Natera, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Unaudited results; comparisons are with Q1 2021. Natera develops and commercializes molecular diagnostic tests, principally in women’s health, with expanding oncology and organ-health businesses.
Financial performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Total revenue | $194.1 million | $152.3 million |
| Product revenue | $190.0 million | $120.4 million |
| Licensing and other revenue | $4.1 million | $31.9 million |
| Gross profit and gross margin | $90.9 million; 46.8% | $85.5 million; 56.1% |
| Operating loss | $137.1 million | $63.0 million |
| Net loss | $138.6 million | $63.9 million |
| Net loss per share, diluted | $1.45 | $0.74 |
| Cash used in operating activities | $137.3 million | $74.9 million |
- Revenue increased 27.5%, driven by test-volume growth; product revenue rose 57.8%. Tests processed increased to approximately 489,300 from 348,200.
- Gross margin declined as reported revenue shifted away from licensing revenue, alongside increased product costs. Product cost of revenue rose 56.0% to $102.7 million.
- Research and development expense increased 100.1% to $80.4 million, and selling, general and administrative expense increased 36.3% to $147.6 million. Stock-based compensation was $35.1 million, versus $23.2 million.
- Operating cash outflow widened; the filing attributes significant working-capital use to a $46.1 million increase in accounts receivable. Investing cash inflow of $207.0 million primarily reflected investment sales and maturities, not operating cash generation.
Financial position and liquidity
- At March 31, 2022, cash, cash equivalents and restricted cash were $158.5 million; short-term investments were $593.7 million. Combined, these were approximately $752.2 million.
- Total liabilities were $602.3 million. Debt included $50.1 million outstanding on the UBS credit line, which is secured by investments and repayable on demand at UBS’s discretion, and $287.5 million principal of 2.25% convertible notes due 2027. The notes’ balance-sheet carrying value was $280.7 million.
- Accumulated deficit was $1.5 billion. Management expects continuing losses and negative operating cash flows, but stated that existing cash and marketable securities should cover anticipated cash requirements for at least 12 months after May 6, 2022. The company may need further revenue growth or financing to achieve profitability.
- Available-for-sale investments had $13.8 million of gross unrealized losses at quarter-end, reflected in comprehensive loss; the company reported no credit-loss allowance was necessary.
Outlook, risks and unusual items
- No specific revenue or earnings guidance was provided. Management expects continued investment in product development and commercialization, and continued losses in future periods.
- Management highlighted reimbursement and average selling price uncertainty, including limited reimbursement for microdeletion screening and potential pressure on Horizon reimbursement. Insurance and patient collections typically take nine to twelve months.
- COVID-19, inflation, supply availability, laboratory staffing, geopolitical uncertainty and capital-market access could affect operations and demand. The company also depends on third-party suppliers and payer coverage.
- In CareDx advertising litigation, a jury found Natera liable and awarded $44.9 million in damages in March 2022; Natera’s motion to set aside the adverse verdict remained pending. Natera did not consider the loss probable and estimable at filing. Other patent, reimbursement, patient-billing and purported class-action matters are also disclosed; outcomes may be costly or uncertain.
- The company disclosed up to approximately $35.0 million in potential milestone consideration for an acquired oncology-related asset, primarily payable in shares, with milestones assessed as probable and compensation expense recognized over the estimated performance period.
- After quarter-end, the company amended its CEO’s employment agreement to provide specified equity vesting upon qualifying termination, with enhanced vesting following a change in control.
Important facts for investors to verify
- Whether test-volume growth converts into improved gross margin and sustainable cash generation.
- Accounts-receivable aging, collections, payer reimbursement rates and any changes to refund or credit-loss estimates.
- Cash burn and financing needs relative to management’s stated liquidity horizon, including the demandable UBS credit line and convertible-note terms.
- Developments in the CareDx verdict and other litigation, including possible financial exposure and effects on product claims or commercialization.
- Progress in reimbursement, clinical evidence and adoption for Panorama, Horizon, Signatera and Prospera.