Invitae (NVTA -94.44%) recently announced news that made its shares pop. The genetic testing company won a regulatory nod for a first-of-its-kind test for hereditary cancer risk. The U.S. Food and Drug Administration (FDA) approved the Common Hereditary Cancers Panel this fall, and the stock surged 14% in one trading session.
Since, though, the stock has given up those gains, and investors are looking at a pretty disappointing 66% decline year to date. This performance isn't anything new, as the shares have dropped almost steadily since 2021.
Why such poor performance? Invitae has burned through cash and struggled to turn rising revenue into profit. But the good news is the company last year launched a turnaround plan to set it on the right path -- and it's made some progress. So, is Invitae a stock to buy now while it's still in the doldrums? Let's find out.
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Moving farther away from profitability
First, a bit of background. Invitae sells a variety of genetic tests that evaluate a person's risk of developing a particular disease or passing that disease on to a child. The company's catalog includes tests in the areas of oncology, reproductive health, rare diseases, and more. These tests have helped Invitae increase revenue -- but at the same time, Invitae has moved farther and farther away from profitability.
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Last year, Invitae launched a business realignment plan to speed up the path to positive cash flow. The company said it would exit certain businesses and geographies to favor high-margin opportunities, cut jobs and office space, and streamline its processes to reduce costs. The move would result in more than $300 million in annualized cost savings this year and extend Invitae's cash runway through 2024.
Recent earnings have shown some progress, but of course, there are some bumps along the path. For example, Invitae's cash burn guidance for the year improved to the range of $220 million to $245 million from the range of $250 million to $275 million. And second-quarter revenue for tests in the areas of rare diseases and women's health climbed in the double digits. All of that's positive.
But Invitae says it still faces the challenge of lower-than-expected insurance payments for its oncology tests -- the company continues to push for higher payment rates and average payment per test. Invitae also lowered its full-year revenue guidance to the range of $480 million to $500 million from its earlier forecast of more than $500 million.
A new genetic cancer test
Now, let's get to the most recent news: the Common Hereditary Cancers Panel approval. Hereditary cancer testing makes up the biggest portion of Invitae's testing portfolio, and this market is high growth, so a win here could be significant for the company. The global hereditary cancer testing market, expanding in the double digits, may reach more than $10 billion by 2031, according to Allied Market Research.
Invitae's test zeros in on 47 genes with variants linked to increased risk of developing certain cancers. The idea is if people know they're at risk, they can make lifestyle changes to boost their chances of remaining in good health.
The FDA approval is positive for Invitae, but we shouldn't expect this alone to transform the company. Invitae already has an enormous catalog of genetic tests, and they've helped increase revenue -- but, as mentioned above, that hasn't led to profitability.
Your comfort with risk
Now, let's get back to our question: Is Invitae a stock to buy now? That depends on your comfort with risk. Though the company has taken steps toward its goals, it's still burning through a lot of cash. At the same time, the share price has fallen below $1, prompting the New York Stock Exchange to issue a notice of non-compliance. If the company's stock doesn't return to $1 or higher, NYSE could delist it. Of course, that won't happen overnight, and Invitae could turn things around.
But these are challenges you should be aware of before deciding whether to buy Invitae stock. If you're an aggressive investor, you may want to pick up a few shares of Invitae in spite of these risks and bet on this company's realignment plan. Invitae has a solid portfolio of products and is taking steps to address its problems.
If you're cautious though, it's best to watch this player from the sidelines -- at least until it's moved closer to positive cash flow territory.
