San Francisco-based Invitae Corp. is putting pedal to the metal in its quest to bring comprehensive genetic testing into mainstream clinical practice, reporting the acquisition of three companies – Diploid, Youscript Inc. and Genelex Labs LLC – following Tuesday’s market close. The total bill for the three deals comes to $195 million, $57 million of which is in cash.

Invitae’s mission is to make genetic testing more affordable and widely available by aggregating all genetic tests onto a single platform. “The acquisitions we announced today represent buy-versus-build decisions to further accelerate the progression of our business model,” Sean George, Invitae’s co-founder and CEO, said on a conference call to discuss the transactions.

Taken together, they “will allow us to immediately add more genetic content to our platform, improve the customer experience, both by way of expanded sets of information and by reduced friction in the way that information can be delivered, and help in our continued efforts to reduce the cost of the provisioning and delivery of said information,” he said.

Diploid’s AI-powered Moon software

Invitae closed its $95 million purchase of Diploid on March 11. The Leuven, Belgium-based genomic startup has developed artificial intelligence (AI)-based software, called Moon, which is capable of diagnosing genetic disorders in minutes using next-generation sequencing data and patient information. The technology is powered by AI algorithms, a proprietary gene-disorder model and a continuously updated genetic evidence database. In an analysis of 150 previously solved exome cases, Moon ranked the causal mutation among its top three sequence variants 94% of the time.

Variant interpretation and scaled medical reporting continue to be hurdles in bringing genetic testing to mainstream medicine, and it is here that Moon is expected to be key, George said. A pilot using Diploids’ diagnosis engine in combination with Invitae’s infrastructure significantly increased the volume of reportable genetic information while reducing the time it takes to do so.

“This acquisition will have an immediate impact by way of COGS [cost of goods sold] reduction for our exome testing,” George said. “And looking forward, in a short time, this acquisition will enable us to offer whole genome analysis instead of needing to rely on large panels or exomes at roughly the same cost.”

Peter Schols, Diploid’s CEO, who founded the company to improve diagnosis of rare diseases after his father succumbed to a genetically linked disorder, echoed George’s enthusiasm in a statement late Tuesday. “With Invitae, we are joining like-minded scientists creating a world-class genetic interpretation framework at scale,” he said in a release. “By bringing these technologies together, we can help more patients benefit from in-depth genetic sequencing to move from searching for answers to finding a diagnosis and discussing treatment that can help.”

Youscript and Genelex

Invitae also reported agreements to acquire Youscript for $79 million in cash and stock and Genelex for $21 million in stock. Both companies are located in Seattle. Genelex is a pharmacogenetic testing company, while Youscript makes software for clinical decision support and analytics.

“The utilization of Youscript software in combination with the Genelex pharmacogenomic contact has already been shown to reduce adverse events, costs and hospital readmissions in peer-reviewed published studies,” George said. “Executed broadly across Invitae’s platform and cost infrastructure, we believe we can deliver this essential health information with a value proposition that works for patients, providers and payers alike.”

Invitae expects to close the Youscript and Genelex acquisitions within the next several weeks. Following that, it will combine Youscript’s and Genelex’s teams with its existing presence in Seattle, while also moving some Invitae sites to Leuven, Belgium and adding capabilities there.

Positive reaction on the Street

Cowen analyst Doug Schenkel said the three transactions are consistent with Invitae’s goal to reduce test turnaround time and lower costs, both for clinical applications and biopharma partners, and noted that they come as the genetic testing market in the U.S. is on track to hit $9 billion by 2021.

“Invitae has tests in oncology, neurology and pediatrics priced lower than competitors that do not sacrifice quality or turnaround time,” he wrote in a note, adding that recent the acquisitions of Good Start Genetics Inc., of Cambridge, Mass., and Combimatrix Corp., of Mukilteo, Wash., also added reproductive health testing to the platform.

“Future test price reductions, accessibility improvements and menu expansions should allow Invitae to continue to pick up share at the expense of specialty and reference laboratories offering single or multigene approaches, as well as drive broader marker adoption of genetic testing,” he said.

For the fourth quarter of 2019, Invitae reported revenue of $66.3 million, up from $45.4 million in the same period the prior year. Total revenue for the year increased 47% to $216.8 million, up from $147.7 million in 2018. Test volume in 2019 climbed 59% year over year to $482,000, with 148,000 samples occurring in the fourth quarter. On the other hand, the company reported an operating loss of $244 million in 2019, compared with $122.5 million the previous year.

Invitae expects the new acquisitions will add from $5 million to $20 million in cash burn in 2020, bringing total anticipated burn to $210 million to $220 million for the year, up from $153 million in 2019. George acknowledged the cost of being a high-growth company, but underscored Invitae’s long-term objective. “We are leading in one of the most exciting sectors of health care today with the potential to impact billions of people on the planet,” he said.

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