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Can Invitae Succeed in Genetic Diagnostics?

05/20/2019 5:00 am EST

Focus: HEALTHCARE

Tyler Laundon

Editor, Cabot Small-Cap Confidential

Invitae (NVTA) is a genetic information company with a $1.6 billion market cap that’s working to bring comprehensive genetic information into mainstream medical practice, notes Tyler Laundon, editor of Cabot Small Cap Confidential.

The company specializes in genetic diagnostics across all stages of life, including perinatal, prenatal, pediatric and adult. Management has been working to pool genetic tests into a single service that could be offered at a lower price than current alternatives while delivering faster turnaround time.

Invitae’s growth strategy is relatively simple. By making genetic testing more accessible and affordable it expects to supply a large volume of tests. It’s also building a genome network through partnerships with industry peers and working to share genetic information on a global scale through services that inform healthcare throughout life.

It’s simple to write on paper, but harder to implement! That said, Invitae is having tremendous success. In 2016 it had only 6 million covered lives in network. That number is up to 271 million as of the end of Q1 2019. Testing volume has been rising at a quarterly rate of 47%, with 94,000 tests in Q1 2019 alone.

Part of this is because the company’s network of biopharma partnerships is expanding (eight new partnerships in Q1 brings the total up to 40). And also because it is fulfilling its promise to lower costs. The average cost of a test in Q1 was down 19% to $226. In 2014 the cost was over $1,300!

Sales are ramping up. Invitae’s revenue was up 172% in 2017, up 117% in 2018, and up 47%, to $40.6 million, in Q1 2019. Management expects the company will deliver over 500,000 sample tests and generate over $220 million in sales (up over 50%) this year. EPS will likely be flat, then grow again by around 20% in 2020.

With such bright potential why is Invitae’s stock in the dumps? The short version is that Q1 2019 revenue missed expectations by 14%, mostly due to light testing volume, lower prices on PAMA rates for cancer testing and payer mix shift from pharma customers.

Despite the light quarter management reiterated its 2019 outlook and the business appears to be healthy. The best way to play the weakness is to average into a position over time.

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