01—Abstract
Summary
Summary of the 10-K filed March 15, 2019. Cited figures are marked; the original filing is the authoritative source.
Natera, Inc. (NTRA) reported total revenues of $257.7 milliona for 2018, up from $209.6 million in 2017 (as revised under ASC 606), while net loss narrowed to $128.2 million from $137.6 million.
Panorama NIPT represented approximately 55% of 2018 revenues, with approximately 429,600 Panorama tests accessioned, and Horizon carrier screening revenue rose to $87.2 millionb. Growth came from both product revenues ($240.4 million, up 18.0%) and licensing and other revenues ($17.3 million, up 195.6%), the latter boosted by the March 2018 Qiagen agreement and Evercord. The company's profitability remains a key concern: it has an accumulated deficit of $574.6 million, cash and cash equivalents of $46.4 million, and $107.5 million in short-term investments against about $127.3 million of debt outstanding including accrued interest.
Management states that existing cash and marketable securities are sufficient for at least 12 months after March 15, 2019. Collections improved in 2018, which led to $10.2 millionc of additional revenue from changes in estimates, and the filing also cites reimbursement pressures, including low microdeletions reimbursement, prior authorization requirements, and a pending patent lawsuit filed by Illumina.
The filing highlights growth opportunities in oncology (Signatera, with research-use-only launch in 2017 and a planned CLIA test) and transplant rejection, both of which are still in development and require reimbursement that is not yet established. Investors should weigh the company's revenue momentum against continued net losses, reliance on Illumina as sole sequencer supplier, and dependence on Panorama for most revenue.
02—Key points
Key Highlights
- Total revenues were $257.7 million in 2018, up 22.9% from $209.6 million in 2017 (as revised under ASC 606).
- Net loss narrowed to $128.2 million in 2018 from $137.6 million in 2017 (as revised); accumulated deficit reached $574.6 million.
- Panorama NIPT accounted for approximately 55% of 2018 revenues ($140.9 million), with approximately 429,600 Panorama tests accessioned.
- Horizon carrier screening revenues rose to $87.2 million (34% of revenues) from $63.5 million in 2017.
- Licensing and other revenues increased to $17.3 million, including $5.8 million from the Qiagen agreement entered into in March 2018.
- July 2018 equity offering of 4.5 million shares at $20 per share generated $97.3 million in proceeds before offering expenses.
- Management believes existing cash and marketable securities will be sufficient for at least 12 months after March 15, 2019; debt outstanding was approximately $127.3 million including accrued interest.
03—One dollar
Follow one dollar
For each $1.00 of revenue in FY2018, Natera lost $0.50.
- Revenue$257.7M100.0%
- Cost of revenue−$158.1M61.4%
- Gross profit$99.6M38.6%
- Operating costs−$214.2M83.1%
- Operating income−$114.6M44.5%
- Interest, other & tax−$13.5M5.2%
- Net income−$128.2M49.7%
04—Financials
Financial Highlights
Figures from 10-KFY2018filed March 15, 2019Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $257.65M$210.94M | +22.1% |
| Cost of Revenue | $158.08M$135.51M | +16.7% |
| Gross Profit | $99.57M$75.43M | +32.0% |
| R&D Expenses | $51.35M$50.06M | +2.6% |
| SG&A Expenses | $154.87M$155.31M | −0.3% |
| Operating Expenses | $372.28M$344.97M | +7.9% |
| Operating Income | -$114.63M-$135.34M | +15.3% |
| Interest Expense | $10.48M$4.21M | +148.7% |
| Net Income | -$128.15M-$137.63M | +6.9% |
| EPS (Basic) | $-2.22$-2.58 | +14.0% |
| EPS (Diluted) | $-2.22$-2.59 | +14.3% |
| Shares Outstanding (Basic) | 57.85M53.31M | +8.5% |
| Shares Outstanding (Diluted) | 57.85M53.60M | +7.9% |
05—Questions
Frequently Asked Questions
Is Natera's revenue growth driven by Panorama or by other products?
Both contributed. Panorama revenue rose to $140.9 million from $128.9 million, and Horizon rose to $87.2 million from $63.5 million. Panorama's share of total revenue fell to 55% in 2018 from 62% in 2017, while Horizon's share rose to 34%.
How much debt does Natera carry and when is it due?
As of December 31, 2018, the company had approximately $127.3 million of debt outstanding including accrued interest, consisting of $50.2 million under the UBS Credit Line and the $73.4 million net carrying amount of the 2017 Term Loan with OrbiMed. The 2017 Term Loan matures in August 2024, and the Credit Line is secured by the company's managed investment account at UBS.
What are the main risks to Natera's reimbursement and revenues?
The filing cites negative coverage determinations for average-risk NIPT and microdeletions screening, low reimbursement under the microdeletions CPT code, prior authorization requirements that have eroded collections, and the expected decline in Horizon reimbursement under the new 2019 expanded carrier screening CPT code. Many Medicaid programs also reimburse at low rates or not at all.
What is the status of Natera's oncology and transplant rejection programs?
Signatera is offered for research use only and the company expects to commercialize it as a CLIA laboratory-developed test in 2019. The transplant rejection test is in development, with reimbursement estimates based on a similar test on the market. The filing states that reimbursement for these oncology and transplant tests remains uncertain.
What is the Illumina litigation about?
In March 2018, Illumina sued Natera alleging that the Panorama test infringes U.S. Patent No. 9,493,831. Natera filed a petition for inter partes review, which was not instituted, and in August 2018 filed its own infringement suit against Illumina over U.S. Patent No. 8,682,592. Illumina is also Natera's sole sequencer supplier and a competitor through its subsidiary Verinata.
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