基因產業公司Invitae (NVTA) 簡介

Invitae’s products help determine hereditary cancer risks via gene sequence analysis. People can take preventive measures if they know they are susceptible to certain cancer types. The most famous example of a use case is Angelina Jolie getting double mastectomy in 2013 (She probably did not use Invitae); doctors estimated she had an 87% risk of breast cancer and a 50% risk of ovarian cancer.

Investment thesis: As the cost curve of gene sequencing comes down, the market grows “exponentially” bigger; the leaders in the field will have a snowballing cost and technology advantage over competitors in their area of core competency.

Historical cost of gene sequencing:

2003: $1 billion, took 13 years (entire human genome sequenced for the first time)
2013: $3000 ~ $5000, takes 1 ~ 2 days to complete
2018: $1000, takes 1 hour

Invitae’s cost per sample trend:

      Q1   Q2   Q3   Q4       Decrease  Q1    Q2    Q3    Q4
2016 600  520  465  400
2017 359  345  330  321           2017 -40%  -34%  -29%  -20%
2018 280  280  260  249           2018 -22%  -19%  -21%  -22%

Key metrics:

1. 2018 revenue growth: 117%. Guided 2019 revenue growth 50% (to $220mil). We can probably expect higher growth.

2. Current P/S: 12, S = 2018 Q4 sales * 4. P is market cap from Google, may not be accurate. For high growth companies, I prefer to use last quarter sales * 4 rather than trailing 12 months, especially for Saas companies.

3. Gross margin: 53%. It used to be negative just 3 years ago. Management had said they will probably maintain the gross margin to be around 50%, and increase their product capabilities (detect more diseases, which increases costs)

4. Cash burn in 2018 Q4 is $17mil, a decrease of 50%+ from 2018 Q1. In 2016, management said they expect to be cash flow neutral by end of 2018. They got close, but not quite there. Currently, they should have $200mil+ in cash (had secondary offering in 2019.03).

Business / industry particulars:

There is a bunch of gene sequence analysis companies, each company focuses in different areas:

• Invitae: Hereditary cancer risks (Current target market: expecting parents, prenatal, newborn)
• Guardant Health: Lung cancer liquid biopsy
• Exact Sciences: Colorectal cancer via stool test
• 23andMe: Ancestry determination via saliva

The above are famous ones people may have heard of. There are many more other companies I am sure. Technically, those companies can encroach into each other’s territory if they want to, but there must be nuances why they focus on their own areas. As time goes, each company will expand their offering, so there will be consolidation in the future. However, currently the market is growing so fast, those companies are focusing on their area of core competency and adjacent low hanging fruits.

Why I bought Invitae:

In late 2018 I started to see the stock symbol being mentioned in different places (Facebook discussions, Motley Fool message boards,… etc), but stock symbols are everywhere all the time, so I didn’t care at all. In 2019/01, I saw my college friend posted this link on Facebook: https://www.businessinsider.com/invitae-genetics-will-offer-…

It turns out he works at Invitae and has been there for 5 years. He is a very bright guy and has extensive experience working in the “biology mixed with computer science” field, so that caught my attention. I did some preliminary research on the company, and thought it was intriguing enough where I took a 2% position. The company was growing rapidly, reducing costs, increasing margin, reducing cash burn. However, in 2018 it burnt through close to $100mil of cash, so the uncertainty is high. After 2018 Q4, it’s a better bet than before.

Things I learned since my first purchase:

* Invitae’s products do not need FDA approval, since it’s telling customers their “risks” for different diseases, not a definitive one like “no”, you don’t have lung cancer. They are regulated by CLIA and CAP where approval process is much faster than the FDA’s.

* Invitae has multiple products, so customers may do multiple purchases in their lifetime. However, it doesn’t have repeat customers like Guardant Health where patients need to get retested every so often.

* Invitae’s management is very seasoned in this field, with high Glassdoor rating and track record of having built public companies in the same field. CMFSwift’s deep dive has very good information (https://boards.fool.com/deep-dive-invitae-34140364.aspx). My friend said he doesn’t pay much attention to the stock price; he’s happy working in the company whose product helps people in a direct and important way. Those 2 pieces of info tells me something about their culture. That built confidence for me.

* As of 2019.05.05 Cathie Woods’ [Ark Invest] Innovation ETF has NVTA as 2nd largest position at 6.84% (https://ark-funds.com/wp-content/fundsiteliterature/holdings…
Genomic Revolution ETF has NVTA as 2nd largest position at 9.65% (https://ark-funds.com/wp-content/fundsiteliterature/holdings…)

It is interesting that her funds do not have GH, EXAS in them.

I find Cathie Woods’ views on investing to be very interesting and unique. Her funds performance are quite decent and she’s making a name for herself. She does have TSLA has her top position in Innovations ETF however, but the jury is still out on that one. Personally I am rooting for Tesla and see great potential, but also great uncertainty for them.

I had NVTA at a 4.8% position in my portfolio, after writing this recap, I bumped it up to 5.5% and will see how the 5/7 earning’s release goes.

Below are some of the numbers they track in their earnings release shareholder letter. The trend is favorable, just not sure how long can 50% growth sustain. 5/7’s earnings should give us more clue.

That’s all I have for now. Hope this is an easy read and give you some ideas on what Invitae does and the genomics industry.

Revenue

Operating Expense

       Q1    Q2    Q3    Q4  Total
2016 23.3  23.2  23.9  26     96.4
2017 28.3  31.9  35.9  43.2  139.3
2018 46.1  46.9  47    50.1  190.1

Cash Burn

       Q1    Q2    Q3    Q4  Total
2016                          76.3
2017                          97.7
2018 35.1  26.5  18.4    17   97