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

Natera, Inc. announced significant revenue increases for Q2 and H1 2025, driven by test volume growth, but reported a substantially wider net loss and faced major adverse legal judgments.

Summary

• Total revenues for the three months ended June 30, 2025, increased by 32.2% to $546.6 million, up from $413.4 million in the prior year period.
• Total revenues for the six months ended June 30, 2025, increased by 34.2% to $1,048.4 million, compared to $781.1 million in the same period of 2024.
• Product revenues for Q2 2025 grew by 32.3% to $544.4 million, and for the six months by 34.6% to $1,044.5 million, primarily due to increased test volumes and average selling price improvements.
• Net loss for Q2 2025 widened significantly to $100.9 million from $37.5 million in Q2 2024, and for the six months to $167.9 million from $105.1 million in the prior year.
• Loss from operations for Q2 2025 increased to $110.4 million from $43.9 million in Q2 2024, and for the six months to $189.5 million from $118.2 million.
• Gross margin percentage improved to 63.4% for Q2 2025 (from 58.8% in Q2 2024) and 63.3% for the six months ended June 30, 2025 (from 57.8% in the same period of 2024).
• Total processed tests for the six months ended June 30, 2025, were approximately 1,708,200, an increase from 1,496,000 tests processed in the prior year period, driven by Signatera, Panorama, and Horizon.
• Research and development expenses increased by 64.3% in Q2 2025 to $146.4 million and by 55.0% for the six months to $275.5 million.
• Selling, general and administrative expenses increased by 56.9% in Q2 2025 to $310.5 million and by 47.2% for the six months to $577.4 million.
• Cash, cash equivalents, and restricted cash totaled $1.0 billion as of June 30, 2025.
• The accumulated deficit reached $2.7 billion as of June 30, 2025.

Sentiment

Score: 4

Explanation: While Natera demonstrated robust revenue growth and improved gross margins, the substantial increase in net loss, operating expenses, and significant adverse legal judgments (totaling hundreds of millions of dollars, with appeals pending) present considerable financial and operational challenges. The company's accumulated deficit continues to grow, and the need for potential future capital raises, with associated dilution risk, weighs on the outlook.

Positives

• Strong revenue growth: Total revenues increased by 32.2% in Q2 2025 and 34.2% for the six months ended June 30, 2025, driven by increased test volumes and average selling price improvements.
• Improved gross margin: Gross margin percentage increased to 63.4% in Q2 2025 from 58.8% in Q2 2024, and to 63.3% for the six months from 57.8% in the prior year.
• Increased test volumes: Total processed tests for the six months ended June 30, 2025, grew to approximately 1,708,200, up from 1,496,000 in the prior year, primarily from Signatera, Panorama, and Horizon.
• Strong cash position: Ended Q2 2025 with $1.0 billion in cash, cash equivalents, and restricted cash.
• Favorable outcome in NeoGenomics litigation: A preliminary injunction against NeoGenomics' RaDaR test was affirmed, and a permanent injunction was entered, leading to NeoGenomics withdrawing its test from the market. The USPTO also denied challenges to Natera's patents.
• Reduced interest expense: Interest expense decreased by 67.1% in Q2 2025 and 67.5% for the six months due to the redemption of Convertible Notes in October 2024.
• Increased interest and other income: Primarily due to higher cash and investment balances.

Negatives

• Widening net loss: Net loss increased significantly to $100.9 million in Q2 2025 from $37.5 million in Q2 2024, and to $167.9 million for the six months from $105.1 million in the prior year.
• Increased operating loss: Loss from operations more than doubled in Q2 2025 to $110.4 million from $43.9 million in Q2 2024, and increased to $189.5 million for the six months from $118.2 million.
• Substantial increase in operating expenses: Research and development expenses surged by 64.3% in Q2 2025 ($57.3 million increase) and 55.0% for the six months ($97.8 million increase). Selling, general and administrative expenses increased by 56.9% in Q2 2025 ($112.6 million increase) and 47.2% for the six months ($185.2 million increase).
• Growing accumulated deficit: Reached $2.7 billion as of June 30, 2025, indicating continued unprofitability since inception.
• Significant increase in legal liabilities: Aggregate accrual for legal contingencies increased to $40.6 million as of June 30, 2025, from $12.6 million at December 31, 2024.
• Adverse jury verdict against Natera in Guardant Health lawsuit: Found liable for false advertising with damages of $292.5 million, upheld by the court on July 28, 2025. Natera plans to appeal.
• Adverse jury verdict against Natera in Ravgen lawsuit: Found liable for non-willful patent infringement with damages of $57 million. Natera intends to appeal.
• Invalidation of Natera's patents in a CareDx case: Court granted CareDx's motion for judgment as a matter of law and invalidated Natera's asserted patents, reversing a prior $96.3 million jury award in Natera's favor. Natera filed an appeal.
• Ongoing class action lawsuits: Facing multiple class action lawsuits related to patient billing, Panorama marketing, and securities claims.
• Dilution risk: If additional equity financing is raised, stockholders will experience dilution.
• Decreased licensing and other revenues: Declined by 21.5% for the six months ended June 30, 2025, primarily due to the termination of certain collaborative agreements.

Risks

• Litigation Outcomes: Inability to predict the ultimate outcome of legal matters, including intellectual property disputes and other litigation, which could lead to substantial damages, injunctions, and diversion of resources.
• Reimbursement Challenges: Many third-party payers do not currently reimburse for microdeletions screening, and in-network contracts may result in lower negotiated fees and negative coverage determinations for some offerings, impacting revenues and gross margins.
• Funding and Profitability: Continued net losses and accumulated deficit ($2.7 billion) indicate a need to generate additional revenues or raise additional equity or debt financing, which could lead to stockholder dilution or restrictive covenants.
• Regulatory Changes: Potential impact of governmental regulations on business and operations, including the final rule regarding Laboratory Developed Tests (LDTs) published by the FDA in May 2024.
• Reliance on Suppliers: 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.
• Foreign Currency Exchange Rate Fluctuations: Expanding international operations may subject results of operations and cash flows to fluctuations due to changes in foreign currency exchange rates.
• Inflation Risk: Significant inflationary pressures could prevent offsetting higher costs through revenue increases, negatively affecting demand for products and harming financial condition.

Future Outlook

Natera expects to continue incurring net losses for the near future as it invests heavily in research, development, and commercialization of existing and new products. The company believes its existing cash and marketable securities will be sufficient to meet anticipated cash requirements for at least 12 months after August 7, 2025, but acknowledges the need to generate additional revenues or potentially raise more equity or debt financing, which could dilute stockholders or impose restrictive covenants. Research and development, as well as cost of product revenues, are expected to increase in absolute dollars with growing test volumes and product enhancements. The company plans to appeal adverse legal judgments in the Guardant Health, Ravgen, and CareDx cases, with trials for Invitae and NeoGenomics lawsuits scheduled for September and October 2025, respectively. New accounting pronouncements are not expected to have a significant impact, and inflation has not materially affected the business to date, though future pressures could be a concern.

Management Comments

• Aim to make personalized genetic testing and diagnostics part of the standard of care to protect health and inform earlier and more targeted interventions that help lead to longer, healthier lives.
• Ability to increase revenues and gross profit will depend on further penetration of the U.S. market with the direct sales force.
• Entering into in-network contracts is a crucial business strategy for growth and long-term success, as it offers more predictable pricing, stable relationships with third-party payers, and access to a larger covered population.
• Intend to mitigate the impact of lower in-network fees by driving more business from the most profitable accounts.
• The strategy to offer access to algorithms via the Constellation cloud-based software platform may lead to lower revenues per test compared to processing tests internally, but also results in lower costs per test.
• Increased focus on more efficient use of labor, automation, and DNA sequencing to achieve scale.
• Based on the current business plan, existing cash and marketable securities are believed to be sufficient to meet anticipated cash requirements for at least 12 months after August 7, 2025.

Industry Context

Natera operates in the competitive and rapidly evolving diagnostics industry, leveraging cell-free DNA technology for applications in womens health, oncology, and organ health. The company's focus on personalized genetic testing aligns with broader trends towards precision medicine. The numerous ongoing patent and false advertising litigations with competitors like CareDx, Guardant Health, ArcherDX, Invitae, and NeoGenomics highlight the intense competitive landscape and the importance of intellectual property in this sector. Challenges in securing broad third-party payer reimbursement for advanced genetic tests, such as microdeletions screening, remain a common industry hurdle, emphasizing the need for robust clinical evidence. The FDA's increased scrutiny on Laboratory Developed Tests (LDTs) through its May 2024 final rule indicates a tightening regulatory environment that could impact diagnostic companies like Natera. The company's Constellation cloud-based platform represents a strategic approach to expand market reach through licensing, a model often used in the biotech and diagnostics industry for broader technology adoption.

Comparison to Industry Standards

• The extensive legal disputes with competitors such as CareDx, Guardant Health, ArcherDX, Invitae, and NeoGenomics indicate Natera's significant presence and active defense of its intellectual property in the highly competitive transplant rejection, oncology, and NIPT markets.
• The challenge of securing third-party payer reimbursement for microdeletions screening, despite Natera's SMART study results, reflects a common industry-wide hurdle for advanced diagnostic tests requiring substantial clinical data for broader adoption and coverage.
• Natera's strategy of offering its Constellation cloud-based platform for laboratory licensees is a common industry approach to expand market penetration and leverage bioinformatics capabilities without incurring full test processing costs, similar to other diagnostic technology providers.

Corporate Governance

Legal Proceedings

• CareDx Patent Cases: Natera's patents were invalidated by a court ruling in February 2025, reversing a prior $96.3 million jury award in Natera's favor. Natera filed an appeal in March 2025. Separately, the USPTO denied CareDx's re-examination petition and upheld Natera's challenged patent claims in June 2025.
• ArcherDX Case: A jury awarded Natera $19.35 million for patent infringement, and a permanent injunction was granted against ArcherDX's PCM test. Post-trial proceedings resumed in November 2024 after a bankruptcy stay.
• Ravgen, Inc. Lawsuit: A jury found Natera liable for non-willful patent infringement with damages of $57 million in January 2024. Natera intends to appeal.
• Genosity Inc. Lawsuit: Natera's patent infringement suit against Genosity is stayed, and Genosity filed for Chapter 11 bankruptcy.
• Invitae Lawsuits: Invitae (now Labcorp Holdings Inc.) is alleging patent infringement against Natera, with a trial scheduled for September 2025, delayed due to Invitae's Chapter 11 petition.
• Inivata Lawsuits: Natera's patent infringement suits against Inivata are stayed in light of the NeoGenomics case.
• NeoGenomics Laboratories, Inc. Lawsuit: Natera secured a preliminary injunction against NeoGenomics' RaDaR test, which was affirmed on appeal, leading to a permanent injunction and withdrawal of the test. The case remains pending for an updated RaDaR test and additional Natera patents, with trial scheduled for October 2025.
• CareDx False Advertising: A jury found Natera liable for false advertising ($44.9 million damages), but the Court later ruled CareDx was not entitled to damages. The jury also found CareDx engaged in false advertising. Both parties are appealing.
• Guardant Health, Inc. Lawsuits: A jury found Natera liable for false advertising and awarded $292.5 million in damages in November 2024, which the Court largely upheld on July 28, 2025. Natera plans to appeal. Guardant also filed a separate suit alleging trade secret misappropriation against Natera and former employees.
• Patient Billing Class Action: A class action lawsuit alleging patient billing issues was dismissed, refiled, transferred, and then partially remanded and stayed.
• Panorama Marketing Class Action: Natera and plaintiffs have reached a settlement for claims related to Panorama marketing, which has been submitted for court approval.
• Securities Act of 1934 Class Action: A class action lawsuit alleging materially false or misleading statements by management has had a motion to dismiss granted in part and denied in part, and the class has been certified.
• Shareholder Derivative Complaints: Two shareholder derivative complaints have been filed against Natera and certain management members.
• Preimplantation Genetic Test Class Action: A class action lawsuit alleging issues with Natera's preimplantation genetic test for aneuploidies was dismissed without prejudice on August 4, 2025.
• Accrual for Legal Contingencies: The aggregate accrual for legal contingencies that are probable and reasonably estimable increased to $40.6 million as of June 30, 2025, from $12.6 million at December 31, 2024.

Related Party Transactions

• Natera holds preferred shares and warrants in MyOme, Inc., a company where Natera's Executive Chairman, Co-founder, and a Board member hold significant positions or affiliations (Matthew Rabinowitz, Jonathan Sheena, Daniel Rabinowitz, Roelof Botha).
• Natera entered into a collaboration and commercialization agreement with MyOme in February 2024, receiving warrants to purchase MyOme common and preferred stock upon achieving certain milestones. Natera is amortizing a non-cash liability related to ongoing collaboration as a reduction of selling and marketing expense.
• The carrying amount of preferred shares in MyOme was $6.6 million as of June 30, 2025, and the fair market value of MyOme warrants was $12.7 million.

Stakeholder Impact

• Shareholders face significant financial risk from adverse legal judgments (e.g., $292.5 million to Guardant, $57 million to Ravgen) and ongoing litigation, as well as potential dilution from future equity raises, despite strong revenue growth.
• Employees benefit from increased salary and compensation expenditures, including stock-based compensation, reflecting continued investment in human capital.
• Customers (patients, clinics, laboratories, pharmaceutical companies) benefit from expanded product offerings and R&D investment, but are impacted by billing practices and insurance coverage issues, as highlighted by class action lawsuits.
• Suppliers have significant contractual commitments with Natera for laboratory instruments, materials, and services.
• Creditors (UBS for the Credit Line) have an outstanding balance of $80.3 million, secured by Natera's cash and marketable securities.

Next Steps

• Appeal the final order in the Guardant Health false advertising case to the Ninth Circuit Court of Appeals.
• Appeal certain rulings in the Ravgen patent infringement case.
• Appeal the invalidation of Natera's asserted patents in the second CareDx patent case to the Federal Circuit Court of Appeals.
• Continue post-trial proceedings in the ArcherDX case, with defendants' interim appeals remaining stayed.
• Proceed with the Invitae lawsuit trial scheduled for September 2025.
• Proceed with the NeoGenomics lawsuit trial scheduled for October 2025, regarding an updated RaDaR test and additional Natera patents.
• Continue to invest in research and development activities for enhanced and new products.
• Generate additional revenues to achieve future profitability.
• Evaluate the impact of new accounting pronouncements (ASU 2023-09, ASU 220-40, ASU 2025-05) on consolidated financial statements.
• Monitor and respond to ongoing regulatory and governmental investigations, subpoenas, and inquiries.
• Continue efforts to increase demand and reimbursement for tests, including for microdeletions screening.
• Drive more business from most profitable accounts to mitigate the impact of lower in-network fees.

Key Dates

Recommendation

Despite strong revenue growth and improved gross margins, Natera's financial performance is significantly impacted by widening net losses and substantial increases in operating expenses. The most critical factor is the series of adverse legal judgments, including a $292.5 million verdict against Natera in the Guardant Health false advertising case and a $57 million verdict in the Ravgen patent infringement case, along with the invalidation of Natera's patents in a CareDx case, reversing a prior favorable ruling. These liabilities, coupled with ongoing class action lawsuits and the need for potential future capital raises that could dilute shareholders, present a highly unfavorable risk-reward profile. The accumulated deficit continues to grow, indicating a persistent lack of profitability. While appeals are planned, the immediate financial and reputational impact is severe, warranting a 'sell' recommendation for a seasoned investor.

Keywords

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