Big Profits on the Way?
Today’s chart highlights a company in one of the fastest-growing biotech industries, genetic testing.
Also known as DNA testing, genetic testing helps make genetic diagnoses of a person’s vulnerabilities to inherited diseases. There are more than 1,000 genetic tests currently in use and more are being developed.
The market for genetic testing has grown tremendously in recent years, and the momentum will likely continue.
According to Energias Market Research, the global genetic testing market is projected to reach $19.1 billion in 2024, which would translate to a compound annual growth rate (CAGR) of 12.2%. (Source: “Global Genetic Testing Market to Witness a CAGR of 12.2% during 2018-2024,” Global Newswire, October 8, 2018.)
One company that’s well positioned to capitalize on this trend is InVitae Corp (NYSE:NVTA). Headquartered in San Francisco, the company provides a variety of diagnostic tests that have a wide range of clinical utility, including pediatric and development disorders, neurological disorders, miscarriage analysis, and hereditary cancer.
Compared to the established large-cap biotech stocks in today’s market, InVitae Corp is a relatively new name. The company was founded in 2010 and completed its initial public offering (IPO) in 2015.
What makes this new biotech stock stand out is the growth in its business.
In 2018, InVitae conducted 303,000 tests, which represented a 102% increase from the 149,700 tests it did in 2017. (Source: “Invitae More Than Doubles Annual Volume and Revenue Year-Over-Year, Delivering 117% in Revenue Growth Driven by 102% Growth in Volume in 2018,” InVitae Corp, February 19, 2019.)
As you would expect, this kind of volume growth gave a huge boost to the company’s top line. InVitae generated $147.7 million in revenue in 2018, up 117% from the prior year.
InVitae Corp Revenue (Millions)
Meanwhile, the company managed to lower its costs. In the fourth quarter of 2018, InVitae Corp’s cost of goods sold came in at just $243.00 per sample, marking a 24% drop from the year-ago period.
When you combine a growing top line with lowering costs of goods sold, the result will be an increase in gross profit. Indeed, in 2018, InVitae’s gross profit surged 274% year-over-year to $67.6 million, the highest it has ever been.
And that could just be a start. According to InVitae’s latest investor presentation, the company plans to grow its volume to more than 500,000 samples in 2019. Revenue, on the other hand, is projected to top $220.0 million for the year. (Source: “All of your health, informed by genetics,” InVitae Corp, last accessed March 20, 2019.)
“We are truly just scratching the surface in terms of our long-term growth potential,” said InVitae Corp Chief Executive Officer Sean George. “We fully intend to reach 1 million people in 2020 alone, and one day, billions of people on the planet.” (Source: “Invitae (NVTA) CEO Sean George on Q4 2018 Results – Earnings Call Transcript,” Seeking Alpha, February 19, 2019.)
InVitae Corp Stock Chart
Chart courtesy of StockCharts.com
Thanks to solid growth rates and a cheerful guidance, InVitae stock has been on the rise. Year to date, NVTA stock has surged by more than 120%.
I should point out that, while InVitae Corp managed to generate solid gross profits, it has yet to turn its bottom line positive. For 2018, the company reported a net loss of $1.94 per share.
Still, the losses have narrowed in recent quarters. If InVitae can deliver on the growth targets that management set out, the rally in NVTA stock could be here to stay.