InVitae Corp (NYSE: NVTA) shares have had a somewhat volatile week of trading after short seller allegations against the company prompted a bullish analyst to defend InVitae’s model.
On Oct. 11, a short seller article published on Seeking Alpha accused InVitae of being the next Theranos. The short seller implied InVitae’s strong revenue growth may have been obtained via fraudulent measures and InVitae is burning through cash at an irresponsible level. The short seller also said InVitae’s stock is overpriced based on peer valuations.
On Oct. 13, Capital Markets Laboratories CEO Ophir Gottlieb published a rebuttal to the Seeking Alpha story. Gottlieb addressed the short seller’s points one by one and concluded he's still extremely bullish on the stock.
Gottlieb said satisfied repeat customers such as UnitedHealth Group Inc (NYSE: UNH) and recurring business from hospitals and clinicians is evidence enough that InVitae is not Theranos.
Gottlieb also said changes to Medicare reimbursement, which currently makes up about 22% of InVitae’s revenue, may not result in the type of binary outcome that the short seller predicted.
“We also don't know how much of that 22% is from patients that would be unaffected by a change (if there is one), and how many would, in fact, be impacted,” he wrote.
Gottlieb also said the short seller’s assertion that InVitae’s market valuation is too high relative to Myriad Genetics, Inc. (NASDAQ: MYGN) is also misleading.
“I would rather own NVTA priced at only 3 times higher price to sales than MYGN with its 50% growth than MYGN and its 5.5% growth, with the recent history of revenue shrinkage,” he wrote.
The short seller also said InVitae’s revenue growth is simply creating heavier losses for the company if it's unable to capture operating margins.
Gottlieb said that to conclude that because cost of goods sold has stopped decreasing means that somehow InVitae can not grow profitably is misleading.
“The point is that it doesn't matter what the cost of a test is -- it matters that Invitae, network wide, is taking its 50% gross profit,” Gottlieb said.
A Wall Street analyst opinion carries a lot of weight when it comes to allegations of fraud, especially in the biotech space where retail investors typically don’t have technical expertise. However, the ultimate responsibility for any investment decision lies with the investor, so researching and understanding both sides of these types of debates and drawing your own conclusion based on the evidence is extremely important.
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|Mar 2019||Initiates Coverage On||Buy|
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