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Here's Why Genetic Testing Stocks Are Down Today

By Maxx Chatsko - Mar 16, 2020 at 3:00PM

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Investors should prepare for the genetic testing industry to see a tangible slowdown in volumes due to the coronavirus pandemic.

What happened

Investors have been grappling with the coronavirus pandemic for a few weeks now, but new sources of uncertainty arose over the weekend. Increasingly restrictive measures are being taken by local, state, and federal authorities in the United States and Europe in an attempt to contain outbreaks. Meanwhile, China's economy took a larger-than-expected hit in January and February as the country moved to contain its own outbreak.

That led to sharply lower stock prices on Monday in nearly every industry, including genetic testing. Shares of NeoGenomics (NEO 6.37%) fell nearly 15%, while shares of Exact Sciences (EXAS 6.89%) and Invitae (NVTA 9.25%) fell over 16% each. 

While the broader market tumble explains a good deal of the movements for the trio of growth stocks, investors might expect a more tangible impact from the coronavirus outbreak.

A pink arrow crashing through the bottom axis of a chart.

Image source: Getty Images.

So what

Investors are likely prepared for volatility by now. That's especially true for growth stocks, which tend to trade at premium valuations and therefore have the furthest to tumble when market corrections arrive. 

But the genetic testing industry could take a hit during the coronavirus pandemic. Hospitals must make plans for worst-case scenarios, such as dealing with sudden influxes of patients. That doesn't mean it'll happen, but authorities have to prepare. 

As such, non-emergency services and procedures are already being postponed throughout the country. That could include genetic testing services. Considering the industry is built on processing tests and growing the volumes of tests that can be processed, it's reasonable to assume each business will see a temporary slowdown.

For example, Invitae processed 482,000 samples in 2019, which was nearly a 60% increase from the year-ago period. Full-year 2020 guidance prepared investors to expect more than 725,000 samples to be processed this year. But a lot has changed since guidance was issued in mid-February. 

NeoGenomics rode recent acquisitions to impressive year-over-year growth in 2019. The company processed nearly 1 million tests last year for oncology applications. It, too, was expecting double-digit growth to continue in 2020 while making strides to grow profits. Investors aren't so sure now.

Meanwhile, shares of Exact Sciences were volatile in the last year well before the coronavirus pandemic struck. Some of those concerns surrounded financing of the massive merger with Genomic Health, but some analysts argued that the long-term growth potential remained intact for the business regardless. 

As my colleague Keith Speights explained, the ongoing volatility might work in the favor of investors with a long-term mindset. Exact Sciences issued about $1 billion in senior convertible debt in February, which comes due at fairly favorable prices later this decade. I tend to agree, but investors should also realize there's probably more pain on the way.

Now what

Investors need to be realistic. The stock market is likely to fall further in the coming weeks and months, especially as companies update their outlooks to incorporate the fallout from the pandemic. That said, investors with a long-term mindset know the economy and genetic testing industry will bounce back -- eventually. The problem is no one knows if that's a few quarters or a couple of years from now. 

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Stocks Mentioned

Exact Sciences Corporation Stock Quote
Exact Sciences Corporation
EXAS
$45.15 (6.89%) $2.91
NeoGenomics, Inc. Stock Quote
NeoGenomics, Inc.
NEO
$9.69 (6.37%) $0.58
Invitae Stock Quote
Invitae
NVTA
$3.07 (9.25%) $0.26

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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