Natera stock surged Wednesday after a jury said the DNA-testing company must pay competitor Ravgen $57 million in a patent lawsuit — significantly below the $410 million its rival originally requested.
Importantly, Canaccord Genuity analyst Kyle Mikson says this won't interfere with Natera's plans to hit cash-flow break-even in 2024. Natera is also planning to appeal the jury's decision. If it loses the appeal, Natera will likely have to pay the full $57 million in damages, he said.
"That said, this would likely occur beyond 2024," he said in a note to clients "We currently estimate that the company will generate positive free cash flow of about $3 million in the fourth quarter. This is in line with Natera's target to achieve quarterly free cash flow break-even during 2024 (an important catalyst, in our view)."
Natera stock jumped 7.3% to 67.50. Shares nearly hit a two-year high when the stock market opened.
Natera Stock: Focusing On Two Patents
The patent battle goes back to 2020 when Ravgen said multiple Natera tests infringe on two of its U.S. patents, Mikson said.
The patents cover methods to prevent cell lysis. Cell lysis occurs when the cell's membrane breaks, spilling inner content like DNA, RNA and proteins. When that happens, the cells can no longer be analyzed in a sample. Ravgen claimed several of Natera's DNA-reading tests — including Panorama, Signatera and Prospera — infringed on those patents.
Late Tuesday, the jury sided with Ravgen and awarded the company $57 million in damages. But, bullishly for Natera stock, that's 86% less than Ravgen's original request. Further, the jury decided Natera didn't willfully infringe on the patents. This should prevent a meaningful increase to the damages if Natera loses its appeal, Mikson said. It's also important to note, the patents in question have since expired.
Patent Portfolio Is 'Underappreciated'
Mikson kept his buy rating on Natera stock.
"The company remains on track to decrease its cash burn going forward (excluding one-time payments)," he said. "Moreover, we believe Natera's recent successful litigation and legal wins in minimal residual disease (against NeoGenomics and Invitae) and transplant testing (against CareDx) highlight (that) Natera's robust patent portfolio is an underappreciated asset."
Natera stock broke out of a cup-with-handle base mid last month, topping a buy point at 59.37. Shares are now well extended beyond the buy zone, which runs from 59.37 to 62.34, according to MarketSmith.com. Natera shares have a strong IBD Digital Relative Strength Rating of 94. This puts their 12-month performance in the top 6% of all stocks.
Follow Allison Gatlin on X, the platform formerly known as Twitter, at @IBD_AGatlin.
