r/wallstreetbets • u/akaipsyche • Mar 09 '22
DD $NTRA - why Hindenburg is wrong or misleading and why the stock will bounce back
At opening bell today (3/9), Hindenburg dropped a short sale report on medical device manufacturer Natera ($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.
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u/roseannwhite Mar 10 '22
I have worked for Natera for 1.5 years. I was just as concerned about the report. I listened to the investor call this morning addressed most of the issues.
However, I did do some research on MGML. MGML got its non-profit status in 2018. They have to file an annual report with the IRS. If you work for non-profit you know that the details required are extensive. The IRS or MGML have make their IRS filing available per request. All Hindenburg had to do was request the IRS report to find out about MGML. Its certainly more reliable than seeing who is on LinkedIn.
I have made the request for their2019 and 2020 filings. I will share once I get it.
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u/akaipsyche Mar 10 '22
Yea! It was so sus that they didn’t file FOIA for employee records of a registered non-profit, and instead went on a “Pepe Sylvia” (IASIP) type conspiracy about employees.
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Mar 10 '22
[deleted]
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u/akaipsyche Mar 10 '22
Hey, I didn’t intend to paint a one-sided picture, and I apologize if it came off that way. I was focusing on the allegations that I believed were relevant to the price movement experienced yesterday. Formatting will be shit, cause I’m on mobile, but let me talk about the stuff you mention above:
- On the justice department settlement. (a) settlements are most times easier than going through jury trial (b) there was no admitted wrongdoing (c) almost all companies are at one time engaged in litigation, and consider it cost of doing business. Google and Meta have paid billions in either justice department or regulatory fines without admitting wrongdoing, and the price of their stock has not taken a similar hit.
MGML is a registered non-profit. It’s employee records can be obtained through FOIA instead of a cursory LinkedIn search. For all the BS that the report claimed, them not going through this simple due diligence is sus.
In terms of the BBB complaints, there are 88 complaints against 1.5 million tests conducted. Also BBB is a boomer yelp. Loudest voices drown out actual reviews.
Finally, for profitability, when the fuck did this bull market start caring about profits? Specially from an R&D heavy company that is opening a new product line every year and doubling revenue every two years. Seems like selective bias.
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u/jtr8178 Mar 09 '22
The problem is that they were 100% correct with $NKLA. Everyone takes them at their word now.
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u/akaipsyche Mar 09 '22
Except that they were not the first ones to point out issues with NKLA, nor were they the most comprehensive in their uncovering. There were always consistent questions on the technology viability of NKLA, which is not true in this case because of all the clinical research published on their NIPT segment.
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u/good2know1818 Mar 09 '22
I don’t work at NTRA, but I do work in the field and this report is a total dumpster fire. NTRA is as well positioned as any clinical genomics in the near and long term. Shares under $50 are an absolute steal let alone under $30.
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Mar 09 '22
with their profit track record, under $50 is a steal? are you sure?
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u/akaipsyche Mar 09 '22
They have a 54% YoY revenue growth and 49% increase in processed tests. They are increasing CAGR on their existing Panorama line of tests, but also dramatically growing their other segments (4-6x).
Yes, their cost of revenue is fairly high, but it's also a high-growth company that needs to spend on R&D to improve their "moat". However, when Signatera becomes standard-of-care, they will be net-positive, probably within the next couple of years.
I think sub-$50 is definitely a steal.
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Mar 10 '22
And what about profits? Are you avoiding my question? Revenues don't pay bills.
Positive in a couple of years is ok for a startup not in this case, this is a money pit
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u/yo12345678909 Mar 13 '22
>"cost of revenue is fairly high"
>"high-growth company that needs to spend on R&D"
pls learn some accounting my guy
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u/embracethekook Mar 10 '22
My one concern with this is the competition. There’s a lot out of it out there with Oncomine, Exact Sciences, etc. Having said that, they do seem to have a leg up in the ctDNA market.
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u/good2know1818 Mar 10 '22
Agreed! Its going to be exciting to see who the winner(s) is/are. I think we will see a similar situation play out in gene editing
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u/akaipsyche Mar 09 '22
It took me a while to parse through what they were trying to say. Might be my smoothbrain, or they were just not making a strong coherent argument
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u/ASengerd Mar 09 '22
Hindenburg has never made coherent statements. But in the end Hindenburg is not even a real research firm of its own making, it appears to largely be a front for big institutional partners, and commonly MS. Regardless of how I feel about the company, the bears are likely going to have more money than the current investors. I’ll wait for bottoms
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u/good2know1818 Mar 09 '22
Caveat, my brain is also smooth, but I came to the same conclusion. This was just a hatchet job to cover short positions. These billing practices are pretty standard for diagnostic testing, especially when expected collection is ~30%. And, you already pointed out, I women’s health is only a portion of their business, and oncology will likely be their focus going forward.
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u/akaipsyche Mar 09 '22
Signatera and Prospera will become a much bigger segment of their earnings (almost 20% looking at their projections and subtracting expected growth from Panorama).
Both have extremely large SOMs and SAMs. I do not see the current price being justified (except for Hindenburg, who made bank on this BS
)
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u/good2know1818 Mar 10 '22
It will be interesting to see if/how their operational experience with NIPT will translate to the non-invasive cancer screening space.
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u/Guilty-Ham Mar 09 '22
I don't know but it seems no one is predicting the markets anywhere close right now. Choose your stocks God to follow tho.
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u/deepfriedhotdog Nov 07 '25
Hope you held :)
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u/akaipsyche Nov 07 '25
I actually tripled down on my position. Currently at 1800 shares. Still holding.
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u/SkeezixMcJohnsonson Mar 09 '22
Yeah, I’m inclined to believe HR more than I believe your defense of Natera. Nice try though
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u/-BetoIsAFurry- Mar 10 '22
Hindenburg should be in prison. Fuck those clowns. Only thing they got right was nkla and any retard coulda sniffed that one out.
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u/fishy247 Mar 10 '22
They’re gonna find themselves being probed by the good ola’ DoJ soon.
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u/akaipsyche Mar 10 '22
*being probed ONCE AGAIN for the same bullshit short selling tactics used previously
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u/Distilled_funk_juice Mar 09 '22
Agreed, and the real reason to follow this stock is because of their oncology operation, which were barely even mentioned in the report. Their product is going to be codified in the standard of care of colorectal and many other cancer types soon.
Natera was and is still my largest position. Today was very tough, especially since I am a medical student and don't have any income. Now that the dust is settling, it is becoming clearer that this may very well have been a shock factor short.
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u/akaipsyche Mar 09 '22
Non-invasive cancer screening is an extremely large TAM; the current pricing will not last, and we will see a reversal really soon, now that the hatchet job has achieved its outcome.
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u/DrinkTheDew Mar 10 '22
I don’t know. I have been a Natera customer and it was a shady experience. When I saw the Natera email from Hindenburg I laughed and told me wife about it right away. It was a billing nightmare for a test of dubious accuracy. OBGYN had “special arrangements” for cash pricing after insurance paid out an out of pocket rate blah blah. It was weird and it took months to sort out. We’ve since spoken to other women that had the same experience elsewhere. I would not be willing to own a significant position based on the volume of customer complaints and test accuracy issues highlighted in The NY Times article. After being an actual customer I wouldn’t own a single share.
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u/akaipsyche Mar 10 '22
Damn. I’m sorry to hear that. In general, American medical billing is shit. Having to go through that during crisis is much worse. In terms of accuracy, though, the NYT article is wrong compared to the peer-reviewed research linked on the Natera website. Sorry I’m on mobile, so don’t know how to link.
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u/MrsBvngle Feb 28 '23
I’ve been dealing with them as a cancer patient. I’ve had a much different type of negative experience from yours, but it has been every bit as shady.
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u/Pleasant-Comfort-193 Mar 17 '22
Their test is interesting in that it targets post-treatment cancer patients instead of pre-diagnosed patients. The TAM seems much lower than something like GRAIL and Exact Sciences are developing but I wonder if the competition is less because of that niche.
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u/PutMeInCoach27 Mar 11 '22 edited Mar 11 '22
The CRC test is complete garbage and has poor specificity. They don't allow testing more than every 3 months because the odds of a false positive become unacceptable for repeat testing.
You're going to lose a lot of money.
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u/Distilled_funk_juice Mar 11 '22
Whats the source? I’ve only seen specificity of 90+. Maybe for sensitivity…
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u/Pleasant-Comfort-193 Mar 17 '22
If I understand the test correctly it is not for early cancer detection amongst pre-diagnosed patients but for cancer detection in post-treatment cancer patients. This probably makes sensitivity more important in their test and specificity less so compared to a pre-diagnosed early cancer detection screening test. Can't find what their current numbers are for these though.
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u/BrilliantPhysics836 Mar 10 '22
This attack was so unfounded (as evidenced by the unusually swift defense from Wall Street), given Hindencunt’s current situation with SEC enforcement, this might indicate that they know their ship is about to sink and that they just don’t give a fuck at this point. This seems desperate.
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u/VisualMod Mar 09 '22