InVitae Corp (NYSE: NVTA) expects to turn
the gross margin positive in the fourth quarter, driven by the addition of leading payers and higher reimbursements.
InVitae is a diagnostics company focused around genetic testing in a sizable
and growing multibillion dollar market. Cancer testing still constitutes 75–80 percent of volume for InVitae, and thus
reimbursement remains a key. Medicare accounts for only 8–10 percent of the company’s volume.
Since early 2016, InVitae has successfully established contracts with commercial payers including Aetna Inc
(NYSE: AET), Blue Cross Blue Shield and UnitedHealth
Group Inc (NYSE: UNH) to bring the number of covered
lives to 160 million.
“So with payers coming on and reimbursements starting to accept in our favor we expect in Q4 to turn gross margin to be the
first time that revenue from sales will exceed cost of goods of sales in a quarter. We expect that trend to continue probably in
2017 and in 2018,” chief financial officer Lee Bendekgey told Benzinga in an interview.
The company is also focused on cutting costs and increasing the amount of content.
“[O]ur plan now is to really hold R&D and G&A relatively flat to stand on the commercial side and really focus on
providing volume and revenue over the next year or two,” Bendekgey said.
A Look Ahead
Despite acknowledging that growth rates should slow from the current 200 percent a year, InVitae anticipates expanding its
hereditary cancer market share to somewhere between 20 percent and 30 percent over the next 12 to 18 months. Currently, the company
has roughly 10 to 15 percent market share.
The San Francisco, California-based company believes some of its newer products in areas such as cardiology, neurology,
pediatrics, genetics and rare disease, should propel growth across the board for the next several years.
On the balance sheet front, InVitae recently raised more than $40
million to drive volume and boost revenue with the goal of getting to the cash flow by the end of 2018.
Further, the executive believes there is scope for consolidation in the industry, which in his view “simply isn’t going to be
able to sustain a really large number of niche labs as the costs come down and margins get squeezed which is traditional in an
industry like this.”
“We think there will be a group of very high quality low cost producers that come out on top,” Bendekgey added. At last check,
shares of InVitae fell 2.96
percent to $7.20.
© 2016 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.