw two laboratory partners convert from test centered [ph] agreements to bringing these tests in-house. We also saw revenue and volume impacts from being an out of network provider, emphasizing the long-term importance of our in-network strategy. Finally, we saw pricing pressures from the domestic and international markets and the need to address our cost structure.
The top to bottom review revealed significant opportunities to focus the organization and strengthen our laboratory testing business in the form of higher revenues, lower cost and improved market share. It also brought into focus the significant time, investment, and risk associated with completing the development and commercialization of our valuable oncology assays by ourselves. At the time when the Company was still consuming cash and was also contemplating a major investment in our oncology assay, we made a number of difficult decisions, all in support of our goal of ensuring Sequenom remains a sustainable business and the leader in reproductive health.
Our decisions were to find an appropriate partner for oncology assays, consolidate our North Carolina operations into San Diego, enter the average risk pregnancy market for our noninvasive prenatal test, and make significant reductions in our operating expenses across the Company.
As we discuss our fourth quarter results today, I encourage you to think more in terms of a comparison to the third quarter of 2015 rather than to the fourth quarter of 2014 because the sequential comparison for the third quarter of 2015 is much more illustrative of a progress toward our goal and the trends of our business.
2015 was the first full year following deformation of the patent pool. The patent pool accomplished several important objectives for Sequenom. First, it allowed us to participate globally wherever NIPT is practiced through the receipt of test fees and royalties. These began with the minimum of $6 million in 2015 and will rise to $20 million in 2020. The cumulative minimum value is $80 million to Sequenom through 2020, subject to adjustment in certain situations. After 2020, the test fees and royalties continue but without annual minimums. Importantly, Illumina’s taken on a significant role in worldwide enforcement of the patents in the pool. Finally, this agreement allows us to operate without the substantial cost of the litigation with Illumina that we bore in prior years. It was an immediate impact to our revenues from the conversion of some laboratory customers to licensees. However, as the global market for NIPT continues to expand, this will allow us to participate in that growth over time. In addition, the license fees we receive, carry a much higher gross margin percentage than if were performing the test ourselves.
At the end of the first quarter of 2015, we introduced our HerediT UNIVERSAL carrier screen to compliment our cystic fibrosis test. We believe that our focus on the obstetric segment as part of our entry into the average risk pregnancy market as well as changes in the sales strategy and focus, will help us gain carrier screening market share going forward.
In addition to HerediT UNIVERSAL, we also expanded our reproductive health testing portfolio in 2015, by launching two other new laboratory developed tests VisibiliT and most importantly MaterniT GENOME, which we and many physicians consider to be groundbreaking new test. VisibiliT was launched in the U.S. in the first quarter of 2015, on a non-covered cash payment basis to patients, while MaterniT GENOME was launched in the second half of 2015.
Sequenom Laboratories now offers the greatest number of options to physicians seeking to provide the best in patient care. This market leading portfolio comes at a time when we are seeing movement toward reimbursements in average risk pregnancies with coverage decisions by 20 regional payers for cell-free DNA based testing in average risk pregnancies.
With the strong portfolio of tests, movement toward coverage for average risk and the trend we see among our obstetricians toward greater use of NIPTs in average risk pregnancies, we believe this is the right time to begin selling testing to this market. In addition to new unit volume for average risk testing, we expect to see pull-through and high risk NIPT testing for both, MaterniT21 PLUS and MaterniT GENOME as well as carrier screening.
The fourth quarter of 2015 was the first full quarter of MaterniT GENOME sales with over 3,000 test accessioned, which exceeded our internal expectations. We expect major growth for MaterniT GENOME going forward and believe that it ultimately could be a game changer in cell-free DNA based testing.
As with any new tests, it can take time to establish reimbursements specific to that test. With its increased information content, MaterniT GENOME also cost us more to run. As such, we are working to assure that MaterniT GENOME is being used where it is of greatest benefit to patients and physicians. And we will be working with payers to ensure that they recognize the value it is creating, so that the test can be properly reimbursed.
In 2015, we continued our strategy of being an in-network provider. And we now have contracts with all three if the largest payers, Aetna, Cigna and UnitedHealthcare as relative Blue Cross Blue Shield Association master agreement. In general, these agreements result in more of our test volume being covered and more promptly reimbursed and generally provide lower amounts for patient responsibility.
Out of network payers often direct volume to other providers that our in-network as part of their efforts to control their cost. At present, we have contracts in place for over 200 million commercial lives in the United States as compared to 160 million lives at the end of 2014. As you may have seen in our press release today, I’m pleased to announce that we have completed an agreement with Anthem Blue Cross for our tests to be in-network in California, effective March 1st. This agreement includes tests for average and high risk pregnancies.
In the first week of January this year, we announced cost saving initiatives and operational improvements designed to move us towards the goal of becoming neutral on our operating cash flow basis by the end of 2017. In total, these initiatives will result in annualized cost savings of more than $20 million when they’re fully implemented by late 2016.
Before I turn the call over to Carolyn, I would like to update you on several recent items. Last week, we announced the publication of our clinical validation results from MaterniT GENOME in the American Journal of Obstetrics and Gynecology. The underlying effort for analytical and clinical validation of MaterniT GENOME was the most robust validation testing Sequenom Laboratories has performed. MaterniT GENOME showed consistently outperformance for detecting full chromosome aneuploidies.
In some instances, MaterniT GENOME also provided additional clarification about the origin of genetic material that had not been elucidated by karyotype analysis. The study also showed that MaterniT GENOME was able to detect subchromosomal changes as small as seven megabases without compromising overall specificity. This resolution is comparable with changes that can be detected by traditional cytogenetic karyotyping. And it has been shown by others that these changes can comprise more than 20% of all karyotype level abnormalities in the general obstetric population.
Our clinical laboratory experience to-date with over 6,000 MaterniT GENOME tests has in fact shown that approximately 25% of samples with abnormal results had rare abnormalities across the entire genome that would have been undetectable by other NIPT methods. This means that in a quarter of these cases, the patient would have potentially had a false reassurance when in actuality, the pregnancy may have been impacted by a significant chromosomal abnormality.
In January, we announced our intention to seek a partner for oncology program. The analytical validation were completed to-date show that our circulating tumor DNA profiling assay technology performs on par with other currently practiced methods and we are working to improve both the sensitivity and specificity of the assay even further. We have started to use this technology in clinical research studies for evaluation of mutations and genome-wide copy number variations as part of the collaborations we announced previously. At the Tri-Con Molecular Medicine Conference in San Francisco next week, we will give a presentation, providing more details on our circulating tumor DNA profiling assay.
I also want to update you on the litigation involving the Sequenom 540 patent. On December 2nd, we announced that the U.S. Court of Appeals for the federal circuit denied our appeal for a rehearing of the Court of Appeals’ earlier decision, upholding the ruling that the claims of our 540 patent are not patent eligible. This was not unexpected given that in the earlier ruling, the Court of Appeals acknowledged that the invention was of the type deserving of a patent but believed nonetheless that it was done by patent eligibility criteria, arising out of the Supreme Court decision in the Prometheus versus Mayo case.
We are continuing to evaluate all of the factors that will be necessary to mount the successful Supreme Court appeal, including resources, cost, timeline, supporters and opponents. We expect to file a petition for Supreme Court review before the April 1, 2016 deadline. I want to emphasize however that the current ruling denying patent eligibility has little impact on Sequenom’s current business, as it continues to status quo that has existed in the U.S. marketplace with respect to this patent since October 2013. Overseas however, the counterparts of the Sequenom prior 540 patents are still valid and enforceable. Indeed, Sequenom and Illumina have partnered in accordance with the provisions of patent pool agreement to enforce the foreign counterparts of the 540 patents against several NIPT competitors in Europe including Ariosa, Premaitha, The Doctors Laboratory in the United Kingdom and Centrum Badań in Poland.
Overall, we view Sequenom’s business being midway through a transitioning a business model that will take us through the rest of 2016.
Before I provide more commentary on 2016 and the business going forward, I’d like to ask Carolyn to summarize our financial performance in the fourth quarter and for the full year?
Thanks, Dirk. Our total NIPT test accessions in the fourth quarter of 2015 were up 1,800 units sequentially from the third quarter of 2015. Total test accessions in the fourth quarter of 2015 were 42,200 compared to 41,000 for the third quarter. Units in the fourth quarter declined compared to the prior year fourth quarter of 50,900 units, which included units from two laboratories that became licensees.
In terms of unit volumes for the full year that shifted test units to a licensee, the loss of high risk test units because we did not offer test in the average risk pregnancy market and the decline in carrier screening test units resulted in a decline in Sequenom’s total accession tests in 2015 to about 180,000 compared to about 197,000 in 2014, a decrease of 8.7%. Similarly, our total NIPT test units declined 4.3% to 156,000 in 2015 from 163,000 in 2014.
Total revenues in the fourth quarter of 2015 were $27.8 million, a $9 million decline compared to the fourth quarter of 2014. This decline is due to several factors, most importantly the conversion of two laboratory customers from direct services revenue to licensees. This reduced our diagnostic services revenue by $6.6 million in the fourth quarter of 2015 compared to 2014. In addition, we had a greater proportion of tests performed in-network under payer agreements and an increase in VisibiliT test units, both of which reduced our average rate of reimbursement per test in the fourth quarter of 2015 compared with prior year. And finally, we launched our MaterniT GENOME test in late August. And as with any new test, we are encountering a longer collection cycle and therefore recorded less revenue per test during the quarter due to timing delays.
Total revenue in the fourth quarter was $2 million lower than the third quarter of 2015 due to a lower average reimbursement rate and lower collections for prior test. Since the launch of MaterniT21 in 2011, the average amount reimbursed per test has declined, in part due to compensation and increased payer coverage of NIPT and high risk market at lower reimbursement rate. In 2015, we received an average of slightly over $800 per test for our reimbursed MaterniT21 PLUS test. We expect the average amount reimbursed to trend only slightly downward for high risk pregnancies in 2016 due to the stabilizing effects of our contracts with payers. In 2015, we were reimbursed for over 70% of our tests, which have completed a 60-day collection cycle, an improvement compared to 2014. We expect this reimbursement percentage to increase modestly for 2016.
For the full year 2015, the Company reported revenues of $128.2 million compared to $151.6 million for 2014. Lower volumes and lower average reimbursement reduced our revenues by approximately $8 million related to NIPT and $4 million related to other tests for 2015. Our success in 2015 at collecting fees for services performed in prior years means that there was less available from test performed in prior years, to collect in 2015. Cash basis revenue from test performed in prior years, declined by about $15 million in 2015. The final component was the loss of testing volume for an international laboratory customer that converted to a licensee at the beginning of 2015, reducing diagnostic services revenue by $10.8 million for 2015. However, this and other licensees contributed to the growth in licensee revenue to $8.4 million in 2015, compared to $3 million in 2014. Both years included one-time license fees of approximately $1 million each.
We will have approximately $5 million lower diagnostic services revenue in the first quarter of 2016 compared to 2015, as a result of the conversion of laboratory customer to licensee status during the second quarter of 2015.
Diagnostic services revenue is recorded primarily on a cash basis with 43% of our revenue in the fourth quarter of 2015 accounted for on the accrual basis. For all of 2015, 39% of diagnostic services revenue was recorded on an accrual basis compared to 27% in 2014. Diagnostic services revenue from international clients recorded on an accrual basis totaled $1.2 million in the fourth quarter of 2015 compared to $5.7 million in the fourth quarter of 2014. So, significant reduction in international diagnostic services revenue primarily reflects the conversion of an international laboratory customer to a licensee under the patent pool.
At the date of the patent pool agreement in December 2014, there were 21 licensees to the patent pool. At the end of 2015 there were 39 licensees globally, 18 of which were active. As a remainder, our agreement with Illumina provides of minimums in licensee revenues to Sequenom. For 2015, the minimum was $6 million, which increases to $9 million for 2016. We continue to expect increases in license fee revenue going forward through 2020 with annual minimum peaks at $20 million. For 2016, we again expect to see the minimum.
Cash basis diagnostic services revenue for services performed in prior quarters declined to $10.6 million in the fourth quarter of 2015, compared to $16.1 million in the fourth quarter of 2014. The decline is the result of the use accrual basis of accounting for more payers in 2015, the lower number of accessions in 2015 and the improvement in the number of days to collect payments in 2015, resulting in a smaller total available to collect from prior periods.
As of December 31, 2015, uncollected amounts outstanding for tests delivered that were not recognized as revenue upon delivery of the test results, because the accrual revenue recognition criteria were not met, range from approximately $16 million to $18 million, down from $31 million to $34 million at the end of 2014. Actual revenue will depend upon the amount of reimbursement ultimately received for these outstanding claims. Due to our current method of cash based revenue accounting for most third-party payers, these estimate that potential accounts receivable are not recorded on our consolidated balance sheet.
For the full year gross margin in 2015 was $61.3 million or 48% compared to $68.1 million or 45% in 2014. The increase in gross margin on a percentage basis was due primarily to higher license fee revenue and improved efficiencies in processing patient samples. Although gross margin was up for the full year 2015 compared to the prior year, the 43% gross margin for the fourth quarter was down sequentially from the 50% gross margin recorded in the third quarter 2015. Factors behind this decline include higher material and labor costs for performing the MaterniT GENOME test, a delay in receiving revenues from MaterniT GENOME due to slower reimbursement timing for this new test, and reduced average reimbursement per test. We expect these same factors to influence gross margin early in 2016, which Dirk will discuss in more detail in a few moments.
Our operating expenses for the fourth quarter of 2015 were $449,000 lower than the prior year quarter. Operating expenses for 2015 were $13.7 million less than operating expenses in 2014, a 13% reduction. These declines were largely the results of reduction in legal expenses due to the completion of the patent pool agreement as well as other actions taken to reduce expenses, partially offset by increases in selling and marketing expense.
During the first quarter of 2015 we recognized a $20 million gain on the pooled patents agreement relating to samples transferred to Illumina during the fourth quarter of 2014. In 2015, we also recognized the gain of $750,000 on the sale of Grand Rapids facility assets in the third quarter. The net loss for 2015 was $16.3 million or $0.14 per share compared to net income of $1 million or $0.01 per share for 2014, reflecting the changes in revenue and expenses as I described, the gain on the settlement with Illumina in 2014 and the sale of Bioscience unit in 2014.
Net cash used in operating activities was $4.2 million for the fourth quarter of 2015 an improvement of $1.6 million compared to the $5.7 million of net cash used in operating activities in the fourth quarter of 2014. Sequenom used cash for capital investments of $0.4 million during the fourth quarter of 2015 compared to $1.2 million in the fourth quarter of 2014. For the year, we reduced our cash burn to $24.8 million from $36.5 million in 2014. This difference is primarily due to the reduction of legal expenses in 2015 due to the settlement of litigation with Illumina, offset by the effect of lower collections related to prior year services and lower reimbursement. For 2016, we expect to have approximately $12 million in non-cash expenses for stock compensation, depreciation, and amortization. Non-cash expenses are added back to our cash used by operating activities to determine our cash used or provided by operations along with changes in our operating assets and liabilities. At December 31, 2015, total cash, cash equivalents and marketable securities were $76.2 million.
With that summary of our results, I’ll now turn the call back over to Dirk for his closing remarks.
Dr. Dirk van den Boom
Thank you, Carolyn. Now, I’d like to provide you with our outlook for 2016 and then outline some important initiatives which we believe will continue to differentiate and strengthen our reproductive health business and create value for shareholders over the near and long-term.
We have one key objective for 2016 and that is to restore Sequenom to a growth profile and ensure longer term financial success. In early January, we announced publically our goal of becoming self-sustaining on an operating cash flow basis by the end of 2017. This should be a yardstick for investors to measure our progress throughout the year.
For the full year 2016, we expect to accession about 170,000 NIPT samples, which is an improvement of 9% from 2015. This is a significant increase, given the unit contribution from a laboratory customer that converted to a licensee in 2015. We expect unit growth to be driven by our entry in the average risk market as well as the associated pull-through of high risk NIPT. To-date, we are encouraged by our progressive unit growth profile, exiting the fourth quarter, and we believe we can build on this momentum. We believe that the recent practice bulletin issued yesterday from ACOG, which states that all women should be offered and aneuploidy screening, will continue to drive positive NIPT coverage decisions for average risk pregnancies.
In terms of our 2016 revenue expectations, we anticipate total revenue of approximately $120 million of which $10 million will be derived from test fees and royalties from the patent pool. Our actual revenue could be affected up or down from this point estimate, based on our success at obtaining reimbursement for our test and the extent to which our entry into the average risk market results in pull-through of high risk and carrier screening volumes. Also, the estimate of test fee revenue may vary, based on the number of factors including how many and when licensees show in the pool, and how many tests the licensees perform in 2016?
A few minutes ago, we mentioned the factors that took gross margins from 50% in the third quarter of 2015 to 43% in the fourth quarter of 2015. These were the declining average reimbursement rates we are seeing due in part to the additional payer contracts, which we believe will help increase volume and revenue in the long run, as well as the launch of MaterniT GENOME, which is associated with longer payment cycles.
For the first and second quarter of 2016, we expect the first two factors to persist and be joined by higher average risk volumes. We also expect to incur additional cost related to the transitioning of test volumes from the North Carolina facility to San Diego. As such we should see gross margin in the first quarter and second quarter of 2016 similar to the 43% recorded in the fourth quarter of 2015 followed by increases in the third quarter, ultimately moving towards 50% in the fourth quarter of 2016. Factors that could meaningfully affect gross margin include the percentage of our volumes that receive reimbursement and the actual mix of our various test accessions in 2016.
These expectations flow through our financial statements to produce our estimate of cash used in operations of approximately $27 million for all of 2016. Adding in our expected capital expenditures, we believe our cash burn will be approximately $30 million for 2016. But importantly the cash burn for the fourth quarter of 2016 should be dramatically lower than the average cash burn for the prior quarters of the year. These estimates can be meaningfully affected up or down by the percentage of test reimbursed, test mix and test performed for average risk pregnancies as well as the volume of test order.
We are in the discussions with the potential purchase of some of the assets in the North Carolina Laboratory facility. We expect that the proceeds from the sale of our North Carolina facility will not be material. Any such proceeds or proceeds from an oncology partnership will not be included in our cash burn but of course will reduce the drawdown of our cash and marketable securities balances. We will update you when these processes conclude.
Over the past year, Sequenom has undergone a major shift in our business model. And I hope the detail we have provided today, helps you better understand our business dynamics. We have critically assessed our business, identified key areas of opportunity, and build an important new strategy. We enter 2016 enthusiastically with a refined business model and engaged leadership and the culture that is focused on transforming Sequenom’s operation to be sustainable and self supporting. We are of course constantly mindful of our commitment to patients, physicians, customers, and shareholders. And we are optimistic and dedicated to deliver on these commitments.
The progress that we have made to-date in implementing our strategy is significant. We have refocused our efforts on our core reproductive health business. We also expanded our commercial insurance contracts, strengthening our in-network strategy and we are increasing our operational effectiveness through our cost reduction programs to ensure Sequenom’s growth and its role as a leader in the rapidly changing NIPT industry. With these initiatives, we believe we will be able restore Sequenom to a growth profile and ensure a long term financial success.
The improving trends we see throughout 2016 will set the stage for growth in 2017. In early January, we announced our goal of becoming operating cash flow neutral by the end of 2017. Without giving specific forecast numbers for 2017, we expect to see revenue growth consistently during the year at the average risk market expense with greater MaterniT21 PLUS and carrier screening volume pull-through, additional payer coverage and growing MaterniT GENOME volume.
We expect reimbursement rates for all of our products to stabilize by the end of 2016. Our quarterly cash burn in 2017 should trend towards zero before the end of the fourth quarter of 2017.
I would now like to ask the operator to open the call for questions.
[Operator Instruction] First question comes from Bill Quirk with Piper Jaffray.
First question is on the Anthem contract. I guess congratulations certainly on securing that for both high and average risk. I am curious though, I think in the press release, it specifically states for California. I guess the obvious follow-up is why, I guess, it doesn’t include the entire network with Anthem or perhaps just still in discussions to expand it further?
Hi, Bill. So that contract is specifically with California. And we are talking with other Anthem affiliates, and those were pursuing essentially on a organization by organization basis.
Okay, got it, understood. And then I think, if I heard you correctly on the lab consolidation, it’s sounds like that’s going to be more impactful in the second half of year. So, we should assume that that transition happens roughly the middle of the year, did I hear correctly on that?
Dr. Dirk van den Boom
Yes, Bill. That is correct. We said that earlier, we estimate these discussions and then the consolidation of volume into San Diego to occur in the first and second quarter of 2016, and then should be completed by June.
Okay, got it. And then I guess lastly, just thinking about your expectations here for 2016, and I guess Dirk, the comment that you expect to see reimbursement stability by the end of the year. Obviously, we’ve seen a really nice transition, particularly in the Blue Cross Blue Shield organization towards covering average risk patients. Having said that, there isn’t a whole lot of data around price points and such on average risk. And so, I guess help us think a little about maybe some of the assumptions that go into your expectations around reimbursement rates on the average risk side of the market?
Dr. Dirk van den Boom
Yes. So, first of all I think, you’ll have taken from what we discussed that we’re very careful with how we think about average risk. We want to be very calculated and strategic as to how we go about it, until we exactly know how reimbursement will look like. I said this in the past, coverage decisions don’t necessarily equate to reimbursement. And so, we’re looking -- we just launched into average risk in December. So, we’re pretty much still within the first billing cycle, if you want. And I just want to see, more data points to see what’s the percentage of sample, we get reimbursed for. One could make an estimate 20% of covered lives and have a coverage decision that maybe the maximum you can get for the samples you run. But then the next question as you brought up is do you really truly get to that 20%, and what’s the actual reimbursement rate. And I think we just need more data points to be able to speak to this. But a key focus for us is, we have to assume that the ASP for average risk can be lower than for the high risk pregnancy market. And therefore, it’s incredibly important for us as an organization to make sure we have the right cost structure in running these tests, so we can sustain that.
The next is from Brian Weinstein with William Blair.
Good afternoon. Thanks for taking my question. This is Matt Larew in for Brian. Could you first talk about genome? And obviously the nice traction that you had there in the fourth quarter and then looking to 2016, who is that early traction with, are those long time MaterniT21 users, converting over to genome, are those competitive takeaways, could you just give us a sense of where that early traction’s coming from? Thanks.
Dr. Dirk van den Boom
Yes, Matt, very good question. We said, we want to be very calculating on how we use MaterniT GENOME for multiple reasons, one is its clinical utility where we stay really focused on selling it to the maternal fetal medicine specialist. And we have multitude of strategic goals there. One is that we want to use it to basically get into accounts, which we haven’t been in before; and then the second one would be as you open these doors or get customers back, you would want to see also some pull-through of MaterniT21 PLUS. And from the trends we’ve seen so far between the fourth quarter of ‘15 and now early in the year, genome is exactly achieving that goal, is opening doors for us. We have very limited cannibalization, as I may call it, because of course there’s certain types of pregnancies where MaterniT GENOME maybe the better NIPT than MaterniT21 PLUS. So, I think it’s a strategic tool. That’s why we also talked about measured growth. And so far, it’s going according to plan and actually exceeding our own expectations.
Okay. Thanks for that, Dirk. And the second one is on the profitability of each of these three primary offering of MaterniT21, GENOME and VisibiliT. Understanding there are reimbursement differences right now and payment rate differences, but at scale are all those tests targeted for equal profitability longer term, or what does that look like?
Dr. Dirk van den Boom
It’s a probably a little bit of far reaching question but a fair question. Our goal is to make sure that we find the most cost effective way of running these assays because they have slightly different content they report on and naturally you can use that to make them more cost effective. I think our aim really is also because we are a network provider and we continue to grow that, that we stabilize the reimbursement we get in these contracts. And I think MaterniT GENOME offers additional value. And it’s our job to make sure we have the right clinic utility packages to convince payers that they basically acknowledge that increased value. But the other side of that is that as the laboratory, we’re all looking to find the most cost effective way to run this because that’s how we extract the most value for our shareholders from it.
[Operator Instructions] Our next question is from Brandon Couillard at Jefferies.
Dirk, in terms of the volume expectations for 2016, can you give us a sense of the relative contributors between the core high risk MaterniT21 PLUS business relative to incremental genome contribution and then what you are embedding for average risk volumes?
Dr. Dirk van den Boom
Yes, high level, I think that of course since -- if you go back to 2015, we had commented that we only have 1% to 2% of a volume in average risk and naturally starting to sell somewhere in December in to average risk, you would argue that a lot of the unit growth we expect for 2016 should be coming from average risk. But, we do also see -- if you look at the fourth quarter numbers ‘15, the growth in units we have seen in NIPT were in a large part, driven by MaterniT GENOME. And as we now look at the early trends here, we see the pull-through of MaterniT21. So, it’s not one particular element which will drive units, it’s a good mix. And frankly, as we go through the first quarter and see data points from reimbursement, I think we can see how much more aggressive we want to be. But, at this point, we just don’t have enough data point to really say we want to be a lot more aggressive. But, I’d still say, looking year-over-year, it’s a pretty significant growth we are expecting, in particular in NIPT.
And one more for Carolyn, actually two-part question for you. Can you give us what you’re embedding in guidance for the mix between cash accounting and accrual accounting in terms of the revenues? And then secondly, in terms of the cash burn guidance of $27 million on the operating cash flow line, is there any -- are there any one-time cash costs related to the transition included in that number?
So, in terms of mix between cash and accrual basis payers, we are assuming that we would keep a fairly similar mix, which is about 60% cash and 40% accrual basis overall. And then, in terms of the $27 million, we are not assuming any significant one-time, either costs or proceeds in terms of any sale activities in that number. So that’s more of an operational number.
[Operator Instruction] Having no further questions, I’ll turn the call over to Mr. Goodson for closing comments.
I would like to thank everyone for listening to our call today. We will report our first quarter results in early May, and we will hold our next earnings conference call at that time. We hope you can join us then. This concludes today’s call. You may now disconnect.
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