Invitae (NVTA -94.44%) has grown revenue over time, but the genetic testing specialist has failed to turn that into profit. Instead, the company burned through more and more cash, prompting it to launch a business realignment plan in 2022. The goal was (and is) to speed up the path to positive cash flow, and Invitae has made some progress.
Despite efforts, Invitae shares have failed to take off and, instead, have lost more than 80% since the announcement of the new strategy. In fact, they've fallen to such a low level -- less than $1 -- that the New York Stock Exchange (NYSE) issued a warning notice of noncompliance with minimum share price listing requirements. That means the stock could be delisted if Invitae's shares don't rise to $1 within a certain period.
So, Invitae's situation doesn't look particularly bright, but advancements toward its profitability goal could make the company a promising recovery story. Is Invitae a stock to buy now? Let's find out.
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A genetic testing expert
First, a bit of background on this genetic testing expert. The company sells a wide variety of genetic tests that inform you of your risk for genetic disease or of passing a particular condition on if you have children. The idea is that with this knowledge, you can make lifestyle decisions, for example, improving your diet and increasing exercise.
The company's largest testing category, hereditary cancer, recently scored a big win with the regulatory authorization of Invitae's Common Hereditary Cancers Panel. The test zeros in on 47 genes known to have thousands of variants that could increase a person's cancer risk. And it stands out as the only authorized broad panel to identify mutations linked to hereditary cancer that may be passed on to offspring.
As mentioned above, Invitae has increased revenue over the years, but it has also moved farther and farther from profitability.
NVTA Revenue (Annual) data by YCharts.
Through its realignment plan, Invitae decided to focus on its core testing business, exit certain international businesses, cut its workforce and office space, and streamline processes to control operating expenses. And the company set a goal of extending the cash runway through the end of 2024.
Selling off businesses
Since then, Invitae has sold off businesses, the most recent being the sale of certain reproductive health assets and the divestiture of a digital health data platform. The former should result in annualized operating expense cash savings of $44 million. The latter, along with additional cost cuts, may result in annualized cash savings of approximately $90 million to $100 million. All this excludes one-time costs related to severance payments.
Invitae is becoming more streamlined and focused and, in the most recent quarter, reported improvement in non-GAAP (generally accepted accounting principles) gross margin for the ninth straight quarter. After adjusting figures for the impact of divested businesses, revenue climbed 4% -- and U.S. hereditary cancer volume advanced in the double digits.
The genetic testing company has also made progress in the key area of cash burn, reducing it by 50% from 2022 to an estimated $220 million to $245 million for the full year 2023.
A delisting risk
But the market hasn't rewarded the company for its progress, and the stock is now at risk of being delisted from the NYSE. Generally, NYSE offers a company a period of six months to improve share performance and may offer a second six-month period before delisting a stock. So, Invitae may have some time before facing a possible removal. But this still represents a risk -- because a delisting could significantly hurt the stock price.
Now, let's get back to our question. Is Invitae a buy? It's true the company has made progress along its realignment plan, and that's positive. But Invitae is relying on cost-cutting and selling assets -- and revenue growth remains muted, potentially making it difficult for the company to reach profitability goals. The delisting risk also weighs on the picture right now.
Very aggressive investors may decide to pick up a few Invitae shares to bet on recovery due to the company's quality testing portfolio. But most investors would be better off waiting on the sidelines until Invitae gets past some of the current challenges and shows clearer signs of growth ahead.
