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Natera management looks past lower reported revenue

March 8, 2017

Natera’s fourth quarter 2016 revenues fell 7 percent compared to the fourth quarter of 2015, the firm reported after the close of the market on Tuesday.

The San Carlos, California-based molecular diagnostics company reported total revenues of $49.3 million for the three months ended Dec. 31, 2016, compared to $52.9 million in Q4 2015. Its Q4 2016 revenue was slightly below the analysts’ average estimate of $49.8 million.

Nonetheless, Natera increased testing volume 22 percent to 117,000 tests accessioned in Q4 2016 from 96,000 tests a year ago. Tests processed in the recently reported quarter included 112,000 that Natera ran in its own laboratory and 5,100 tests processed by its Constellation platform.

Total tests processed in the quarter included approximately 84,000 Panorama noninvasive prenatal tests – an increase of 15 percent from 73,000 Panaroma tests run in Q4 2015 ­– as well as 22,000 Horizon carrier screening tests, an increase of 38 percent from 16,000 Horizon tests run in Q4 2015.

During a conference call discussing Natera’s fourth quarter and full year 2016 performance, CEO Matthew Rabinowitz said that year-over-year revenue reductions were due to several factors.

Approximately $3.3 million in revenue was delayed during the quarter, including $1.8 million in delayed payments from BioReference Laboratories as the firms negotiated the conclusion of their partnership, as well as $1.5 million in delayed insurance payments due to a temporary delay in claims submission from moving the billing operations to Austin, Texas.

In addition, as previously discussed, Rabinowitz said that as the company has increasingly struck in-network agreements with payors, the price per test goes down, even as volumes tend to increase.

Natera’s “strong momentum in volume growth in the quarter and new product launches will further differentiate our offering in the field,” Rabinowitz said on the  call.

Earlier this month, Natera launched a service called Evercord, which will allow new parents to collect and store cord blood and tissue from their newborns. Cord blood stem cells can be used for therapeutic purposes for roughly 75 conditions, but ultimately, Natera’s vision is to offer whole-genome sequencing of newborns.

Natera also plans to launch an additional noninvasive prenatal test for cardiac, neurologic, and other severe conditions that have a combined incidence of 1 out of 600. The test will be launched this year, first in a limited fashion with maternal fetal medicine specialists, Rabinowitz said on the call.

During the quarter, Natera launched version 3 of its Panorama test, with improved performance and testing for 22q microdeletion syndrome, which will reduce the firm’s costs of goods sold, Rabinowitz said. Most clinicians only ordered testing for the 22q microdeletion, rather than the full microdeletion panel, so including that microdeletion with the standard aneuploidy screening will be more efficient.

The Centers for Medicare and Medicaid Services set prices of $802 each for Panorama and microdeletion testing, Rabinowitz said, which will serve as a “meaningful benchmark,” as payors make coverage decisions.

Natera’s net loss in the quarter was $37.9 million, or $.72 per share, up from a net loss of $23.0 million, or $.47 per share in the year-ago period. It was well short of the consensus Wall Street estimate of a loss per share of $.56.

Natera’s R&D expenses were $11.5 million in Q4 2016, up from $7.8 million in Q4 2015, primarily due to increases in the firm’s head count. Its SG&A expenses rose to $37.6 million from $29.7 million in the year-ago period, also due to head count increases and facility expenses.

The firm said it had $15.3 million in cash and cash equivalents, and $130.9 million in short-term investments as of Dec. 31.

For the full year 2016, revenues increased 14 percent to $217.1 million from $190.4 million in 2015, but slightly short of the consensus Wall Street estimate of $217.8 million.

Its net loss in 2016 was $95.8 million, or $1.86 per share, compared to a net loss of $70.3 million, or $2.68 per share in 2015. Analysts, on average, expected a loss of $1.69 per share for 2016.

Tests processed increased by 41 percent to 447,000 in 2016 from 317,000 in 2015.

The firm’s full year 2016 R&D expenses were $41.9 million, up from $27.1 million in 2015, while SG&A expenses grew to $136.1 million from $109.6 million.

In 2017, Natera anticipates between $210 million and $230 million in total revenues. It expects its R&D revenues to be between $45 million and $50 million, and SG&A expenses to be between $135 million and $140 million.

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