Invitae Corp (NVTAQ)

[chmcnfunds]

Assessing Invitae's Flub This Week

Apr. 1, 2018 10:22 AM ET|9 comments |About: Invitae (NVTA)

Never apologize, mister, it’s a sign of weakness.” ? John Wayne

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Because no retreat from the world can mask what is in your face.” ? Gregory Maguire,

I have started to believe in recent years that the most important executive at most small Tier 3 and Tier 4 biotech/biopharma concerns is not the CEO. It is also not the Chief Medical Officer or the head of Marketing. It is the CFO.

Planning for and funding operational needs while clearly communicating and keeping to plans with shareholders are paramount to credibility (and one’s stock price). Doing this while ensuring not placing the company in a position that puts it behind the ‘eight ball’ in capital raise negotiations can be a tricky balancing act. Those that do it well can enhance the valuation on their stock. Doing it incompetently, can erode stock value.

We saw that again this week as the stocks of Sorrento Therapeutics (SRNE) and genetic testing concern Invitae (NVTA) because of poorly received capital raises. Meanwhile, investors barely batted an eye on similar raises that were well received with Xencor (XNCR) and Heron Therapeutics (HRTX). We will be doing an exclusive 'deep dive' around Sorrento later this week for members of The Biotech Forum. In today's instablog post, we will take a look at Invitae's flub.

The company decided to raise some $55 million this week via a secondary offering. It was not the amount of the raise that set investors, it was the price ($4.50 a share) of the offering. Given where the stock ($7.02 a share) started the week, it seemed more of a 'fire sale' than a capital raise.

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Invitae was somewhat under the gun as it has just over $75 million in cash and marketable securities on the balance sheet at the end of 2017. Cash used in operating activities in 2017 amounted to $97.7 million which gave it at least three quarters of 'cash burn' left. Quarterly cash burn should start to come down markedly as samples/sales ramp up significantly in the year ahead. My opinion is that the company did a very poor job in negotiating the terms of this deal.

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Source: Company Presentation

As can been seen in the chart above, the company is in the midst of a major period of growth. Management has guided they expect at least $120 million in revenue in FY2018 after just less than $70 million in FY2017. They also expect to test at least 250,000 samples and continue to bring the cost per test down.

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Source: Company Presentation

Invitae has a huge secular tailwind behind it as the genetic testing market is expected to roughly triple to a ~$10 billion annual pace over the next five to six years. I also think eventually all the testing data the company is warehousing will turn into a valuable data analytics asset as well.

Image result for buy-write strategy I decided to 'hold my nose' and double down on Invitae using Buy-Write orders to help mitigate some risk late this week. I also find it somewhat comforting that Julian Baker of the Baker Bros. bought just over $5 million of the secondary offering. If one of the best investors in the healthcare space can get over his disappointment on how this capital raise was conducted, I guess I can as well.

It is the bungled crime that brings remorse.” ? P.G. Wodehouse, Love Among the Chickens

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https://seekingalpha.com/instablog/498952-bret-jensen/5138357-assessing-invitaes-flub-week

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