What changed in this filing

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Item 1A. Risk Factors

2021-11-09 compared with 2021-08-10 · 69 added, 72 removed, 812 unchanged (15% of the section changed)

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In 2020, we developed and began offering a series of COVID-19 tests, but the pricing and margins from these tests continue to evolve.

For the year ended December 31, 2020, we experienced substantial revenue growth due primarily to recent sales of, and growing demand, for these COVID-19 tests.

For the year ended December 31, 2020 and the nine months ended September 30, 2021, we experienced substantial revenue growth due primarily to recent sales of, and growing demand, for these COVID-19 tests.

While we believe there will be a continued demand for our COVID-19 tests in the near term, the future outcome and circumstances of the COVID-19 pandemic continue to rapidly evolve and remain uncertain.

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The FDA granted an EUA for our at-home testing service for COVID-19 and RT-PCR-based tests only for the detection of nucleic acid from SARS-CoV-2, not for any other viruses or pathogens.

The FDA recently established additional conditions for all emergency authorizations of COVID-19 molecular, antigen, and serology tests to account for emerging mutations of the SARS-CoV-2 virus, which serve to revise our previously issued EUA.

We are currently accepting patient samples directly to our Biosafety Level 2, certified laboratories in Temple City, California and Houston, Texas where we have the capacity to accept and process thousands of samples per day with a typical turn-around time of 24-48 hours from the time the sample is received and accepted.

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Due to the significant demand for COVID-19 testing services, our business has expanded rapidly since March 2020.

This expansion has necessitated a very significant increase in our total headcount from 154 in March 2020 to 626 in June 2021, and the volume of tests we perform on a daily basis has increased by more than 2900% in that time .

This expansion has necessitated a very significant increase in our total headcount , and the volume of tests we perform on a daily basis has increased by more than 10,000 % since March 2020 .

In addition, while most of our genetics testing business relied upon direct payments from hospitals, medical institutions and other laboratories, the majority of our revenues from our COVID-19 testing business result from reimbursements from third party payors, including private insurance and Medicare.

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Our management team has not previously managed a business through such a dramatic acceleration, and the impacts of any failures, mistakes or missed opportunities could be magnified by our current rate of growth.

The continued success of this business will depend upon our ability to rapidly deliver accurate results, and any failure, or

perceived failure, in meeting these objectives could cause our COVID-19 testing business to decline rapidly.

The continued success of this business will depend upon our ability to rapidly deliver accurate results, and any failure, or perceived failure, in meeting these objectives could cause our COVID-19 testing business to decline rapidly.

In addition, there are many new entrants to this market, and these competitors may cause price declines or reduced market share for us.

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We have a history of losses.

Although we achieved profitability in the first half of 2017, the second and third quarters of 2019, the second, third and fourth quarters of 2020, and the first quarter and second quarter of 2021, we recorded losses in all other periods since our inception.

Although we achieved profitability in the first half of 2017, the second and third quarters of 2019, the second, third and fourth quarters of 2020, and the first, second and third quarters of 2021, we recorded losses in all other periods since our inception.

We may not be able to maintain profitability in future periods.

Further, our revenue levels may not grow at historical rates or at all, and we may not be able to achieve additional profitability or sustain profitability.

We may incur additional losses in the future, particularly as we focus on investing in and growing our business and operations in response to recent demand for our COVID-19 tests.

Our prior losses have had and any future losses may also have an adverse effect on our stockholders’ equity and working capital, which could negatively impact our operations and your investment in our company.

We may incur additional losses in the future.

Any failure to sustain or grow our revenue levels and achieve or maintain profitability would negatively affect our business, financial condition, results of operations and cash flows, and could cause the market price of our common stock to decline.

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Our industry has been, and we believe will continue to be, characterized by rapid technological change, increasing amounts of data, frequent introductions of new genetic tests and evolving industry standards, all of which could make our tests obsolete if we are not able to enhance our tests more quickly and more effectively than our competitors.

We believe our future success will depend in part on our ability to keep pace with the evolving needs of our customers in a timely and cost-effective manner and to pursue new market opportunities that develop as a result of technological and scientific advances.

technological and scientific advances.

If we are not able to keep pace with these advances and increased customer expectations that develop as a result of these advances, we may be unable to sustain or grow our business and our future operations and prospects could suffer.

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The composition and concentration of our customer base can fluctuate from period to period, and in certain prior periods, a small number of customers accounted for a significant portion of our revenue.

When customers who, to our knowledge, are under common control or otherwise affiliated with each other are aggregated, two customers contributed 20% and 16% of the Company’s revenue for the three months ended June 30, 2021, respectively.

Two customers contributed 24% and 11% of the Company’s revenue for the six months ended June 30, 2021, respectively .

When customers who, to our knowledge, are under common control or otherwise affiliated with each other are aggregated, two customers contributed 31% and 11% of the Company’s revenue for the three months ended September 30, 2021, respectively, and one customer contributed 26% of the Company’s revenue for the nine months ended September 30, 2021 .

For these customers and for customers generally, tests are purchased on a test-by-test basis and not pursuant to any long-term purchasing arrangements.

As a result, any or all of our customers, including affiliated customers or customers under common control who purchase large quantities of billable tests, could decide at any time to decrease, delay or discontinue their orders from us which could adversely affect our revenue.

Although we believe some of these fluctuations in customer demand may be attributable, in part, to the nature of our business, in which our customers can experience significant

volatility in their genetic testing demand from period to period in the ordinary course of their operations, these demand fluctuations, particularly for any key customers, can have a significant impact on our period-to-period performance regardless of their cause.

Although we believe some of these fluctuations in customer demand may be attributable, in part, to the nature of our business.

Our traditional genetic testing customers can experience significant volatility in their genetic testing demand from period to period in the ordinary course of their operations and demand for our COVID-19 tests may vary widely depending on circumstances surrounding the pandemic, including the emergence or reemergence of viral variants such as the Delta variant.

These demand fluctuations, particularly for any key customers, can have a significant impact on our period-to-period performance regardless of their cause.

In addition, the failure of any one of our customers or their payors to pay on a timely basis would negatively impact our results and cash flows.

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The loss of any of our customers, or a reduction in orders or difficulties collecting payments for tests ordered by any of them, could significantly reduce our revenue and adversely affect our operating results.

If we are not able to grow and diversify our customer base and increase demand for our tests from existing and new customers, our potential for growth could be limited.

If we are unable to grow and diversify our customer base and increase demand for our tests from existing and new customers, our potential for growth could be limited.

We may incur cost overruns as a result of fixed price contracts which could limit profits or otherwise adversely affect our business results of operations and financial condition.

To achieve our desired revenue growth, we must increase test volume by further penetrating our existing hospital and medical institution customers and by expanding sales of our COVID-19 tests to additional governmental bodies, municipalities and large corporations in need of regular COVID-19 testing for large populations.

To achieve our desired revenue growth, we must increase test volume by further penetrating our existing hospital and medical institution customers, by expanding sales of our COVID-19 tests to additional governmental bodies, municipalities and large corporations in need of regular testing for large populations and by further establishing our presence in the cancer and molecular diagnostic testing markets.

In addition, we must grow our customer base beyond hospitals, medical institutions and other laboratories and into additional customer groups, such as individual physicians, other practitioners and research institutions.

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This competition may intensify in the future.

We face competition from a variety of sources, including, among others, an increasing number of companies seeking to develop and commercialize, or who have developed and commercialized, COVID-19 tests, dozens of companies focused on molecular genetic testing services, such as specialty and reference laboratories that offer traditional single-gene and multi-gene tests, and established and emerging healthcare, information technology and service companies that may develop and sell competitive products or services, which may include informatics, analysis, integrated genetic tools and services for health and wellness.

Additionally, participants in closely related markets, such as prenatal testing and clinical trial or companion diagnostic testing, could converge on offerings that are competitive with the type of tests we perform.

We face competition from a variety of sources, including, among others, an increasing number of companies seeking to develop and commercialize, or who have developed and commercialized, COVID-19 tests, dozens of companies focused on molecular genetic and cancer testing services, such as specialty and reference laboratories that offer traditional single-gene and multi-gene tests, and established and emerging healthcare, information technology and service companies that may develop and sell competitive products or services, which may include informatics, analysis, integrated genetic tools and services for health and wellness.

Additionally, participants in closely related markets could converge on offerings that are competitive with the type of tests we perform.

Instances where potential competitors are aligned with key suppliers or are themselves suppliers could provide these potential competitors with significant advantages.

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We may not be able to compete effectively against these organizations.

Additionally, increased competition and cost-saving initiatives on the part of government entities and other third-party payors could result in downward pressure on the price for our testing services and genetic analysis and interpretation generally, which could harm our revenue levels and sales volume and our ability to gain market share.

harm our revenue levels and sales volume and our ability to gain market share.

This downward pricing pressure could intensify in future periods, and we may not be able to maintain acceptable margins on our sales if we are forced to reduce prices for our tests to try to remain competitive, especially if we are also experiencing increasing expenses as we make efforts to grow our business or otherwise meet customer demands.

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We may not be successful in implementing these initiatives or other marketing strategies we may develop and pursue.

If we are not able to drive sufficient revenue using our sales and marketing strategies to support our planned growth, our business and results of operations would be negatively affected.

If we are unable to drive sufficient revenue using our sales and marketing strategies to support our planned growth, our business and results of operations would be negatively affected.

Our sales and marketing strategies also include a continued focus on growing our international sales and customer base, which we plan to pursue through our direct sales team, a number of independent contractor sales representatives, and, if opportunities arise, by engaging distributors or establishing other types of arrangements, such as joint ventures or other relationships, to manage or assist with sales, logistics, education or customer support in certain territories.

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In addition, sales practices utilized by distributors or other commercial partners that are locally acceptable may not comply with sales practices or standards required under U.S.

laws that apply to us, which could subject us to additional compliance risks.

laws that apply to us, which could subject us

to additional compliance risks.

If our sales and marketing efforts outside the United States are not successful, we may not achieve significant acceptance for our tests in international markets, which could materially and adversely impact our business operations.

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To continue to increase the volume of tests we offer and deliver, we must make substantial investments in our infrastructure, including our testing capacity, laboratory capacity, information systems, enterprise software systems, customer service, billing and collections systems and processes and internal quality assurance programs.

We will also need to invest in our workforce by hiring additional skilled personnel, including biostatisticians, geneticists, software engineers, laboratory directors and specialists, sales and marketing experts and other scientific, technical and managerial personnel to market, process, interpret and validate the quality of

results of our genetic tests and otherwise manage our operations.

For example, before we deliver a report for any of our tests, including our COVID-19 tests, the results summarized in the report must be reviewed and approved by a licensed and qualified laboratory director.

We currently have six laboratory directors, of which, five lab directors have all of the required licenses, including Dr.

We may need to hire additional licensed laboratory directors in the future to further scale our business.

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Our healthcare provider customers, including laboratories may not order our tests unless third-party payors cover and provide adequate reimbursement for a substantial portion of the price of the tests.

If we are not able to obtain coverage and an acceptable level of reimbursement for our tests from third-party payors, there would typically be a greater co-insurance, deductible or co-payment requirement from the patient for whom the test is ordered or the patient may be forced to pay the entire cost of the test out-of-pocket, which could dissuade practitioners from ordering our tests and, if ordered, could result in a delay in or decreased likelihood of collecting payment, whether from patients or from third-party payors.

If we are not able to obtain coverage and an acceptable level of reimbursement for our tests from third-party payors, there would typically be a greater co-

insurance , deductible or co-payment requirement from the patient for whom the test is ordered or the patient may be forced to pay the entire cost of the test out-of-pocket, which could dissuade practitioners from ordering our tests and, if ordered, could result in a delay in or decreased likelihood of collecting payment, whether from patients or from third-party payors.

We believe our ability to increase the number of tests we sell to our healthcare provider customers and any corresponding revenue will depend in part on our ability to achieve and maintain broad coverage and reimbursement for our tests from third-party payors.

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We may not be successful in developing and marketing new tests, which could negatively impact our performance and prospects.

We believe our future success will depend in part on our ability to continue to expand our test offerings and develop and sell new tests.

We may not be successful in launching or marketing any new tests we may develop, and, even if we are successful, the demand for our other tests could decrease or may not continue to increase at historical rates due to sales of the new tests.

Our pipeline of new tests is in various stages of development and will be time-consuming and costly to fully develop and introduce, as development and marketing of new tests requires us to conduct research and development activities regarding the new tests and to further scale our laboratory processes and infrastructure to be able to analyze increasing amounts of more diverse data.

We believe our future success will depend in part on our ability to continue to expand our test offerings and develop and sell new tests and on our ability to expand our presence in new and existing markets, including our presence in the molecular diagnostic and cancer testing markets.

We may not be successful in launching or marketing any new tests we may develop or in expanding into any new or existing markets, and, even if we are successful, the demand for our tests could decrease or may not continue to increase at historical rates due to sales of any new tests.

amounts of more diverse data.

Further, we may be unable to discover or develop and launch new tests for a variety of reasons, including failure of any proposed test to perform as expected, lack of validation or reference data for the test or failure to demonstrate the utility of the test.

Further, any new test we are able to discover and develop may not be launched in a timely manner, meet applicable regulatory standards, successfully compete with other technologies and available tests, avoid infringing the proprietary rights of others, achieve coverage and adequate reimbursement from third-party payors, be capable of performance at commercial levels and at reasonable costs, be successfully marketed or achieve sufficient market acceptance for us to recoup our time and capital investment in the development of the test.

Any failure to

successfully develop, market and sell new tests could negatively impact our ability to attract and retain customers and our revenue and prospects.

Any failure to successfully develop, market and sell new tests could negatively impact our ability to attract and retain customers and our revenue and prospects

We are exposed to additional business, regulatory, political, operational, financial and economic risks related to our international operations.

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and many of the other risks of doing business internationally that are discussed above.

Further, we could experience declines in our direct sales to, and revenue from, customers in Asia if any of these customers choose to order genetic tests from FF Gene Biotech instead of directly from us.

As a result of these risks, although we believe FF Gene Biotech could result in expanded long-term opportunities to address the genetic testing market in Asia, this belief could turn out to be wrong and we may

never realize these or any other benefits we anticipate from FF Gene Biotech .

Moreover, FF Gene Biotech or any joint venture we may seek to establish may never produce sufficient revenue to us to recover our capital and other investments in the joint venture, and we could become subject to liabilities based on our involvement in the joint venture’s operations.

The materialization of any of these risks related to FF Gene Biotech could materially harm our performance and prospects.

Although we believe FF Gene Biotech could result in expanded long-term opportunities to address the genetic testing market in Asia, this belief could turn out to be wrong and we may never realize these or any other benefits we anticipate from FF Gene Biotech.

Moreover, any joint venture we may seek to establish may never produce sufficient revenue to us to recover our capital and other investments in the joint venture, and we could become subject to liabilities based on our involvement in the joint venture’s operations.

The materialization of any of these risks could materially harm our performance and prospects.

If we are sued for product or professional liability, we could face substantial liabilities that exceed our resources.

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If our laboratory facilities become inoperable, if we are forced to vacate a facility or if we are unable to obtain additional laboratory space as and when needed, we would be unable to perform our tests and our business would be harmed.

We perform all of our tests at our CLIA-certified laboratories in Temple City, California and Houston, Texas.

We perform all of our tests at our CLIA-certified laboratories in Temple City, California, Houston, Texas and in Alpharetta, Georgia.

Our laboratories and the equipment we use to perform our tests would be costly to replace and could require substantial lead time to replace and qualify for use.

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Although we take what we believe are reasonable precautions to prevent the spread of COVID-19 within our facilities and among our employees, we cannot provide assurance that we will not suffer from an exposure to the SARS-CoV-2 virus that would require a temporary closure of our laboratory facilities, which would materially adversely affect our operations and financial results.

Other adverse effects of the pandemic on our business could include disruptions or restrictions on our employees’ ability to travel, as well as temporary closures of the facilities of our suppliers, third party service providers or customers, which could impact our test volume and results of operations.

providers or customers, which could impact our test volume and results of operations.

In addition, a significant outbreak of contagious disease in the human population could result in a widespread health crisis that could adversely affect the economies and financial markets of many countries, resulting in an economic downturn that could affect demand for our tests and impact our results of operations.

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These and other ethical, legal and social concerns may limit market acceptance and adoption of our tests or reduce the potential markets for our tests, any of which could have an adverse effect on our business, financial condition and results of operations.

In addition, California recently enacted a new law called the Genetic Information Privacy Act that will impose new privacy requirements on direct-to-consumer genetic testing companies that could change the discussion among patients and physicians related to genetic testing as a whole, and potentially reduce consumer interest in such testing more broadly.

Actual or attempted security breaches, loss of data or other disruptions could compromise sensitive information related to our business or to patients or prevent us from accessing critical information, any of which could expose us to liability and adversely affect our business and our reputation.

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We expect our capital expenditures and operating expenses to increase over the next several years as we seek to expand our infrastructure, sales and marketing and other commercial operations and research and development activities.

As of June 30, 2021, we had cash and cash equivalents of approximately $100.5 million.

As of September 30, 2021, we had cash and cash equivalents of approximately $214.9 million.

We maintain our cash, cash equivalents and short-term marketable securities with high quality, accredited financial institutions.

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We cannot predict the timing or extent of such tax-related developments which could have a negative impact on our financial results.

federal legislation affecting the tax laws was enacted in December, 2017 in the Tax Cuts and Jobs Act (“TCJA”);

twice in March, 2020, first in the Families First Coronavirus Response Act and again in the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”);

federal legislation affecting the tax laws was enacted in December, 2017 in the Tax Cuts and Jobs Act;

twice in March, 2020, first in the Families First Coronavirus Response Act and again in the CARES Act;

in December, 2020 in the Consolidated Appropriates Act, 2021;

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However, a challenge by a taxing authority, our ability to utilize tax benefits such as carryforwards or tax credits, or a deviation from other tax-related assumptions may cause actual financial results to deviate from previous estimates.

We have previously and may again in the future acquire businesses or assets, form joint ventures, make investments in other companies or technologies or establish other strategic relationships, any of which could harm our operating results, dilute our stockholders’ ownership or cause us to incur debt or significant expense.

As part of our business strategy, we have previously and may again in the future pursue acquisitions of complementary businesses or assets, investments in other companies, such as our recent acquisition of CSI and our investment in Helio Health, technology licensing arrangements, joint ventures or other strategic relationships.

As an organization, we have limited experience with respect to acquisitions, investments or the formation of strategic relationships or joint ventures.

If we make acquisitions in the future, we may not be able to successfully integrate the acquired businesses or technologies into our existing operations, we could assume unknown or contingent liabilities and we could be forced to record significant write-offs or incur debt as a result of the acquisitions, any of which could harm our operating results.

If we pursue relationships with pharmaceutical companies or other strategic relationships, our ability to establish and maintain these relationships could be challenging due to several factors, including competition with other genetic testing companies and internal and external constraints placed on pharmaceutical and other organizations that limit the number and type of relationships they can establish with companies like ours.

Moreover, we may not be able to identify or complete any acquisition, investment, technology license, joint venture or other strategic relationship in a timely manner, on a cost-effective basis or at all, and we may not realize the anticipated benefits of any such transaction sufficiently to recoup our costs.

If we pursue relationships with pharmaceutical companies or other strategic relationships, our ability to establish and maintain these relationships could be challenging due to several factors, including competition with other testing companies and internal and external constraints placed on pharmaceutical and other organizations that limit the number and type of relationships they can establish with companies like ours.

To finance any acquisitions, investments, joint ventures or other strategic relationships, we may seek to raise additional funds through securities offerings, credit facilities, asset sales or collaborations or licensing arrangements.

To the extent these financing transactions call for the issuance of shares of our capital stock, our existing stockholder would experience dilution in their relative ownership of shares of our capital stock.

Each of these methods of fundraising is subject to a variety of risks, including those discussed above under “—Any inability to obtain additional capital when needed and on acceptable terms may limit our ability to execute our business plans.” Further, additional funds from capital-raising transactions may not be available when needed, on acceptable terms or at all.

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our reference library of information relating to genetic variants and their role in disease;

personal information storage, maintenance and transmission;

information storage, maintenance and transmission;

our customer-facing web-based software and customer service functions;

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our billing and reimbursement procedures;

our scientific and medical data analysis and other research and

development activities and programs;

our scientific and medical data analysis and other research and development activities and programs;

and our general and administrative activities, including disclosure controls, internal control over financial reporting and other public reporting functions.

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Although we have implemented systems, processes and controls and performed this evaluation as of the end of 2020, we will need to maintain and enhance these controls if and as we grow, and we may need to hire additional personnel and devote more resources to our financial reporting function in order to do so.

If we identify one or more material weaknesses during the process of annually evaluating our internal controls, we may not detect errors on a timely basis and our financial statements may be materially misstated.

If we identify one or more material weaknesses during the process of evaluating our internal controls, we may not detect errors on a timely basis and our financial statements may be materially misstated.

In addition, in that event, our management would be unable to conclude that our internal control over financial reporting is effective.

Further, when we are no longer an emerging growth company or when and if we become a large accelerated filer or accelerated filer, our independent registered public accounting firm will be required to issue an attestation report on the effectiveness of our internal control over financial reporting.

When that occurs, our independent registered public accounting firm may conclude that there are material weaknesses in our internal controls or

the level at which our internal controls are documented, designed, implemented or reviewed even if our management concludes that our internal control over financial reporting is effective.

Further, when we are no longer an emerging growth company, our independent registered public accounting firm will be required to issue an attestation report on the effectiveness of our

internal control over financial reporting.

When that occurs, our independent registered public accounting firm may conclude that there are material weaknesses in our internal controls or the level at which our internal controls are documented, designed, implemented or reviewed even if our management concludes that our internal control over financial reporting is effective.

If we or our auditors were to conclude that our internal control over financial reporting was not effective because one or more material weaknesses had been identified or if internal control deficiencies result in the restatement of our financial results, investors could lose confidence in the accuracy and completeness of our financial disclosures and the price of our common stock could decline.

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HHS’s policy statement does not affect proposed legislation for the regulation of LDTs, which is discussed below.

It also continues to be unclear whether the Biden Administration, which assumed control of the executive branch on January 20, 2021, would take the same position as the former administration or seek to revoke or revise the HHS policy announcement from August 2020.

In December 2018, members of Congress released a discussion draft of a possible bill to regulate in vitro clinical tests including LDTs, and provided opportunities for additional stakeholders to also provide input on the proposed reform legislation.

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CLIA certification is required in order for us to be eligible to bill federal and state health care programs, as well as many private third-party payors, for our tests.

We have obtained CLIA certification to conduct our tests at our laboratories in Temple City, California and in Houston, Texas.

We have obtained CLIA certification to conduct our tests at our laboratories in Temple City, California, Houston, Texas and Alpharetta, Georgia.

In addition to CLIA requirements, we elect to participate in the accreditation program of CAP.

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the federal Physician Sunshine Payment Act and various state laws on reporting relationships with health care providers and customers, which could be determined to apply to our LDTs;

the prohibition on reassignment of Medicare claims;

the prohibition on reassignment of Medicare claims and other Medicare and Medicaid billing and coverage requirements;

state laws that prohibit other specified healthcare practices, such as billing physicians for tests that they order, waiving coinsurance, copayments, deductibles and other amounts owed by patients, business corporations practicing medicine or employing or engaging physicians to practice medicine and billing a state Medicaid program at a price that is higher than what is charged to one or more other payors;

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The genetic testing industry is currently under a high degree of government scrutiny.

The Office of Inspector General for the Department of Health and Human Services and a variety of states’ Attorneys General have issued fraud alerts regarding a variety of cancer genetic testing fraud schemes, and the Department of Justice has announced indictments and guilty pleas in such fraud schemes involving a variety of individuals and entities, including genetic testing and other laboratories, physicians who order genetic testing for a large volume of patients without treating them, and third parties who arranged for the genetic testing by approaching patients through telemarketing calls, booths at public events, health fairs, and door-to-door visits.

These individuals then shared the proceeds received from Medicare, TRICARE, and other third-party payors.

The Office of Inspector General for the Department of Health and Human Services and a variety of states’ Attorneys General have issued fraud alerts regarding a variety of cancer genetic testing fraud schemes, and the Department of Justice has announced indictments and guilty pleas in such fraud schemes involving a variety of individuals and entities, including genetic testing and other laboratories, physicians who ordered genetic testing for a large volume of patients without treating them, and third parties who arranged for the genetic testing by approaching patients through telemarketing calls, booths at public events, health fairs, and door-to-door visits.

These individuals then shared the proceeds received from Medicare, TRICARE, and other third-party payors, which allegedly violated the federal Anti-Kickback Statute and other criminal laws.

This increased regulatory scrutiny could decrease demand for our testing services or increase our costs of regulatory compliance, either of which could have a material adverse effect on our business.

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Additionally, we are subject to the risk that a person or government could allege such fraud or other misconduct, even if none occurred.

Any action brought against us for violation of these or other laws or regulations, even if we successfully defend against it, could cause us to incur significant legal expenses, divert our management’s attention from

the operation of our business and harm our reputation.

Any action brought against us for violation of these or other laws or regulations,

even if we successfully defend against it, could cause us to incur significant legal expenses, divert our management’s attention from the operation of our business and harm our reputation.

If our operations, including the conduct of our employees, consultants and commercial partners, are found to be in violation of any of these laws and regulations, we may be subject to applicable penalties associated with the violation, including administrative, civil and criminal penalties, damages, fines, individual imprisonment, exclusion from participation in federal healthcare programs, refunding of payments received by us and curtailment or cessation of our operations.

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Similar to the federal Anti-Kickback Statute, EKRA imposes criminal penalties for knowing or willful payment or offer, or solicitation or receipt, of any remuneration, whether directly or indirectly, overtly or covertly, in cash or in kind, in exchange for the referral or inducement of laboratory testing (among other health care services) unless a specific exception applies.

However, unlike the federal Anti-Kickback Statute, EKRA is not limited to services covered by federal or state health care programs but applies more broadly to services covered by “health care benefit programs,” including commercial insurers.

Additionally, because EKRA’s exceptions are not identical to the federal Anti-Kickback Statute’s safe harbors, compliance with a federal Anti-Kickback Statute safe harbor does not guarantee protection under EKRA.

As currently drafted, EKRA potentially expands the universe of arrangements that could be subject to government enforcement under federal fraud and abuse laws, and there is no agency guidance or court precedent to indicate how and to what extent it will be applied and enforced.

We cannot assure you that our relationships with physicians, sales representatives, hospitals, customers, or any other party will not be subject to scrutiny or will survive regulatory challenge under such laws.

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Since that time, the FDA has granted authorizations to revise the authorized labeling for the RT-PCR test and to allow for the use of an additional at-home specimen collection kit in conjunction with our test.

In addition, the FDA recently established additional conditions for emergency authorizations of COVID-19 molecular, antigen, and serology tests to account for emerging mutations of the SARS-CoV-2 virus, which revise our previously issued EUA.

Although there are certain regulatory requirements the FDA has waived for the duration of the EUA, we remain subject to specific conditions of the authorizations.

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We are subject on an ongoing basis to federal, state and local laws and regulations governing the use, storage, handling and disposal of these hazardous materials and other specified waste products.

Although we typically use licensed or otherwise qualified outside vendors to dispose of this waste, applicable laws and regulations could hold us liable for damages and fines if our, or others’, business operations or other actions result in contamination to the environment or personal injury due to exposure to hazardous materials.

Although we typically use licensed or otherwise qualified outside vendors to dispose of this waste, applicable laws and

regulations could hold us liable for damages and fines if our, or others’, business operations or other actions result in contamination to the environment or personal injury due to exposure to hazardous materials.

We cannot eliminate the risk of contamination or injury, and any liability imposed on us for any resulting damages or injury could exceed our resources or any applicable insurance coverage.

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These operations could involve dealings with governments, foreign officials and state-owned entities, such as government hospitals, outside the United States.

In addition, we may engage distributors, other commercial partners or third-party intermediaries,

such as representatives or contractors, or establish joint ventures or other arrangements to manage or assist with promotion and sale of our tests abroad and obtaining necessary permits, licenses and other regulatory approvals.

In addition, we may engage distributors, other commercial partners or third-party intermediaries, such as representatives or contractors, or establish joint ventures or other arrangements to manage or assist with promotion and sale of our tests abroad and obtaining necessary permits, licenses and other regulatory approvals.

Any such third parties could be deemed to be our agents and we could be held responsible for any corrupt or other illegal activities of our employees or these third parties, even if we do not explicitly authorize or have actual knowledge of such activities.

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However, these policies and controls could be circumvented or ignored and they cannot guarantee compliance with these laws and regulations.

Any violations of these laws or allegations of such violations could disrupt our operations, involve significant management distraction, involve significant costs and expenses, including legal fees, and harm our reputation.

Any violations of these laws or allegations of such violations could disrupt our operations, involve significant management distraction, involve significant costs and

expenses, including legal fees, and harm our reputation.

Additionally, other U.S.

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These confidentiality agreements may not sufficiently safeguard our trade secrets and other confidential information and may not provide adequate remedies in the event of unauthorized use or disclosure of this information.

Enforcing a claim that a party illegally disclosed or misappropriated a trade secret or other proprietary information could be difficult, expensive and time-consuming

and the outcome could be unpredictable.

Enforcing a claim that a party illegally disclosed or misappropriated a trade secret or other proprietary information could be difficult, expensive and time-consuming and the outcome could be unpredictable.

In addition, trade secrets or other confidential information could otherwise become known or be independently developed by others in a manner that could prevent legal recourse by us.

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In particular, although the Supreme Court has held in Myriad that isolated genomic DNA is not patent-eligible subject matter, third parties could allege that our activities infringe other classes of gene-related patent claims.

There are numerous risks associated with any patent infringement claim that may be

brought against us, as discussed above under “—Litigation or other proceedings or third-party claims of intellectual property infringement or misappropriation could require us to spend significant time and money and prevent us from selling our tests.”

There are numerous risks associated with any patent infringement claim that may be brought against us, as discussed above under “—Litigation or other proceedings or third-party claims of intellectual property infringement or misappropriation could require us to spend significant time and money and prevent us from selling our tests.”

In addition, the Leahy-Smith America Invents Act, or America Invents Act, which was signed into law in 2011, includes a number of significant changes to U.S.

21 unchanged sentences

An active trading market for our common stock may not be sustained.

Hsieh, our founder, Chief Executive Officer and Chairman of our board of directors, beneficially owns approximately 27% of our outstanding voting equity as of June 30, 2021.

Hsieh, our founder, Chief Executive Officer and Chairman of our board of directors, beneficially owns approximately 26% of our outstanding voting equity as of September 30, 2021.

As a result, fewer shares are actively traded in the public market, which reduces the liquidity of our common stock.

28 unchanged sentences

Our principal stockholders and management own a significant percentage of our capital stock and are able to exert significant control over matters subject to stockholder approval.

Our executive officers, directors, beneficial owners of 5% or more of our outstanding voting equity and their respective affiliates collectively beneficially owns approximately 40% of our outstanding voting equity as of June 30, 2021, and of this, Mr.

Hsieh, our founder, Chief Executive Officer and Chairman of our board of directors, by himself beneficially owns 27% of our outstanding voting equity as of June 30, 2021.

Hsieh, our founder, Chief Executive Officer and Chairman of our board of directors, by himself beneficially owns 26% of our outstanding voting equity as of September 30, 2021.

As a result, these stockholders have the ability to control matters submitted to our stockholders for approval, including elections of directors, amendments to our organizational documents or approval of any merger, sale of assets or other major corporate transaction.

12 unchanged sentences

During the year ended December 31, 2020, we sold an aggregate of 2.0 million shares of our common stock pursuant to the November 2020 Equity Distribution Agreement at a weighted-average net selling price of $48.70 per share .

During the three months ended June 30, 2021, the Company sold approximately 378,000 shares of its common stock pursuant to the November 2020 Equity Distribution Agreement at a weighted-average net selling price of $73.75.

During the six months ended June 30, 2021, the Company sold approximately 961,000 shares of its common stock pursuant to the November 2020 Equity Distribution Agreement at a weighted-average net selling price of $60.56.

During the three months ended September 30, 2021, the Company did not sell any shares of its common stock pursuant to the November 2020 Equity Distribution Agreement.

During the nine months ended September 30, 2021, the Company sold approximately 961,000 shares of its common stock pursuant to the November 2020 Equity Distribution Agreement at a weighted-average net selling price of $60.56.

We also may issue common stock or grant other equity awards for compensatory purposes under our equity incentive plan.

39 unchanged sentences

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 1A. Risk Factors