Natera, Inc. — 2023 Form 10-K
Business context and period. This annual report covers the fiscal year ended December 31, 2023; it is not a standalone fourth-quarter report. Natera develops and commercializes molecular and bioinformatics diagnostics in women’s health, oncology, and organ health. Panorama prenatal screening, Horizon carrier screening, and Signatera cancer monitoring are among its principal products. The company operates CLIA-certified laboratories and also licenses technology through its Constellation platform.
Key financial results
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Total revenue | $1,082.6 million | $820.2 million | +32.0% |
| Product revenue | $1,068.5 million | $797.3 million | +34.0% |
| Licensing and other revenue | $14.0 million | $22.9 million | −38.7% |
| Gross profit | $492.7 million | $364.0 million | +35.4% |
| Gross margin | 45.5% | 44.4% | +1.1 percentage points |
| Operating loss | $446.2 million | $541.0 million | Loss narrowed |
| Net loss | $434.8 million | $547.8 million | Loss narrowed 20.6% |
| Net loss per share, diluted | $3.78 | $5.57 | Loss per share narrowed |
| Cash used in operating activities | $247.0 million | $431.5 million | Burn decreased |
Test volume processed rose to approximately 2.50 million from 2.07 million. Reported test units increased to approximately 2.39 million from 1.92 million; oncology units processed rose to approximately 340,700 from 196,400. Product revenue growth reflected higher test volumes and improved average selling prices. Cost of product revenue increased 29.7%, slower than product revenue growth. Research and development expense increased 1.3% to $320.7 million; selling, general and administrative expense increased 5.0% to $618.3 million. Stock-based compensation was $191.8 million, up from $152.4 million.
Liquidity, cash flow, and debt
- At year-end, cash, cash equivalents and restricted cash totaled $642.1 million, and short-term investments totaled $236.9 million. Accounts receivable was $278.3 million.
- Current assets were $1.259 billion and current liabilities were $307.3 million. The filing reports $642.1 million of cash and restricted cash; restricted cash itself was immaterial.
- Operating cash outflow was $247.0 million. Investing activities provided $168.5 million, while financing activities provided $254.5 million, primarily from a September 2023 equity offering that generated $235.4 million net proceeds.
- Debt included $80.4 million outstanding under the UBS credit line, including accrued interest, and $287.5 million principal on 2.25% convertible senior notes due 2027. The credit line is secured by investments, requires at least $150 million in UBS accounts as collateral, and may be called or terminated by UBS at its discretion. $20 million remained available at year-end.
- Management said existing cash and marketable securities were expected to cover anticipated cash requirements for at least 12 months after February 28, 2024. The company nevertheless expects continued losses and negative operating cash flows and may require additional financing.
Material changes and notable items
- Revenue grew 32.0%, led by product testing; licensing and other revenue fell 38.7%, primarily due to lower collaborative-agreement revenue.
- Net loss narrowed to $434.8 million from $547.8 million. Higher revenue and interest income contributed, while operating expenses remained greater than revenue. Interest and other income increased to $24.4 million from $3.5 million; interest expense rose to $12.6 million from $9.3 million.
- Accounts receivable increased to $278.3 million from $244.4 million. Revenue depends partly on management estimates of expected collections, refunds, and payer reimbursement. The auditor identified genetic-test revenue estimation as a critical audit matter.
- In January 2024, Natera agreed to acquire certain Invitae reproductive-health assets for $10 million upfront, with up to $42.5 million in potential milestone payments.
- Also after year-end, a jury awarded Ravgen $57 million in a patent case against Natera; Natera said it intended to appeal. In a separate patent case, a jury awarded Natera $96.3 million against CareDx in January 2024. These are post-year-end developments and should be assessed alongside the filing’s legal-contingency disclosures.
Outlook, risks, and management commentary
The filing provides no specific revenue, earnings, or cash-flow guidance. Management’s stated priorities include expanding adoption and reimbursement, improving test economics, and investing in oncology, organ health, and new products. Management cautions that continued losses are expected for the foreseeable future.
- Reimbursement: Coverage and payment remain uncertain, especially for Panorama microdeletions screening and some Medicaid testing. Management reports low microdeletions reimbursement and past reimbursement-rate pressure on Horizon carrier screening.
- Regulation: The FDA proposed a rule in September 2023 that could bring laboratory-developed tests under medical-device regulation, potentially requiring additional review and compliance. The filing says the FDA planned to finalize the rule in the second quarter of 2024; the outcome and timing were uncertain.
- Concentration and operations: A significant majority of revenue comes from Panorama, Horizon, and Signatera. Illumina sequencing equipment and Streck blood-collection tubes are important sole-source inputs, creating supply and continuity risks.
- Legal and compliance exposure: The company is involved in intellectual-property disputes, payer audits, and other litigation and investigations. Outcomes, damages, and potential reimbursement recoupments may be uncertain and could affect results, cash flows, or margins.
- Other risks: Competition, clinical validation and adoption, scaling laboratory capacity, privacy and cybersecurity, and the need for future capital are material risks. Natera has incurred losses since inception and reported an accumulated deficit of $2.4 billion.
The company reported effective disclosure controls and internal control over financial reporting as of December 31, 2023. The independent auditor issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- Whether test-volume growth and average selling prices continue to support revenue growth and gross-margin improvement.
- How much of reported revenue and future cash collection depends on estimates, payer coverage, refunds, and subsequent collections.
- Cash-burn trajectory, available liquidity after required credit-line collateral, and any need for additional equity or debt financing.
- Convertible-note conversion or repayment implications, including potential dilution and cash settlement needs.
- Current reimbursement and coverage developments for Panorama microdeletions, Horizon, Signatera, and Prospera.
- Final regulatory requirements for laboratory-developed tests and the potential cost or operational impact on Natera.
- Developments in the Ravgen, CareDx, and other legal matters, including appeals, potential payments, and any effect on financial statements.
- Integration, milestone terms, and expected contribution of the January 2024 Invitae asset acquisition.