Chat GPT Reads Invitae Financials, Writes Text

 Chat visits Invitae.  I gave it a number of secular clues as background, in the prompt (e.g. biotech bubble). It does the writing, though.

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CHAT GTP DATA ANALYST MODE

To analyze the financial health and management planning of Invitae, I'll first need to review the basic financials provided in the uploaded spreadsheet. I'll look for key indicators such as revenue trends, expense management, cash flow, debt levels, and any other financial metrics that could provide insight into the company's operational and financial strategies leading up to its bankruptcy filing.

Let's start by examining the spreadsheet data to identify these key financial indicators and trends.

The spreadsheet contains financial data for Invitae from 2018 to 2022, including:

• Revenue
• Cost of Goods Sold (COGS)
• Gross Income
• Selling, General and Administrative Expenses (SGA)

Let's analyze this data to identify trends in revenue growth, cost management, and operational efficiency. We'll also calculate key financial ratios such as gross margin and the ratio of SGA expenses to revenue, which can provide insights into the company's financial health and management effectiveness over these years. ​​

The financial data from 2018 to 2022 reveals several important trends and metrics for Invitae:

Revenue Growth

• Revenue has grown steadily from $147.7M in 2018 to $516.3M in 2022, indicating a strong top-line growth trajectory.

Cost of Goods Sold (COGS)

• COGS has also increased in line with revenue, from $80.1M in 2018 to $417M in 2022.

Gross Margin

• Gross Margin has shown variability, with a notable decrease in 2022 to 19.23% from higher percentages in earlier years (45.76% in 2018 and 44.02% in 2019). This suggests a reduction in profitability per unit of revenue over time.

SGA Expenses

• Selling, General, and Administrative (SGA) expenses have increased significantly, particularly from $186M in 2018 to over $803.9M in 2022. The SGA as a percentage of revenue has also increased, peaking at 155.71% in 2022, indicating that these expenses have grown at a faster rate than revenue. This is a critical factor contributing to financial strain, as it suggests that the company's operational expenses are outpacing its revenue growth.

Other Financial Metrics

• EBIT (Earnings Before Interest and Taxes) and Pretax Income have been negative across the years, highlighting continuous operational losses.
• Interest Expense has increased, reflecting higher debt levels and associated costs.
• Unusual Expense in 2022 shows a significant outflow, which could be related to write-offs or one-time charges that further impacted financial health.
• Cash & Short Term Investments dropped significantly by 2022, indicating potential liquidity issues.
• Intangible Assets decreased, which could be related to the write-off mentioned, affecting the company's book value and possibly investor confidence.
• Long Term Debt increased dramatically from 2020 to 2021, aligning with the observation of increased debt for acquisitions. This would have increased the financial burden on the company, especially in a retracting biotech valuation environment.

Analysis Summary

Invitae's financial trajectory from 2018 to 2022 shows a company that was aggressively growing its revenue but at the cost of significantly higher operational expenses (SGA) and increasing debt levels. The sharp rise in SGA expenses relative to revenue and the significant increase in long-term debt, especially from 2020 to 2021, are key indicators of financial mismanagement or overly aggressive expansion without corresponding revenue efficiency improvements.

The company's declining gross margin and increasing debt service obligations, against the backdrop of a contracting biotech valuation landscape and reduced investor appetite for high-burn companies, likely precipitated its financial distress. The write-off of intangible assets and a significant unusual expense in 2022 further exacerbated the situation, leading to a weakened balance sheet and reduced financial flexibility.

In summary, the financials indicate that despite revenue growth, Invitae faced challenges with profitability, operational efficiency, and financial sustainability. The combination of high operational costs, increased debt levels, and adverse market conditions likely contributed to its eventual bankruptcy. ​

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PROMPT

Attached find basic financials for the life sciences firm INVITAE, a genetics laboratory based in San Francisco and serving patients nationally. Share price in 2019 was about $15, in 2021 about $50. This reflected no huge changes in financials (see 2019, 2020) but reflected a secular change in biotech and genomics valuations and also capital inflows to the field. Share price fell to $1 in late 2023 and the firm declared Chapter 11 bankruptcy in February 2024. Discuss signs of management planning and ill financial health in the available financials. 

 Consider as background several trends. (1) There was a huge boom of biotech valuations in 2020/2021, accompanied by firms raising new capital by equity or loans. (2) There was a retraction in 2022 and accelerating retraction in 2023. This was caused by inflation, causing investors to demand higher returns or avoid investing. (3) This 2022/2023 trend in investing (less venture capital, less offerings for growth capital, less private equity inflows) was especially harsh on companies with long term high burn rates (annual losses). (4) Although we don't have data on it, we notice that Invitae had a write off of intangibles from 2021 to 2022 (a loss in intangible assets on the books and a corresponding loss in GAAP income). (5) Although we don't have data on it, we notice that Invitae incrased long term date by almost $1.3B from 2020 to 2021. A good part of this debt generated cash used for acuisitions which themselves may have had their own burn rates. ## Please discuss based on these fact patterns and especially your study of the spread sheet.