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About the Author IPOdesktop

During the IPO season Francis Gaskins, editor of IPOdesktop.com & director of research for Equities.com, regularly appears on CNBC TV, Bloomberg, thestreet.com & other financial cable channels. On the day of the Visa IPO he appeared on four cable TV financial shows including Bloomberg & CNBC. Over the past five years he has been quoted over 500 times by such financial media as the Wall Street Journal, Bloomberg, Reuters, Associated Press, USA Today among others. Those quotes are available at IPOdesktop.com. His varied personal interests include violin playing. For example, he is concertmaster of the Palisades Symphony. He also holds an MBA from Harvard Business School (finance) and an AB from Princeton University (economics).

IPO Preview: Invitae


Based in San Francisco, CA, Invitae (Pending:NVTA) scheduled a $75 million IPO on NYSE with a market capitalization of $417 million at a price range midpoint of $14 for Thursday, Feb. 12, 2015. Priced at $16, no change in conclusion.

The full IPO calendar is available at IPOpremium

SEC Documents

Manager, Joint-managers: J.P. Morgan
Co-managers: Cowen and Company, Leerink Partners

End of lockup (180 days): Tuesday, August 11, 2015
End of 25-day quiet period: Monday, March 9, 2015

Summary
NVTA’s mission is to bring comprehensive genetic information into mainstream medical practice to improve the quality of healthcare for billions of people.

NVTA’s goal is to aggregate most of the world’s genetic tests into a single service with higher quality, faster turnaround time and lower price than many single gene tests today.

Valuation
Glossary

Accumulated deficit ($mm)

..-$70
Per share dilution..-$7.29
——————————————–
Valuation RatiosMrkt Cap ($mm)Price /SlsPrice /ErngsPrice /BkVluePrice /TanBV% offered in IPO
annualizing Sept 9 mos
Invitae$420450-9.82.12.118%

Conclusion

  • Neutral plus
  • Rev +12x to only $0.7mm
  • Loss doubled to -$32mm
  • Price-to-book 2.1
  • P/E ratio -9.8, indicating fairly heavy cash burn relative to market cap

To put the conclusions and observations in context, the following is reorganized, edited and summarized from the full S-1 referenced above.

Business
NVTA’s mission is to bring comprehensive genetic information into mainstream medical practice to improve the quality of healthcare for billions of people.

NVTA’s goal is to aggregate most of the world’s genetic tests into a single service with higher quality, faster turnaround time and lower price than many single gene tests today.

Market
NVTA estimates that the U.S. market for hereditary cancer tests is greater than $650 million per year and thus represents a key growth opportunity.

According to Online Mendelian Inheritence in Man, or OMIM, a compendium of human genes maintained by Johns Hopkins University School of Medicine, there are more than 4,000 inherited genetic conditions for which the scientific and medical community has already identified specific genes and variants useful for diagnosis or treatment planning.

By aggregating large numbers of currently available genetic tests into a single service, NVTA can achieve great economies of scale that allow the company to not only provide primary single gene or multi-gene tests but also to generate and store additional genetic information on behalf of the patient for future use.

As the price of DNA sequencing has declined, the amount of genetic information that can be generated per dollar has increased exponentially, enabling the generation, analysis and storage of more comprehensive genetic information than ever before.

Commercial offering
NVTA launched its first commercial offering in late November 2013, an assay of 216 genes comprising 85 different genetic disorders and 17 targeted panels, and began selling and marketing panels with a focused effort on hereditary cancers, including breast, colon and pancreatic cancer.

NVTA charges $1,500 per sample in most cases, which allows clients to receive test results on any or all genes in a specific indication or multi-gene panel.

NVTA also currently offers a free re-requisition of additional data within the same indication when ordered within 90 days of the date of service.

In addition, clients may obtain test results on genes that are in other indications or panels, or genes within the same indication or panel more than 90 days after the date of initial service, for an additional fee.

Importantly, NVTA provides turnaround time of less than three weeks for the substantial majority of tests. Since the initial launch, NVTA has marketed additional panels based on the same assay of 216 genes.

Genome management
NVTA refers to the service of managing genetic information over the course of disease or the lifetime of a patient as “genome management.”

In addition, as more individuals gain access to their genetic information, NVTA believes that sharing genetic information will provide an economic opportunity for patients and NVTA to participate in advancing the understanding and treatment of disease.

NVTA believes that its ongoing investment in building its infrastructure and attracting talent across a range of disciplines to generate, interpret and manage genetic information will position NVTA to be a leader in the field of genetic testing and genome management.

Intellectual property
NVTA does not currently have any patents or patent applications directed to the sequences of specific genes or variants of such genes, nor have NVTA in-licensed such patents rights of any third party.

NVTA believes that correlations between specific gene variants and a person’s susceptibility to certain conditions or diseases are natural laws that are not patentable under the U.S. Supreme Court’s decision in Mayo.

The Mayo case involved patent claims directed to optimizing, on a patient-specific basis, the dosage of a certain drug by measuring its metabolites in a patient.

Competition
Principal competitors include companies such as Myriad Genetics, Ambry Genetics, GeneDx, a subsidiary of Bio-Reference Laboratories, Laboratory Corporation of America and Quest Diagnostics, as well as other commercial and academic labs.

In addition to the companies that currently offer traditional genetic testing services and research centers, other established and emerging healthcare, information technology and service companies may commercialize competitive products including informatics, analysis, integrated genetic tools and services for health and wellness.

5% shareholders pre-IPO

  • Randal W. Scott, Ph.D. 14.0%
  • Eric Aguiar, M.D. 15.2%
  • Baker Brothers Life Sciences, L.P. and affiliates 20.6%
  • BlackRock, Inc. 17.0%
  • Thomas, McNerney & Partners II, L.P. and affiliates 15.2%
  • Genomic Health, Inc. 9.0%

Dividends
No dividends are planned.

Use of proceeds
NVTA expects to receive $67 million from its IPO and use it for the following:

  • between approximately $24.0 million and $28.0 million for research and development, including assay development, software development for its analysis pipeline and its clinical report optimization platform, or CROP;
  • between $23.0 million and $27.0 million for selling and marketing activities, including development and operation of its web site for taking and delivering customer orders, hiring sales, customer service and marketing personnel, and marketing programs, including attendance at conferences;
  • between $4.0 million and $6.0 million for capital expenditures, including investment in additional laboratory capacity, sample preparation and sequencing equipment and computer systems for generating, analyzing and storing genetic information; and
  • the remainder for corporate and administrative expenses (including personnel-related costs and costs associated with operating as a public company), and for working capital and other general corporate purposes.