Invitae Corp. (NYSE:NVTA) saw its stock flying high June 22 on the news of its agreement to buy Archerdx Inc., with an eye toward enhancing cancer genetics and precision oncology. Investors appear to approve of the deal, with the company’s stock closing at $27.05, up $8.34 or 44.58%.
"From the beginning, Invitae's goal has been to aggregate the world's genetic tests into a single platform in service of our mission to bring comprehensive genetic information into mainstream medicine. Today, we take another major step forward in that effort," said Sean George, co-founder and CEO of Invitae.
Under the agreement, Invitae, of San Francisco, will pick up Boulder, Colo.-based Archerdx, a private company which focuses on providing molecular products to laboratories seeking genomic answers for cancer, for up-front consideration consisting of 30 million shares of its common stock and $325 million in cash. An additional 27 million shares of Invitae common stock could be payable in connection with the achievement of certain milestones, for an overall transaction valued at about $1.4 billion.
The boards of both companies have approved the transaction, which is expected to close in several months.
For its part, Invitae has arranged a strategic financing with more than $400 million in commitments from life sciences investors, led by Perceptive Advisors. Specifically, it has entered a definitive agreement to sell $275 million in common stock in a private placement at a price of $16.85 per share. Backing the private placement are existing investors in Invitae and Archer, including Casdin Capital, Deerfield Management, Driehaus Capital Management, Farallon, PBM Capital, Perceptive Advisors, Redmile Group, Rock Springs Capital, Soleus Capital, and one additional institutional investor. Management expects the placement to close concurrently with the proposed combination. Invitae also has entered a fully committed credit facility for up to $200 million with Perceptive Credit Opportunities Funds.
The announcement comes just weeks after Archerdx filed a document with the U.S. Securities and Exchange Commission detailing its plans to go public. The company aimed to raise $100 million, with net proceeds going toward R&D activities, including the development of Stratafide and personalized cancer monitoring (PCM); the regulatory submission and commercialization of Stratafide, as well as additional follow-on companion diagnostic claims; commercialization activities relating to that IVD; and working capital and general corporate purposes.
Jason Myers, Archerdx’s president and CEO, said during a call on the deal that Stratafide Dx, its universal companion diagnostic, is expected to be available within 18 months across several geographies, boosting the company’s market opportunity to $5 billion. “An additional $40 billion market opportunity lies in addressing early-stage disease, where a much larger number of patients are treated, and we're monitoring for recurrences performed several times per year,” he added.
He then touched on PCM, which expands precision oncology into early-stage cancer. It is available to pharma partners developing therapeutics and powering clinical trials ahead of being a regulated product. “We are in the early innings of addressing these substantial patient populations and are excited to partner with Invitae to accelerate and expand options for patients and physicians,” he emphasized.
Indeed, Archerdx has been on a roll in terms of linking up with pharma companies, including New York-based Bristol-Myers Squibb. Last week, the company said the two would utilize PCM assays to understand the potential benefits of minimal residual disease detection in cancer patients treated with immunotherapy. In late May, the company reported a collaboration with Astrazeneca plc to develop assays to support multiple planned phase III clinical trials for the latter’s targeted immuno-oncology therapeutics.
Along those lines, Doug Schenkel, an analyst with Cowen, asked whether the duo had heard any early feedback from biopharma or clinical customers related to the tie-up, particularly around bundling of products.
George noted that it was too early, but there are hopeful signs. "[M]any of our biopharma partners have been expressing interest in having alternatives for both solid tumor therapy selection, liquid biopsy monitoring. It is very clear to us, and it has been for years that the ability to deal with one provider, one best-in-class provider with broad capabilities across the entire spectrum is attractive.”
Tycho Peterson, an analyst with J.P. Morgan, subsequently asked about the timing of the deal, given Archerdx is pre-FDA and does not have reimbursement in place at this time. He also highlighted litigation overhang and three recent acquisitions. The question related to the March announcement that Invitae was acquiring Youscript, a privately held clinical decision support and analytics platform, and Genelex, a privately held pharmacogenetic testing company.
Invitae said at the time that it was buying Youscript for about $79.3 million, subject to certain adjustments, consisting of $25 million in cash and the remaining in Invitae common stock. Meanwhile, Invitae would acquire Genelex for approximately $20.7 million in upfront shares of common stock plus additional shares of common stock if certain milestones are achieved.
It also reported at the same time that it was buying Diploid, a privately held Belgian company that developed Moon, artificial intelligence software capable of diagnosing genetic disorders in minutes based on next-generation sequencing data and patient information. The deal was worth $95 million.
"I think the problem with M&A in general is you don't get to pick your own timing,” George replied, adding that the two have been in discussions for about 1.5 to two years. "[W]e knew this was going to be a relatively big move, obviously, we spent a lot of time doing it. … The team at Archer was just making so much progress. They had the capability to advance to IPO, and we had to ask ourselves what was the best thing to do for the company [and] for patients. And we came up with a solution that the best thing to do was to team up earlier rather than later.”
CFO Shelly Guyer noted that the deal probably will not close sometime until the fourth quarter, giving it time between prior buys and this one.
Intriguingly, this is not the first time Archerdx has been acquired. In September 2013, Enzymatics, of Beverly, Mass., reported picking up the company. In what now looks like a steal, the deal consisted of cash, equity and potential milestones worth up to $50 million. At the same time, Myers joined Enzymatics as chief scientific officer. The union did not last long, as Qiagen NV acquired the Enzyme Solutions Unit of Enzymatics in early 2015. As a result of reorganization, Archerdx became an independent company that integrated Enzymatics' former Archer Next-Generation Sequencing and Supply Chain Solutions units. It also entered a strategic partnership with Qiagen to distribute the company's products. Financial terms were not disclosed.
Prior M&A talk
During its May 5 first-quarter earnings call, Invitae management was asked about potential M&A. “[I]t's a really intriguing question,” George responded, noting that there was uncertainty as a result of the pandemic.
“I think acquisitions that add to our platform, albeit generate cash flows in the distant future, are probably things that we'll put off or delay. Acquisitions which purely buy us market share, I think, are still things that we are careful about.”
Still, he did not rule out possible targets. “I think the idea that there are acquisitions or … opportunities … particularly in the next probably a year, 1.5 years, that could … in a very short period of time lead to both greater operating leverage, a better top line and improved gross profit generation … those are absolutely things that we'd be interested in.”
Rosy picture post Q1
Invitae executives presented at this month’s 40th Annual William Blair Growth Stock Conference, with analyst Brian Weinstein noting that they presented a rosier picture vs. during the company’s first-quarter earnings call.
“For Invitae specifically, recall the team noted the COVID-19 impact had initially caused volumes to decline 50% versus trend in the last two weeks of March,” he wrote. “Since then, however, throughout April, May, and continuing into June there has been continued week-over-week growth in volumes from the low point.”
Propelling the company are reproductive health offerings and a return to growth across the portfolio. Looking ahead, Weinstein said he saw hopeful signs, particularly as the penetration of genetic testing is young.
“However, given some of the uncertainty about how quickly this demand can be generated and what the outlook will be for genetic testing across so many different populations the team touches, we maintain our Market Perform rating for now.”