Invitae announced on Monday after the close of the market that it is restructuring its operations, eliminating non-core operations and geographies, and focusing on business lines that deliver sustainable margins and returns needed to fuel further investment.
The firm also announced preliminary revenue of approximately $136 million for the second quarter, falling short of analyst expectations, and reduced its annual revenue guidance.
"We now expect revenue to increase in the low double digits compared to our 2021 full-year revenue of $460 million dollars," Invitae CFO Roxi Wen said on a conference call, adding that the company is also expecting flat growth in the second half of 2022 as compared to the first half of the year.
As part of the restructuring, Invitae plans to focus its resources on higher-margin and higher-growth businesses in its portfolio, including oncology, women's health, rare disease, and pharmacogenomics. It will also continue to integrate key digital health technologies and services.
Executives said during the conference call that discontinued business lines will amount to between 15 and 18 percent of the overall business and will include distributed kits and IVF. The lab-developed test versions of Stratafide, a tumor-agnostic test designed to guide therapy for cancer patients, and Personalized Cancer Monitoring, a pan-cancer, tumor-informed liquid biopsy sequencing test, will survive the restructuring.
In a filing with the US Securities and Exchange Commission, Invitae disclosed that the restructuring will result in the layoffs of more than 1,000 employees. The company also intends to consolidate lab and office space and reduce its global footprint to under a dozen international geographies where its testing business shows the potential for short-term positive cash flow. It added that it intends to conduct an "orderly exit" from undisclosed territories and countries where its business is more nascent and will support those geographies through the transition so that providers and patients can find alternative testing.
Invitae also said it anticipates additional savings from workflow digitization, elimination of duplication, and streamlined core platform processes.
The company expects these changes to generate approximately $326 million in annual cost savings by the end of 2023, enabling Invitae to extend its cash runway to the end of 2024.
The firm also announced that it has made several changes to its executive leadership and board, including making Kenneth Knight, formerly chief operating officer, the new CEO and a member of the board of directors.
Knight succeeds Sean George, who will now serve as a consultant to the company throughout a transition period and will retain his position as a member of the board.
Other leadership changes include bringing Cofounder and former CEO Randy Scott back to the company as chairman of the board and making Eric Aguiar, former independent chairman and member of the board, lead independent director.
Invitae's preliminary Q2 revenues of $136 million would be a 17 percent increase over $116.3 million in the year-ago period but shy of analysts' consensus estimate of $142.7 million. In addition to its preliminary second quarter revenue estimate, the firm announced cash, cash equivalents, restricted cash, and marketable securities of approximately $737 million as of June 30 of this year. It estimates second quarter cash burn of approximately $150 million.
Invitae updated its 2022 revenue guidance to reflect first-half results and the anticipated impacts of the restructuring. For the second half of the year it expects flat revenues compared to the first half, representing a double-digit growth rate for full-year 2022 compared to 2021. The company had previously guided for 2022 revenues of $640 million, which would have been a 40 percent year-over-year increase.
In an analyst note on Tuesday, Puneet Souda of investment bank SVB Securities downgraded shares of Invitae to Market Perform with a price target of $2 "given the significant uncertainties ahead from the realignment of its business and workforce reductions."
Souda said that that the cost-cutting initiatives could carry further risks in terms of Invitae's core growth thesis, added market share loss, and further workforce departures.
Meanwhile, JP Morgan remained Neutral on shares of Invitae as analyst Julia Qin wrote in a note that the investment bank is "encouraged to see the company demonstrate an elevated focus on the path to profitability and take some long-overdue measures to refocus the portfolio, which is not only necessary given the current capital market environment, but also crucial for the company's [long-term] success." However, she also noted that "uncertainties remain around execution over the next 12-18 months, and we would like to see more evidence on the effectiveness of the restructuring program as well as the healthiness of the retained businesses."
Investment bank William Blair also reiterated its Market Perform rating on shares of Invitae, as analyst Brian Weinstein noted that "even with these announced changes, the core of the business remains largely intact. … Specifically, the Invitae story still seems to be around positioning the company to be a leader in data-driven genome management with a focus on the same oncology, women's health, rare diseases, pharmacogenomics, and data services businesses."
Weinstein added that "while we knew a significant cash-burn-reducing move like this was needed at some point given the unsustainable outlook and low likelihood that the company would be able to grow its way out of it, we are not at a place where we believe risk is now off the table."
In early Tuesday trading on the New York Stock Exchange, shares of Invitae were down over 10 percent at $2.39.