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Test Volumes Drive Natera Q1 Revenues Up 25 Percent

This article was updated from a version posted May 10, to include information regarding the effect of an updated reimbursement policy on Natera's kidney transplant business.

NEW YORK – Natera reported after the close of the market on Tuesday year-over-year revenue gains of nearly 25 percent for the first quarter of 2023.

The Austin, Texas-based company finished the three months ended March 31 with $241.8 million in revenues compared to $194.1 million for the same quarter in 2022, beating analysts' average estimate of $227.7 million.

In an after-market call with investors, CEO Steve Chapman commented that long-term strategies enacted over the past year helped drive the test volume growth that underlay the firm's revenue results.

"One was our decision to continue operating in California and to participate in a prenatal screening program that went into effect last fall, when most lab providers opted to not participate," Chapman said.

Following that decision, Blue Cross Blue Shield (BCBS) of California began covering Signatera for multiple cancer indications. The firm also obtained a similar coverage decision from BCBS of Louisiana.

Chapman also highlighted the company's decision to invest in driving Signatera volumes.

"Because of the growth ramp and the upfront expense, Signatera's margin profile is lower than our overall company margin," he said, adding that the firm expects to continue lowering costs while increasing the test's average selling price through "various initiatives."

In the first quarter of 2023, Natera processed approximately 626,200 tests overall compared to approximately 489,300 tests in the same quarter of last year.

Chapman commented that despite seeing some disruption in kidney transplant volumes, these were partially offset by strong heart transplant test volumes. Kidney transplant volumes also saw some disruption from an update in reimbursement guidance from Palmetto MolDx in March. 

The update limited reimbursement to one test per patient encounter, provided new coding to define surveillance and for-cause testing, redefined acceptable surveillance testing as compliant only for patients enrolled in centers that utilize surveillance protocols and would otherwise receive such testing, and no longer reimburses for-cause tests unless used in place of a biopsy or to confirm biopsy results.

"We’re seeing some modest disruption in the wake of the updated Medicare policy," Chapman said, "but...this isn’t making an impact in the context of our overall business."

John Fesko, Natera's chief business officer, added that pharma volumes favoring the prior quarter partially masked growth in clinical oncology test volumes during the recently completed quarter.

"Typically," he said, "pharma companies will order a larger number of tests in Q4 as they need to utilize excess budget for the year. Our clinical volumes were actually up roughly 17 percent sequentially just since Q4 of 2022, and we've seen continued strong momentum so far in Q2. "

Natera's R&D spending rose 2 percent year over year to $82.3 million from $80.4 million, while SG& A expenses grew 1 percent to $149.6 million from $147.6 million a year ago. Its net loss decreased to $136.9 million, or $1.23 per share, from $138.6 million, or $1.45 per share, in the same quarter a year ago.

The firm raised revenue guidance for 2023 to a new range of between $995 million and $1.02 billion from its prior estimate of $980 million to $1.00 billion.

"We prefer to be cautious with these raises earlier in the year," commented CFO Mike Brophy. "I think that strong women's health performance in Q1 driven by account wins sets us up for a great year."

He added that the firm was mindful of seasonality, especially in the summer months, and would be monitoring its potential impact on guidance.

Natera ended Q1 with $403.1 million in cash, cash equivalents, and restricted cash and $408.9 million in short-term investments.