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Item 1. Business

2021-03-11 compared with 2020-03-10 · 315 added, 556 removed, 576 unchanged (60% of the section changed)

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We are a commercial-stage dermatological cancer company focused on providing physicians and their patients with personalized, clinically actionable genomic information to make more accurate treatment decisions.

We believe that the traditional approach to developing a treatment plan for certain cancers using clinical and pathology factors alone can be improved by incorporating personalized genomic information.

Our non-invasive genomic products utilize proprietary algorithms to provide an assessment of a patient’s specific risk of metastasis or recurrence of their cancer, allowing physicians to identify patients who are likely to benefit from an escalation of care as well as those who may avoid unnecessary medical and surgical interventions.

We believe that the traditional approach to developing a treatment plan for certain cancers using clinical and pathology factors alone is inadequate and can be improved by incorporating personalized genomic information.

Our non-invasive products utilize proprietary algorithms to provide an assessment of a patient’s specific risk of metastasis or recurrence of their cancer, allowing physicians to identify patients who are likely to benefit from an escalation of care as well as those who may avoid unnecessary medical and surgical interventions.

Our lead product, DecisionDx®-Melanoma, is a proprietary multi-gene expression profile, or GEP, test that predicts the risk of metastasis or recurrence for patients diagnosed with invasive cutaneous melanoma, a deadly skin cancer.

This test has two current clinically actionable uses.

The first use immediately following diagnosis predicts a patient’s likelihood of having a sentinel lymph node negative biopsy result so that physicians and patients can discuss the risk and benefit of undergoing sentinel lymph node biopsy, or SLNB, surgery.

The second use is to inform the appropriate treatment plan, regardless of the decision to undergo or avoid the SLNB surgery.

We estimate more than 130,000 patients are diagnosed with invasive cutaneous melanoma each year in the United States.

We launched DecisionDx-Melanoma in May 2013.

On August 31, 2020, we commercially launched our cutaneous squamous cell carcinoma, or SCC, proprietary GEP test, DecisionDx®‑SCC, and on November 2, 2020, we commercially launched our proprietary GEP test for suspicious pigmented lesions, DecisionDx® DiffDx™-Melanoma.

These two indications are areas of high clinical need in dermatological cancer and, together, represent an addressable population of approximately 500,000 patients in the United States.

We also market DecisionDx®-UM, which is a proprietary GEP test that predicts the risk of metastasis for patients with uveal melanoma, a rare eye cancer.

Based on the substantial clinical evidence that we have developed, we have received Medicare coverage for both of our products, which represents approximately 50% of our addressable patient population.

We also have two proprietary products in late-stage development that address cutaneous squamous cell carcinoma, or SCC, and suspicious pigmented lesions, which are indications with high clinical need in dermatological cancer.

Skin cancer is the most commonly diagnosed cancer in the United States.

There are more than 5.5 million new cases of skin cancer diagnosed annually, compared with 1.6 million new cases for all other cancers combined.

DecisionDx-Melanoma targets more than an estimated 130,000 patients diagnosed with invasive cutaneous melanoma each year, which we believe is underreported.

In addition, our two late-stage proprietary products in development target approximately 200,000 patients diagnosed with SCC with high-risk features and approximately 300,000 patients with suspicious pigmented lesions without a definitive diagnosis of skin cancer.

We estimate that the total addressable U.S.

market for these three indications is approximately $2.0 billion.

Healthcare providers, predominately dermatologists and surgeons who treat melanoma patients, make nearly all treatment decisions for patients diagnosed with skin cancers based upon their expected risk of metastasis or recurrence.

Historically these treatment decisions have been based solely on clinical and pathology factors, such as tumor depth or width, ulceration status, nerve invasion and evidence of metastasis to the sentinel lymph node, or SLN.

Physicians use these factors to group, or stage, patients into stage-related populations.

The average risk of metastasis within a population then guides treatment decisions for all patients within a respective population.

However, an individual patient’s risk of metastasis can be significantly different from these stage-related population averages, thereby resulting in some patients receiving unnecessary medical and surgical interventions and some patients being undertreated.

This treatment paradigm has led to suboptimal patient care and unnecessary costs to the healthcare system.

We believe that incorporating the genomics of each individual patient’s tumor biology to inform their specific risk of metastasis can aid the decision-making process for their treatment plan, help optimize patient outcomes and reduce healthcare costs.

The genomics of cutaneous melanoma and other skin cancers are highly complex because, unlike some other types of cancer, the presence or absence of a single gene or a limited number of genes has not been shown to accurately predict the risk of metastasis or recurrence.

Rather, we believe that risk of metastasis or recurrence of skin cancer requires the analysis of gene expression profiles occurring at the RNA level through the application of artificial intelligence, deep learning and proprietary techniques to identify clinically relevant genomic patterns.

Once identified, we then undertake extensive clinical validation and clinical utility studies to develop products that address key unmet medical needs for patients and physicians.

In cutaneous melanoma, nearly every treatment plan decision is based upon a patient’s risk of metastasis and the traditional clinical and pathology factors that are used to estimate population-based rates of metastasis can be inaccurate predictors of an individual patient’s risk.

A primary tumor diagnostic biopsy is used to identify most of these factors, such as tumor thickness and ulceration status.

These factors then assist physicians in their decision of whether to discuss or recommend a second procedure, the invasive sentinel lymph node biopsy, or SLNB, surgery which can provide additional prognostic information.

However, the clinical and pathology factors that lead to a recommendation to perform the SLNB surgery have limitations in that they are not very predictive when it comes to the likelihood that the patient will have an SLN-positive biopsy result, meaning that melanoma cells are found in their lymph nodes.

In fact, approximately 88% of patients who undergo the SLNB surgery are found to have an SLN-negative biopsy result, and these patients remain either as Stage I, the lowest risk group, or as Stage II, the next lowest risk group.

Furthermore, despite being classified as low risk, two out of three patients who develop metastatic disease and die from the primary melanoma tumor received an SLN-negative biopsy result and were classified as Stage I or II

following SLNB surgery.

The significant diagnostic discordance that exists between the clinical and pathologic factors and likelihood of both an SLN-positive biopsy result and the risk of metastasis or recurrence has led to an opportunity to improve care by adding personalized genomic information.

We developed our proprietary, non-invasive genomic DecisionDx-Melanoma product to address this diagnostic discordance in patients with Stage I-III cutaneous melanoma.

The product interrogates the biology of a patient’s tumor by analyzing the gene expression profile of 31 genes, a process made possible by our proprietary algorithm, developed using machine learning techniques.

DecisionDx-Melanoma reports the risk of metastasis or recurrence for a patient’s melanoma into two classes and two subclasses, ranging from Class 1A, the lowest risk group, through Class 2B, the highest risk group, based on the genomics of the patient’s tumor.

Physicians and patients use this additional tumor-specific genomic information, along with traditional staging criteria, to make better-informed decisions about how to manage the disease.

We have published 22 peer-reviewed studies to support the two current clinically actionable uses of DecisionDx-Melanoma.

The first use immediately following diagnosis is based upon a patient’s likelihood of having an SLN-negative biopsy result so that physicians and their patients can discuss the risk and benefit of undergoing the SLNB surgery.

Data from our 1,421 patient prospective study showed that the 1,065 patients with a melanoma less than or equal to 2.0 mm thick, defined as T1-T2 melanoma, and who received a DecisionDx-Melanoma Class 1A test result, had only a 4.6% likelihood of an SLN-positive biopsy result.

This is clinically relevant because current guidelines do not recommend offering the SLNB surgery if the likelihood of an SLN-positive biopsy result is 5% or less.

Therefore, all patients with a T1-T2 melanoma and a DecisionDx-Melanoma Class 1A test result, which represented approximately 70% of all T1-T2 patients in our study, could avoid the SLNB surgery based on current guidelines.

We recently reported data supporting these findings from a second, prospective multi-center study of 1,166 patients.

The second use of our product is to inform the appropriate treatment plan, regardless of the decision to undergo or avoid the SLNB surgery.

The aggregate data from all of our published long-term archival population showed a 99.6% negative predictive value, or NPV, for melanoma-specific survival at five years for patients who received a DecisionDx-Melanoma Class 1A test result;

meaning that at the five-year mark, 99.6% of patients with a Class 1A test result did not die from their melanoma.

We have also demonstrated, in all four of our clinical impact studies, that physicians changed their treatment plans approximately 50% of the time after receiving our test results, showing that DecisionDx-Melanoma can significantly change the way physicians treat their patients.

For contextual purposes, note that for patients who undergo the SLNB surgery, only 12% are SLNB positive, while the remaining 88% are SLNB negative.

This means that only 12% would have a change in management.

We also market DecisionDx-UM, a genomic test for use in identifying patients diagnosed with uveal melanoma who are at a low risk of metastasis.

Uveal melanoma is a rare but deadly disease with approximately 1,600 patients diagnosed in the United States annually.

Similar to DecisionDx-Melanoma, this product also uses a proprietary algorithm developed using machine learning techniques to interrogate the biology of a patient’s tumor by analyzing the gene expression profile of 15 genes of a patient’s tumor.

Because approximately 30% of uveal melanoma patients go on to metastasize within three years, prior to the availability of DecisionDx-UM in 2010, once the primary eye tumor was treated, nearly all patients were managed under an aggressive metastatic surveillance treatment plan.

We have an expansive, peer-reviewed publication dataset with 16 studies documenting the validity and utility of DecisionDx-UM.

The first prospective, multi-center study reported a 98% NPV at five years for metastatic-free survival for patients who received a Class 1A test result.

Based upon this and additional clinical validity data, two clinical impact studies we conducted reported that over 90% of post-diagnostic management decisions align with the DecisionDx-UM results.

We are developing additional products targeting the challenges faced by physicians in treating their patients’ skin cancer, with two products in late stage development.

One of our product candidates, DecisionDx-SCC, is a proprietary GEP test designed to predict the risk of metastasis in patients diagnosed with SCC.

Approximately one million patients are diagnosed with SCC in the United States each year.

We estimate that approximately 200,000 of those patients are identified as having high-risk disease meaning that they have one or more high-risk features associated with their SCC.

The available clinical and pathology staging or risk systems result in many patients receiving unnecessary adjuvant interventions or, for those who may benefit from adjuvant interventions, being placed in “watchful waiting” regimens.

Our recently presented validation study analysis shows that significant improvements relative to available high-risk features and staging systems could be possible.

Based on the timing and results of our planned and ongoing clinical validation studies, we intend to commercially launch this product in the second half of 2020.

We are also developing a proprietary GEP test designed to assist physicians in the diagnosis of suspicious pigmented lesions.

Of the approximately two million pigmented lesion skin biopsies performed for the diagnosis of melanoma annually in the United States, we estimate that approximately 300,000 cannot be confidently confirmed as melanoma or benign lesion through the use of histopathology alone.

Based on the timing and results of our planned and ongoing clinical studies, we intend to commercially launch this product in the second half of 2020.

We have built a commercial organization that focuses on providing solutions to dermatologists, including Mohs surgeons, dermatological pathologists and surgeons who care for patients with skin cancer.

Our focus on dermatologic cancers has provided us with unique insights into the challenges faced by these physicians that have enabled us to drive adoption of DecisionDx-Melanoma, as well as to identify opportunities for additional products to address unmet clinical needs in dermatologic cancer.

We have processed over 60,000 clinical samples since commercial launch, with total proprietary GEP report volume increasing from less than 4,000 in 2015 to more than 17,000 in 2019.

Our annual revenue increased from $22.8 million in 2018 to $51.9 million in 2019.

During 2019, we also expanded our commercial and medical affairs organizations from the low 20s to the low 50s in externally facing employees, including expansion of our outside sales territories from 14 in January 2019 to 23 in February 2019 to 32 in December 2019 with the additional expansion coming from our inside sales support and our medical affairs group, to further educate physicians, which we believe drives adoption of our products.

We will continue to develop evidence, including performance and utility data, to substantiate the value of our marketed products, which we believe is important for physicians as they adopt our products for multiple uses.

We will also continue to evaluate our mix of outside sales territories, inside sales support, marketing and medical affairs and adjust our investments based upon these evaluations.

We launched DecisionDx-UM in January 2010.

Based on the substantial clinical evidence that we have developed, we have received Medicare coverage for DecisionDx-Melanoma and DecisionDx-UM, representing approximately 50% of the addressable patient population for both of these tests.

We have processed over 70,000 clinical samples since our inception.

Our revenue for the year ended December 31, 2020 was $62.6 million, compared to $51.9 million for 2019 and $22.8 million for 2018.

Information on our test report volumes by year is presented below:

Years Ended December 31,

2020 2019 2018 2017

DecisionDx-Melanoma

16,232 15,529 12,032 9,300

DecisionDx‑SCC

DecisionDx DiffDx-Melanoma 73 — — —

Total Proprietary Dermatologic GEP Tests

16,790 15,529 12,032 9,300

DecisionDx-UM

1,395 1,526 1,413 1,314

Total 18,185 17,055 13,445 10,614

Our Competitive Advantages

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We believe our key competitive advantages are due in part to the following factors:

Development of our products required our machine learning expertise and our proprietary algorithm, which are complex and difficult to replicate.

We develop our products using our machine-learning expertise to analyze clinical specimens with associated long-term outcomes data to identify genomic patterns in tumor biology that we believe will accurately predict the risk of metastasis and recurrence.

• Development of our products required our machine learning expertise, artificial intelligence and our proprietary algorithms, which are complex and difficult to replicate.

We develop our products using our machine-learning expertise and artificial intelligence to analyze clinical specimens with associated long-term outcomes data to identify genomic patterns in tumor biology that we believe will accurately predict the risk of metastasis and recurrence.

We then validate these genomic patterns, by refining and locking down algorithms to enable additional studies to validate the accuracy of our tests and subsequently document the clinically actionable changes made by physicians when they incorporate our test results into their treatment plan decisions.

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We believe that while the behavior of some cancers may be elucidated by DNA analysis and the response to certain targeted therapies, the majority of skin cancer behavior will best be understood at the gene expression level.

Specifically, while DNA mutations of a specific gene are important for tumor

behavior, the impact of other genes, epigenetic changes to the gene and the non-tumor environment which cannot be discerned by the mutation that a gene carries are critical to the understanding of tumor behavior.

Specifically, while DNA mutations of a specific gene are important for tumor behavior, the impact of other genes, epigenetic changes to the gene and the non-tumor environment which cannot be discerned by the mutation that a gene carries are critical to the understanding of tumor behavior.

We believe that focusing on the expression of the gene or how the gene behaves will be more accurate than the mutation of the gene itself.

Our growing database of tumor samples and associated long-term outcomes data enables us to improve our current products and accelerate development of new products.

• Our growing repository of tumor samples and associated data, some including long-term outcomes, positions us well for improvement of current products and accelerated development of new ones.

The development and validation of accurate tests is a complex process that requires access to tumor tissue specimens and long-term outcomes data.

Such data is not readily available for skin cancer, which creates a barrier to rapid test development and validation.

However, over the past ten years we created a sample bank comprised of over 55,000 samples, including 5,900 well-annotated samples that we have used in our clinical studies to date.

We have been able to use this sample bank to expand the clinical use of our products, evaluate improvements in new proprietary genomic algorithm approaches and develop new products.

Such material and associated data is not readily available for skin cancer, which creates a barrier to rapid test development and validation.

However, over the last decade we have accrued a sample bank comprised of approximately 60,000 samples, including 6,000 well-annotated samples that we have used in our clinical studies to date.

We have been able to use this sample bank to expand the clinical use of our products, evaluate improvements in new and existing proprietary genomic algorithm approaches and develop new products.

In addition to these historical uses, we are exploring other opportunities involving the use of these data.

• We have generated, and will continue to generate, robust clinical validity and utility data supporting the use of our products.

For example, DecisionDx-Melanoma has been studied in more than 5,700 patient samples, including 28 published studies since 2015.

We also are making significant investments in further clinical studies to continue to support DecisionDx-Melanoma, DecisionDx-UM and our pipeline products.

We also are making significant investments in further clinical studies to continue to support DecisionDx-Melanoma, DecisionDx-UM, DecisionDx-SCC and DecisionDx DiffDx-Melanoma.

This growing set of data is significant in educating physicians and patients about the value of our products and supporting reimbursement of our products by third-party payors.

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We have published rigorous clinical data, which allows our sales and medical affairs representatives to have substantive, in depth dialogues with physicians.

Through these established relationships we have been able to integrate our products into physicians’ workflows and identify further educational programs, which we believe drives adoption of our products.

We can also leverage these relationships to identify areas of significant unmet medical need and efficiently launch additional skin cancer products.

Through these established relationships, we have been able to integrate our products into physicians’ workflows and identify further educational programs, which we believe fosters adoption of our products.

We can also leverage these relationships to identify areas of significant unmet medical need and efficiently launch additional dermatologic products.

• We have experience in navigating the reimbursement landscape.

In the molecular diagnostics industry securing reimbursement for new tests is a long, complex and uncertain process.

We have developed significant expertise in securing reimbursement for our products.

We have developed significant expertise to assist in securing reimbursement for our products.

We intend to build upon our position as a leading provider of genomic information for dermatological cancers.

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We increased the number of sales and medical affairs representatives in the first quarter of 2019 with a second expansion occurring in December 2019.

We will evaluate the needs of our customers through 2020 and may make additional commercial investments to better support the educational needs of our customers with our currently marketed products as well as support the launch of additional products.

Further, we expanded our sales organization headcount in the third quarter of 2020 in preparation for the commercial launch of our DecisionDx DiffDx-Melanoma test.

We are planning additional expansion in the first half of 2021.

We will continue to evaluate the needs of our customers and may make additional commercial investments to better support the educational needs of our customers with our currently marketed products as well as support the launch of additional products.

• Expand coverage and reimbursement for our products.

We plan to increase dialogue with third-party payors to highlight our clinical utility and patient outcomes data.

We plan to further increase dialogue with third-party payors to highlight our clinical utility and patient outcomes data.

We believe these data will validate the benefit of our products for patients and will persuade more third-party payors to provide coverage and reimbursement.

Additionally, we will continue to emphasize our ability to reduce overall cost to the healthcare system by appropriately classifying high-risk patients and removing the need for unnecessary invasive products for low-risk patients.

• Utilize our development expertise and commercial channel insight to provide additional solutions.

We are continuing to develop products that address the challenges facing physicians, including genomic tests for patients with

SCC with high-risk factors and suspicious pigmented lesions, addressing an aggregate of approximately 500,000 additional potential patients.

We are continuing to develop products that address the challenges facing physicians.

We have initiated work on a number of pipeline tests which branch out upstream, downstream and parallel to our currently marketed tests.

Although we are still in the early stages of development, we believe we could launch three to five new tests by the end of 2025, utilizing our existing sales channels, potentially adding approximately $3.6 billion to our current U.S.

total addressable market, or TAM.

We expect to provide additional details on these pipeline products before the end of 2021.

Dermatologic Cancer Market Overview

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The three most common forms of skin cancers are basal cell carcinomas, SCC and cutaneous melanoma.

Cutaneous squamous cell carcinoma, or SCC, the second most common form of skin cancer, is an uncontrolled growth of abnormal cells arising from the squamous cells in the epidermis, the skin’s outermost layer.

SCC, the second most common form of skin cancer, is an uncontrolled growth of abnormal cells arising from the squamous cells in the epidermis, the skin’s outermost layer.

Melanoma, an aggressive form of skin cancer, originates in the pigment-producing melanocytes in the basal layer of the epidermis.

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Pre-cancers include suspicious pigmented lesions, which are unusual-looking lesions that may be melanoma, and actinic keratosis, also known as a solar keratosis.

TAM = Total addressable market based on estimated patient population assuming average reimbursement rate among all payors.

incidence for Stage I, II or III melanoma estimated at 130,000;

incidence for squamous cell carcinoma estimated at 1,000,000 with addressable market limited to carcinomas with one or more high risk features;

incidence for suspicious pigmented lesion biopsies estimated at 2,000,000 with addressable market limited to the 15% with an indeterminant biopsy.

Clinicians who ordered DecisionDx-Melanoma in last twelve months (as of 12/31/2020)

Pathologists who provided clinical specimens for DecisionDx-Melanoma in last twelve months (as of 12/31/2020)

MCR = Medicare.

MCRA = Medicare Advantage;

current customer estimates based on last twelve months.

Cutaneous Melanoma

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Worldwide statistics suggest that there were nearly 300,000 new cases of melanoma diagnosed worldwide with the U.S.

Surveillance, Epidemiology, and End Results, or SEER, database estimating that approximately 96,000 invasive cutaneous melanomas were diagnosed in the United States in 2019.

However, multiple recent publications show that diagnosis of melanoma is underreported by between 30% and 72%.

Surveillance, Epidemiology, and End Results, or SEER, database estimating that approximately 96,000 invasive cutaneous melanomas are diagnosed in the United States annually.

However, multiple publications show that diagnosis of melanoma is underreported by between 30% and 72%.

Using the mean of the underreporting of these four studies, we estimate the annual incidence to be 130,000, representing an estimated U.S.

total addressable market, or TAM, of $540 million.

TAM of $540 million.

According to these publications, underreporting reflects the fact that the majority of diagnoses are made by community-based dermatologists and dermatopathologists rather than institutional-based specialists who more typically have tumor registry support.

Based on currently available data, we estimate the targetable clinician base is between 11,000 and 15,000.

Additionally, the incidence of melanoma has steadily increased annually over the last several decades, with an estimated 53% growth in the United States over the last ten years.

Additionally, the incidence of melanoma has steadily increased annually over the last several decades, with an estimated growth in the United States of more than 50% during the past ten years.

After a diagnosis of invasive cutaneous melanoma, healthcare providers have traditionally used clinical and pathology factors from the initial biopsy to estimate the patient’s risk of metastasis.

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All patients who are diagnosed with an invasive cutaneous melanoma will undergo a wide local excision procedure with the surgical margins determined by the depth of the tumor.

The invasive SLNB surgery is recommended to be considered for

patients with melanomas greater than or equal to 0.8 mm thick or with the presence of an adverse pathologic feature such as the presence of ulceration, high mitotic rate, and transected base.

The invasive SLNB surgery is recommended to be considered for patients with melanomas greater than or equal to 0.8 mm thick or thinner melanomas in the presence of an adverse pathologic feature such as the presence of ulceration, high mitotic rate, and transected base.

It is believed that tumors with these anatomic based features have a likelihood of an SLN-positive biopsy result 5% or more of the time.

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Guideline committees do not recommend an SLNB if the likelihood of a positive SLN result is <5%.

They recommend discussion and considering an SLNB if the likelihood of a positive SLN falls between 5% and 10% and recommend discussing and offering if the likelihood is >10%.

Guideline committees have selected the 5% threshold due to a combination of some studies showing a regional false negative rate of the SLNB surgery at 5% (meaning that 5% of the time, or more, the guideline committees expect a patient with an SLN-negative biopsy result will subsequently develop lymph node metastasis) as well as matching to the reported surgical complication rate.

However, the published literature documents a median false negative rate of 18% and an 11% surgical complication rate.

They recommend discussion and considering an SLNB if the likelihood of a positive SLN falls between 5% and 10% and recommend discussing and offering an SLNB if the likelihood is >10%.

Guideline committees have selected the 5% threshold due to a reported regional false negative rate of the SLNB surgery at 5% (meaning that 5% of the time, or more, the guideline committees expect a patient with an SLN-negative biopsy result will subsequently develop lymph node metastasis).

However, the published literature documents a median regional false negative rate of 18% and an 11% surgical complication rate.

Cutaneous Squamous Cell Carcinoma

Cutaneous squamous cell carcinoma, the second most common form of skin cancer, is an uncontrolled growth of abnormal cells arising from the squamous cells in the epidermis, the skin’s outermost layer.

Approximately one million patients are diagnosed with SCC each year in the United States and incidence has doubled over the last three decades.

Approximately one million patients are diagnosed with SCC each year in the United States.

Worldwide data on SCC is inconsistently reported but the incidence outside the United States is estimated to be greater than two million diagnoses annually.

Until recently, SCC was considered a benign skin cancer.

However, due to the rate of increased incidence, more patients are now estimated to die annually from SCC in the United States (approximately 15,000 patients) than from cutaneous melanoma.

Historically, SCC has been classified as one of the “non-melanoma skin cancers” with a clinical focus on curative primary surgery.

However, high risk SCC is now recognized as a significant cause of morbidity and mortality and due to the rate of increased incidence, more patients are now estimated to die annually from SCC in the United States (approximately 15,000 patients) than from cutaneous melanoma.

Similar to melanoma, treatment plan decisions are based upon a patient’s estimated risk of recurrence or metastasis.

However, unlike melanoma, the estimates are based upon small patient cohorts and our research shows that most clinicians rely upon individual clinical and pathologic features rather than a staging “group” for guiding treatment plan decisions.

Our DecisionDx-SCC test is being developed for use in the estimated 200,000 patients who present with one or more high risk features, representing an estimated U.S.

Our DecisionDx-SCC test, which we launched on August 31, 2020, is for use in the estimated 200,000 patients who present with one or more high risk features, representing an estimated U.S.

TAM of $820 million.

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Approximately 15% of these biopsies are classified as indeterminate, in which case a pathologist cannot make a definitive diagnosis as to whether the biopsy is benign or malignant.

Using a lower target reimbursement rate, we estimate the U.S.

TAM at $600 million.

We estimate the U.S.

TAM at $600 million for our DecisionDx DiffDx-Melanoma test, which we launched on November 2, 2020.

Uveal Melanoma Market Overview

The incidence of uveal melanoma has remained relatively constant over time with approximately 1,600 — 1,700 patients diagnosed per year in the United States, representing an estimated U.S.

The incidence of uveal melanoma has remained relatively constant over time with approximately 1,600 to 1,700 patients diagnosed per year in the United States, representing an estimated U.S.

TAM of $7.0 million.

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Significant Limitations of Current Clinical and Pathology Staging Systems for Skin Cancer

The dermatologic skin cancer market has significant unmet clinical needs, as clinical and pathology staging systems have traditionally applied a population-wide approach to estimate an individual patient’s risk of metastasis and have not incorporated the genomics of a patient’s tumor biology.

This is unlike the diagnostic process applied to other solid tumors, such as breast and prostate cancer, where the broader use of genomics to understand tumor biology has led to individualized patient treatment plans.

The skin cancer disease market has significant unmet clinical needs, as clinical and pathology staging systems have traditionally applied a population-wide approach to estimate an individual patient’s risk of metastasis and have not incorporated the genomics of a patient’s tumor biology.

Not incorporating tumor biology leads to a discordance between the estimated and actual risk of metastasis, which results in over- and under-treatment as well as increased healthcare costs.

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On average, 12% of patients undergoing the SLNB surgery will have an SLN-positive biopsy result and 88% will not.

The invasive SLNB surgery carries

significant healthcare burden.

The invasive SLNB surgery carries significant healthcare burden.

For instance, the overall complication rate of SLNB was shown to be 11.3% in a systematic review of 21 articles representing 9,047 patients.

A separate review reported that the regional false negative rate of the SLNB surgery ranged from 5% to 21%, with a median rate of 18%.

Regional false negative rate is defined as the rate that metastasis to the regional lymph node in patients with a negative sentinel lymph node biopsy surgical result.

Regional false negative rate is defined as the rate that metastasis to the regional lymph node in patients with a negative SLNB surgical result.

Both the complication and false negative rates are above the recommended 5% and 10% thresholds proposed by guideline committees.

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In summary, the risk of metastasis determines the treatment plans in newly diagnosed patients, including the recommendation for the SLNB surgery, decisions around the initiation of advanced imaging for active surveillance, frequency and specialty for clinical follow-up, initiation of adjuvant therapy and discussion of clinical trial enrollment opportunities.

The graphic below summarizes the limitations of solely relying upon risk of metastasis based upon clinical and pathology features alone as it relates to SLNB surgery and the subsequent treatment plan decisions.

The top portion of the graphic below summarizes decision points that DecisionDx-Melanoma impact.

The lower portion summarizes the limitations of solely relying upon risk of metastasis based upon clinical and pathology features alone as it relates to SLNB surgery and the subsequent treatment plan decisions.

AJCC v7 J Clin Oncol 2009;

SEER data release 2017;

Morton et al.

N Engl J Med 2014;

Whiteman et al.

J Invest Dermatol 2015;

Shaikh et al.

J Natl Cancer Inst 2016;

Poklepovic and Carvajal.

Oncology 2018;

Sondak and Zager.

Ann Surg Oncol 2010.

Euro Jrnl Surg Onc 2017.

Cutaneous Squamous Cell Carcinoma

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Unlike in cutaneous melanoma, where longitudinal databases were developed in an attempt to align population-based risk of metastasis with clinical and pathology factors, the same level of effort has not been given to SCC.

As recently as four years ago, there were as many as three SCC staging systems in the United States, each with widely divergent classifications for high- and low-risk patients.

There have been as many as three SCC staging systems in the United States, each with widely divergent classifications for high- and low-risk patients.

For example, a 2014 study compared the AJCC version 7 and National Comprehensive Cancer Network, or NCCN, systems to assess concordance between the AJCC and NCCN systems.

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The low PPV means that 93 out of 100 NCCN high risk SCC’s did not actually metastasize.

AJCC and BWH demonstrated a sensitivity of 38.5% and 25%, respectively, PPV of 33% and 35%, respectively and NPV of 88% and 86%, respectively.

AJCC and BWH demonstrated a sensitivity of 38.5% and 25%, respectively, PPV of 33% and 35%,

respectively and NPV of 88% and 86%, respectively.

If one relies just upon NCCN, the low PPV means that developing an adjuvant treatment plan that includes radiation, or chemotherapy or complete lymph surgical dissection, or a combination of these, for a high-risk patient may be appropriate for the one out of fourteen high-risk patients who will metastasize but not for the remaining thirteen patients who would not have metastasized.

For AJCC and BWH, the PPV does improve but it also means that two out of three patients would be recommended for an adjuvant treatment plan who will not benefit.

These accuracy metrics have created significant discordance in the approach to managing patients with high-risk features, from one of the spectrum being intervention for all high-risk patients to “watch and wait” for all high-risk patients.

These accuracy metrics have created significant discordance in the approach to managing patients with high-risk features, from one end of the spectrum being intervention for all high-risk patients to “watch and wait” for all high-risk patients.

The end result is an unacceptable clinical discordance in the approach to treatment plans and significant over- and under-treatment for a diagnosis that leads to the most skin cancer deaths in the United States.

Suspicious Pigmented Lesions

A pigmented lesion biopsy that is difficult to diagnose may lead to an indeterminate diagnosis, in which case the treating physician generally leans towards making a conservative decision and assume that the lesion is melanoma.

A definitive diagnosis of invasive cutaneous melanoma results in a treatment plan that involves wider margins for the definitive wide local excision surgery, consideration of the SLNB surgery and post-diagnosis management plans, including frequent, high intensity surveillance using advanced imaging, frequent clinical visits and encouragement to enroll in clinical studies.

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We use the gene expression profile of an individual patient’s tumor biology to inform specific prognosis of metastasis or recurrence and aid the decision-making process of the treating physician and their patient to help optimize health outcomes and reduce healthcare costs.

Due to the biological complexity of skin cancers, developing accurate products takes scientific diligence, stringent clinical protocols, machine learning expertise, proprietary algorithms and significant investments of time and capital.

Due to the biological complexity of skin cancer, developing accurate products takes scientific diligence, stringent clinical protocols, machine learning expertise, proprietary algorithms and significant investments of time and capital.

In addition, the underlying tissue samples and associated outcomes data required to develop and validate these products are difficult to obtain.

Once successfully developed and validated, commercial success requires the generation of ongoing evidence such as clinical use documentation to support appropriate physician adoption, reimbursement success and guideline inclusion.

We have commercially launched DecisionDx-Melanoma, a proprietary GEP test designed to identify the risk of metastasis or recurrence in patients diagnosed with cutaneous melanoma, and DecisionDx-UM, a proprietary GEP test designed to identify the risk of metastasis in patients diagnosed with uveal melanoma.

Multiple studies for both products have been published since completion of the initial clinical validation studies and have confirmed the accuracy of our products.

We currently market three proprietary dermatologic products:

DecisionDx-Melanoma, DecisionDx-SCC and DecisionDx DiffDx-Melanoma.

We also market DecisionDx-UM, a proprietary GEP test designed to identify the risk of metastasis in patients diagnosed with uveal melanoma.

Multiple studies for our products have been published since completion of the initial clinical validation studies and have confirmed the accuracy of our products.

Also, multiple clinical impact studies have demonstrated a significant impact on physician decisions to alter their treatment plan when the results of our test are considered in concert with the traditional clinical and pathology factors.

Both of our currently marketed proprietary products are reimbursed by Medicare under positive coverage policies.

DecisionDx-Melanoma and DecisionDx-UM are currently reimbursed by Medicare under positive coverage policies.

In addition, we have received widespread positive private payor coverage and positive guideline inclusion for DecisionDx-UM, our first melanoma test.

Since commercial launch, we have processed more than 60,000 clinical patient samples.

Since our inception, we have processed more than 70,000 clinical patient samples.

Our products are designed to provide the following benefits:

Better Information for Physicians.

• Clinically Actionable Information for Physicians.

We provide physicians and their patients with a report that contains clinically actionable information to inform the treatment plan for each individual patient.

Our reports are updated as new clinical data is generated that may enable additional clinical decisions to be made.

Based on four studies that we have conducted on clinical actionability, based on our test reports, physicians changed a patient’s treatment in more than 50% of cases, indicating physician confidence in the evidence underlying our reports.

Better Patient Care.

Based on four studies that we have conducted on clinical actionability of our DecisionDx-Melanoma test, utilizing the results of our test reports, physicians changed a patient’s treatment in approximately 50% of cases, indicating physician confidence in the evidence underlying our reports.

• Informed Patient Care.

The clinical evidence shows that our products are accurate predictors of a patient’s specific risk of metastasis or recurrence of their cancer based upon the gene expression profile of their tumor, independent of available clinical and pathology factors.

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healthcare system could be up to $250 million, after considering the cost of DecisionDx-Melanoma.

We currently market two proprietary products, DecisionDx-Melanoma and DecisionDx-UM, and have two active proprietary products in development, which we believe support an estimated total addressable market of $2.0 billion in the United States.

We have received positive local coverage determinations, or LCDs, providing Medicare coverage for both of our commercial products.

We currently market three proprietary dermatologic products, DecisionDx-Melanoma, DecisionDx-SCC and DecisionDx DiffDx-Melanoma.

We also market DecisionDx-UM, a proprietary GEP test designed to identify the risk of metastasis in patients diagnosed with uveal melanoma.

Together, we believe these four commercial products support an estimated total addressable market of $2.0 billion in the United States.

We have received positive local coverage determinations, or LCDs, providing Medicare coverage for DecisionDx-Melanoma and DecisionDx-UM.

These LCDs facilitate reimbursement from Medicare, which represents approximately 50% of the addressable patient population.

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We report test results in two classes and two subclasses.

Class 1A represents the lowest risk group, Class 1B represents a low risk group, Class 2A represents an increased risk group and Class 2B represents the highest risk group.

Class 1A represents the lowest risk group, Class 1B/2A represents an increased risk group and Class 2B represents the highest risk group.

In March 2021, we announced that DecisionDx-Melanoma now utilizes an Integrated Test Result, or ITR, designed to provide more precise risk prediction in patients with Stage I, II or III melanoma.

The ITR is calculated by an independently validated algorithm (i31-GEP), designed to provide a more precise and personalized prediction of SLN positivity in order to guide discussions and recommendations, within current risk-based guidelines, for the SLNB surgical procedure.

i31-GEP is an artificial intelligence-based neural network algorithm (independently validated in a cohort of 1,674 prospective, consecutively tested patients with T1-T4 cutaneous melanoma) that integrates the DecisionDx-Melanoma test result with the patient’s traditional clinicopathologic features.

We expect to launch an app based on i31-GEP and the ITR later in 2021.

Clinical Validation

We have published 13 clinical validation studies of DecisionDx-Melanoma, which we believe is the largest clinical validation program of the metastatic risk of cutaneous melanoma ever conducted.

Based on our published data, we have shown that DecisionDx-Melanoma is an accurate independent predictor of the risk of metastasis or recurrence, showing an aggregate melanoma-specific five-year survival rate of 99% for patients who receive the Class 1A test result.

Based on our published data, we have shown that

DecisionDx-Melanoma is an accurate independent predictor of the risk of metastasis or recurrence, showing an aggregate melanoma-specific five-year survival rate of 99% for patients who receive the Class 1A test result.

Our first study, published in January 2015, analyzed 104 patients with Stage I, II and III melanoma from an independent cohort with long term outcomes data.

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The most recent, independent, prospective, multi-center study of 86 patients with Stage IB and II melanoma was published in February 2019 in the Journal of The European Academy of Dermatology and Venereology.

This study reported a recurrence free survival rate of 100% for patients with Stage IB and II melanoma who received a DecisionDx-Melanoma Class 1 test result.

The most recent, independent, prospective, single-center study of 159 patients with Stage I, II and II melanoma was published in March 2019 in Cancer Medicine.

This study reported a recurrence

free survival rate of 100% for patients with Stage IB and II melanoma who received a DecisionDx-Melanoma Class 1 test result.

An independent, prospective, single-center study of 159 patients with Stage I, II and III melanoma was published in March 2019 in Cancer Medicine.

Of patients who recurred, the median time to recurrence was 13 months.

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For SORT strength of recommendation, “consistent, good quality evidence” represents a level A recommendation.

A meta-analysis was recently completed and presented at the 2019 Annual Meeting of the American Academy of Dermatology.

This meta-analysis reviewed multiple peer-reviewed published clinical validation studies of DecisionDx-Melanoma, including prospective studies.

A systematic review and meta-analysis was published in the Journal of the American Academy of Dermatology in 2020 in an article titled “Molecular risk prediction in cutaneous melanoma:

a meta-analysis of the 31-gene expression profile prognostic test in 1,479 patients.” This meta-analysis reviewed multiple peer-reviewed published clinical validation studies of DecisionDx-Melanoma, including prospective studies.

The meta-analysis and the prospective studies satisfied the level 1 ranking of good quality studies and the consistency of DecisionDx-Melanoma data across these studies satisfied the level A strength of recommendation.

Thus, the authors concluded that DecisionDx-Melanoma achieved a 1A level of evidence of clinical validity and strength of recommendation under the SORT system.

Thus, the authors concluded that DecisionDx-Melanoma achieved a 1A level of evidence of clinical validity and strength of recommendation under the

Furthermore, as shown below, the multi-variate analysis for recurrence-free survival found DecisionDx-Melanoma to be the strongest predictor of risk of recurrence compared to the evaluable clinical and pathology factors.

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To address this, we analyzed the long-term outcome data from our Gastman 2019 publication and showed that patients of all ages with a melanoma less than or equal to 2.0 mm thick and a Class 1A test result have a five-year melanoma specific survival rate of 99.6%, while similar patients 55 years or older had a melanoma specific survival rate of 99.3%.

This study showed that use of DecisionDx-Melanoma for patients with melanomas of less than or equal to 2.0 mm thick could potentially result in 74% less SLNB surgeries.

This study showed that use of DecisionDx-Melanoma for patients with melanomas of less than or equal to 2.0 mm thick could potentially result in 74% fewer SLNB surgeries.

Clinical Utility

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This change in the management of patient treatment plan recommendations compares favorably to leading molecular diagnostic tests as well as to the SLNB surgery, which only changes clinical decision-making approximately 12% of the time.

# of Patients

% Change in Management

Study Design # of Patients % Change in Management

Berger et al.

Prospectively tested cohort, multi-center.

CMRO 2016 Prospectively tested cohort, multi-center.

Retrospective pre test / post test management.

Dillon et al.

SKIN J Cutan Med 2018

Prospective, multi-center:

SKIN J Cutan Med 2018 Prospective, multi-center:

pre test / post test management.

Farberg et al.

J Drugs Derm 2017

169 physician impact study:

J Drugs Derm 2017 169 physician impact study:

patient vignettes with pre test / post test management.

Schuitevoerder et al.

J Drugs Derm 2018

Prospectively tested cohort, single center.

J Drugs Derm 2018 Prospectively tested cohort, single center.

Retrospective pre test / post test management;

and modeling of prospective cohort.

Building on our clinical utility evidence, in October 2020, the publication in Future Oncology of a retrospective study, titled “Integrating the melanoma 31-gene expression profile test to surgical oncology practice within national guideline and staging recommendations,” shows that DecisionDx-Melanoma impacted management decisions for patients diagnosed with AJCC 7th edition stage I – III melanoma.

Study authors developed a recommended melanoma patient care algorithm that incorporates DecisionDx-Melanoma to help inform frequency and duration of follow-up visits, blood work and surveillance imaging in line with predicted metastatic risk.

Patients’ DecisionDx-Melanoma test result was found to have an impact on the number and duration of follow-up and surveillance visits, and patients assessed as having a high risk of metastasis (designated by a DecisionDx-Melanoma Class 2 test result) received more intensive management than patients assessed as having a low risk

(designated by a DecisionDx-Melanoma Class 1 test result).

Clinicians using the test were shown to adjust patient management in a risk-appropriate direction, within recommendations of national guidelines.

These studies illustrate how physicians use DecisionDx-Melanoma to inform the treatment pathway for patients who have been diagnosed with invasive cutaneous melanoma.

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In some cases, the DecisionDx-Melanoma test result may guide an appropriate reduction in these decisions based upon a low risk of metastasis and in others it will guide an appropriate increase with the end result being improved use of healthcare resources.

Summary of Our DecisionDx-Melanoma Studies

The table below summarizes the DecisionDx-Melanoma clinical studies that have been published to date:

Peer-Reviewed Publications

Main Findings

Clinical Validity

Guidance of sentinel lymph node biopsy decisions in patients with T1-T2 melanoma using gene expression profiling

Future Oncology, January 2019

Survival analysis:

retrospective;

Patients with T1/T2 melanomas and a Class 1A result had a SLN positive rate <5% while Class 2B patients had a rate above 10%.

This is clinically significant as national guidelines do not recommend a SLNB if the risk is <5% and do recommend it if the risk is >10%.

Melanoma-specific survival (MSS) was 99.6% for patients with Class 1A, T1/T2 tumors who would avoid a SLNB.

Prospective validation of the prognostic 31-gene expression profiling test in primary cutaneous melanoma

Cancer Medicine, March 2019 (single center;

n=159 stage I-III melanomas)

Median follow-up of 45 months for recurrence-free cases.

DecisionDx-Melanoma Class 1 was an independent predictor of recurrence (p=0.0001) and the most significant predictor of recurrence with a hazard ratio of 9.2.

DecisionDx-Melanoma Class 1 was also an independent predictor of recurrence (p=0.009) and the most significant predictor of distant metastasis with a hazard ratio of 19.0.

NPV for Class 1 for distant metastasis free survival was 99%.

Of 29 recurrences, 10 (34%) occurred in SLN positive cases while 23 (79%) occurred in Class 2.

Of the 10 recurrences in SLN positive cases, 9 were Class 2.

Early outcome of a 31-GEP test in 86 AJCC stage IB-II melanoma patients.

A prospective multicentre cohort study

Journal of the European Academy of Dermatology and Venereology, February 2019 (Multicenter;

n=86 stage IB-II melanomas)

DecisionDx-Melanoma Class 1 was an independent predictor of recurrence (p=0.01) and the most significant predictor of recurrence with a hazard ratio of 18.82.

AJCC stage and age were not independent of DecisionDx-Melanoma Class 1.

NPV for Class 1 for RFS was 100%.

All recurrences occurred in Class 2 patients.

Identification of patients at risk for metastasis using a prognostic 31-gene expression profile in subpopulations of melanoma patients with favorable outcomes by standard criteria

Journal of the American Academy of Dermatology, January 2019

(Multicenter;

n=690 stage I-III melanomas)

DecisionDx-Melanoma Class 1A was an independent predictor of RFS, DMFS and MSS in the entire cohort and the most significant predictor with hazard ratios of 2.92, 2.89 and 9.02 for RFS, DMFS and MSS, respectively.

Subpopulation analysis of patients with Stage I-IIA melanoma showed that DecisionDx-Melanoma Class 1A was the only independent predictor of RFS, DMFS and MSS for all three endpoints compared to tumor thickness, ulceration status, and mitotic rate.

Tumor thickness was an independent predictor for RFS but DecisionDx-Melanoma Class 1A was 499% greater than tumor thickness for this endpoint.

Subpopulation analysis of patients with melanomas <1.0mm showed that DecisionDx-Melanoma Class 1A was an independent predictor or RFS and the most significant predictor with a hazard ratio of 9.34 which was over 200% greater than SLNB status.

NPV for Class 1A for MSS was 99%.

Estimation of Prognosis in Invasive Cutaneous Melanoma:

An Independent Study of the Accuracy of a GEP Profile Test

Dermatologic Surgery,

December 2018 (Independent;

single center;

n=256 stage I/II melanomas)

Patients with a DecisionDx-Melanoma Class 2 result were 22 times more likely to metastasize compared to a Class 1 result.

Multi-variate statistical analysis for independence was not reported.

NPV for Class 1 for recurrence was 99%.

Interim analysis of survival in a prospective, multi-center registry cohort of cutaneous melanoma patients tested with a prognostic 31-GEP test

Journal of Hematology and Oncology, August 2017 (Multicenter;

n=322 stage I-III melanomas)

DecisionDx-Melanoma Class 1 was an independent predictor of RFS and the most significant predictor with a hazard ratio of 7.15 and 290% greater than the nearest predictor, SLNB.

NPV for Class 1 was 98-99% for RFS, DMFS and OS.

Of 12 distant metastatic events, 10 occurred in the Class 2 group compared to 6 in the SLN positive group.

Peer-Reviewed Publications

Main Findings

Development of a prognostic genetic signature to predict the metastatic risk associated with cutaneous melanoma

Clinical Cancer Research, January 2015

(Multicenter;

n=268 stage I-IV melanomas)

DecisionDx-Melanoma Class 1 was an independent predictor of disease-free survival, DFS, and the most significant predictor with a hazard ratio of 9.55 compared to 5.40 for AJCC stage.

5-year DFS rate for Class 1 (97%) was significantly better than for Class 2 (31%;

p<0.0001) and 98% for patients with Stage I or II melanomas.

SLN positivity rate was 2% in patients with a Class 1 result.

Identification of high-risk cutaneous melanoma tumors is improved when combining the online American Joint Committee on Cancer Individualized Melanoma Patient Outcome Prediction Tool with a 31-GEP based classification

Journal of the American Academy of Dermatology, May 2016

(Multicenter;

n=205 stage I-II melanomas)

DecisionDx-Melanoma Class 1 was an independent predictor of RFS, DMFS and OS compared to the AJCC Individualized Melanoma Patient Outcome Prediction Tool and was 163% or greater than AJCC for all outcomes.

Adding the DecisionDx-Melanoma Class 1 result to AJCC staging improved sensitivity for identifying recurrence, distant metastasis or death by up to 22% compared to AJCC staging alone.

21% of cases had discordant risk prediction from DecisionDx-Melanoma Class 1 and AJCC tools, with the DecisionDx-Melanoma providing the more accurate prognosis for the majority of cases

Gene expression profiling for molecular staging of cutaneous melanoma in patients undergoing sentinel lymph node biopsy

Journal of the American Academy of Dermatology, May 2015

(Multicenter;

n=217 stage I-III melanomas all of whom underwent SLNB)

DecisionDx-Melanoma Class 1 was an independent predictor of RFS, DMFS and OS with hazard ratios of 4.9, 3.9 and 4.7, respectively, and was 185% - 392% greater than SLNB.

DecisionDx-Melanoma Class 1 NPV for distant metastasis was 82% compared to 67% for SLNB.

DecisionDx-Melanoma Class 1 sensitivity was 85%, 84% and 85% compared to SLNB sensitivity of 35%, 38% and 29% for the endpoints of DFS, DMFS and OS.

Performance of a prognostic 31-GEP in an independent cohort of 523 cutaneous melanoma patients

BMC Cancer, February 2018

(Multicenter;

n=523 stage I-III melanomas)

DecisionDx-Melanoma Class 1A was an independent predictor of RFS and DMFS with hazard ratios of 3.8 and 5.3, respectively, and was between 146% and 408% greater than SLNB and tumor thickness.

NPV for MSS for Class 1A patients was 100% for Stage I, 100% for Stage II, 94% for Stage IIIA and 91% for Stage IIIB-C patients.

Performance of a 31-GEP test in cutaneous melanomas of the head and neck

Head & Neck, January 2019

(Multicenter;

n=157 melanomas of the head and neck region)

DecisionDx-Melanoma Class 1 was an independent predictor of RFS, DMFS, OS and MSS with hazard ratios of 2.8, 2.8, 4.1 and 6.8, respectively compared to AJCC stage.

NPV for Class 1A for MSS was 98%.

Clinical Utility

Prospective, Multicenter Clinical Impact Evaluation of a 31-GEP Test for Management of Melanoma Patients

The Journal of Cutaneous Medicine, March 2018

(Multicenter, prospective;

pre-test post-test methodology;

n=247 patients)

Post-test management plans changed by 49% compared to pre-test plans;

85% of Class 2 patients and 36% of Class 1 patients having a change in management (p<0.001).

Significant changes for imaging (p<0.001), request for laboratory work (p=0.04) and frequency of office visits (p<0.001).

Clinical impact of a 31-GEP test for cutaneous melanoma in 156 prospectively and consecutively tested patients

Current Medical Research and Opinion, September 2016 (Multicenter;

retrospective chart review, pre-test post-test methodology;

n=156 patients)

Post-test management plans were recorded in 53% of patients, with 77% of Class 2 patients and 37% of Class 1 patients (p<0.0001) having a change in management.

94% of patient management changes were concordant with the risk indicated by the GEP test result (p<0.0001).

Impact of a 31-gene Expression Profiling Test for Cutaneous Melanoma on Dermatologists’ Clinical Management Decisions

Journal of Drugs in Dermatology, May 2017 (Intended use pre-test post-test vignette methodology;

n=170 participating dermatologists)

Risk appropriate management recommendations for implementing SLNB and imaging were more likely to be made following incorporation of DecisionDx-Melanoma test results (p<0.05).

Dermatologists changed their tumor thickness inflection point for implementing SLNB, oncology referral and imaging from 1.0mm to 0.7mm following a Class 2 DecisionDx-Melanoma test result.

Peer-Reviewed Publications

Main Findings

Impact of Genetic Expression Profile on Decision-Making in Clinically Node Negative Melanoma Patients After Surgical staging

Journal of Drugs in Dermatology, February 2018 (Single center, prospective study at Oregon Health and Science Center;

n=91 patients)

DecisionDx-Melanoma test results were significantly associated with management of patients with Stage I or II melanoma by Dermatology (most often Class 1) or Surgical Oncology (most often Class 2) (p<0.05).

Decision-tree model derived from the treatment and clinical data found that DecisionDx-Melanoma class result accounted for 52% of management changes whereas AJCC stage accounted for 48%.

Factors affecting dermatologists’ use of a 31-gene expression profiling test as an adjunct for predicting metastatic risk in cutaneous melanoma

Journal of Drugs in Dermatology, May,2018

(Intended use pre-test post-test vignette methodology;

n=181 participating dermatologists)

The DecisionDx-Melanoma result had a significant impact on the likelihood that SLNB would be recommended for a patient with a T1b tumor.

The presence of ulceration increased the proportion of respondents who would recommend the test (p<0.001).

Management decisions made by physician assistants and nurse practitioners in cutaneous malignant melanoma patients:

impact of a 31-GEP test

Journal of Drugs in Dermatology, November 2018

(Intended use pre-test post-test vignette methodology;

n=164 participating nurse practitioners and physician assistants)

DecisionDx-Melanoma Class 1 results led to a significant decrease in the proportion of PA/NPs who would recommend SLNB, imaging or quarterly follow-up intervals, while Class 2 results led to significant increases in each (p<0.01 for 5 of 6 patient vignettes included in clinical impact survey).

Establishing an evidence-based decision point for clinical use of the 31-gene expression profile test in cutaneous melanoma

The Journal of Cutaneous Medicine, July 2019 (Multi-center, multi-cohort, multiple endpoint, prospective and archival methodology;

n=1,037, 437, 8,944 and 160 patients)

Evidence-based analysis of four datasets demonstrated that a Breslow thickness of ≥ 0.3 is an appropriate cut-point for the second use of DecisionDx-Melanoma.

A fitted Loess regression curve of cumulative recurrence rates plotted at 0.1mm Breslow thickness showed significant separation occurred between 0.2 and 0.3mm for both RFS and DMFS rates for tumors < 0.3mm versus ≥ 0.3 and 1.0mm (p < 0.0001 for RFS and p = 0.0008 for DMFS).

Frequency of non-Class 1A melanomas from a large dermatopathology practice was 16% in 437 consecutively tested melanomas between 0.3 and 1.0mm and 11% for 8,944 consecutively tested melanomas from May 2018 through April 2019.

Analysis of two multi-center clinical use studies found a clinically significant and relevant change in management in 25% of patients tested in the 0.3 to 1.0mm group.

Level of Evidence Review for a Gene Expression Profile Test for Cutaneous Melanoma

Am J Clin Dermatol 2019 (Level of evidence review of 7 studies using AJCC, NCCN and AAD criteria.

two 2019 prospective were not included due to study censor date)

Level of evidence ranking using AJCC criteria was I/II.

Level of evidence ranking using NCCN criteria was I-IIIB (n.b.

in December 2019, NCCN updated guidelines showing that DecisionDx-Melanoma met level IIB).

Level of evidence ranking using AAD criteria was IIA.

Appropriate Use Criteria for the Integration of Diagnostic and Prognostic Gene Expression Profile Assays into the Management of Cutaneous Malignant Melanoma:

An Expert Panel Consensus-Based Modified Delphi Process Assessment

The Journal of Cutaneous Medicine, September 2019 (Systematic literature review (censor date 2018) by expert consensus panel using Strength of Recommendation Taxonomy (SORT) methodology followed by modified Delphi technique for ACE recommendations)

Eight clinical use recommendation received SORT strength ranking of A or B, including use in SLN biopsy eligible patients with T1 or T2 melanomas and guiding subsequent treatment recommendation in patients with T1, T2 and T3 melanomas.

Integrating Skin Cancer-

Related Technologies into

Clinical Practice

Dermatol Clinics 2017 (using Oxford Centre for Evidence-Based Medicine criteria, the eleven member Melanoma Evolving Diagnostic Technologies Integration Group reviewed 49 articles published between Jan 1, 2012 and June 15, 2015 and using a modified Delphi technique developed an algorithm to effectively integrate technologies into melanoma diagnosis and early management)

Algorithm recommended the use of DecisionDx-Melanoma to guide SLNB discussions and subsequent follow-up management.

Analytical Validity

Analytic validity of DecisionDx-Melanoma, a proprietary GEP test, for determining metastatic risk in melanoma patients

Diagnostic Pathology, February 2018

(Inter-assay, inter-instrument, and inter-observer analysis;

technical reliability in clinically tested melanoma specimens)

Inter-assay concordance on 168 specimens was 99% and matched probability scores were significantly correlated (R2 = 0.96);

inter-instrument concordance was 95% and matched probability scores were correlated (R2=0.99;

A technical success rate of 98% was achieved for the test in 7,023 clinical cases.

In the fourth quarter of 2019, we received notification that the American Medical Association’s, or the AMA’s, Current Procedural Terminology Editorial Panel accepted Castle’s application for a Category I Multianalyte Assays with Algorithmic Analyses, or MAAA, Current Procedural Terminology, or CPT, code for its DecisionDx-Melanoma test.

The American Medical Association’s, or the AMA’s, Current Procedural Terminology Editorial Panel accepted Castle’s application for a Category I Multianalyte Assays with Algorithmic Analyses, or MAAA, Current Procedural Terminology, or CPT, code for its DecisionDx-Melanoma test.

The CPT Editorial Panel is an independent group of expert volunteers representing various sectors of the health care industry.

Its role is to ensure that code changes undergo evidence-based review and meet specific criteria.

The code will be effective on January 1, 2021.

With this acceptance, both of our proprietary MAAA tests, DecisionDx-UM and DecisionDx-Melanoma, have met the criteria required for a Category I MAAA CPT code.

The NCCN Guidelines for Cutaneous Melanoma were updated in December 2019 with a positive shift in the inclusion language indicating that the DecisionDx-Melanoma test may provide information that is an adjunct to AJCC staging, with a category 2A level of evidence recommendation.

The code became effective on January 1, 2021.

With this acceptance, two of our proprietary MAAA tests, DecisionDx-Melanoma and DecisionDx-UM, have met the criteria required for a Category I MAAA CPT code.

DecisionDx-SCC

The current treatment pathway for patients identified as having high-risk SCC suffers from a low PPV for risk of metastasis or recurrence.

As a result, many patients categorized as high risk received adjuvant therapy and other unnecessary medical and surgical interventions even though they would not have gone on to metastasize.

Conversely, there are also many patients categorized as high risk who are placed in “watchful waiting” who could benefit from adjuvant therapy.

To address this clinical need in SCC, we developed DecisionDx-SCC, a proprietary 40-gene expression profile test that uses an individual patient’s tumor biology to predict individual risk of squamous cell carcinoma metastasis for patients with one or more risk factors.

The test result, in which patients are stratified into a Class 1, 2A or 2B risk category, predicts individual metastatic risk to inform risk-appropriate management.

The test is designed to provide a better PPV while maintaining similar NPV.

We commercially launched DecisionDx-SCC on August 31, 2020.

Four peer-reviewed publications have demonstrated that DecisionDx-SCC is an independent predictor of metastatic risk and that integrating DecisionDx-SCC with current prognostic methods can add positive predictive value to clinician decisions regarding staging and management.

In 2020, development and validation data was published in the Journal of the American Academy of Dermatology in an article titled “Validation of a 40-Gene Expression Profile Test to Predict Metastatic Risk in Localized High-Risk Cutaneous Squamous Cell Carcinoma.” The study findings indicate that DecisionDx-SCC demonstrated strong independent prognostic value in multivariate analysis compared to the BWH and AJCC v8 staging systems.

We have ongoing multi-center studies involving more than 75 U.S.

DecisionDx DiffDx-Melanoma

Of the two million suspicious pigmented lesions biopsied annually in the U.S., we estimate that approximately 300,000 of those cannot confidently be classified as either benign or malignant through traditional histopathology methods.

A biopsy of a pigmented lesion may lead to an indeterminate diagnosis, in which case the treating physician generally leans towards making a conservative decision and assumes that the lesion is melanoma.

To address this clinical need, we developed DecisionDx DiffDx-Melanoma, a proprietary GEP test designed to be used as an adjunct to histopathology when the distinction between a benign lesion and melanoma is uncertain.

We commercially launched this product on November 2, 2020.

DiffDx-Melanoma classifies these lesions as benign (gene expression profile suggestive of benign neoplasm);

intermediate-risk (gene express profile cannot exclude malignancy);

or malignant (gene expression profile suggestive of melanoma).

Interpreted in the context of other clinical, laboratory and histopathologic information, DiffDx-Melanoma is designed to add diagnostic clarity and confidence for dermatopathologists while helping dermatologists deliver more informed patient management plans.

Validation of this test included a variety of benign and malignant lesions.

In 2020, two studies were published in SKIN:

The Journal of Cutaneous Medicine.

The development and validation study, “Development and Validation of a Diagnostic 35-Gene Expression Profile Test for Ambiguous or Difficult-To-Diagnose Suspicious Pigmented Skin Lesions,” showed that the DiffDx-Melanoma test had a technical success rate of 97%, meaning that a test result was successfully generated, and achieved accuracy metrics that could alleviate uncertainty in difficult-to-diagnose lesions leading to decreased unnecessary procedures while appropriately identifying at-risk patients.

The clinical utility study, “A 35-Gene Expression Profile Test for Use in Suspicious Pigmented Lesions Impacts Clinical Management Decisions of Dermatopathologists and Dermatologists,” concluded that the diagnosis of challenging melanocytic neoplasms and subsequent clinical management decisions were influenced by DiffDx-Melanoma results in alignment with the test result.

The utility of the test may provide the opportunity for clinicians to deliver more informed patient management plans.

DecisionDx-UM

7 unchanged sentences

DecisionDx-UM identifies which patients are at low risk for progression of their disease so that their physicians can appropriately de-escalate the level of care provided.

In 2019, DecisionDx-UM was delivered to more than 1,500 patients, representing approximately 92% of the patients diagnosed in the United States annually.

DecisionDx-UM is delivered to approximately 1,500 patients annually, representing approximately 92% of the patients diagnosed in the United States.

Sixteen peer-reviewed publications supporting the clinical validity and utility of DecisionDx-UM have been conducted.

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DecisionDx-UM has been used to guide treatment plan decisions regarding the intensity of a patient’s surveillance and management plan as well as clinical trial enrollment.

Summary of Our DecisionDx-UM Studies

The table below summarizes the DecisionDx-UM clinical studies that have been published to date:

Peer-Reviewed Publications

Main Findings

Clinical Validity

Collaborative Ocular Oncology Group report number 1:

prospective validation of a multi-gene prognostic assay in uveal melanoma

Ophthalmology, August 2012 (Multicenter, prospective, n=446)

DecisionDx-UM Class 1 was the only significant predictor of MFS (p<0.0001) in multivariate analysis, compared to patient age, ciliary body involvement, tumor thickness, tumor diameter, cell type, and chromosome 3 status.

NPV for Class 1 for MFS was 99%

MFS rates as 50-months were 97% for Class 1 and 20% for Class 2 patients (p<0.0001).

Do largest basal tumor diameter and the American Joint Committee on Cancer’s cancer staging influence prognostication by gene expression profiling in choroidal melanoma

American Journal of Ophthalmology, November 2018

(Two-centers, retrospective, consecutively tested patients;

NPV for Class 1A for MFS was 99%.

Three-year MFS rates were 99% for Class 1A, 90% for Class 1B, and 60% for Class 2 patients.

DecisionDx-UM was a significant predictor of metastasis in multivariate analysis (p=0.001) with increasing largest basal diameter.

Clinical performance and management outcomes with DecisionDx-UM in a prospective multi-center study

Journal of Oncology, June 2016

(Multicenter, prospective;

NPV for Class 1 for MFS was 95%

Three-year MFS rates were 100% for Class 1 and 63% for Class 2 patients (p=0.003).

DecisionDx-UM was the most significant predictor of metastasis in multivariate analysis (p=0.016) compared to age, largest basal diameter, ciliary body involvement, and tumor thickness.

Uveal melanoma:

molecular pattern, clinical features, and radiation response

American Journal of Ophthalmology, August 2012

(Single-center, retrospective;

5-year disease specific survival, or DFS, rates were 93% for Class 1 patients and 38% for Class 2 patients (p<0.0001).

DecisionDx-UM Class 1 was the only significant predictor of DFS (p<0.0001) in multivariate analysis compared with cell type, age of patient at radiation, and pretreatment ultrasound measurement.

DecisionDx-UM Class 1 was the only significant predictor disease-specific mortality (p<0.0001) in multivariate analysis with cell type, age of patient at radiation, and pretreatment ultrasound measurement.

An accurate, clinically feasible multi-gene expression assay for predicting metastasis in uveal melanoma

Journal of Molecular Diagnostics, July 2010

(Single-center, prospective (outcomes);

MFS rates were significantly different between Class 1 and Class 2 patients (p<0.0001).

Peer-Reviewed Publications

Main Findings

Uveal melanoma:

from lesion size and cell type to molecular class

Canadian Journal of Ophthalmology, June 2012

(Independent, meta-analysis)

DecisionDx-UM had the strongest predictive value for UM metastasis and mortality.

Gene expression profiling and PRAME status versus tumor-node-metastasis staging for prognostication in uveal melanoma

American Journal of Ophthalmology, November 2018

(Single-center, retrospective consecutively tested patients;

DecisionDx-UM was the most significant predictor of metastasis in multivariate analysis (p<0.0001) with PRAME status, TNM stage, and gender.

DecisionDx-UM was the most significant predictor of metastasis in multivariate analysis (p<0.0001) with PRAME status, largest basal diameter, tumor thickness, ciliary body involvement, and gender.

Prognostic implications of tumor diameter in association with gene expression profile for uveal melanoma

JAMA Ophthalmology, July 2016

(Independent, retrospective, two centers, n=580 patients)

NPV for Class 1 of MSS was 96%.

DecisionDx-UM was the most significant predictor of metastasis (p<0.001) in multivariate analysis compared to age, sex, tumor thickness, largest basal diameter, ciliary body involvement, and cell type.

Driver mutations in uveal melanoma:

Associations with gene expression profile and patient outcomes

JAMA Ophthalmology, July 2016

(Independent, retrospective, single center, n=81 patients)

DecisionDx-UM was the most significant predictor of metastasis (p<0.001) in multivariate analysis compared to age, sex, ciliary body involvement, cell type, extraocular extension, largest basal diameter, tumor thickness, and mutational status.

DecisionDx-UM was the most significant predictor of melanoma-specific death (p<0.001) compared to age, sex, ciliary body involvement, cell type, extraocular extension, largest basal diameter, tumor thickness, and mutational status.

Independent prognostic significance of gene expression profile class and largest basal diameter of posterior uveal melanomas

American Journal of Ophthalmology, February 2016

(Single-center, prospective;

DecisionDx-UM was the most significant prognostic factor for UM mortality (p=0.0019) in multivariate analysis.

NPV for Class 1 for DFS was 95%.

Five-year disease-specific survival rates were 92% for Class 1 patients and 55% for Class 2 patients (p=0.005).

Sufficiency of FNAB aspirates of posterior uveal melanoma for cytologic versus GEP classification in 159 patients, and relative prognostic significance of these classifications

Graefes Archives in Clinical Experimental Ophthalmology, January 2014

(Prospective;

NPV for Class 1 for DFS was 95%.

Five-year disease-specific survival rates were 92% for Class 1 patients and 55% for Class patients (p=0.005).

Clinical Utility

Clinical performance and management outcomes with the DecisionDx-UM GEP test in a prospective multi-center study

Journal of Oncology, June 2016

(Multi-center, prospective;

81% of Class 1 patients were prescribed low-intensity surveillance schedules (annual metastatic screening) compared to 0% of Class 2 patients.

100% of Class 2 patients were prescribed high intensity surveillance schedules (quarterly-biannual metastatic screening) compared to 19% of Class 1 patients (p<0.001).

Current clinical practice:

differential Management of Uveal Melanoma in the Era of Molecular Tumor Analyses

Clinical Ophthalmology, December 2014

(Multi-center, chart review, pre-test post-test methodology;

100% of Medicare-eligible Class 1 patients had low-intensity surveillance schedules.

100% of Medicare-eligible Class 2 patients had high-intensity surveillance schedules (p<0.0001).

Risk-stratified systemic surveillance in uveal melanoma

British Journal of Opthalmology, January 2019

(Single-center, chart review;

n= 107 consecutively diagnosed patients;

68 with GEP testing)

100% of metastases occurred in the Class 2 group.

The only significant predictor of intensity of the surveillance protocol was high risk Class 2 (p<0.01 for all analyses).

Peer-Reviewed Publications

Main Findings

Analytical Validity

Gene Expression Profiling in Uveal Melanoma:

Technical Reliability and Correlation and Correlation of Molecular Class with Pathologic Characteristics.

Diagnostic Pathology

Diagnostic Pathology, August 2017

(Technical reliability studies and technical success in clinical testing (n=5,516))

Intra-assay, inter-assay (short-term and long-term), and inter-laboratory concordance experiments demonstrated 100% Class concordance and a high degree of correlation between discriminant scores.

Inter-instrument/operator concordance was 96% between Class 1 and 2.

96.3% technical success was achieved on fine-needle aspiration biopsy (FNAB) and formalin-fixed paraffin-embedded (FFPE) specimens in clinical testing.

An Accurate, Clinically Feasible Multi-Gene Expression Assay for Predicting Metastasis in Uveal Melanoma

Journal of Molecular Diagnostics, July 2010

(Technical reliability studies)

Technical success was 95% in 609 samples.

DecisionDx-UM was successful in 50/51 FNABs that had insufficient quantity for cytology.

100% Class concordance in tissue from FNABs and matched fresh-frozen tumor slices.

31/32 (97%) Class concordance in multiple tumor sections from 7 tumors.

The current NCCN Guidelines for Uveal Melanoma (last updated June 2019) incorporate DecisionDx-UM as the first risk of distant metastasis predictor to guide systemic imaging.

Additional Ancillary Products

We also offer two next generation sequencing panels to complement our proprietary cutaneous and uveal melanoma products.

When the U.S.

Food and Drug Administration, or FDA, approved adjuvant BRAF/MEK inhibitor therapy for patients diagnosed with Stage III cutaneous melanoma, either at the time of diagnosis or subsequent progression, physicians ordering our tests requested tests to provide information on these specific genes.

In order to provide a more complete product offering to physicians, we offer a 3-gene test to confirm BRAF, NRAS and KIT status to inform drug therapy decisions.

This 3-gene panel can be ordered at the same time as, or after, DecisionDx-Melanoma.

For uveal melanoma, we offer a 7-gene panel that can also be ordered at the same time or subsequent to DecisionDx-UM.

We also offer a proprietary GEP test for PRAME status of patients diagnosed with uveal melanoma, DecisionDx-PRAME.

The current NCCN Guidelines for Uveal Melanoma (last updated January 2021) incorporate DecisionDx-UM as the first risk of distant metastasis predictor to guide systemic imaging.

Development Engine and Pipeline

We identify areas of significant unmet medical needs in the treatment of skin cancer and leverage our expertise in cancer genomics and data analytics to develop clinically actionable products.

We identify areas of significant unmet medical needs in the treatment of dermatologic diseases and leverage our expertise in genomics, data analytics and artificial intelligence to develop clinically actionable products.

We focus first on previously unanswered medical questions, which we often identify as the result of the in-depth conversations our sales and medical affairs representatives have with physicians.

We leverage our deep understanding of skin cancer clinical treatment pathways to identify areas of unmet medical need where better information can improve, and potentially transform, patient outcomes.

Next, our team of scientists and laboratory technologists use the latest genomic methods to discover gene expression profiles, RNA, which are likely to impact treatment pathway decisions.

We leverage our deep understanding of dermatologic diseases and clinical treatment pathways to identify areas of unmet medical need where better information can improve, and potentially transform, patient outcomes.

Next, our team of scientists and laboratory technologists use the latest genomic methods to discover RNA-based gene expression profiles that are likely to impact treatment pathway decisions.

Our bioinformatics team works collaboratively with our scientists to build proprietary algorithms based on machine-learning techniques to predict the risk of metastasis or recurrence based on the genomics of each individual patient’s tumor biology.

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We publish our data regularly to drive adoption, reimbursement and guideline inclusion.

We have gained expertise in developing proprietary algorithms, conducting clinical studies and using the necessary instrumentation required for efficiently developing our pipeline products.

We have used these development principles to explore multiple potential solutions and have identified two principal areas to expand our pipeline:

tests for patients with SCC and patients with suspicious pigmented lesions.

DecisionDx-SCC

The current treatment pathway for patients identified as having high-risk SCC suffers from a low PPV for risk of metastasis or recurrence.

As a result, many patients categorized as high risk received adjuvant therapy and other unnecessary medical and surgical interventions even though they would not have gone on to metastasize.

Conversely, there are also many patients categorized as high risk who are placed in “watchful waiting” who could benefit from adjuvant therapy.

To address this clinical need in SCC, we are developing DecisionDx-SCC, a proprietary GEP test designed to be used in patients with one or more high risk features and provide a better PPV while maintaining similar NPV.

We believe this product candidate will enable more informed clinical decisions regarding adjuvant intervention and other management decisions.

We have ongoing multi-center studies involving more than 75 U.S.

Our development analysis has identified a proprietary gene expression profile algorithm that exhibits significant differential expression between non-recurrent and recurrent cases.

Data from our initial validation study was presented at the American Society of Dermatologic Surgery in October 2019.

We have ongoing studies and based upon our current progress we intend to commercially launch DecisionDx-SCC in the second half of 2020.

DecisionDx for Suspicious Pigmented Lesions

To address this clinical need, we are developing a proprietary GEP test designed to be used as an adjunct to histopathology when the distinction between a benign lesion and melanoma is uncertain.

Our analysis has identified several gene expression profile algorithms that we believe may be used to confirm whether a specimen is melanoma or benign lesion.

Based on the timing and results of our ongoing clinical studies, we intend to commercially launch this product in the second half of 2020.

We have significant expertise in developing proprietary algorithms, conducting clinical studies and using the necessary instrumentation required for efficiently developing our pipeline products.

We have initiated work on a number of pipeline tests which branch out upstream, downstream and parallel to our currently marketed tests.

Although we are still in the early stages of development, we believe we could launch three to five new tests by the end of 2025, utilizing our existing sales channels,

potentially adding approximately $3.6 billion to our current U.S.

We expect to provide additional details on these pipeline products before the end of 2021.

Our Commercial Channel

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Our sales approach is highly technical, and our team is trained to articulate the scientific and clinical evidence behind our products and how they influence the clinical care pathway and ultimately improve patient outcomes.

Our sales force is focused on educating and informing the entire patient care team, which consists of treating clinicians, nurses, laboratory and pathology personnel, and finance administrators, on the appropriate use and value of our test.

In December 2018, our customer-facing commercial and medical affairs group was staffed in the low 20s.

We successfully executed two expansions (in the first quarter of 2019 and in December 2019) and now total in the low 50s.

We successfully executed two expansions (in the first quarter of 2019 and in December 2019) bringing the total to the low 50s.

Our customer-facing team is focused on leading high clinical impact discussions with the treating clinician’s areas of interest, including clinical utility, patient outcomes, and supporting evidence.

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We increased our outside sales territories from 14 to 23 in the first quarter of 2019 and also added supporting inside sales associates, medical affairs and marketing staff.

We believed that this increase in customer-facing personnel would increase the adoption of our products as we would be able educate more physicians on the clinical benefits of our products.

We did see the promotion responsiveness that we anticipated and conducted a second expansion in December 2019 such that our outside sales territories now total 32.

Based upon current knowledge, we believe that an optimally efficient dermatology salesforce to support our DecisionDx-Melanoma test ranges between 35 and 45 individuals.

However, we will also continue to evaluate our mix of outside sales territories, inside sales support, marketing and medical affairs in the context of our DecisionDx-Melanoma test and our near-term pipeline product and adjust our investments based upon these evaluations.

We believed that this increase in customer-facing personnel would increase the adoption of our products as we would be able to educate more physicians on the clinical benefits of our products.

We did see the promotion responsiveness that we anticipated and conducted a second expansion in December 2019 that brought our outside sales territories to 32.

In the third quarter of 2020, we expanded our commercial team to create a dedicated sales force of ten territories to support the launch of our DecisionDx DiffDx-Melanoma test to dermatopathologists, while our existing sales team remains focused on DecisionDx-Melanoma and DecisionDx-SCC.

We ultimately believe that our DecisionDx DiffDx-Melanoma test will be ordered by both dermatopathologists and dermatologists.

Thus, it is our intention, to fold this new dedicated team into the existing sales team as well as further expand in the first half of 2021 bringing us to approximately 60 outside sales territories.

However, we will also continue to evaluate our mix of outside sales territories, inside sales support, marketing and medical affairs in the context of our dermatologic tests and adjust our investments based upon these evaluations.

DecisionDx-UM addresses a small cancer market, and patients are managed by a small group of ocular oncology surgeons, generally ophthalmology or retina trained specialists.

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Our medical affairs strategy complements our sales and marketing and clinical research operations efforts.

Our Laboratory Report

We design our test reports with input from physicians to provide an easy to read risk classification and present specific actionable information to enable improved treatment decisions between patients and their physicians.

We update our test reports as new data become available that may impact physicians’ treatment decisions based on the use of our tests.

For example, the most recent update to our DecisionDx-Melanoma report incorporates data from our prospective multicenter 1,421 patient study showing how our tests can predict the likelihood of a patient experiencing an SLN-positive result from the SLNB surgery.

The image below is an example of a current clinical report for DecisionDx-Melanoma:

Reimbursement

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LCDs are made through an evidence-based process by Medicare Administrative Contractors, or MACs, with opportunities for public participation.

Palmetto GBA, or Palmetto, issued a final LCD for DecisionDx-Melanoma, which became effective on December 3, 2018.

Noridian Healthcare Solutions, LLC, or Noridian, adopted the same coverage policy as Palmetto on that date, and subsequently issued a final LCD on February 10, 2019.

This LCD provides for coverage for patients who are eligible for the SLNB surgery with cutaneous melanoma tumors of 2.0 mm in thickness or less, and patients with clinically negative SLN basins who are being considered for the SLNB surgery to determine eligibility for adjuvant therapy.

Palmetto GBA MolDX, or Palmetto, the MAC responsible for administering MolDX, the program that assesses molecular diagnostic technologies, issued a final LCD for DecisionDx-Melanoma, which became effective on December 3, 2018.

Noridian Healthcare Solutions, LLC, or Noridian, the MAC responsible for administering claims for laboratory services performed in Arizona, adopted the same coverage policy as Palmetto on that date, and subsequently issued a final LCD on February 10, 2019.

This LCD provided for coverage for patients who are eligible for the SLNB surgery with cutaneous melanoma tumors of 2.0 mm in thickness or less, and patients with clinically negative SLN basins who are being considered for the SLNB surgery to determine eligibility for adjuvant therapy.

Melanomas less than or equal to 2.0 mm thick represent 86% of all melanomas.

The median age at diagnosis is 63 years old, therefore the Medicare eligible population represents close to 50% of the addressable market.

On August 22, 2019, Palmetto GBA, a Medicare Administrative Contractor, posted a draft LCD that, if finalized, would result in expanded Medicare coverage for our DecisionDx-Melanoma test.

We expect that Palmetto GBA will finalize and implement the draft LCD after a public comment period that opened on October 7, 2019 and closed on November 21, 2019.

Based upon our analysis from the close of the public comment period to issuance of the final LCD for other MolDX LCDs, we estimate that this expanded LCD may be final in the second half of 2020.

However, there is no assurance that the timing of our LCD will match the recent experience of other MolDX LCDs.

Palmetto issued a final expanded LCD for DecisionDx-Melanoma, effective November 22, 2020.

With this expanded LCD and the accompanying billing and coding articles, we estimate that a significant majority of the DecisionDx-Melanoma tests performed for Medicare patients will meet the coverage criteria.

Noridian has adopted the same coverage policy as Palmetto and also issued an expanded final LCD for DecisionDx-Melanoma effective December 6, 2020.

Separately, Palmetto issued a final LCD for DecisionDx-UM, which became effective in July 2017, and Noridian issued a similar LCD that became effective in September 2017.

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Similar to cutaneous melanoma the median age at diagnosis for uveal melanoma is estimated at 58-62 years old, therefore the Medicare eligible population represents close to 45% of the addressable market.

On May 17, 2019, the Centers for Medicare & Medicaid Services, or CMS, determined that DecisionDx-UM meets the criteria for “existing advanced diagnostic laboratory test” status, also referred to as “existing ADLT” status.

This means that beginning in 2021, the DecisionDx-UM Medicare rate will be set annually based upon the median private payor rate for the first half of the second preceding calendar year.

Specifically, the median private payor rate from January 1 to June 30, 2019 will be used to set the Medicare rate for the calendar year 2021.

We successfully submitted this data in January 2020.

Note that our rate for 2020 will be set by Noridian, our local MAC.

On May 17, 2019, CMS determined that DecisionDx-UM meets the criteria for “existing advanced diagnostic laboratory test” status, also referred to as “existing ADLT” status.

Accordingly, in 2021 the DecisionDx-UM Medicare rate will be set annually based upon the median private payor rate for the first half of the second preceding calendar year.

Note that our rate for 2020 was set by Noridian, our local MAC, but our rate for 2021 for DecisionDx-UM will be $7,776 based on the median private payor rate.

Also, on May 17, 2019, CMS determined that DecisionDx-Melanoma meets the criteria for “new ADLT” status.

This means that from July 1, 2019 through March 31, 2020 the Medicare reimbursement rate will equal the initial list price of $7,193.00, subject to the possible recoupment provision described below.

The rate for April 1, 2020 through December 31, 2021 will be calculated based upon the median private payor rate from July 1, 2019 to November 30, 2019.

We successfully submitted this data in December 2019.

Note that for DecisionDx-Melanoma tests reported for July 1, 2019 through March 31, 2020, CMS has the right to recoup the difference between the actual list and 130% of the weighted median if the original list price was greater than 130% of the weighted median of private payor rates.

However, based on the data we collected and submitted to CMS during the data collection period ended November 30, 2019, the original list price amount was not greater than 130% of the weighted median of private payor rates.

Therefore, we expect no recoupment to apply under this provision.

Beginning in 2022, the rate will be set annually based upon the median private payor rate for the first half of the second preceding calendar year.

Accordingly, from July 1, 2019 through March 31, 2020, the Medicare reimbursement rate was equal to the initial list price of $7,193.

From April 1, 2020 through December 31, 2021, CMS notified us that the rate will also be $7,193, which was calculated based upon the median private payor rate for DecisionDx-Melanoma from July 1, 2019 to November 30, 2019.

B eginning in 2022, the rate for both DecisionDx-Melanoma and DecisionDx-UM will be set annually based upon the median private payor rate for the first half of the second preceding calendar year.

For example, the rate for 2022 will be set using median private payor rate data from January 1, 2020 to June 30, 2020.

In the second quarter of 2020, we submitted our technical assessment dossier for DecisionDx-SCC to Palmetto and Noridian.

In early 2021, we submitted our technical assessment dossier for DecisionDx DiffDx-Melanoma.

We expect that draft LCDs for each of these tests will be posted in 2021.

However, there is no assurance that the timing of any draft LCD or final LCD will match our expectations or our historical experience with LCDs for our other tests.

Commercial Third-Party Payors

We are actively engaged in efforts to achieve broad coverage and reimbursement for our current and future products, followed by contracting with commercial payors.

We are actively engaged in efforts to achieve broad coverage and reimbursement for our products, followed by contracting with commercial payors.

Achieving positive coverage reduces the need for appeals and reduces failures to collect from the patient’s commercial payor.

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Implementing our strategy includes our managed care and medical affairs teams educating third-party payors regarding our strong clinical utility and outcomes data, which we believe validates the value of our products and will persuade more third-party payors to provide value-based reimbursement.

We have broad positive policy coverage for our DecisionDx-UM test, we have executed contracts with certain commercial payors and anticipate increases in contracting in 2020 and 2021.

We have broad positive policy coverage for our DecisionDx-UM test, we have executed contracts with certain commercial payors and anticipate further increases in contracting.

We also have positive policy recommendations from many third-party technical assessment review groups.

We began, following the Medicare LCD, engaging commercial third-party payors for positive coverage and saw some positive coverage policies in the second half of 2019.

With the continued evidence development, we anticipate additional positive coverage policies occurring in 2020 and beyond.

We began, following the Medicare LCD, engaging commercial third-party payors for positive coverage for DecisionDx-Melanoma and have seen some positive coverage policies.

With the continued evidence development, we anticipate additional positive coverage policies occurring.

Dependence on Third-Party Payors

We receive a substantial portion of our revenue from a small number of third-party payors, primarily Medicare, BlueCross BlueShield affiliates and Medicare Advantage plans.

Our revenue from patients covered by Medicare, Medicare Advantage plans, United Healthcare and BlueCross BlueShield plans, as a percentage of total revenue, was 49% , 29% , 6% and 6% , respectively, for the year ended December 31, 2019.

Our revenue from patients covered by Medicare, Medicare Advantage plans, and BlueCross BlueShield plans, as a percentage of total revenue, was 58%, 29% and 6%, respectively, for the year ended December 31, 2020.

BlueCross BlueShield plans and Medicare Advantage plans represent an aggregation of multiple payors making independent reimbursement decisions;

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We believe the principal competitive factors in our target markets include:

Proprietary, disciplined approach to genomic analysis including the use of proprietary deep learning, machine learning and other techniques to identify and optimize gene selection and algorithmic approaches to answer the clinically important questions with accuracy tests.

• Proprietary, disciplined approach to genomic analysis including the use of proprietary deep learning, machine learning, artificial intelligence and other techniques to identify and optimize gene selection and algorithmic approaches to answer the clinically important questions with accurate tests.

This involves the ability to design and efficiently conduct the right clinical studies at the right time;

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While some clinical and pathology criteria have changed over time, this approach has been the standard of care in the United States for many years, and physicians may be unwilling to accept the validity of the published data and adopt our test until it has become incorporated into national guidelines.

In December 2019, we did see positive improvements in the NCCN guidelines as it related to our DecisionDx-Melanoma test.

However, it is too early to understand the impact on physician adoption and commercial payer coverage.

In addition, we may, in the near future, face competition from a limited number of companies who are working in this disease space, such as Neracare and SkylineDx.

We are unaware of late-stage work being performed to develop and validate a product that would compete with DecisionDx-SCC.

We believe that the current primary competitor for DecisionDx-SCC is existing traditional clinical and pathology staging criteria.

We are aware of competitors that likely compete with our DecisionDx DiffDx-Melanoma, such as Myriad Genetics.

We expect our product to compete favorably with these competitors.

DecisionDx-UM competes with a subsidiary of LabCorp and several academic laboratories all of which have had tests available for several years.

To date, our data has demonstrated that DecisionDx-UM is clinically and statistically superior to these products.

We are unaware of late-stage work being performed to develop and validate a product that would compete with our pipeline product for SCC.

We believe that the primary competitor for our SCC product, if we are successful in validating a clinically useful product, will initially be existing traditional clinical and pathology staging criteria.

We are aware of competitors that would likely compete with our pipeline product for suspicious pigmented lesions such as Myriad Genetics.

If we are successful in validating a clinically useful product, then we expect to compete favorably with them.

Laboratory Operations

The Laboratory Developed Tests, or LDTs, that we commercialize are conducted in our CAP accredited, CLIA-certified facility in Phoenix, Arizona which we moved into in April 2016.

We are, in the first half of 2020, doubling our footprint to 23,400 square feet.

We perform all laboratory procedures involved in our tests from receiving a requisition form to issuance of the final test result in this facility.

The Laboratory Developed Tests, or LDTs, that we commercialize are conducted in our CAP accredited, CLIA-certified primary facility in Phoenix, Arizona, which we moved into in April 2016.

In 2020, we doubled our footprint to approximately 23,500 square feet by adding a new laboratory facility in close proximity to our primary facility to support our growth and provide certain operational redundancy.

In 2021, we further expanded this facility to include approximately 3,600 additional square feet.

We perform all laboratory procedures involved in our tests from receiving a requisition form to issuance of the final test result in these facilities.

Our prior capacity plan analysis indicated that we could process up to 60,000 proprietary GEP test orders annually, with a single shift.

We performed more than 18,000 proprietary GEP tests in 2020.

We are able to provide our proprietary DecisionDx-Melanoma and DecisionDx-UM products for patients in all fifty states including those that require specific, additional, out-of-state lab licenses or qualifications such as New York, California, Pennsylvania, Maryland, and Rhode Island.

We are able to provide our proprietary DecisionDx-Melanoma, DecisionDx-SCC, DecisionDx DiffDx-Melanoma and DecisionDx-UM products for patients in all fifty states including those that require specific, additional, out-of-state lab licenses or qualifications such as New York, California, Pennsylvania, Maryland, and Rhode Island.

Upon receipt, orders and samples are processed through an automated laboratory information management system which, in addition to tracking sample chain of custody, initiates and tracks accessioning, sample eligibility, technical data generation, algorithmic analysis and results reporting.

The majority of samples are received as paraffin embedded sections from a formalin fixed tissue specimen.

The laboratory facility houses all functions related to quality control and assurance, licensing, accreditation and regulatory compliance.

Our laboratory facilities house all functions related to quality control and assurance, licensing, accreditation and regulatory compliance.

Our quality management program ensures the quality of our laboratory services and products through continuous monitoring of a broad range of key performance indicators including technical, customer service and cybersecurity metrics.

Through this program, we promote a philosophy of continuous improvement based upon adherence to validated standards.

Our Phoenix facility also house our clinical research operations and local information technology support.

Our Phoenix facilities also house our clinical research operations and local information technology support.

Raw Materials and Suppliers

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Patents and Patent Applications

We have developed a global patent portfolio that as of the date of this Annual Report on Form 10-K, is comprised of 16 issued patents, including five issued U.S.

patents, and nine pending patent applications, including three U.S.

applications.

Our patent portfolio consists of three owned patent families and an exclusively in-licensed portfolio from WUSTL, which includes six pending and issued patents or patent applications across two families.

This global patent portfolio has filing dates ranging from 2009 to 2018, and therefore are projected to expire between 2029 and 2038, subject to any patent term extension or patent term adjustment that might be available in a particular jurisdiction.

The owned and licensed families contain issued patents and pending applications that relate to devices, systems, and methods for macromolecular analysis, and reflect our active and ongoing research programs.

The commercial foci of these patent families are discussed below.

Commercial Focus

Number of Issued Patents

and Pending Patent

We have developed a global patent portfolio that as of December 31, 2020, is comprised as follows:

Number of Applications and Patents

Commercial Focus United States International Total

Owned Patent Families

Methods for predicting risk of metastasis in cutaneous melanoma 2 16 18

Compositions and methods for detecting cancer metastasis

Methods of diagnosing and treating patients with pigmented skin lesions 2 — 2

Methods of diagnosing and treating patients with cutaneous squamous cell carcinoma 2 7 9

Method for predicting risk of metastasis

Method of predicting risk for recurrence for soft tissue sarcoma 1 — 1

Licensed Portfolio from WUSTL

Method for predicting risk of metastasis 2 — 2

Compositions and methods for detecting cancer metastasis 2 2 4

Total 11 25 36

Included in the table above are five issued U.S.

patents and 13 issued international patents.

This global patent portfolio has filing dates ranging from 2009 to 2020, and therefore are projected to expire between 2029 and 2040, subject to any patent term extension or patent term adjustment that might be available in a particular jurisdiction.

Individual patents extend for varying periods depending on the date of filing of the patent application or the date of patent issuance and the legal term of patents in the countries in which they are obtained.

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As of the date of this Annual Report on Form 10-K, our U.S.

trademark portfolio contained seven trademark registrations.

trademark portfolio contained eight trademark registrations.

We rely upon trade secrets, know-how, continuing technological innovation and potential in-licensing opportunities to develop and maintain our competitive position.

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Government Regulation and Product Approval

Clinical Laboratory Improvement Amendments of 1988

Clinical Laboratory Improvement Amendments of 1988 (CLIA)

As a clinical reference laboratory, we are required to hold certain federal, state and local licenses, certifications and permits to conduct our business.

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New York law also mandates proficiency testing for laboratories licensed under New York state law, regardless of whether such laboratories are located in New York.

If a laboratory is out of compliance with New York statutory or regulatory standards, the New York Department of Health, or NYSDOH, may suspend, limit, revoke or annul the laboratory’s New York license, censure the holder of the license, or assess civil money penalties.

We have received written approval from NYSDOH to offer our proprietary DecisionDx-Melanoma DecisionDx-UM and DecisionDx-PRAME products in New York.

If a laboratory is out of compliance with New York statutory or regulatory standards, the New York State Department of Health, or NYSDOH, may suspend, limit, revoke or annul the laboratory’s New York license, censure the holder of the license, or assess civil money penalties.

We have received formal approval from NYSDOH to offer our proprietary DecisionDx-Melanoma, DecisionDx-UM and DecisionDx-PRAME products in New York.

Additionally, we have been granted conditional permission by NYSDOH to offer our DecisionDx-SCC and DecisionDx DiffDx-Melanoma tests in New York while our applications are under review.

If we were to be found out of compliance with New York laboratory requirements, we could be subject to such sanctions, which could harm our business.

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The Reporting Guidance would further enable FDA to collect information regarding the LDTs currently being offered for clinical use through a notification process, as well as to enforce its regulations for reporting safety issues and collecting information on any known or suspected adverse events related to the use of an LDT.

legislative solution, the FDA could ultimately modify its current approach to LDTs in a way that would subject our products marketed as LDTs to the enforcement of regulatory requirements.

Although the FDA halted finalization of the guidance in November 2016 to allow for further public discussion on an appropriate oversight approach to LDTs and to give congressional authorizing committees the opportunity to develop a legislative solution, the FDA could ultimately modify its current approach to LDTs in a way that would subject our products marketed as LDTs to the enforcement of regulatory requirements.

Medical Device Regulatory Framework

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If the device presents a “significant risk” to human health, as defined by the FDA, the sponsor must submit an IDE application to the FDA and obtain IDE approval prior to commencing the human clinical trials.

The IDE application must be supported by appropriate data, such as animal and laboratory testing results, showing that it is safe to test the device in humans and that the testing protocol is scientifically sound.

application must be supported by appropriate data, such as animal and laboratory testing results, showing that it is safe to test the device in humans and that the testing protocol is scientifically sound.

Generally, clinical trials for a significant risk device may begin once the IDE application is approved by the FDA and the study protocol and informed consent are approved by appropriate IRBs at the clinical trial sites.

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Required records and reports are subject to inspection by the FDA.

The results of clinical testing may be unfavorable, or, even if the intended safety and efficacy success criteria are achieved, may not

be considered sufficient for the FDA to grant marketing approval or clearance of a product.

The results of clinical testing may be unfavorable, or, even if the intended safety and efficacy success criteria are achieved, may not be considered sufficient for the FDA to grant marketing approval or clearance of a product.

The commencement or completion of any clinical trial may be delayed or halted, or be inadequate to support approval of a PMA application, for numerous reasons.

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The FDA has 180 days to review a filed PMA application, although the review of an application more often occurs over a significantly longer period of time.

During this review period, the FDA may request additional information or clarification of information already provided, and the FDA may issue a major deficiency letter to the applicant, requesting the applicant’s response to deficiencies communicated by the FDA.

During this review period, the FDA may

request additional information or clarification of information already provided, and the FDA may issue a major deficiency letter to the applicant, requesting the applicant’s response to deficiencies communicated by the FDA.

Before approving or denying a PMA, an FDA advisory committee may review the PMA at a public meeting and provide the FDA with the committee’s recommendation on whether the FDA should approve the submission, approve it with specific conditions, or not approve it.

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In addition, The U.S.

Department of Health and

Human Services, or HHS, has the authority to impose civil assessments and fines and to exclude health care providers and others engaged in prohibited activities from Medicare, Medicaid and other federal health care programs.

Department of Health and Human Services, or HHS, has the authority to impose civil assessments and fines and to exclude health care providers and others engaged in prohibited activities from Medicare, Medicaid and other federal health care programs.

In addition, the government may assert that a claim that includes items or services resulting from a violation of the AKS constitutes a false or fraudulent claim under the FCA, which is discussed in greater detail below.

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A person who offers or provides to a Medicare or Medicaid beneficiary any remuneration, including waivers of co-payments and deductible amounts (or any part thereof), that the person knows or should know is likely to influence the beneficiary’s selection of a particular provider, practitioner or supplier of Medicare or Medicaid payable items or services may be liable under the civil monetary penalties statute.

Moreover, in certain cases, providers who routinely waive copayments and deductibles for Medicare and Medicaid beneficiaries, for example, in connection with patient assistance programs, can also be held liable under the AKS and False Claims Act.

Moreover, in certain cases, providers who routinely waive copayments and deductibles for Medicare and Medicaid beneficiaries, for

example, in connection with patient assistance programs, can also be held liable under the AKS and FCA.

One of the statutory exceptions to the prohibition is non-routine, unadvertised waivers of copayments or deductible amounts based on individualized determinations of financial need or exhaustion of reasonable collection efforts.

The Office of Inspector General of HHS, or OIG, emphasizes, however, that this exception should only be used occasionally to address special financial needs of a particular patient.

The Office of Inspector General of HHS, or the OIG, emphasizes, however, that this exception should only be used occasionally to address special financial needs of a particular patient.

Although this prohibition applies only to federal healthcare program beneficiaries, applicable state laws related to, among other things, unlawful schemes to defraud, excessive fees for services, tortious interference with patient contracts and statutory or common law fraud, may also be implicated for similar practices offered to patients covered by commercial payor.

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Like the AKS, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.

The Physician Payments Sunshine Act, enacted as part of the ACA, as amended among other things, also imposed annual reporting requirements on manufacturers of certain devices, drugs and biologics for certain payments and transfers of value by them and in some cases their distributors to physicians and teaching hospitals, and certain other healthcare professionals as of January 1, 2022;

as well as ownership and investment interests held by physicians and their immediate family members.

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Other countries, including the United Kingdom and other OECD Anti-Bribery Convention members, have similar anti-corruption regulations, such as the United Kingdom Anti-Bribery Act.

When marketing our testing products outside of the United States, we may be subject to foreign regulatory requirements governing human clinical testing, prohibitions on the import of tissue necessary for us to perform our testing products or restrictions on the export of tissue imposed by countries outside of the United States or the import of tissue into the United States, and marketing approval.

States, and marketing approval.

These requirements vary by jurisdiction, differ from those in the United States and may in some cases require us to perform additional pre-clinical or clinical testing.

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Three standards have been promulgated under HIPAA’s and HITECH’s regulations:

Protection of Electronic Protected Health Information, which require covered entities and business associates to implement and maintain certain security measures to safeguard certain electronic health information, including the adoption of administrative, physical and technical safeguards to protect such information.

The HIPAA privacy regulations cover the use and disclosure of PHI by covered entities as well as business associates, which are defined to include subcontractors that create, receive, maintain, or transmit PHI on behalf of a business associate.

the Standards for Privacy of Individually Identifiable Health Information, which restrict the use and disclosure of certain individually identifiable health information, the Standards for Electronic Transactions, which establish standards for common healthcare transactions, such as claims information, plan eligibility, payment information and the use of electronic signatures, and the Security Standards for the Protection of Electronic Protected Health Information, which require covered entities and business associates to implement and maintain certain security measures to safeguard certain electronic health information, including the adoption of administrative, physical and technical safeguards to protect such information.

The HIPAA privacy regulations cover the use and disclosure of PHI by covered entities and business associates, which are defined to include subcontractors that create, receive, maintain, or transmit PHI on behalf of a covered entity, as well as their covered subcontractors.

They also set forth certain rights that an individual has with respect to his or her PHI maintained by a covered entity, including the right to access or amend certain records containing PHI, or to request restrictions on the use or disclosure of PHI.

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HIPAA and HITECH impose civil and criminal penalties against covered entities and business associates for noncompliance with privacy and security requirements.

Further, various states, such as California and Massachusetts, have implemented similar privacy laws and regulations that impose restrictive requirements regulating the use and disclosure of health information and other personally identifiable information.

Numerous other federal, state and foreign laws, including consumer protection laws and regulations, govern the collection, dissemination, use, access to, confidentiality and security of patient health information.

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Depending on the billing arrangement and applicable law, we must bill various third-party payors, such as insurance companies, Medicare, Medicaid, and patients, all of which have different billing requirements.

Compliance with applicable laws and regulations as well as internal compliance policies and procedures adds further complexity to the billing process.

Compliance with

applicable laws and regulations as well as internal compliance policies and procedures adds further complexity to the billing process.

CMS establishes new procedures and continuously evaluates and implements changes to the reimbursement process for billing the Medicare program.

To receive reimbursement from third-party payors, we bill our tests using a variety of CPT codes, as defined by the AMA.

For many of the genetic tests we conduct, there may not be an appropriate CPT code for some of the genes in a panel, in which case the test may be billed under a miscellaneous code for an unlisted molecular pathology procedure.

For those genetic tests we conduct that do not have a dedicated CPT code, test may be billed under a miscellaneous code for an unlisted molecular pathology procedure.

Because these miscellaneous codes do not describe a specific service, the third-party payor claim may need to be examined to determine the service that was provided, whether the service was appropriate and medically necessary and whether payment should be rendered.

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We believe all of our products provide significant clinical value and reduction in downstream healthcare spend, as evidenced in research studies and clinical publications, which we believe will continue to support and drive third-party payor reimbursement.

Under Medicare, payment for our laboratory tests are generally made under the Clinical Laboratory Fee Schedule, or CLFS, with payment amounts assigned to specific procedure billing codes.

In April 2014, Congress passed the Protecting Access to Medicare Act (PAMA), which included substantial changes to the way in which clinical laboratory services will be paid under Medicare.

Under PAMA, laboratories that receive the majority of their Medicare revenue from payments made under the CLFS or the Physician Fee Schedule are required to report to CMS, beginning in 2017 and every three years thereafter (or annually for ADLTs), private payor payment rates and volumes for their tests.

Laboratories that fail to report the required payment information may be subject to substantial civil monetary penalties.

As required under PAMA, CMS will use the rates and volumes reported by laboratories to develop Medicare payment rates for laboratory tests equal to the volume-weighted median of the private payor payment rates for the tests.

On June 23, 2016, CMS published the final rule implementing the reporting and rate-setting requirements under PAMA.

As set forth under PAMA, for tests furnished on or after January 1, 2018, Medicare payments for clinical diagnostic laboratory tests will be paid based upon these reported private payor rates.

For clinical diagnostic laboratory tests that are assigned a new or substantially revised CPT code, initial payment rates will be assigned by the gap-fill methodology, as under prior law.

Initial payment rates for new ADLTs will be based on the actual list charge for the laboratory test.

The payment rates calculated under PAMA became effective on January 1, 2018.

Any reductions to payment rates resulting from the new methodology are limited to 10% per test per year in each of the years 2018 through 2020 and to 15% per test per year in each of the years 2021 through 2023.

Under Medicare, payment for products like ours is generally made under the Clinical Laboratory Fee Schedule, or CLFS, with payment amounts assigned to specific procedure billing codes.

In April 2014, Congress passed the Protecting Access to Medicare Act, or PAMA, which included substantial changes to the way in which clinical laboratory services will be paid under Medicare.

Under PAMA, certain laboratories were required to report to CMS private payor payment rates and volumes for their tests.

CMS uses this data to calculate a weighted median payment rate for each test, which will be used to establish revised Medicare CLFS reimbursement rates for the test.

Laboratories that fail to report the required payment information may be subject to substantial civil penalties.

We bill Medicare for our products, and therefore we are subject to reporting requirements under PAMA.

On May 17, 2019, CMS determined that DecisionDx-UM meets the criteria for “existing ADLT” status.

This means that beginning in 2021, the DecisionDx-UM Medicare rate will be set annually based upon the median private payor rate for the first half of the second preceding calendar year.

Specifically, the median private payor rate from January 1 to June 30, 2019 will be used to set the Medicare rate for the calendar year 2021.

We successfully submitted this data in January 2020.

Note that our rate for 2020 will be set by Noridian, our local MAC.

Accordingly, in 2021 the DecisionDx-UM Medicare rate will be set annually based upon the median private payor rate for the first half of the second preceding calendar year.

Note that our rate for 2020 was set by Noridian, our local MAC, but our rate for 2021 for DecisionDx-UM will be $7,776 based on the median private payor rate .