Invitae: Sales Ramping, Cash Burn Ebbing

|
About: Invitae (NVTA)
by: Busted IPO Forum

Summary

Today, we revisit genetic testing concern Invitae after that small-cap concern posted Q3 yesterday.

The company continues to see big ramp in sales while cash burn continues to go down rapidly.

We highlight some key Q3 results and weigh in on Invitae post earnings in the paragraphs below.

Having money is a way of being free of money" ― Albert Camus

Third quarter earnings reports are coming fast and furious for myriad small biotech names. Today, we revisit genetic testing concern Invitae (NVTA) which posted third quarter numbers Thursday.

Company Overview:

Invitae is a San Francisco based genetic testing and information company which processes DNA-containing samples, analyzes information related to patient-specific genetic variation, and generates test reports for clinicians and their patients. The stock currently sells for around $13.00 a share and has a market capitalization just under $1 billion.

Third Quarter Highlights:

  • The small cap concern posted a loss of 45 cents a share, two cents above the consensus.
  • Revenue was up better than 105% year over year to $37.6, more than five percent above expectations.
  • The company also raised full year guidance. Invitae now expects that its volumes to be 285,000 samples for FY2018 compared to previous guidance of 275,000. The firm is also raising its full year revenue guidance from between $135 and $140 million to between $140 and $145 million.
  • Its cost per sample dropped to $260 from $330 in the same period a year ago as the company continues to benefit from economies of scale.

Source: Company Presentation

The stock is down nearly 10% since Q3 numbers were posted. Part of that is sales growth slow from the second quarter. In addition, until recently, the shares have been rocketing over the past six months. This was the main reason Invitae was dropped from the model portfolio of The Biotech Forum and The Busted IPO Forum in the $17s recently. I kept approximately half my original stake in NVTA using the 'Jensen Rules'.

Balance Sheet & Analyst Commentary:

The company ended the quarter with just under $135 million in cash and marketable securities on the balance sheet. After the quarter, Invitae inked a deal for new financing arrangements for up to $200 million in debt and $5 million in equity from funds managed by Oberland Capital. Cash burn for the quarter was $18.4 million.

Invitae is making good progress every quarter reducing its cash burn. In the first quarter of this year, it burned $35.1 million which was reduced to $26.5 million sequentially in the second quarter. At this continued rate of decrease, Invitae looks like it will turn cash flow positive sometime in the summer of 2019. This should be a significant inflection point for the company and, hopefully, the stock.

Ladenburg Thalmann lifted its price target on NVTA to $21.75 a share while reiterating its Buy rating on September 20th. Thursday, JPMorgan raised its price target to $16 from $12 previously.

Verdict:

We obviously liked the shares of Invitae better when they were trading near the $5.00 a share level six months ago when it was deep in 'Busted IPO' territory. However, the company continues its rapid march to profitability. The stock is also a good proxy for the rapidly growing genetic testing space. After an approximate 25% pullback from recent highs, incrementally accumulating this long-term growth play for those that do not position makes sense. I personally would use Buy-Write orders for those that want to add some exposure to Invitae post Q3 results and the subsequent decline in the stock.

The man with toothache thinks everyone happy whose teeth are sound. The poverty stricken man makes the same mistake about the rich man." ― George Bernard Shaw

Bret Jensen is the Founder and author of articles on The Biotech Forum, The Busted IPO Forum, and The Insiders Forum. To receive these articles as published on Seeking Alpha, just click the appropriate link and hit the orange follow button.

Disclosure: I am/we are long NVTA.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.