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Natera Q4 Revenues Grow 9 Percent as Firm Misses Analyst Expectations

This article has been updated from a previous version to include comments made by Natera executives during an earnings call.

NEW YORK (GenomeWeb) – Natera reported after the close of the market Tuesday that its fourth quarter revenues grew about 9 percent year over year as the company fell short of Wall Street expectations on both the top and bottom lines.

For the three months ended Dec. 31, 2017, Natera tallied revenues of $53.8 million compared to $49.3 million a year ago. Analysts on average had expected Q4 revenues of $57.1 million.

Natera said that Q4 revenues were affected by approximately $4.0 million in one-time delays in payments related to the implementation of new prior authorization requirements.

"With the launch of a number of prior authorization programs in Q4, we took extra precautions with our claim submissions, which resulted in a temporary slowdown in submissions to payers," Natera CEO Matthew Rabinowitz said in a conference call recapping the firm's earnings. "In January and February, we substantially eliminated this billing backlog and expect to collect cash on these claims consistently with our past history."

The San Marcos, California-based company said that in Q4 total testing volume grew 17 percent, with approximately 137,800 tests processed compared to about 117,500 tests processed in the year-ago period. Processed tests for the recently completed quarter included 129,700 tests accessioned in Natera's laboratory and 8,100 tests processed through its Constellation software platform.

Natera accessioned approximately 97,000 Panorama tests in Q4 compared to 88,600 a year ago, an increase of 7 percent. The company also accessioned about 34,400 Horizon carrier screening (HCS) tests in Q4 compared to 22,100 in the year-ago period, an increase of 54 percent.

On Monday, Natera and Qiagen announced that they have inked a 10-year agreement to develop cell-free DNA assays for use on Qiagen's GeneReader next-generation sequencing system for the purposes of prenatal screening.

Under the agreement, Natera's Constellation cloud software platform will be accessible to users of the assays through Qiagen's Clinical Insights bioinformatics platform. Qiagen will pay Natera $40 million upfront in the first quarter of 2018, consisting of a technology access fee and prepaid royalty, Rabinowitz said during the call. Qiagen will also pay Natera $10 million upon the completion of key milestones.

"We believe that the value of this deal is likely to be substantially more than $50 million as it includes recording royalties on Qiagen's sales of sequencers and reagent kits, enabled by Natera's proprietary technology once the prepaid royalties have been earned," Rabinowitz said, adding that about $5 million of the milestone payments is tied to Natera support activities with the balance tied to commercial milestones.

Total operating expenses in Q4 2017, including R&D and SG&A expenses, grew 27 percent to $62.0 million from $49.0 million a year ago. This increase was driven primarily by a spike in personnel-related expenses, clinical trial and research expenses, and higher facility and related costs, Natera said.

Earlier this week Natera agreed to pay $11.4 million with no admission of wrongdoing to settle a lawsuit with the US government related to false billing claims that the company allegedly submitted to several government health programs.

During the earnings call, Natera CFO Michael Brophy noted that the spike in operating expesnes was largely a result of the settlement. The company accrued a legal expense for the full amount of the settlement in Q4 and plans to pay out most of the cash in increments in 2018.

"There are frequently legitimate differences of opinion with government reimbursement of cutting-edge novel services such as Natera's," Brophy said during the call. "We feel strongly that we complied with the applicable laws and regulations, and throughout we provided our valuable services in good faith and with transparency."

Brophy added that Natera "vigorously disputed all the government's allegations. Nonetheless, given the expense, time, and effort required to litigate these types of cases, all the way to a jury trial and ... subsequent appeals processes, we felt it was clearly in Natera's best interests to settle the case now."

Net loss in Q4 2017 was $45.5 million, or $.87 per share, compared to a net loss of $37.9 million, or $.72 per share, in the same quarter in 2016. Natera's loss per share exceeded the average Wall Street expectation of a loss per share of $.47.

Natera finished the quarter with $12.6 million in cash and cash equivalents and $106.2 million in short-term investments.

For full-year 2017, Natera's revenues fell 3 percent to $210.9 million from $217.1 million in 2016, falling short of analysts' average estimate of $214.6 million. This decrease was primarily driven by the combined effect of lower average selling price collected from in-network payers for Panorama, partially offset by an increased volume of HCS tests accessioned, in addition to the Q4 payment delays.

The company processed about 515,200 tests in 2017 compared to 447,600 tests in 2016. This included about 366,000 Panorama tests compared to 343,000 Panorama tests in 2016, an increase of 7 percent; and approximately 124,800 HCS tests compared to 81,000 HCS tests in 2016, an increase of 54 percent.

Natera's 2017 R&D expenses increased about 20 percent to $50.1 million from $41.9 million in 2016, while its SG&A expenses grew 14 percent to $155.3 million from $136.1 million.

Net loss in 2017 was $136.3 million, or $2.56 per share, compared to a net loss of $95.8 million, or $1.86 per share, in 2016. On average, analysts expected a loss per share of $2.18.

Natera said that in 2018 it anticipates total revenues of $250 million to $275 million. On average, analysts are expecting 2018 revenues of about $246.1 million.

"We have stated in previous calls that around this timeframe we expected to see revenues start to more closely track our strong volume growth as [average selling price] stabilized," Rabinowitz said during the call. "We are pleased to see that this trend is starting to occur as we predicted and we believe that in 2018, we will see a return to strong revenue growth."