Natera NTRA stock soared Wednesday after a jury said the DNA testing company must pay rival LoveGen $57 million in a patent lawsuit. This is significantly less than the $410 million initially requested by competitors.
Importantly, Canaccord Genuity analyst Kyle Mixon said this does not preclude Natera's plan to reach cash flow breakeven in 2024. Natera also plans 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 being said, this is likely to occur after 2024,” he said in a note to clients, adding, “The company currently expects to generate approximately $3 million of positive free cash flow in the fourth quarter.” “This is consistent with Natera's goals.” quarterly free cash flow breakeven during 2024 (a key driver in our view); ”
Natera stock rose 7.3% to 67.50. When the stock market opened, stock prices reached an almost two-year high.
Natera Stock: Focus on two patents
Mixon said the patent dispute dates back to 2020, when Ravgen said multiple Natera tests infringed on two of his company's U.S. patents.
This patent includes a method to prevent cell lysis. Cell lysis occurs when the cell membrane ruptures and internal contents such as DNA, RNA, and proteins are spilled out. This will make it impossible to analyze the cells in the sample. Mr. Ravgen claimed that several of Natera's DNA reading tests, including Panorama, Signaterra, and Prospera, infringed on these patents.
Late Tuesday, a jury sided with LoveGen and awarded the company $57 million in damages. However, to be bullish on Natera stock, this is 86% lower than Mr. Ruffgen's original request. Additionally, the jury found that Natera did not knowingly infringe the patents. This should avoid a significant increase in damages even if Natera loses its appeal, Mixon said. It is also important to note that the patent in question has already expired.
Patent portfolios are “undervalued”
Mixon maintained his buy rating on Natera stock.
“The company remains on track to reduce its cash burn (excluding one-time payments),” he said. “Additionally, we believe in Natera's recent successful litigation and legal victories in minimal residual disease. neogenomics (Neo) and Invitation (NVTA)) and transplant testing (vs. Care DX (CDNA)) highlights Natera's robust patent portfolio as an undervalued asset. ”
Natera stock broke out of its cup-with-handle base in the middle of last month, breaking above a buy point of 59.37. The stock is currently well above the buy zone of 59.37 to 62.34, according to MarketSmith.com. Natera stock has a high rating of 94 on the IBD Digital Relative Strength Rating. This puts Natera stock's 12-month performance in the top 6% of all stocks.
Follow Alison Gatlin on Platform X, formerly known as Twitter. @IBD_AGatlin.
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