Genetic-testing company, Invitae (NVTA -94.44%), isn't as easy to understand as it might seem. After more than a year of pivoting and scaling down its operations, changing its leadership, and renegotiating some of its debt, there's been a lot of activity which most investors would find easy to miss.
So, let's distill the most important recent goings-on that smart investors likely perceived, but which may not have gotten the attention needed from everyone else.
1. It's in a financial pickle
Smart investors have a finger on the pulse of a company's financial health. And in Invitae's case, there are a few pressing problems.
It isn't anywhere near the ballpark of becoming profitable anytime soon, and its trailing-12-month (TTM) operating expenses are $675 million. It has $325 million in cash, equivalents, and short-term investments, and a whopping $1.6 billion in debt. The chances of it being able to borrow more are low. Yet its rent will come due, and its employees will still need to be paid.
Management claims that ongoing actions will ensure that its full-year cash burn for 2023 won't exceed $245 million. But without substantial cuts in spending, it's hard to see how the company can square the disconnect between its overhead and its available resources. It's important to note that last year the business already exited entire segments and fled entire regions to save costs, so there's still much more that must be done.
Thus there's a major risk that Invitae will try to issue new stock to raise capital, diluting shareholders in the process. In February, management privately negotiated an agreement with some of its lenders, in which it would roll $306 million of its convertible senior notes due in 2024 into newly issued and higher-interest convertible notes due in 2028. But as discussed below, it might face stiff consequences for taking any route involving stock issuance again, which complicates the situation even further.
2. It could get delisted from the NYSE
Canny investors know that when stocks fail to meet the minimum bid requirements by stock exchanges, they're at risk of getting delisted. When a stock is delisted, its volume tends to drop, and it's a major defeat for management and shareholders alike.
As of Sept. 22, the New York Stock Exchange (NYSE, a subsidiary of Intercontinental Exchange) put Invitae on notice for potential delisting because its share price was consistently under $1. Now, with a share price near $0.58, it's in a race against time to pump up its stock.
Once again, its freedom of action is constrained. Issuing more stock to generate the capital needed for a big turnaround play would lower its share price further. Doing a reverse stock split may be necessary. But reverse splits are typically interpreted by the market as a desperate move, and therefore sometimes detrimental to share prices too. It's unclear what management is cooking up to prevent the worst case from occurring.
3. It's wrapping up a major C-suite shakeup
Wise investors keep a sharp eye on a company's management team, as its efficacy is widely thought to be one of the most important factors influencing the success of a business. Invitae has spent 2023 heavily remodeling its leadership roster.
It picked up a new chief commercial officer (CCO) in late August, a chief financial officer (CFO) in late September, and a fresh chief operating officer (COO) in mid-October. It also added a new chief medical officer (CMO) for oncology in May, and an additional board member earlier in the year. The shakeup comes in the wake of Invitae appointing a new CEO and a new chairman of the board in mid-2022.
With these new leaders at the helm, investors should expect significant changes in the company's strategy, many of which will be beneath the surface. Still, with conditions looking a bit dire, new management might not be enough to convince smart investors to buy Invitae's stock in the near future.
