−Removed: Risk Factors Summary
The following is a summary of the principal risks that could adversely affect our business, operations, and financial results:
2 unchanged sentences
• Our strategic growth plan may not achieve the anticipated results, and we may not be able to achieve or maintain revenue growth or operate our business on a profitable basis.
−Removed: • Our financial condition and results of operations could be further adversely affected by the ongoing coronavirus pandemic or any other adverse public health development.
+Added: • If the government and other third-party payors fail to provide coverage and adequate payment for our existing and future tests, if any, our revenue and prospects for profitability will be harmed.
• If we do not generate sufficient cash flow from operations and are unable to secure additional funding, we may have to reduce our operations.
• We are subject to debt covenants that impose operating and financial restrictions on us and if we are not able to comply with them, it could have a material adverse impact on our operations and liquidity.
−Removed: • If our current operating plan changes and we find that our existing capital resources will not meet our needs, we may find it necessary to raise additional funding, which may not be available.
−Removed: • We are currently subject to, and in the future may be subject to, securities class action lawsuits and stockholder derivative actions, as well as product or professional liability claims.
+Added: • If our existing capital resources and expected net cash to be generated from sales of our tests is not sufficient for us to maintain our currently planned operations, we may find it necessary to raise additional funding, which may not be available on favorable terms, or at all.
+Added: • We have been subject to, and in the future may be subject to, securities class action lawsuits and stockholder derivative actions, as well as product or professional liability claims.
These, and potential similar or related litigation, could result in substantial losses and have a material adverse effect on our business, cash position, operating results or financial condition.
1 unchanged sentence
• We have acquired and we may continue to acquire technologies, assets or other businesses that could cause us to incur significant expense and expose us to a number of unanticipated operational and financial risks, which could adversely affect our financial condition, results of operations and business prospects.
−Removed: • If our SneakPeek Early Gender DNA Test does not perform as expected, we may not realize the expected benefits of our acquisition of Gateway.
+Added: • Failure to comply with laws and regulations related to submission of claims for our services could result in significant monetary damages and penalties and exclusion from the Medicare and Medicaid programs and corresponding foreign reimbursement programs.
+Added: • Our financial condition and results of operations could be adversely affected by adverse public health developments.
+Added: • If our SneakPeek Early Gender DNA Test does not perform as expected, we may not realize the expected benefits of our acquisition of Gateway (as defined below).
• Security breaches, loss of data and other disruptions, including from cyberattacks, could compromise sensitive information related to our business, prevent us from accessing critical information or expose us to liability, which could adversely affect our business and our reputation.
1 unchanged sentence
• Each of our tests is processed in a single one of our laboratory facilities, and any loss or prolonged interruption of our ability to use these laboratories or failure to maintain their operation in compliance with applicable regulations would seriously harm our business.
+Added: • Our inability to, or delay in, transitioning certain of our laboratory operations to new laboratory facilities in west Salt Lake City, Utah and South San Francisco, California could adversely affect our business.
• We depend on a limited number of third parties, or, in some cases, single-source suppliers, for equipment, reagents and other supplies.
−Removed: If these supplies become unavailable or are disrupted, including as a result of COVID-19 or another disease and responses to it, then we may not be able to successfully perform our research or operate our business on a timely basis or at all.
+Added: If these supplies become unavailable or are disrupted, then we may not be able to successfully perform our research or operate our business on a timely basis or at all.
• Our international business exposes us to business, regulatory, political, operational, financial and economic risks associated with doing business outside of the United States.
2 unchanged sentences
• We face risks associated with currency exchange rate fluctuations, which could adversely affect our operating results.
+Added: • Impairment in the value of our goodwill or other intangible assets could have a material adverse effect on our operating results and financial condition.
+Added: • Our estimates of actionable market size and forecasts of market growth may prove to be inaccurate, and even if the market in which we compete achieves the forecasted growth, our business could fail to grow at similar rates.
+Added: • Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.
Risks Related to the Development and Commercialization of Our Tests and Test Candidates
2 unchanged sentences
• If our current research collaborators or scientific advisors terminate their relationships with us or develop relationships with a competitor, our ability to discover genes, proteins, and biomarkers, and to validate and commercialize tests could be adversely affected.
−Removed: Risks Related to Reimbursement
−Removed: • If the government and third-party payors fail to provide coverage and adequate payment for our existing and future tests, if any, our revenue and prospects for profitability will be harmed.
−Removed: • Failure to comply with laws and regulations related to submission of claims for our services could result in significant monetary damages and penalties and exclusion from the Medicare and Medicaid programs and corresponding foreign reimbursement programs.
Risks Related to Our Intellectual Property
−Removed: • If we are not able to protect our proprietary technology, others could compete against us more directly, which would harm our business.
+Added: • If we fail to protect our proprietary technology, others could compete against us more directly, which would harm our business.
• If we are subject to litigation or other proceedings arising from a claim of infringement of the intellectual property of a third party, we might incur significant costs and delays in test introduction or we could be prevented from using technologies incorporated in our tests.
13 unchanged sentences
• Our business involves environmental risks that may result in liability for us.
−Removed: Risks Related to Our Common Stock
+Added: General Risks and Risks Related to Our Common Stock
• Our stock price is highly volatile, and our stock may lose all or a significant part of its value.
−Removed: • Our inability to achieve and maintain effective disclosure controls and procedures and internal control over financial reporting could adversely affect our results of operations, our stock price and investor confidence in us.
+Added: • If we are unable to achieve and maintain effective disclosure controls and procedures and internal control over financial reporting, our results of operations, our stock price and investor confidence in us could be adversely affected.
• Anti-takeover provisions of Delaware law, provisions in our charter and bylaws and re-adoption of our stockholders’ rights plan, or poison pill, could make a third-party acquisition of us difficult.
• Future sales and issuances of our common stock would result in dilution of the percentage ownership of our stockholders and could cause the price of our common stock to decline.
−Removed: • We do not intend to pay dividends on our common stock so any returns will be limited to changes in the value of our common stock.
+Added: • We do not intend to pay dividends so any returns will be limited to changes in the value of our common stock.
• If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.
−Removed: • Our restated bylaws provide that a state court located within the State of Delaware is the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
+Added: • Increasing scrutiny and evolving expectations from regulators, business partners, investors, and other stakeholders with respect to our ESG practices may impose additional costs on us or expose us to new or additional risks.
+Added: • Our restated certificate of incorporation and our restated bylaws designate specific state or federal courts as the exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
Risks Related to Our Business and Our Strategy
We may not be able to generate sufficient revenue from our existing tests or develop new tests to be profitable.
−Removed: We believe our future success is dependent upon our ability to successfully market our existing tests to additional patients within the United States, to expand into new markets within and outside the United States, and to develop and commercialize new tests.
+Added: We believe our future success is dependent upon our ability to successfully market our existing tests to additional patients within the United States, to expand into new markets, to develop and commercialize new tests and to maintain or obtain reimbursement for our tests.
However, we may not be able to generate sufficient revenue, from our existing tests and launching and commercializing new tests, to be profitable.
14 unchanged sentences
Our strategic growth plan may not achieve the anticipated results, and we may not be able to achieve or maintain revenue growth or operate our business on a profitable basis.
−Removed: We are currently executing upon a strategic growth plan in which we intend to accelerate growth through launching new tests, utilizing a unified ordering portal to improve access and ease of use for patients and providers, expanding reimbursement coverage for our tests, enhancing our commercial capabilities and deploying a new commercial model in our Women's Health and Oncology businesses.
−Removed: Our future performance and growth depends on the success of our growth plan, including management's ability to execute upon that plan and the ability of our employees to respond quickly and effectively to strategic projects and changes in our operations and business practices.
+Added: We are currently executing upon a multi-year strategic growth plan in which we intend to continue growing by articulating our clinical differentiation, raising awareness with patients who we believe would benefit from our testing products, and innovation that improves clinical outcomes, ease of use, and access.
+Added: Our future performance and growth depend on the success of our growth plan, including management's ability to execute upon that plan and the ability of our employees to respond quickly and effectively to strategic projects and changes in our operations and business practices.
The implementation of our strategic growth plan has resulted, and is expected to continue to result, in changes to business priorities and operations, capital allocation priorities, operational and organizational structures, and increased demands on management.
The execution of our strategic growth plan may take longer than anticipated, and we may not realize, in full or part, our anticipated growth targets in our testing volumes and revenue, or such growth may be realized more slowly than anticipated.
−Removed: Historically, our business operated profitably and provided a cash contribution to our funding and operational needs.
−Removed: However, in recent years we have not operated our business profitably, and we may not be able to operate our business on a profitable basis in the future.
+Added: In recent years we have not operated our business profitably, and we may not be able to achieve or maintain profitability in the future.
Potential events or factors that may have a significant impact on our ability to achieve our growth targets and achieve and/or maintain revenue growth and profitability for our business include the following:
−Removed: • the efforts of third-party payors to limit or decrease the amounts that they are willing to pay for our tests, recoup amounts already paid, or institute burdensome administrative requirements for reimbursement, such as prior authorization requirements;
+Added: • the efforts of third-party payors to limit or decrease the amounts that they are willing to pay for our tests, recoup amounts already paid, not cover our tests, or institute burdensome administrative requirements for reimbursement, such as prior authorization requirements;
+Added: • our ability to execute on our strategic growth plan;
• increased costs of reagents and other consumables required for testing;
3 unchanged sentences
• our inability to increase production capacity to meet demand increases;
−Removed: • our inability to expand into new markets within or outside the United States;
−Removed: • our ability to execute on our strategic growth plan;
+Added: • our inability to expand into new markets;
• increased licensing or royalty costs, and our ability to maintain and enforce the intellectual property rights underlying our tests and services;
9 unchanged sentences
The failure to achieve our growth targets and achieve and/or maintain revenue growth and profitability for our business could have a material adverse effect on our business, prospects, financial condition, results of operations, cash flows, as well as the trading price of our common stock.
−Removed: Our financial condition and results of operations could be further adversely affected by the ongoing coronavirus pandemic or any other adverse public health development.
−Removed: Any further outbreaks of COVID-19 (including its variant strains) or any other outbreak of contagious disease or adverse public health development, could have a further material and adverse effect on our business operations, financial condition, or results of operations.
−Removed: For example, government public health officials and businesses have implemented, and may continue to implement, restrictions to curb the spread of COVID-19, which has limited, and may continue to limit, patients’ access to our products, and has caused, and may continue to cause, patients to elect to defer certain testing, each of which has impeded, and may continue to impede, our progress in returning to profitability and recovering from the earlier effects of the COVID-19 pandemic.
−Removed: Such adverse effects have included, and may continue to include, diversion or prioritization of health care resources away from the conduct of testing, and disruptions or restrictions affecting the ability of our laboratories to process our tests.
−Removed: Future surges in COVID-19 cases or any other outbreak of contagious disease and related employee absences may strain our workforce and impact our ability to process tests in a timely way due to reduced staff availability.
−Removed: To the extent that COVID-19 or another disease affects individuals and businesses around the globe, we may experience further disruptions from time to time that could severely impact our business, including:
−Removed: • decreased volume of testing as a result of disruptions to health care providers and limitations on the ability of providers to administer tests, including the suspension of non-emergency appointments and services;
−Removed: • disruptions or restrictions on the ability of our customers, our collaborators’, or our suppliers’ personnel to travel, including as a result of shelter-in-place or stay-at-home orders from state and local governments, and temporary closures of our facilities or the facilities of our collaborators or suppliers;
−Removed: • limitations on employee resources that would otherwise be focused on the development of our products, processing our tests, and the conduct of our clinical trials, including because of sickness of employees or their families or requirements imposed on employees to avoid contact with large groups of people;
−Removed: • delays in necessary interactions with local regulators, ethics committees and other important agencies and contractors due to limitations in employee resources or access.
−Removed: In addition, the continued spread of COVID-19 or the spread of another disease globally could continue to adversely affect our manufacturing and supply chain.
−Removed: Parts of our direct and indirect supply chain are located overseas and both international and domestic components have been, and may continue to be, subject to disruption as a result of COVID-19 or another disease and responses to it.
−Removed: If the supplies and components necessary to manufacture our products become unavailable or are disrupted as a result of COVID-19 or the spread of another disease and responses to it, then we may not be able to successfully perform our research, sell our tests, or operate our business on a timely basis or at all.
−Removed: The extent to which COVID-19 continues to affect our business, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration, spread and severity of COVID-19 outbreaks, the rate of vaccination and efficacy of approved vaccines against COVID-19 and its variant strains, actions taken to contain COVID-19 or treat its impact, new information that may emerge concerning the health effects of COVID-19, and how quickly and to what extent normal economic and operating conditions resume, any of which could have a further adverse effect on our business and financial condition.
−Removed: Even after the COVID-19 pandemic subsides or becomes endemic, we may continue to experience an adverse impact to our business as a result of its global economic impact, including from increased inflation, delayed economic recovery and any recession that has occurred or may occur in the future.
−Removed: In addition, difficult macroeconomic conditions, such as inflation, decreases in per capita income and level of disposable income and related health insurance coverage, increased and prolonged unemployment or a decline in consumer confidence as a result of the pandemic, could have a material adverse effect on the demand for some or all of our products.
+Added: If the government and other third-party payors fail to provide coverage and adequate payment for our existing and future tests, if any, our revenue and prospects for profitability will be harmed.
+Added: In both domestic and foreign markets, sales of our tests or any future tests will depend in large part upon the availability of reimbursement from third-party payors.
+Added: Such third-party payors include state and federal health care programs such as Medicare, managed care organizations, other private health insurers and other organizations.
+Added: These third-party payors are increasingly attempting to contain health care costs by demanding price discounts and limiting both coverage regarding which tests they will pay for and the amounts that they will pay for existing and new tests.
+Added: We have experienced coverage limitations and price reductions for many of our products, including for our GeneSight Psychotropic Mental Health Medication Test, and we may continue to experience future coverage limitations and price reductions from CMS, managed care organizations, and other third-party payors.
+Added: The fact that a test has been approved for reimbursement in the past, for any particular indication or in any particular jurisdiction, does not guarantee that such a test will be approved or remain approved for reimbursement, that the reimbursement amount approved for such test will not be reduced in the future, or that similar or additional tests will be approved for reimbursement in the future.
+Added: Historically, we have not received reimbursement from third-party payors or payment from patients for many of our tests.
+Added: Moreover, there can be no assurance that any new tests we have launched or may launch will be reimbursed at rates that are comparable to the rates that we historically obtained for our existing product portfolio.
+Added: As a result, third-party payors may not cover or provide adequate payment for our current or future tests to enable us to maintain past levels of revenue or profitability with respect to such tests.
+Added: Further, third-party reimbursement might not be available to enable us to maintain price levels sufficient to realize an appropriate return on investment in product development.
+Added: In addition, under PAMA, Medicare reimbursement for any given test is based on the weighted-median of the payments made by private payors for such test, rendering private payor payment levels even more significant.
+Added: As a result, future Medicare payments may fluctuate more often and become subject to the willingness of private payors to recognize the value of tests generally and any given test individually.
+Added: Since December 2019, Congress has passed a series of laws to modify PAMA’s statutory requirements related to the data reporting period and phase-in of payment reductions under the CLFS for CDLTs that are not ADLTs.
+Added: Most recently, the Further Continuing Appropriations and Other Extensions Act of 2024 (Pub.L.
+Added: 118-22, enacted on November, 16, 2023) further delayed the reporting requirement as well as the application of the 15% phase-in reduction.
+Added: Under these statutory provisions, the next data reporting period for CDLTs that are not ADLTs will be January 1, 2025 through March 31, 2025.
+Added: The same series of laws modified the phase-in of payment reductions resulting from private payor rate implementation so that a 0.0 percent reduction limit was applied for calendar years 2021 through 2023, as compared to the payment amounts for a test the preceding year.
+Added: The Further Continuing Appropriations and Other Extensions Act of 2024 further applied a 0.0 percent reduction limit for calendar year 2024.
+Added: Consequently, payment may not be reduced by more than 15 percent per year for calendar years 2025 through 2027 as compared to payment amount established for a test the prior year.
+Added: Any declines in average selling prices of our products due to pricing pressures may have an adverse impact on our business, results of operations and financial condition.
+Added: Third-party payors may also impose prior authorization requirements, dispute our billing or coding and may decide to deny payment or recoup payment for testing that they contend to have been not medically necessary, against their coverage determinations, or for which they have otherwise overpaid, and we may be required to refund reimbursements already received.
+Added: We have also experienced delays or denials of coverage for failure to adequately comply with procedural requirements imposed by third-party payors to obtain reimbursement.
+Added: We also periodically receive and respond to requests for recoupment from third-party payors in the ordinary course of business.
+Added: When a third-party payor denies payment for testing, we often are not able to collect payment from the patient, and therefore, we do not receive any revenue from our testing.
+Added: In addition, if a third-party payor successfully proves that payment for prior testing was in breach of contract or otherwise contrary to law, they may recoup payment, which amounts could be significant and would impact our results of operations.
+Added: We may also continue to negotiate and settle with third-party payers in order to resolve allegations of overpayment.
+Added: Third-party payors, such as commercial health insurers and government payors and programs, may also adopt requirements, programs or policies that may restrict or adversely affect our business.
+Added: For example, in September 2022, the California Department of Public Health (CDPH) promulgated certain regulatory amendments to the California Prenatal Screening (PNS) Program that made the PNS Program the exclusive means of obtaining cfDNA trisomy screening in California.
+Added: These regulatory amendments set a price that participating laboratories would receive for each cfDNA test that was substantially lower than laboratories had previously charged, and prohibited laboratories that did not contract with CDPH from participating in the PNS Program and from offering or performing cfDNA trisomy screening in California.
+Added: As we are not a participating laboratory under the PNS Program, we would have been prohibited from offering or performing our Prequel screening test in California.
+Added: On September 16, 2022, we filed jointly with Laboratory Corporation of America Holdings (Labcorp) a writ petition in the Superior Court of the State of California, County of San Francisco, against the CDPH and its Director challenging CDPH’s ability to make the PNS Program the exclusive means of obtaining cfDNA trisomy screening in California.
+Added: On September 16, 2022, we also moved jointly with Labcorp for a preliminary injunction to enjoin the implementation and enforcement of the new exclusivity regulation.
+Added: On November 2, 2022, the Superior Court granted our motion for a preliminary injunction, which allowed us to continue to offer our Prequel screening test in California.
+Added: On December 17, 2022, we filed jointly with Labcorp a motion for judgment on our writ, through which we sought a permanent injunction to enjoin the implementation and enforcement of the new exclusivity regulation.
+Added: On April 28, 2023, the Superior Court issued an order granting our motion for a permanent injunction to enjoin the implementation and enforcement of the new exclusivity regulation.
+Added: On June 1, 2023, the Superior Court issued a final judgment and writ of mandate enjoining the implementation and enforcement of the new exclusivity regulation.
+Added: The CDPH did not file a notice of appeal.
+Added: As a result of the foregoing, we expect to continue to be able to offer and perform our Prequel screening test in California.
+Added: However, the possibility that we might not be able to continue to offer our Prequel screening test in California had a chilling effect on sales of our Prequel screening test in California.
+Added: and foreign governments continue to propose and pass legislation designed to reduce the cost of health care.
+Added: For example, in some foreign markets, the government controls the pricing of many health care products.
+Added: We expect that there will continue to be federal and state proposals to implement governmental controls or impose health care requirements.
+Added: In addition, the Medicare program and increasing emphasis on managed care in the United States will continue to put pressure on product pricing.
+Added: Cost control initiatives could decrease the price that we would receive for any tests in the future, which would limit our revenue and profitability.
If we do not generate sufficient cash flow from operations and are unable to secure additional funding, we may have to reduce our operations.
−Removed: While we anticipate that our existing cash, cash equivalents and marketable securities, future cash flow from operations, and in certain circumstances, amounts available for borrowing under our Amended Facility (as defined below) will be sufficient to fund our current operations for the foreseeable future, changes could occur that would consume available capital resources more quickly than we currently expect and we may need or want to raise additional financing.
−Removed: On December 23, 2016, we entered into a senior secured revolving credit facility as borrower, with the lenders from time to time party thereto, which was amended on July 31, 2018, May 1, 2020, February 22, 2021 and July 26, 2022 (the "Amended Facility").
−Removed: As of December 31, 2022, we have no outstanding borrowings under our Amended Facility and our revolving commitment amount was $150.0 million.
−Removed: The Amended Facility restricts our ability to make future borrowings if unrestricted cash, cash equivalents and marketable securities exceed $150.0 million, unless such borrowings are used in connection with certain permitted acquisitions.
−Removed: Unrestricted cash, cash equivalents and marketable securities totaled $169.7 million as of December 31, 2022.
−Removed: As our total unrestricted cash, cash equivalents, and marketable securities under the Amended Facility exceeded $150.0 million as of December 31, 2022, we are currently unable to make future borrowings under the Amended Facility unless related to a permitted acquisition.
−Removed: In addition, our Amended Facility expires on July 31, 2023, and there is no guarantee that the Amended Facility will be extended or that we will be able to secure additional funding or other financing options in a timely manner or on favorable terms, if at all.
−Removed: We are also subject to financial covenants as part of our Amended Facility that could limit our ability to incur additional indebtedness.
−Removed: Without additional funds, we may be forced to delay, scale back or eliminate some of our sales and marketing activities, research and development activities, or other operations, and potentially delay development of our tests in an effort to provide sufficient funds to continue our operations.
+Added: While we believe that our existing cash, cash equivalents and marketable securities, future cash flow from operations, and amounts available for borrowing under our ABL Facility (as defined below) will be sufficient to meet our anticipated cash requirements for at least the next 12 months, changes could occur that would consume available capital resources more quickly than we currently expect and we may need or want to raise additional financing.
+Added: On June 30, 2023, we entered into an asset-based revolving credit facility (the “ABL Facility”) with an initial maximum principal amount of $90.0 million with JPMorgan Chase Bank, N.A.
+Added: as administrative agent and issuing bank, and the other lender parties thereto.
+Added: On October 31, 2023, we entered into an amendment to the ABL Facility to increase the maximum principal amount of the available revolving line of credit under the ABL Facility by $25.0 million for a total maximum principal commitment under the ABL Facility of $115.0 million.
+Added: As of December 31, 2023, we had $40.0 million of outstanding borrowings under the ABL Facility.
+Added: The ABL Facility limits our ability to incur additional indebtedness and requires us to comply with certain minimum liquidity and minimum availability covenants.
+Added: In addition, during November 2023, we completed an underwritten public offering of our common stock in which we sold 7,441,176 shares of our common stock at a price of $17.00 per share for proceeds of $117.6 million, net of offering expenses and underwriting discounts.
+Added: If we do not generate sufficient cash from operations, if our capital resources are consumed more rapidly than expected, or if we no longer have access to additional funds under our ABL Facility and are unable to secure additional funding, on acceptable terms or at all, we may be forced to delay, scale back or eliminate some of our sales and marketing activities, research and development activities, or other operations, and potentially delay development of our tests in an effort to provide sufficient funds to continue our operations.
If any of these events occur, our ability to achieve our development and commercialization goals could be adversely affected.
11 unchanged sentences
We are subject to debt covenants that impose operating and financial restrictions on us and if we are not able to comply with them, it could have a material adverse impact on our operations and liquidity.
−Removed: Covenants in the Amended Facility impose operating and financial restrictions on us.
−Removed: These restrictions may prohibit or place limitations on, among other things, our ability to incur additional indebtedness, create certain types of liens, and complete mergers, consolidations, or change in control transactions.
−Removed: Under the Amended Facility, a change in control of the Company, which means that a stockholder or a group of stockholders is or becomes the beneficial owner, directly or indirectly, of more than 35% of the total voting power of the voting stock of the Company, would require mandatory prepayment of any outstanding debt.
−Removed: The Amended Facility may also prohibit or place limitations on our ability to sell assets, pay dividends or provide other distributions to stockholders.
−Removed: These restrictions could also limit our ability to take advantage of business opportunities.
−Removed: We are also required to comply with certain financial covenants, including a minimum liquidity covenant, under the Amended Facility.
−Removed: If we are unable to comply with these financial covenants in the Amended Facility, we may be in default under the agreement.
−Removed: A default would result in an increase in the rate of interest and limits on our ability to incur certain additional indebtedness and it could potentially cause any loan repayment to be accelerated, any of which could have a material adverse impact on our operations and liquidity.
−Removed: If our current operating plan changes and we find that our existing capital resources will not meet our needs, we may find it necessary to raise additional funding, which may not be available.
−Removed: We anticipate that our existing capital resources and expected net cash to be generated from sales of our tests will enable us to maintain our currently planned operations for the foreseeable future.
+Added: Covenants in the ABL Facility impose operating and financial restrictions on us.
+Added: These restrictions may prohibit or place limitations on, among other things, our ability to incur liens, incur indebtedness, dispose of assets, make investments, make certain restricted payments, merge or consolidate and enter into certain speculative hedging arrangements.
+Added: We are also required to maintain minimum liquidity of $60.0 million and minimum availability of $25.0 million at all times before achieving a fixed charge coverage ratio of 1.0 to 1.0 and thereafter, to maintain a fixed charge coverage ratio of 1.0 to 1.0 until achieving availability under the ABL Facility of greater than the greater of (a) $10.6 million and (b) 12.5% of the lesser of the maximum commitment amount and the borrowing base for a period of 30 consecutive days.
+Added: In addition, the ABL Facility includes a number of customary events of default.
+Added: If any event of default occurs (subject, in certain instances, to specified grace periods), the principal, premium, if any, interest and any other monetary obligations on all the then outstanding amounts under the ABL Facility may become due and payable immediately, which could have a material adverse impact on our operations and liquidity.
+Added: If our existing capital resources and expected net cash to be generated from sales of our tests is not sufficient for us to maintain our currently planned operations, we may find it necessary to raise additional funding, which may not be available on favorable terms, or at all.
+Added: We believe that our existing cash, cash equivalents and marketable securities of $140.9 million as of December 31, 2023, our expected cash flow from operations, and our availability to borrow will be sufficient to meet our anticipated cash requirements for at least the next 12 months.
However, we base this expectation on our current operating plan, which may change.
−Removed: We have incurred, and will continue to incur, significant costs in the development and marketing of current and prospective tests.
−Removed: Our ongoing efforts to develop tests and expand our business, which may be through internally developed products, partnerships, in-licensing and mergers and acquisitions, will require substantial cash resources.
+Added: We have incurred, and may continue to incur, significant losses.
+Added: We may not be able to generate sufficient revenue from our existing tests and launching and commercializing new tests, to be profitable.
+Added: In addition, our ongoing efforts to develop tests and expand our business, which may be through internally developed products, partnerships, in-licensing and mergers and acquisitions, will continue to require substantial cash resources.
In addition, we have incurred, and may continue to incur, substantial costs in defending and settling legal proceedings.
+Added: In connection with the settlement of the Ravgen (as defined below) litigation, we may be required to pay Ravgen $21.25 million in five annual installments beginning no earlier than January 1, 2026 if certain conditions are satisfied.
We may also be required to pay an additional $25.0 million to the former equity and vested incentive unit holders of Gateway, if certain revenue, volume and earnings targets set forth in the acquisition agreement are achieved.
If adequate funds are not available, we may be required to raise additional funds.
−Removed: Sources of potential additional capital resources may include, but are not limited to, public or private equity financings, expanding or supplementing our Amended Facility, or selling convertible or non-convertible debt securities.
−Removed: This additional funding, if necessary, may not be available to us on reasonable terms, or at all.
−Removed: If we issue shares of stock or other securities to acquire new companies or technologies, the ownership interests of our existing stockholders may be significantly diluted and the price of our common stock may decrease.
+Added: Sources of potential additional capital resources may include, but are not limited to, public or private equity financings, or selling convertible or non-convertible debt securities.
+Added: Any additional funding, if necessary, may not be available to us on reasonable terms, or at all.
Because of our potential long-term capital requirements, we may access the public or private equity or debt markets whenever conditions are favorable, even if we do not have an immediate need for additional capital at that time.
3 unchanged sentences
If we raise additional funds through collaborations, strategic alliances, partnerships and licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies or tests or grant licenses on terms that are not favorable to us.
−Removed: We are currently subject to, and in the future may be subject to, securities class action lawsuits and stockholder derivative actions, as well as product or professional liability claims.
+Added: We have been subject to, and in the future may be subject to, securities class action lawsuits and stockholder derivative actions, as well as product or professional liability claims.
These, and potential similar or related litigation, could result in substantial losses and have a material adverse effect on our business, cash position, operating results or financial condition.
−Removed: We are currently subject to a variety of litigation, including a securities class action lawsuit filed in the United States District Court for the District of Utah, and stockholder derivative actions filed in the Delaware Court of Chancery and the United States District Court for the District of Delaware.
+Added: We have been subject to a variety of litigation, including a securities class action lawsuit filed in the United States District Court for the District of Utah, and stockholder derivative actions filed in the Delaware Court of Chancery and the United States District Court for the District of Delaware.
+Added: On August 2, 2023, we entered into a stipulation and agreement of settlement to resolve the securities class action lawsuit, which was subsequently approved by the United States District Court for the District of Utah on December 15, 2023.
+Added: Pursuant to the terms of the settlement, we paid a settlement amount of $77.5 million in cash.
We also may be subject to future securities class action and stockholder derivative claims.
Such litigation may adversely impact our business, cash position, results of operations or financial condition and divert management's time and attention from our business.
−Removed: We cannot predict the outcome of these lawsuits, nor can we predict the amount of time and expense that will be required to resolve these lawsuits and the expense of resolving these lawsuits may be in amounts significantly above our insurance coverage.
In addition, the marketing, sale and use of our tests could subject us to liability for errors in, misunderstandings of, or inappropriate reliance on, information we provide to clinicians, geneticists or patients, and lead to claims against us if someone were to allege that a test failed to perform as it was designed or marketed, if we failed to provide a correct test result to a patient, if we failed to correctly interpret the test results, if we failed to update the test results due to a reclassification of the variants according to new published guidelines, or if the ordering physician or patient were to misinterpret test results or improperly rely on them when making a clinical decision.
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A product liability or professional liability claim could result in substantial damages and be costly and time-consuming for us to defend.
−Removed: For example, on January 24, 2022, we paid $14.0 million to settle a lawsuit that alleged negligence, breach of contract and associated torts in connection with an alleged error in testing performed by us in 2004.
Although we maintain liability insurance for certain claims, including director and officer's insurance and insurance for errors and omissions, we cannot assure you that such insurance would fully protect us from the financial impact of defending against outstanding or future claims or any judgments, fines or settlement costs arising out of any outstanding or future claims.
−Removed: Any claim, including the securities class action and stockholders derivative claims or an errors and omissions liability claim, brought against us, with or without merit, could increase our insurance rates or prevent us from securing insurance coverage in the future.
−Removed: If we were successfully sued for product or professional liability claims or in connection with current or future securities class action and stockholder derivative claims, we could face substantial losses that exceed our insurance coverage and our other resources.
−Removed: For example, although we maintain director and officer's insurance coverage and continue to engage in defense of the outstanding securities class action and stockholder derivative claims, our insurance coverage will only cover up to an aggregate of $20.0 million of liability in certain circumstances after we have paid a significant deductible.
−Removed: If we are not successful in our defense of these litigations, we could be forced to make significant payments to or other settlements with our stockholders and their lawyers outside of our insurance coverage, and such payments or settlement arrangements could have a material adverse effect on our business, cash position, operating results or financial condition.
+Added: Any claim brought against us, with or without merit, could increase our insurance rates or prevent us from securing insurance coverage in the future.
+Added: If we were successfully sued for product or professional liability claims or in connection with future securities class action and stockholder derivative claims, we could face substantial losses that exceed our insurance coverage and our other resources.
+Added: For example, we depleted our director and officer's insurance coverage for the recently settled securities class action lawsuit and no insurance proceeds were available to us to pay the settlement amount.
+Added: If we are not successful in our defense of any future litigation, we could be forced to make significant payments to or other settlements with our stockholders and their lawyers outside of our insurance coverage, and such payments or settlement arrangements could have a material adverse effect on our business, cash position, operating results or financial condition.
Additionally, any lawsuit could cause injury to our reputation or cause us to suspend sales of our tests.
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Our growth and commercial activities have placed a greater workload and strain on our existing employees, increasing the risk that our employees experience fatigue or burnout or terminate their employment with us.
−Removed: In addition, inflation has had, and we expect that it will continue to have, an impact on the costs that we incur to attract and retain qualified personnel, and may make it more difficult for us to attract and retain such personnel.
+Added: In addition, inflation has had an impact on the costs that we incur to attract and retain qualified personnel and may make it more difficult for us to attract and retain such personnel.
Our success also depends on the skills, experience and performance of key members of our senior management team, who are critical to directing and managing our growth and development in the future.
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In addition to organic growth, we intend to continue to pursue growth through the acquisition of technology, assets or other businesses that may enable us to enhance our technologies and capabilities, expand our geographic market and sales channels, add experienced management personnel and increase our test offerings.
−Removed: For example, on November 1, 2022, we acquired Gateway, which markets and sells the SneakPeek Early Gender DNA Test.
+Added: For example, on February 1, 2024, we acquired the Precise Tumor Test, the Precise Liquid Test, and a CLIA certified laboratory from Intermountain Healthcare.
However, these acquisitions may not generate a positive return on our investment.
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Our acquisition efforts may involve certain risks, including:
−Removed: • we may have difficulty integrating operations and systems of any acquired business;
+Added: • we may have difficulty integrating products, operations and systems of any acquired business;
• key personnel and customers of the acquired company may terminate their relationships with the acquired company as a result of the acquisition;
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• we may assume or be held liable for risks and liabilities as a result of our acquisitions, including for legal, compliance, recoupment, and environmental-related costs and liabilities, some of which we may not discover during our due diligence;
−Removed: • we may incur significant additional operating expenses;
+Added: • we may incur significant additional operating expenses and such acquisition may not be profitable;
• we may experience inconsistencies in standards, controls, procedures, policies and compensation structures;
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The prices that we receive for such assets may not be high and, in some cases, have been and may be lower than the amount we invested in or paid for such assets.
+Added: Failure to comply with laws and regulations related to submission of claims for our services could result in significant monetary damages and penalties and exclusion from the Medicare and Medicaid programs and corresponding foreign reimbursement programs.
+Added: We are subject to laws and regulations governing the submission of claims for payment for our services, such as those relating to:
+Added: coverage of our services under Medicare, Medicaid and other state, federal and foreign health care programs;
+Added: the amounts that we may bill for our services;
+Added: and the party to which we must submit claims.
+Added: Our failure to comply with applicable laws and regulations could result in our inability to receive payment for our services or in attempts by state and federal health care programs, such as Medicare and Medicaid, to recover payments already made.
+Added: Submission of claims in violation of these laws and regulations can result in recoupment of payments already received, substantial civil monetary penalties, and exclusion from state and federal health care programs, and can subject us to liability under the federal False Claims Act and similar laws.
+Added: The failure to report and return an overpayment to the Medicare or Medicaid program within 60 days of identifying its existence can give rise to liability under the False Claims Act.
+Added: Further, a government agency could attempt to hold us liable for causing the improper submission of claims by another entity for services that we performed if we were found to have knowingly participated in the arrangement at issue.
+Added: Our financial condition and results of operations could be adversely affected by adverse public health developments.
+Added: Any outbreak of contagious disease or adverse public health development could have a material and adverse effect on our business operations, financial condition, or results of operations.
+Added: Such adverse effects have included, and may in the future include, diversion or prioritization of health care resources away from the conduct of testing, limitations on patients' access to our products, and disruptions or restrictions affecting the ability of our laboratories to process our tests.
+Added: Future surges in COVID-19 cases or any other outbreak of contagious disease and related employee absences may strain our workforce and impact our ability to process tests in a timely way due to reduced staff availability.
+Added: To the extent that any disease affects individuals and businesses around the globe, we may experience disruptions from time to time that could severely impact our business, including:
+Added: • decreased volume of testing as a result of disruptions to health care providers and limitations on the ability of providers to administer tests, including the suspension of non-emergency appointments and services;
+Added: • disruptions or restrictions on the ability of our customers, our collaborators’, or our suppliers’ personnel to travel, including as a result of shelter-in-place or stay-at-home orders from state and local governments, and temporary closures of our facilities or the facilities of our collaborators or suppliers;
+Added: • limitations on employee resources that would otherwise be focused on the development of our products, processing our tests, and the conduct of our clinical trials, including because of sickness of employees or their families or requirements imposed on employees to avoid contact with large groups of people;
+Added: • delays in necessary interactions with local regulators, ethics committees and other important agencies and contractors due to limitations in employee resources or access.
+Added: In addition, the continued spread of COVID-19 or the spread of another disease globally could continue to adversely affect our manufacturing and supply chain.
+Added: Parts of our direct and indirect supply chain are located overseas and both international and domestic components have been, and may in the future be, subject to disruption as a result of COVID-19 or another disease and responses to it.
+Added: If the supplies and components necessary to manufacture our products become unavailable or are disrupted as a result of a disease and responses to it, then we may not be able to successfully perform our research, sell our tests, or operate our business on a timely basis or at all.
If our SneakPeek Early Gender DNA Test does not perform as expected, we may not realize the expected benefits of our acquisition of Gateway.
−Removed: On November 1, 2022, we acquired Gateway, a personal genomics company and developer of consumer genetic tests that gives families insight into their future children.
+Added: On November 1, 2022, we acquired Gateway Genomics, LLC ("Gateway"), a personal genomics company and developer of consumer genetic tests that gives families insight into their future children.
Gateway offers and sells the SneakPeek Early Gender DNA Test in the U.S.
−Removed: direct to consumers via sneakpeektest.com and Amazon.com and through various clinical channels, such as OBGYN offices, midwives, birth centers and ultrasound clinics and laboratories.
+Added: direct to consumers via sneakpeektest.com and Amazon.com, through various clinical channels, such as OBGYN offices, midwives, birth centers and ultrasound clinics and laboratories, and in certain retail locations.
The SneakPeek Early Gender DNA Test is also sold internationally through distributors in the United Kingdom, Canada, Australia and certain other countries.
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These applications and data encompass a wide variety of business-critical information including research and development information, commercial information and business and financial information.
−Removed: The secure processing, storage, maintenance and transmission of this critical information are vital to our operations and business strategy, and we devote significant resources to protecting such information.
+Added: The secure processing, storage, maintenance and transmission of this critical information is vital to our operations and business strategy, and we devote significant resources to protecting such information.
Although we take measures to protect sensitive information from unauthorized access or disclosure, our information technology and infrastructure has been, and may continue to be, vulnerable to attacks by hackers, or viruses, malware, including ransomware, breaches or interruptions due to employee error, malfeasance or other disruptions, or lapses in compliance with privacy and security mandates.
−Removed: Any such malicious cyberattack, virus, breach or interruption could compromise our networks and the information stored there could be accessed by unauthorized parties, publicly disclosed, held for ransom, lost or stolen.
+Added: Any such malicious cyberattack, virus, breach or interruption could compromise our networks and the information stored there could be accessed by unauthorized parties, publicly disclosed, held for ransom, altered, lost or stolen.
We have measures in place that are designed to prevent, and if necessary, to detect and respond to such cybersecurity incidents and breaches of privacy and security mandates.
While we have experienced unauthorized accesses to our information technology systems and infrastructure in the past, which may occur again in the future, our security measures have been able to detect, respond to and prevent any material adverse effect to our information systems and business operations from such breaches.
−Removed: However, in the future, any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, such as HIPAA, government enforcement actions and civil or even criminal penalties.
−Removed: Unauthorized access, loss or dissemination could also disrupt our operations, including our ability to process samples, provide test results, bill payors or patients, provide customer support services, conduct research and development activities, process and prepare company financial information, and manage various general and administrative aspects of our business, and may damage our reputation, any of which could adversely affect our business, financial condition and results of operations.
+Added: However, in the future, any such access, disclosure or other loss, or alteration of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, such as HIPAA, government enforcement actions and civil or even criminal penalties.
+Added: Unauthorized access, loss, alteration, or dissemination could also disrupt our operations, including our ability to process samples, provide test results, bill payors or patients, provide customer support services, conduct research and development activities, process and prepare company financial information, and manage various general and administrative aspects of our business, and may damage our reputation, any of which could adversely affect our business, financial condition and results of operations.
In addition, we face increased cybersecurity risks and potential disruption to our technology infrastructure due to the number of employees that are working remotely as a result of remote work policies and other hybrid work arrangements.
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Our IT and communication systems also may experience interruptions, delays or cessations of service or produce errors in connection with system implementation, integration, upgrades or system migration work that takes place from time to time.
+Added: In addition, we may not be able to maintain operational effectiveness of our IT and communication systems due to insufficient technology infrastructure, aging components, accumulated technical debt and gaps in our software release processes.
If we were to experience a prolonged system disruption in the IT and communication systems that involve our interactions with customers, providers or suppliers, it could result in the loss of sales and customers and significant incremental costs, which could adversely affect our business.
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a CLIA-certified laboratory in South San Francisco, California to perform our Foresight and Prequel tests;
+Added: a CLIA-certified laboratory in St.
+Added: George to perform our Precise Tumor test;
a single laboratory facility in Cologne, Germany to perform and produce our EndoPredict test kits;
a CLIA-certified laboratory in Mason, Ohio to perform our GeneSight test;
−Removed: and a laboratory in La Jolla, California to perform our SneakPeek Early Gender DNA test.
−Removed: We also plan to open new laboratories in South San Francisco, California, San Diego, California and west Salt Lake City, Utah.
+Added: and a laboratory in San Diego, California to perform our SneakPeek Early Gender DNA test.
Our laboratories and the equipment we use to perform our tests would be difficult to replace and may require significant lead time to replace and qualify for use if they become inoperable.
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In the event any of our testing facilities were to lose its CLIA certification or other required certifications or licenses or were affected by a pandemic or man-made or natural disaster, such as an earthquake, severe weather, flooding, rising sea levels, other physical effects of climate change, power outages or contamination, we would be unable to continue our business, with respect to the tests performed at the particular facility or overall, at current levels to meet customer demands for a significant period of time.
+Added: According to the U.S.
+Added: Environmental Protection Agency, heat waves and large storms are likely to become more frequent or more intense with human-induced climate change, which could impact our operations.
Although we maintain insurance on these facilities, including business interruption insurance, it may not be adequate to protect us from all potential losses if these facilities were damaged or destroyed.
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If our business were interrupted, it would seriously harm our business.
−Removed: The inability to open the planned facilities in South San Francisco, California, San Diego, California and west Salt Lake City, Utah, delays in opening such facilities or the failure to obtain any required permits, licenses, or certifications could result in increased costs, limit our ability to keep up with the demand for our products, and prevent us from realizing the intended benefits of these new facilities and our future laboratories.
+Added: Our inability to, or delay in, transitioning certain of our laboratory operations to new laboratory facilities in west Salt Lake City, Utah and South San Francisco, California could adversely affect our business.
+Added: We are in the process of transitioning our laboratory operations in Salt Lake City, Utah, where most of our tests are performed, and South San Francisco, California, where our Foresight and Prequel tests are performed, to new laboratory facilities in west Salt Lake City, Utah, and South San Francisco, California, respectively.
+Added: The inability to transition our existing laboratory operations to our new laboratories in South San Francisco, California and west Salt Lake City, Utah, delays in transitioning our laboratory operations to such facilities or the failure to obtain any required permits, licenses, or certifications could result in increased costs, limit our ability to keep up with the demand for our products, and prevent us from realizing the intended benefits of these new facilities and our future laboratories.
We depend on a limited number of third parties, or, in some cases, single-source suppliers, for equipment, reagents and other supplies.
−Removed: If these supplies become unavailable or are disrupted, including as a result of COVID-19 or another disease and responses to it, then we may not be able to successfully perform our research or operate our business on a timely basis or at all.
+Added: If these supplies become unavailable or are disrupted, then we may not be able to successfully perform our research or operate our business on a timely basis or at all.
We currently rely on a small number of suppliers, or, in some cases, single-source suppliers, to provide our gene sequencing equipment, content enrichment equipment, multiplex protein analysis equipment, robots, and specialty reagents and other laboratory supplies required in connection with our testing and research and development activities.
1 unchanged sentence
The equipment, robots, reagents or other supplies may not remain available in commercial quantities at acceptable costs.
+Added: In addition, we rely upon a limited number of commercial delivery services to provide us with laboratory supplies, and the disruption of such delivery services could adversely impact our business.
If we are unable to obtain when needed additional or alternative equipment or robots, or an adequate supply of reagents or other ingredients or supplies at commercially reasonable rates, our ability to continue to identify genes and perform testing would be adversely affected.
In addition, the loss of a single-source supplier or the failure to perform by a single-source supplier could have a disruptive effect on our business, including our ability to perform testing, and could adversely affect our results of operations.
−Removed: In addition, the continued spread of COVID-19 or the spread of another disease globally could further adversely affect our manufacturing and supply chain.
−Removed: Parts of our direct and indirect supply chain are located overseas and both international and domestic components have been, and may continue to be, subject to disruption as a result of COVID-19 or another disease and responses to it.
−Removed: We have experienced and may continue to experience a shortage of certain laboratory supplies and equipment, and we may experience a suspension of services from other laboratories or third parties as a result of COVID‑19 or another disease and responses to it.
−Removed: Political, administrative, legislative, legal or regulatory actions in response to COVID‑19 or another disease could create additional supply shortages, disruptions or other uncertainties affecting our research and business.
−Removed: If the supplies and components necessary to manufacture our products become unavailable or are disrupted, including as a result of COVID-19 or another disease and responses to it, then we may not be able to successfully perform our research or operate our business on a timely basis or at all.
+Added: In addition, the spread of disease globally could further adversely affect our manufacturing and supply chain.
+Added: Parts of our direct and indirect supply chain are located overseas and both international and domestic components have been subject to disruption as a result of COVID-19 and responses to it.
+Added: We have experienced and may in the future experience a shortage of certain laboratory supplies and equipment, and we may experience a suspension of services from other laboratories or third parties as a result of a global pandemic and responses to it.
+Added: Political, administrative, legislative, legal or regulatory actions in response to a global pandemic could create additional supply shortages, disruptions or other uncertainties affecting our research and business.
+Added: If the supplies and components necessary to manufacture our products become unavailable or are disrupted, then we may not be able to successfully perform our research or operate our business on a timely basis or at all.
+Added: Further, disruption in the global supply chain related to hostilities in Ukraine and the Middle East could impact our supply chain.
+Added: For example, Houthi forces have recently begun attacking freighters in the Red Sea due to the ongoing conflict between Israel and Gaza.
+Added: While we have not experienced material supply chain disruptions related to these global hostilities to date, we are unable to predict how these conflicts will develop or guarantee that we will not experience material supply chain disruptions in the future.
Our international business exposes us to business, regulatory, political, operational, financial and economic risks associated with doing business outside of the United States.
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In addition, if we are unable to continue to obtain expedited delivery services on commercially reasonable terms, our operating results may be adversely affected.
−Removed: We also rely on commercial courier delivery services to transport our SneakPeek Early Gender DNA Test directly to customers and any disruptions in delivery service could adversely affect our ability obtain and process samples in a timely manner and to service our customers.
+Added: We also rely on commercial courier delivery services to transport some of our tests directly to customers and any disruptions in delivery service could adversely affect our ability obtain and process samples in a timely manner and to service our customers.
We face risks associated with currency exchange rate fluctuations, which could adversely affect our operating results.
We receive a portion of our revenues and pay a portion of our expenses in currencies other than the U.S.
−Removed: dollar, such as the Euro, the Swiss franc, the Japanese yen, and the British pound.
+Added: dollar, such as the Japanese Yen, Euro, the Swiss franc, and the British pound.
As a result, we are at risk for exchange rate fluctuations between such foreign currencies and the U.S.
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dollar strengthens against foreign currencies, the translation of these foreign currency denominated transactions will result in decreased revenues and operating expenses.
−Removed: During the year ended December 31, 2022, our revenues were negatively impacted by approximately $10.4 million due to foreign currency fluctuations.
+Added: During the year ended December 31, 2023, our revenues were not materially impacted due to foreign currency fluctuations, but may be in the future.
We may not be able to offset adverse foreign currency impact with increased revenues.
We do not currently utilize hedging strategies to mitigate foreign currency risk and even if we were to implement hedging strategies to mitigate foreign currency risk, these strategies might not eliminate our exposure to foreign exchange rate fluctuations and would involve costs and risks of their own, such as ongoing management time and expertise, external costs to implement the strategies and potential accounting implications.
+Added: Impairment in the value of our goodwill or other intangible assets could have a material adverse effect on our operating results and financial condition.
+Added: We record goodwill and intangible assets at fair value upon the acquisition of a business.
+Added: Goodwill represents the excess of amounts paid for acquiring businesses over the fair value of the net assets acquired.
+Added: Goodwill and indefinite-lived intangible assets are evaluated for impairment annually, or more frequently if conditions warrant, by comparing the carrying value of a reporting unit to its estimated fair value.
+Added: Intangible assets with definite lives are reviewed for impairment when events or circumstances indicate that their carrying value may not be recoverable.
+Added: Declines in operating results, divestitures, sustained market declines and other factors that impact the fair value of our reporting unit could result in an impairment of goodwill or intangible assets and, in turn, a charge to net income.
+Added: Any such charges could have a material adverse effect on our results of operations or financial condition.
+Added: Our estimates of actionable market size and forecasts of market growth may prove to be inaccurate, and even if the market in which we compete achieves the forecasted growth, our business could fail to grow at similar rates.
+Added: Our actionable market size opportunity estimates and growth forecasts for our products are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate.
+Added: Our publicly announced estimates and forecasts relating to the size and expected growth of the market for our products may prove to be inaccurate.
+Added: Even if the markets in which we compete meet our size estimates and forecasted growth for such markets, our business could fail to grow at similar rates.
+Added: Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.
+Added: As of December 31, 2023, we have substantial deferred tax assets related to net operating loss (“NOLs”) and tax credit carryforwards.
+Added: Pursuant to the Tax Cuts and Jobs Act (H.R.1) of 2017, federal NOLs arising in tax years beginning after December 31, 2017 have an indefinite carryover period and may only be used to offset 80% of current year taxable income.
+Added: Federal NOLs prior to this enactment were subject to a 20-year carry-forward limitation.
+Added: Further, under Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"), if a corporation undergoes an “ownership change” (generally defined as a greater than 50% change, by value, in equity ownership over any three-year period), the corporation’s ability to use its pre-change NOL carryforwards and other pre-change tax attributes to offset its post-change income or taxes may be limited.
+Added: Given the Code’s broad definition, an ownership change could be the unintended consequence of otherwise normal market trading in our stock that is outside our control.
+Added: An ownership change under Section 382 of the Code could also be triggered by certain strategic transactions.
+Added: These limitations may result in our NOLs, tax credits, or other similar tax attributes expiring before we have the ability to use them.
Risks Related to the Development and Commercialization of Our Tests and Test Candidates
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The dissemination of our confidential information to third parties could have a material adverse effect on our business.
−Removed: Risks Related to Reimbursement
−Removed: If the government and third-party payors fail to provide coverage and adequate payment for our existing and future tests, if any, our revenue and prospects for profitability will be harmed.
−Removed: In both domestic and foreign markets, sales of our tests or any future tests will depend in large part, upon the availability of reimbursement from third-party payors.
−Removed: Such third-party payors include state and federal health care programs such as Medicare, managed care organizations, private health insurers and other organizations.
−Removed: These third-party payors are increasingly attempting to contain health care costs by demanding price discounts and limiting both coverage regarding which tests they will pay for and the amounts that they will pay for existing and new tests.
−Removed: We have experienced coverage limitations and price reductions for many of our products, including for our GeneSight Psychotropic Mental Health Medication Test, and we may continue to experience future coverage limitations and price reductions from CMS, managed care organizations, and other third-party payors.
−Removed: The fact that a test has been approved for reimbursement in the past, for any particular indication or in any particular jurisdiction, does not guarantee that such a test will be approved or remain approved for reimbursement, that the reimbursement amount approved for such test will not be reduced in the future, or that similar or additional tests will be approved for reimbursement in the future.
−Removed: Historically, we have not received reimbursement from third-party payors or payment from patients for many of our tests.
−Removed: Moreover, there can be no assurance that any new tests we have launched or may launch will be reimbursed at rates that are comparable to the rates that we historically obtained for our existing product portfolio.
−Removed: As a result, third-party payors may not cover or provide adequate payment for our current or future tests to enable us to maintain past levels of revenue or profitability with respect to such tests.
−Removed: Further, third-party reimbursement might not be available to enable us to maintain price levels sufficient to realize an appropriate return on investment in product development.
−Removed: In addition, under PAMA, Medicare reimbursement for any given test is based on the weighted-median of the payments made by private payors for such test, rendering private payor payment levels even more significant.
−Removed: As a result, future Medicare payments may fluctuate more often and become subject to the willingness of private payors to recognize the value of tests generally and any given test individually.
−Removed: On December 10, 2021, Congress passed the Protecting Medicare and American Farmers from Sequester Cuts Act, which included a provision that delays the next PAMA reporting period for clinical laboratory tests that are not advanced diagnostic tests to January 1, 2023 through March 31, 2023.
−Removed: The Consolidated Appropriations Act, 2023, enacted on December 29, 2022, delayed the next PAMA reporting period for clinical laboratory tests that are not advanced diagnostic tests to January 1, 2024 through March 31, 2024.
−Removed: In addition, the next round of rate cuts will not be implemented until 2024, with tests receiving cuts of up to 15 percent a year from 2024 through 2026.
−Removed: Any declines in average selling prices of our products due to pricing pressures may have an adverse impact on our business, results of operations and financial condition.
−Removed: Third-party payors may also dispute our billing or coding and may decide to deny payment or recoup payment for testing that they contend to have been not medically necessary, against their coverage determinations, or for which they have otherwise overpaid, and we may be required to refund reimbursements already received.
−Removed: We have also experienced delays or denials of coverage for failure to adequately comply with procedural requirements imposed by third-party payors to obtain reimbursement.
−Removed: We also periodically receive and respond to requests for recoupment from third-party payors in the ordinary course of business.
−Removed: When a third-party payor denies payment for testing, we often are not able to collect payment from the patient, and therefore, we do not receive any revenue from our testing.
−Removed: In addition, if a third-party payor successfully proves that payment for prior testing was in breach of contract or otherwise contrary to law, they may recoup payment, which amounts could be significant and would impact our results of operations.
−Removed: We may also continue to negotiate and settle with third-party payers in order to resolve allegations of overpayment.
−Removed: Third-party payors, such as commercial health insurers and government payors and programs, may also adopt requirements, programs or policies that may restrict or adversely affect our business.
−Removed: For example, in September 2022, the California Department of Public Health (CDPH) promulgated certain regulatory amendments to the California Prenatal Screening (PNS) Program that made the PNS Program the exclusive means of obtaining cfDNA trisomy screening in California.
−Removed: These regulatory amendments set a price that participating laboratories would receive for each cfDNA test that was substantially lower than laboratories had previously charged, and prohibited laboratories that did not contract with CDPH from participating in the PNS Program and from offering or performing cfDNA trisomy screening in California.
−Removed: As we are not currently a participating laboratory under the PNS Program, we would be prohibited from offering or performing our Prequel screening test in California.
−Removed: On September 16, 2022, we filed jointly with Laboratory Corporation of America Holdings (Labcorp) a writ petition in the Superior Court of the State of California, County of San Francisco, against the CDPH and its Director challenging CDPH’s ability to make the PNS Program the exclusive means of obtaining cfDNA trisomy screening in California.
−Removed: On September 16, 2022, we also moved jointly with Labcorp for a preliminary injunction to enjoin the implementation and enforcement of the new exclusivity regulation.
−Removed: On November 2, 2022, the Superior Court granted our motion for a preliminary injunction, which allowed us to continue to offer our Prequel screening test in California.
−Removed: On December 17, 2022, we filed jointly with Labcorp a motion for judgment on our writ, through which we are seeking a permanent injunction to enjoin the implementation and enforcement of the new exclusivity regulation.
−Removed: A hearing on that motion is scheduled for March 21, 2023.
−Removed: CDPH has also commenced the process of appealing the preliminary injunction, though no hearing date has been set, and that appeal may be mooted by the Superior Court’s decision on our motion for judgment on the writ prior to any hearing.
−Removed: Pending the outcome of this ongoing litigation, we cannot be certain that we will be able to continue offering or performing our Prequel screening test in California.
−Removed: If the exclusivity regulation is ultimately determined to be valid and we are either not able to offer our Prequel screening test in California at all, or must do so through the PNS Program at lower rates than we currently charge, our financial and operating results will likely be adversely affected.
−Removed: In addition, although the implementation and enforcement of the exclusivity regulation has been preliminarily enjoined, the possibility that we may be unable to continue to offer our Prequel screening test in California has had a chilling effect on sales of our Prequel screening test in California.
−Removed: and foreign governments continue to propose and pass legislation designed to reduce the cost of health care.
−Removed: For example, in some foreign markets, the government controls the pricing of many health care products.
−Removed: We expect that there will continue to be federal and state proposals to implement governmental controls or impose health care requirements.
−Removed: In addition, the Medicare program and increasing emphasis on managed care in the United States will continue to put pressure on product pricing.
−Removed: Cost control initiatives could decrease the price that we would receive for any tests in the future, which would limit our revenue and profitability.
−Removed: Failure to comply with laws and regulations related to submission of claims for our services could result in significant monetary damages and penalties and exclusion from the Medicare and Medicaid programs and corresponding foreign reimbursement programs.
−Removed: We are subject to laws and regulations governing the submission of claims for payment for our services, such as those relating to:
−Removed: coverage of our services under Medicare, Medicaid and other state, federal and foreign health care programs;
−Removed: the amounts that we may bill for our services;
−Removed: and the party to which we must submit claims.
−Removed: Our failure to comply with applicable laws and regulations could result in our inability to receive payment for our services or in attempts by state and federal health care programs, such as Medicare and Medicaid, to recover payments already made.
−Removed: Submission of claims in violation of these laws and regulations can result in recoupment of payments already received, substantial civil monetary penalties, and exclusion from state and federal health care programs, and can subject us to liability under the federal False Claims Act and similar laws.
−Removed: The failure to report and return an overpayment to the Medicare or Medicaid program within 60 days of identifying its existence can give rise to liability under the False Claims Act.
−Removed: Further, a government agency could attempt to hold us liable for causing the improper submission of claims by another entity for services that we performed if we were found to have knowingly participated in the arrangement at issue.
Risks Related to Our Intellectual Property
−Removed: If we are not able to protect our proprietary technology, others could compete against us more directly, which would harm our business.
+Added: If we fail to protect our proprietary technology, others could compete against us more directly, which would harm our business.
As of December 31, 2023, our patent portfolio included issued patents owned or licensed by us and numerous patent applications in the United States and other countries with claims protecting our intellectual property rights.
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If we are subject to litigation or other proceedings arising from a claim of infringement of the intellectual property of a third party, we might incur significant costs and delays in test introduction or we could be prevented from using technologies incorporated in our tests.
−Removed: Our tests may also conflict with patents that have been or may be granted to others.
+Added: Our tests may conflict with patents that have been or may be granted to others.
Our industry includes many organizations that have or are seeking to discern biomarkers and develop genomic, proteomic and other technologies.
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On December 21, 2020, Ravgen, Inc.
−Removed: filed a lawsuit against us and our wholly owned subsidiary, Myriad Women's Health, in the U.S.
+Added: ("Ravgen") filed a lawsuit against us and our wholly owned subsidiary, Myriad Women's Health, Inc., in the U.S.
District Court for the District of Delaware, alleging infringement of two patents relating to blood collection tubes and non-invasive prenatal testing analysis.
−Removed: This litigation and any other intellectual property litigation that we may become involved with in the future could consume a substantial portion of our managerial and financial resources.
−Removed: If any such litigation is resolved adversely to us, we could be required to pay damages, cease the infringing activity or pay an ongoing licensing fee for our prenatal tests, each of which could have a material adverse effect on our financial condition, results of operations or cash flows.
+Added: On October 23, 2023, we and Ravgen entered into a settlement agreement pursuant to which the parties agreed to settle the lawsuit.
+Added: Pursuant to the terms of the settlement agreement, we agreed to pay Ravgen a minimum of $12.75 million in three installment payments of $5 million, $5 million, and $2.75 million on or before October 31, 2023, October 31, 2024, and October 31, 2025, respectively.
+Added: We may also be required to pay Ravgen $21.25 million in five annual installments beginning no earlier than January 1, 2026 if certain conditions are satisfied.
+Added: Any intellectual property litigation that we may become involved with in the future could consume a substantial portion of our managerial and financial resources.
+Added: If any such litigation is resolved adversely to us, we could be required to pay damages, cease the infringing activity or pay an ongoing licensing fee, each of which could have a material adverse effect on our financial condition, results of operations or cash flows.
Additionally, third parties may claim that the branding of our products infringes the trademarks, service marks, trade names or otherwise misappropriates or dilutes those third parties’ rights.
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These laws and regulations currently include, among other things:
−Removed: • Clinical Laboratory Improvement Amendments of 1988, which requires that laboratories obtain certification from the federal government, and state licensure laws;
−Removed: Food and Drug Administration laws and regulations that apply to medical devices such as our companion diagnostics;
+Added: • Clinical Laboratory Improvement Amendments of 1988 and the implementing regulations, which requires that laboratories obtain certification from the federal government, and state licensure laws and regulations;
+Added: Food and Drug Administration laws and regulations that apply to medical devices such as our companion diagnostics and other IVDs;
• Health Insurance Portability and Accountability Act of 1996 (HIPAA), which imposes comprehensive federal standards with respect to the privacy and security of protected health information and requirements for the use of certain standardized electronic transactions;
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• the Eliminating Kickbacks in Recovery Act of 2018 (EKRA), which is an all-payor anti-kickback prohibition on, among other things, knowingly and willfully paying or offering any remuneration directly or indirectly to induce a referral of an individual to a clinical laboratory;
−Removed: • the federal physician self-referral prohibition (Stark Law or the Physician Self-Referral Law), which, absent an exception, prohibits a physician from making a referral for certain designated health services, including clinical laboratory services, if the physician or an immediate family member of the physician has an applicable financial relationship with the entity providing the designated health services;
+Added: • the federal physician self-referral prohibition (Stark Law or the Physician Self-Referral Law), which, absent an exception, prohibits a physician from making a Medicare referral for certain designated health services, including clinical laboratory services, if the physician or an immediate family member of the physician has an applicable financial relationship with the entity providing the designated health services;
• the federal False Claims Act, which imposes liability on any person or entity that, among other things, knowingly presents, or causes to be presented, a false or fraudulent claim for payment to the federal government;
−Removed: • the federal Civil Monetary Penalties Law, which prohibits, among other things, the offering or transfer of remuneration to a Medicare or state health care program beneficiary if the person knows or should know it is likely to influence the beneficiary’s selection of a particular provider, practitioner, or supplier of services reimbursable by Medicare or a state health care program, unless an exception applies;
−Removed: • other federal and state fraud and abuse laws, such as anti-kickback laws, prohibitions on self-referral, and false claims acts, which may extend to services reimbursable by any third-party payor, including private insurers;
−Removed: • the federal Physician Payments Sunshine Act, which requires medical device manufactures to track and report to the federal government certain payments and other transfers of value made to physicians, other health care professionals, teaching hospitals and ownership or investment interests held by physicians and their immediate family members;
+Added: • the federal Civil Monetary Penalties Law, which prohibits, among other things, the offering or transfer of remuneration to a Medicare or Medicaid beneficiary if the person knows or should know it is likely to influence the beneficiary’s selection of a particular provider, practitioner, or supplier of services reimbursable by Medicare or Medicaid, unless an exception applies;
+Added: • other federal and state fraud and abuse laws, such as anti-kickback laws, prohibitions on self-referral and fee-splitting, and false claims acts, which may extend to services reimbursable by any third-party payor, including private insurers;
+Added: • the federal Physician Payments Sunshine Act, which requires medical device manufactures to track and report to the federal government certain payments and other transfers of value made to physicians, other health care professionals, and teaching hospitals and ownership or investment interests held by physicians and their immediate family members;
• Section 216 of the federal Protecting Access to Medicare Act of 2014, which requires the Centers for Medicare & Medicaid Services (CMS) to set Medicare rates for clinical laboratory testing based on private payor data reported by applicable laboratories;
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Moreover, the provision of payments or other items of value by a clinical laboratory to a referral source could be prohibited under the federal self-referral prohibition, commonly known as the Stark Law or the Physician Self-Referral Law, unless the arrangement meets all criteria of an applicable exception.
−Removed: The government has actively enforced these laws against clinical laboratories in recent years.
+Added: The government has actively enforced these laws, as well as the federal False Claims Act, against clinical laboratories in recent years.
These laws and regulations are complex and are subject to interpretation by the courts and by government agencies.
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Such occurrences, regardless of their outcome, could damage our reputation and adversely affect important business relationships with third parties, including managed care organizations, and other private third-party payors.
−Removed: The growth of our business and our expansion outside of the United States may increase the potential of violating similar foreign laws or our internal policies and procedures.
+Added: The growth of our business and our continued business outside of the United States may increase the potential of violating similar foreign laws or our internal policies and procedures.
The risk of us being found in violation of these or other laws and regulations is further increased by the fact that many have not been fully interpreted by the regulatory authorities or the courts, and their provisions are open to a variety of interpretations.
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For example, California has enacted the California Consumer Privacy Act, or CCPA, which went into effect in January of 2020.
−Removed: The CCPA establishes a new privacy framework for covered businesses by creating an expanded definition of personal information, establishing new data privacy rights for California residents, and creating a new and potentially severe statutory damages framework for violations of the CCPA and for businesses that fail to implement reasonable security procedures and practices to prevent data breaches.
−Removed: Additionally in 2020, California voters passed the California Privacy Rights Act, or CPRA, effective January 1, 2023.
+Added: The CCPA established a new privacy framework for covered businesses by creating an expanded definition of personal information, establishing new data privacy rights for California residents, requiring covered businesses to provide new disclosures to California residents, and creating a new and potentially severe statutory damages framework for violations of the CCPA and for businesses that fail to implement reasonable security procedures and practices to prevent data breaches.
+Added: Additionally in 2020, California voters passed the California Privacy Rights Act, or CPRA, which went into effect on January 1, 2023.
The CPRA significantly amends the CCPA, potentially resulting in further uncertainty, additional costs and expenses in an effort to comply and additional potential for harm and liability for failure to comply.
Among other things, the CPRA established a new regulatory authority, the California Privacy Protection Agency, which is tasked with enacting new regulations under the CPRA and will have expanded enforcement authority.
−Removed: Effective in 2023, Virginia, Colorado, Connecticut, and Utah will have similar data protection laws, and other U.S.
−Removed: states have proposals under consideration, increasing the regulatory compliance risk.
+Added: In addition to California, more U.S.
+Added: states are enacting similar legislation, increasing compliance complexity and increasing risks of failures to comply.
+Added: In 2023, comprehensive privacy laws in Virginia, Colorado, Connecticut, and Utah all took effect, and laws in Montana, Oregon, and Texas will take effect in 2024.
+Added: In addition, laws in other U.S.
+Added: states are set to take effect beyond 2024, and additional U.S.
+Added: states have proposals under consideration, all of which are likely to increase our regulatory compliance costs and risks, exposure to regulatory enforcement action and other liabilities.
Numerous other countries have, or are developing, laws governing the collection, use and transmission of personal information as well.
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Furthermore, national GDPR variations, including the fields of clinical study and other health-related information may raise our costs of compliance and result in greater legal risks.
−Removed: We are also subject to evolving GDPR requirements on data export, because we transfer data to third countries outside of the EU that are not deemed “adequate.” The GDPR only permits exports of personal data outside of the EU to “non-adequate” countries where there is a suitable data transfer mechanism in place to safeguard personal data (e.g., the EU Commission approved Standard Contractual Clauses).
+Added: We are also subject to evolving GDPR requirements on data export, because we transfer data to third countries outside of the EU that are not deemed “adequate.” The GDPR only permits exports of personal data outside of the EU to “non-adequate” countries where there is a suitable data transfer mechanism in place to safeguard personal data (e.g., the EU Commission approved Standard Contractual Clauses or certification under the newly-adopted Data Privacy Framework).
On July 16, 2020, the Court of Justice of the EU, or the CJEU, issued a landmark opinion in the case Maximilian Schrems vs.
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This decision calls into question certain data transfer mechanisms as between the EU member states and the U.S.
−Removed: The CJEU is the highest court in Europe and the Schrems II decision heightens the burden to assess U.S.
+Added: The CJEU is the highest court in Europe and the Schrems II decision heightened the burden to assess U.S.
national security laws on their business, and future actions of EU data protection authorities are difficult to predict at this time.
+Added: While the newly-adopted Data Privacy Framework was meant to address the concerns raised by the CJEU in Schrems II, it will likely be subject to future legal challenges.
Consequently, there is some risk of any data transfers from the EU being halted.
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In March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act, collectively called the ACA, became law.
−Removed: This law substantially changed the way health care is financed by both government and private third-party payors and continues to significantly impact our business and operations in ways we cannot currently predict.
+Added: This law substantially changed the way health care is financed by both government and private third-party payors and continues to significantly impact our business and operations in ways we may not be able to predict.
Since its enactment, there have been judicial and Congressional challenges to certain aspects of the ACA, and as a result, certain sections of the ACA have not been fully implemented or were effectively repealed.
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Changes in the way that the FDA regulates tests performed by laboratories like ours could result in delay or additional expense in offering our tests and tests that we may develop in the future.
−Removed: Historically, the FDA has exercised enforcement discretion with respect to most LDTs and has generally not required laboratories that furnish LDTs to comply with the agency’s requirements for medical devices (e.g., establishment registration, device listing, quality systems regulations, premarket clearance or premarket approval, and post-market controls).
+Added: Historically, the FDA has exercised enforcement discretion with respect to most laboratory developed tests (LDTs) and has generally not required laboratories that furnish LDTs to comply with the agency’s requirements for medical devices (e.g., establishment registration, device listing, quality systems regulations, premarket clearance or premarket approval, and post-market controls).
As of December 31, 2023, none of our products other than MyChoice CDx and BRACAnalysis CDx are marketed by us under the FDA's requirements for medical devices.
−Removed: In recent years, however, the FDA publicly announced its intention to regulate certain LDTs and issued two draft guidance documents that set forth a proposed phased-in risk-based regulatory framework that would apply varying levels of FDA oversight to LDTs.
−Removed: However, these guidance documents were not finalized, and the framework was abandoned and replaced by an informal discussion paper reflecting some of the feedback that FDA had received on the proposed LDT regulation.
−Removed: The FDA acknowledged that the January 2017 discussion paper does not represent the formal position of the FDA and is not enforceable.
−Removed: Nevertheless, the FDA wanted to share its synthesis of the feedback that it had received in the hope that it might advance public discussion on future LDT oversight.
−Removed: Notwithstanding the discussion paper, the FDA continues to exercise enforcement discretion and may attempt to regulate certain LDTs on a case-by-case basis at any time, which could result in delay or additional expense in offering our tests and tests that we may develop in the future.
−Removed: In addition to potential enforcement priority changes from the FDA, for several years bipartisan members of Congress have been negotiating legislation with the FDA and industry stakeholders to regulate in vitro clinical tests including LDTs under a shared FDA/CMS framework.
−Removed: Most recently, reform legislation entitled the Verifying Accurate, Leading-edge IVCT Development (VALID) Act has received increasing congressional support.
−Removed: If enacted, the VALID Act would codify into law the term “in vitro clinical test” (IVCT) to create a new medical product category separate from medical devices that includes products currently regulated as in vitro diagnostics (IVDs) as well as LDTs.
−Removed: The framework would give the FDA the authority to ensure IVCTs are both analytically and clinically valid.
−Removed: CMS would retain the authority to ensure the quality of operations within laboratories.
+Added: In recent years, the FDA publicly announced its intention to regulate certain LDTs and issued two draft guidance documents that set forth a proposed phased-in risk-based regulatory framework that would apply varying levels of FDA oversight to LDTs.
+Added: However, these guidance documents were not finalized, and in 2017, the FDA issued an informal discussion paper reflecting some of the feedback that FDA had received on the proposed LDT regulatory system.
+Added: Subsequently, in October 2023, FDA issued a proposed rule to regulate LDTs under the current medical device framework and proposed to phase out the current enforcement discretion policy;
+Added: the public comment period ended in early December 2023.
+Added: The proposal envisions that the LDT enforcement policy phase-out process would occur in gradual stages over a total period of four years, with premarket approval applications for high-risk tests to be submitted by the 3.5-year mark, although more details are expected to be provided with the upcoming final rule.
+Added: The likelihood of the FDA finalizing the proposed rule in April 2024 (as currently projected), as well as potential litigation challenging its authority to take such action, is uncertain at this time.
+Added: Affected stakeholders continue to press for a comprehensive legislative solution to create a harmonized paradigm for oversight of LDTs by both the FDA and CMS, instead of implementation of the proposed administrative agency action, which may be disruptive to the industry and to patient access to certain diagnostic tests.
+Added: Until any administrative rulemaking is finalized and regulatory changes become effective, the FDA is expected to continue to exercise enforcement discretion;
+Added: although it may attempt to regulate certain LDTs on a case-by-case basis at any time, which could result in delay or additional expense in offering our tests and tests that we may develop in the future.
+Added: In addition, for several years bipartisan members of Congress have been negotiating legislation with the FDA and industry stakeholders to regulate in vitro clinical tests including LDTs under a shared FDA/CMS framework.
+Added: Most recently, reform legislation entitled the Verifying Accurate, Leading-edge IVCT Development (VALID) Act received increasing congressional support.
+Added: As drafted and re-introduced for consideration by the current Congress, the VALID Act would codify into law the term “in vitro clinical test” (IVCT) to create a new medical product category separate from medical devices that includes products currently regulated as in vitro diagnostics (IVDs) as well as LDTs.
+Added: If enacted, the VALID Act's regulatory framework would give the FDA the authority to ensure IVCTs are both analytically and clinically valid.
+Added: While CMS would retain the authority to ensure the quality of operations within laboratories.
All LDTs on the market prior to enactment of the legislation would be grandfathered and not subject to the new regulation.
−Removed: It is unclear whether the VALID Act will be passed by Congress in its current form or signed into law by the President.
+Added: The FDA’s recent publication of an LDT proposed rule that would apply the existing medical device framework to laboratory-developed products may renew stakeholder calls for a more targeted approach to modernizing federal oversight of clinical diagnostic tests.
+Added: It remains possible that congressional action in this area could displace the need for the FDA to complete its recently proposed rulemaking.
+Added: It is unclear whether the VALID Act or other diagnostic reform legislation will be passed by Congress or signed into law by the President.
Until the FDA finalizes its regulatory position regarding LDTs through formal notice-and-comment rulemaking, or the VALID Act or other legislation is passed reforming the federal government’s regulation of LDTs, it is unknown how the FDA may attempt to regulate our tests in the future and what testing and data may be required to support any required clearance or approval of our tests by the agency.
−Removed: If the VALID Act is implemented as drafted, or if the FDA were to promulgate regulations governing the development and marketing of LDTs, it could have a materially adverse impact on our results of operations.
+Added: If the VALID Act is implemented as drafted, or if the FDA were to finalize the proposed rule to regulate most LDTs as medical devices, it could have a materially adverse impact on our results of operations.
FDA regulation of our GeneSight Psychotropic test could be disruptive to our business.
As described further above, the FDA has long claimed authority to regulate laboratory-developed tests but has exercised its “enforcement discretion” to limit enforcement of in vitro diagnostic regulatory requirements on this category of products.
−Removed: The FDA has from time to time appeared to increase its attention to the marketing of pharmacogenetic tests.
+Added: In October 2023, FDA issued a proposed rule to regulate LDTs under the current medical device framework and proposed to phase out the current enforcement discretion policy.
+Added: Further, the FDA has from time to time appeared to increase its attention to the marketing of pharmacogenetic tests.
For example, in late 2018, the FDA issued a safety communication regarding “genetic tests that claim results can be used to help physicians identify which antidepressant medication would have increased effectiveness or side effects compared to other antidepressant medications.” This safety communication explained that the FDA had reached out to several firms marketing such pharmacogenetic tests where the FDA believed the relationship between genetic variations and a medication’s effects had not been established, including a warning letter to Inova Genomics Laboratory.
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Since submitting our proposal to the FDA, we engaged with our trade association in their efforts to defend the offering of pharmacogenomic tests as LDTs and to monitor broader developments across the stakeholder community.
−Removed: In response to public letters from the national laboratory trade association and patient groups, on February 20, 2020, the FDA announced a new “collaboration between FDA’s Center for Devices and Radiological Health and Center for Drug Evaluation and Research intended to provide the agency’s view of the state of the current science in pharmacogenetics.” Although the announcement again asserted that some pharmacogenetic test offerings may be potentially dangerous, the agency also acknowledged that pharmacogenetic testing “offers promise for informing the selection or dosing of some medications for certain individuals.” In conjunction with the announcement, the FDA also released an updated “Table of Pharmacogenetic Associations,” which lists gene-drug interactions that the agency believes are supported by FDA-approved drug labeling and/or “sufficient scientific evidence based on published literature.” The Table has been updated periodically since that time.
+Added: In response to public letters from the national laboratory trade association and patient groups, on February 20, 2020, the FDA announced a new “collaboration between FDA’s Center for Devices and Radiological Health and Center for Drug Evaluation and Research intended to provide the agency’s view of the state of the current science in pharmacogenetics.” Although the announcement again asserted that some pharmacogenetic test offerings may be potentially dangerous, the agency also acknowledged that pharmacogenetic testing “offers promise for informing the selection or dosing of some medications for certain individuals” when there is sufficient evidence demonstrating a relationship between how a person's genes may impact their metabolism of a drug or how they may respond to the drug.
+Added: In conjunction with the announcement, the FDA also released an updated “Table of Pharmacogenetic Associations,” which lists gene-drug interactions that the agency believes are supported by FDA-approved drug labeling and/or “sufficient scientific evidence based on published literature.” The Table has been updated periodically since that time.
Based on our discussions with the agency and these developments, we have not implemented our proposal to the FDA regarding the GeneSight test.
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Our business involves environmental risks that may result in liability for us.
−Removed: In connection with our research and development activities, we are subject to federal, state and local laws, rules, regulations and policies governing the use, generation, manufacture, storage, air emission, effluent discharge, handling and disposal of certain materials, including hazardous materials, biological specimens, chemicals and waste.
+Added: In connection with our laboratory operations and research and development activities, we are subject to federal, state and local laws, rules, regulations and policies governing the use, generation, manufacture, storage, air emission, effluent discharge, handling and disposal of certain materials, including hazardous materials, biological specimens, chemicals and waste.
The cost of compliance with these laws and regulations may become significant and could negatively affect our operating results.
Although we believe that we have complied with the applicable laws, regulations and policies in all material respects and have not been required to correct any material noncompliance, we may be required to incur significant costs to comply with environmental and health and safety regulations in the future.
−Removed: Although we believe that our safety procedures for handling and disposing of controlled materials comply with the standards prescribed by state and federal regulations, accidental contamination or injury from these materials may occur.
+Added: Although we believe that our safety procedures for handling and disposing of controlled materials comply with the standards prescribed by state and federal regulations, accidental contamination or injury to employees or third parties from the use, storage, handling or disposal of these materials may occur.
In the event of such an occurrence, we could be held liable for any damages that result and any such liability could exceed our resources or any applicable insurance coverage we may have.
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Events or factors that may have a significant impact on our business and on the market price of our common stock include the following:
+Added: • failure to achieve and sustain revenue growth or margins in our business;
• major market events, such as the market’s reaction to the COVID-19 pandemic generally and its specific impact on the Company;
• failure of any of our recently launched tests and any new test candidates to achieve commercial success;
−Removed: • failure to achieve and sustain revenue growth or margins in our business;
• changes in the structure of healthcare payment systems and changes in governmental or private insurer reimbursement levels for our tests;
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• general market conditions, including as a result of changes in the rate of inflation and interest rates;
−Removed: • seasonal slowness in sales, particularly in the quarters ending September 30th and March 31st, the effects of which may be difficult to understand during periods of growth;
+Added: • potential seasonal slowness in sales, particularly in the quarters ending September 30 and March 31, the effects of which may be difficult to understand during periods of growth;
• general perception of the industry and our products;
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These and other external factors may cause the market price and demand for our common stock to fluctuate substantially, which may limit or prevent investors from readily selling their shares of common stock and may otherwise negatively affect the liquidity of our common stock.
−Removed: In addition, securities class action litigation such as the current stockholder suit pending against the Company discussed elsewhere in this Annual Report on Form 10-K and certain related matters may affect the market price and demand for our common stock.
−Removed: Such litigation may cause us to incur substantial costs defending the lawsuit regardless of the outcome and could also divert the time and attention of our management.
−Removed: We also may decide to settle lawsuits on unfavorable terms, including above any insurance coverage that may be available.
−Removed: Any such negative outcome could result in payments of substantial damages or fines, damage to our reputation or adverse changes to our offerings or business practices.
−Removed: Furthermore, during the course of litigation, there could be negative public announcements of the results of hearings, motions or other interim proceedings or developments, which could have a material adverse effect on the market price of our common stock.
−Removed: Our inability to achieve and maintain effective disclosure controls and procedures and internal control over financial reporting could adversely affect our results of operations, our stock price and investor confidence in us.
+Added: If we are unable to achieve and maintain effective disclosure controls and procedures and internal control over financial reporting, our results of operations, our stock price and investor confidence in us could be adversely affected.
Section 404 of the Sarbanes-Oxley Act of 2002 requires that companies evaluate and report on the effectiveness of their internal control over financial reporting.
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In addition, we cannot assure you that our independent registered public accounting firm will be able to attest that such internal controls are effective when they are required to do so.
−Removed: If we fail to remediate any future material weaknesses and maintain effective disclosure controls and procedures or internal control over financial reporting, you may not be able to rely on the integrity of our financial results, which could result in inaccurate or late reporting of our financial results, as well as delays or the inability to meet our reporting obligations or to comply with the rules and regulations of the Securities and Exchange Commission.
−Removed: Any of these could result in delisting actions by the Nasdaq Stock Market, investigation and sanctions by regulatory authorities, stockholder investigations and lawsuits, and could adversely affect our business and the trading price of our common stock.
+Added: If we fail to maintain effective disclosure controls and procedures or internal control over financial reporting or remediate any future material weaknesses, you may not be able to rely on the integrity of our financial results, which could result in inaccurate or late reporting of our financial results, as well as delays or the inability to meet our reporting obligations or to comply with the rules and regulations of the Securities and Exchange Commission.
+Added: Any of these events could result in delisting actions by the Nasdaq Stock Market, investigation and sanctions by regulatory authorities, and stockholder investigations and lawsuits, in addition to adversely affecting our business and the trading price of our common stock.
Anti-takeover provisions of Delaware law, provisions in our charter and bylaws and re-adoption of our stockholders’ rights plan, or poison pill, could make a third-party acquisition of us difficult.
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• the inability of our stockholders to call a special meeting or act by written consent;
+Added: • only our Board of Directors can fill vacancies on the Board.
In the past, we implemented a stockholders’ rights plan, also called a poison pill, which could make it uneconomical for a third party to acquire the Company on a hostile basis.
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From time to time, we may issue additional securities or sell common stock, convertible securities or other securities in one or more transactions at prices and in a manner we determine.
−Removed: We also plan to continue to grant equity awards that convert into our common stock to employees and directors pursuant to our equity incentive plan.
+Added: For example, in November 2023, we sold approximately 7.4 million shares of our common stock in an underwritten public offering.
+Added: We also plan to continue to grant equity awards that convert into shares of our common stock to employees and directors pursuant to our equity incentive plan.
If we sell or issue common stock, convertible securities or other equity securities, or common stock is issued pursuant to equity incentive plans, holders of our common stock may be materially diluted.
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New investors in such transactions could gain rights, preferences and privileges senior to those of holders of our common stock.
−Removed: We do not intend to pay dividends on our common stock so any returns will be limited to changes in the value of our common stock.
+Added: We do not intend to pay dividends so any returns will be limited to changes in the value of our common stock.
We currently intend to retain any future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future.
−Removed: In addition, the terms of our Amended Facility restrict our ability to pay dividends.
+Added: In addition, the terms of our ABL Facility restrict our ability to pay dividends.
Any determination to pay dividends in the future will be at the discretion of our Board of Directors and will depend on our financial condition, operating results, capital requirements, general business conditions and other factors that our Board of Directors may deem relevant.
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If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, demand for our stock could decrease, which might cause our stock price and trading volume to decline.
−Removed: Our restated bylaws provide that a state court located within the State of Delaware is the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
+Added: Increasing scrutiny and evolving expectations from regulators, business partners, investors, and other stakeholders with respect to our environmental, social, and governance (“ESG”) practices may impose additional costs on us or expose us to new or additional risks.
+Added: Companies across many industries are facing increasing scrutiny related to their ESG practices and disclosure.
+Added: With this increased focus, public reporting regarding ESG practices is becoming more broadly expected.
+Added: Any failure or perceived failure to accomplish or accurately track and report on our ESG initiatives on a timely basis or to meet stakeholder expectations could adversely affect our business, the willingness of our partners to do business with us, employee retention efforts, and our brand and reputation.
+Added: In addition, we expect there will likely be increasing levels of regulation, disclosure-related and otherwise, with respect to ESG matters.
+Added: For example, during 2022, the SEC proposed rules that require companies to provide significantly expanded climate-related disclosures in their periodic reporting, which may require us to incur significant additional costs to comply, including the implementation of significant additional internal controls processes and procedures regarding matters that have not been subject to such controls in the past, and impose increased oversight obligations on our management and Board of Directors.
+Added: Furthermore, changing laws and regulations and evolving stakeholder expectations may further increase our compliance and other costs necessary to meet those expectations.
+Added: In addition, California has recently enacted climate disclosure laws that may require us to report on our greenhouse gas emissions, climate-related financial risks, and other climate-related matters.
+Added: Furthermore, industry and market practices, as well as requirements of our business partners, may further develop to become even more robust than what is required under any new laws and regulations, and we may have to expend significant efforts and resources to keep up with market trends, stay competitive among our peers, and comply with such requirements, which could result in higher associated compliance costs and penalties for failure to comply with such laws and regulations.
+Added: Our restated certificate of incorporation and our restated bylaws designate specific state or federal courts as the exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
Our restated bylaws provide that a state court located within the State of Delaware (or, if no state court located within the State of Delaware has jurisdiction, the federal district court for the District of Delaware) is the sole and exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a claim of breach of fiduciary duty, any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our restated certificate of incorporation or our restated bylaws, or any action asserting a claim against us governed by the internal affairs doctrine.
−Removed: This exclusive forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees and may discourage these types of lawsuits.
−Removed: Alternatively, if a court were to find the exclusive forum provision contained in our restated bylaws to be inapplicable or unenforceable in an action, we might incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, financial condition and results of operations.
−Removed: UNRESOLVED STAFF COMMENTS
+Added: Our restated certificate of incorporation provides that the federal district courts of the United States of America are the exclusive forum for the resolution of any claims under the Securities Act of 1933, as amended.
+Added: These exclusive forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees and may discourage these types of lawsuits.
+Added: Alternatively, if a court were to find these exclusive forum provisions to be inapplicable or unenforceable in an action, we might incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, financial condition and results of operations.
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.