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Item 1A. Risk Factors

2021-02-24 compared with 2020-02-28 · 230 added, 130 removed, 806 unchanged (31% of the section changed)

Summary of Risk Factors

Below is a summary of the principal factors that make an investment in our common stock speculative or risky.

This summary does not address all of the risks that we face.

Additional discussion of the risks summarized in this risk factor summary, and other risks that we face, can be found below under the heading “Risk Factors” and should be carefully considered, together with other information in this Annual Report on Form 10-K, or this Form 10-K, and our other filings with the SEC before making an investment decision regarding our common stock.

• Our business may be adversely affected by the effects of health epidemics, including the recent coronavirus outbreak.

• We have a history of losses, and we expect to incur net losses for the next several years.

• We may require additional financing.

• We receive a substantial portion of our revenues from Medicare, and the loss of, or a significant reduction in, reimbursement from Medicare would severely and adversely affect our financial performance.

• Our financial results currently are largely dependent on sales of AlloSure Kidney and AlloMap Heart tests and products, and we will need to generate sufficient revenues from these and other solutions and tests we develop to grow our business.

• The development and commercialization of additional diagnostic solutions are key to our growth strategy.

New test or product development involves a lengthy and complex process, and we may not be successful in our efforts to develop and commercialize additional diagnostic solutions.

• The field of diagnostic testing in transplantation is evolving and is subject to rapid technological change.

If we are unable to develop solutions to keep pace with rapid medical and scientific change, our operating results could be harmed.

• If clinicians, hospital administrators, medical centers and laboratories do not adopt our diagnostic solutions, we will not achieve future sales growth.

• Our quarterly operating results may fluctuate significantly or may fall below the expectations of investors or securities analysts, each of which may cause our stock price to fluctuate or decline.

• Transplant centers may not adopt AlloSure Kidney, AlloMap Heart, AlloSure Heart, or our other solutions due to historical practices or due to more favorable reimbursement policies associated with other means of monitoring transplants.

• If we are unable to successfully compete with larger and more established players in the clinical surveillance of the transplantation field, we may be unable to increase or sustain our revenues or achieve profitability.

• If we are unable to successfully manage our growth and support demand for our tests, our business may suffer.

• Our past revenue growth rates may not be indicative of future growth, and we may not grow at all, and revenue may decline.

• If our laboratory facility in the U.S.

becomes inoperable, we will be unable to perform AlloSure Kidney, AlloMap Heart, AlloSure Heart, and future testing solutions, if any, and our business will be harmed.

• Performance issues, service interruptions or price increases by our shipping carriers could adversely affect our business and harm our reputation and ability to provide our services on a timely basis.

• If we are unable to raise additional capital on acceptable terms in the future, it may limit our ability to develop and commercialize new diagnostic solutions and technologies, and we may have to curtail or cease operations.

• The loss of key members of our senior management team or our inability to attract and retain highly skilled scientists, clinicians and laboratory and field personnel could adversely affect our business.

• Recent and future acquisitions and investments could disrupt our business, harm our financial condition and operating results, dilute your ownership of us and increase our debt or cause us to incur significant expense.

• We rely extensively on third party service providers.

Failure of these parties to perform as expected, or interruptions in our relationship with these providers or their provision of services to us, could interfere with our ability to provide test results for our testing services business and kits for our products business.

• We face four primary risks relative to protecting critical information:

loss of access risk, inappropriate disclosure risk, inappropriate modification risk and the risk of our being unable to identify and audit our controls over the first three risks.

• International expansion of our business exposes us to business, regulatory, political, operational, financial and economic risks associated with doing business outside of the United States.

• Our operating results may be adversely affected by unfavorable economic and market conditions.

• Billing complexities associated with obtaining payment or reimbursement for our current and future solutions may negatively affect our revenue, cash flows and profitability.

• Healthcare reform measures could hinder or prevent the commercial success of AlloSure Kidney, AlloMap Heart and AlloSure Heart.

• In order to operate our laboratory, we have to comply with the CLIA and federal and state laws and regulations governing clinical laboratories and laboratory developed tests, including FDA regulations.

• We are subject to numerous fraud and abuse and other laws and regulations pertaining to our business, the violation of any one of which could harm our business.

• Our competitive position depends on maintaining intellectual property protection.

• Our business is dependent on licenses from third parties.

• Our operating results may fluctuate, which could cause our stock price to decrease.

• The market price of our common stock has been and will likely continue to be volatile, and you could lose all or part of your investment.

Investing in our common stock involves a high degree of risk.

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Risks Related to Our Business

Our business may be adversely affected by the effects of health epidemics, including the recent coronavirus outbreak.

On January 30, 2020, the World Health Organization, or the WHO, announced a global health emergency because of a new strain of coronavirus, or COVID-19, originating in Wuhan, China and the risks to the international community as the virus spreads globally beyond its point of origin.

In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally.

The full impact of the COVID-19 pandemic, including the impact associated with preventative and precautionary measures that we, other businesses and governments are taking, continues to evolve as of the date of this report.

As such, it is uncertain as to the full magnitude that the pandemic will have on us, but the pandemic may materially affect our financial condition, liquidity and future results of operations.

Quarantines, shelter-in-place and similar government orders, or the perception that such orders, shutdowns or other restrictions on the conduct of business operations could occur, related to COVID-19 or other infectious diseases could impact personnel at third-party suppliers in the United States and other countries, or the availability or cost of materials, which would disrupt our supply chain.

Any interruption in manufacturing or our supply of materials could adversely affect our ability to conduct ongoing and future research and testing activities.

In addition, our clinical studies may be affected by the COVID-19 pandemic.

Clinical site initiation and patient enrollment may be delayed due to prioritization of hospital resources toward the COVID-19 pandemic.

Some patients may not be able to comply with clinical study protocols if quarantines impede patient movement or interrupt healthcare services.

Similarly, the ability to recruit and retain patients and principal investigators and site staff who, as healthcare providers, may have heightened exposure to COVID-19, may adversely impact our clinical trial operations.

Additionally, collaborators at research hospitals may be subject to limitations with respect to accessing their laboratories and sample banks which could impact timelines for research and product development dependent on external collaborations.

Limits on the ability of individuals to move freely during a pandemic may also negatively impact recruiting new staff necessary to expand our operations.

The spread of COVID-19, which has caused a broad impact globally, may materially affect us economically.

While the potential economic impact brought by, and the duration of, COVID-19 may be difficult to assess or predict, a widespread pandemic could result in significant disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity.

In addition, a recession or market correction resulting from the spread of COVID-19 could materially affect our business and the value of our common stock.

Management is actively monitoring the effect of the global situation on our financial condition, liquidity, operations, suppliers, industry and workforce.

Given the daily evolution of the COVID-19 pandemic and the global responses to curb its spread, we are not able to estimate the effects of the COVID-19 pandemic on our results of operations, financial condition or liquidity for fiscal year 2021.

We have a history of losses, and we expect to incur net losses for the next several years.

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• employment of additional clinical, quality control, scientific, customer service, laboratory, billing and reimbursement and management personnel;

• compliance with existing and changing laws, regulations and standards, including those relating to corporate governance and public disclosure and regulations implemented by the SEC and The Nasdaq Stock Market LLC;

• employment of operational, financial, accounting and information systems personnel, consistent with expanding our operations and our status as a public company;

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We may require additional financing.

As of December 31, 2019, we had cash and cash equivalents of $38.2 million and an accumulated deficit of $333.8 million.

As of December 31, 2020, we had cash, cash equivalents and marketable securities of $224.7 million and an accumulated deficit of $352.5 million.

On January 25, 2021, we completed an underwritten public offering of common stock, and on February 11, 2021, we sold additional shares of common stock pursuant to the underwriters' full exercise of an overallotment option granted to the underwriters in connection with the offering.

The aggregate net proceeds to us, including the shares sold pursuant to the underwriters' full exercise of the overallotment option, were approximately $188.7 million, after deducting underwriting discounts and commissions and estimated offering expenses.

We may require additional financing in the future to fund working capital, pay our obligations as they come due and fund our acquisitions of complementary businesses and assets.

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We receive a substantial portion of our revenues from Medicare, and the loss of, or a significant reduction in, reimbursement from Medicare would severely and adversely affect our financial performance.

For the year ended December 31, 2019, revenue from Medicare for AlloMap Heart and AlloSure represented 66% of testing services revenue.

For the year ended December 31, 2020, revenue from Medicare for AlloMap Heart, AlloSure Kidney and AlloSure Heart represented 67% of testing services revenue.

However, we may not be able to maintain or increase our tests reimbursed by Medicare for a variety of reasons, including changes in reimbursement practices, general policy shifts, or reductions in reimbursement amounts.

We cannot predict whether Medicare reimbursements will continue at the same payment amount or with the same breadth of coverage in the future, if at all.

The Protecting Access to Medicare Act of 2014, or PAMA includes a substantial new payment system for clinical laboratory tests under the CLFS.

Under PAMA, laboratories that receive the majority of their Medicare revenues from payments made under the CLFS report initially and then on a subsequent three-year basis thereafter (or annually for advanced diagnostic

laboratory tests, or ADLTs), private payer payment rates and volumes for their tests.

The Protecting Access to Medicare Act of 2014, or PAMA, included a substantial new payment system for clinical laboratory tests under the Clinical Laboratory Fee Schedule, or CLFS.

The final PAMA ruling was issued June 17, 2016 and the new market based rates took effect January 1, 2018.

The Centers for Medicare & Medicaid Services, or CMS, will use the rates and volumes reported by laboratories to develop Medicare payment rates for the tests equal to the volume-weighted median of the private payer payment rates for the tests.

The Centers for Medicare & Medicaid Services, or CMS, uses the rates and volumes reported by laboratories to develop Medicare payment rates for the tests equal to the volume-weighted median of the private payer payment rates for the tests.

Under PAMA, the reimbursement rate for AlloMap Heart is currently $3,240 for Medicare beneficiaries.

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AlloSure Kidney began to be reimbursed for kidney transplants covered by Medicare across the United States on October 9, 2017, the effective date of the Palmetto local coverage determination, or LCD.

If an AlloMap Heart or AlloSure Kidney reimbursement rate that is significantly lower than the current rate is set by CMS or MolDx in the future, it could cause us to discontinue AlloMap Heart or AlloSure Kidney testing for Medicare patients because providing tests at a substantially lowered reimbursement rate may not be economically viable.

In October 2020, AlloSure Heart received a final Palmetto MolDx Medicare coverage decision for AlloSure Heart.

In November 2020, Noridian Healthcare Solutions, our Medicare Administrative contractor, issued a parallel coverage policy granting coverage when used in conjunction with AlloMap Heart, which became effective in December 2020.

The Medicare reimbursement rate for AlloSure Heart is currently $2,753.

If an AlloMap Heart, AlloSure Kidney or AlloSure Heart reimbursement rate that is significantly lower than the current rate is set by CMS or MolDx in the future, it could cause us to discontinue AlloMap Heart, AlloSure Kidney or AlloSure Heart testing for Medicare patients because providing tests at a substantially lowered reimbursement rate may not be economically viable.

Given the significant portion of payments represented by Medicare, our remaining test revenue may be insufficient to sustain our operations.

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so long as the tests are performed in our California laboratory.

We cannot predict whether Noridian or any future MAC will continue to provide reimbursement for AlloMap Heart or AlloSure Kidney at the same payment amount or with the same breadth of coverage in the future, if at all.

Additional changes in the MAC processing Medicare claims for AlloSure Kidney and AlloMap Heart could impact the coverage or payment amount for our tests and our ability to obtain Medicare coverage for any products we may launch in the future.

We cannot predict whether Noridian or any future MAC will continue to provide reimbursement for AlloMap Heart, AlloSure Kidney or AlloSure Heart at the same payment amount or with the same breadth of coverage in the future, if at all.

Additional changes in the MAC processing Medicare claims for AlloSure Kidney, AlloMap Heart or AlloSure Heart could impact the coverage or payment amount for our tests and our ability to obtain Medicare coverage for any products we may launch in the future.

Any decision by CMS or its local contractors to reduce or deny coverage for our tests would have a significant adverse effect on our revenue and results of operations and ability to operate and raise capital.

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We have in the past been, and from time to time in the future may become, involved in lawsuits, claims and proceedings incident to the ordinary course of, or otherwise in connection with, our business.

For example, in response to our false advertising suit filed against Natera on April 10, 2019, Natera filed a counterclaim against us on February 18, 2020, in the U.S.

District Court for the District of Delaware alleging CareDx made false and misleading claims about the performance capabilities of AlloSure.

In addition, in response to our patent infringement suit filed against Natera on March 26, 2019, Natera filed suit against us on January 13th, 2020, in the U.S.

District Court for the District of Delaware alleging, among other things, that AlloSure infringes Natera’s U.S.

For example, in response to our false advertising suit filed against Natera Inc., or Natera, on April 10, 2019, Natera filed a counterclaim against us on February 18, 2020 in the U.S.

District Court for the District of Delaware, or the Court, alleging we made false and misleading claims about the performance capabilities of AlloSure.

The suit seeks injunctive relief and unspecified monetary relief.

On September 30, 2020, Natera requested leave of the Court to amend its counterclaims to include additional allegations regarding purportedly false claims we made with respect to AlloSure, and the Court granted Natera’s request.

Trial is currently scheduled to begin on July 26, 2021.

In addition, in response to our patent infringement suit filed against Natera on March 26, 2019, Natera filed suit against us on January 13, 2020 in the Court alleging, among other things, that AlloSure infringes Natera’s U.S.

Patent 10,526,658.

The suit seeks a judgment that we have infringed Natera’s patent, an order preliminarily and permanently enjoining us from any further infringement of such patent and unspecified damages.

We intend to defend both of these matters vigorously, and believe we have good and substantial defenses to the claims alleged in the suits, but there is no guarantee that we will prevail.

On March 25, 2020, Natera filed an amendment to the suit alleging, among other things, that AlloSure also infringes Natera’s U.S.

Patent 10,597,724.

The suit seeks a judgment that we have infringed Natera’s patents, an order preliminarily and permanently enjoining us from any further infringement of such patents and unspecified damages.

We intend to defend both of these matters vigorously, and believe that we have good and substantial defenses to the claims alleged in the suits, but there is no guarantee that we will prevail.

Litigation is inherently unpredictable.

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From time to time, we expect to estimate and publicly announce the anticipated timing of the accomplishment of various clinical and other product development goals.

In addition, we have included a discussion of a number of anticipated targets elsewhere in this Annual Report on Form 10-K.

The actual timing of accomplishment of these targets could vary dramatically compared to our estimates, in some cases for reasons beyond our control.

In addition, we have included a discussion of a number of anticipated targets in this Form 10-K.

The actual timing of accomplishment of these targets could vary dramatically compared to our estimates, in some cases for reasons beyond our control, including the impact of the COVID-19 pandemic.

We cannot be certain that we will meet our projected targets and if we do not meet these targets as publicly announced, the commercialization of our diagnostic solutions may be delayed or may not occur at all and, as a result, our business will suffer and our stock price may decline.

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The field of diagnostic testing in transplantation is evolving.

Although there have been few advances in technology relating to organ rejection in transplant recipients, the market for medical diagnostic companies is marked by rapid and substantial technological development and innovations that could make AlloSure Kidney, AlloMap Heart and our other products and digital solutions, including those in development, outdated.

Although there have been few advances in technology relating to organ rejection in transplant recipients, the market for medical diagnostic companies is marked by rapid and substantial technological development and innovations that could make AlloSure Kidney, AlloMap Heart, AlloSure Heart and our other products and digital solutions, including those in development, outdated.

We must continually innovate, expand and update our test offerings to address unmet needs in monitoring transplant related conditions.

AlloSure Kidney, AlloMap Heart, and our other products and digital solutions, including those in development, could become obsolete unless we continually innovate, enhance and expand our product offerings to include new clinical applications.

If we are unable to demonstrate the effectiveness of AlloSure Kidney, AlloMap Heart, our other products and digital solutions and future diagnostic solutions and tests, if any, compared to new methodologies and technologies, then sales of our tests, products, and digital solutions could decline, which would harm our business and financial results.

AlloSure Kidney, AlloMap Heart, AlloSure Heart, and our other products and digital solutions, including those in development, could become obsolete unless we continually innovate, enhance and expand our product offerings to include new clinical applications.

If we are unable to demonstrate the effectiveness of AlloSure Kidney, AlloMap Heart, AlloSure Heart, our other products and digital solutions and future diagnostic solutions and tests, if any, compared to new methodologies and technologies, then sales of our tests, products, and digital solutions could decline, which would harm our business and financial results.

If clinicians, hospital administrators, medical centers and laboratories do not adopt our diagnostic solutions, we will not achieve future sales growth.

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We believe that quarterly comparisons of our financial results are not necessarily meaningful and should not be relied upon as an indication of our future performance.

If the use of AlloSure Kidney, AlloMap Heart, or any of our other solutions is not supported by studies published in peer-reviewed scientific and medical publications, and then periodically supplemented with additional support in peer-reviewed journals, the rate of adoption of our current and future solutions by clinicians and treatment centers and the rate of reimbursement of our current and future solutions by payers may be negatively affected.

If the use of AlloSure Kidney, AlloMap Heart, AlloSure Heart or any of our other solutions is not supported by studies published in peer-reviewed scientific and medical publications, and then periodically supplemented with additional support in peer-reviewed journals, the rate of adoption of our current and future solutions by clinicians and treatment centers and the rate of reimbursement of our current and future solutions by payers may be negatively affected.

Transplant, like all specialties, is based on evidence-based medicine.

As a result, laying a strong foundation of evidence and improved clinical utility is essential in the adoption of the tools offered by us.

The results of our studies involving AlloSure Kidney and AlloMap Heart have been presented at major medical society congresses and published in peer-reviewed publications in leading medical journals.

The results of our studies involving AlloSure Kidney, AlloMap Heart and AlloSure Heart have been presented at major medical society congresses and published in peer-reviewed publications in leading medical journals.

This continued presence in peer-reviewed publications is necessary to promote clinician adoption and favorable reimbursement decisions.

We believe that peer-reviewed journal articles that provide evidence of the utility of our solutions or the technology underlying AlloSure Kidney, AlloMap Heart, and our other products and digital solutions are very important to the commercial success of our solutions.

We believe that peer-reviewed journal articles that provide evidence of the utility of our solutions or the technology underlying AlloSure Kidney, AlloMap Heart, AlloSure Heart and our other products and digital solutions are very important to the commercial success of our solutions.

Clinicians typically take a significant amount of time to adopt new products, testing practices and clinical treatments, partly because of perceived liability risks and the uncertainty of third-party reimbursement.

It is critical to the success of our sales efforts that we educate a sufficient number of clinicians and administrators about AlloSure Kidney, AlloMap Heart and our future solutions, and demonstrate the clinical benefits of these solutions.

It is critical to the success of our sales efforts that we educate a sufficient number of clinicians and administrators about AlloSure Kidney, AlloMap Heart, AlloSure Heart and our future solutions, and demonstrate the clinical benefits of these solutions.

Clinicians may not adopt, and third-party payers may not cover or adequately reimburse for, our current and future products and digital solutions unless they determine, based on published peer-reviewed journal articles and the experience of other clinicians, that our diagnostic current and future products and digital solutions provide accurate, reliable and cost-effective information that is useful in monitoring transplant recipients and making informed and timely treatment decisions.

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If the results obtained from our ongoing or future studies are inconsistent with certain results obtained from our previous studies, adoption of our current and future products and digital solutions would suffer and our business would be harmed.

While we have had success in generating peer-reviewed publications regarding AlloSure Kidney and AlloMap Heart, additional peer-reviewed publications regarding AlloSure Kidney, AlloMap Heart and our future products and digital solutions may be limited by many factors, including delays in the completion of, poor design of, or lack of compelling data from clinical studies that would be the subject of the article.

If our current and future products and digital solutions or the technology underlying AlloSure Kidney, AlloMap Heart, or our future products and digital solutions do not receive sufficient favorable exposure in peer-reviewed publications, the rate of clinician adoption and positive reimbursement coverage decisions could be negatively affected.

While we have had success in generating peer-reviewed publications regarding AlloSure Kidney, AlloMap Heart, and AlloSure Heart, additional peer-reviewed publications regarding AlloSure Kidney, AlloMap Heart, AlloSure Heart and our future products and digital solutions may be limited by many factors, including delays in the completion of, poor design of, or lack of compelling data from clinical studies that would be the subject of the article.

If our current and future products and digital solutions or the technology underlying AlloSure Kidney, AlloMap Heart, AlloSure Heart, or our future products and digital solutions do not receive sufficient favorable exposure in peer-reviewed publications, the rate of clinician adoption and positive reimbursement coverage decisions could be negatively affected.

The publication of clinical data in peer-reviewed journals is a crucial step in commercializing and obtaining reimbursement for diagnostic solutions such as ours, and our inability to control when, if ever, results are published may delay or limit our ability to derive sufficient revenue from any product that is the subject of a study.

To ensure the success of AlloSure Kidney and future tests based on donor-derived cell-free DNA, or dd-cfDNA, we will need to continue our efforts to complete and publicize research and trials, especially the Kidney Allograft Outcomes AlloSure Registry, or K-OAR, registry study, that provides evidence of the utility of dd-cfDNA and validate AlloSure Kidney as a solution.

Transplant centers may not adopt AlloSure Kidney, AlloMap Heart, or our other solutions due to historical practices or due to more favorable reimbursement policies associated with other means of monitoring transplants.

Transplant centers may not adopt AlloSure Kidney, AlloMap Heart, AlloSure Heart, or our other solutions due to historical practices or due to more favorable reimbursement policies associated with other means of monitoring transplants.

Due to the historically limited monitoring options and the well-established coverage and reimbursement for biopsies, clinicians are accustomed to monitoring for acute rejection in kidney and heart transplant recipients by utilizing biopsies.

Many clinicians use AlloSure Kidney and AlloMap Heart in parallel with biopsies rather than as an alternative to biopsies.

While we do not market AlloSure Kidney or AlloMap Heart as biopsy alternatives, per se, if treatment center administrators view our test as an alternative to a biopsy but believe they would derive more revenue from the performance of biopsies, such administrators may be motivated to reduce or avoid the use of our test.

Many clinicians use AlloSure Kidney, AlloMap Heart and AlloSure Heart in parallel with biopsies rather than as an alternative to biopsies.

While we do not market AlloSure Kidney, AlloMap Heart or AlloSure Heart as biopsy alternatives, per se, if treatment center administrators view our test as an alternative to a biopsy but believe they would derive more revenue from the performance of biopsies, such administrators may be motivated to reduce or avoid the use of our test.

While biopsies are less common for monitoring kidney transplant patients, there are transplant centers that manage patients with protocol biopsies, which could impact AlloSure Kidney revenue.

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However, because of the risks and discomforts of the invasive kidney biopsy procedure, as well as the expense and relatively low rate of finding moderate to severe grade rejection, biopsy is not a standard practice for surveillance of transplanted kidneys.

Additional competition for kidney surveillance diagnostics currently comes from general, non-specific clinical chemistry tests such as serum creatinine, urine protein, complete blood count, lipid profile and others that are widely ordered by physician offices and routinely performed in clinical reference labs and hospital labs.

Additional competition for kidney surveillance diagnostics currently comes from general, non-specific clinical chemistry tests such as serum creatinine, urine protein, donor specific antibodies, complete blood count, lipid profile and others that are widely ordered by physician offices and routinely performed in clinical reference labs and hospital labs.

Our competitors also include companies that are focused on the development and commercialization of molecular diagnostic tests.

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Competition from other companies, especially those with an eye toward transitioning to more automated typing processes, could impact our ability to maintain market share and its current margins.

For example, we launched QTYPE in September 2016 and QTYPE competes with other quantitative polymerase chain reaction products including products offered by Thermo Fisher Scientific, Inc., or Thermo Fisher, as well as alternatives to polymerase chain reaction, or PCR, such as next generation sequencing, or NGS, typing products.

For example, we launched QTYPE in September 2016 and QTYPE competes with other quantitative polymerase chain reaction, or PCR, products including products offered by Thermo Fisher Scientific, Inc., or Thermo Fisher, as well as alternatives to PCR such as next generation sequencing, or NGS, typing products.

In addition to businesses focused on pre-transplantation such as Thermo Fisher’s One Lambda and Immucor, Inc.’s LIFECODES, companies that have not historically focused on transplantation, but that possesses existing knowledge of dd-cfDNA technology have indicated they are considering this market.

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Many of our potential competitors may have greater brand recognition or substantially greater financial and technical resources and development, production and marketing capabilities than we do.

Others may develop lower-priced, less complex tests that could be viewed by clinicians and payers as functionally equivalent to our AlloSure Kidney and AlloMap Heart tests, which could force us to lower the current list price of our test and impact our operating margins and our ability to achieve profitability.

If we are unable to compete successfully against current or future competitors, we may be unable to increase market acceptance for and sales of AlloSure Kidney, AlloMap Heart and our products and digital solutions, which could prevent us from increasing or sustaining our revenues or achieving profitability and could cause the market price of our common stock to decline.

Others may develop lower-priced, less complex tests that could be viewed by clinicians and payers as functionally equivalent to our AlloSure Kidney, AlloMap Heart and AlloSure Heart tests, which could force us to lower the current list price of our test and impact our operating margins and our ability to achieve profitability.

If we are unable to compete successfully against current or future competitors, we may be unable to increase market acceptance for and sales of AlloSure Kidney, AlloMap Heart, AlloSure Heart and our products and digital solutions, which could prevent us from increasing or sustaining our revenues or achieving profitability and could cause the market price of our common stock to decline.

If we are unable to successfully and continually update our products on a timely basis, our ability to attract and retain customers could be impaired and our competitive position could be harmed.

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Our ability to achieve significant growth in revenue in the future will depend, in large part, on our success in recruiting, training and retaining sufficient qualified sales personnel.

The value of AlloSure Kidney and AlloMap Heart depends, in large part, on our ability to perform AlloSure Kidney and AlloMap Heart tests on a timely basis and at a high quality standard, and on our reputation for such timeliness and quality.

The value of AlloSure Kidney, AlloMap Heart and AlloSure Heart depends, in large part, on our ability to perform AlloSure Kidney, AlloMap Heart and AlloSure Heart tests on a timely basis and at a high quality standard, and on our reputation for such timeliness and quality.

Failure to implement necessary procedures, transition to new equipment or processes or hire new personnel could result in higher costs of processing or an inability to meet market demand in a timely manner.

There can be no assurance that we will be able to perform AlloSure Kidney, AlloMap Heart or our future solutions, if any, on a timely basis at a level consistent with demand, that our efforts to scale our commercial operations will not negatively affect the quality of test results or that we will be successful in responding to the growing complexity of our testing operations.

There can be no assurance that we will be able to perform AlloSure Kidney, AlloMap Heart, AlloSure Heart, or our future solutions, if any, on a timely basis at a level consistent with demand, that our efforts to scale our commercial operations will not negatively affect the quality of test results or that we will be successful in responding to the growing complexity of our testing operations.

If we encounter difficulty meeting market demand for our current and future solutions, our reputation could be harmed and our future prospects and our business could suffer.

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• the introduction and acceptance of new or enhanced products or services by us or by competitors;

• our ability to maintain reimbursement for AlloSure Kidney and AlloMap Heart and secure reimbursement for our future solutions;

• our ability to maintain reimbursement for AlloSure Kidney, AlloMap Heart and AlloSure Heart and secure reimbursement for our future solutions;

• our ability to anticipate and effectively adapt to developing markets and to rapidly changing technologies;

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If our laboratory facility in the U.S.

becomes inoperable, we will be unable to perform AlloSure Kidney, AlloMap Heart, and future testing solutions, if any, and our business will be harmed.

becomes inoperable, we will be unable to perform AlloSure Kidney, AlloMap Heart, AlloSure Heart, and future testing solutions, if any, and our business will be harmed.

We perform all of our testing services for the U.S.

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We also expect that it would be difficult, time-consuming and costly to train, equip and use a third-party to perform tests on our behalf.

We could only use another facility with the established state licensures and CLIA certification necessary to perform AlloSure Kidney,AlloMap Heart, or future solutions following validation and other required procedures.

We cannot be certain that we would be able to find another CLIA-certified facility willing or able to adopt AlloSure Kidney, AlloMap Heart, or future solutions and comply with the required procedures, or that this laboratory would be willing or able to perform the tests for us on commercially reasonable terms.

We could only use another facility with the established state licensures and CLIA certification necessary to perform AlloSure Kidney, AlloMap Heart, AlloSure Heart or future solutions following validation and other required procedures.

We cannot be certain that we would be able to find another CLIA-certified facility willing or able to adopt AlloSure Kidney, AlloMap Heart, AlloSure Heart or future solutions or able to comply with the required quality and regulatory standards, or that this laboratory would be willing or able to perform the tests for us on commercially reasonable terms.

In mid-March 2020, in response to the COVID-19 pandemic, the Governor of California and the State Public Health Officer and Director of the California Department of Public Health ordered all individuals living in the State of California, where our laboratory is located, to stay at their place of residence for an indefinite period of time (subject to certain exceptions to facilitate authorized necessary and other permitted activities) to mitigate the impact of the COVID-19 pandemic.

The executive order exempts certain individuals needed to maintain continuity of operations of essential critical infrastructure sectors and additional sectors as the State Public Health Officer may designate as critical to protect health and well-being of all Californians.

In May 2020, the Governor of California issued an executive order that informed local health jurisdictions and industry sectors that they may gradually reopen under new modifications and guidance provided by the state of California.

In August 2020, the state of California released revised criteria for loosening and tightening restrictions on certain activities on generally a county-by-county basis.

San Mateo County, where our laboratory and headquarters are located, is currently subject to certain restrictions on non-essentials business operations.

These orders and others may be further modified, amended and adopted depending upon the COVID-19 transmission rates in our county and state, as well as other factors.

If the operations in our laboratory are deemed non-essential, or if sufficient numbers of our laboratory staff are infected with COVID-19 and are unable to perform their roles, we may not be able to perform our tests for the duration of any shelter-in-place order or while we have insufficient numbers of laboratory staff, either of which could negatively impact our business, operating results and financial condition.

Performance issues, service interruptions or price increases by our shipping carriers could adversely affect our business and harm our reputation and ability to provide our services on a timely basis.

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In addition, any significant increase in shipping rates could adversely affect our operating margins and results of operations.

Similarly, strikes, severe weather, natural disasters or other service interruptions affecting delivery services we use would adversely affect our ability to receive and process recipient samples on a timely basis.

Similarly, strikes, severe weather, natural disasters or other service interruptions, such as the COVID-19 pandemic, affecting delivery services we use would adversely affect our ability to receive and process recipient samples on a timely basis.

Our ability to commercialize our testing solutions that we develop is dependent on our relationships with laboratory services providers and their willingness to support our current and future solutions.

We rely on third-party laboratory services providers to draw and partially process the patient blood samples that are analyzed in our Brisbane, California laboratory.

Our business will suffer if these service providers do not support AlloSure Kidney, AlloMap Heart or the other solutions that we may develop.

Our business will suffer if these service providers do not support AlloSure Kidney, AlloMap Heart, AlloSure Heart or the other solutions that we may develop.

For example, these laboratories may determine that processing the samples for our solutions requires too much additional effort.

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• expand our research and development activities;

• sustain or achieve broader commercialization of AlloSure Kidney, KidneyCare, AlloMap Heart, HeartCare, our products, and digital solutions or enhancements to those tests, products and digital solutions;

• sustain or achieve broader commercialization of AlloSure Kidney, KidneyCare, AlloMap Heart, AlloSure Heart, HeartCare, our products, and digital solutions or enhancements to those tests, products and digital solutions;

• acquire or license products or technologies including through acquisitions;

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The efforts of each of these persons will be critical to us as we continue to develop our technologies and testing processes.

If we were to lose one or more of these key employees, we may experience difficulties in competing effectively, developing our technologies and implementing our business strategies.

If we were to lose one or more of these key employees, including due to disease (such as COVID-19), disability or death, we may experience difficulties in competing effectively, developing our technologies and implementing our business strategies.

We do not currently maintain “key person” insurance on any of our employees.

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In addition, our success depends on our ability to attract and retain laboratory and field personnel with extensive experience in transplant recipient care and surveillance and close relationships with clinicians, pathologists and other hospital personnel.

We may have difficulties locating, recruiting or retaining qualified salespeople, which could cause a delay or decline in the rate of adoption of AlloSure Kidney, AlloMap Heart, or our future solutions, if any.

If we are not able to attract and retain the necessary personnel to accomplish our business objectives, we may experience constraints that will adversely affect our ability to support our discovery, development, verification and commercialization programs.

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A material liability claim, product recall or similar occurrence may cause us to incur significant expense, decrease market acceptance of our products and adversely impact our business and operating results.

In addition, the marketing, sale and use of AlloSure Kidney, AlloMap Heart and our other products and solutions, or activities related to our research and clinical studies could lead to the filing of product liability claims if someone were to allege that one of our products contained a design or manufacturing defect which resulted in the failure to adequately perform the analysis for which it was designed.

In addition, the marketing, sale and use of AlloSure Kidney, AlloMap Heart, AlloSure Heart and our other products and solutions, or activities related to our research and clinical studies could lead to the filing of product liability claims if someone were to allege that one of our products contained a design or manufacturing defect which resulted in the failure to adequately perform the analysis for which it was designed.

For example, a defect in one of our diagnostic solutions could lead to a false positive or false negative result, affecting the eventual diagnosis.

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We rely solely on certain suppliers to supply some of the laboratory instruments and key reagents that we use in the production of our products and/or in the performance of our tests.

These sole source suppliers include Thermo Fisher, which supplies us with instruments, laboratory reagents and consumables, Roche Molecular Systems, which supplies us with laboratory reagents and consumables;

These sole source suppliers include Thermo Fisher, which supplies us with instruments, laboratory reagents and consumables;

Roche Molecular Systems, which supplies us with laboratory reagents and consumables;

Illumina, which supplies us with instruments, laboratory reagents, and consumables;

Avantor, which supplies us with kitting services, laboratory reagents and consumables;

Becton, Dickinson and Company, and Streck, which supplies us with cell preparation tubes;

Beckman Coulter, which provides laboratory reagents and consumables;

and Qiagen N.V., which supplies us with a proprietary buffer reagent.

We do not have guaranteed supply agreements with Thermo Fisher, Becton, Dickinson and Company, or Qiagen N.V., which exposes us to the risk that these suppliers may choose to discontinue doing business with us at any time.

and Qiagen N.V., which supplies us with a proprietary buffer reagent and reagent kits.

We do not have guaranteed supply agreements with Thermo Fisher, Becton, Dickinson and Company, Avantor or Qiagen N.V., which exposes us to the risk that these suppliers may choose to discontinue doing business with us at any time.

We periodically forecast our needs to these sole source suppliers and enter into standard purchase orders based on these forecasts.

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Thermo Fisher has committed to provide service and support of this instrument through 2021.

We believe that there are relatively few suppliers other than Thermo Fisher, Illumina, Becton, Dickinson and Company and Qiagen N.V.

We believe that there are relatively few suppliers other than Thermo Fisher, Roche, Illumina, Becton, Dickinson and Company and Qiagen N.V.

that are currently capable of supplying the instruments, reagents and other supplies necessary for our current products and services.

Even if we were to identify secondary suppliers, there can be no assurance that we will be able to enter into agreements with such suppliers on a timely basis on acceptable terms, if at all.

If we should encounter delays or difficulties in securing from Thermo Fisher, Becton, Dickinson and Company or Therapak Corporation, or Therapak Corporation encounters delays or difficulties in securing from Qiagen N.V., the quality and quantity of reagents, supplies or instruments that we require for our current products and services or other solutions we develop, we may need to reconfigure our test processes, which would result in delays in commercialization or an interruption in sales.

If we should encounter delays or difficulties in securing from Thermo Fisher, Becton, Dickinson and Company or Avantor, or Avantor encounters delays or difficulties in securing from Qiagen N.V., the quality and quantity of reagents, supplies or instruments that we require for our current products and services or other solutions we develop, we may need to reconfigure our test processes, which would result in delays in commercialization or an interruption in sales.

Clinicians and customers who order our current products and services rely on the continued and timely availability of our products and services.

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Although we take measures to protect sensitive information from unauthorized access or disclosure, our information technology and infrastructure, and that of our third-party billing and collections provider, may be vulnerable to attacks by hackers or viruses or breached due to employee error, malfeasance or other disruptions.

In addition, as a result of the COVID-19 pandemic, we may face increased cybersecurity risks due to our or our third-party billing agent’s reliance on internet technology and the number of our and our third-party billing agent’s employees who are working remotely, which may create additional opportunities for cybercriminals to exploit vulnerabilities.

A security breach or privacy violation that leads to disclosure or modification of or prevents access to consumer information (including personally identifiable information or protected health information) could harm our reputation, compel us to comply with disparate state breach notification laws, require us to verify the correctness of database contents and otherwise subject us to liability under laws that protect personal data, resulting in increased costs or loss of revenue.

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Any such breach or interruption could compromise our networks or those of our third-party billing agent, and the information stored there could be inaccessible or could be accessed by unauthorized parties, publicly disclosed, lost or stolen.

interruption in access, improper access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, such as the Health Insurance Portability and Accountability Act of 1996, or HIPAA, and regulatory penalties.

Any such interruption in access, improper access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, such as the Health Insurance Portability and Accountability Act of 1996, or HIPAA, and regulatory penalties.

Unauthorized access, loss or dissemination could also disrupt our operations, including our ability to perform tests, provide test results, bill our payers or patients, process claims and appeals, provide customer assistance services, conduct research and development activities, collect, process and prepare company financial information, provide information about our current and future products and solutions and other patient and clinician education and outreach efforts through our website, and manage the administrative aspects of our business, any of which could damage our reputation and adversely affect our business.

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The CCPA may increase our compliance costs and potential liability, and we cannot yet predict the impact of the CCPA on our business.

Internationally, the General Data Protection Regulation, or the GDPR, took effect in May 2018 within the European Economic Area, or the EEA, and many EEA jurisdictions have also adopted their own data privacy and protection laws in addition to the GDPR.

Furthermore, other international jurisdictions, including Singapore, South Korea, China, Brazil, Mexico and Australia, have also implemented laws relating to data privacy and protection.

Although we believe that we are complying with the GDPR and similar laws, these laws are still relatively new.

International expansion of our business exposes us to business, regulatory, political, operational, financial and economic risks associated with doing business outside of the United States.

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Also, the failure to comply with applicable legal and regulatory obligations could result in the disruption of our distribution and sales activities.

We are also unable to predict how changing global economic conditions or potential global health concerns such as the COVID-19 coronavirus will affect our partners, suppliers and distributors.

We are also unable to predict how changing global economic conditions or potential global health concerns such as the COVID-19 pandemic will affect our partners, suppliers and distributors.

Any negative impact of such matters on our partners, suppliers or distributors may also have an adverse impact on our results of operations or financial condition.

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On June 23, 2016, the United Kingdom, or the UK, held a referendum pursuant to which voters elected to leave the EU, commonly referred to as Brexit.

The UK left the EU on January 31, 2020.

Although the effects of Brexit will depend on any agreements between the UK and the EU, Brexit has created additional uncertainties that may ultimately result in new regulatory costs and challenges for companies and increased restrictions on imports and exports throughout Europe, which could adversely affect our ability to conduct and expand our operations in Europe and which may have an adverse effect on our business, financial condition and results of operations.

The UK formally left the EU on January 31, 2020 and began a transition period that ended on December 31, 2020.

Although the effects of Brexit have yet to be seen, and the UK is in the process of negotiating trade deals with other countries, Brexit has created additional uncertainties that may ultimately result in new regulatory costs and challenges for companies and increased restrictions on imports and exports throughout Europe, which could adversely affect our ability to conduct and expand our operations in Europe and which may have an adverse effect on our business, financial condition and results of operations.

Additionally, Brexit may increase the possibility that other countries may decide to leave the EU in the future.

Our business or financial results may be adversely impacted by these uncertain economic conditions, including:

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inclusions in taxable income related to GILTI as a current-period expense when incurred or (2) factoring such amounts into a company’s measurement of its deferred taxes.

We have not made an election with respect to GILTI as it is not applicable to us in 2019.

We have not made an election with respect to GILTI and do not believe that GILTI will have a material impact on our 2020 taxes.

We will continue to review the GILTI and BEAT rules to determine their applicability to us and the impact that the rules may have on our results of operations of financial condition.

Our effective tax rate may fluctuate and we may incur obligations in tax jurisdictions in excess of amounts that have been accrued.

We are subject to income taxes in the United States and various foreign jurisdictions.

Our effective tax rate may be lower or higher than experienced in the past due to numerous factors, including a change in the mix of our profitability from country to country, the establishment or release of valuation allowances against our deferred tax assets, and changes in tax laws.

In addition, we have recorded gross unrecognized tax benefits in our financial statements that, if recognized, would impact our effective tax rate.

We are subject to tax audits in various jurisdictions, including the United States, and tax authorities may disagree with certain positions we have taken and assess additional taxes.

There can be no assurance that we will accurately predict the outcomes of these audits, and the actual outcomes could have a material impact on our net income or financial condition.

Any of these factors could cause us to experience an effective tax rate significantly different from previous periods or our current expectations, which could have an adverse effect on our business and results of operations.

The recognition of deferred tax assets is reduced by a valuation allowance if it is more likely than not that the tax benefits will not be realized.

We regularly review our deferred tax assets for recoverability and establish a valuation allowance based on historical income, projected future income, the expected timing of the reversals of existing temporary differences, and the implementation of tax-planning strategies.

Our insurance policies are expensive and protect us only from some business risks, which will leave us exposed to significant uninsured liabilities.

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If we determine an impairment exists, we may be required to recognize further impairment charges that, if incurred, could have a material adverse effect on our financial condition and results of operations.

We may not be able to successfully integrate our business with the business of Ottr Complete Transplant Management, or OttrCare, or XynManagement, Inc., or XynManagement, and we may not be able to achieve the anticipated strategic benefits from our acquisition of OttrCare.

The integration of OttrCare, XynManagement and any other businesses or assets we may acquire will be a time-consuming process.

We may not be able to achieve the anticipated strategic benefits from our acquisition of Ottr Complete Transplant Management, or Ottr, Inc.

or XynManagement, Inc., or XynManagement, or any other businesses or assets that we may acquire.

The integration of any businesses or assets we may acquire will be a time-consuming process.

The integration process will require substantial management time and attention, which may divert attention and resources from other important areas, including our existing business.

In addition, we may not be able to fully realize the anticipated strategic benefits of any such combination, which includes, with respect to OttrCare, the complementary Ottr software, and, with respect to XynManagement, XynQAPI, and in each case significant cross-selling opportunities.

The failure to successfully integrate the combined operations, including retention of key employees, could impact our ability to realize the

full benefits of our acquisition of OttrCare, XynManagement or any other businesses or assets we may acquire.

If we are not able to achieve the anticipated strategic benefits of any such combination, it could adversely affect our business, financial condition and results of operations, and could adversely affect the market price of our common stock if the integration or the anticipated financial and strategic benefits of the acquisition are not realized as rapidly as, or to the extent anticipated by investors and analysts.

In addition, we may not be able to fully realize the anticipated strategic benefits of any such combination or integration and any other businesses or assets we have or may acquire, which includes, with respect to Ottr, Inc., the complementary Ottr software, and, with respect to XynManagement, XynQAPI, and in each case the benefits of any significant cross-selling opportunities.

If we are not able to achieve the anticipated strategic benefits of any such combination, it could adversely affect our business, financial condition and results of operations, and could adversely affect the market price of our common stock if the anticipated financial and strategic benefits of the acquisition are not realized as rapidly as, or to the extent anticipated by investors and analysts.

Failure to achieve these anticipated benefits could result in increased costs and decreases in future revenue and/or net income following the acquisition.

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If we fail to successfully execute on the License Agreement, we may not realize the benefits expected from the transaction and our business may be harmed.

Our License and Commercialization Agreement, or Cibiltech Agreement, with Cibiltech SAS, or Cibiltech, may not result in material benefits to our business.

Our License and Commercialization Agreement, or the Cibiltech Agreement, with Cibiltech SAS, or Cibiltech, may not result in material benefits to our business.

The Cibiltech Agreement provides us an exclusive right to commercialize its proprietary software KidneyCare iBox.

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The failure to obtain reimbursement coverage from payers for KidneyCare iBox could result in material amounts of revenue not being recognized, and failure to successfully integrate predictive artificial intelligence technology with our existing tests.

Our portfolio of marketable securities is significant and subject to market, interest and credit risk that may reduce its value.

At December 31, 2020, we had $90.0 million in marketable securities invested through a professional investment management firm.

These investments are primarily in corporate debt securities, but our investments also include money market funds that meet the criteria of our investment policy, which is focused on the preservation of our capital, maintaining liquidity and providing diversification.

Changes in the value of this portfolio could adversely affect our earnings, and these investments are subject to general credit, liquidity and market and interest rate risks.

In particular, the value of our investments may decline due to increases or decreases in interest rates, downgrades of debt securities included in our portfolio, instability in the global financial markets that reduces the liquidity of securities included in our portfolio and other factors, including unexpected or unprecedented events such as the COVID-19 pandemic.

Each of these events may cause us to record charges to reduce the carrying value of our investment portfolio or sell investments for less than our acquisition cost, and could have a material adverse impact on our financial condition and operating results.

Risks Related to Billing and Reimbursement

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In addition, payers may refuse to ultimately make payment if their processes and requirements have not been met on a timely basis.

These billing complexities, and the resulting uncertainty in obtaining payment for AlloSure Kidney, AlloMap Heart and future solutions, could negatively affect our revenue, cash flows and profitability.

These billing complexities, and the resulting uncertainty in obtaining payment for AlloSure Kidney, AlloMap Heart, AlloSure Heart and future solutions, could negatively affect our revenue, cash flows and profitability.

Health insurers and other third-party payers may decide to revoke coverage of our existing test, decide not to cover our future solutions or may provide inadequate reimbursement, which could jeopardize our commercial prospects.

Successful commercialization of AlloSure Kidney and AlloMap Heart depends, in large part, on the availability of coverage and adequate reimbursement from government and private payers.

Successful commercialization of AlloSure Kidney, AlloMap Heart and AlloSure Heart depends, in large part, on the availability of coverage and adequate reimbursement from government and private payers.

Favorable third-party payer coverage and reimbursement are essential to meeting our immediate objectives and long-term commercial goals.

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We believe we have received a negative technology assessment from at least one of these entities and could receive more.

If third-party payers decide not to cover our diagnostic testing services or if they offer inadequate payment amounts, our ability to generate revenue from AlloSure Kidney, AlloMap Heart and future solutions could be limited.

Payment for diagnostic tests furnished to Medicare beneficiaries is typically made based on a fee schedule set by CMS.

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Since each payer makes its own decision as to whether to establish a policy to reimburse for a test, seeking payer coverage and other approvals is a time-consuming and costly process.

We cannot be certain that adequate coverage and reimbursement for AlloSure Kidney, AlloMap Heart, or future solutions will be provided in the future by any third-party payer.

Reimbursement for AlloSure Kidney and AlloMap Heart comes primarily from Medicare and private third party payers such as insurance companies and managed care organizations.

We cannot be certain that adequate coverage and reimbursement for AlloSure Kidney, AlloMap Heart, AlloSure Heart, or future solutions will be provided in the future by any third-party payer.

Reimbursement for AlloSure Kidney, AlloMap Heart and AlloSure Heart comes primarily from Medicare and private third party payers such as insurance companies and managed care organizations.

The reimbursement process can take six months or more to complete depending on the payer.

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If in the future CMS makes a determination to no longer provide coverage for services billed with an unlisted CPT code, our ability to bill and obtain reimbursement from public and private payers could be negatively impacted.

Healthcare reform measures could hinder or prevent the commercial success of AlloSure Kidney and AlloMap Heart.

Healthcare reform measures could hinder or prevent the commercial success of AlloSure Kidney, AlloMap Heart and AlloSure Heart.

The pricing and reimbursement environment may change in the future and become more challenging as a result of any of several possible regulatory developments, including policies advanced by the U.S.

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CMS will establish subsequent payment rates using the commercial third-party payer data reported for those tests.

There have been recent public announcements by members of the U.S.

Congress and President Trump and his administration regarding their plans to repeal and replace the Affordable Care Act.

We cannot predict the ultimate form or timing of any repeal or replacement of the Affordable Care Act or the effect such repeal or replacement would have on our business.

Regardless of the impact of any or repeal or replacement of the Affordable Care Act on us, the government has shown significant interest in pursuing healthcare reform and reducing healthcare costs.

PAMA includes a substantial new payment system for clinical laboratory tests under the CLFS.

The new PAMA rules took effect January 1, 2018 and used the rates and volumes reported by laboratories to develop Medicare payment rates for the tests equal to the volume-weighted median of the private payer payment rates for the tests.

There have been public announcements by members of the U.S.

Congress regarding plans to repeal and replace the Affordable Care Act, and the Biden administration has announced plans to expand the Affordable Care Act.

We cannot predict the ultimate form or timing of any repeal, replacement or expansion of the Affordable Care Act or the effect such repeal, replacement or expansion would have on our business.

Regardless of the impact of any or repeal, replacement or expansion of the Affordable Care Act on us, the government has shown significant interest in pursuing healthcare reform and reducing healthcare costs.

Any government-adopted reform measures could decrease the amount of reimbursement available from governmental and other third-party payers.

On April 1, 2013, cuts to the federal budget resulting from sequestration were implemented, requiring a 2% cut in Medicare payment for all services, including AlloSure Kidney and AlloMap Heart, and is expected to remain in effect through at least 2025.

Federal budgetary limitations and changes in healthcare policy, such as the creation of broad limits for diagnostic products or requirements that Medicare

patients pay for portions of clinical laboratory tests or services received, could substantially diminish the sale, or inhibit the utilization, of AlloSure Kidney, AlloMap Heart and our future diagnostic solutions, increase costs, divert management’s attention and adversely affect our ability to generate revenue and achieve profitability.

Federal budgetary limitations and changes in healthcare policy, such as the creation of broad limits for diagnostic products or requirements that Medicare patients pay for portions of clinical laboratory tests or services received, could substantially diminish the sale, or inhibit the utilization, of AlloSure Kidney, AlloMap Heart, AlloSure Heart and our future diagnostic solutions, increase costs, divert management’s attention and adversely affect our ability to generate revenue and achieve profitability.

In addition to the Affordable Care Act, there will continue to be proposals by legislators at both the federal and state levels, regulators and third-party payers to reduce costs while expanding individual healthcare benefits.

Certain of these changes could impose additional limitations on the prices we will be able to charge for our current and future solutions or the amounts of reimbursement available for our current and future solutions from governmental agencies or third-party payers.

While in general it is difficult to predict specifically what effects the Affordable Care Act or any future healthcare reform legislation or policies will have on our business, current and future healthcare reform legislation and policies could have a material adverse effect on our business and financial condition.

In December 2020, U.S.

Congress passed the Comprehensive Immunosuppressive Drug Coverage for Kidney Transplant Patients Act of 2019, or the Immuno Bill.

The Immuno Bill extends Medicare’s Part B coverage of immunosuppressive drugs for kidney transplant recipients beyond the current three-year limit, allowing patients to more easily maintain access to their treatment and prevent graft failure, costly dialysis treatments and retransplantation.

While the Immuno Bill will help improve the long term outcomes of transplant patients, future policies advanced by the U.S.

government, new healthcare legislation or fiscal challenges faced by government health administration authorities could result in changes to the Immuno Bill and Medicare’s coverage of immunosuppressive drugs for kidney transplant recipients in the future.

Risks Related to the Healthcare Regulatory Environment

In order to operate our laboratory, we have to comply with the CLIA and state laws governing clinical laboratories.

In order to operate our laboratory, we have to comply with the CLIA and federal state laws and regulations governing clinical laboratories and laboratory developed tests, including FDA regulations.

We are subject to the CLIA, a federal law that regulates clinical laboratories that perform testing on specimens taken from humans for the purpose of providing information for the diagnosis, prevention or treatment of disease.

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Failure to maintain certification in those states or countries where it is required could prevent us from testing samples from those states or countries, could lead to the suspension or loss of licenses, certificates or authorizations, and could have an adverse effect on our business.

We were inspected as part of the customary College of American Pathologists audit and recertified in February 2018 as a result of passing that inspection.

We were inspected as part of the customary College of American Pathologists audit and recertified in September 2020 as a result of passing that inspection.

We expect the next regular inspection under the CLIA to occur in 2022.

If we were to lose our CLIA accreditation or California license, whether as a result of a revocation, suspension or limitation, we would no longer be able to perform AlloMap Heart or AlloSure Kidney, which would limit our revenues and materially harm our business.

If we were to lose our CLIA accreditation or California license, whether as a result of a revocation, suspension or limitation, we would no longer be able to perform AlloMap Heart, AlloSure Kidney or AlloSure Heart, which would limit our revenues and materially harm our business.

If we were to lose our license in other states where we are required to hold licenses, we would not be able to test specimens from those states, which could also have a material adverse effect on our business.

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If the FDA or Congress decide to regulate AlloSure Kidney and other future solutions under development as medical devices, we could be required to conduct additional premarket clinical testing subsequent to commercialization in the case of AlloSure Kidney and/or conduct premarket clinical testing prior to submitting a regulatory application for commercial sales for future products not yet developed.

If we are required to conduct premarket clinical trials, whether using prospectively acquired samples or archival samples, delays in the commencement or completion of clinical testing could significantly increase our development costs and delay test commercialization and also ultimately lead to delay or denial of regulatory clearance or

The commencement of clinical trials may be delayed due to insufficient blood or tissue samples or insufficient data regarding the associated clinical outcomes.

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Any test for which we obtain regulatory clearance will be subject to extensive ongoing regulatory requirements, and we may be subject to penalties if we or our contractors or commercial partners fail to comply with regulatory requirements or if we experience unanticipated problems with our products.

AlloSure Kidney and AlloMap Heart, and our other products and solutions, along with the manufacturing processes, packaging, labeling, distribution, import, export, and advertising and promotional activities for such products and solutions, are or will be subject to continual requirements of, and review by, CMS, state licensing agencies, the FDA and comparable regulatory authorities.

AlloSure Kidney, AlloMap Heart, AlloSure Heart, and our other products and solutions, along with the manufacturing processes, packaging, labeling, distribution, import, export, and advertising and promotional activities for such products and solutions, are or will be subject to continual requirements of, and review by, CMS, state licensing agencies, the FDA and comparable regulatory authorities.

These requirements include submissions of safety and other post-marketing information and reports, registration and listing requirements, requirements relating to quality control, quality assurance and corresponding maintenance of records and documents, requirements relating to product labeling, advertising, promotion, recordkeeping and adverse event reporting.

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• federal civil and criminal false claims laws and civil monetary penalty laws, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented to the government, claims for payment from Medicare, Medicaid or other third-party payers that are false or fraudulent, or making a false statement material to a false or fraudulent claim;

• the federal Anti-Kickback Statute, which constrains our marketing practices, educational programs, pricing policies, and relationships with healthcare providers or other entities, by prohibiting, among other things, knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, to induce or reward, or in return for, either the referral of an individual or the purchase or recommendation of an item or service reimbursable under a federal healthcare program, such as the Medicare and Medicaid programs;

• the federal Anti-Kickback Statute, which constrains our marketing practices, educational programs, pricing policies, and relationships with healthcare providers or other entities, by prohibiting, among other things, knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, to induce or reward, or in return for, either the referral of an individual or the purchase or recommendation of an item or service reimbursable under a federal health care program, such as the Medicare and Medicaid programs;

• the federal physician self-referral law, commonly known as the Stark Law, which prohibits a physician from making a referral to an entity for certain designated health services, including clinical laboratory services, reimbursed by Medicare if the physician (or a member of the physician’s family) has a financial relationship with the entity, and which also prohibits the submission of any claims for reimbursement for designated health services furnished pursuant to a prohibited referral;

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• state laws regarding prohibitions on fee-splitting;

• the federal healthcare program exclusion statute;

• the federal health care program exclusion statute;

• state and foreign law equivalents of each of the above federal laws and regulations, such as anti-kickback, false claims, and self-referral laws, which may apply to items or services reimbursed by any third-party payer, including commercial insurers, and state and foreign laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.

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If reimbursement of our future solutions in any jurisdiction is unavailable or limited in scope or amount, or if reimbursement rates are set at unsatisfactory levels, we may be unable to, or decide not to, market our test in that jurisdiction.

Changes in healthcare policy could increase our costs and subject us to additional regulatory requirements that may interrupt commercialization of our current and future solutions.

Changes in healthcare policy could increase our costs, decrease our revenues and impact sales of and reimbursement for our current and future solutions.

In March 2010, the Affordable Care Act became law.

This law substantially changed the way healthcare is financed by both governmental and private insurers, and contained a number of provisions that have impacted our business and operations, including those governing enrollment in federal healthcare programs, reimbursement changes and fraud and abuse enforcement.

Further, our combination with Allenex will also change how these provisions could impact our business.

PAMA includes a substantial new payment system for clinical laboratory tests under the CLFS.

Risks Related to Our Intellectual Property

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Both patents have the same 2030 expiration date as the original Stanford patent.

As part of our April 2016 acquisition of Allenex, we obtained an additional five U.S.

patents on donor matching technology treatment for antibody mediated transplant rejection.

Our patents and the patents we exclusively license from others may be successfully challenged by third parties as being invalid or unenforceable.

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Various courts, including the United States Supreme Court, have rendered decisions that impact the scope of patentability of certain inventions or discoveries relating to diagnostic solutions or genomic diagnostics.

In the Ariosa

Diagnostics, Inc.

In the Ariosa Diagnostics, Inc.

Sequenom, Inc.

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Parties making infringement claims on future issued patents may be able to obtain an injunction that would prevent us from selling our current or future solutions or using technology that contains the allegedly infringing intellectual property, which could harm our business.

See the risk factor above titled:

“We could become subject to legal proceedings that could be time consuming, result in costly litigation and settlements/judgments, require significant amounts of management attention and result in the diversion of significant operational resources, which could adversely affect our business, financial condition and results of operations.”

For example, see the risk factor above titled:

We may be required to take further action to maintain and protect our intellectual property rights against third parties.

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In addition, it is possible that third parties who we believe are infringing our intellectual property rights are unwilling to license our intellectual property from us on terms we can accept, or at all.

For example, see the risk factor above titled:

The decision to commence litigation over infringement of a patent is complex and may lead to several risks to us, including the following, among others:

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Monitoring unauthorized disclosure is difficult and we do not know whether the procedures we have followed to prevent such disclosure are, or will be adequate.

For example, we recently became aware that in October 2020, prior to terminating employment and joining a competitor of ours with which we are in current litigation, a former employee of ours downloaded certain of our confidential and privileged information without permission.

After our claims against this former employee were filed, the former employee subsequently brought various claims against us.

We are in the process of reviewing and, with the assistance of counsel, have conducted certain interviews and gathered information.

We intend to vigorously pursue and defend against these matters.

Although we believe we have strong claims against, and good and substantial defenses to the claims made by, the former employee, there is no guarantee that we will prevail in these matters.

Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable.

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for a period of ten years.

In April 2020, we entered into a license agreement with Cornell University pursuant to which we were granted exclusive rights to three patents and two patent applications covering methods and technology for measurement of gene expression in urine to diagnose kidney transplant rejection.

Our rights to use this and other licensed technologies, data and materials and to employ the inventions claimed in licensed patents are subject to the continuation of and our compliance with the terms of the applicable licenses.

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• the level of our spending on test commercialization efforts, licensing and acquisition initiatives, clinical trials, and internal research and development;

• changes in the regulatory environment, including any announcement from the FDA regarding its decisions in regulating our activities;

• changes in the regulatory environment, including any announcement from the U.S.

Food and Drug Administration regarding its decisions in regulating our activities;

• changes in recommendations of securities analysts or lack of analyst coverage;

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• additions or departures of key personnel;

• public health emergencies such as the COVID-19 pandemic;

• general market conditions.

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• any significant change in our management;

• public health emergencies, including the COVID-19 pandemic;

• general economic conditions and slow or negative growth of our markets.

If our principal stockholders, executive officers and directors choose to act together, they may be able to control our management and operations, which may prevent us from taking actions that may be favorable to you.

Our executive officers, directors and holders of 5% or more of our outstanding common stock, and entities affiliated with them, beneficially own in the aggregate approximately 30.26% of our common stock as of December 31, 2019.

Our executive officers, directors and holders of 5% or more of our outstanding common stock (based on the most recent public filings), and entities affiliated with them, beneficially own in the aggregate approximately 41.4% of our common stock as of February 22, 2021.

These stockholders, acting together, will have the ability to exert substantial influence over all matters requiring approval by our stockholders, including the election and removal of directors and any proposed merger, consolidation or sale of all or substantially all of our assets.

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Sales made by our executive officers and directors pursuant to Rule 10b5-1, regardless of the amount of such sales, could adversely affect the market price of our common stock.

We incur costs and demands upon management as a result of complying with the laws and regulations affecting public companies in the U.S., which may adversely affect our operating results.

As a public company listed in the U.S., we incur significant additional legal, accounting and other expenses.

In addition, changing laws, regulations and standards relating to corporate governance and public disclosure, including regulations implemented by the SEC and The Nasdaq Stock Market LLC, may increase legal and financial compliance costs and make some activities more time-consuming.

These laws, regulations and standards are subject to varying interpretations, and as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies.

We invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities.

If, notwithstanding our efforts to comply with new laws, regulations and standards, we fail to comply, regulatory authorities may initiate legal proceedings against us, and our business may be harmed.

Further, if we fail to comply with these laws, regulations and standards, it might also be more difficult for us to obtain certain types of insurance, including director and officer liability insurance, and we might be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage.

The impact of these events could also make

it more difficult for us to attract and retain qualified persons to serve on our board of directors, on committees of our board of directors or as members of senior management.

If equity research analysts do not publish research or reports about our business, or if they issue unfavorable commentary or downgrade our common stock, the price of our common stock could decline.

The trading market for our common stock relies in part on the research and reports that equity research analysts publish about us and our business.

We do not control these analysts or the content and opinions included in their reports.

Securities analysts may elect not to provide research coverage of our common stock and a lack of research coverage may adversely affect the market price of our common stock.

The price of our stock could decline if one or more equity research analysts downgrade our stock or if those analysts issue other unfavorable commentary or cease publishing reports about us or our business.

If one or more equity research analysts cease coverage of our company, we could lose visibility in the market, which in turn could cause our stock price to decline.

We do not expect to pay dividends in the foreseeable future.

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If any of these events occur, we may not derive some or all of the expected benefits from our NOLs.

Our financial controls and procedures may not be sufficient to ensure timely and reliable reporting of financial information, which could materially harm our stock price, exchange listing and our ability to finance our operations.

We are required to comply with the Sarbanes-Oxley Act of 2002 and the related rules and regulations of the SEC, including expanded disclosures and accelerated reporting requirements and more complex accounting rules.

Compliance with Section 404 of the Sarbanes-Oxley Act, or Section 404, and other requirements will increase our costs and require additional management resources.

Pursuant to Section 404, we are required to, among other things, file a report by our management on our internal control over financial reporting, including an attestation report on internal control over financial reporting issued by our independent registered public accounting firm.

We are continuing to implement and update new finance and accounting systems as we grow our business and organization and to satisfy internal control and reporting requirements.

Despite our efforts, there is a risk that neither we nor our independent registered public accounting firm will be able to conclude that our internal control over financial reporting is effective as required by Section 404.

This could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our consolidated financial statements.

The effectiveness of our controls and procedures may in the future be limited by a variety of factors, including:

• faulty human judgment and simple errors, omissions or mistakes;

• fraudulent action of an individual or collusion of two or more people;

• inappropriate management override of procedures;

• the possibility that any enhancements to controls and procedures may still not be adequate to assure timely and accurate financial information.

If we are unable to complete the required Section 404 assessment as to the adequacy of our internal control over financial reporting or otherwise fail to maintain or implement effective controls and procedures for financial reporting, we could be unable to accurately and timely report our financial position, results of operations, and cash flows or key operating metrics, which could result in late filings of our annual and quarterly reports under the Securities Exchange Act of 1934, as amended, restatements of our consolidated financial statements or other corrective disclosures, a decline in our stock price, suspension or delisting of our common stock from the Nasdaq Global Market, SEC investigations, civil or criminal sanctions, an inability to access the capital and commercial lending markets, defaults under our debt and other agreements or other material adverse effects on our business, reputation, results of operations, financial condition or liquidity.

Our organizational documents and Delaware law make a takeover of our company more difficult, which may prevent certain changes in control and limit the market price of our common stock.

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Some provisions in our certificate of incorporation and bylaws may deter third parties from acquiring us, which may limit the market price of our common stock.

General Risk Factors

We incur costs and demands upon management as a result of complying with the laws and regulations affecting public companies in the U.S., which may adversely affect our operating results.

As a public company listed in the U.S., we incur significant additional legal, accounting and other expenses.

The impact of these events could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, on committees of our board of directors or as members of senior management.