What happened
Shares of genetic testing company Invitae (NVTA -70.59%) jumped over 16% this morning after announcing full-year 2016 earnings and guidance for the current year yesterday afternoon. Shares have cooled off a bit since the markets opened, but investors should consider putting this growth stock on their radar.
So what
Whereas Myriad Genetics put genetic testing on the map by patenting human genes and charging sky-high prices per test, Invitae is part of a new wave of companies that emerged after the U.S. Supreme Court essentially invalidated the pioneer's business model. Invitae is looking to leverage continuous advances in DNA sequencing and genomics to build a business that makes genetic testing part of a routine trip to the doctor's office. In other words, it wants to rely on test volume rather than pricing.
Image source: Getty Images.
The company is having no trouble executing its strategy. It sold 20,000 billable tests and generated $9.2 million in revenue in the fourth quarter of 2016 -- over double the totals of the first quarter of the year. Here are the important full-year financial metrics to consider:
|
Metric |
2016 |
2015 |
% Change |
|---|---|---|---|
|
Revenue |
$25.0 million |
$8.4 million |
199% |
|
Gross loss |
($2.8 million) |
($8.1 million) |
N/A |
|
Operating loss |
($100.1 million) |
($89.8 million) |
N/A |
|
Billable tests delivered |
57,000 |
19,000 |
200% |
|
Cost of goods per sample |
$400 |
$700 |
(43%) |
Data source: Invitae.
The table above clearly demonstrates the growth potential of Invitae -- with both the good and the bad aspects of growth. Revenue is soaring and costs are dropping as billable test volumes increase. And although gross margin was negative for the full year, the company achieved a gross margin of $900,000 in the fourth quarter of 2016 and expects that to continue from now on. On the flip side, it continues to lose large sums of money as it scales its business and invests in growth. Operating activities ate up $157 million in cash in the last two years. Despite a healthy cash and cash equivalents position of $97.3 million at the end of December, Invitae may still need to raise additional funding in the future.
The good news is that management expects the company to reach cash flow positive operations by the end of 2018. Investors won't need to wait to enjoy the fruits of a quickly growing business, however. Here's where management is setting the bar for full-year 2017 operations:
|
Metric |
2017 Guidance |
2016 Actual |
% Change |
|---|---|---|---|
|
Revenue |
$55 million to $65 million |
$25.0 million |
120% to 160% |
|
Billable tests |
110,000 to 120,000 |
57,000 |
92% to 110% |
Data source: Invitae.
In addition, Invitae has a goal to secure additional partnerships with biopharma companies to build out a revenue stream that will complement its clinical genetic tests. The company is also still on track to launch its 20,000-gene medical exome product by the end of March, which would allow doctors to survey all medically relevant genes in their patients.
Now what
Investors that love growth should definitely be considering Invitae for their portfolio. It's growing at an impressive clip in a market that is only limited by the cost of genetic tests. If the company continues to execute and gobble up market share, then it should have no problem lifting that 800-pound gorilla out of the waiting room.
