What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-08-04 compared with 2025-05-05 · 194 added, 101 removed, 317 unchanged (48% of the section changed)

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We currently offer five commercially available proprietary multi-analyte assays with algorithmic analysis (“MAAA”) tests for use in the fields of dermatology, gastroenterology and ophthalmology.

We also offer a proprietary a pharmacogenomic (“PGx”) test to guide optimal drug treatment for patients diagnosed with depression, anxiety and other mental health conditions.

Currently, our revenue is primarily generated by our DecisionDx-Melanoma risk stratification test for cutaneous melanoma (“CM”) and our DecisionDx-SCC risk stratification test for cutaneous squamous cell carcinoma (“SCC”), which is supplemented by revenue generated from our TissueCypher risk stratification test for BE and our DecisionDx-UM risk stratification test for UM.

We also offer a proprietary pharmacogenomic (“PGx”) test to guide optimal drug treatment for patients diagnosed with depression, anxiety and other mental health conditions.

Our revenue is primarily generated by our DecisionDx-Melanoma risk stratification test for cutaneous melanoma (“CM”) and our DecisionDx-SCC risk stratification test for cutaneous squamous cell carcinoma (“SCC”), which is supplemented by revenue generated from our TissueCypher risk stratification test for BE and our DecisionDx-UM risk stratification test for UM.

As of April 24, 2025, Novitas reached a decision not to cover SCC, resulting in the discontinuance of Medicare reimbursement for DecisionDx-SCC.

All five of our MAAA tests have been granted Advanced Diagnostic Laboratory Test (“ADLT”) status by the Centers for Medicare and Medicaid (“CMS”) which means each test has demonstrated that (i) when combined with an empirically derived algorithm, it yields a result that predicts the probability a specific individual patient will develop a certain condition or conditions, or will respond to a particular therapy or therapies;

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DecisionDx-Melanoma is our proprietary risk stratification gene expression profile (“GEP”) test that predicts the risk of metastasis or recurrence, including a positive sentinel lymph node, for patients diagnosed with invasive CM.

typical year, we estimate approximately 130,000 patients are diagnosed with invasive CM in the United States, representing an estimated U.S.

In a typical year, we estimate approximately 130,000 patients are diagnosed with invasive CM in the United States, representing an estimated U.S.

total addressable market (“TAM”) of approximately $540 million.

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TAM of approximately $600 million.

We began offering MyPath Melanoma following our acquisition of the Myriad MyPath Laboratory in May 2021 at which point we offered both our MyPath Melanoma test and our DiffDx-Melanoma test under an offering that we referred to as our Diagnostic GEP offering.

However, following an internal assessment of the clinical value of offering both tests, we made the decision to suspend the clinical offering of DiffDx-Melanoma in February 2023 and now the focus of this offering is MyPath Melanoma.

We began offering MyPath Melanoma following our acquisition of the Myriad MyPath Laboratory in May 2021.

Our Gastroenterology Test

TissueCypher is our proprietary risk stratification spatial omics test designed to predict future development of progression of high-grade dysplasia (“HGD”) and/or esophageal cancer in patients with non-dysplastic (“ND”), indefinite dysplasia (“IND”) or low-grade dysplasia (“LGD”) BE.

TissueCypher is our proprietary risk stratification spatial omics test designed to predict future development of progression of high-grade dysplasia and/or esophageal cancer in patients with non-dysplastic, indefinite dysplasia or low-grade dysplasia BE.

We estimate a U.S.

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IDgenetix is a PGx test that guides personalized mental health medication selection and management for patients with depression, anxiety and other mental health conditions.

During the three months ended March 31, 2025, after careful further assessments, we made the decision to discontinue our IDgenetix test, effective May 2025.

After careful further assessments, we discontinued our IDgenetix test in May 2025.

Reimbursement

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Palmetto’s MolDX program oversees MAAA tests that are reported from our Phoenix laboratory and Noridian is the MAC responsible for administering claims for test reports issued by our Phoenix laboratory.

On July 4, 2024, Palmetto and Noridian finalized an LCD recommending no coverage for DecisionDx-SCC with an effective date of August 18, 2024.

On January 9, 2025, Novitas finalized an oncology biomarker LCD that became effective on April 24, 2025.

On April 24, 2025, the Novitas LCD, Genetic Testing for Oncology:

Specific Tests, that includes DecisionDx-SCC as noncovered, became effective.

DecisionDx-SCC has met “new ADLT” status since 2022.

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Effective April 1, 2024, and through December 31, 2025, the published Clinical Laboratory Fee Schedule (“CLFS”) rate for DecisionDx-SCC will continue at $8,500 based on the median private payor rates received between July 1, 2023 and November 30, 2023.

Future rates will be set annually based upon the median private payor rate for the first half of the second preceding calendar year.

On July 4, 2024, Palmetto and Noridian finalized an LCD recommending no coverage for DecisionDx-SCC with an effective date of August 18, 2024.

On January 9, 2025, Novitas finalized an oncology biomarker LCD, Genetic Testing for Oncology:

Specific Tests, which also lists DecisionDx-SCC as non-covered;

that LCD became effective on April 24, 2025.

Most of our TissueCypher tests are processed in our Pittsburgh laboratory under the Medicare jurisdiction managed by Novitas.

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MyPath Melanoma was covered under a test-specific LCD policy through Noridian that became effective in June 2019.

Effective August 6, 2023, Palmetto and Noridian issued LCDs that converted the test-specific MyPath Melanoma LCD to a “foundational” LCD and provided coverage for both MyPath Melanoma and DiffDx-Melanoma.

Effective August 6, 2023, Palmetto and Noridian issued LCDs that converted the test-specific MyPath Melanoma LCD to a “foundational” LCD and provided coverage for MyPath Melanoma.

MyPath Melanoma was approved as a “new ADLT” in September 2019.

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Our reimbursement rate for 2024 was $1,336 per test and remains at $1,336 per test in the first quarter of 2025.

IDgenetix test will be discontinued effective May 2025.

Our IDgenetix test was discontinued in May 2025.

Government Regulation and Oversight of Laboratory Developed Tests

On May 6, 2024, the U.S.

Food and Drug Administration (“FDA”) published a final rule on the regulation of LDTs which amends the FDA's regulations to make explicit that LDT's are devices under the FD&C Act.

Food and Drug Administration (“FDA”) published a final rule on the regulation of Laboratory Developed Tests (“LDTs”) which amends the FDA's regulations to make explicit that LDT's are devices under the Federal Food, Drug and Cosmetic Act (“FD&C Act”).

The FDA issued a policy to phaseout, over the course of four years, its general enforcement discretion approach to LDTs and also issued targeted enforcement discretion policies for certain categories of LDTs.

The FDA is continuing enforcement discretion for currently marketed tests offered as LDTs (that were first marketed before May 6, 2024) that are approved by NYSDOH.

The FDA is continuing enforcement discretion for currently marketed tests offered as LDTs (that were first marketed before May 6, 2024) that are approved by New York State Department of Health (“NYSDOH”).

Our proprietary tests, outlined above, are all NYSDOH approved.

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In addition, on March 31, 2025, the United States District Court for the Eastern District of Texas vacated the FDA’s LDT final rule.

It is unclear whether the court’s ruling will be appealed.

government did not appeal the ruling, and the deadline to do so has passed;

therefore, the court’s decision stands.

In July 2025, the FDA granted Breakthrough Device designation to our DecisionDx-Melanoma test.

We believe this designation highlights the test’s potential to improve melanoma care through individualized prognostic insights.

The Breakthrough Device designation is intended to expedite the development and review of certain medical devices that may offer more effective diagnosis or treatment of life-threatening conditions.

Delivered Test Reports

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Proprietary Dermatologic GEP Tests

Melanoma DecisionDx-SCC Diagnostic GEP offering Dermatologic Total DecisionDx-UM TissueCypher IDgenetix Grand Total

Melanoma DecisionDx-SCC Diagnostic GEP offering Dermatologic Total DecisionDx-UM TissueCypher IDgenetix (1)

Q1 2025 8,621 4,375 926 13,922 470 7,432 2,578 24,402

Q2 2025 9,981 4,762 1,166 15,909 468 9,170 1,027 26,574

For the six months ended June 30, 2025 18,602 9,137 2,092 29,831 938 16,602 3,605 50,976

Q1 2024 8,384 3,577 998 12,959 422 3,429 4,078 20,888

Q2 2024 9,585 4,277 1,099 14,961 456 4,782 4,903 25,102

For the six months ended June 30, 2024 17,969 7,854 2,097 27,920 878 8,211 8,981 45,990

Q3 2024 9,367 4,195 933 14,495 397 6,073 5,045 26,010

Q4 2024 8,672 4,299 879 13,850 424 6,672 3,125 24,071

For year ended December 31, 2024 36,008 16,348 3,909 56,265 1,699 20,956 17,151 96,071

For the three months ended March 31, 2025, our test report volume increased by 16.8% compared to the same period in 2024.

Our dermatologic test report volume increased by 7.4% for the three months ended March 31, 2025, compared to the prior period in 2024, largely driven by continued growth from DecisionDx-Melanoma and DecisionDx-SCC tests.

TissueCypher increased by 117% for the three months ended March 31, 2025 compared to the prior period in 2024, further contributing to the overall volume increase.

(1) The IDgenetix test was discontinued effective May 2025.

For the three and six months ended June 30, 2025, our test report volume increased by 5.9% and 10.8%, respectively, compared to the same period in 2024.

Our dermatologic test report volume increased by 6.3% and 6.8% for the three and six months ended June 30, 2025, respectively, compared to the prior period in 2024, largely driven by continued growth from DecisionDx-Melanoma and DecisionDx-SCC tests.

TissueCypher increased by 91.8% and 102.2%, respectively, for the three and six months ended June 30, 2025, compared to the prior period in 2024, further contributing to the overall volume increase.

For a discussion of how we recognize revenue derived from our tests, refer to “— Components of Results of Operations—Net Revenues” below.

For our DecisionDx-SCC product line, we continue to see opportunities for leverage, where many of the clinicians ordering our DecisionDx-Melanoma are the same clinicians who order our DecisionDx-SCC test.

During the three months ended March 31, 2025, approximately 52% of all clinicians ordering DecisionDx-SCC had also ordered our DecisionDx-Melanoma test during that same period.

During the six months ended June 30, 2025, approximately 67% of all clinicians ordering DecisionDx-SCC had also ordered our DecisionDx-Melanoma test during that same period.

Information About Certain Metrics

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Test reports delivered represent the number of completed test reports delivered by us during the reporting period indicated.

Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”).

The period in which a test report is delivered does not necessarily correspond with the period in which the related revenue, if any, is recognized, due to the timing and amount of adjustments for variable consideration under Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”).

We use this metric to evaluate the growth in adoption of our tests and to measure against our internal performance objectives.

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Impact of Macroeconomic Conditions

Macroeconomic conditions, including uncertainties associated with the Israel-Hamas war, the ongoing conflict between Ukraine and Russia, economic slowdowns, public health crises, labor shortages, recessions or market corrections, supply chain disruptions, inflation and monetary policy shifts, international tariffs, liquidity concerns at, and failures of, banks and other financial institutions or other disruptions in the banking system or financing markets, higher interest rates and financial and credit market fluctuations, volatility in the capital markets and other evolving macroeconomic developments, continue to have direct and indirect impacts on our business and could in the future materially impact our results of operations and financial condition.

Macroeconomic conditions, including uncertainties associated with the ongoing conflicts in the Middle East, the ongoing conflict between Ukraine and Russia, economic slowdowns, public health crises, labor shortages, recessions or market corrections, supply chain disruptions, inflation and monetary policy shifts, international tariffs, liquidity concerns at, and failures of, banks and other financial institutions or other disruptions in the banking system or financing markets, higher interest rates and financial and credit market fluctuations, volatility in the capital markets and other evolving macroeconomic developments, continue to have direct and indirect impacts on our business and could in the future materially impact our results of operations and financial condition.

We continue to actively monitor the impact of these macroeconomic factors on our results of operations, financial condition and cash flows.

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Our Financial Results

Our net loss may fluctuate significantly from period to period, depending on the timing of our planned development activities, the growth of our sales and marketing activities and the timing of revenue recognition under ASC 606.

Our net income (loss) may fluctuate significantly from period to period, depending on the timing of our planned development activities, the growth of our sales and marketing activities and the timing of revenue recognition under ASC 606.

We expect our expenses will increase substantially over time as we:

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We generate revenues from the sale of our products.

Currently, our revenues are primarily derived from the sale of DecisionDx-Melanoma, DecisionDx-SCC, TissueCypher and DecisionDx-UM.

Currently, our revenues are primarily derived from the sale of DecisionDx-Melanoma, TissueCypher, DecisionDx-SCC and DecisionDx-UM.

We bill third-party payors and patients for the tests we perform.

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For tests with limited reimbursement experience or no coverage, we recognize revenues on the basis of actual cash collections.

Our ability to increase our revenues will depend on our ability to further penetrate our target markets, and, in particular, generate sales through our direct sales force, maintain Medicare coverage for our currently marketed products, develop and commercialize additional tests, including through acquisitions, obtain reimbursement from additional third-party payors and increase our reimbursement rate for tests performed.

products, develop and commercialize additional tests, including through acquisitions, obtain reimbursement from additional third-party payors and increase our reimbursement rate for tests performed.

Cost of Sales (exclusive of amortization of acquired intangible assets)

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Additionally, we expect cost of sales to increase prior to our launching of new tests, or prior to our initiating significant commercial expansion efforts, as we ready our operations to support anticipated business growth.

For example, prior to opening our new Pittsburgh facilities during the second quarter of 2023, we incurred additional rent expense as we readied the space for future use.

For example, continued investment in and expansion of our laboratory facilities.

Gross margin and gross margin percentage are key indicators we use to assess our business.

See the table in “—Results of Operations—Comparison of the Three Months Ended March 31, 2025 and 2024”.

See the table in “—Results of Operations—Comparison of the Three Months Ended June 30, 2025 and 2024” and “Results of Operations—Comparison of the Six Months Ended June 30, 2025 and 2024” for details.

Research and Development

Research and development expenses include costs incurred to develop our tests, collect clinical samples and conduct clinical studies to develop and support our products.

These costs consist of personnel costs (including salaries, bonuses, benefits and stock-based compensation expense), prototype materials, laboratory supplies,

consulting costs, regulatory costs, electronic medical records set up costs, costs associated with setting up and conducting clinical studies and allocated overhead, including rent, information technology, equipment depreciation and utilities.

These costs consist of personnel costs (including salaries, bonuses, benefits and stock-based compensation expense), prototype materials, laboratory supplies, consulting costs, regulatory costs, electronic medical records set up costs, costs associated with setting up and conducting clinical studies and allocated overhead, including rent, information technology, equipment depreciation and utilities.

We expense all research and development costs in the periods in which they are incurred.

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Amortization of Acquired Intangible Assets

Amortization of acquired intangible assets is primarily associated with developed technology obtained through acquisitions, such as our acquisitions of the Myriad MyPath Laboratory in May 2021, Cernostics in December 2021 and AltheaDx in April 2022.

Interest Income

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Interest expense is primarily attributable to long-term debt and finance leases.

Income Tax (Benefit) Expense

Income tax benefit is primarily due to the revised estimated useful life of our intangible asset related to the discontinuation of our IDgenetix test offering, which resulted in a temporary difference and a corresponding deferred tax asset.

Income Tax Benefit

Income tax benefit is primarily due to the reduction of the valuation allowance previously recorded against our federal deferred tax assets.

This reduction resulted in a credit to income tax expense and was based on new deferred tax liabilities recognized upon consolidating Capsulomics.

Income tax expense consists primarily of income taxes related to federal and state jurisdictions in which we conduct business.

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Results of Operations

Comparison of the Three Months Ended March 31, 2025 and 2024

Comparison of the Three Months Ended June 30, 2025 and 2024

The following table summarizes our results of operations for the periods indicated (in thousands, except percentages):

Three Months Ended

March 31, Change

June 30, Change

Net revenues $ 86,188 $ 87,002 $ (814) (0.9) %

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Selling, general and administrative 58,065 51,088 6,977 13.7 %

Amortization of acquired intangible assets 28,325 2,247 26,078 NM

Amortization of acquired intangible assets 1,961 2,247 (286) (12.7) %

Total operating expenses, net 90,439 81,990 8,449 10.3 %

Operating loss (27,928) (5,471) (22,457) (410.5) %

Operating (loss) income (4,251) 5,012 (9,263) (184.8) %

Interest income 2,944 3,144 (200) (6.4) %

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Interest expense (21) (270) 249 92.2 %

Loss before income taxes (26,271) (2,489) (23,782) (955.5) %

Income tax (benefit) expense (423) 45 (468) NM

Net loss $ (25,848) $ (2,534) $ (23,314) (920.0) %

(Loss) income before income taxes (143) 7,886 (8,029) (101.8) %

Income tax benefit (4,666) (1,034) (3,632) (351.3) %

Net income $ 4,523 $ 8,920 $ (4,397) (49.3) %

NA = Not applicable

NM = Not meaningful

The following table indicates the amount of stock-based compensation expense (non-cash) reflected in the line items above (in thousands):

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Gross margin percentage 77.3 % 80.7 % (3.4) %

Net revenues for the three months ended March 31, 2025 increased by $15.0 million, or 20.6%, to $88.0 million compared to the three months ended March 31, 2024, due to a $11.4 million increase in revenue from our non-dermatologic tests and a $3.6 million increase in revenue from our dermatologic tests.

The $11.4 million increase in net revenues for our non-dermatologic tests was primarily attributable to our TissueCypher Barrett’s Esophagus test, which was due to higher test report volumes and, to a lesser extent, higher realized average selling price (“ASP”).

For the three months ended March 31, 2025 compared to the three months ended March 31, 2024, test report volumes for our TissueCypher Barrett’s Esophagus tests increased by 117%.

The $3.6 million increase in net revenues from our dermatologic tests was largely attributable to an increase in test report volumes for our DecisionDx-SCC test.

Increases in our DecisionDx-SCC test report volumes reflect growth through our sales force efforts.

Net revenue from our dermatologic tests as a percentage of total net revenue increased from 18.7% for the three months ended March 31, 2024 to 28.4% for the three months ended March 31, 2025.

Net revenues for the three months ended June 30, 2025 decreased by $0.8 million, or 0.9%, to $86.2 million compared to the three months ended June 30, 2024, due to a $12.5 million decrease in revenue from our dermatologic tests offset by a $11.7 million increase in revenue from our non-dermatologic tests.

The $12.5 million decrease in net revenues for our dermatologic tests was primarily attributable to our DecisionDx-SCC test, which was due to lower realized average selling price (“ASP”) and, to a lesser extent offset by higher test report volumes.

The reduction in ASP was primarily driven by the loss of Medicare LCD coverage in April 2025.

For the three months ended June 30, 2025 compared to the three months ended June 30, 2024, test report volumes for our DecisionDx-SCC test increased by 11%.

The $11.7 million increase in net revenues from our non-dermatologic tests was largely attributable to an increase in test report volumes for our TissueCypher Barrett’s Esophagus test.

Increases in our TissueCypher Barrett’s Esophagus test report volumes reflect growth through our sales force efforts.

Net revenue from our non-dermatologic tests as a percentage of total net revenue increased from 20.9% for the three months ended June 30, 2024 to 34.7% for the three months ended June 30, 2025.

Cost of Sales (exclusive of amortization of acquired intangible assets)

Cost of sales (exclusive of amortization of acquired intangible assets) for the three months ended March 31, 2025 increased by $2.5 million, or 17.9%, compared to the three months ended March 31, 2024, primarily due to higher personnel costs, higher depreciation expense for lab equipment and leasehold improvements and higher lab services cost.

Cost of sales (exclusive of amortization of acquired intangible assets) for the three months ended June 30, 2025 increased by $3.1 million, or 21.4%, compared to the three months ended June 30, 2024, primarily due to higher personnel costs, higher lab services cost, and higher expenses for lab supplies.

Increases in personnel costs reflect a higher headcount, due to additions made to support business growth in response to growing test report volumes, as well as merit and annual inflationary wage adjustment for existing employees.

Higher expense for lab services also reflects higher test report volumes.

Higher expense for lab services and lab supplies also reflects higher test report volumes.

Due to the nature of our business, a significant portion of our cost of sales expenses represents fixed costs associated with our testing operations.

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We expect our cost of sales expenses (exclusive of amortization of acquired intangible assets) to continue to increase in future periods as we hire additional laboratory personnel and related resources to support expected operational growth and higher test volumes.

Our gross margin percentage was 49.2% for the three months ended March 31, 2025, compared to 77.9% for the same period in 2024.

The decrease was primarily due to higher amortization from accelerating our IDgenetix test, higher personnel costs and higher depreciation expense.

Our gross margin percentage was 77.3% for the three months ended June 30, 2025, compared to 80.7% for the same period in 2024.

The decrease was primarily due to lower ASP relating to our DecisionDx-SCC test and higher personnel costs and higher lab services expense.

Research and Development

Research and development expenses decreased by $1.2 million, or 8.8%, for the three months ended March 31, 2025, compared to the three months ended March 31, 2024, and primarily reflect slightly lower personnel costs and expense for clinical studies.

Research and development expenses decreased by $1.3 million, or 9.5%, for the three months ended June 30, 2025, compared to the three months ended June 30, 2024, and primarily reflects lower expense for clinical trials and slightly lower personnel costs.

We expect to continue incurring research and development expenses through our continued investments in our ongoing pipeline initiatives and as we seek opportunities to build evidentiary support and new tests where commercial opportunities exist.

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Total selling, general and administrative expense $ 58,065 $ 51,088 $ 6,977

Sales and marketing expenses increased by $6.3 million, or 20.5%, for the three months ended March 31, 2025, compared to the three months ended March 31, 2024, primarily reflecting higher personnel cost, higher organizational and business development activities cost and higher sales related travel expense.

Stock-based compensation expense included in sales and marketing was $4.0 million for the three months ended March 31, 2025, compared to $4.7 million for the three months ended March 31, 2024.

General and administrative expenses increased by $3.9 million, or 21.5%, for the three months ended March 31, 2025, compared to the three months ended March 31, 2024, and was primarily due to higher personnel costs, higher information technology related costs and higher professional fees.

Sales and marketing expenses increased by $2.4 million, or 7.5%, for the three months ended June 30, 2025, compared to the three months ended June 30, 2024, primarily due to higher organizational and business development activities cost and higher sales related travel expense.

Stock-based compensation expense included in sales and marketing was $3.9 million for the three months ended June 30, 2025, compared to $4.8 million for the three months ended June 30, 2024.

General and administrative expenses increased by $4.5 million, or 24.6%, for the three months ended June 30, 2025, compared to the three months ended June 30, 2024, and was primarily due to higher personnel costs and higher information technology related costs.

Higher personnel cost reflects headcount expansions in our administrative support functions as well as merit and annual inflationary wage adjustment for existing employees.

Stock-based compensation expense included in general and administrative expense was $3.8 million for the three months ended March 31, 2025, compared to $4.0 million for the three months ended March 31, 2024.

Stock-based compensation expense included in general and administrative expense was $3.5 million for the three months ended June 30, 2025, compared to $4.4 million for the three months ended June 30, 2024.

Amortization of Acquired Intangible Assets

Amortization expense increased by approximately $26.1 million for the three months ended March 31, 2025, compared to the three months ended March 31, 2024, primarily due to our decision to discontinue the IDgenetix test offering beginning in May 2025.

As a result of this decision, the Company revised the estimated useful life of the related developed technology intangible asset and fully amortized the remaining carrying value as of March 31, 2025.

Interest Income

Interest income increased by $0.1 million for the three months ended March 31, 2025, compared to the three months ended March 31, 2024, primarily as a result of higher average balances of marketable investment securities and slightly higher interest rates.

Amortization expense decreased by approximately $0.3 million for the three months ended June 30, 2025, compared to the three months ended June 30, 2024, primarily due to our decision to discontinue the IDgenetix test, which resulted in full amortization of its remaining carrying value as of March 31, 2025.

Changes in Fair Value of Trading Securities

The change in fair value of trading securities decreased by $1.4 million for the three months ended March 31, 2025, compared to the three months ended March 31, 2024, and was entirely associated with our investments in equity securities where we had no such investments during the comparative period.

The change in fair value of trading securities increased by $1.2 million for the three months ended June 30, 2025, compared to the three months ended June 30, 2024, and was entirely associated with our investments in equity securities where we had no such investments during the comparative period.

Income Tax Benefit

Our income tax benefit increased by approximately $3.6 million for the three months ended June 30, 2025 , primarily due to the reduction of the valuation allowance previously recorded against our federal deferred tax assets.

This release resulted in a credit to income tax expense and was based on new deferred tax liabilities recognized upon consolidating Capsulomics.

Stock-Based Compensation Expense

Stock-based compensation expense, which is allocated among cost of sales, research and development expense and SG&A expense totaled $11.2 million and $13.2 million for the three months ended June 30, 2025 and 2024, respectively.

We expect stock-based compensation expense will continue to be material in future periods,

attributable to both existing awards outstanding and anticipated additional grants to our current and future employees.

As of June 30, 2025, we had 798 employees, compared to 703 as of June 30, 2024.

As of June 30, 2025, the total unrecognized stock-based compensation cost related to outstanding awards was $80.5 million, which is expected to be recognized over a weighted-average period of 2.5 years.

Comparison of the Six Months Ended June 30, 2025 and 2024

The following table summarizes our results of operations for the periods indicated (in thousands, except percentages):

Six Months Ended

June 30, Change

Net revenues $ 174,176 $ 159,976 $ 14,200 8.9 %

Operating expenses

Cost of sales (exclusive of amortization of acquired intangible assets) 34,009 28,413 5,596 19.7 %

Research and development 25,375 27,945 (2,570) (9.2) %

Selling, general and administrative 116,685 99,583 17,102 17.2 %

Amortization of acquired intangible assets 30,286 4,494 25,792 573.9 %

Total operating expenses, net 206,355 160,435 45,920 28.6 %

Operating loss (32,179) (459) (31,720) NM

Interest income 6,043 6,140 (97) (1.6) %

Changes in fair value of trading securities (240) — (240) NA

Interest expense (38) (284) 246 86.6 %

Interest expense remained consistent for the three months ended March 31, 2025, compared to the three months ended March 31, 2024.

(Loss) income before income taxes (26,414) 5,397 (31,811) (589.4) %

Income tax benefit (5,089) (989) (4,100) (414.6) %

Our income tax benefit was $0.5 million for the three months ended March 31, 2025 , primarily driven by the revision of the estimated useful life of an intangible asset and our net operating loss position during the period.

Net (loss) income $ (21,325) $ 6,386 $ (27,711) (433.9) %

NA = Not applicable

NM = Not meaningful

The following table indicates the amount of stock-based compensation expense (non-cash) reflected in the line items above (in thousands):

Six Months Ended

2025 2024 Change

Cost of sales (exclusive of amortization of acquired intangible assets) $ 2,878 $ 2,715 $ 163

Research and development 3,857 5,266 (1,409)

Selling, general and administrative 15,652 17,873 (2,221)

Total stock-based compensation expense $ 22,387 $ 25,854 $ (3,467)

The following table provides a disaggregation of net revenues by type (in thousands):

Six Months Ended

2025 2024 Change

Dermatologic (1)

$ 119,259 $ 128,163 $ (8,904)

Non-Dermatologic (2)

54,917 31,813 23,104

Total net revenues $ 174,176 $ 159,976 $ 14,200

(1) Consists of DecisionDx-Melanoma, DecisionDx-SCC and our Diagnostic GEP offering.

(2) Consists of TissueCypher, DecisionDx-UM and IDgenetix.

The following table presents the calculation of gross margin (in thousands, except percentages):

Six Months Ended

2025 2024 Change

Net revenues $ 174,176 $ 159,976 $ 14,200

Cost of sales (exclusive of amortization of acquired intangible assets) 34,009 28,413 5,596

Amortization of acquired intangible assets 30,286 4,494 25,792

Gross margin $ 109,881 $ 127,069 $ (17,188)

Gross margin percentage 63.1 % 79.4 % (16.3) %

Net revenues for the six months ended June 30, 2025 increased by $14.2 million, or 8.9%, to $174.2 million compared to the six months ended June 30, 2024, due to a $23.1 million increase in revenue from our non-dermatologic tests and a $8.9 million decrease in revenue from our dermatologic tests.

The $23.1 million increase in revenue from our non-dermatologic tests was largely attributable to a 102.2% increase in tests report volumes for our TissueCypher test, and, to a much lesser extent, a higher realized ASP.

Increases in our TissueCypher test report volumes reflect growth through our sales force efforts.

Net revenue from our non-dermatologic tests as a percentage of total net revenue increased from 19.9% for the six months ended June 30, 2024 to 31.5% for the six months ended June 30, 2025.

The $8.9 million decrease from our dermatologic tests was primarily due to a lower ASP for DecisionDx-SCC test, where we stopped receiving Medicare coverage as of April 24, 2025, offset by 16.3% increase in DecisionDx-SCC test report volumes, and a 3.5% increase in DecisionDx-Melanoma test report volumes.

Cost of Sales (exclusive of amortization of acquired intangible assets)

Cost of sales (exclusive of amortization of acquired intangible assets) for the six months ended June 30, 2025 increased by $5.6 million, or 19.7%, compared to the six months ended June 30, 2024, primarily due to higher personnel costs, higher lab services cost, and higher depreciation expense.

The increase in lab services expense was driven by higher test report volumes, while the rise in depreciation expense reflects continued investment in and expansion of our laboratory facilities.

Due to the nature of our business, a significant portion of our cost of sales expenses represents fixed costs associated with our testing operations.

Accordingly, our cost of sales expense will not necessarily increase or decrease commensurately with the change in net revenues from period to period.

We expect our cost of sales expenses (exclusive of amortization of acquired intangible assets) to continue to increase in future periods as we hire additional laboratory personnel and related resources to support our expected operational growth and higher test volumes.

Our gross margin percentage was 63.1% for the six months ended June 30, 2025, compared to 79.4% for the six months ended June 30, 2024.

The decrease was primarily due to higher amortization from accelerating our IDgenetix test, higher personnel costs and higher depreciation expense.

Research and Development

Research and development expenses decreased by $2.6 million, or 9.2%, for the six months ended June 30, 2025, compared to the six months ended June 30, 2024, primarily reflecting lower clinical studies costs and slightly lower personnel costs.

Selling, General and Administrative

The following table provides a breakdown of SG&A expenses (in thousands):

Six Months Ended

2025 2024 Change

Sales and marketing $ 71,931 $ 63,219 $ 8,712

General and administrative 44,754 36,364 8,390

Total selling, general and administrative expense $ 116,685 $ 99,583 $ 17,102

Sales and marketing expenses increased by $8.7 million, or 13.8%, for the six months ended June 30, 2025, compared to the six months ended June 30, 2024.

The increase is primarily due to higher expense incurred through organizational and business development activities, higher personnel costs, and higher sales related travel expenses.

Increases in personnel costs reflect a higher headcount as well as merit and annual inflationary wage adjustment for existing employees.

Higher test report volumes is a result of our continued investments in human capital for our sales organization.

Stock-based compensation expense included in sales and marketing expense was $7.9 million for the six months ended June 30, 2025, compared to $9.5 million for the six months ended June 30, 2024.

General and administrative expenses increased by $8.4 million, or 23.1%, for the six months ended June 30, 2025, compared to the six months ended June 30, 2024.

The increase is primarily due to higher personnel costs and higher information technology-related costs.

Increases in personnel costs reflect headcount expansions in our administrative support functions as well as merit and annual inflationary wage adjustment for existing employees.

Stock-based compensation expense included in general and administrative expense was $7.0 million for the six months ended June 30, 2025, compared to $8.4 million for the six months ended June 30, 2024.

Amortization of Acquired Intangible Assets

Amortization increased by approximately $25.8 million for the six months ended June 30, 2025, compared to the six months ended June 30, 2024, primarily due to our decision to discontinue the IDgenetix test offering beginning in May 2025.

As a result of this decision, the Company revised the estimated useful life of the related developed technology intangible asset and fully amortized the remaining carrying value as of March 31, 2025.

Income Tax Benefit

Income tax benefit increased by approximately $4.1 million for the six months ended June 30, 2025 and was primarily due to a released portion of the valuation allowance previously recorded against our federal deferred tax assets.

This release resulted in a credit to income tax expense and was based on new deferred tax liabilities recognized upon consolidating Capsulomics.

Stock-Based Compensation Expense

Stock-based compensation expense, which is allocated among cost of sales, research and development expense and SG&A expense totaled $11.2 million and $12.7 million for the three months ended March 31, 2025 and 2024, respectively.

We expect stock-based compensation expense will continue to be material in future periods, attributable to both existing awards outstanding and anticipated additional grants to our current and future employees.

As of March 31, 2025, we had 784 employees, compared to 638 as of March 31, 2024.

As of March 31, 2025, the total unrecognized stock-based compensation cost related to outstanding awards was $88.7 million, which is expected to be recognized over a weighted-average period of 2.6 years.

Stock-based compensation expense, which is allocated among cost of sales, research and development expense and SG&A expense, totaled $22.4 million for the six months ended June 30, 2025, compared to $25.9 million for the six months ended June 30, 2024.

We expect material increases in stock-based compensation expense in future periods, attributable to both existing awards outstanding and anticipated additional grants to our current and future

As of June 30, 2025, we had 798 employees compared to 703 as of June 30, 2024.

Liquidity and Capital Resources

Sources of Liquidity

Our principal sources of liquidity are our cash and cash equivalents, marketable investment securities, cash generated from the sale of our products and our line-of-credit under the 2024 Loan and Security Agreement (the “2024 LSA”).

All of our marketable investment securities are considered investment grade, are readily available for use in current operations.

As of March 31, 2025 and December 31, 2024, we had marketable investment securities of $185.5 million and $173.4 million, respectively.

Additionally, as of March 31, 2025 and December 31, 2024, we had cash and cash equivalents of $89.7 million and $119.7 million, respectively.

As of March 31, 2025, we had a $25.0 million credit-line available under the 2024 LSA.

As of June 30, 2025 and December 31, 2024, we had marketable investment securities of $193.7 million and $173.4 million, respectively.

Additionally, as of June 30, 2025 and December 31, 2024, we had cash and cash equivalents of $82.2 million and $119.7 million, respectively.

Furthermore, on April 4, 2025, we amended the 2024 LSA to modify certain terms, including the extension of the draw period from March 31, 2025 to September 30, 2025 for our line of credit.

Our liquidity has been primarily derived from the revenue generated from the sale of our products, and proceeds from our IPO in July 2019 and our follow-on public offerings of common stock in June and December of 2020.

As of June 30, 2025, we had a $25.0 million credit-line available under the 2024 LSA.

Our liquidity has been primarily derived from the revenue generated from the sale of our products.

We believe that our existing cash and cash equivalents, marketable investment securities and anticipated cash generated from sales of our products will be sufficient to fund our operations for at least the next 12 months.

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Over the duration of this project, we expect to make significant capital expenditures in the form of payments to the developer under a percentage of completion basis.

As of March 31, 2025, the development project is expected to cost a total of approximately $43.1 million.

During the three months ended March 31, 2025, we have made $5.1

million in capital expenditures for this development project.

As of June 30, 2025, the development project is expected to cost a total of approximately $44.2 million.

During the three and six months ended June 30, 2025, we incurred total capital spent of $8.8 million and $14.0 million, respectively, related to this development project.

We intend to use the proceeds from the 2024 Term Loan, (as defined below), the 2024 Credit Line and our existing cash and cash equivalents to pay for this project.

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We expect to incur additional expenses in the future as we invest in the commercialization of our existing products and the development and commercialization of our current pipeline products and future product candidates.

We believe that our existing cash and cash equivalents, marketable investment securities and anticipated cash generated from the sale of our commercial products will be sufficient to fund our operations for at least the next 12 months.

believe that our existing cash and cash equivalents, marketable investment securities and anticipated cash generated from the sale of our commercial products will be sufficient to fund our operations for at least the next 12 months.

We believe we will meet longer-term expected cash requirements and obligations through a combination of existing cash and cash equivalents, marketable investment securities and anticipated cash generated from sales of our products and issuances of equity securities or debt offerings.

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Our long-term debt is presented in the table below (in thousands):

March 31, 2025 December 31, 2024

June 30, 2025 December 31, 2024

Term debt $ 10,200 $ 10,200

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2024 Loan and Security Agreement

On March 26, 2024 (the ‘‘Closing Date’’), we entered into the ‘2024 LSA, by and between the Company, its wholly owned subsidiary, Castle Narnia Real Estate Holding 1, LLC and Silicon Valley Bank, a division of First-Citizens Bank & Trust Company (the “Lender’’).

The 2024 LSA provides for (i) on the Closing Date, $10.0 million aggregate principal amount of Term Loans (the “2024 Term Loan,” as more fully discussed in the “2024 Term Loan” section below), and (ii) from the Closing Date until March 31, 2025, an additional line of credit of $25.0 million with the same interest rate and maturity as the term debt available (the “2024 Credit Line,” as more fully discussed in ‘‘2024 Credit Line’’ below) at our option.

On March 26, 2024 (the ‘‘Closing Date’’), we entered into the ‘2024 LSA, as amended on April 4, 2025, by and between the Company, its wholly owned subsidiary, Castle Narnia Real Estate Holding 1, LLC and Silicon Valley Bank, a division of First-Citizens Bank & Trust Company (the “Lender’’).

The 2024 LSA provides for (i) on the Closing Date, $10.0 million aggregate principal amount of Term Loans (the “2024 Term Loan,” as more fully discussed in the “2024 Term Loan” section below), and (ii) from the Closing Date until September 30, 2025, an additional line of credit of $25.0 million with the same interest rate and maturity as the term debt available (the “2024 Credit Line,” as more fully discussed in ‘‘2024 Credit Line’’ below) at our option.

The obligations under the 2024 LSA are secured by substantially all of our assets, excluding intellectual property, the real property held by the Company, and are subject to certain other exceptions and limitations.

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Should an event of default occur, including the occurrence of a material adverse change, we could be liable for immediate repayment of all obligations under the 2024 LSA.

Should we seek to amend the terms of the 2024 LSA, the consent of the Lender would be required.

As of March 31, 2025, we were in compliance with these covenants.

Should we seek to further amend the terms of the 2024 LSA, the consent of the Lender would be required.

As of June 30, 2025, we were in compliance with these covenants.

The 2024 LSA bears interest at a floating rate equal to the greater of (a) the WSJ Prime Rate plus 0.25% or (b) 6.00% per annum.

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We are also obligated to make an additional final payment of 2.00% of the aggregate original principal amounts of Term Loans advanced by the Lender, due at the earlier of the maturity date or date the Term Loans are repaid in full.

On April 4, 2025, the Company entered into a Consent and First Amendment (the “Amendment”) with the

The Amendment modified certain terms of the 2024 LSA, including the extension of the draw period from March 31, 2025 to September 30, 2025 for our line of credit.

2024 Term Loan

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A discount on debt equal to this obligation was recorded on the draw date and is being amortized as additional interest expense using the effective interest method over the term of the debt.

As of March 31, 2025, the effective interest rate for all outstanding debt under the 2024 Term Loan was 8.19%.

As of June 30, 2025, the effective interest rate for all outstanding debt under the 2024 Term Loan was 8.19%.

2024 Credit Line

We have a $25.0 million line of credit under the terms and provisions of the 2024 LSA available from the Closing Date until March 31, 2025.

We have a $25.0 million line of credit under the terms and provisions of the 2024 LSA and the Amendment available from the Closing Date until September 30, 2025.

Amounts repaid under the 2024 Credit Line may not be reborrowed.

As of March 31, 2025, no draws had been made on the 2024 Credit Line.

As of June 30, 2025, no draws had been made on the 2024 Credit Line.

We have entered into various operating and finance leases, which are primarily associated with our laboratory facilities and office space.

Total undiscounted future minimum payment obligations under our operating leases and finance leases as of March 31, 2025 totaled approximately $22.4 million, of which $2.2 million is payable through the remainder of 2025 and $20.2 million is payable through early 2034.

Total undiscounted future minimum payment obligations under our operating leases and finance leases as of June 30, 2025 totaled approximately $41.5 million, of which $1.6 million is payable through the remainder of 2025 and $39.9 million is payable through early 2037.

The leases expire on various dates through 2034 and provide certain options to renew for additional periods.

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The following table summarizes our sources and uses of cash and cash equivalents for each of the periods presented (in thousands):

Three Months Ended

Net cash used in operating activities $ (6,036) $ (6,835)

Six Months Ended

Net cash provided by operating activities $ 14,785 $ 17,163

Net cash used in investing activities (50,809) (41,118)

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Operating Activities

Net cash used in operating activities was $6.0 million for the three months ended March 31, 2025, and was primarily attributable to net loss of $25.8 million, decreases in accrued compensation of $14.7 million, increases in accounts receivable of $5.2 million, increases in prepaid expenses and other current assets of $3.4 million and increases in accretion of discounts on marketable investment securities of $1.4 million, partially offset by depreciation and amortization of $29.8 million, non-cash stock-based compensation expense of $11.2 million, change in fair value of trading securities of $1.4 million, decreases in inventory of $1.3 million and increases in other accrued and current liabilities of $1.1 million.

Net cash used in operating activities was $6.8 million for the three months ended March 31, 2024, and was primarily attributable to decreases in accrued compensation of $14.2 million, increases in accounts receivable of $4.3 million, a net loss of $2.5 million, and increases in accretion of discounts on marketable investment securities of $1.7 million, partially offset by non-cash stock-based compensation expense of $12.7 million, depreciation and amortization of $3.3 million.

The $0.8 million decrease in cash outflows from operating activities for the three months ended March 31, 2025 compared to the three months ended March 31, 2024 is primarily due to increases in collections from customers attributable to higher net revenues partially offset by increases in operating expenditures.

In part, the cash provided during the three months ended March 31, 2025 reflects the payment of annual cash bonuses to our employees as well as certain health care benefit payments totaling $22.5 million, that are not expected to recur during the remainder of 2025.

In comparison, we paid $20.8 million during the same period in 2024 towards annual cash bonuses and certain health care benefits.

Net cash provided by operating activities was $14.8 million for the six months ended June 30, 2025, and was primarily attributable to depreciation and amortization of $33.2 million, non-cash stock-based compensation expense of $22.4 million, and increases in accounts payable of $1.7 million, partially offset by net loss of $21.3 million, decreases in accrued compensation of $7.6 million, deferred income taxes of $5.4 million, increases in prepaid expenses and other current assets of $4.7 million, accretion of discounts on marketable investment securities of $2.6 million, and increases in accounts receivable of $1.3 million.

Net cash provided by operating activities was $17.2 million for the six months ended June 30, 2024, and was primarily attributable to non-cash stock-based compensation expense of $25.9 million, depreciation and amortization of $6.7 million, and net income of $6.4 million, partially offset by decreases in accrued compensation of $7.7 million, increases in accounts receivable of $7.6 million, accretion of discounts on marketable investment securities of $3.4 million, decreases in accounts payable of $1.7 million and deferred income taxes of $1.5 million.

The $2.4 million decrease in cash provided by operating activities for the six months ended June 30, 2025, compared to the six months ended June 30, 2024, was primarily due to increases in operating expenditures, partially offset by increases in collections from customers attributable to higher net revenues.

The cash provided during the six months ended June 30, 2025 also reflects the payment of annual cash bonuses to our employees and certain health care benefit payments totaling $22.5 million, which are not expected to recur in the remainder of 2025.

By comparison, we paid $20.8 million for similar items during the first half of 2024.

Investing Activities

Net cash used in investing activities was $22.4 million for the three months ended March 31, 2025 and consisted primarily of purchases of marketable investment securities of $48.4 million, purchases of debt securities classified as held-to-market of $5.6 million and purchases of property and equipment of $4.7 million, partially offset by the maturity of marketable investment securities of $36.3 million.

Net cash used in investing activities was $19.7 million for the three months ended March 31, 2024 and consisted primarily of purchases of marketable investment securities of $60.8 million and purchases of property and equipment of $9.2 million, partially offset by the maturity of marketable investment securities of $50.2 million.

The $2.7 million increase in cash used in investing activities for the three months ended March 31, 2025 compared to the three months ended March 31, 2024 was primarily due to collecting $13.9 million fewer proceeds from maturing marketable investment securities and purchasing $5.6 million of debt securities classified as held-to-maturity, partially offset by decreases of $12.3 million in our purchases of marketable investment securities.

Furthermore, our purchases of property and equipment decreased by $4.4 million for the three months ended March 31, 2025 compared to the three months ended March 31, 2024, primarily due to the timing of the purchase of land for $7.2 million which occurred in February 2024 with no comparable transaction during the three months ended March 31, 2025.

Net cash used in investing activities was $50.8 million for the six months ended June 30, 2025 and consisted primarily of purchases of marketable investment securities of $92.8 million, our asset acquisition of Capsulomics for $18.7 million, purchases of property and equipment of $14.0 million and purchases of debt securities classified as held-to-market of $5.6 million, partially offset by the maturity of marketable investment securities of $80.3 million.

Net cash used in investing activities was $41.1 million for the six months ended June 30, 2024 and consisted primarily of purchases of marketable investment securities of $113.2 million and purchases of property and equipment of $14.4 million, partially offset by the maturity of marketable investment securities of $86.5 million.

The $9.7 million increase in cash used in investing activities for the six months ended June 30, 2025, compared to the six months ended June 30, 2024, was primarily due to our acquisition of Capsulomics for $18.7 million, which includes both the cash consideration and direct transaction costs, $6.2 million fewer proceeds from maturing marketable investment securities, partially offset by $14.8 million fewer purchases of such securities.

Financing Activities

Net cash used in financing activities was $1.6 million for the three months ended March 31, 2025, and consisted primarily of the $2.5 million payment of employee taxes attributable to the vesting of Restricted Stock Units (“RSUs”), partially offset by the $1.0 million of proceeds from contributions to our 2019 Employee Stock Purchase Plan (the “ESPP”).

Net cash provided by financing activities was $10.6 million for the three months ended March 31, 2024, and consisted primarily of $10.0 million of proceeds from issuance of long-term debt and $1.1 million of proceeds from contributions to our ESPP, partially offset by the $0.5 million payment of employee taxes attributable to the vesting of RSUs.

Net cash used in financing activities was $1.5 million for the six months ended June 30, 2025, and consisted primarily of the $3.1 million payment of employee taxes attributable to the vesting of Restricted Stock Units (“RSUs”), partially offset by the $1.5 million of proceeds from contributions to our 2019 Employee Stock Purchase Plan (the “ESPP”) and $0.2 million of proceeds from lease incentives received .

Net cash provided by financing activities was $10.7 million for the six months ended June 30, 2024, and consisted primarily of $10.0 million of proceeds from issuance of long-term debt and $1.7 million of proceeds from contributions to our ESPP, partially offset by the $1.1 million payment of employee taxes attributable to the vesting of RSUs.

Critical Accounting Estimates

During the three months ended March 31, 2025, there were no significant changes to the information discussed under “Critical Accounting Estimates” included in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of our 2024 10-K.

During the six months ended June 30, 2025, there were no significant changes to the information discussed under “Critical Accounting Estimates” included in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of our 2024 10-K.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis