Natera, Inc 10-Q for FY2020 Q2

Natera, Inc. (NTRA)

10-Q 2020-08-07 For: 2020-06-30

Added on April 10, 2026

About this 10-Q

Natera, Inc filed this 10-Q on August 7, 2020, covering the quarter ended June 30, 2020 (FY2020 Q2).

Headline figures

Quarter ended June 30, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $86.47M; up 16.3% from $74.36M a year earlier
Net loss: $59.64M; compared with a net loss of $32.42M a year earlier

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Delaware	01-0894487
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)



201 Industrial Road, Suite 410 San Carlos, CA	94070
(Address of Principal Executive Offices)	(Zip Code)



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)


Large accelerated filer	⌧	Accelerated filer	◻
Non-accelerated filer	◻	Smaller reporting company	◻
		Emerging growth company	◻


		Page

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Part I — Financial Information
	Item 1. Financial Statements (unaudited)	5
	Condensed Consolidated Balance Sheets at June 30, 2020 and December 31, 2019	5
	Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Six months Ended June 30, 2020 and 2019	6
	Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six months Ended June 30, 2020 and 2019	7
	Condensed Consolidated Statements of Cash Flows for the Six months Ended June 30, 2020 and 2019	9
	Notes to Unaudited Interim Condensed Consolidated Financial Statements	10
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	37
	Item 3. Quantitative and Qualitative Disclosures About Market Risk	49
	Item 4. Controls and Procedures	49

Part II — Other Information
	Item 1. Legal Proceedings	50
	Item 1A. Risk Factors	51
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	90
	Item 3. Defaults Upon Senior Securities	91
	Item 4. Mine Safety Disclosures	91
	Item 5. Other Information	91
	Item 6. Exhibits	92
	Signatures	93


	June 30,		December 31,
	2020		2019
(in thousands, except par value per share amount)	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	77,322	$	61,926
Restricted cash		55		55
Short-term investments		493,852		379,065
Accounts receivable, net of allowance of $3,080 in 2020 and $2,919 in 2019		58,706		53,351
Inventory		18,033		12,394
Prepaid expenses and other current assets, net		15,536		16,376
Total current assets		663,504		523,167
Property and equipment, net		25,925		23,283
Operating lease right-of-use assets		21,475		23,730
Other assets		12,357		12,476
Total assets	$	723,261	$	582,656
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	3,450	$	8,604
Accrued compensation		16,583		16,088
Other accrued liabilities		53,082		49,043
Deferred revenue, current portion		52,392		56,016
Short-term debt financing		50,053		50,123
Total current liabilities		175,560		179,874
Long-term debt financing		197,476		73,656
Deferred revenue, long-term portion		22,533		23,808
Operating lease liabilities, long-term portion		23,115		26,297
Other long-term liabilities		310		310
Total liabilities		418,994		303,945

Commitments and contingencies (Note 8)

Stockholders’ equity:
Common stock, $0.0001 par value: 750,000 shares authorized at both June 30, 2020 and December 31, 2019, respectively; 79,717 and 78,005 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively		8		8
Additional paid in capital		1,093,072		976,955
Accumulated deficit		(794,583)		(699,171)
Accumulated other comprehensive income		5,770		919
Total stockholders’ equity		304,267		278,711
Total liabilities and stockholders’ equity	$	723,261	$	582,656


	Three months ended				Six months ended
	June 30,				June 30,
	2020		2019		2020		2019
(in thousands, except per share data)
Revenues
Product revenues	$	80,414	$	65,099	$	167,460	$	128,463
Licensing and other revenues		6,058		9,256		13,024		12,716
Total revenues		86,472		74,355		180,484		141,179
Cost and expenses
Cost of product revenues		42,731		41,382		84,251		82,987
Cost of licensing and other revenues		4,208		2,443		7,666		4,141
Research and development		23,005		12,124		41,230		23,559
Selling, general and administrative		68,188		47,042		133,869		90,874
Total cost and expenses		138,132		102,991		267,016		201,561
Loss from operations		(51,660)		(28,636)		(86,532)		(60,382)
Interest expense		(4,038)		(2,721)		(6,502)		(5,445)
Interest and other income, net		1,924		836		3,911		1,289
Loss on debt extinguishment		(5,848)		—		(5,848)		—
Loss before income taxes		(59,622)		(30,521)		(94,971)		(64,538)
Income tax expense		(15)		(1,895)		(38)		(1,969)
Net loss	$	(59,637)	$	(32,416)	$	(95,009)	$	(66,507)
Unrealized gain on available-for-sale securities, net of tax		104		1,061		4,850		1,347
Comprehensive loss	$	(59,533)	$	(31,355)	$	(90,159)	$	(65,160)

Net loss per share (Note 12):
Basic and diluted	$	(0.75)	$	(0.48)	$	(1.21)	$	(1.01)
Weighted-average number of shares used in computing basic and diluted net loss per share:
Basic and diluted		79,069		68,224		78,681		65,542


	Three months ended June 30, 2019
	Common Stock			Additional Paid-in		Accumulated Other Comprehensive		Accumulated		Total Stockholders'
(in thousands)	Shares	Amount		Capital		Income		Deficit		Equity
Balance as of March 31, 2019	63,340	$	7	$	613,680	$	(266)	$	(608,435)	$	4,986
Issuance of common stock upon exercise of stock options	398		—		3,405		—		—		3,405
Issuance of common stock under employee stock purchase plan	132		—		2,147		—		—		2,147
Issuance of common stock for public offering, net	6,053		—		107,595		—		—		107,595
Issuance of common stock to Orbimed	25		—		506		—		—		506
Vesting of restricted stock	87		—		—		—		—		—
Stock-based compensation	—		—		5,804		—		—		5,804
Unrealized gain on available-for sale securities	—		—		—		1,061		—		1,061
Net loss	—		—		—		—		(32,416)		(32,416)
Balance as of June 30, 2019	70,035	$	7	$	733,137	$	795	$	(640,851)	$	93,088


	Six months ended June 30, 2019
	Common Stock			Additional Paid-in		Accumulated Other Comprehensive		Accumulated		Total Stockholders'
(in thousands)	Shares	Amount		Capital		Income		Deficit		Equity
Balance as of December 31, 2018	62,083	$	7	$	607,236	$	(552)	$	(574,529)	$	32,162
Issuance of common stock upon exercise of stock options	1,468		—		5,983		—		—		5,983
Issuance of common stock under employee stock purchase plan	132		—		2,147		—		—		2,147
Issuance of common stock for public offering, net	6,053		—		107,595		—		—		107,595
Issuance of common stock to Orbimed	25		—		506		—		—		506
Vesting of restricted stock	274		—		—		—		—		—
Stock-based compensation	—		—		9,855		—		—		9,855
Unrealized gain on available-for sale securities	—		—		—		1,347		—		1,347
Cumulative-effect adjustment upon adoption of ASU 2018-07	—		—		(185)		—		185		—
Net loss	—		—		—		—		(66,507)		(66,507)
Balance as of June 30, 2019	70,035	$	7	$	733,137	$	795	$	(640,851)	$	93,088


	Three months ended June 30, 2020
	Common Stock			Additional Paid-in		Accumulated Other Comprehensive		Accumulated		Total Stockholders'
(in thousands)	Shares	Amount		Capital		Income		Deficit		Equity
Balance as of March 31, 2020	78,652	$	8	$	988,199	$	5,666	$	(734,946)	$	258,927
Issuance of common stock upon exercise of stock options	680		—		6,981		—		—		6,981
Issuance of common stock under ESPP	97		—		3,062		—		—		3,062
Equity component of Convertible Notes, net	—		—		82,873		—		—		82,873
Vesting of restricted stock	288		—		—		—		—		—
Stock-based compensation	—		—		11,957		—		—		11,957
Unrealized gain on available-for sale securities	—		—		—		104		—		104
Net loss	—		—		—		—		(59,637)		(59,637)
Balance as of June 30, 2020	79,717	$	8	$	1,093,072	$	5,770	$	(794,583)	$	304,267


	Six months ended June 30, 2020
	Common Stock			Additional Paid-in		Accumulated Other Comprehensive		Accumulated		Total Stockholders'
(in thousands)	Shares	Amount		Capital		Income		Deficit		Equity
Balance as of December 31, 2019	78,005	$	8	$	976,955	$	920	$	(699,171)	$	278,711
Issuance of common stock upon exercise of stock options	1,037		—		10,808		—		—		10,808
Issuance of common stock under ESPP	97		—		3,062		—		—		3,062
Equity component of Convertible Notes, net	—				82,873		—		—		82,873
Vesting of restricted stock	578		—		—		—		—		—
Stock-based compensation	—		—		19,374		—		—		19,374
Unrealized gain on available-for sale securities	—		—		—		4,850		—		4,851
Cumulative-effect adjustment upon adoption of ASU 2016-13	—				—		—		(403)		(403)
Net loss	—		—		—		—		(95,009)		(95,009)
Balance as of June 30, 2020	79,717	$	8	$	1,093,072	$	5,770	$	(794,583)	$	304,267


	Balance at		Balance at
	June 30,		December 31,
(in thousands)	2020		2019
Assets:
Accounts receivable	$	58,706	$	53,351
Liabilities:
Deferred revenue, current portion	$	52,392	$	56,016
Deferred revenue, long-term portion		22,533		23,808
Total deferred revenues	$	74,925	$	79,824


	Deferred
	Revenues
(in thousands)
Balance at December 31, 2019	$	79,824
Increase in deferred revenues		746
Revenue recognized during the period that was included in deferred revenues at the beginning of the period		(4,943)
Revenue recognized from performance obligations satisfied within the same period		(702)
Balance at June 30, 2020	$	74,925


	June 30, 2020								December 31, 2019
	Level I		Level II		Level III		Total		Level I		Level II		Level III		Total

	(in thousands)
Financial Assets:
Money market deposits	$	28,795	$	—	$	—	$	28,795	$	22,477	$	—	$	—	$	22,477
U.S. Treasury securities		404,416		—		—		404,416		293,157		—		—		293,157
Municipal securities		—		89,436		—		89,436		—		85,908		—		85,908
Total financial assets	$	433,211	$	89,436	$	—	$	522,647	$	315,634	$	85,908	$	—	$	401,542


	June 30, 2020								December 31, 2019
	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Estimated Fair Value		Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss			Estimated Fair Value

	(in thousands)
Money market deposits	$	28,795	$	—	$	—	$	28,795	$	22,477	$	—	$	—	$	22,477
U.S. Treasury securities (1)		399,622		4,820		(26)		404,416		292,506		731		(80)		293,157
Municipal securities		88,460		981		(5)		89,436		85,638		277		(7)		85,908
Total	$	516,877	$	5,801	$	(31)	$	522,647	$	400,621	$	1,008	$	(87)	$	401,542

Classified as:						—
Cash equivalents (2)							$	28,795							$	22,477
Short-term investments								493,852								379,065
Total							$	522,647							$	401,542


	June 30, 2020
	Amortized Cost		Fair Value

(in thousands)
Less than one year	$	264,713	$	265,534
Greater than one year but less than five years		223,369		228,318
Total	$	488,082	$	493,852


		June 30,		December 31,
	Useful Life	2020		2019

(in thousands)
Machinery and equipment	3-5 years	$	45,801	$	36,414
Furniture and fixtures	3 years		1,376		1,376
Computer equipment	3 years		2,311		1,828
Capitalized software held for internal use	3 years		6,578		5,917
Leasehold improvements	Lesser of useful life or lease term		12,968		11,556
Construction-in-process			2,376		7,716
			71,410		64,807
Less: Accumulated depreciation and amortization			(45,485)		(41,524)
Total Property and Equipment, net		$	25,925	$	23,283


	Operating Leases
	(in thousands)
Year ending December 31:
2020 (remaining 6 months)	$	4,439
2021		9,067
2022		9,319
2023		7,797
2024		2,400
2025 and thereafter		4,730
		37,752
Less: imputed interest		(8,477)
Operating lease liabilities	$	29,275


Party	Commitments		Expiry Date
		(in thousands)
Laboratory instruments supplier	$	5,525	December-2021
Material supplier		11,220	May-2030
Application service providers		8,727	Jan-21 - Dec-24
Gene sequencing reagents and kits provider		473	April-2021
Software Development Provider		1,442	December-2024
Other material suppliers		8,841	Various
Total	$	36,228


Period Granted	Options Granted	RSUs Granted	Options Vested	RSUs Vested	Milestone	Valuation Method
(in thousands)
Q1 2019	200	300	119	184	(1)	Monte-Carlo Simulation
Q2 2019	—	188	—	—	(2)	Fair Market Value
Q3 2019	—	50	—	25	(1)	Monte-Carlo Simulation
Q1 2020	150	300	—	—	(1)	Monte-Carlo Simulation
Q1 2020	—	436	—	—	(3)	Fair Market Value
Q1 2020	129	—	—	—	(3)	Black-Scholes-Merton
Q2 2020	—	21	—	—	(3)	Fair Market Value


	June 30,
	2020
Risk-free interest rate		0.61	%	—	1.64	%
Expected dividend yield					0.00	%
Expected volatility		55	%	—	65	%
Expected term (years)		5.25		—	7.25


	Outstanding Options
					Weighted-
			Weighted-		Average
	Shares		Average		Remaining	Aggregate
	Available for	Number of	Exercise		Contractual	Intrinsic
	Grant	Shares	Price		Life	Value
(in thousands, except for contractual life and exercise price)					(In years)
Balance at December 31, 2019	6,416	8,497	$	10.39	6.88	$	197,955
Additional shares authorized	3,120	—
Options granted	(446)	446	$	26.75
Options exercised	—	(1,037)	$	10.42
Options forfeited/cancelled	84	(84)	$	16.00
RSUs granted	(4,670)	—
RSUs forfeited/cancelled	210	—
Balance at June 30, 2020	4,714	7,822	$	11.26	6.55	$	301,915
Exercisable at June 30, 2020		5,523	$	5.77	8.84	$	226,552
Vested and expected to vest at June 30, 2020		7,682	$	11.16	6.52	$	297,314



		Weighted-
		Average
		Grant Date
	Shares	Fair Value
(in thousands, except for grant date fair value)
Balance at December 31, 2019	2,404	$	19.86
Granted	2,335	$	27.89
Vested	(578)	$	15.50
Cancelled/forfeited	(105)	$	21.58
Balance at June 30, 2020	4,056	$	24.10


	Three months ended June 30,
	2020						2019
	Employee		Non-Employee		Total		Employee		Non-Employee		Total

	(in thousands)
Cost of revenues	$	441	$	—	$	441	$	215	$	10	$	225
Research and development		2,631		282		2,913		1,264		—		1,264
Selling, general and administrative		8,527		76		8,603		4,226		89		4,315
Total	$	11,599	$	358	$	11,957	$	5,705	$	99	$	5,804


	Six months ended June 30,
	2020						2019
	Employee		Non-Employee		Total		Employee		Non-Employee		Total

	(in thousands)
Cost of revenues	$	755	$	—	$	755	$	383	$	10	$	393
Research and development		4,313		442		4,755		2,157		—		2,157
Selling, general and administrative		13,779		85		13,864		6,873		432		7,305
Total	$	18,847	$	527	$	19,374	$	9,413	$	442	$	9,855


	Three Months Ended
	June 30,				Change
	2020		2019		Amount		Percent
(in thousands except percentages)
Revenues
Product revenues	$	80,414	$	65,099	$	15,315	23.5	%
Licensing and other revenues		6,058		9,256		(3,198)	(34.6)
Total revenues		86,472		74,355		12,117	16.3
Cost and expenses
Cost of product revenues		42,731		41,382		1,349	3.3
Cost of licensing and other revenues		4,208		2,443		1,765	72.2
Research and development		23,005		12,124		10,881	89.7
Selling, general and administrative		68,188		47,042		21,146	45.0
Total cost and expenses		138,132		102,991		35,141	34.1
Loss from operations		(51,660)		(28,636)		(23,024)	80.4
Interest expense		(4,038)		(2,721)		(1,317)	48.4
Interest and other income, net		1,924		836		1,088	130.1
Loss on debt extinguishment		(5,848)		—		(5,848)	100.0
Loss before income taxes		(59,622)		(30,521)		(29,101)	95.3
Income tax expense		(15)		(1,895)		1,880	(99.2)
Net loss	$	(59,637)	$	(32,416)	$	(27,221)	84.0	%


		Incorporated by Reference
Exhibit No.	Description	Form	File No.	Exhibit	Filing Date	Filed Herewith
4.1	Indenture (including form of Note) with respect to the Company’s 2.25% Convertible Senior Notes due 2027, dated as of April 16, 2020, between the Company and Wilmington Trust, National Association, as trustee	8-K	001-37478	4.1	04/16/2020
10.1*	Sixth Amendment to Supply Agreement, dated May 8, 2020, by and between Registrant and Illumina, Inc.					X
31.1	Certification of Principal Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.					X
31.2	Certification of Principal Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.					X
32.1†	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.					X
32.2†	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.					X
101.INS	XBRL Instance Document.					X
101.SCH	XBRL Taxonomy Extension Schema Document.					X
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.					X
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.					X



	NATERA, INC.

Date: August 6, 2020	By:	/ s / Steve Chapman
	Name:	Steve Chapman
	Title:	Chief Executive Officer, President, and Director
		(Principal Executive Officer)

	By:	/ s / Michael Brophy
	Name:	Michael Brophy
	Title:	Chief Financial Officer
		(Principal Financial and Accounting Officer)

Annualized NIPT Test Volume	Initial NIPT Test Fee	NIPT Test Fee after Reduction Event*
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Natera, Inc.		Illumina, Inc.

By:	/s/ John Fesko	By:	/s/ Mark Van Oene

Name:	John Fesko	Name:	Mark Van Oene

Title:	Chief Business Officer	Title:	Chief Commercial Officer

Date:	5/18/20	Date:	May 8, 2020

			[*]	[*]	[*]
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*[] Consumables Part Number**	Product Name	Current List price
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	[*]		[*]
Overall Sequencing Consumable Spend	S1, S2, SP Discount*	S4 Discount	S1, S2, SP Discount	S4 Discount
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3
Date: August 6, 2020	By:	/s/ Steve Chapman
	Name:	Steve Chapman
	Title:	Chief Executive Officer and President
		(Principal Executive Officer)

3
Date: August 6, 2020	By:	/ s / Steve Chapman
	Name:	Steve Chapman
	Title:	Chief Executive Officer and President
		(Principal Executive Officer)