What happened
Shares of Invitae (NVTA 25.93%) rose over 68% last month, according to data from S&P Global Market Intelligence. In early August, the genetic-testing leader reported second-quarter and first-half 2018 earnings results that continued a string of triple-digit year-over-year revenue growth. Revenue through the first six months of this year jumped 172% from the year-ago period.
That's impressive, but it's nothing new for Invitae. So why is there a sudden Wall Street clamor over the stock? Well, at the current pace of growth, analysts are betting that the business will soon begin to head toward profitability. It also helps that industry leader Myriad Genetics reported strong growth in the first half of the year, demonstrating that the industry is absolutely huge, growing quickly, and capable of supporting multiple players.
Image source: Getty Images.
So what
In the first half of 2018, Invitae sold 137,000 tests, a 142% gain from the year-ago period. That led to an even larger increase in revenue, hinting that higher margin tests are increasing their share of the overall product mix. Nearly $25 million in gross profit, a 617% leap from the year-ago period, seems to back up that line of thinking.
However, scaling the business in the high-growth, high-stakes, cutthroat genetic-testing industry has not come cheap. Invitae reported an operating loss of almost $67 million and a net loss of nearly $68 million in the first six months of the year -- both worse than the year-ago period. The company ended June with about $110 million in available capital, which might be enough to fund another four quarters of operations. Nonetheless, another capital raise seems likely in 2019 or sooner, although management has pledged to exit 2018 with improving cash flows.
Now what
Invitae is one of the fastest-growing companies available to individual investors, and the stock price is suddenly catching up to the future growth potential in an important and fledgling industry. While the business should be profitable eventually if the incredible pace of revenue growth keeps up, investors should still be aware of the need to raise additional capital as a result of the high rate of cash burn. With the stock price soaring, I'd be tempted to issue new shares to raise funds now, if I were management.
