UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
⌧ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the
OR
◻ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the
period from toCommission file number:
(Exact Name of Registrant as Specified in Its Charter)
laware | |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
(Address of Principal Executive Offices) | (Zip Code) |
(
(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 |
The 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).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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.
⌧ | Accelerated filer | ◻ | ||||
Non-accelerated filer | ◻ | reporting company | ◻ | |||
Emerging growth company | ◻ |
If an 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 ◻ ⌧
As of August 1, 2024, the number of outstanding shares of the registrant’s common stock, par value $0.0001 per share, was
Natera, Inc.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2024
TABLE OF CONTENTS
2
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.
These forward-looking statements include, but are not limited to, statements concerning the following:
● | our expectations regarding revenue, expenses and other operating results; |
● | our expectation that, for the foreseeable future, a significant portion of our revenues will be derived from sales of Panorama, Horizon, and Signatera; |
● | our ability to increase demand and reimbursement for our tests; |
● | our expectation that Panorama will be adopted for the screening of microdeletions and that third-party payer reimbursement will be available for this testing, including our expectations that the results from our single nucleotide polymorphism-based Microdeletion and Aneuploidy RegisTry, or SMART, Study may support broader use of and reimbursement for the use of Panorama 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, expand our product offerings to include new tests, and expand adoption of our current and future technologies through Constellation, our cloud-based distribution model; |
● | our efforts to successfully develop and commercialize, or enhance, our products; |
● | our ability to comply with federal, state, and foreign regulatory requirements, programs and policies, including a recently enacted rule from the FDA that would classify our tests as medical devices, and to successfully operate our business in response to changes in such requirements, programs and policies; |
● | our ability to respond to, defend, or otherwise favorably resolve litigation or other proceedings, including investigations, subpoenas, demands, disputes, requests for information, and other regulatory or administrative actions or proceedings; |
● | 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; |
● | the scope of protection we establish and maintain for, and developments or disputes concerning, our intellectual property or other proprietary rights, including associated litigation costs we may incur and our assumptions regarding any potential liabilities associated with our existing litigation matters; |
● | 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 facilities 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 our 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 our current and future tests, and the effect of such data or publications on professional society or practice guidelines or coverage and reimbursement determinations from third-party payers, including our SMART and CIRCULATE-Japan studies and our ongoing and planned trials in oncology and organ health; |
● | our reliance on our partners to market and offer our tests in the United States and in international markets; |
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● | our expectations regarding acquisitions, dispositions and other strategic transactions; |
● | our expectations regarding the conversion of our outstanding 2.25% convertible senior notes due 2027, or the Convertible Notes, in the aggregate principal amount of $287.5 million prior to the scheduled redemption date of October 11, 2024; |
● | our ability to control our operating expenses and fund our working capital requirements; |
● | the factors that may impact our financial results, including our revenue recognition assumptions and estimates; and |
● | anticipated trends and challenges in our business and the markets in which we operate. |
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 discussed in Part II, Item 1A, “Risk Factors” in this report and Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission on February 29, 2024. Given these uncertainties, you should not place undue reliance on these forward-looking statements. 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.
Also, forward-looking statements represent our beliefs and assumptions only as of the date of this report. 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.
As used in this Quarterly Report on Form 10-Q, the terms “Natera,” “Registrant,” “Company,” “we,” “us,” and “our” mean Natera, Inc. and its subsidiaries unless the context indicates otherwise.
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PART I – FINANCIAL INFORMATION
ITEM 1. | FINANCIAL STATEMENTS |
Natera, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands except par value)
June 30, |
| December 31, |
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| 2024 |
| 2023 |
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Assets | |||||||
Current assets: | |||||||
Cash, cash equivalents and restricted cash | $ | | $ | | |||
Short-term investments | | | |||||
Accounts receivable, net of allowance of $ |
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Inventory |
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Prepaid expenses and other current assets, net |
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Total current assets |
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Property and equipment, net |
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Operating lease right-of-use assets | | | |||||
Other assets |
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Total assets | $ | | $ | | |||
Liabilities and Stockholders’ Equity |
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Current liabilities: |
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Accounts payable | $ | | $ | | |||
Accrued compensation |
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Other accrued liabilities |
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Deferred revenue, current portion |
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Short-term debt financing | | | |||||
Total current liabilities |
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Long-term debt financing |
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Deferred revenue, long-term portion and other liabilities | | | |||||
Operating lease liabilities, long-term portion | | | |||||
Total liabilities |
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Commitments and contingencies (Note 8) |
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Stockholders’ equity: |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
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Accumulated other comprehensive loss | ( | ( | |||||
Total stockholders’ equity |
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Total liabilities and stockholders’ equity | $ | | $ | |
See accompanying notes to the unaudited interim condensed consolidated financial statements.
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Natera, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
(in thousands, except per share data)
Three months ended | Six months ended |
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June 30, | June 30, |
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| 2024 |
| 2023 |
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| 2023 |
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Revenues |
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Product revenues |
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Licensing and other revenues |
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Total revenues |
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Cost and expenses | ||||||||||||||
Cost of product revenues |
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Cost of licensing and other revenues | | | | | ||||||||||
Research and development |
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Selling, general and administrative |
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Total cost and expenses |
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Loss from operations |
| ( |
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Interest expense |
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Interest and other income, net |
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Loss before income taxes | ( | ( | ( | ( | ||||||||||
Income tax (expense) benefit | ( | | ( | | ||||||||||
Net loss |
| $ | ( |
| $ | ( |
| $ | ( |
| $ | ( | ||
Unrealized gain on available-for-sale securities, net of tax | | | | | ||||||||||
Comprehensive loss | $ | ( | $ | ( | $ | ( | $ | ( | ||||||
Net loss per share (Note 12): | ||||||||||||||
Basic and diluted | ( | ( | ( | ( | ||||||||||
Weighted-average number of shares used in computing basic and diluted net loss per share: | ||||||||||||||
Basic and diluted |
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See accompanying notes to the unaudited interim condensed consolidated financial statements.
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Natera, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
(in thousands)
Three months ended June 30, 2023 | ||||||||||||||||||
Common Stock | Additional | Accumulated Other Comprehensive | Accumulated | Total | ||||||||||||||
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| Shares |
| Amount |
| Capital |
| Loss | Deficit |
| Equity | |||||||
Balance as of March 31, 2023 | | $ | | $ | | $ | ( | $ | ( | $ | | |||||||
Issuance of common stock upon exercise of stock options | | — | | — | — | | ||||||||||||
Issuance of common stock under the employee stock purchase plan | | — | | — | — | | ||||||||||||
Vesting of restricted stock units | | — | — | — | — | — | ||||||||||||
Stock-based compensation | — | — | | — | — | | ||||||||||||
Unrealized gain on available-for sale securities | — | — | — | | — | | ||||||||||||
Net loss | — | — | — | — | ( | ( | ||||||||||||
Balance as of June 30, 2023 | | $ | | $ | | $ | ( | $ | ( | $ | | |||||||
Six months ended June 30, 2023 | ||||||||||||||||||
Common Stock | Additional | Accumulated Other Comprehensive | Accumulated | Total | ||||||||||||||
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| Shares |
| Amount |
| Capital |
| Loss | Deficit |
| Equity | |||||||
Balance as of December 31, 2022 | | $ | | $ | | $ | ( | $ | ( | $ | | |||||||
Issuance of common stock upon exercise of stock options | | — | | — | — | | ||||||||||||
Issuance of common stock under the employee stock purchase plan | | — | | — | — | | ||||||||||||
Issuance of stock for bonuses | | — | | — | — | | ||||||||||||
Issuance of common stock for IPR&D milestone | | — | | — | — | | ||||||||||||
Vesting of restricted stock units | | — | — | — | — | — | ||||||||||||
Stock-based compensation | — | — | | — | — | | ||||||||||||
Unrealized gain on available-for sale securities | — | — | — | | — | | ||||||||||||
Net loss | — | — | — | — | ( | ( | ||||||||||||
Balance as of June 30, 2023 | | $ | | $ | | $ | ( | $ | ( | $ | |
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Three months ended June 30, 2024 | ||||||||||||||||||
Common Stock | Additional | Accumulated Other Comprehensive | Accumulated | Total | ||||||||||||||
Shares |
| Amount |
| Capital |
| Loss | Deficit |
| Equity | |||||||||
Balance as of March 31, 2024 | | $ | | $ | | $ | ( | $ | ( | $ | | |||||||
Issuance of common stock upon exercise of stock options | | — | | — | — | | ||||||||||||
Issuance of common stock under the employee stock purchase plan | | — | | — | — | | ||||||||||||
Vesting of restricted stock units | | — | — | — | — | — | ||||||||||||
Stock-based compensation | — | — | | — | — | | ||||||||||||
Unrealized gain on available-for sale securities | — | — | — | | — | | ||||||||||||
Net loss | — | — | — | — | ( | ( | ||||||||||||
Balance as of June 30, 2024 | | $ | | $ | | $ | ( | $ | ( | $ | |
Six months ended June 30, 2024 | ||||||||||||||||||
Common Stock | Additional | Accumulated Other Comprehensive | Accumulated | Total | ||||||||||||||
Shares |
| Amount |
| Capital |
| Loss | Deficit |
| Equity | |||||||||
Balance as of December 31, 2023 | | $ | | $ | | $ | ( | $ | ( | $ | | |||||||
Issuance of common stock upon exercise of stock options | | — | | — | — | | ||||||||||||
Issuance of common stock under the employee stock purchase plan | | — | | — | — | | ||||||||||||
Issuance of stock for bonuses | | — | | — | — | | ||||||||||||
Vesting of restricted stock units | | | — | — | — | | ||||||||||||
Stock-based compensation | — | — | | — | — | | ||||||||||||
Unrealized gain on available-for sale securities | — | — | — | | — | | ||||||||||||
Net loss | — | — | — | — | ( | ( | ||||||||||||
Balance as of June 30, 2024 | | $ | | $ | | $ | ( | $ | ( | $ | |
See accompanying notes to the unaudited interim condensed consolidated financial statements.
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Natera, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended | ||||||
June 30, | ||||||
| 2024 |
| 2023 | |||
(in thousands) | ||||||
Operating activities |
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Net loss |
| $ | ( | $ | ( | |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||
Depreciation and amortization |
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Expensed in-process research and development | — | | ||||
Premium amortization and discount accretion on investment securities | ( | | ||||
Stock-based compensation |
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Non-cash lease expense | | | ||||
Amortization of debt discount and issuance cost | | | ||||
Foreign exchange adjustment | | | ||||
Non-cash interest expense | ( | | ||||
Changes in operating assets and liabilities: | ||||||
Accounts receivable |
| ( | ( | |||
Inventory |
| ( | ( | |||
Prepaid expenses and other assets |
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Accounts payable |
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Accrued compensation |
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Operating lease liabilities | ( | ( | ||||
Other accrued liabilities |
| ( | ( | |||
Deferred revenue |
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Cash provided by (used in) operating activities |
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| ( | ||
Investing activities | ||||||
Purchases of investments | ( | — | ||||
Proceeds from maturity of investments | | | ||||
Purchases of property and equipment, net |
| ( | ( | |||
Cash paid for acquisition of intangible assets | ( | — | ||||
Cash provided by investing activities |
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Financing activities |
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Proceeds from exercise of stock options | | | ||||
Proceeds from the issuance of common stock under the employee stock purchase plan | | | ||||
Cash provided by financing activities |
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Net change in cash, cash equivalents and restricted cash |
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| ( | ||
Cash, cash equivalents and restricted cash, beginning of period |
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Cash, cash equivalents and restricted cash, end of period |
| $ | |
| $ | |
Supplemental disclosure of cash flow information: | ||||||
Cash paid for interest | $ | | $ | | ||
Non-cash investing and financing activities: | ||||||
Purchases of property and equipment in accounts payable and accruals | $ | | $ | | ||
Acquisition of warrants | $ | | $ | — | ||
Amounts accrued for acquisition of intangible assets | $ | | $ | — | ||
Issuance of common stock for IPR&D acquisition | $ | — | $ | | ||
Issuance of common stock for bonuses | $ | | $ | | ||
Stock-based compensation included in capitalized software development costs | $ | | $ | | ||
See accompanying notes to the unaudited interim condensed consolidated financial statements.
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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 is a diagnostics company with proprietary molecular and bioinformatics technology that it is applying to change the management of disease worldwide. The Company’s cell-free DNA (“cfDNA”) technology combines its novel molecular assays, which reliably measure many informative regions across the genome from samples as small as a single cell, with its statistical algorithms which incorporate data available from the broader scientific community to identify genetic variations covering a wide range of serious conditions with high accuracy and coverage. The Company focuses on applying its technology to three main areas of healthcare – women’s health, oncology and organ health. In the women’s health space, the Company develops and commercializes non- or minimally- invasive tests to evaluate risk for, and thereby enable early detection of, a wide range of genetic conditions, such as Down syndrome. In oncology, the Company commercializes, among others, a personalized blood-based DNA test to detect molecular residual disease and monitor for disease recurrence across a broad range of cancer types. The Company’s third area of focus is organ health, with tests to assess kidney, heart, and lung transplant rejection as well as genetic testing for chronic kidney disease. The Company operates laboratories in Austin, Texas and San Carlos, California certified under the Clinical Laboratory Improvement Amendments of 1988 (“CLIA”) providing a host of cell-free DNA-based molecular 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
The Company’s key product offerings include its Panorama Non-Invasive Prenatal Test (“Panorama”) that screens for chromosomal abnormalities of a fetus as well as in twin pregnancies, typically with a blood draw from the mother; Horizon Carrier Screening (“Horizon”) to determine carrier status for a large number of severe genetic diseases that could be passed on to the carrier’s children; its Signatera molecular residual disease test (“Signatera”) to detect circulating tumor DNA in patients previously diagnosed with cancer to assess molecular residual disease, monitor for recurrence, and evaluate treatment response; and its Prospera test, to assess organ transplant rejection in patients who have undergone kidney, heart, or lung transplantation. 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, a cloud-based software platform that enables laboratory customers to gain access through the cloud to the Company’s algorithms and bioinformatics in order to validate and launch their own tests based on the Company’s technology.
2. Summary of Significant Accounting Policies
During the six months ended June 30, 2024, there were no material changes to the Company’s significant accounting policies as disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 (filed on February 29, 2024).
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 Company’s results of operations, financial position, changes in stockholders’ equity, and cash flows. The results of operations for the six months ended June 30, 2024, 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, 2023 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, 2023 included in the Company’s Annual Report on Form 10-K filed with the SEC on February 29, 2024.
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Some items in the prior period financial statements were reclassified to conform to the current presentation.
Liquidity Matters
The Company has incurred net losses since its inception and anticipates net losses for the near future. The Company had a net loss of $
While the Company has introduced multiple products that are generating revenues, these revenues have not been sufficient to fund all operations and business plans. 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 invest in the development and commercialization of its existing and 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 when necessary, 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.
On July 19, 2024, the Company announced its decision to redeem all of its outstanding
In September 2023, the Company completed an underwritten equity offering and sold
On September 10, 2021, the Company entered into an agreement with a third party for an asset acquisition where the acquired asset was in-process research and development primarily in exchange for an equity consideration payment. In addition, pursuant to the agreement, certain employees of the third party became employees of the Company. The third party was a biotechnology company focused on oncology. The total upfront acquisition consideration amounts to $
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Further, additional consideration aggregating up to approximately $
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 August 8, 2024.
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. The Company established a subsidiary that operates in Canada following the acquisition of the IPR&D asset. 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, the operating right-of-use assets and the associated lease liabilities, the average useful life for property and equipment including impairment estimates, deferred revenues associated with unsatisfied performance obligations, accrued liability for potential refund requests, stock-based compensation, the fair value of options, income tax uncertainties, and the expected consideration to be received from contracts with customers, insurance payors, and patients. These estimates and assumptions are based on management's best estimates and judgment. Management regularly evaluates its estimates and 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.
Investments
Investments consist primarily of debt securities such as U.S. Treasuries, U.S. agency and municipal bonds. Management determines the appropriate classification of securities at the time of purchase and re-evaluates such determination at each balance sheet date. The Company generally classifies its entire investment portfolio as available-for-sale. The Company views its available-for-sale portfolio as available for use in current operations. Accordingly, the Company classifies all investments as short-term, irrespective of maturity date. Available-for-sale securities are carried at fair value, with unrealized gains and losses reported in accumulated other comprehensive income (loss), which is a separate component of stockholders’ equity.
The Company classifies its investments as Level 1 or 2 within the fair value hierarchy. Fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets that the Company has the ability to access. Fair values determined by Level 2 inputs utilize data points that are observable such as quoted prices, interest rates and yield curves. The Company holds Level 2 securities which are initially valued at the transaction price and subsequently valued by a third-party service provider using inputs other than quoted prices that are observable either directly or indirectly, such as yield curve, volatility factors, credit spreads, default rates, loss severity, current market and contractual prices for the underlying instruments or debt, broker and dealer quotes, as well as other relevant economic measures. The Company performs certain procedures to corroborate the fair value of these holdings.
Available-for-sale debt securities. The amended guidance from ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, requires the measurement of expected credit
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losses for available-for-sale debt securities held at the reporting date over the remaining life based on historical experience, current conditions, and reasonable and supportable forecasts. The Company evaluated its investment portfolio under the available-for-sale debt securities impairment model guidance and determined the Company’s investment portfolio is composed of low-risk, investment grade securities and thus has not recorded an expected credit loss for its investment portfolio. Further, gross unrealized losses on available for sale securities were not material at June 30, 2024.
Accounts Receivable
Trade accounts receivable and other receivables. The allowance for doubtful accounts for trade accounts receivable is based on the Company’s assessment of the collectability of accounts related to its clinics and laboratory partner customers. The Company regularly reviews the allowance by considering factors such as historical experience, the age of the accounts receivable balances, and current economic conditions that may affect a customer’s ability to pay. See Note 6, Balance Sheet Components, for a roll-forward of the allowance for doubtful accounts related to trade accounts receivable for three months and six months ended June 30, 2024 and 2023. The Company recognizes revenue under Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”) and applies a constraint to the estimated variable consideration such that it is not probable that a significant reversal will occur. When assessing the total consideration expected to be received from insurance carriers and patients, a certain percentage of revenues is further constrained for estimated refunds. After applying the ASC 606 constraint, the Company assessed for credit losses and allowance for doubtful accounts and determined an incremental credit loss was not needed given the quality of the insurance payors from whom such receivables are expected to be collectible and the relatively short duration over which the majority of receivables are collected. Accordingly, the Company currently does not have an incremental credit loss reserve nor allowance for doubtful accounts against accounts receivable for insurance and patient payors due to the average selling price calculations which incorporate these risks as net receivables are recorded.
Inventory
Inventory is recorded at the lower of cost or net realizable value, determined on a first-in, first-out basis. Inventory consists entirely of supplies, which the Company consumes when providing its test reports, and therefore, the Company does not maintain any finished goods inventory. The Company enters into inventory purchases commitments so that it can meet future delivery schedules based on forecasted demand for its tests.
The Company uses judgment to analyze and determine if the composition of its inventory is obsolete, slow-moving or unsalable and frequently reviews such determinations. A write down of specifically identified unusable, obsolete, slow-moving or known unsalable inventory in the period is first recognized by using a number of factors including product expiration dates and scrapped inventory. Any write-down of inventory to net realizable value establishes a new cost basis and will be maintained even if certain circumstances suggest the inventory is recoverable in subsequent periods. Costs associated with the write-down of inventory are recorded to cost of revenue on our consolidated statements of operations. The Company makes assumptions about future demand, market conditions and the release of new products that may supersede older products. However, if actual market conditions are less favorable than anticipated, additional inventory write-downs may be required.
Other Assets
In January 2024, the Company acquired from Invitae Corp. (“Invitae”) certain assets relating to Invitae’s non-invasive prenatal screening and carrier screening business. The transaction price of $
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Accumulated Other Comprehensive Income (Loss)
Comprehensive loss and its components encompass all changes in equity other than those with stockholders, and include net loss, unrealized gains and losses on available-for-sale marketable securities and foreign currency translation adjustments.
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Beginning balance | $ | ( | $ | ( | $ | ( | $ | ( | |||
Net unrealized gain on available-for-sale securities, net of tax and foreign currency translation adjustment | | | | | |||||||
Ending balance | $ | ( | $ | ( | $ | ( | $ | ( |
The change in net unrealized loss on available-for-sale securities is due to increased market volatility. The Company has assessed the unrealized loss position for available-for-sale securities and determined that an allowance for credit loss was not necessary.
Revenue Recognition
The Company recognizes revenue under, ASC 606, using the following five step process:
● | Identification of a contract, or contracts, with a customer; |
● | Identification of the performance obligations in the contract; |
● | Determination of the transaction price; |
● | Allocation of the transaction price to the performance obligations in the contract; and |
● | Revenue recognition when, or as, the performance obligations are satisfied. |
The Company uses the most likely amount method of estimating variable consideration. The total consideration which the Company expects to collect in exchange for the Company’s products is an estimate and may be fixed or variable, and is primarily based on historical cash collections for tests delivered, as adjusted for current expectations. Current expectations of cash collections factor in changes in reimbursement rate trends, past events not expected to recur, and future known changes such as anticipated contractual pricing changes or changes to insurance coverage. For insurance carriers and product types with similar reimbursement characteristics, the Company uses a portfolio approach to estimate variable consideration. The Company also applies a constraint to the estimated variable consideration when it assesses whether it is probable that a significant reversal in the amount of cumulative revenue may occur in future periods.
When assessing the total consideration expected to be received from insurance carriers and patients, a certain percentage of revenues is further constrained for estimated refunds.
See Note 3, Revenue Recognition, for detailed discussions of product revenues, licensing and other revenues, and how the five steps described above are applied.
Fair Value
The Company discloses the fair value of financial instruments for financial assets and liabilities for which the value is practicable to estimate. Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price).
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Related Party
On December 6, 2021, the Company participated along with certain other investors in the series B financing of MyOme, Inc. (“MyOme”), and purchased preferred shares and warrants in exchange for a cash payment of approximately $
● | Matthew Rabinowitz, the Company’s executive chairman and co-founder, is the chairman of the board and founder of MyOme, and a beneficial holder of approximately |