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Invitae Writes off $262.5M Liability Upon Failure to Meet Regulatory Milestone

NEW YORK – Invitae reported in a 10-Q filing with the US Securities and Exchange Commission on Monday that its subsidiary ArcherDx will not achieve a final, acquisition-related regulatory milestone, which means Invitae must write off a $262.5 million liability for the company. 

Invitae completed its acquisition of ArcherDx in October 2020 in a deal valued at $1.4 billion. To acquire the cancer testing company, Invitae paid $325 million in cash and 30 million of its shares upfront. The terms of the deal also required Invitae to make additional payments if ArcherDx met certain milestones.

In the filing, Invitae said that out of five milestones associated with the acquisition, ArcherDx achieved one last November, triggering the issuance of 5 million shares of common stock and a cash payment of $1.9 million. Additionally, three milestones were deemed fulfilled as of June 30, resulting in the issuance of 13.8 million shares of common stock and a cash payment of $3.3 million in July.

ArcherDx, however, is not expected to achieve the last milestone, to garner US Food and Drug Administration approval or clearance of Stratafide, a pan-cancer test that can gauge therapeutically actionable biomarkers in cancer patients' tissue or blood samples, by March 31, 2022.

"With respect to the ArcherDx final milestone, the liability has been reduced to zero as of June 30, 2021, from $262.5 million as of March 31, 2021, and $287.7 million as of December 31, 2020," Invitae said in its filing, adding that based on feedback received from the FDA, the company doesn't believe this milestone will be met by March 31, 2022.

In reporting its Q2 financials last week, Invitae executives had discussed the possibility of this adjustment. In a note to investors this week, JP Morgan analyst Tycho Peterson said that Invitae's executives "remain confident" that Stratafide will receive FDA approval but that it will likely take a few months beyond March 31 next year.

"Management was tight-lipped about the specific comments from FDA and if they need to collect additional data. However, management said the [agency's] comments gave a clearer path and actually increased the team’s confidence in receiving FDA approval for Stratafide," Peterson wrote, adding that the $262.5 million liability write-off doesn't impact his current expectations of the company's financial performance. 

Additionally, citing a Bloomberg News report that Exact Sciences recently approached Invitae with a merger offer, Peterson noted that Invitae's management did not comment on this beyond stating that the companies are not having discussions on this topic.

In afternoon trading on the Nasdaq, Invitae's stock was down around 6 percent at $27.08.