Natera IPO Offers New Non-Invasive Prenatal Procedure

Natera NTRA, a provider of genetic testing services, looks to raise $100 million in its IPO this coming Thursday, July 2. Natera priced 10 million shares at $18. The company will list on the NASDAQ under the ticker NTRA. Diagnostic companies going public have been met with mixed feelings.

Based in San Carlos, CA, Natera began as Gene Security Network in 2004 studying genetic diseases.  The company developed a variety of algorithms and statistical testing methods to detect a wide variety of serious conditions with a high degree of accuracy. It’s methods were first used in prenatal testing and acted as a spring board in the development of a blood-based test.

Launched in 2013, Panorama is Natera’s flagship product out of a nine product lineup. It is non-invasive and can be administered as early as nine weeks into pregnancy. The test screens for common genetic diseases such as Down syndrome, Edwards syndrome, Patau syndrome and other severe intellectual and physical diseases. In the first quarter of 2015, Natera sold 55,000 Panorama tests.

Natera believes that, “the total addressable markets annually for its NIPT (non-invasive prenatal tests) product and carrier screening product in the United States alone are approximately $2.5 billion and $2.0 billion,” according to the company’s S-1. The traditional prenatal screening test based on hormones can result in errors and fetal loss in testing such as amniocentesis.

Natera is continuing to expand its sales force in the U.S. and has a global network of over 70 laboratories and distribution partners that includes many of the largest international laboratories. Natera provides further innovation through its introduction of a global cloud-based distribution model.

In terms of competition, Natera said, “ We compete with numerous companies that have developed and market NIPTs, including Sequenom, Inc., Illumina, Inc., through its Verinata division, Ariosa, Inc., which was recently acquired by F. Hoffman La-Roche Ltd, Laboratory Corporation of America Holdings, Counsyl, Inc., Beijing Genomics Institute, or BGI, and Berry Genomics Co., Ltd. We expect additional competition as other established and emerging companies enter the prenatal testing market, including through business combinations, and new tests and technologies are introduced. These competitors could have greater technological, financial, reputational and market access resources than us.”

Financials

Natera’s revenue grew 73.8 percent from $27.3 million in Q1 2014 to $47.4 million in Q1 2015, primarily from increased sales of Panorama. Revenue increased by 189 percent from $57.2 million in 2013 to $159.2 million in 2014.

The bulk of the company’s operating expenses come from cost of product revenues and sales and marketing which contributed to the company’s losses.

The company losses narrowed significantly between 2013 and 2014. Net losses were $ (37.1) million in 2013 and $ (5.15) in 2014. Net losses for Q1 2014 and 2015 were $ (9.61) million and $ (10.0) million, respectively.

Natera has $80.3 million in cash, total assets of $120.1 million, and total liabilities of $59.6 million, of which $25.7 million is long-term debt. The company has an accumulated deficit of $189.8 million.

According to Silicon Valley Business Journal, “Natera has raised $154.1 million over seven rounds from investors who include OrbiMed Advisors, HealthCor Partners, RA Capital Management, Jennison Associates, Franklin Templeton Investments, Sofinnova Ventures, Founders Fund, Sequoia Capital, Harmony Partners, Claremont Creek Ventures, Lightspeed Venture Partners and Alafi Capital.”

Natera’s most recent financing round occurred in November and December 2014. The company received approximately $55.5 million from a Series F financing round. 4.3 million shares of convertible preferred stock was issued.

Conclusion and Pricing Info

Natera is moving forward as a NIPT company that is looking to gain entry into the large oncology market with its developmental candidates. Despite the lack of profit, the company has demonstrated customers demand for products like its flagship Panorama. Most of the diagnostics companies that have gone public this year have had less than great post IPO results. Look at HTG Molecular Diagnostics HTGM, Invitae NVTA, and OpGen OPGN. All three companies are currently trading below their IPO pricing.

Natera estimates the net proceeds from its IPO to be $89.3 million. It intends to use $29.3 million for working capital and other general corporate purposes. $60.0 million will be used for continued investments in R&D for its core technology and development of its product offerings.

The main underwriters on the offering include Morgan Stanley, Cowen and Company, and Piper Jaffray. Shares for Natera are expected to price Wednesday night.