On November 6, 2019 Natera, Inc. (NASDAQ: NTRA), a leader in non-invasive genetic testing and the analysis of circulating cell-free DNA, reported financial results for the third quarter ended September 30, 2019 and provided an update on recent business progress (Press release, Natera, NOV 6, 2019, View Source [SID1234550516]).

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Recent Accomplishments & Highlights

Generated total revenues of $77.9 million in the third quarter of 2019 compared to $65.3 million in the third quarter of 2018, an increase of 19%.
Processed over 200,000 tests in the third quarter of 2019, compared to approximately 167,000 tests processed in the third quarter of 2018, an increase of approximately 20%.
Processed approximately 136,000 Panorama tests in the third quarter of 2019, compared to approximately 106,000 Panorama tests processed in the third quarter of 2018, an increase of approximately 28%.
Accessioned approximately 55,000 Horizon carrier screening (HCS) tests in the third quarter of 2019 compared to approximately 44,000 HCS tests accessioned in the third quarter of 2018, an increase of approximately 25%.
Received positive draft local coverage decision from Medicare for reimbursement of Signatera in colorectal cancer.
Completed key technical and commercialization milestones with BGI Genomics.
Entered into partnership to develop and commercialize personalized circulating tumor DNA monitoring assays with Foundation Medicine.
Successfully completed $230 million follow-on equity offering.
"Q3 was in many ways a transformational quarter for Natera," said Steve Chapman, Natera’s CEO. "We continued to see strong momentum in volume growth and improved average selling price per test. We received a positive draft coverage decision for Signatera in colorectal cancer and signed a partnership with Foundation Medicine. We also recently executed a very successful follow-on equity offering which is intended to ensure we are well capitalized for the commercial efforts planned for 2020. We clearly have momentum across the business."

Third Quarter Ended September 30, 2019 Financial Results

Total revenues were $77.9 million in the third quarter of 2019 compared to $65.3 million for the third quarter of 2018, an increase of 19%. The increase in total revenues was driven primarily by increased sales of our Panorama and HCS tests. There were approximately 200,200 tests processed in the third quarter of 2019, including approximately 187,200 tests accessioned and 12,100 processed through the Constellation software platform (Constellation units), compared to approximately 167,200 tests processed in the third quarter of 2018, including approximately 156,600 tests accessioned and 9,500 Constellation units, an overall increase of approximately 20%.

In the three months ended September 30, 2019, Natera recognized revenue on approximately 189,600 tests for which results were reported to customers in the period (tests reported), including approximately 178,000 tests accessioned and 11,600 Constellation units, compared to approximately 154,900 tests reported, including approximately 145,700 tests accessioned and 9,200 Constellation units, in the third quarter of 2018, which represents an increase of approximately 22%.

Total tests reported less Constellation units reported

Natera recognized revenues on approximately 120,100 Panorama tests accessioned and 9,900 Panorama Constellation units in the three months ended September 30, 2019, compared to approximately 100,900 Panorama tests accessioned and 7,800 Panorama Constellation units in the same period in 2018. Natera recognized revenue on approximately 52,600 HCS tests accessioned in the three months ended September 30, 2019, compared to approximately 41,000 HCS tests accessioned in the same period in 2018.

Gross profit for the three months ended September 30, 2019 and 2018 was $34.0 million and $23.6 million, respectively, representing a 44% and 36% gross margin, respectively*. We were able to achieve higher gross margins in Q3 2019 as a result of improved cost of goods sold per test and approximately $6.9 million in licensing revenues earned from the BGI Genomics.

Total operating expenses, representing research and development expenses and selling, general and administrative expenses, for the third quarter of 2019 were $55.1 million, an increase of approximately 8.5% compared to $50.8 million in the same period of the prior year. The increase was driven primarily by higher stock-based compensation expenses, litigation costs, and other outside services, and partially offset by a gain from the sale of the Evercord business of approximately $14.4 million.

Loss from operations for the third quarter of 2019 was $21.1 million compared to $27.2 million for the same period of the prior year.

Net loss for the third quarter of 2019 was $23.1 million, or ($0.33) per basic and diluted share, compared to net loss of $29.6 million, or ($0.49) per basic and diluted share, for the same period in 2018. Weighted average shares outstanding were 70.5 million in the third quarter of 2019.

At September 30, 2019, Natera held $238.4 million in cash, cash equivalents, short-term investments and restricted cash, compared to $158.5 million as of December 31, 2018. As of September 30, 2019, Natera had a total outstanding debt balance of $123.7 million, comprised of $50.1 million with accrued interest under its $50.0 million line of credit with UBS at a variable interest rate of 30-day LIBOR plus 110 bps and a net carrying amount of $73.6 million under its $125.0 million debt facility with OrbiMed Advisors.

2019 Financial Outlook

Natera’s updated outlook incorporates the sale of the Evercord business in the third quarter, which reduced the 2019 revenue outlook by approximately $4 million and increased the cash balance by approximately $10 million. Natera anticipates 2019 total revenue of $295 million to $302 million; 2019 cost of revenues to be approximately 59% to 61% of revenues; selling, general and administrative costs to be approximately $195 million to $205 million; research and development costs to be $52 million to $57 million, and net cash burn to be $65 million to $75 million**.

* Gross profit is calculated as GAAP total revenues less GAAP cost of revenues. Gross margin is calculated as gross profit divided by GAAP total revenues.

** Cash burn is calculated as the sum of GAAP net cash used by operating activities (estimated for 2019 to be between $57 million and $67 million) and GAAP net purchases of property and equipment (estimated for 2019 to be approximately $8 million).