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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                       to                      

Commission file number: 001-37478

NATERA, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware

01-0894487

(State or Other Jurisdiction of Incorporation or Organization)

(I.R.S. Employer Identification No.)

13011 McCallen Pass

Building A Suite 100
Austin, TX

78753

(Address of Principal Executive Offices)

(Zip Code)

(650249-9090

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.0001 per share

NTRA

The Nasdaq Stock Market LLC (Nasdaq Global Select Market)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer

Accelerated filer

Non-accelerated filer

  

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of November 1, 2022, the number of outstanding shares of the registrant’s common stock, par value $0.0001 per share, was 97,602,871.

Natera, Inc.

FORM 10-Q FOR THE QUARTER ENDED September 30, 2022

TABLE OF CONTENTS

    

Page

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Part I — Financial Information

 

Item 1. Financial Statements (unaudited)

5

Condensed Consolidated Balance Sheets at September 30, 2022 and December 31, 2021

5

Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine months Ended September 30, 2022 and 2021

6

Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine months Ended September 30, 2022 and 2021

7

Condensed Consolidated Statements of Cash Flows for the Nine months Ended September 30, 2022 and 2021

9

Notes to Unaudited Interim Condensed Consolidated Financial Statements

10

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

41

Item 3. Quantitative and Qualitative Disclosures About Market Risk

53

Item 4. Controls and Procedures

53

Part II — Other Information

Item 1. Legal Proceedings

54

Item 1A. Risk Factors

55

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

55

Item 3. Defaults Upon Senior Securities

55

Item 4. Mine Safety Disclosures

55

Item 5. Other Information

55

Item 6. Exhibits

56

Signatures

58

2

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements. The forward-looking statements are contained principally in the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” but are also contained elsewhere in this report. Forward-looking statements include information concerning our future results of operations and financial position, strategy and plans, and our expectations for future operations. Forward-looking statements include all statements that are not historical facts and, in some cases, can be identified by terms such as "believe," "may," "will," "estimate," "continue," "anticipate," "design," "intend," "expect," "could," "plan," "potential," "predict," "seek," "should," "would" or the negative version of these words and similar expressions.

These forward-looking statements include, but are not limited to, statements concerning the following:

our expectation that, for the foreseeable future, a significant portion of our revenues will be derived from sales of Panorama and Horizon;
our ability to increase demand for our tests, particularly Panorama, Horizon, Signatera, and Prospera;
our expectation that Panorama will be adopted for broader use in average-risk pregnancies and for the screening of microdeletions and that third-party payer reimbursement will be available for these applications, including our expectations that the results from our single nucleotide polymorphism-based Microdeletion and Aneuploidy RegisTry (SMART) Study may support broader use and reimbursement for the use of Panorama in average risk pregnancies and for microdeletions;
the extent and duration of the impact of the COVID-19 pandemic on our business, results of operations, stock price, or overall financial condition;
our expectations of the reliability, accuracy, and performance of our tests, as well as expectations of the benefits of our tests to patients, providers, and payers;
our ability to successfully develop additional revenue opportunities, expand our product offerings to include new tests, and expand adoption of our current and future technologies through Constellation, our cloud-based distribution model;
our efforts to successfully develop and commercialize our oncology and organ health products;
our ability to comply with federal, state, and foreign regulatory requirements, programs and policies and to successfully operate our business in response to changes in such requirements, programs and policies;
our ability to respond to, defend, or otherwise favorably resolve litigation or other proceedings, including investigations, subpoenas, demands, disputes, requests for information, and other regulatory or administrative actions or proceedings;
the effect of improvements in our cost of goods sold;
our estimates of the total addressable markets for our current and potential product offerings;
our ability and expectations regarding obtaining, maintaining and expanding third-party payer coverage of, and reimbursement for, our tests;
the effect of changes in the way we account for our revenue;
the scope of protection we establish and maintain for, and developments or disputes concerning, our intellectual property or other proprietary rights;
our ability to successfully compete in the markets we serve;
our reliance on collaborators such as medical institutions, contract laboratories, laboratory partners, and other third parties;
our ability to operate our laboratory facility and meet expected demand, and to successfully scale our operations;
our reliance on a limited number of suppliers, including sole source suppliers, which may impact our ability to maintain a continued supply of laboratory instruments and materials and to run our tests;
our expectations of the rate of adoption of Panorama, Horizon and of any of our other current or future tests by laboratories, clinics, clinicians, payers, and patients;
our ability to complete clinical studies and publish compelling clinical data in peer-reviewed medical publications regarding Panorama and any of our future tests, and the effect of such data or publications on professional society or practice guidelines or coverage and reimbursement determinations from third-party payers, including our SMART and CIRCULATE-Japan studies and our ongoing and planned trials in oncology and transplant rejection;

3

our reliance on our partners to market and offer our tests in the United States and in international markets;
our expectations regarding acquisitions, dispositions and other strategic transactions;
our expectations regarding the conversion of our outstanding 2.25% convertible senior notes due 2027 in the aggregate principal amount of $287.5 million and our ability to make debt service payments under the Convertible Notes if such Convertible Notes are not converted;
our ability to control our operating expenses and fund our working capital requirements;
the factors that may impact our financial results; and
anticipated trends and challenges in our business and the markets in which we operate.

Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements, including those discussed in Part II, Item 1A, “Risk Factors” in this report and Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the Securities and Exchange Commission on February 25, 2022. Given these uncertainties, you should not place undue reliance on these forward-looking statements. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. You should read this report completely and with the understanding that our actual future results may be materially different from what we expect.

Also, forward-looking statements represent our beliefs and assumptions only as of the date of this report. Any forward-looking statement made by us in this report speaks only as of the date on which it is made. Except as required by law, we disclaim any obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

As used in this quarterly report on Form 10-Q, the terms “Natera,” “Registrant,” “Company,” “we,” “us,” and “our” mean Natera, Inc. and its subsidiaries unless the context indicates otherwise.

4

PART I – FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

Natera, Inc.

Condensed Consolidated Balance Sheets

(in thousands except par value and per share amounts)

September 30, 

    

December 31, 

    

2022

    

2021

(Unaudited)

Assets

Current assets:

Cash and cash equivalents

$

57,042

$

84,386

Restricted cash

 

86

228

Short-term investments

464,112

829,896

Accounts receivable, net of allowance of $4,676 in 2022 and $2,429 in 2021

 

236,362

122,074

Inventory

 

40,428

26,909

Prepaid expenses and other current assets, net

 

31,599

29,645

Total current assets

 

829,629

 

1,093,138

Property and equipment, net

 

87,486

65,516

Operating lease right-of-use assets

73,791

59,013

Other assets

 

18,206

18,820

Total assets

$

1,009,112

$

1,236,487

Liabilities and Stockholders’ Equity

 

 

Current liabilities:

 

 

 

 

Accounts payable

$

34,225

$

27,206

Accrued compensation

 

42,226

40,941

Other accrued liabilities

 

132,751

93,353

Deferred revenue, current portion

 

7,932

7,404

Short-term debt financing

50,147

50,052

Total current liabilities

 

267,281

 

218,956

Long-term debt financing

 

281,336

280,394

Deferred revenue, long-term portion

20,405

21,318

Operating lease liabilities, long-term portion

78,469

61,036

Other long-term liabilities

1,479

Total liabilities

 

647,491

 

583,183

Commitments and contingencies (Note 8)

 

 

Stockholders’ equity:

 

Common stock, $0.0001 par value: 750,000 shares authorized at both September 30, 2022 and December 31, 2021, respectively; 97,300 and 95,140 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively

 

10

10

Additional paid in capital

 

2,181,282

2,050,417

Accumulated deficit

 

(1,800,062)

(1,394,836)

Accumulated other comprehensive loss

(19,609)

(2,287)

Total stockholders’ equity

 

361,621

 

653,304

Total liabilities and stockholders’ equity

$

1,009,112

$

1,236,487

See accompanying notes to the unaudited interim condensed consolidated financial statements.

5

Natera, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

(in thousands, except per share data)

Three months ended

Nine months ended

September 30, 

September 30, 

    

2022

2021

2022

2021

 

Revenues

Product revenues

$

199,831

$

153,940

$

584,415

$

413,971

Licensing and other revenues

10,806

4,176

18,555

38,487

Total revenues

210,637

158,116

602,970

452,458

Cost and expenses

Cost of product revenues

115,436

80,511

326,862

221,870

Cost of licensing and other revenues

1,076

860

2,102

2,426

Research and development

65,510

98,457

228,504

192,397

Selling, general and administrative

147,667

128,485

444,769

364,273

Total cost and expenses

329,689

308,313

1,002,237

780,966

Loss from operations

(119,052)

(150,197)

(399,267)

(328,508)

Interest expense

(2,330)

(2,078)

(6,567)

(6,226)

Interest and other income, net

87

1,274

1,165

4,230

Loss before income taxes

(121,295)

(151,001)

(404,669)

(330,504)

Income tax expense

(185)

(272)

(557)

(648)

Net loss

$

(121,480)

$

(151,273)

$

(405,226)

$

(331,152)

Unrealized loss on available-for-sale securities, net of tax

(3,212)

(950)

(17,322)

(2,768)

Comprehensive loss

$

(124,692)

$

(152,223)

$

(422,548)

$

(333,920)

Net loss per share (Note 12):

Basic and diluted

$

(1.25)

$

(1.63)

$

(4.20)

$

(3.72)

Weighted-average number of shares used in computing basic and diluted net loss per share:

Basic and diluted

97,052

92,558

96,408

89,130

See accompanying notes to the unaudited interim condensed consolidated financial statements.

6

Natera, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

(in thousands)

Three months ended September 30, 2021

Common Stock

Additional
Paid-in

Accumulated Other Comprehensive

Accumulated

Total
Stockholders'

    

  

Shares

    

Amount

    

Capital

    

Income

Deficit

    

Equity

Balance as of June 30, 2021

88,498

$

9

$

1,399,659

$

2,441

$

(1,102,999)

$

299,110

Issuance of common stock upon exercise of stock options

268

3,945

3,945

Issuance of common stock for public offering, net

5,176

1

550,821

550,822

Issuance of common stock for IPR&D acquisition

276

30,901

30,901

Vesting of restricted stock units

320

3

3

Stock-based compensation

26,459

26,459

Unrealized loss on available-for sale securities

(950)

(950)

Net loss

(151,273)

(151,273)

Balance as of September 30, 2021

94,538

$

10

$

2,011,788

$

1,491

$

(1,254,272)

$

759,017

Nine months ended September 30, 2021

Common Stock

Additional
Paid-in

Accumulated Other Comprehensive

Accumulated

Total
Stockholders' Equity

    

  

Shares

    

Amount

    

Capital

    

Loss

Deficit

    

(Deficit)

Balance as of December 31, 2020

86,223

$

9

$

1,411,286

$

4,259

$

(929,318)

$

486,236

Issuance of common stock upon exercise of stock options

1,051

 —

10,774

 —

 —

10,774

Issuance of common stock under employee stock purchase plan

106

 —

6,085

 —

 —

6,085

Issuance of common stock for public offering, net

5,175

1

550,821

 —

 —

550,822

Issuance of common stock for IPR&D acquisition

276

 —

30,901

 —

 —

30,901

Vesting of restricted stock

1,707

 —

 —

 —

 —

Stock-based compensation

 —

 —

84,797

 —

 —

84,797

Unrealized loss on available-for sale securities

 —

 —

 —

(2,768)

 —

(2,768)

Cumulative-effect adjustment upon adoption of ASU 2016-13

 —

 —

(82,876)

 —

6,198

(76,678)

Net loss

 —

 —

 —

 —

(331,152)

(331,152)

Balance as of September 30, 2021

94,538

$

10

$

2,011,788

$

1,491

$

(1,254,272)

$

759,017

7

Three months ended September 30, 2022

Common Stock

Additional
Paid-in

Accumulated Other Comprehensive

Accumulated

Total
Stockholders'

Shares

    

Amount

    

Capital

    

Loss

Deficit

    

Equity

Balance as of June 30, 2022

96,903

$

10

$

2,139,551

$

(16,397)

$

(1,678,582)

$

444,582

Issuance of common stock upon exercise of stock options

84

1,393

1,393

Vesting of restricted stock units

313

 —

 —

 —

 —

 —

Stock-based compensation

40,338

40,338

Unrealized loss on available-for sale securities

 —

 —

 —

(3,212)

 —

(3,212)

Net loss

(121,480)

(121,480)

Balance as of September 30, 2022

97,300

$

10

$

2,181,282

$

(19,609)

$

(1,800,062)

$

361,621

Nine months ended September 30, 2022

Common Stock

Additional
Paid-in

Accumulated Other Comprehensive

Accumulated

Total
Stockholders'

Shares

    

Amount

    

Capital

    

Income

Deficit

    

Equity

Balance as of December 31, 2021

95,140

$

10

$

2,050,417

$

(2,287)

$

(1,394,836)

$

653,304

Issuance of common stock upon exercise of stock options

785

5,971

5,971

Issuance of common stock under employee stock purchase plan

285

8,496

8,496

Vesting of restricted stock

1,090

Stock-based compensation

116,398

116,398

Unrealized loss on available-for sale securities

(17,322)

(17,322)

Net loss

(405,226)

(405,226)

Balance as of September 30, 2022

97,300

$

10

$

2,181,282

$

(19,609)

$

(1,800,062)

$

361,621

See accompanying notes to the unaudited interim condensed consolidated financial statements.

8

Natera, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

Nine Months Ended

September 30, 

    

2022

    

2021

(in thousands)

Operating activities

 

 

Net loss

 

$

(405,226)

$

(331,152)

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization

 

12,772

8,259

Expensed in-process research and development

35,604

Premium amortization and discount accretion on investment securities

3,971

5,707

Stock-based compensation

 

116,398

84,797

Non-cash lease expense

9,989

8,106

Amortization of debt discount and issuance cost

941

917

Inventory reserve adjustments

(148)

726

Other non-cash benefits

 

100

133

Provision for credit losses

2,615

380

Unrealized losses on investment securities

(12)

(Gain) loss on investments

532

(58)

Changes in operating assets and liabilities:

Accounts receivable

 

(116,903)

(32,232)

Inventory

 

(13,372)

(8,717)

Prepaid expenses and other current assets

 

686

(254)

Other assets

(200)

(550)

Accounts payable

 

8,367

183

Accrued compensation

 

1,285

4,960

Operating lease liabilities

(7,207)

(7,597)

Other accrued liabilities

 

35,422

34,845

Deferred revenue

 

(384)

(40,557)

Cash used in operating activities

 

(350,374)

 

(236,500)

Investing activities

Purchases of investments

(86,947)

(674,372)

Proceeds from sale of investments

214,738

77,563

Proceeds from maturity of investments

216,500

348,410

Purchases of property and equipment, net

 

(35,870)

(32,027)

Cash paid for acquisition of an asset

(4,271)

Cash provided by (used in) investing activities

 

308,421

 

(284,697)

Financing activities

 

 

 

Proceeds from exercise of stock options

5,971

10,774

Proceeds from issuance of common stock under employee stock purchase plan

8,496

6,085

Proceeds from public offering, net of issuance cost

550,814

Cash provided by financing activities

 

14,467

 

567,673

Net increase in cash, cash equivalents and restricted cash

 

(27,486)

 

46,476

Cash, cash equivalents and restricted cash, beginning of period

 

84,614

 

48,855

Cash, cash equivalents and restricted cash, end of period

 

$

57,128

 

$

95,331

Supplemental disclosure of cash flow information:

Cash paid for interest

$

4,008

$

3,690

 

 

 

 

Non-cash investing and financing activities:

Purchases of property and equipment in accounts payable and accruals

$

458

$

4,957

See accompanying notes to the unaudited interim condensed consolidated financial statements.

9

Natera, Inc.

Notes to Unaudited Interim Condensed Consolidated Financial Statements

1. Description of Business

Natera, Inc. (the “Company”) was formed in the state of California as Gene Security Network, LLC in November 2003 and incorporated in the state of Delaware in January 2007. The Company is a diagnostics company with proprietary molecular and bioinformatics technology that it is applying to change the management of disease worldwide. The Company’s cell-free DNA (“cfDNA”) technology combines its novel molecular assays, which reliably measure many informative regions across the genome from samples as small as a single cell, with its statistical algorithms which incorporate data available from the broader scientific community to identify genetic variations covering a wide range of serious conditions with high accuracy and coverage. The Company’s technology has been proven clinically and commercially in the women’s health space, in which it develops and commercializes non- or minimally-invasive tests to evaluate risk for, and thereby enable early detection of, a wide range of genetic conditions, such as Down syndrome.  The Company is now translating its success in women’s health and applying its core technology to the oncology market, in which it is commercializing a personalized blood-based DNA test to detect molecular residual disease and monitor disease recurrence, as well as to the organ health market, initially with a test to assess kidney transplants for rejection. The Company operates laboratories certified under the Clinical Laboratory Improvement Amendments ("CLIA") providing a host of cell-free DNA-based molecular testing services. The Company determines its operating segments based on the way it organizes its business to make operating decisions and assess performance. The Company operates one segment, the development and commercialization of molecular testing services, applying its proprietary technology in the fields of women’s health, oncology and organ health. The Company has three subsidiaries.

The Company's product offerings include its Panorama Non-Invasive Prenatal Test ("NIPT") that screens for chromosomal abnormalities of a fetus as well as in twin pregnancies, typically with a blood draw from the mother; Vistara, a single-gene mutations screening test performed to identify single-gene disorders; Horizon Carrier Screening ("HCS") to determine carrier status for a large number of severe genetic diseases that could be passed on to the carrier’s children; Spectrum Pre-implantation Genetics (“Spectrum”) to evaluate embryos to identify chromosomal anomalies or inherited genetic conditions to improve the chances of a healthy pregnancy during an in vitro fertilization ("IVF") cycle; Anora Miscarriage Test (“Anora”) to rapidly and extensively analyze fetal chromosomes to understand the cause of miscarriage; Non-Invasive Paternity Testing (“PAT”), which is exclusively marketed and sold by a licensee from whom the Company receives a royalty; Signatera, which detects circulating tumor DNA in patients previously diagnosed with cancer to assess molecular residual disease and monitor for recurrence; and Prospera, to assess organ transplant rejection. All testing is available principally in the United States. The Company also offers its Panorama test to customers outside of the United States, primarily in Europe. The Company also offers Constellation, a cloud-based software platform that enables laboratory customers to gain access through the cloud to the Company’s algorithms and bioinformatics in order to validate and launch their own tests based on the Company’s technology.

2. Summary of Significant Accounting Policies

During the nine months ended September 30, 2022, there were no material changes to the Company’s significant accounting policies as disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (filed on February 25, 2022).

Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information. The unaudited interim condensed consolidated financial information includes only adjustments of a normal recurring nature necessary for a fair presentation of the results of operations, financial position, changes in stockholders’ equity, and cash flows. The results of operations for the nine months ended September 30, 2022, are not necessarily indicative of the results for the full year or the results for any future periods. The condensed consolidated balance sheet as of December 31, 2021 has been derived from audited financial statements at that date. These financial statements should be read in conjunction

10

with the audited financial statements, and related notes for the year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K filed with the SEC on February 25, 2022. 

Some items in the prior period financial statements were reclassified to conform to the current presentation.