NEW YORK – Investment bank Cowen on Tuesday downgraded Invitae from an Outperform to a Market Perform rating following Invitae's recent restructuring and leadership change.
"While we expect the $135 million loan and $350 million convert can be refinanced," Cowen analyst Dan Brennan wrote in a note to investors, "the timing, uncertainty around the mechanism, costs/dilution, and default potential are likely to cap the stock, limiting follow-through from the new plan presented by the new CEO and existing CFO."
Invitae recently appointed Kenneth Knight, its former chief operating officer, as CEO and a member of the board, succeeding former CEO Sean George, who will now serve as a consultant while remaining a board member.
According to Cowen, Invitae’s restructuring plan is an encouraging first step towards creating a positive cash flow but reducing cash burn could mean cuts in investments and costs, and reduced growth rates, while the question remains of how exactly Invitae's new management will handle upcoming debt maturities.
"A restructuring was expected and was a step in the right direction but the magnitude of the burn improvement (plus revenue reduction) did not create a material change," Brennan wrote.
Cowen's updated model forecasts a $618 million cash burn this year, coming down to approximately $87 million in 2025.
Invitae has two 2024 maturities whose successful refinancing Cowen sees as a critical assumption in its model. These maturities consist of a $135 million loan due in June and a $350 million convertible bond due in September. The path to successfully refinancing both of these, Cowen says, "remains challenging."
In morning trading on the Nasdaq, Invitae's shares were down approximately 5.15 percent, to $2.03.