Invitae: Growth in Genetic Testing

07/06/2017 2:50 am EST

Focus: HEALTHCARE

Bret Jensen

Editor, Biotech Gems

Genetic testing is expected to grow from a current $3-$4 billion market to $8-$10 billion over the next 5-6 years, asserts biotechnology sector specialist says Bret Jensen, editor of Biotech Gems.

Shares of genetic testing firm Invitae (NVTA) have risen over 20% in the past year. However, the shares have been chopped in half since they became public in early 2015, making the stock a “busted IPO”, a space we have found some significant investment successes in during the past.

Their specialty is genetic tests for hereditary disorders, amassing them into a single service whose advantage over competitors includes a lower price point, faster turnaround time and improved accuracy.

Management is quick to point out that over 4,000 medically important genetic tests are available today, but many are underutilized due to prohibitively high pricing.

They are building their genetic information platform with the long term in mind, noting that as more and more patients are accurately diagnosed they will be provided with the appropriate therapy earlier resulting in improved outcomes.

Current growth has been promising, with over twenty-six thousand tests accessioned and fourteen quarters of double digit sequential growth.

Other encouraging news has been that the average cost per sample has fallen to $360, representing a 40% improvement over the prior year and a 10% improvement over the prior quarter. Management expects these costs to continue to fall throughout the rest of 2017.

One can imagine the vast potential of the company’s technology when they consider that in the future genetic information will play a role throughout a person’s life, from newborn screening to having kids, addressing health issues and medical conditions to aging-related conditions and preventative applications.

Thus far this year the company has made a couple key acquisitions, including snapping up software developer Ommdom for $6 million in common stock. The crown jewel of the smaller firm is CancerGene Connect, an end-to-end platform for collecting and managing family genetic histories.

In January, Invitae acquired AltaVoice for $5 million in common stock and up to $10 million in additional milestone payments. The smaller company previously developed patient-centered programs for over 400 diseases in conjunction with over 100 advocacy groups.

It’s worth noting that several well-known institutional investors in the healthcare sector own positions in the stock, including Baker Brothers Advisors, Perceptive Advisors and Orbimed Investors.

The first of these owns almost 7.3 million shares, or around 20% of shares outstanding indicating increased conviction on the company’s future prospects.

Invitae did some $25 million in revenues in fiscal 2016 and should do approximately $60 million in revenue this fiscal year. The consensus calls for just over $120 million in sales in fiscal 2018.

The company will not be profitable for some time, but with volume increases driving down costs per sample, Invitae should be cash flow positive within 12 months. Buy NVTA up to $10.50 a share.

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