Certain companies become so deeply ingrained in our memories that we often make comparisons to them. For me, in certain parts of the healthcare industry, Theranos is that codified company. Enter Caris Life Sciences Inc. (CAI). The diagnostic and testing company has developed some groundbreaking testing regimes for precision medicine, observes Tyler Crowe, editor of Misfit Alpha.
Whenever I read SEC filings for a healthcare company that involves novel detection or diagnosis, my inner monologue says, “Maybe it’s another Theranos.” It’s not fair to those companies, but I reflexively read healthcare company reports from a more defensive position than other industries. Something has to pop off the page to convince me it’s the real deal.
CAI went public recently. Even though I immediately put my guard up when I started reading the IPO prospectus, there were a few things in the report that made me glance over my boxing gloves.
It’s challenging to describe Caris Life Sciences in a few short words, but here we go. The company has developed some novel blood tests used across the healthcare industry to sequence a patient’s genetics. According to its (lengthy) prospectus, it is one of the only blood assays to do whole-exome sequencing (WES, the entire DNA gene sequence and its protein encoders) and whole-transcriptome sequencing (WTS, the entire RNA transcripts and their protein encoders) in a single assay.
Caris monetizes its tests in two ways: Clinicians order them for oncology treatment decisions (insurer-paid), and pharma/biotech companies use them for R&D and drug development. Management believes it can monetize its tests in several other ways and expand its testing to other diseases.
There are some compelling elements. Revenue and case volume grew 28% and 31% annually since 2019. More cases will equal better AI-driven insights. Potential Medicare and Medicaid acceptance is promising.
But it’s far from perfect. There is a material weakness statement for its financials. It has a Texas incorporation, which offers less protection for minority investors. There are 77 pages of risk factors. Plus, the company has been in operation for 17 years and continues to post considerable losses.
In short: Caris is a company with which I’m still undecided. The business seems novel but unproven. Its execution risk is high, but management seems more transparent about it. There is enough meat on the bone to make me want to follow this story, but not enough to warrant buying shares today.
