Shares of genetic testing leader Invitae (NYSE: NVTA) sank as much as 19.6% this morning after the company announced the pricing of a major stock offering. It may seem like Groundhog Day for investors: Yesterday's news merely announcing the public offering of stock sent shares down 17%.
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The company will offer up to 12.8 million shares of common stock that could fetch up to $57.5 million in gross proceeds. Today, Invitae announced that each share will be offered at $4.50, which is easily an all-time low stock price for the young company.
As of 10:49 a.m. EDT, the stock had settled to a 16.6% loss.
Invitae has been pouring money into expanding the reach of its genetic testing platform aimed at clinicians for detecting a range of hereditary diseases in their patients and biopharma companies developing cancer treatments. But the business model is different from companies that came before. Whereas pioneers such as Myriad Genetics originally relied on low volumes of proprietary (read: expensive) testing products, newcomers like Invitae are focusing on making genetic data more accessible. That means selling high volumes of genetic tests at more affordable prices.
As investors have learned, rather painfully, the business model will require very high volumes of tests to enable profitable operations. A large part of that is owed to the fact that Invitae employs a small army of genetic counselors that help interpret the meaning of genetic data, which becomes more expensive as test volumes grow. A flurry of acquisitions has also required healthy amounts of capital.
Invitae ended 2017 with about $65 million in cash and marketable securities. It recently expanded a credit facility, which could now provide an additional $40 million in growth capital. The public offering wreaking havoc on the share price this week will add about $57.5 million in gross proceeds. All of these combined works out to over $162 million in available cash, which will be slightly less once accounting for fees relating to the share offering.
While that should be enough to fund operations this year, it could be spent quickly, especially if Invitae makes another acquisition or two (the company used $98 million in cash last year). Long story short, the company offers an incredible long-term growth opportunity, but dilution is quickly eroding the benefits. It may be best to sit on the sidelines until the business proves capable of shrinking its operating losses. This is unlikely to be Invitae's last financing round.
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