Medical genetics firm Invitae (NYSE:NVTA) suffered a shocking fall from grace as insider reports point to an upcoming bankruptcy filing. Although the company forwarded a compelling concept — leveraging genetic testing and diagnostics to assess hereditary disease risks — the business model didn’t resonate with customers or investors. As a result, NVTA stock suffered a 75% drop in market value.
According to The Wall Street Journal, Invitae’s bankruptcy filing could come within weeks, according to people familiar with the matter. Further, the sources revealed that the genetics specialist is working with FTI Consulting (NYSE:FCN) — a business consultancy enterprise specializing in restructuring services — and law firm Kirkland & Ellis to explore strategic options. These potential pathways include bankruptcy to address $1.5 billion in debt on its balance sheet.
Interestingly, the San Francisco-based Invitae had been on an acquisition spree in recent years. However, it just started to shed some assets and cut costs. In particular, the WSJ noted the parallels between the collapse of NVTA stock and the more popular industry peer 23andMe (NASDAQ:ME). Like Invitae, 23andMe is a genetic testing company that focuses on both ancestry discovery and hereditary health profiling.
Similar to NVTA stock, ME shares benefited from a pandemic-period investment boom. However, after the honeymoon phase ended, both companies ended up becoming literal penny stocks.
An Intriguing Idea Couldn’t Move the Needle for NVTA Stock
On the surface, the concept undergirding NVTA stock should have been a clear winner. Through genetic testing, individuals can understand their risk factors for various diseases. Subsequently, they can modify their lifestyle or dietary habits to address potential concerns. However, in practice, the concept of using genetic testing in this manner has run into challenges and even controversies.
As another WSJ article pointed out regarding 23andMe’s troubles, the central business challenge for testing products is that customers only need to take the test once. Therefore, it’s tough for such enterprises to grow their top line, a problem that became noticeable for Invitae in 2022. Back then, revenue came in at $516.3 million, representing a relatively modest 12.1% year-over-year lift.
Second, few of 23andMe’s test-takers received life-altering health results. Moreover, the potential for such results to be used against customers may have contributed to the sector’s decline.
While the Genetic Information Nondiscrimination Act (GINA) of 2008 prohibits health insurance companies from using genetic information to make coverage or rate decisions, such protections do not extend to life insurance, disability insurance or long-term care insurance. In 2018, the Journal of Law, Medicine & Ethics published a paper calling for the end of the use of genetic test results in life insurance underwriting.
Why It Matters
Conspicuously, NVTA stock represents one of the rare consensus analyst ratings of moderate sell. However, that hasn’t stopped some market participants from speculating on the embattled company. Earlier in the day, Fintel’s options flow screener shows 549 contracts sold of the NVTA Jan 17 ’25 2.00 Call. By logical necessity, traders on the opposite side of the transaction are buying these calls.
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Read More: Penny Stocks — How to Profit Without Getting Scammed
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
