Natera, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Financial statements are unaudited. Natera develops and commercializes molecular testing services, principally women’s health tests Panorama and Horizon, alongside oncology test Signatera and organ-health test Prospera.
Financial performance
Amounts in millions, except per-share data and percentages.
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $158.1 | $98.1 | $452.5 | $278.6 |
| Gross profit | $76.7 | $46.3 | $228.2 | $134.9 |
| Gross margin | 48.5% | 47.2% | 50.4% | 48.4% |
| Operating loss | $(150.2) | $(55.8) | $(328.5) | $(142.3) |
| Net loss | $(151.3) | $(58.3) | $(331.2) | $(153.3) |
| Net loss per share, basic and diluted | $(1.63) | $(0.72) | $(3.72) | $(1.93) |
| Cash used in operating activities | Not provided quarterly | Not provided quarterly | $(236.5) | $(109.2) |
- Q3 revenue increased 61.1% year over year; product revenue grew 61.5%. Nine-month revenue increased 62.4%, with product revenue up 55.8% and licensing and other revenue up 158.3%.
- Nine-month test volume increased: 1.13 million tests processed versus 731,500 in 2020, according to the overview. MD&A separately reports 1.04 million versus 680,100 tests with results delivered; the filing does not reconcile these different volume measures.
- Expenses rose faster than revenue. Nine-month R&D increased 184.4% and SG&A increased 73.8%; the company attributed much of the increase to hiring, stock compensation, clinical studies, and the acquired IPR&D write-off.
- At September 30, cash and cash equivalents were $95.1 million and short-term investments were $928.6 million. Including restricted cash, cash and cash equivalents totaled $95.3 million. Current assets were $1.19 billion versus current liabilities of $199.7 million.
- Debt included $50.0 million outstanding under the UBS credit line and $287.5 million principal on 2.25% convertible notes due 2027; the notes’ balance-sheet carrying value was $280.1 million. The credit line is secured by investments and UBS may demand repayment at any time.
- Stockholders’ equity was $759.0 million and accumulated deficit was $1.25 billion. The July public offering generated approximately $550.8 million net proceeds and issued 5.175 million shares.
Material changes, outlook, and risks
- Nine-month operating cash use more than doubled year over year. Financing provided $567.7 million, primarily from the July equity offering; investing used $284.7 million, including $32.0 million in property and equipment purchases.
- Management expects continuing losses and negative operating cash flows in the near future. It stated that cash and marketable securities should cover anticipated cash requirements for at least 12 months after November 4, 2021; profitability depends on additional revenue growth, and further financing may be needed.
- A September oncology asset acquisition resulted in a $35.6 million IPR&D expense, including $30.9 million in stock consideration and about $3.9 million cash. Up to approximately 269,547 additional shares may be issued if defined milestones are met. Separately, a May development and option agreement could require $290 million more if Natera exercises its asset-purchase option.
- Nine-month licensing revenue included $28.6 million recognized after the Qiagen agreement’s termination; Natera agreed to refund a net $10 million under a March 2021 settlement.
- Principal business risks include reimbursement rates and coverage—particularly for microdeletions and expanded Horizon panels—payer collections, competition, scaling laboratory capacity and supply availability, and uncertain COVID-19 effects. Panorama and Horizon remain major revenue sources. Management also notes that broader in-network coverage may reduce average reimbursement and margins.
- Litigation remains a contingency. Natera reported multiple patent and advertising disputes, including a CareDx/Stanford patent ruling in its favor that was appealed, and a pending Ravgen patent case. No loss-contingency accrual was recorded; the company said it could not determine that an unfavorable outcome was probable or reasonably estimable.
- The filing reports effective disclosure controls and no material changes in internal control over financial reporting. Subsequent to quarter-end, the board amended bylaws, including a federal-forum provision for certain Securities Act claims.
Important facts for investors to verify
- Whether revenue and test-volume growth translate into improved operating leverage, margins, and lower cash burn.
- Reimbursement coverage, realized selling prices, refund reserves, and collection trends, especially for Panorama and Horizon.
- Cash runway assumptions and the potential effects of the callable UBS credit line, convertible-note settlement, and any future financing.
- Expected costs, milestones, and potential share issuance from the oncology asset acquisition and the separate $290 million purchase option.
- Progress and outcomes in material litigation, including appeals and upcoming trial dates, and any resulting financial exposure.