Invitae: The Beginning Of An Overdue Rally

Genetic testing concern Invitae rose 10% in trading on Thursday on blowout 1st quarter results. Further gains ahead?

A few weeks ago, I was teasing my marketing partner we should put out a free report entitled the ‘Devil’s Portfolio’ on my three favorite diagnostic plays in this market as each stock was selling right around $6.00 apiece. Fortunately, each of these stocks have been on the move higher of late. Last Thursday, we did a profile here on Veracyte (VCTY). We followed this with an article on T2 Biosystems (TTOO) after its big move this week.

Today, we look at the third member of that triumvirate, Invitae (NVTA). The shares spiked just over 10% in trading on Thursday after first quarter results were posted. We think this could be the beginning of a longer rally in this name that is experiencing a huge amount of growth in an expanding market.

Company Overview:

Invitae is a San Francisco based genetic information company. The company provides a diagnostic service comprising hundreds of genes for various genetic disorders associated with oncology, cardiology, neurology, pediatrics, and other rare disease areas. The company aims to drive down the costs of testing for inherited genetic conditions by aggregated genetic testing. The genetic testing space is expected to growth from a current $3 billion to $4 billion market to some $10 billion in five to six years. Invitae came public early in 2015 and currently sports a market capitalization of $425 million. The shares sell for substantially less than where they debuted three years despite mind boggling revenue growth

Invitae (NVTA)Source: Company Presentation

The company reported revenue grew over 165% on a year-over-year basis to $27.6 million for the quarter, slightly above expectations. As can be seen from the chart above, this continues a string of stellar growth in recent years. The company performed 59,000 billable tests in the first quarter, this is up from 52,000 in the fourth quarter marking a 13% sequential improvement.

The company also recently announced a new program with Biogen (BIIB) to offer genetic testing at no-charge to patients suspected of having or clinically diagnosed with spinal muscular atrophy. This is a rare, progressive, genetic, neuromuscular disease. Invitae also expanded its partnership with Sarepta Therapeutics (SRPT) to assist clinicians in identifying Duchenne muscular dystrophy (DMD) patients eligible for Sarepta's clinical trials. Both of which should help power future growth.

During the conference call that followed the earnings report, management lifted testing volume guidance from 250,000 samples to more than 275,000 in FY2018 and their revenue guidance from $120 million to more than $130 million in 2018 as well.

Verdict:

Invitae continues to show great organic growth and continues to bring down the cost per sample dramatically as volume surges. The company also continues to make small, smart acquisitions to build out its product offerings.

Invitae (NVTA)Source: Company Presentation

While the company will probably not be profitable until FY2020, its costs per test continue to drop significantly as volume ramps up. Operating costs rose just 63% year-over-year in the first quarter despite a nearly 150% rise in testing volume. I continue to add to my core position in Invitae any time the overall market dips and I also think the stock is a great Buy-Write candidate as well. The company's long-term future seems beyond bright.

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Comments (2)
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Bret Jensen
Bret Jensen

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Tim, Great to hear. The stock feels like it has more to run. Continued Happy Hunting

Timothy Blackbread
Timothy Blackbread

Thanks, Bret. Got in at $4.5 right after the financing 6 weeks ago. Timing couldn't have been better. Thank you!



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