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Natera Raises Full-Year Revenue Guidance on Test Volume Growth, Rosy Reimbursement Outlook


NEW YORK – Natera on Thursday significantly raised its 2023 revenue guidance on the back of strong test volume growth, promising clinical study data, and confidence for the inclusion of minimal residual disease (MRD) testing in National Comprehensive Cancer Network (NCCN) guidelines.

Additional potential growth drivers include a surge in carrier screening last quarter, whose revenues were realized in the recently completed second quarter, and optimism regarding the firm's ability to defend its intellectual property.

"We believe we are on track to get all the financial goals we set for this year and beyond," Natera CEO Steve Chapman said in a conference call with analysts following releases of the firm's Q2 earnings.

The Austin, Texas-based firm saw year-over-year test volumes grow 24 percent, processing 617,200 tests in Q2, including 599,000 tests accessioned in its laboratory, compared to approximately 499,900 tests (484,000 accessioned in its laboratory) in Q2 2022. This translated to $261.4 million in Q2 revenues compared to $198.2 million a year ago and beating analysts' average estimate of $242.1 million.

In Q2, Natera presented data from three clinical trials and published the results of a fourth.

In June at the American Society of Clinical Oncology annual meeting the company presented data from the Empower Lung trial, which Natera asserted validated the predictive nature of circulating tumor DNA (ctDNA) dynamics in lung cancer patients receiving immunotherapy. Specifically, the company showed that patients with an early increase in ctDNA had the highest risk of death.

"With Medicare coverage already in place for IO [immune-oncology] monitoring across solid tumors, including in lung cancer, we believe this data can help support broader adoption and perhaps broader reimbursement," Solomon Moshkevich, the firm's general manager of oncology, said during the call.

Moshkevich also said that results from over 1,000 colorectal cancer (CRC) patients in the Intercept trial, run by the MD Anderson Cancer Center, demonstrated the feasibility and utility of routine surveillance via Signatera, Natera's personalized, tumor-informed ctDNA panels. Nearly half of the study participants with detectable ctDNA, for instance, also had radiologic evidence of disease, creating an opportunity for early intervention.

"This study indicates strong clinical utility, enabling early therapeutic interventions for patients with metastatic disease as well as enrollment into clinical trials, Moshkevich said.

In June, the firm also announced completion of enrollment into the Phase III Altair trial, the ctDNA-guided treatment escalation arm of the CIRCULATE-Japan study.

The firm's Prospera donor-derived cell-free DNA allograft monitoring platform also got a boost from positive data from the ProActive kidney transplant trial, presented at the American Transplant Congress, demonstrating the test's ability to predict antibody-mediated rejection up to four months prior to biopsy and to detect T cell-mediated rejection up to two months prior.

"We look forward to publishing data from the ProActive study as early as the end of this year and sharing additional readouts," Chapman said.

Finally, Natera is submitting its published data from the GALAXY arm of the CIRCULATE-Japan study to the NCCN for consideration of including MRD testing by Signatera in that organization's guidelines.

In breast cancer specifically, Moshkevich acknowledged that more would be needed to achieve wider adoption and reimbursement. To that end, Natera is planning and conducting additional biobank studies and randomized clinical trials with larger cohorts and longer follow-up periods.

"We have multiple Phase II and Phase III studies in the pipeline across all subtypes," Moshkevich said, "but with extra emphasis in HR+/HER2- disease given the size of that population."

The only two of those studies announced to date are the Phase II DARE and LEADER studies in HR-positive, HER2-negative breast cancer, in which patients are monitored in the surveillance setting and offered treatment upon molecular recurrence.

Natera also benefited in Q2 from realizing revenues from a "surge" in first quarter carrier screening volumes.

"I'd estimate that to be about a $4 million revenue benefit for the quarter," said Mike Brophy, the firm's CFO.

Further bolstering the company's hopes for continued growth in its women's health business, Chapman noted that Natera published a fourth paper this quarter from the prospective SMART study, in which over 20,000 women were screened with the Panorama non-invasive prenatal testing (NIPT) assay.

"This real-world data confirmed Panorama's excellent performance with screening for sex chromosome aneuploidy across over 17,000 pregnancies and all screening results were validated with clinical outcomes," Chapman said.

The combined weight of positive clinical study data and steadily increasing test adoption, with strong possibilities for wider reimbursement, as well as reduced cash burn from streamlined operations such as improved billing procedures, encouraged the firm to raise its 2023 revenue guidance to a range of $1.015 billion to $1.035 billion from a previous range of $995 million to $1.015 billion.

"We're on track to reduce our annual cash burn this year by roughly $150 million," Brophy said.

Natera reduced its Q2 R&D expenditures by 5 percent year over year to $78.2 million from $82.6 million. Meanwhile, the firm's SG&A expenses rose 2 percent to $152.5 million from $149.5 million.

Brophy noted that the new revenue guidance reflects recent updates to a coverage decision by Palmetto MolDx, the impact of which was offset somewhat by other reimbursement decisions.

Natera this quarter also benefited from several favorable legal judgements in ongoing patent infringement lawsuits.

In May, a jury in the US District Court for the District of Delaware awarded Natera $19.4 million in damages for lost profits and royalties of 10 percent in a patent lawsuit against Invitae and ArcherDx. Natera is currently seeking an injunction against those companies and if not granted, Chapman said that the firm will ask the judge to award ongoing royalties higher than 10 percent.

In July, that same court voided an earlier ruling that had awarded CareDx $21.2 million in compensatory damages and $23.7 million in punitive damages due to false advertising. The court ruled that despite the findings of false advertising, it could not be conclusively linked to customer reliance on those ads.

"We have a very strong portfolio of intellectual property related to cell-free DNA, particularly in the field of oncology," Chapman said.

Natera's Q2 net loss was $110.8 million, or $0.97 per share, compared to approximately $145.2 million, or $1.50 per share in the same quarter last year. Analysts, on average, had predicted a $1.09 loss per share.

The company ended the quarter with approximately $381.1 million in cash, cash equivalents, and restricted cash and $354.8 million in short-term investments.

"We've seen a linear improvement in these last four quarters," Brophy said. "I think that's good evidence that we are on track to reach cashflow breakeven in a quarter in 2024."

In morning trading on the Nasdaq, Natera shares were up just over 7 percent, at $50.88.