01—Abstract
Summary
Summary of the 10-K filed March 16, 2017. Cited figures are marked; the original filing is the authoritative source.
Natera, Inc. (NTRA) reported its 2016 results in this Form 10-K filed March 16, 2017.
Revenues grew to $217.1 milliona in 2016 from $190.4 million in 2015 and $159.3 million in 2014, while net loss widened to $95.8 million from $70.3 million in 2015 and $5.2 million in 2014. Panorama, its non-invasive prenatal test (NIPT), accounted for approximately 66% of 2016 revenues, and over 331,000 Panorama tests were accessioned during the year. The company's accumulated deficit reached $345.9 million at December 31, 2016.
Management states that cash and marketable securities of $15.3 millionb and $130.9 million, respectively, at year-end are sufficient for at least 12 months after March 16, 2017, though the company notes it may raise additional equity. Debt outstanding, primarily a $50.0 million UBS credit line, was $49.6 million including accrued interest.
The company highlights reimbursement as a central risk: it says most third-party payers currently have negative coverage determinations for average-risk pregnancies, and it expects Medicare-benchmarked microdeletion reimbursement to decline under a new CPT code effective January 1, 2017. The filing also describes planned launches of the Evercord cord blood banking service and a new NIPT panel in 2017, and discloses several pending matters, including securities class action suits tied to the July 2015 IPO, a patient lawsuit, a Department of Justice civil investigative demand relating to a qui tam action, and a third-party payer recoupment demand made in March 2017.
02—Key points
Key Highlights
- Revenue rose to $217.1 million in 2016, up from $190.4 million in 2015, while net loss increased to $95.8 million from $70.3 million.
- Panorama NIPT generated about 66% of 2016 revenues ($143.1 million), with over 331,000 Panorama tests accessioned in the year.
- U.S. direct sales channel share of revenues increased to approximately 78% in 2016 from 77% in 2015 and 59% in 2014.
- Year-end cash, cash equivalents and short-term investments were $146.1 million combined, against $49.6 million of debt including accrued interest under the UBS credit line.
- Management believes existing cash and marketable securities are sufficient for at least 12 months after March 16, 2017, but may sell additional equity.
- Microdeletion testing reimbursement is expected to decline near term under a new CPT code effective January 1, 2017, and most payers have negative coverage for average-risk pregnancies.
- Pending litigation includes securities class actions relating to the July 2015 IPO, a patient lawsuit, and a DOJ civil investigative demand tied to a qui tam action.
03—One dollar
Follow one dollar
For each $1.00 of revenue in FY2016, Natera lost $0.47.
- Revenue$214.0M100.0%
- Cost of revenue−$134.5M62.9%
- Gross profit$79.5M37.1%
- Operating costs−$180.5M84.4%
- Operating income−$101.0M47.2%
- Interest, other & tax$723,0000.3%
- Net income−$100.3M46.9%
04—Financials
Financial Highlights
Figures from 10-KFY2016filed March 16, 2017Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $213.97M$190.35M | +12.4% |
| Cost of Revenue | $134.49M$112.84M | +19.2% |
| Gross Profit | $79.47M$77.51M | +2.5% |
| R&D Expenses | $41.86M$27.71M | +51.1% |
| SG&A Expenses | $136.13M$109.64M | +24.2% |
| Operating Expenses | $313.56M$250.19M | +25.3% |
| Operating Income | -$101.05M-$59.84M | −68.9% |
| Interest Expense | $533K$3.50M | −84.8% |
| Net Income | -$100.33M-$70.28M | −42.8% |
| EPS (Basic) | $-1.95$-2.68 | +27.2% |
| EPS (Diluted) | $-1.95$-2.68 | +27.2% |
| Shares Outstanding (Basic) | 51.58M26.20M | +96.8% |
| Shares Outstanding (Diluted) | 51.58M26.20M | +96.8% |
05—Questions
Frequently Asked Questions
How much revenue did Natera generate and how fast did it grow?
Total revenues were $217.1 million in 2016, $190.4 million in 2015 and $159.3 million in 2014. The filing attributes the 2016 increase of $26.7 million primarily to higher test volume, partly offset by lower average selling prices as some carriers moved from out-of-network to in-network contracts.
Why are Natera's losses growing?
Net loss was $95.8 million in 2016 versus $70.3 million in 2015. Total costs and expenses rose to $313.6 million, including selling, general and administrative expenses of $136.1 million and research and development of $41.9 million. The filing expects losses to increase as the company invests in adoption of Panorama and in cancer and other new products.
What are the main risks to Panorama's revenue?
The filing identifies reimbursement as the primary risk. Most third-party payers have negative coverage determinations for average-risk pregnancies, and many do not reimburse for microdeletion screening. A new CPT code for microdeletions took effect January 1, 2017, which the company expects will reduce microdeletion reimbursement in the near term. The company also depends on Illumina as its sole sequencer supplier and on Streck as sole supplier of blood collection tubes.
Does Natera have enough cash to fund operations?
Management states that existing cash and marketable securities will be sufficient to meet anticipated cash requirements for at least 12 months after March 16, 2017. Year-end cash and cash equivalents were $15.3 million and short-term investments were $130.9 million. The filing notes the company may raise additional equity or debt and that additional financing may not be available on acceptable terms.
What legal proceedings could affect Natera?
The filing discloses purported securities class action lawsuits filed in 2016 in San Mateo Superior Court relating to the July 2015 IPO, a patient lawsuit alleging a test was not performed, and a civil investigative demand from the U.S. Department of Justice connected to a qui tam action brought by a former employee. The company is unable to estimate potential losses for these matters. A third-party payer also demanded recoupment of alleged overpayments in March 2017, which the company disputes.
06—Continue