Natera, Inc. — 2021 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2021; it does not provide a distinct fourth-quarter financial summary. Natera develops and sells molecular diagnostic tests, primarily in women’s health, with expanding oncology and organ-health offerings. Panorama prenatal screening and Horizon carrier screening remained its principal revenue sources.
Financial results and liquidity
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Total revenue | $625.5 million | $391.0 million | +60.0% |
| Product revenue | $567.1 million | $367.2 million | +54.4% |
| Licensing and other revenue | $58.3 million | $23.8 million | +145.2% |
| Net loss | $471.7 million | $229.7 million | Loss increased $242.0 million |
| Net loss per share, basic and diluted | $(5.21) | $(2.84) | — |
| Net cash used in operating activities | $335.2 million | $182.5 million | Cash use increased |
Margins and expenses. Gross profit was approximately $307.1 million, or 49.1% of revenue, versus $187.4 million, or 47.9%, in 2020; these figures are calculated from reported revenue and cost of revenue. Operating loss widened to $468.2 million from $216.3 million. Research and development expense rose 164.1% to $264.2 million, while selling, general and administrative expense rose 68.3% to $511.0 million. Stock-based compensation increased to $115.2 million from $50.2 million.
Volume and balance sheet. Tests processed increased to approximately 1.57 million from 1.03 million. At year-end, cash, cash equivalents and restricted cash were $84.6 million, with $829.9 million of short-term investments. Current assets were $1.09 billion and current liabilities $219.0 million. Debt carrying value was $330.4 million, comprising the credit line and convertible notes; principal balances were approximately $49.0 million and $287.5 million, respectively. Stockholders’ equity was $653.3 million and accumulated deficit was $1.4 billion.
Cash used in investing activities was $205.2 million, including $41.0 million of property and equipment purchases and $8.6 million paid for an asset acquisition. Financing activities provided $576.2 million, principally from the July 2021 equity offering, which generated $550.8 million net proceeds. Management stated that existing cash and marketable securities were expected to cover anticipated cash needs for at least 12 months after February 24, 2022.
Material changes versus the prior comparable period
- Revenue growth was driven primarily by higher test volumes; product revenue rose $199.9 million.
- Expenses grew faster than revenue, notably R&D and SG&A, contributing to a substantially larger net loss and operating cash outflow.
- Licensing and other revenue rose partly because of collaboration and Signatera companion-diagnostic development revenue. The company also recognized $28.6 million of deferred revenue following the Qiagen agreement termination and settlement.
- Operating cash use increased to $335.2 million, including a $43.4 million increase in accounts receivable and a $44.2 million decrease in deferred revenue.
- In 2021 Natera adopted ASU 2020-06 for convertible debt accounting. Management said adoption reduced 2021 net loss by $9.4 million, or about $0.10 per share, compared with the prior accounting treatment.
Outlook, risks, contingencies and unusual items
Outlook and commentary. The filing provides no specific revenue, earnings or cash-flow guidance. Management expects continued losses and negative operating cash flows while investing in product development and commercialization. It identifies Panorama and Horizon as expected to remain the dominant revenue sources, while pursuing growth in Signatera oncology testing and Prospera transplant monitoring.
Key risks. Natera cites continuing COVID-19 effects on test volumes and operations; reimbursement and pricing uncertainty, especially for microdeletions and expanded carrier screening; intense competition; and dependence on Illumina sequencing equipment and reagents and Streck blood collection tubes. Other material exposures include uncertain FDA oversight of laboratory-developed tests, payer recoupment and billing challenges, cybersecurity and privacy risks, capacity and scaling demands, and intellectual-property litigation. The company reported multiple active patent and other lawsuits; it had not accrued a loss contingency for the proceedings described, stating that an unfavorable outcome was not determined probable or reasonably estimable.
Unusual items and financing. A September 2021 in-process R&D asset acquisition resulted in a $35.6 million expense; additional consideration of up to $35.0 million is tied to milestones and continued employment. The 2021 equity offering increased cash but diluted existing shareholders. The $287.5 million convertible notes bear 2.25% interest and mature in 2027; conversion may create dilution or cash demands. The $49.0 million credit line is secured by investments, bears variable-rate interest, and may be called by UBS at its discretion.
Important facts for investors to verify
- Whether test-volume growth can continue and translate into improved operating leverage, given rising R&D, SG&A and cash burn.
- Actual reimbursement rates, collections and refund or recoupment exposure, particularly for microdeletions and Horizon screening.
- Cash runway under the stated plan, including the effects of operating losses, capital spending, lease expansion and contractual commitments.
- Progress toward broader coverage and clinical adoption for Signatera and Prospera, and the evidence supporting management’s commercial expectations.
- Current status and potential financial impact of litigation, payer audits, regulatory changes, and reliance on sole-source suppliers.
- Potential dilution from stock compensation, future equity financing and conversion of the notes; the filing reports 7.4 million shares underlying the notes.