I've started to notice that people are buying some companies when I talk about them, so I want to adjust my approach.
I am going to start my discussion of a company with the risks- And first set an initial goal of completely scaring you out of wanting to invest. With that as the starting place, I will then give my bull case.
Signal over noise starts with understanding the downside.
For Invitae the bear case is that they have increasingly negative net income:
By the way I'm using a great tool created by @investmenttalk
which reminds me of the spreadsheets I would fill out while doing my MBA. It's a really good educational practice to go through 10ks and fill out spreadsheets like this. It's a manual process, but it gives you time to slow down and think. You can check out @investmenttalk
's 'Analyst Took Kit' on gumroad
Anyway, Invitae is essentially incinerating cash in order to be the low cost provider of genomic testing. There's a reason why competitors like Quest Diagnostics $DGX
are reluctant to drop prices in step, because if they did, they would be losing money like Invitae is.
Additionally, Invitae's business model is heavily dependent on medicare reimbursement. If the Center for Medicare Services (CMS) decides to exclude coverage for next generation sequencing tests for patients with earlier stage cancers, that would be very bad for Invitae.
In Q2 of 2019, Invitae disclosed that Medicare made up 22% of revenue for the first six months of that year.
At the moment, there is a very real possibility that Invitae can't get their business model to work without constantly requiring cash injections from investors.
Right now leinent and hopeful investors are the only thing giving Invitae the runway to keep trying to figure out the business model, which requires both that genomic sequencing costs continue to drop precipitously and that the demand for the tests will rise like crazy. While this could happen, it by no means is where the world is going for sure.