Invitae Corp

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How the Media Has Failed -- The Invitae Corp Story is Strong

Date Published:
Written by Ophir Gottlieb

* This is a snippet from a CML Pro dossier originally published on 5-25-2017.

Spotlight Top Pick InVitae Corp (NYSE:NVTA) has seen its stock decline and one culprit was a recently published article "How a cancer test maker started by former Twitter, Google execs hopes to change the world" that has caught the market off guard.

We encourage everyone, in all aspects of life, to recognize the difference between news and knowledge.

This is it. This is why you subscribe to CML Pro.

The main stream media doesn't have the vocabulary to understand breaking technology. Even further, the top analysts that represent the wealthiest 0.1% of Americans have no interest in sharing the data they are keenly aware of. In fact, it's the information asymmetry they created that has generated immense wealth to the benefit of the top 0.1% at the expense of the many.

Friends, what has happened with Invitae relative to this news story is a wonderful example of all of this.

In the story "How a cancer test maker started by former Twitter, Google execs hopes to change the world", we get these snippets:

With its $249 test to screen for 30 genes linked to eight hereditary cancers, Color Genomics Inc. has pushed to detect cancer earlier but also take price away as a barrier.

Out-of-pocket payments are relatively painless in Color's case because of its test's $249 price tag. Other genetic disease tests can cost more: Ones from San Francisco-based Invitae Corp. (NYSE: NVTA), which covers a wide range of diseases including and beyond cancers, can cost upwards of $475 if solely paid for by an individual; its list price is $1,500 per clinical area.

This sounds like a direct competitor but for less, and faster. But it isn't.

We have a great relationship with Invitae. We have published one-on-one discussions with both the CFO and CEO in separate dossiers. We also speak with the investor relations team. Here is the email exchange we shared, and I warn you, when you read this you may feel a little cheated by the article we referenced above.

First, our email to Invitae:

"Hi Kate,

Wall Street appears shaken by the recent Color Genomics coverage by large insurers as well as large corporate accounts. Can you help me navigate this news as it pertains to Invitae?

My very best,

And now, their full response, with analysis to follow. We have added our own bolding to the email which was not included in the original.

Hi Ophir,

The news is a bit misleading. As you know, Color shares our goal of removing cost as a barrier to access to genetic information. We can all applaud that.

However, we have remained committed to quality in that quest, specifically diagnostic grade quality to ensure patients are accessing the most meaningful and actionable information to make informed choices regarding their health and care.

Color offers a much more limited cancer testing panel (30 genes to our >20,000). So far, they haven't invested the capital required to produce a true diagnostic grade result.

Their test lacks the technological advancements needed to capture difficult variants and we have certainly heard accounts of missed variants or misclassified variants.

So, while the price point is splashy from a news perspective and ideologically aligned, it isn't really a competitor amongst clinicians and genetic counseling seeking high quality testing for diagnostic purposes.

On recent coverage from large insurers, my understanding this is limited to specific geographical regions and limited test codes. So while they stated they are in network for some of the largest providers, it appears to be only on a single state or limited state basis for BRCA1&2. They don't have any preferred status over Invitae at any network.

In the end, as with much other new in the area, we are encouraged in interest and any additional visibility that is brought to bear on accessibility and utility of genetic testing, but we really don't see Color as a competitive threat.

Happy to discuss further if that would be helpful.

Thank you and kind regards,

Kate McNeil
Communications and Investor Relations

Yep, that was real. That article about Color Genomics was in reference to a company that maps 30 genes. This is where Invitae is:

Source: Invitae

Yes, the comparison here is 30 to that 20,000 number. Or if you prefer to take out the exome, then the company is at over 1,500 genes. But even further, the idea that a company mapping 30 genes presents a feasible diagnostic tool for serious clinicians and genetic counseling is a little hard to believe.

Invitae is trying to bring genetic testing, the kind that will actually change the world, to the everyone. In pursuit of that goal, the company is succeeding, though it is very early. Here are a few more charts for context, before we continue:

First, the number of covered lives (insured):

Next we turn to volume by billable report:

Source: Invitae

And the economies of scale in specific can be seen in the dipping cost of goods sold (COGS) per sample:

Source: Invitae

Invitae's genetic tests are not designed to be printed on colorful paper and framed on the wall, rather, this is the company's goal.

Source: Invitae

The entire Top Pick dossier is available here: The Company Trying to Become the Amazon of Genomics.

We'll start backwards, with patients that do not meet a diagnostic criterion for genetic testing, rather they are curious to learn about their health:

The Invitae Genetic Health Screen tests are intended for use by patients who do not meet diagnostic criteria for genetic testing but who wish to use genetic information to help guide their health decisions.

The tests can only be ordered by a physician and provide diagnostic-grade genetic analysis from board-certified medical geneticists in a proactive test. The program has been available at select clinical pilot test sites for more than a year, with the addition of further sites underway throughout 2017.

In English, you and I, if we so desire, can now go ahead and get genetic tests done on ourselves, even if for curiosity or prevention, for the same price as Invitae's normal tests.

And then of course, there is genetic testing by a specific diagnostic criterion. While the company has a pretty large focus in oncology right now, here's one for Spinal Muscular Atrophy (SMA):

SMA is an autosomal recessive disorder and the second leading genetic disease in infancy behind cystic fibrosis affects. SMA affects approximately one in every 10,000 infants, while one in 50 people is a carrier for the disorder.

The majority of SMA cases are caused by loss of the gene SMN1, with variation in the number of copies of related gene, SMN2, playing a role in mitigating the severity of the disease. Loss of SMN1 results in the absence of a protein necessary for the normal function of nerves governing movement.

Without adequate nerve function, patients with SMA experience progressive muscle weakness and atrophy, impacting the ability to crawl, sit, or stand and eventually to breathe or swallow.

Accurate testing of both genes is critical for the diagnosis and treatment of SMA. Testing for the absence of functional SMN1 is the basis of diagnosis and can distinguish the condition from other neuromuscular diseases such as muscular dystrophy.

Understanding the number of copies of the SMN2 gene can provide prognostic information and help guide therapeutic choices and clinical trial participation. However, due to the similarities between the two genes, testing is technically challenging and reliably accurate tests have not previously been widely available.

Invitae's unique approach leverages advanced next generation sequencing and a customized bioinformatics solution to accurately identify sequence changes and copy number changes in both genes from a single test.

Analysis of SMN1 and SMN2 is now available from Invitae as a stand-alone test, and it has been added to a number of the company's comprehensive neuromuscular and neuropathy panels, allowing physicians the ability to test for SMA alongside a number of other neurological disorders for no additional cost.

Broadly speaking, here is Invitae's non-oncology progress:

Source: Invitae

While Invitae is building out its menu of tests, a lot is already available. Here is another snippet, with our emphasis added.

Based on feedback from pilot sites and evaluation of new data, the original menu offered in the program has been expanded to include additional genes linked to cancer, cardiovascular conditions and other genetic disorders.

The panel now provides information on 139 medically actionable genes, and the company also offers sub-panels focused only on cardiovascular conditions or cancer to give patients options for gathering genetic information that can inform health decisions, such as increased screenings or treatment choices.

But, for now, this company is finding a market with a need and an appetite within oncology. Here is total revenue (TTM) through time:

Source: Invitae

Revenue (TTM) for Invitae is now $31.4 million. Last year it was $11.1 million, which is a 183% one-year change.

But there's more.

PROJECTIONS Invitae Corp has forecasted revenue at the $55M-$60M by year end and then another double for 2018, putting them at ~$115M by the end of that year. Further, the company has forecast that Q4 2018 will be its first cash flow positive quarter.

If those projections are hit, and it's just an if, we will be looking at a company with $115M in revenue, cash flow positive operations, revenue growing at 100% in back-to-back years. The current market cap is about $380 million.

We're not in the business of making outright valuation calls, but whatever the number, this company should be well above the $380M market cap if those hurdles are met and we see the market cap much closer to the $1 billion level (8x sales). That would be a stock price in the neighborhood of $22-$23.

That's all predicated on an if, so we're not saying, "hey the stock market is wrong," not at all, we're just pointing out what the company's projections are and what that could mean to valuation.

The company is commercializing its exome product with a focus on the undiagnosed disease market. That is, those people who have had to suffer numerous tests and no specific diagnosis - the goal is get them off that awful path and onto a path for a cure and a proper diagnosis.

There is a pediatric focus with the exome as well, but broadly for complex disorders that cannot be diagnosed, whole exomes find the diagnosis ~25-40% of the time. This was an image in their slide show:

Source: Invitae

And here is more from the company:

The Invitae Boosted Exome offers high-quality testing tailored to each patient's unique clinical situation. Exome testing can help clinicians make or confirm a diagnosis and develop an appropriate medical management plan, which is especially important in pediatric and rare disorders for which early diagnosis is essential.

Source: Invitae

And more:

Invitae's high-quality exome testing uses next-generation sequencing (NGS) technology to analyze the coding regions, called exons, of up to 20,000 genes.

The vast majority of known disease-causing DNA changes are located within exons or in the DNA immediately flanking the exons; Invitae's Boosted Exome assesses such changes with customized bioinformatics and rigorous interpretation in order to pinpoint a genetic diagnosis.

As we noted in our Top Pick dossier and our conversations with CFO and CEO, the company also noted that Cardiology, Neurology, and the treatment of rare diseases – via large biotechs – are still untapped markets while also noting that their current markets in oncology and hereditary breast cancer-related disorder tests, is still growing very rapidly.

While all of this is amazing, we have and continue to note the risks to Invitae, both as a going concern and as an investment. This company is unlike any other Top Pick and certainly unlike any Spotlight Top Pick - it actually has existential risk. The company could fail - not in the sense that the stock drops and it's a lousy investment, but in the sense that it could go away - as in, zero.

However, if Invitae fails, it will not be due to companies that map 30 genes, make splashy headlines from irresponsible journalists that make false comparisons. These are not competitors to Invitae's business -- which is focused on (1) a serious diagnosis of often times life threatening rare diseases and (2) a larger view of the world that sees nearly every person on Earth using genetic testing from birth to death.

This is a world where pre-emptive care saves lives before diseases take shape. A world where risks are identified early and treatments are pinpointed, down to the individual person. Where people no longer suffer through years of agonizingly imperfect diagnoses, where doctors are finally empowered with the information they need to heal and prevent, rather than to react and to guess.

This is not a world threatened by a fun website.

The media is a for profit business. That's perfectly fine, we are too. But, when the media covers stories in finance, technology, medicine, politics or any other realm, be careful about what you read -- the intentions can be very good, but the result can be very bad.

In the world of health technology, we highly recommend reading Christina Farr, formerly of Fast Company and now of CNBC.

We reiterate the risks associated with Invitae but maintain our bullish thesis and our Spotlight status on the company. We encourage everyone, in all aspects of life, to recognize the difference between news and knowledge.

The author is long shares of InVitae Corp (NYSE:NVTA) and may add shares within the next 72 hours.

Thanks for reading, friends.

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