Natera's Resilience Shines Through Patent Battle

In a recent legal showdown, Natera ( NTRA ) emerged victorious, navigating a complex patent battle with competitor Ravgen that sent its stock soaring to nearly a two-year high. Despite facing a $57 million setback in damages, significantly less than the initial $410 million sought by Ravgen, Natera remains resilient and is set to achieve cash-flow break-even in 2024.

Navigating Legal Waters:
The legal tussle dates back to 2020 when Ravgen accused Natera of infringing on two U.S. patents related to preventing cell lysis. This process, wherein a cell's membrane breaks, poses a challenge for accurate analysis as vital inner content spills out. Ravgen specifically targeted several of Natera's DNA-reading tests, including Panorama, Signatera, and Prospera.

While the jury ruled in favor of Ravgen and awarded $57 million in damages, a mere 14% of the original claim, the silver lining for Natera lies in the fact that the jury found no willful infringement. This decision may safeguard Natera from a substantial increase in damages if an appeal were to fail. Notably, the patents in question have already expired, mitigating the long-term impact on Natera's operations.

Financial Outlook:
Despite the legal setback, Canaccord Genuity analyst Kyle Mikson maintains a positive outlook on Natera, emphasizing that the $57 million payment, if upheld, would likely occur beyond 2024. Mikson suggests that Natera is on track to achieve quarterly free cash flow break-even during 2024, a pivotal milestone for the company's financial health. Natera's ability to generate positive free cash flow of around $3 million in the fourth quarter aligns with its strategic goals.

Strategic Moves and Market Response:
Natera's stock surged 6.5% to $67 following the legal decision, reaching a nearly two-year high. The company's successful litigation against competitors, including wins in minimal residual disease testing against NeoGenomics and Invitae, as well as in transplant testing against CareDx, underscores the strength of Natera's patent portfolio.

Analysts like Mikson emphasize that Natera's patent portfolio is an underappreciated asset, contributing to the company's resilience in the face of legal challenges. The recent breakout of Natera's stock from a cup-with-handle base further signals positive momentum, with a strong IBD Digital Relative Strength Rating of 94, placing it in the top 6% of all stocks based on 12-month performance.

Conclusion:
Natera's ability to weather legal storms and emerge with a manageable settlement showcases the company's resilience and strategic positioning. With a focus on achieving cash-flow break-even in 2024 and a robust patent portfolio, Natera appears well-positioned for future growth and innovation in the competitive DNA-testing industry. Investors and industry observers should keep a close eye on Natera as it continues to navigate challenges and capitalize on opportunities in the evolving healthcare landscape.