Invitae (NVTA -94.44%) is on a mission "to bring comprehensive genetic information to mainstream medicine to improve healthcare for billions." In medical terms, Invitae can help the roughly one in six people who have a medical condition with an underlying genetic component. In financial terms, Invitae has the potential to generate several hundred dollars annually from more than 2 billion people -- a staggering market opportunity of $4 trillion. Can Invitae achieve this? Smart investors will have to consider its growth trajectory and the catalysts that lie ahead.
The long and winding road
Cathie Wood of ARK Investment Management has described Invitae as one of the most under-appreciated companies in her ARK Genomic Revolution ETF. In part, that lack of appreciation is not based on market opportunity but the time and cost to reach the end goal. More than 10 years after its founding, Invitae recorded 2020 revenue of just $280 million and posted a net loss of $602 million. In January, Invitae raised $431 million in equity financing and in April it raised an additional $1.15 billion in convertible debt. That cash infusion will help Invitae continue the mission, but it hasn't put investors in the best of moods. The stock is down 45% from its 52-week high.
The three levers of growth
It may not be pretty, but the current financial results don't mean Invitae is going to miss out on the massive market opportunity it set out to capture. I have three catalysts in mind that smart investors should be keeping their eye on.
First, look for high growth in testing volume. Like many medical procedures, genetic testing volume took a hit during COVID-19 but is now rebounding nicely. In Q1 2021, billable volume was up 72% year over year with approximately 259,000 tests in the quarter. Testing volume is largely driven by doctors' orders and the willingness of health plans to pay for the tests. Going forward, expect to see pharmaceutical companies play a larger role in advocating and paying for tests. Roughly 90% of the pharma pipeline is based on genetic conditions. As these new genetic therapies are approved by the U.S. Food and Drug Administration, pharma companies have a vested interest to ensure patients receive testing, which could drive demand for their treatments.
Second, look for progress in penetrating the oncology market. The trend of testing driven by genetic therapies is particularly true for cancer -- a large and financially attractive market. Invitae bought ArcherDX in October 2020 to expand its capabilities to include testing services for disease risk, therapy selection, and personalized monitoring. Invitae can help major cancer centers run their own testing programs as well as support other healthcare providers who choose not to invest in their own testing. These comprehensive services will be major drivers of revenue and profitability given the historically high reimbursement rates for oncology testing.
Finally, look for continued global growth. The goal to reach 2 billion people will clearly require international expansion. Cancer knows no geographic boundaries, causing both trends of comprehensive oncology testing and pharma-paid testing to help cement Invitae's global growth in the coming years. In Q1, nearly 18% of total billable volume was from international business; that should grow faster than the U.S. business as Invitae continues its expansion in Europe, Japan, Australia, and Israel.
Patience is a virtue
Invitae's mission to bring affordable testing to 2 billion people will take many more years to come to fruition. Does that mean it will hit the $1 trillion market cap market, joining the ranks of Apple, Amazon, and Microsoft? Maybe one day. In the meantime, smart investors will continue to look for continued growth in testing volume, oncology market penetration, and international expansion.
For patient buy-and-hold investors, the long wait should pay off handsomely. For the one in six people in need of affordable genetic testing, let's hope Invitae achieves its ambitious mission.
