10-Q: Natera Reports Strong Revenue Growth Amid Rising Losses

Natera, Inc. announced a significant increase in Q3 2025 revenues and improved gross margins, despite a substantial rise in net losses and ongoing legal challenges.

Summary

• Total revenues for the three months ended September 30, 2025, increased by 34.7% to $592.2 million, up from $439.8 million in the prior year period.
• Product revenues grew by 35.3% to $590.2 million for the three months ended September 30, 2025, primarily due to increased test volumes and average selling price improvements.
• Net loss for the three months ended September 30, 2025, widened to $87.5 million, compared to a net loss of $31.6 million for the same period in 2024.
• Basic and diluted net loss per share was $(0.64) for the three months ended September 30, 2025, compared to $(0.26) for the same period in 2024.
• Gross margin percentage improved to 64.9% for the three months ended September 30, 2025, from 61.8% in the prior year period.
• For the nine months ended September 30, 2025, total revenues increased by 34.4% to $1,640.6 million, with product revenues reaching $1,634.7 million.
• Net loss for the nine months ended September 30, 2025, was $255.4 million, significantly higher than the $136.7 million loss for the nine months ended September 30, 2024.
• The company processed approximately 2,601,900 tests during the nine months ended September 30, 2025, an increase from 2,271,800 tests in the comparable 2024 period.
• Oncology units processed saw substantial growth, increasing to approximately 567,500 units for the nine months ended September 30, 2025, from 377,400 units in the prior year.
• Cash, cash equivalents, and restricted cash stood at $1,041.4 million as of September 30, 2025, up from $945.6 million at December 31, 2024.
• Accrual for legal contingencies increased to $40.8 million as of September 30, 2025, from $12.6 million at December 31, 2024.

Sentiment

Score: 4

Explanation: While revenue growth and gross margins are strong, the significant increase in net losses and operating expenses, coupled with substantial legal liabilities and the explicit mention of potential future capital raises, indicates a challenging financial position despite operational expansion. The company's continued unprofitability and growing accumulated deficit weigh heavily on the sentiment.

Positives

• Total revenues increased by 34.7% for the three months and 34.4% for the nine months ended September 30, 2025, demonstrating strong commercial growth.
• Product revenues, primarily from Panorama, Horizon, and Signatera, showed robust growth of 35.3% for the quarter and 34.9% for the nine-month period.
• Gross margin percentage improved to 64.9% for the quarter and 63.9% for the nine-month period, indicating better cost efficiency relative to revenue.
• Test volumes increased significantly, with total processed tests up 14.5% and oncology units processed up 50.4% for the nine-month period.
• Cash provided by operating activities increased to $141.4 million for the nine months ended September 30, 2025, from $82.8 million in the prior year, reflecting improved operational cash generation.
• The company maintains a strong cash position with over $1.0 billion in cash, cash equivalents, and restricted cash, and believes it has sufficient liquidity for at least the next 12 months.
• Successful redemption of Convertible Notes in October 2024 reduced interest expense by $2.1 million for the quarter and $6.3 million for the nine-month period.

Negatives

• Net loss significantly widened by 177.1% to $87.5 million for the three months and by 86.9% to $255.4 million for the nine months ended September 30, 2025.
• Loss from operations increased by 148.0% to $97.6 million for the three months and by 82.2% to $287.1 million for the nine months ended September 30, 2025.
• Research and development expenses surged by 78.9% for the quarter and 63.4% for the nine-month period, contributing to increased losses.
• Selling, general and administrative expenses increased by 44.1% for the quarter and 46.1% for the nine-month period, further impacting profitability.
• Licensing and other revenues decreased by 45.3% for the quarter and 31.4% for the nine-month period, primarily due to a decrease in collaborative agreements.
• Accumulated deficit increased to $2.8 billion as of September 30, 2025, indicating continued unprofitability since inception.
• The company faces substantial legal liabilities, with the aggregate accrual for legal contingencies increasing to $40.8 million.

Risks

• Incurring net losses for the foreseeable future and the need to generate additional revenues to achieve future profitability.
• Potential dilution for stockholders if additional funds are raised by issuing equity securities.
• Additional debt financing may involve covenants restricting operations or ability to incur more debt, and may not be available on favorable terms.
• Inability to obtain additional financing could lead to delays or scaling back of product development and commercialization.
• Reliance on a limited number of suppliers, including sole source suppliers, which may impact the ability to maintain a continued supply of laboratory instruments and materials.
• Uncertainty regarding the ultimate outcome of numerous ongoing legal proceedings, including intellectual property and false advertising lawsuits, which could result in significant costs and damages.
• The potential impact of governmental regulations on the business and operations, including the final rule regarding Laboratory Developed Tests (LDTs) published by the FDA in May 2024.
• Dependence on increasing demand and obtaining and maintaining third-party payer coverage and reimbursement for tests, especially for microdeletions screening.
• In-network contracts with third-party payers typically have lower negotiated fees than list prices and may have negative coverage determinations for some offerings, potentially adversely impacting revenues and gross margins.
• The cloud-based distribution model (Constellation) results in lower revenues and gross profit per test compared to processing tests in-house.

Future Outlook

The company anticipates net losses for the near future as it continues to invest heavily in research and development and commercialization efforts for existing and new products. It expects to need to generate additional revenues to achieve future profitability and may need to raise additional equity or debt financing. The company believes its existing cash, cash equivalents, and marketable securities will be sufficient to meet anticipated cash requirements for at least 12 months from the financial statement issuance date.

Management Comments

• Our ability to increase our revenues and gross profit will depend on our ability to further penetrate the U.S. market with our direct sales force.
• Our financial performance depends on reimbursement for microdeletions testing.
• Entering into in-network contracts continues to be an important part of our business strategy, as we believe that in-network coverage of our tests by third-party payers is crucial to our growth and long-term success.
• We intend to mitigate any adverse impact from lower negotiated fees in in-network contracts by driving more business from our most profitable accounts.
• Our strategy to offer access to our algorithm to laboratory licensees via our Constellation cloud-based software platform may cause our revenues to decrease because we do not process the tests and perform the molecular biology analysis in our own laboratory under this model, and therefore are not able to charge as high an amount and, as a result, realize lower revenues per test than when we perform the entire test ourselves.

Industry Context

Natera operates in the highly competitive and rapidly evolving diagnostics industry, particularly in cell-free DNA technology for women's health, oncology, and organ health. The significant growth in oncology test volumes (50.4%) suggests strong demand in the molecular residual disease (MRD) testing market, aligning with broader industry trends towards personalized cancer monitoring. The company's focus on expanding its direct sales force and securing in-network payer contracts is a common strategy in the diagnostics sector to ensure broader market access and more predictable revenue streams. However, the challenges with reimbursement for microdeletions screening highlight the ongoing pressure on diagnostic companies to demonstrate clinical utility and cost-effectiveness to payers. The increasing regulatory scrutiny on Laboratory Developed Tests (LDTs) by the FDA, as noted in the filing, represents a significant industry-wide shift that could impact Natera's business model and test offerings.

Comparison to Industry Standards

• NA

Management Changes

Corporate Governance

Legal Proceedings

• CareDx Patent Cases: Natera's motion for summary judgment finding CareDx's patents invalid was affirmed on appeal. In a separate case, Natera's asserted patents were invalidated by the court after a jury verdict in Natera's favor, and Natera has filed a notice of appeal.
• ArcherDX Case: Jury found ArcherDX and Invitae infringed Natera's patents, awarding Natera $19.4 million in damages and a permanent injunction. Post-trial proceedings resumed in November 2024 after a bankruptcy stay.
• Ravgen Case: Jury found Natera liable for non-willful infringement with $57.0 million in damages; Natera intends to appeal.
• Genosity Case: Stayed pending the ArcherDX case; Genosity filed for Chapter 11 bankruptcy.
• Invitae (now LabCorp) Case: Settled in September 2025.
• Inivata Case: One suit voluntarily dismissed without prejudice in October 2025; the January 2021 suit remains pending.
• NeoGenomics Case: Natera secured a preliminary injunction against NeoGenomics' RaDaR test, which was affirmed on appeal. A partial settlement resulted in a permanent injunction against the original RaDaR test. However, summary judgment of invalidity was granted for two Natera patents (454 and 596) in August 2025, with final judgment entered in September 2025; Natera is evaluating next steps.
• CareDx False Advertising: Jury found Natera liable for $44.9 million, but the court set aside the damages. CareDx was also found liable for false advertising. The ruling that CareDx is not entitled to damages was affirmed on appeal.
• Guardant Health False Advertising: Jury found Natera liable for false advertising and awarded $292.5 million in damages. The court largely upheld the verdict in July 2025, and Natera plans to appeal.
• Patient Class Action (Billing): Dismissed, refiled, and subsequently remanded to state court and stayed.
• Patient Class Action (Panorama Marketing): A settlement of all claims has been reached and submitted to the District Court for approval.
• Securities Exchange Act Class Action: Motion to dismiss granted in part and denied in part; the class has been certified.
• Shareholder Derivative Complaints: Two complaints filed against Natera as nominal defendant and certain management, alleging false or misleading statements.
• Patient Class Action (Preimplantation Genetic Test): Dismissed in August 2025, but plaintiffs filed an amended complaint in the same month.
• Aggregate accrual for legal contingencies increased to $40.8 million as of September 30, 2025, from $12.6 million at December 31, 2024.

Related Party Transactions

• Natera holds preferred shares and warrants in MyOme, Inc., a privately-held company where Natera's executive chairman, co-founder, and a director hold significant positions or board seats.
• As of September 30, 2025, the carrying amount of preferred shares in MyOme was $6.6 million, and the fair market value of warrants was $12.7 million.
• In February 2024, Natera entered into a Collaboration Agreement with MyOme to partner on genetic testing services, receiving warrants for MyOme's common and Series B preferred stock.
• In October 2025, Natera committed to invest an additional $10.0 million in MyOme by January 2026 through an amendment to the Series B Preferred Stock Agreement.

Stakeholder Impact

• Shareholders: Experience dilution risk from potential future equity raises and face uncertainty due to significant ongoing legal liabilities and widening net losses. However, strong revenue growth and improved gross margins could be positive long-term indicators.
• Employees: Increased R&D and SG&A expenses, including higher stock-based compensation, suggest continued investment in personnel and growth opportunities. Legal proceedings, particularly those involving former employees, could impact morale or recruitment.
• Customers (Patients, Clinics, Labs, Pharma): Benefit from expanded product offerings (Panorama, Horizon, Signatera, Prospera) and increased test volumes. The Constellation platform offers flexibility for laboratory partners. However, issues with payer reimbursement for certain tests (e.g., microdeletions) could affect patient access or out-of-pocket costs.
• Suppliers: The company has significant contractual commitments with laboratory instrument, material, and application service providers, indicating stable demand for their services.
• Creditors: The company maintains a strong cash position and has reduced its convertible debt, but continued net losses and potential future debt financing could be a consideration.

Next Steps

• Appeal the final judgment in the CareDx patent case (second case) where Natera's patents were invalidated.
• Intend to appeal certain rulings in the Ravgen patent infringement case where Natera was found liable for $57.0 million in damages.
• Plan to appeal the final judgment in the Guardant Health false advertising case where Natera was found liable for $292.5 million in damages.
• Evaluate potential next steps regarding the summary judgment of invalidity of the 454 and 596 patents in the NeoGenomics case.
• Continue to evaluate the impact of new accounting pronouncements (ASU 2023-09, 2024-03, 2025-05, 2025-06, 2025-07) on consolidated financial statements.
• Invest an additional $10.0 million in MyOme by January 2026, as per the amended Series B Preferred Stock Agreement.

Key Dates

Recommendation

Natera demonstrates robust revenue growth and improved gross margins, driven by strong demand for its core products and significant expansion in oncology testing. This operational strength is a positive indicator. However, the company's financial performance is significantly impacted by widening net losses, substantial increases in operating expenses (R&D and SG&A), and a growing accumulated deficit. The ongoing and significant legal liabilities, including a $292.5 million jury verdict against Natera (which it plans to appeal) and a $57.0 million liability in another case, introduce considerable uncertainty and financial risk. While the company has sufficient liquidity for the next 12 months, the explicit mention of potential future capital raises and the inherent risks in the diagnostics industry, particularly regarding reimbursement and regulatory changes, suggest a cautious approach. The stock is a 'hold' as the strong top-line growth and operational improvements are offset by persistent unprofitability and material legal overhangs, making it a high-risk, high-reward scenario that warrants close monitoring rather than immediate buying or selling.

Keywords

Natera, NTRA, Diagnostics, Cell-free DNA, cfDNA, Womens Health, Oncology, Organ Health, Non-Invasive Prenatal Test, NIPT, Panorama, Horizon Carrier Screening, Signatera, Molecular Residual Disease, Prospera, Transplant Rejection, Constellation Platform, Genetic Testing, SEC Filing, 10-Q, Financial Results, Legal Proceedings, Biotechnology, Medical Devices