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At opening bell today (3/9), Hindenburg dropped a short sale report on medical device manufacturer Natera ($NTRA) causing the stock to drop almost 50% by mid-day.
Looking into their statements, it is fairly unfounded or intentionally deceptive, and the sell-off will largely be mitigated by tomorrow (3/10). This is a potential 60-100% upside depending on when a position is initiated.
Here's the full report. Breaking down their claims:
Natera has no significant “moat.” While it has a patent portfolio for its NIPTs, the process is dependent on DNA sequencers from a direct competitor. Rival NIPTs have comparable accuracy for the most common tests and are frequently cheaper.
Natera operates in 3 business segments: Women's health, Organ Transplant (Kidney), and Cancer Screening. Whereas Panorama (NIPT test talked about in the research) makes up the largest segment today (400k processed kits), the largest growth in Q4 was on their other product lines (Signatera, Altera, Prospera, and Renasight) growing from 29k to almost 118k between 2020 and 2021.
Saying that they have no moat without Panorama is missing the forest for the trees. Net margin on non-NIPT is also higher per their 10-K.
In late 2017, payors imposed “prior authorization” requirements for Natera's tests to curb excessive billing. Natera's risk disclosures warned that the additional step could severely hamper revenue growth.
Just 3 months after the warning, a new, opaque, and supposedly non-profit entity called “My Genome My Life” (MGML) appeared. Natera's sales reps suddenly began pitching doctors on free prior authorization help through the entity.
Since its formation, MGML claims to have provided prior authorization assistance for over 1.8 million tests, representing up to 44% of Natera's total test volume in that time frame.
Despite the massive volume, MGML has just 3 employees on LinkedIn and claims to operate out of a virtual office address in Washington D.C. Its “President”, according to people familiar with its operations, is a woman named “Vickie Seth.”
We found that “Vickie Seth” is a pseudonym for a woman who shares a mailing address and a close personal relationship with Natera's former VP of sales at the time MGML was created.
A former employee recounted to us how the Natera sales VP “realized that his sales operation was up against the wall” just as MGML was surreptitiously created with his support.
MGML masks that it is a third party by submitting information to insurance companies under practitioners' login credentials, according to a person we interviewed familiar with MGML's operations. This practice is in direct contravention of longstanding HHS anti-kickback guidance calling for transparency by third party prior authorization providers.
To facilitate this deception, Natera sales reps help doctors' offices access insurance prior authorization portals, then share the passwords with MGML. Some doctors refuse to work with MGML because of this type of arrangement.
Outside of MGML, Natera lures patients in with promises of low testing costs and the prospect of learning a child's gender early, leading many expectant mothers to unknowingly agree to an expensive added screen for “microdeletions” that is rarely covered by insurance.
Summated all related statements on prior authorization (PA) because it is mostly talking about the same thing in a long-winded way.
If any of you have ever worked in healthcare billing, you would know that prior-auth is neither an anomaly or something that shows that the test being authorized is not good. It is simply a way for insurance to approve or deny claims. Increase in prior authorization as stated by the AMA is not specifically for Natera, but in general, towards insurers that hope to deny more claims under PA.
To navigate this complex billing system, and help patients reduce their overall bill, all medical companies work with (a) third-party billing assistance firms, (b) insurance companies, either directly or through a specialized firm, and (c) with doctors' offices to provide correct CPT charge codes.
Natera working with MGML is neither surprising, nor should it raise any concerns with respect to the stock price. On the allegation that MGML used individuals' credentials to perform PA accessing insurance portals, I cannot even begin to explain why such a large HIPAA violation would not show up in a short-seller's reserach, but would instead be showing up on the justice departments' press release. I don't know why anyone would believe/claim that doctors will be willing to lose their medical license to overbill a patient by a few thousand $$.
In terms of their growth or revenue, all statements on microdeletion and its accuracy are not entirely relevant, because accuracy is not a determinant of prescription, and the test is still covered by a specific CPT code, indicating that it is a standard test approved for billing.
Coming to Hindenburg's short position: Looking at the trade volumes, it looks like they initiated a short position starting last Friday at close, with more positions in pre-market and after-hours trading; seeing that there wasn't much volume before this Hindenburg research, we can assume they are some 400k-600k shares short.
Looking at today's volume, they could've easily exited their position at max-pain of $26. However, fundamentals of the stock remain unchanged, and it seems like an overreaction to a company trading at 40% discount while still in its growth phase of introducing 2 new business segments.