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Invitae Surges on $1.4B Acquisition of ArcherDX

By Maxx Chatsko – Jun 22, 2020 at 12:33PM

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The genetic testing company pulled the trigger on its largest acquisition yet.

What happened

Shares of Invitae (NVTA -4.69%) rose as much as 48.4% today after the company announced the acquisition of ArcherDX. At a total transaction cost of $1.4 billion, it's easily the largest acquisition in the company's history. 

The combination will immediately boost Invitae's product offerings and growth prospects. Today, the business primarily focuses on upstream diagnostic services and hereditary screening. With the addition of ArcherDX, the technology platform will be augmented with new capabilities in cancer care monitoring and liquid and tissue biopsy analysis. 

As of 12:24 p.m. EDT, the growth stock had settled to a 44% gain.

A businessman tossing cash into the air.

Image source: Getty Images.

So what

There's a lot to unpack from the acquisition of ArcherDX. Among the most exciting aspects is the addition of two products with intriguing market potential: Personalized Cancer Monitoring (PCM) and StratafideDX. Each has received Breakthrough Device designation from the U.S. Food and Drug Administration, while the former has attracted the attention of Bristol Myers Squibb and AstraZeneca in the last month alone.

Investors should pay close attention to the cost of the acquisition. Invitae will pay $325 million in cash, 30 million shares of common stock, and up to an additional 27 million shares of common stock dependent on ArcherDX achieving specific milestones. The total transaction cost is up to $1.4 billion.

Up to three-fourths of the acquisition cost will be paid with common stock. Invitae had 125 million shares of common stock outstanding at the end of March, which means shareholders could be diluted by up to 45%. That's a steep price, but one investors are betting will be well worth it in the long run.

Now what

Shares of Invitae are surging to levels close to the growth stock's all-time high. Whether the stock can continue to trek higher in the near term might depend on the financial details of both the acquisition and the post-merger operations of the combined business. ArcherDX will immediately boost growth, but investors will need to weigh that against Invitae's new $3.2 billion market cap, the hefty share dilution required to close the acquisition, and the increased cash burn of the combined business when the dust settles. 

Maxx Chatsko has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Bristol Myers Squibb and Invitae. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Invitae Stock Quote
$2.44 (-4.69%) $0.12
AstraZeneca PLC Stock Quote
AstraZeneca PLC
$54.58 (-3.07%) $-1.73
Bristol Myers Squibb Company Stock Quote
Bristol Myers Squibb Company
$70.71 (-0.81%) $0.58

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