Behind The Numbers – Invitae Corp. (NVTA)
Invitae, a genetic information company, processes DNA-containing samples, analyzes information related to patient-specific genetic variation, and generates test reports for clinicians and their patients in the United States and internationally. The company’s tests include multiple genes associated with hereditary cancer, neurological disorders, cardiovascular disorders, pediatric disorders, metabolic disorders, and other hereditary conditions.
The company reported Q4 earnings on Tuesday after the close and then saw the following call roll the next day, which prompted me to take a closer look:
-500 March 12.5 Calls Sold to Close for $5.50
-500 June 22.5 Calls Bought to Open for $1.00
Q4 Results
-EPS of ($0.40) vs ($0.45) estimate – Beat
-Revenue of $44.55M vs $40.78M estimate – Beat
-Test Volume increased 102% Y/Y
-Revenue increased 117% Y/Y
Management would say that volume was strong across all diagnostic areas from old and new accounts. Notably, they experienced strong volume from international markets, which now account for about 10% of the total as well as steadily growing testing related to biopharma partner programs. In reproductive, they saw an uplift in testing volume late in the year. They expect reproductive to grow in 2019 based on the quality of their testing, strategy on pricing, and the tailwinds of new guidelines and the increasing importance of genetics to payers.
CFO Shelly Guyer, however, would remind investors on the call, “A note on seasonality, as with many companies in the diagnostic space, the fourth quarter has traditionally been one of our best quarters in terms of test succession and build. We expect next year to see the same quarterly seasonality as we did in the past two years. The first and the third quarters experienced seasonal declines in growth, while the second and fourth quarters produce more robust growth.”
Post-Earnings
JPMorgan analyst Tycho Peterson would raise his PT to $20 from $16 and say that on biopharma and other partnerships, NVTA added 11 partnerships in 4Q, which supported its volume ramp. Moving down the P&L, average cost per sample declined to $243 (from ~$260 in 3Q18), benefiting from continued investments in technology infrastructure.
In terms of menu expansion, NVTA launched its non-invasive prenatal testing (NIPT) offering this quarter, and has plans to roll out a patient-initiated testing platform in 2Q19, through which individuals will be able to request genetic testing mediated by genetic counselors.
Finally, NVTA maintained its 2019 outlook, calling for revenues of >$220M (above then-Street/JPMe of $200/$202M), driven by test volumes of >500K (vs. JPMe 400K). Although management called out Medicare headwinds (10% reduction in PAMA rates for cancer testing and the BRCA LCD change, with the latter expected to reverse following strong industry pushback), the impact will be more than offset by solid core growth and NIPT and patient-initiated testing contributions in 2H19.
Finally, Ladenburg Thalmann analyst Jeffrey Cohen would raise his target to $21.75 from $17.75 highlighting that the company also announced results of a collaborative study with the Tulane Cancer Center which demonstrated that 17% of prostate cancer patients are born with genetic variants associated with various cancers and that guidelines for testing missed a significant number of patients. “The study was an observational cross-sectional cohort of 3,607 men who were evaluated between 2013 and 2018 and had a history of prostate cancer. Results determined that 620 or 17.2% of patients studied had pathological variants identified of which 30.7% of patients were in BRCA1/2. Approximately 4.5% of patients had positive variants in HOXB13 which is the gene associated solely with prostate cancer risk.”
Ladenburg believes that the compelling data derived from the collaborative study further demonstrates the necessity to expand screening guidelines within multiple segments.
