On paper, there's tremendous potential for clinical-grade genetic testing to influence routine health decisions. The coronavirus pandemic is exposing the fact that, in reality, the practice is still far from routine.
Current events figure to significantly alter the growth trajectory of Invitae (NVTA 25.93%). The genetic testing business originally expected to process 725,000 samples in 2020, up from 482,000 in 2019. Through the first 10 weeks of the year, the company was actually on pace to process 850,000 tests. But stay-at-home orders issued in mid-March resulted in a 50% drop in test volumes.
That forced Invitae to withdraw full-year 2020 guidance, commit to reducing cash burn, and launch a marketing campaign to raise awareness of its telemedicine offerings. What should investors make of the uncertainty surrounding the growth stock?
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Can telemedicine save the day?
Invitae has embarked on an ambitious mission to bring medical-grade genetic testing to the masses. By increasing the quality of the data collected compared to consumer ancestry tests, the company has demonstrated the potential to use genetic diagnostics for proactive health screening, guiding cancer treatment, and planning pregnancy decisions. Full-year 2019 revenue grew to $212 million, up from just $8 million in 2015.
But scaling test offerings, laboratory infrastructure, and awareness has proved expensive. Invitae reported an operating loss of $244 million in 2019 and has reported a cumulative operating loss of $676 million in the last five years. The growth-at-all-costs business model was expected to continue in 2020 -- until the coronavirus pandemic emerged.
The global health crisis and government-mandated stay-at-home orders led to a sharp drop in visits to the doctor's office, which led to a 50% decline in test volumes in the second half of March for the genetic testing business. Invitae suspended full-year 2020 guidance, which called for more than 725,000 samples to be processed and revenue of at least $330 million.
It's still too early to predict when laboratory throughput will begin to recover. But on the first-quarter 2020 earnings conference call, CEO Sean George argued that the long-term growth potential remains intact:
We don't see any structural systematic changes in the demand for genetic information and are getting a general sense that perhaps when all is said and done, the importance of diagnostic information may actually appreciate faster. ...
What we are seeing in the near term is that now more than ever, the way people access healthcare is changing. Invitae has been investing for some time on this front and is uniquely positioned to help clinicians deliver care to their patients through this pandemic. Our production facilities are fully operational and we continue to add to our enhanced capabilities in telemedicine and at-home solutions, as well as supporting our clinicians with professional education when transitioning to telehealth.
Investors can expect Invitae to ramp up investments in its telemedicine offerings to offset, at least partially, declines in testing volume. While telehealth tools were always a central pillar of the company's long-term growth plan, they'll take on a more important role, sooner, in light of the COVID-19 pandemic.
The first big push will be made in reproductive health. Invitae has begun a marketing campaign to raise awareness of its testing options -- and telemedicine capabilities -- for expecting mothers and couples. The company hasn't disclosed what portion of its revenue or testing volumes are generated from prenatal and perinatal end markets, or from its existing telehealth tools, but investors should be able to glean valuable insights from the success of the marketing campaign.
If successful, then it would bolster investor confidence in the importance of telemedicine tools to the company's long-term growth plan. There are unique considerations and infrastructure requirements for each testing option. Ordering and interpreting a test for reproductive health would require slightly different processes and input than one for a rare disease or cancer screening. But demonstrating that patients and doctors are comfortable with medical-grade, at-home genetic testing would be a big step forward nonetheless.
That might be especially true for proactive health screening tests, which require less oversight from personal care physicians and represent by far the largest market of any products offered by Invitae.
A big test for this growth stock
The novel coronavirus pandemic and public health efforts to mitigate it have forced many businesses to adapt operations to a new reality, which may have consequences for years. For Invitae, that includes a sooner-than-expected dependence on telemedicine offerings after test volumes plunged 50% in mid-March. The company first has to raise awareness of the tools, but if the initial push in reproductive health proves successful, then investors might be able to use it as a proof of concept for the genetic testing platform at large.
Who knows, it could even give Invitae a long-term advantage over competitors that have balked at offering at-home testing options.
