000000008528100078005000P9MP2MNatera, Inc.YesfalseP5Y0001604821--12-31Q3falseUS2020truefalse2020-09-30DEfalsefalseNASDAQLarge Accelerated Filer0001604821us-gaap:CommonStockMember2019-07-012019-09-300001604821us-gaap:CommonStockMember2020-07-012020-09-300001604821us-gaap:CommonStockMember2020-01-012020-09-300001604821us-gaap:CommonStockMember2019-01-012019-09-300001604821us-gaap:RetainedEarningsMember2020-09-300001604821us-gaap:AdditionalPaidInCapitalMember2020-09-300001604821us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-09-300001604821us-gaap:RetainedEarningsMember2020-06-300001604821us-gaap:AdditionalPaidInCapitalMember2020-06-300001604821us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-06-300001604821us-gaap:RetainedEarningsMember2019-12-310001604821us-gaap:AdditionalPaidInCapitalMember2019-12-310001604821us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-12-310001604821us-gaap:RetainedEarningsMember2019-09-300001604821us-gaap:AdditionalPaidInCapitalMember2019-09-300001604821us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-09-300001604821us-gaap:RetainedEarningsMember2019-06-300001604821us-gaap:AdditionalPaidInCapitalMember2019-06-300001604821us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-06-300001604821us-gaap:RetainedEarningsMember2018-12-310001604821us-gaap:AdditionalPaidInCapitalMember2018-12-310001604821us-gaap:AccumulatedOtherComprehensiveIncomeMember2018-12-310001604821us-gaap:PrivatePlacementMember2019-10-170001604821us-gaap:EmployeeStockMember2020-01-012020-09-300001604821ntra:EmployeeAndNonEmployeeOptionsMember2019-01-012019-12-310001604821ntra:NonEmployeeOptionsMember2020-09-300001604821ntra:EmployeeAndNonEmployeeOptionsMemberus-gaap:ValuationTechniqueOptionPricingModelMember2020-07-012020-09-300001604821ntra:EmployeeAndNonEmployeeOptionsMemberus-gaap:ValuationTechniqueOptionPricingModelMember2020-01-012020-03-310001604821ntra:EmployeeAndNonEmployeeOptionsMemberntra:MonteCarloSimulationMember2020-01-012020-03-310001604821ntra:EmployeeAndNonEmployeeOptionsMemberntra:MonteCarloSimulationMember2019-01-012019-03-310001604821ntra:EmployeeAndNonEmployeeOptionsMember2019-12-310001604821us-gaap:ValuationTechniqueOptionPricingModelMember2020-07-012020-09-300001604821us-gaap:MarketApproachValuationTechniqueMember2020-07-012020-09-300001604821us-gaap:MarketApproachValuationTechniqueMember2020-04-012020-06-300001604821us-gaap:ValuationTechniqueOptionPricingModelMember2020-01-012020-03-310001604821us-gaap:MarketApproachValuationTechniqueMember2020-01-012020-03-310001604821ntra:MonteCarloSimulationMember2020-01-012020-03-310001604821ntra:MonteCarloSimulationMember2019-07-012019-09-300001604821us-gaap:MarketApproachValuationTechniqueMember2019-04-012019-06-300001604821ntra:MonteCarloSimulationMember2019-01-012019-03-310001604821srt:MinimumMemberus-gaap:EmployeeStockOptionMember2020-07-012020-09-300001604821srt:MaximumMemberus-gaap:EmployeeStockOptionMember2020-07-012020-09-300001604821srt:MinimumMemberus-gaap:PerformanceSharesMember2020-01-012020-09-300001604821srt:MinimumMemberus-gaap:EmployeeStockOptionMember2020-01-012020-09-300001604821srt:MaximumMemberus-gaap:EmployeeStockOptionMember2020-01-012020-09-300001604821srt:MinimumMemberus-gaap:EmployeeStockOptionMember2019-07-012019-09-300001604821srt:MaximumMemberus-gaap:EmployeeStockOptionMember2019-07-012019-09-300001604821srt:MinimumMemberus-gaap:EmployeeStockOptionMember2019-01-012019-09-300001604821srt:MaximumMemberus-gaap:EmployeeStockOptionMember2019-01-012019-09-300001604821srt:MaximumMemberus-gaap:PerformanceSharesMember2020-01-012020-09-300001604821us-gaap:RestrictedStockUnitsRSUMember2020-09-300001604821us-gaap:RestrictedStockUnitsRSUMember2019-12-310001604821us-gaap:RestrictedStockUnitsRSUMemberus-gaap:MarketApproachValuationTechniqueMember2020-07-012020-09-300001604821us-gaap:EmployeeStockMember2020-05-012020-09-300001604821us-gaap:RestrictedStockUnitsRSUMemberus-gaap:MarketApproachValuationTechniqueMember2020-04-012020-06-300001604821us-gaap:RestrictedStockUnitsRSUMemberus-gaap:MarketApproachValuationTechniqueMember2020-01-012020-03-310001604821us-gaap:RestrictedStockUnitsRSUMemberntra:MonteCarloSimulationMember2020-01-012020-03-310001604821us-gaap:RestrictedStockUnitsRSUMemberntra:MonteCarloSimulationMember2019-07-012019-09-300001604821us-gaap:RestrictedStockUnitsRSUMemberus-gaap:MarketApproachValuationTechniqueMember2019-04-012019-06-300001604821us-gaap:RestrictedStockUnitsRSUMemberntra:MonteCarloSimulationMember2019-01-012019-03-310001604821ntra:QiagenMemberntra:VolumeRegulatoryAndCommercialMilestonesMember2018-12-310001604821ntra:QiagenMember2018-12-310001604821us-gaap:EMEAMember2020-07-012020-09-300001604821ntra:PatientsMember2020-07-012020-09-300001604821ntra:OtherGeographicAreasMember2020-07-012020-09-300001604821ntra:LaboratoryPartnersMember2020-07-012020-09-300001604821ntra:InsuranceCarriersMember2020-07-012020-09-300001604821ntra:AmericasExcludingUsMember2020-07-012020-09-300001604821country:US2020-07-012020-09-300001604821us-gaap:EMEAMember2020-01-012020-09-300001604821ntra:PatientsMember2020-01-012020-09-300001604821ntra:OtherGeographicAreasMember2020-01-012020-09-300001604821ntra:LaboratoryPartnersMember2020-01-012020-09-300001604821ntra:InsuranceCarriersMember2020-01-012020-09-300001604821ntra:AmericasExcludingUsMember2020-01-012020-09-300001604821country:US2020-01-012020-09-300001604821us-gaap:EMEAMember2019-07-012019-09-300001604821ntra:PatientsMember2019-07-012019-09-300001604821ntra:OtherGeographicAreasMember2019-07-012019-09-300001604821ntra:LaboratoryPartnersMember2019-07-012019-09-300001604821ntra:InsuranceCarriersMember2019-07-012019-09-300001604821ntra:AmericasExcludingUsMember2019-07-012019-09-300001604821country:US2019-07-012019-09-300001604821us-gaap:EMEAMember2019-01-012019-09-300001604821ntra:PatientsMember2019-01-012019-09-300001604821ntra:OtherGeographicAreasMember2019-01-012019-09-300001604821ntra:LaboratoryPartnersMember2019-01-012019-09-300001604821ntra:InsuranceCarriersMember2019-01-012019-09-300001604821ntra:AmericasExcludingUsMember2019-01-012019-09-300001604821country:US2019-01-012019-09-300001604821us-gaap:SecuredDebtMember2020-04-012020-04-300001604821ntra:OtherMaterialSupplierMember2020-09-300001604821ntra:LaboratoryInstrumentsMember2020-09-300001604821ntra:InventoryMaterialPurchaseCommitmentMember2020-09-300001604821ntra:GeneSequencingReagentsAndKitsMember2020-09-300001604821ntra:ApplicationServiceProviderMember2020-09-300001604821srt:MinimumMemberus-gaap:MachineryAndEquipmentMember2020-01-012020-09-300001604821srt:MaximumMemberus-gaap:MachineryAndEquipmentMember2020-01-012020-09-300001604821us-gaap:SoftwareAndSoftwareDevelopmentCostsMember2020-01-012020-09-300001604821us-gaap:FurnitureAndFixturesMember2020-01-012020-09-300001604821us-gaap:ComputerEquipmentMember2020-01-012020-09-300001604821us-gaap:SoftwareAndSoftwareDevelopmentCostsMember2020-09-300001604821us-gaap:MachineryAndEquipmentMember2020-09-300001604821us-gaap:LeaseholdImprovementsMember2020-09-300001604821us-gaap:FurnitureAndFixturesMember2020-09-300001604821us-gaap:ConstructionInProgressMember2020-09-300001604821us-gaap:ComputerEquipmentMember2020-09-300001604821us-gaap:SoftwareAndSoftwareDevelopmentCostsMember2019-12-310001604821us-gaap:MachineryAndEquipmentMember2019-12-310001604821us-gaap:LeaseholdImprovementsMember2019-12-310001604821us-gaap:FurnitureAndFixturesMember2019-12-310001604821us-gaap:ConstructionInProgressMember2019-12-310001604821us-gaap:ComputerEquipmentMember2019-12-310001604821us-gaap:EmployeeStockMember2019-11-012020-04-3000016048212020-09-012020-09-3000016048212019-10-172019-10-1700016048212019-04-262019-04-260001604821us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-07-012020-09-300001604821us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-01-012020-09-300001604821us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-07-012019-09-300001604821us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-01-012019-09-300001604821ntra:BgiGenomicsCoLtdMemberntra:SequencingProductsAndServicesMember2020-09-300001604821ntra:BgiGenomicsCoLtdMemberntra:SequencingServicesMember2019-09-300001604821ntra:BgiGenomicsCoLtdMemberntra:SequencingProductsMember2019-09-300001604821ntra:BgiGenomicsCoLtdMemberntra:SequencingProductsAndServicesMember2019-09-300001604821us-gaap:RetainedEarningsMember2020-07-012020-09-300001604821us-gaap:RetainedEarningsMember2019-07-012019-09-300001604821ntra:InvestmentsShortTermClassifiedMemberus-gaap:SecuritiesInvestmentMember2020-09-300001604821ntra:CashEquivalentClassifiedMemberus-gaap:SecuritiesInvestmentMember2020-09-300001604821ntra:InvestmentsShortTermClassifiedMemberus-gaap:SecuritiesInvestmentMember2019-12-310001604821ntra:CashEquivalentClassifiedMemberus-gaap:SecuritiesInvestmentMember2019-12-310001604821ntra:SecuritiesRelatedClaimsMember2020-09-300001604821ntra:CommercialGeneralLiabilityClaimsMember2020-09-300001604821srt:MinimumMemberus-gaap:SecuredDebtMember2020-09-300001604821us-gaap:SecuredDebtMember2020-09-300001604821ntra:LineOfCreditUbsMember2015-09-300001604821us-gaap:SecuredDebtMember2017-08-080001604821ntra:LineOfCreditUbsMember2020-09-300001604821ntra:LineOfCreditUbsMember2020-07-012020-09-300001604821us-gaap:SecuredDebtMember2020-01-012020-09-300001604821ntra:LineOfCreditUbsMember2020-01-012020-09-300001604821ntra:LineOfCreditUbsMember2019-07-012019-09-300001604821us-gaap:SecuredDebtMember2019-01-012019-09-300001604821ntra:LineOfCreditUbsMember2019-01-012019-09-300001604821ntra:EmployeeAndNonEmployeeOptionsMember2020-09-300001604821ntra:EvercordMemberntra:ContingentConsiderationAssetMember2020-09-300001604821us-gaap:LongTermDebtMember2020-09-300001604821ntra:NoncurrentAssetsMember2020-09-300001604821ntra:EquityComponentMemberus-gaap:ConvertibleNotesPayableMember2020-09-300001604821ntra:DebtComponentMemberus-gaap:ConvertibleNotesPayableMember2020-09-300001604821us-gaap:ConvertibleNotesPayableMemberus-gaap:MeasurementInputRiskFreeInterestRateMember2020-04-300001604821ntra:NoncurrentAssetsMemberus-gaap:SecuredDebtMember2017-08-310001604821ntra:TwentyTradingDaysPeriodMemberus-gaap:ConvertibleNotesPayableMember2020-04-012020-04-300001604821ntra:FiveDayConsecutiveTradingPeriodMemberus-gaap:ConvertibleNotesPayableMember2020-04-012020-04-300001604821ntra:LineOfCreditUbsMemberus-gaap:LondonInterbankOfferedRateLIBORMember2020-01-012020-09-300001604821us-gaap:AccountingStandardsUpdate201613Member2019-12-310001604821ntra:LicensingAndOtherMember2020-07-012020-09-300001604821ntra:LicensingAndOtherMember2020-01-012020-09-300001604821ntra:LicensingAndOtherMember2019-07-012019-09-300001604821ntra:LicensingAndOtherMember2019-01-012019-09-300001604821us-gaap:FairValueInputsLevel2Memberus-gaap:ConvertibleNotesPayableMember2020-09-300001604821us-gaap:ConvertibleNotesPayableMember2020-04-300001604821ntra:QiagenMemberus-gaap:RoyaltyMember2020-07-012020-09-300001604821us-gaap:ProductMember2020-07-012020-09-300001604821us-gaap:ProductMember2020-01-012020-09-300001604821us-gaap:ProductMember2019-07-012019-09-300001604821us-gaap:ProductMember2019-01-012019-09-300001604821ntra:FoundationMedicineInc.Member2020-09-300001604821ntra:BgiGenomicsCoLtdMember2020-09-300001604821ntra:BgiGenomicsCoLtdAndFoundationMedicineIncMemberntra:GeneticTestingServicesMember2020-01-012020-09-300001604821ntra:GeneticTestingServicesMember2020-01-012020-09-300001604821ntra:BgiGenomicsCoLtdAndFoundationMedicineInc.Member2020-01-012020-09-300001604821ntra:EvercordMember2020-01-012020-09-300001604821us-gaap:SalesRevenueNetMemberus-gaap:CustomerConcentrationRiskMember2019-01-012020-09-300001604821us-gaap:AccountsReceivableMemberus-gaap:CreditConcentrationRiskMember2019-01-012020-09-300001604821us-gaap:PrivatePlacementMember2020-09-300001604821us-gaap:CommonStockMember2020-09-300001604821us-gaap:CommonStockMember2020-06-300001604821us-gaap:CommonStockMember2019-12-310001604821us-gaap:PrivatePlacementMember2019-10-310001604821us-gaap:CommonStockMember2019-09-300001604821us-gaap:CommonStockMember2019-06-300001604821us-gaap:SecuredDebtMember2019-04-300001604821us-gaap:PrivatePlacementMember2019-04-230001604821us-gaap:CommonStockMember2018-12-310001604821us-gaap:SecuredDebtMember2017-08-310001604821srt:MinimumMemberus-gaap:EmployeeStockMember2020-09-300001604821us-gaap:EmployeeStockMember2020-09-300001604821us-gaap:MoneyMarketFundsMember2020-09-300001604821us-gaap:MoneyMarketFundsMember2019-12-310001604821us-gaap:USTreasurySecuritiesMember2020-09-300001604821us-gaap:SecuritiesInvestmentMember2020-09-300001604821us-gaap:MunicipalBondsMember2020-09-300001604821us-gaap:USTreasurySecuritiesMember2019-12-310001604821us-gaap:SecuritiesInvestmentMember2019-12-310001604821us-gaap:MunicipalBondsMember2019-12-310001604821us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MunicipalBondsMember2020-09-300001604821us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasurySecuritiesMember2020-09-300001604821us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MoneyMarketFundsMember2020-09-300001604821us-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasurySecuritiesMember2020-09-300001604821us-gaap:FairValueMeasurementsRecurringMemberus-gaap:MunicipalBondsMember2020-09-300001604821us-gaap:FairValueMeasurementsRecurringMemberus-gaap:MoneyMarketFundsMember2020-09-300001604821us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2020-09-300001604821us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2020-09-300001604821us-gaap:FairValueMeasurementsRecurringMember2020-09-300001604821us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MunicipalBondsMember2019-12-310001604821us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasurySecuritiesMember2019-12-310001604821us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MoneyMarketFundsMember2019-12-310001604821us-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasurySecuritiesMember2019-12-310001604821us-gaap:FairValueMeasurementsRecurringMemberus-gaap:MunicipalBondsMember2019-12-310001604821us-gaap:FairValueMeasurementsRecurringMemberus-gaap:MoneyMarketFundsMember2019-12-310001604821us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2019-12-310001604821us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2019-12-310001604821us-gaap:FairValueMeasurementsRecurringMember2019-12-310001604821ntra:TukwilaWashingtonLeaseMember2020-09-300001604821ntra:SecondSpaceSubleaseMember2020-09-300001604821ntra:FirstSpaceSubleaseMember2020-09-300001604821ntra:CorporateHeadquartersLeaseMember2020-09-300001604821ntra:AustinTxLongTermLeaseMember2020-09-300001604821us-gaap:RestrictedStockUnitsRSUMember2020-01-012020-09-300001604821us-gaap:ConvertibleNotesPayableMember2020-01-012020-09-300001604821ntra:EmployeeStockPurchasePlan2015Member2020-01-012020-09-300001604821ntra:EmployeeAndNonEmployeeOptionsMember2020-01-012020-09-300001604821us-gaap:RestrictedStockUnitsRSUMember2019-01-012019-09-300001604821ntra:EmployeeStockPurchasePlan2015Member2019-01-012019-09-300001604821ntra:EmployeeAndNonEmployeeOptionsMember2019-01-012019-09-300001604821us-gaap:EmployeeStockOptionMemberus-gaap:SellingGeneralAndAdministrativeExpensesMember2020-07-012020-09-300001604821us-gaap:EmployeeStockOptionMemberus-gaap:ResearchAndDevelopmentExpenseMember2020-07-012020-09-300001604821us-gaap:EmployeeStockOptionMemberus-gaap:CostOfSalesMember2020-07-012020-09-300001604821ntra:NonEmployeeOptionsMemberus-gaap:SellingGeneralAndAdministrativeExpensesMember2020-07-012020-09-300001604821ntra:NonEmployeeOptionsMemberus-gaap:ResearchAndDevelopmentExpenseMember2020-07-012020-09-300001604821ntra:EmployeeAndNonEmployeeOptionsMemberus-gaap:SellingGeneralAndAdministrativeExpensesMember2020-07-012020-09-300001604821ntra:EmployeeAndNonEmployeeOptionsMemberus-gaap:ResearchAndDevelopmentExpenseMember2020-07-012020-09-300001604821ntra:EmployeeAndNonEmployeeOptionsMemberus-gaap:CostOfSalesMember2020-07-012020-09-300001604821us-gaap:PerformanceSharesMember2020-07-012020-09-300001604821us-gaap:EmployeeStockOptionMember2020-07-012020-09-300001604821ntra:NonEmployeeOptionsMember2020-07-012020-09-300001604821ntra:EmployeeAndNonEmployeeOptionsMember2020-07-012020-09-300001604821us-gaap:EmployeeStockOptionMemberus-gaap:SellingGeneralAndAdministrativeExpensesMember2020-01-012020-09-300001604821us-gaap:EmployeeStockOptionMemberus-gaap:ResearchAndDevelopmentExpenseMember2020-01-012020-09-300001604821us-gaap:EmployeeStockOptionMemberus-gaap:CostOfSalesMember2020-01-012020-09-300001604821ntra:NonEmployeeOptionsMemberus-gaap:SellingGeneralAndAdministrativeExpensesMember2020-01-012020-09-300001604821ntra:NonEmployeeOptionsMemberus-gaap:ResearchAndDevelopmentExpenseMember2020-01-012020-09-300001604821ntra:EmployeeAndNonEmployeeOptionsMemberus-gaap:SellingGeneralAndAdministrativeExpensesMember2020-01-012020-09-300001604821ntra:EmployeeAndNonEmployeeOptionsMemberus-gaap:ResearchAndDevelopmentExpenseMember2020-01-012020-09-300001604821ntra:EmployeeAndNonEmployeeOptionsMemberus-gaap:CostOfSalesMember2020-01-012020-09-300001604821us-gaap:PerformanceSharesMember2020-01-012020-09-300001604821us-gaap:EmployeeStockOptionMember2020-01-012020-09-300001604821ntra:NonEmployeeOptionsMember2020-01-012020-09-300001604821ntra:EmployeeAndNonEmployeeOptionsMember2020-01-012020-09-300001604821us-gaap:EmployeeStockOptionMemberus-gaap:SellingGeneralAndAdministrativeExpensesMember2019-07-012019-09-300001604821us-gaap:EmployeeStockOptionMemberus-gaap:ResearchAndDevelopmentExpenseMember2019-07-012019-09-300001604821us-gaap:EmployeeStockOptionMemberus-gaap:CostOfSalesMember2019-07-012019-09-300001604821ntra:NonEmployeeOptionsMemberus-gaap:SellingGeneralAndAdministrativeExpensesMember2019-07-012019-09-300001604821ntra:NonEmployeeOptionsMemberus-gaap:CostOfSalesMember2019-07-012019-09-300001604821ntra:EmployeeAndNonEmployeeOptionsMemberus-gaap:SellingGeneralAndAdministrativeExpensesMember2019-07-012019-09-300001604821ntra:EmployeeAndNonEmployeeOptionsMemberus-gaap:ResearchAndDevelopmentExpenseMember2019-07-012019-09-300001604821ntra:EmployeeAndNonEmployeeOptionsMemberus-gaap:CostOfSalesMember2019-07-012019-09-300001604821us-gaap:PerformanceSharesMember2019-07-012019-09-300001604821us-gaap:EmployeeStockOptionMember2019-07-012019-09-300001604821ntra:NonEmployeeOptionsMember2019-07-012019-09-300001604821ntra:EmployeeAndNonEmployeeOptionsMember2019-07-012019-09-300001604821us-gaap:EmployeeStockOptionMemberus-gaap:SellingGeneralAndAdministrativeExpensesMember2019-01-012019-09-300001604821us-gaap:EmployeeStockOptionMemberus-gaap:ResearchAndDevelopmentExpenseMember2019-01-012019-09-300001604821us-gaap:EmployeeStockOptionMemberus-gaap:CostOfSalesMember2019-01-012019-09-300001604821ntra:NonEmployeeOptionsMemberus-gaap:SellingGeneralAndAdministrativeExpensesMember2019-01-012019-09-300001604821ntra:NonEmployeeOptionsMemberus-gaap:CostOfSalesMember2019-01-012019-09-300001604821ntra:EmployeeAndNonEmployeeOptionsMemberus-gaap:SellingGeneralAndAdministrativeExpensesMember2019-01-012019-09-300001604821ntra:EmployeeAndNonEmployeeOptionsMemberus-gaap:ResearchAndDevelopmentExpenseMember2019-01-012019-09-300001604821ntra:EmployeeAndNonEmployeeOptionsMemberus-gaap:CostOfSalesMember2019-01-012019-09-300001604821us-gaap:PerformanceSharesMember2019-01-012019-09-300001604821us-gaap:EmployeeStockOptionMember2019-01-012019-09-300001604821ntra:NonEmployeeOptionsMember2019-01-012019-09-300001604821ntra:EmployeeAndNonEmployeeOptionsMember2019-01-012019-09-300001604821us-gaap:AdditionalPaidInCapitalMember2020-07-012020-09-300001604821us-gaap:AdditionalPaidInCapitalMember2019-07-012019-09-300001604821us-gaap:AdditionalPaidInCapitalMember2020-01-012020-09-3000016048212020-06-3000016048212019-06-3000016048212019-09-3000016048212018-12-310001604821ntra:BgiGenomicsCoLtdMember2019-09-300001604821ntra:CorporateHeadquartersSubleaseMember2019-06-300001604821us-gaap:RestrictedStockUnitsRSUMember2020-01-012020-09-300001604821ntra:FoundationMedicineInc.Member2020-01-012020-09-300001604821ntra:BgiGenomicsCoLtdMember2019-07-012019-09-300001604821ntra:FoundationMedicineInc.Memberntra:LicensingFeesAndPrepaidRevenueMember2019-01-012019-12-310001604821ntra:FoundationMedicineInc.Memberntra:DevelopmentalPerformanceMilestonesMember2019-01-012019-12-310001604821ntra:FoundationMedicineInc.Member2019-01-012019-12-310001604821ntra:QiagenMember2018-01-012018-12-310001604821ntra:CorporateHeadquartersLeaseMember2020-01-012020-09-300001604821us-gaap:SalesRevenueNetMemberus-gaap:CustomerConcentrationRiskMember2020-07-012020-09-300001604821us-gaap:SalesRevenueNetMemberus-gaap:CustomerConcentrationRiskMember2020-01-012020-09-300001604821us-gaap:AccountsReceivableMemberus-gaap:CreditConcentrationRiskMember2020-01-012020-09-300001604821us-gaap:SalesRevenueNetMemberus-gaap:CustomerConcentrationRiskMember2019-07-012019-09-300001604821us-gaap:AccountsReceivableMemberus-gaap:CreditConcentrationRiskMember2019-01-012019-12-310001604821us-gaap:SalesRevenueNetMemberus-gaap:CustomerConcentrationRiskMember2019-01-012019-09-3000016048212020-07-012020-09-3000016048212019-07-012019-09-3000016048212019-01-012019-09-300001604821us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember2020-07-012020-09-300001604821us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember2020-01-012020-09-300001604821us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember2019-07-012019-09-300001604821us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember2019-01-012019-09-300001604821ntra:ContingentConsiderationAssetMemberntra:EvercordMember2019-12-310001604821ntra:LineOfCreditFacilityCovenantMinimumCapacityDrawnMemberus-gaap:SecuredDebtMemberus-gaap:LondonInterbankOfferedRateLIBORMember2020-01-012020-09-300001604821us-gaap:SecuredDebtMemberus-gaap:LondonInterbankOfferedRateLIBORMember2020-01-012020-09-300001604821us-gaap:ConvertibleNotesPayableMember2020-09-300001604821us-gaap:ConvertibleNotesPayableMember2020-04-012020-04-300001604821us-gaap:ConvertibleNotesPayableMember2020-09-302020-09-300001604821ntra:MayRedeemForCashAllOrAnyPortionOfConvertibleNotesAtCompanysOptionOnOrAfterMay2024Member2020-04-012020-04-300001604821us-gaap:RetainedEarningsMember2020-01-012020-09-300001604821us-gaap:RetainedEarningsMember2019-01-012019-09-300001604821us-gaap:AdditionalPaidInCapitalMember2019-01-012019-09-300001604821us-gaap:ConvertibleNotesPayableMember2020-07-012020-09-300001604821us-gaap:ConvertibleNotesPayableMember2020-01-012020-09-300001604821ntra:StockPlan2015Member2015-06-300001604821ntra:LaboratoryDistributionPartnersMemberus-gaap:ProductMembersrt:MinimumMember2020-01-012020-09-300001604821ntra:LaboratoryDistributionPartnersMemberus-gaap:ProductMembersrt:MaximumMember2020-01-012020-09-300001604821us-gaap:ProductMembersrt:MinimumMember2020-01-012020-09-300001604821us-gaap:ProductMembersrt:MaximumMember2020-01-012020-09-300001604821ntra:FoundationMedicineInc.Memberntra:UpfrontLicensingFeesAndPrepaidRevenuesMember2019-08-310001604821ntra:FoundationMedicineInc.Memberntra:DevelopmentalRegulatoryAndCommercialMilestonesMember2019-08-310001604821ntra:QiagenMember2020-01-012020-09-300001604821ntra:FoundationMedicineInc.Member2019-08-012019-08-310001604821ntra:BgiGenomicsCoLtdMember2019-02-012019-02-2800016048212020-09-3000016048212019-12-3100016048212020-11-0100016048212020-01-012020-09-30xbrli:sharesiso4217:USDxbrli:purentra:Dntra:customerntra:locationutr:sqftiso4217:USDxbrli:sharesntra:position

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                       to                      

Commission file number: 001-37478

NATERA, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware

01-0894487

(State or Other Jurisdiction of Incorporation or Organization)

(I.R.S. Employer Identification No.)

201 Industrial Road, Suite 410
San Carlos, CA

94070

(Address of Principal Executive Offices)

(Zip Code)

(650249-9090

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.0001 per share

NTRA

The Nasdaq Stock Market LLC (Nasdaq Global Select Market)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer

Accelerated filer

Non-accelerated filer

  

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of November 1, 2020, the number of outstanding shares of the registrant’s common stock, par value $0.0001 per share, was 85,369,897.

Table of Contents

Natera, Inc.

FORM 10-Q FOR THE QUARTER ENDED September 30, 2020

TABLE OF CONTENTS

    

Page

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Part I — Financial Information

 

Item 1. Financial Statements (unaudited)

5

Condensed Consolidated Balance Sheets at September 30, 2020 and December 31, 2019

5

Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine months Ended September 30, 2020 and 2019

6

Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine months Ended September 30, 2020 and 2019

7

Condensed Consolidated Statements of Cash Flows for the Nine months Ended September 30, 2020 and 2019

9

Notes to Unaudited Interim Condensed Consolidated Financial Statements

10

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

36

Item 3. Quantitative and Qualitative Disclosures About Market Risk

49

Item 4. Controls and Procedures

49

Part II — Other Information

Item 1. Legal Proceedings

50

Item 1A. Risk Factors

51

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

90

Item 3. Defaults Upon Senior Securities

90

Item 4. Mine Safety Disclosures

90

Item 5. Other Information

91

Item 6. Exhibits

50

Signatures

93

2

Table of Contents

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements. The forward-looking statements are contained principally in the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” but are also contained elsewhere in this report. Forward-looking statements include information concerning our future results of operations and financial position, strategy and plans, and our expectations for future operations. Forward-looking statements include all statements that are not historical facts and, in some cases, can be identified by terms such as "believe," "may," "will," "estimate," "continue," "anticipate," "design," "intend," "expect," "could," "plan," "potential," "predict," "seek," "should," "would" or the negative version of these words and similar expressions.

Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements, including those described in "Risk Factors" and elsewhere in this report. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our beliefs and assumptions only as of the date of this report. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. You should read this report completely and with the understanding that our actual future results may be materially different from what we expect.

These forward-looking statements include, but are not limited to, statements concerning the following:

the extent and duration of the impact of the COVID-19 pandemic on our business, results of operations, stock price, or overall financial condition;
our expectation that, for the foreseeable future, a significant portion of our revenues will be derived from sales of Panorama and Horizon;
our ability to increase demand for Panorama and Horizon, obtain favorable coverage and reimbursement determinations from third-party payers, and expand geographically;
our expectation that Panorama will be adopted for broader use in average-risk pregnancies and for the screening of microdeletions and that third-party payer reimbursement will be available for these applications, including our expectations regarding the results of our SNP-based Microdeletion and Aneuploidy RegisTry, or SMART, Study and our expectations that the results from such study may support broader use and reimbursement for the use of Panorama in average risk pregnancies and for microdeletions;
our expectations of the reliability, accuracy, and performance of our tests, as well as expectations of the benefits of our tests to patients, providers, and payers;
our ability to successfully develop additional revenue opportunities and expand our product offerings to include new tests;
our efforts to successfully develop and commercialize our oncology and organ health products;
the effect of improvements in our cost of goods sold;
our estimates of the total addressable markets for our current and potential product offerings;
our ability and expectations regarding obtaining, maintaining and expanding third-party payer coverage of, and reimbursement for, our tests;
the effect of changes in the way we account for our revenue;
our ability to successfully commercialize our products through strategic or commercial partnerships, such as our agreements with BGI Genomics Co., Ltd. and Foundation Medicine, Inc., and our ability to enter into additional partnerships in the future;

3

Table of Contents

the scope of protection we establish and maintain for, and developments or disputes concerning, our intellectual property or other proprietary rights;
our ability to successfully compete in the markets we serve;
our reliance on collaborators such as medical institutions, contract laboratories, laboratory partners, and other third parties;
our ability to operate our laboratory facility and meet expected demand, and to successfully scale our operations;
our reliance on a limited number of suppliers, including sole source suppliers, which may impact our ability to maintain a continued supply of laboratory instruments and materials and to run our tests;
our expectations of the rate of adoption of Panorama, Horizon and of any of our other current or future tests by laboratories, clinics, clinicians, payers, and patients;
our ability to complete clinical studies and publish compelling clinical data in peer-reviewed medical publications regarding Panorama and any of our future tests, including our SMART study and our ongoing and planned trials in oncology and transplant rejection;
our reliance on our partners to market and offer our tests in the United States and in international markets;
our estimates regarding our costs and risks associated with our international operations and international expansion;
our ability to retain and recruit key personnel;
our reliance on our direct sales efforts;
our expectations regarding acquisitions and strategic operations;
our expectations regarding the conversion of our outstanding 2.25% convertible senior notes due 2027 (the “Convertible Notes”) in the aggregate principal amount of $287.5 million and our ability to make debt service payments under the Convertible Notes if such Convertible Notes are not converted;
our ability to fund our working capital requirements;
our compliance with federal, state, and foreign regulatory requirements;
the factors that may impact our financial results; and
anticipated trends and challenges in our business and the markets in which we operate.

Any forward-looking statement made by us in this report speaks only as of the date on which it is made. Except as required by law, we disclaim any obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

4

Table of Contents

PART I – FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

Natera, Inc.

Condensed Consolidated Balance Sheets

(in thousands)

September 30, 

    

December 31, 

    

2020

    

2019

(Unaudited)

Assets

Current assets:

Cash and cash equivalents

$

209,351

$

61,926

Restricted cash

 

178

55

Short-term investments

600,205

379,065

Accounts receivable, net of allowance of $3,080 in 2020 and $2,919 in 2019

 

70,674

53,351

Inventory

 

20,377

12,394

Prepaid expenses and other current assets, net

 

15,227

16,376

Total current assets

 

916,012

 

523,167

Property and equipment, net

 

28,249

23,283

Operating lease right-of-use assets

20,296

23,730

Other assets

 

12,156

12,476

Total assets

$

976,713

$

582,656

Liabilities and Stockholders’ Equity

 

 

Current liabilities:

 

 

 

 

Accounts payable

$

9,250

$

8,604

Accrued compensation

 

22,450

16,088

Other accrued liabilities

 

62,893

49,043

Deferred revenue, current portion

 

51,227

56,016

Short-term debt financing

50,052

50,123

Total current liabilities

 

195,872

 

179,874

Long-term debt financing

 

199,959

73,656

Deferred revenue, long-term portion

23,128

23,808

Operating lease liabilities, long-term portion

21,444

26,297

Other long-term liabilities

310

310

Total liabilities

 

440,713

 

303,945

Commitments and contingencies (Note 8)

 

 

Stockholders’ equity:

 

Common stock, $0.0001 par value: 750,000 shares authorized at both September 30, 2020 and December 31, 2019, respectively; 85,281 and 78,005 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively

 

9

8

Additional paid in capital

 

1,383,727

976,955

Accumulated deficit

 

(852,906)

(699,171)

Accumulated other comprehensive income

5,170

919

Total stockholders’ equity

 

536,000

 

278,711

Total liabilities and stockholders’ equity

$

976,713

$

582,656

See accompanying notes to the unaudited interim condensed consolidated financial statements.

5

Table of Contents

Natera, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

Three months ended

Nine months ended

September 30, 

September 30, 

    

2020

2019

2020

2019

(in thousands, except per share data)

Revenues

Product revenues

$

93,286

$

66,936

$

260,746

$

195,399

Licensing and other revenues

4,857

10,973

17,881

23,689

Total revenues

98,143

77,909

278,627

219,088

Cost and expenses

Cost of product revenues

46,873

40,138

131,124

123,125

Cost of licensing and other revenues

4,948

3,742

12,614

7,883

Research and development

26,421

12,796

67,651

36,355

Selling, general and administrative

75,678

56,715

209,547

147,589

Gain from disposal of business

(14,388)

(14,388)

Total cost and expenses

153,920

99,003

420,936

300,564

Loss from operations

(55,777)

(21,094)

(142,309)

(81,476)

Interest expense

(4,270)

(2,672)

(10,772)

(8,117)

Interest and other income, net

1,749

673

5,661

1,962

Loss on debt extinguishment

(5,848)

Loss before income taxes

(58,298)

(23,093)

(153,268)

(87,631)

Income tax expense

(25)

(44)

(63)

(2,013)

Net loss

$

(58,323)

$

(23,137)

$

(153,331)

$

(89,644)

Unrealized gain (loss) on available-for-sale securities, net of tax

(600)

63

4,251

1,410

Comprehensive loss

$

(58,923)

$

(23,074)

$

(149,080)

$

(88,234)

Net loss per share (Note 12):

Basic and diluted

$

(0.72)

$

(0.33)

$

(1.93)

$

(1.33)

Weighted-average number of shares used in computing basic and diluted net loss per share:

Basic and diluted

80,908

70,456

79,430

67,198

See accompanying notes to the unaudited interim condensed consolidated financial statements.

6

Table of Contents

Natera, Inc.

Condensed Consolidated Statements of Stockholders’ Equity (Deficit)

(Unaudited)

Three months ended September 30, 2019

Common Stock

Additional
Paid-in

Accumulated Other Comprehensive

Accumulated

Total
Stockholders'

(in thousands)

    

  

Shares

    

Amount

    

Capital

    

Income

Deficit

    

Equity

Balance as of June 30, 2019

70,035

$

7

$

733,137

$

795

$

(640,851)

$

93,088

Issuance of common stock upon exercise of stock options

670

4,433

4,433

Vesting of restricted stock

145

Stock-based compensation

10,247

10,247

Unrealized gain on available-for sale securities

63

63

Net loss

(23,137)

(23,137)

Balance as of September 30, 2019

70,850

$

7

$

747,817

$

858

$

(663,988)

$

84,694

Nine months ended September 30, 2019

Common Stock

Additional
Paid-in

Accumulated Other Comprehensive

Accumulated

Total
Stockholders'

(in thousands)

    

  

Shares

    

Amount

    

Capital

    

Income

Deficit

    

Equity

Balance as of December 31, 2018

62,083

$

7

$

607,236

$

(552)

$

(574,529)

$

32,162

Issuance of common stock upon exercise of stock options

2,138

10,416

10,416

Issuance of common stock under employee stock purchase plan

132

2,147

2,147

Issuance of common stock for public offering, net

6,053

107,595

107,595

Issuance of common stock to Orbimed

25

 —

506

 —

 —

506

Vesting of restricted stock

419

Stock-based compensation

 —

 —

20,102

 —

 —

20,102

Unrealized gain on available-for sale securities

 —

1,410

1,410

Cumulative-effect adjustment upon adoption of ASU 2018-07

 —

 —

(185)

 —

185

-

Net loss

(89,644)

(89,644)

Balance as of September 30, 2019

70,850

$

7

$

747,817

$

858

$

(663,988)

$

84,694

7

Table of Contents

Three months ended September 30, 2020

Common Stock

Additional
Paid-in

Accumulated Other Comprehensive

Accumulated

Total
Stockholders'

(in thousands)

Shares

    

Amount

    

Capital

    

Income

Deficit

    

Equity

Balance as of June 30, 2020

79,717

$

8

$

1,093,072

$

5,770

$

(794,583)

$

304,267

Issuance of common stock upon exercise of stock options

498

4,974

4,974

Issuance of common stock under ESPP

Issuance of common stock for public offering, net

4,792

1

270,649

270,650

Vesting of restricted stock units

274

Stock-based compensation

15,032

15,032

Unrealized gain (loss) on ST investments

(600)

(600)

Net loss

(58,323)

(58,323)

Balance as of September 30, 2020

85,281

$

9

$

1,383,727

$

5,170

$

(852,906)

$

536,000

Nine months ended September 30, 2020

Common Stock

Additional
Paid-in

Accumulated Other Comprehensive

Accumulated

Total
Stockholders'

(in thousands)

Shares

    

Amount

    

Capital

    

Income

Deficit

    

Equity

Balance as of December 31, 2019

78,005

$

8

$

976,955

$

919

$

(699,171)

$

278,711

Issuance of common stock upon exercise of stock options

1,534

15,782

15,782

Issuance of common stock under ESPP

97

3,062

3,062

Equity component of Convertible Notes, net

82,873

82,873

Issuance of common stock for public offering, net

4,792

1

270,649

270,650

Vesting of restricted stock

853

Stock-based compensation

34,406

34,406

Unrealized gain on available-for sale securities

4,251

4,251

Cumulative-effect adjustment upon adoption of ASU 2016-13

(404)

(404)

Net loss

(153,331)

(153,331)

Balance as of September 30, 2020

85,281

$

9

$

1,383,727

$

5,170

$

(852,906)

$

536,000

See accompanying notes to the unaudited interim condensed consolidated financial statements.

8

Table of Contents

Natera, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

Nine Months Ended

September 30, 

    

2020

    

2019

(in thousands)

Operating activities

 

 

Net loss

 

$

(153,331)

$

(89,644)

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization

 

6,215

5,921

Premium amortization and discount accretion on investment securities

3,333

400

Stock-based compensation

 

34,406

20,102

Non-cash lease expense

5,819

5,807

Amortization of debt discount and issuance cost

149

336

Inventory reserve adjustments

(180)

719

Impairment of assets

1,310

Impairment of right-of-use assets

361

Provision for doubtful accounts

497

Other non-cash benefits

 

(135)

(22)

Gain on disposal of business

(14,388)

Provision for credit losses

1,445

Loss on Debt Extinguishment

5,848

Accretion of Convertible Note

4,514

Changes in operating assets and liabilities:

Accounts receivable

 

(17,940)

(2,491)

Inventory

 

(7,803)

400

Prepaid expenses and other current assets

 

(7,288)

(9,321)

Other assets

 

97

(9,299)

Accounts payable

 

(1,613)

(5,194)

Accrued compensation

 

6,362

1,569

Other accrued liabilities

 

16,362

1,683

Deferred revenue

 

(5,470)

42,864

Net cash used in operating activities

 

(109,210)

 

(48,390)

Investing activities

Purchases of investments

(479,037)

(197,009)

Proceeds from sale of investments

11,500

Proceeds from maturity of investments

247,315

118,780

Net proceeds from disposal of business

9,675

Purchases of property and equipment, net

 

(12,073)

(2,554)

Net cash used in investing activities

 

(232,295)

 

(71,108)

Financing activities

 

 

 

Proceeds from exercise of stock options

15,782

10,416

Proceeds from issuance of common stock under employee stock purchase plan

3,062

2,147

Proceeds from Convertible Note, net of issuance costs

278,316

Loan payment

(78,757)

Proceeds from public offering, net of issuance cost

270,650

107,595

Net cash provided by financing activities

 

489,053

 

120,158

Net increase in cash, cash equivalents and restricted cash

 

147,548

 

660

Cash, cash equivalents and restricted cash, beginning of period

 

61,981

 

51,004

Cash, cash equivalents and restricted cash, end of period

 

$

209,529

 

$

51,664

Supplemental disclosure of cash flow information:

Cash paid for interest

$

3,137

$

9,894

 

 

 

 

Supplemental non-cash investing and financing activities:

Obtaining right-of-use assets in exchange for lease liabilities

$

$

28,191

Purchases of property and equipment in accounts payable and accruals

$

2,814

$

56

See accompanying notes to the unaudited interim condensed consolidated financial statements.

9

Table of Contents

Natera, Inc.

Notes to Unaudited Interim Condensed Consolidated Financial Statements

1. Description of Business

Natera, Inc. (the "Company") was formed in the state of California as Gene Security Network, LLC in November 2003 and incorporated in the state of Delaware in January 2007. The Company’s mission is to change the management of disease worldwide, focusing on women's health, oncology, and organ health. The Company operates a laboratory certified under the Clinical Laboratory Improvement Amendments ("CLIA") providing a host of preconception and prenatal genetic testing services. The Company determines its operating segments based on the way it organizes its business to make operating decisions and assess performance. The Company operates one segment, the development and commercialization of genetic testing services, applying its proprietary technology in the fields of women’s health, oncology and organ health. The Company also has a subsidiary that operates in the state of Texas.

The Company's product offerings include its Panorama Non-Invasive Prenatal Test ("NIPT") that screens for chromosomal abnormalities of a fetus as well as in twin pregnancies, typically with a blood draw from the mother; Vistara (“Vistara”), a single-gene mutations screening test performed to identify single-gene disorders; Horizon Carrier Screening ("HCS") to determine carrier status for a large number of severe genetic diseases that could be passed on to the carrier’s children; Spectrum Pre-implantation Genetics (“Spectrum”) to evaluate embryos to identify chromosomal anomalies or inherited genetic conditions to improve the chances of a healthy pregnancy during an in vitro fertilization ("IVF") cycle; Anora Miscarriage Test to rapidly and extensively analyze fetal chromosomes to understand the cause of miscarriage; Non-Invasive Paternity Testing ("PAT"), which is exclusively marketed and sold by a licensee from whom the Company receives a royalty; Signatera, which detects circulating tumor DNA in patients previously diagnosed with cancer to assess molecular residual disease and monitor for recurrence; and Prospera, to assess organ transplant rejection. All testing is available principally in the United States. The Company also offers its Panorama test to customers outside of the United States, primarily in Europe. The Company also offers Constellation (“Constellation”), a cloud-based software product that allows laboratory customers to gain access through the cloud to the Company’s algorithms and bioinformatics in order to validate and launch tests based on the Company’s technology. Through the third quarter of 2019, the Company offered Evercord for the collection and storage of newborn cord blood and cord tissue units, which was later sold to a third-party buyer.

2. Summary of Significant Accounting Policies

During the nine months ended September 30, 2020, there were no material changes to our significant accounting policies as disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 (filed on March 2, 2020), except as described in Recently Adopted Accounting Pronouncements below.

Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information. The unaudited interim condensed consolidated financial information includes only adjustments of a normal recurring nature necessary for a fair presentation of the results of operations, financial position, changes in stockholders’ equity, and cash flows. The results of operations for the three and nine months ended September 30, 2020, are not necessarily indicative of the results for the full year or the results for any future periods. The condensed consolidated balance sheet as of December 31, 2019 has been derived from audited financial statements at that date, these financial statements should be read in conjunction with the audited financial statements, and related notes for the year ended December 31, 2019 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 2, 2020. 

10

Table of Contents

Liquidity Matters

The Company has incurred net losses since its inception and anticipates net losses and negative operating cash flows for the near future. The Company had a net loss of $153.3 million for the nine months ended September 30, 2020 and an accumulated deficit of $852.9 million as of September 30, 2020. As of September 30, 2020, the Company had $209.5 million in cash, cash equivalents, and restricted cash, $600.2 million in marketable securities, $50.1 million of outstanding balance of the Credit Line (as defined in Note 10, Debt) including accrued interest, and $287.5 million outstanding principal balance of the its 2.25% Convertible Senior Notes (the “Convertible Notes”). The Company used a portion of the net proceeds from the offering of the Convertible Notes to repay its obligations under its 2017 Term Loan with OrbiMed (see Note 10, Debt).

While the Company has introduced multiple products that are generating revenues, these revenues have not been sufficient to fund all operations. Accordingly, the Company has funded the portion of operating costs that exceeds revenues through a combination of equity issuances, debt issuances, and other financings.

The Company continues to develop and commercialize future products and, consequently, it will need to generate additional revenues to achieve future profitability and may need to raise additional equity or debt financing. If the Company raises additional funds by issuing equity securities, its stockholders will experience dilution. Additional debt financing, if available, may involve covenants restricting its operations or its ability to incur additional debt. Any additional debt financing or additional equity that the Company raises may contain terms that are not favorable to it or its stockholders and requires significant debt service payments, which diverts resources from other activities. Additional financing may not be available at all, or in amounts or on terms acceptable to the Company. If the Company is unable to obtain additional financing, it may be required to delay the development and commercialization of its products and significantly scale back its business and operations.

In April 2019, the Company completed an underwritten equity offering and sold 6,052,631 shares of its common stock at a price of $19 per share to the public. Before offering expenses of $0.6 million, the Company received proceeds of $108.1 million net of the underwriting discount. In October 2019, the Company completed another underwritten equity offering and sold 6,571,428 shares of its common stock at a price of $35 per share to the public. Before offering expenses of $0.4 million, the Company received proceeds of $216.2 million net of the underwriting discount. In September 2020, the Company completed an additional underwritten equity offering and sold 4,791,665 shares of its common stock at a price of $60.00 per share to the public. Before offering expenses of $0.3 million, the Company received proceeds of $271.0 million net of the underwriting discount.

Based on the Company’s current business plan, the Company believes that its existing cash and marketable securities will be sufficient to meet its anticipated cash requirements for at least 12 months after November 5, 2020.  

Principles of Consolidation

The accompanying condensed consolidated financial statements include all the accounts of the Company and its subsidiaries. The Company established a subsidiary that operates in the state of Texas to support the Company’s laboratory and operational functions. All intercompany balances and transactions have been eliminated.

Use of Estimates

The preparation of financial statements in accordance with generally accepted accounting principles (GAAP) in the United States requires management to make estimates and assumptions about future events that affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of revenues and expenses. Significant items subject to such estimates include the allowance for doubtful accounts calculated based on the average selling price expected to be received from insurance payors, the operating right-of-use assets and the associated lease liabilities, deferred revenues associated with unsatisfied performance obligations, accrued liability for potential refund requests, the valuation of the Convertible Notes, stock-based compensation, the fair value of common stock, income tax uncertainties, and the expected consideration to be received from contracts with customers. These estimates and assumptions are based on management's best estimates and judgment. Management regularly evaluates its estimates and

11

Table of Contents

assumptions using historical experience and other factors, including contractual terms and statutory limits; however, actual results could differ from these estimates and could have an adverse effect on the Company's financial statements.

Credit Losses

Trade accounts receivable and other receivables. The allowance for doubtful accounts is based on the Company’s assessment of the collectability of customer accounts. The Company regularly reviews the allowance by considering factors such as historical experience, credit quality, the age of the accounts receivable balances, and current economic conditions that may affect a customer’s ability to pay.

The following is a roll-forward of the allowances for credit losses related to trade accounts receivable and other receivables for the nine months ended September 30, 2020:

    

September 30, 

2020

(in thousands)

Beginning balance

$

2,919

Cumulative-effect adjustment upon adoption of ASU 2016-13

404

Provision for credit losses

1,445

Write-offs

(457)

Total

$

4,311