01—Abstract
Summary
Summary of the 10-K filed March 15, 2018. Cited figures are marked; the original filing is the authoritative source.
Natera, Inc. reported 2017 total revenues of $210.9 milliona, down from $217.1 million in 2016, while its net loss widened to $136.3 million from $95.8 million.
Panorama, its non-invasive prenatal test, generated approximately 63% of 2017 revenues ($132.0 millionb), down from 66% in 2016, and the company accessioned approximately 343,700 Panorama tests during the year. Management attributed the revenue decline to lower average selling prices from in-network payers, reduced microdeletions reimbursement under a new CPT code, and about $4.0 million of delayed claims submissions tied to new prior authorization requirements in the fourth quarter of 2017, partly offset by reserve releases. Horizon Carrier Screening revenue rose to $61.7 million from $58.3 million.
The company's financial position weakened over the year. Accumulated deficit reached $482.2 millionc, stockholders' equity turned negative at $(10.4) million, and total debt with accrued interest was about $125.1 million, including a $75.0 million 2017 Term Loan with OrbiMed and $50.1 million outstanding on a UBS Credit Line. Cash and cash equivalents were $12.6 million, with $106.2 million in short-term investments.
Operating cash outflow was $96.8 milliond in 2017. Management believes existing cash and marketable securities will be sufficient for at least 12 months after March 15, 2018.
Subsequent to year-end, Natera agreed on March 7, 2018 to pay approximately $11.4 million to resolve a qui tam False Claims Act matter, and on March 9-10, 2018 entered a License, Development and Distribution Agreement with QIAGEN providing $40.0 million in upfront license fees and prepaid royalties plus up to $10.0 million in milestones. The filing also discloses pending securities class action litigation related to the IPO and a patient lawsuit over an alleged failure to perform a carrier screening test.
02—Key points
Key Highlights
- Total revenues were $210.9 million in 2017, down 2.8% from $217.1 million in 2016, while net loss increased to $136.3 million from $95.8 million.
- Panorama represented 63% of 2017 revenues ($132.0 million), and approximately 343,700 Panorama tests were accessioned, a company-stated increase of about 4% over 2016.
- Horizon Carrier Screening revenue grew to $61.7 million (29% of revenues) from $58.3 million in 2016; approximately 124,800 HCS tests were accessioned.
- Stockholders' equity was $(10.4) million at year-end 2017, versus $106.5 million at year-end 2016, with an accumulated deficit of $482.2 million.
- Total debt with accrued interest was approximately $125.1 million, including a $75.0 million 2017 Term Loan secured by substantially all assets and $50.1 million under the UBS Credit Line.
- Cash and cash equivalents were $12.6 million and short-term investments $106.2 million; operating cash used was $96.8 million in 2017.
- A QIAGEN agreement signed in March 2018 provides $40.0 million in upfront license fees and prepaid royalties plus up to $10.0 million in milestone payments.
03—One dollar
Follow one dollar
For each $1.00 of revenue in FY2017, Natera lost $0.65.
- Revenue$210.9M100.0%
- Cost of revenue−$135.5M64.2%
- Gross profit$75.4M35.8%
- Operating costs−$210.8M99.9%
- Operating income−$135.3M64.2%
- Interest, other & tax−$2.3M1.1%
- Net income−$137.6M65.2%
04—Financials
Financial Highlights
Figures from 10-KFY2017filed March 15, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $210.94M$213.97M | −1.4% |
| Cost of Revenue | $135.51M$134.49M | +0.8% |
| Gross Profit | $75.43M$79.47M | −5.1% |
| R&D Expenses | $50.06M$41.86M | +19.6% |
| SG&A Expenses | $155.31M$136.13M | +14.1% |
| Operating Expenses | $344.97M$313.56M | +10.0% |
| Operating Income | -$135.34M-$101.05M | −33.9% |
| Interest Expense | $4.21M$533K | +690.4% |
| Net Income | -$137.63M-$100.33M | −37.2% |
| EPS (Basic) | $-2.58$-1.95 | −32.3% |
| EPS (Diluted) | $-2.59$-1.95 | −32.8% |
| Shares Outstanding (Basic) | 53.31M51.58M | +3.4% |
| Shares Outstanding (Diluted) | 53.60M51.58M | +3.9% |
05—Questions
Frequently Asked Questions
Why did revenue decline in 2017 despite higher test volumes?
The filing states that Panorama revenue fell by about $15.4 million despite higher accessions, due to lower average selling prices from in-network payers, reduced reimbursement for microdeletions screening, about $4.0 million of delayed claims submissions tied to new prior authorization requirements in Q4 2017, and a terminated distribution agreement. These were partly offset by $4.1 million of Panorama revenue from released payer reserves.
How significant is the company's dependence on Panorama?
Panorama accounted for 63%, 66% and 73% of revenues in 2017, 2016 and 2015, respectively. The filing states the company expects to continue deriving a significant portion of revenue from Panorama, and that its success depends on increasing adoption and reimbursement, particularly for average-risk pregnancies and microdeletions screening.
What are the company's near-term liquidity considerations?
The company reported $12.6 million in cash and cash equivalents and $106.2 million in short-term investments at year-end 2017. It states these, together with its current business plan, are expected to be sufficient for at least 12 months after March 15, 2018. The 2017 Term Loan requires quarterly interest payments, with principal due in August 2024, and the company has stated it may need to raise additional capital.
What legal and regulatory matters were disclosed?
The company agreed in March 2018 to pay approximately $11.4 million to resolve a Department of Justice qui tam matter concerning past reimbursement submissions, with no admission of liability. It also disclosed a purported securities class action related to its July 2015 IPO, which is being defended, and a patient lawsuit alleging failure to perform a carrier screening test. The filing notes that Panorama is currently offered as a laboratory-developed test under FDA enforcement discretion, and that the FDA may change that position.
06—Continue