2018 Natera Annual Report
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2018 ANNUAL REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2018 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) (650) 249-9090 (Registrant’s Telephone Number, Including Area Code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered The NASDAQ Stock Market LLC Common Stock, par value $0.0001 per share (NASDAQ Global Select Market) Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Act. Yes No 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or 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 The aggregate market value of the voting stock held by non-affiliates of the Registrant on June 29, 2018, based on the closing price of $18.82 per share as reported on the NASDAQ was approximately $0.62 billion. As of February 28, 2019, the number of outstanding shares of the registrant’s common stock, par value $0.0001 per share, was 62,790,368. DOCUMENTS INCORPORATED BY REFERENCE Information required in response to Part III of this annual report on Form 10-K is hereby incorporated by reference to portions of the Registrant’s proxy statement for its Annual Meeting of Stockholders to be held in 2019. The proxy statement will be filed by the Registrant with the Securities and Exchange Commission within 120 days after the end of the Registrant’s fiscal year ended December 31, 2018. Natera, Inc. FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2018 TABLE OF CONTENTS Page SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS ......................... 3 PART I Item 1. Business ........................................................................... 5 Item 1A. Risk Factors ........................................................................ 34 Item 1B. Unresolved Staff Comments........................................................... 73 Item 2. Properties .......................................................................... 73 Item 3. Legal Proceedings ................................................................... 74 Item 4. Mine Safety Disclosures .............................................................. 74 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of 75 Equity Securities .................................................................. Item 6. Selected Financial Data .............................................................. 77 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations . ...... 78 Item 7A. Quantitative and Qualitative Disclosures About Market Risk ................................ 94 Item 8. Financial Statements and Supplementary Data ............................................ 94 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ....... 133 Item 9A. Controls and Procedures .............................................................. 133 Item 9B. Other Information ................................................................... 134 PART III Item 10. Directors, Executive Officers and Corporate Governance ................................... 135 Item 11. Executive Compensation ............................................................. 135 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder 135 Matters .......................................................................... Item 13. Certain Relationships and Related Transactions, and Director Independence ................... 135 Item 14. Principal Accounting Fees and Services ................................................. 135 PART IV Item 15. Exhibits and Financial Statement Schedules .............................................. 135 Item 16. Form 10-K Summary ................................................................ 138 Signatures ......................................................................... 139 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. 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: • our expectation that, for the foreseeable future, a significant portion of our revenues will be derived from sales of Panorama; • our ability to increase demand for Panorama, 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; • our expectations of the reliability, accuracy, and performance of Panorama, as well as expectations of the benefits to patients, providers, and payers of Panorama; • our ability to successfully develop additional revenue opportunities and expand our product offerings to include new tests, including our recently launched offerings; • our efforts to successfully develop and commercialize our technology and expertise in prenatal testing into oncology and kidney transplant rejection applications; • the effect of improvements in our cost of goods sold; • our estimates of the total addressable markets for our current and potential