What happened
Shares of genetic testing leader Invitae (NVTA 25.93%) soared nearly 14% today after the company announced first-quarter 2018 operating results. While eye-popping growth has been the norm for the young company, triple-digit revenue growth from the prior-year period surprised just about everyone -- including the company itself.
The fast start to 2018 forced management to increase its full-year guidance for revenue and test volumes. Previously expecting total revenue of at least $120 million and test volumes of 250,000 samples, Invitae now anticipates over $130 million in revenue for the year on 275,000 samples.
As of 1:05 p.m. EDT, the stock had settled to an 11.1% gain.
Image source: Getty Images.
So what
The consumer genomics market has become possible in recent years thanks to advances in DNA sequencing technology. Invitae has managed to increase its market share in the expanding market, which has led to pretty amazing growth quarter after quarter.
|
Metric |
Q1 2018 |
Q1 2017 |
% Change |
|---|---|---|---|
|
Total revenue |
$27.7 million |
$10.3 million |
168% |
|
Gross profit |
$9.6 million |
$1.0 million |
860% |
|
Operating expenses |
$46.1 million |
$37.7 million |
22.2% |
|
Operating income |
($36.5 million) |
($27.3 million) |
N/A |
|
Net income |
($36.1 million) |
($26.9 million) |
N/A |
|
Shares outstanding |
54.4 million |
42.3 million |
28.5% |
Data source: Invitae first-quarter 2018 press release.
Oh, one important detail: Invitae has increased its market share by investing heavily in acquisitions and organic growth -- and it hasn't come cheap. That's evidenced by a net loss of over $36 million in the last three-month period, and also by the incredible amount of dilution endured by shareholders over the years, which has been necessary to provide funding for expanding operations.
Right now, the only focus is on grabbing as much market share as possible as quickly as possible. Then, when the timing is right (or growth slows), the focus can shift to reining in operating expenses, which might allow more revenue to trickle down to the bottom line. It's a well-traveled path by fast-growth companies and can lead to comfortably profitable operations, but the strategy doesn't always work.
Now what
Shareholders will soon find out if profitable operations are at least within reach. Management pledged to reduce cash burn by 40% to 50% as Invitae exits 2018. Considering the business used nearly $33 million in cash in the first three months of the year and had just $130 million in capital available at the end of March, that will be a welcomed move and one that's necessary to reduce mounting losses.
However, the business would still boast an annual cash burn as high as $80 million in 2019 after the reductions. While continued growth should help to offset external funding requirements, investors know they'll be required to stomach even more dilution in the next few years. So although this is a fast-growing business in an important future-oriented industry, stock gains could continue to be largely cancelled out by share offerings in the near term.
