What changed in this filing

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Item 1A. Risk Factors

2025-05-07 compared with 2024-11-08 · 43 added, 65 removed, 9 unchanged (92% of the section changed)

1 unchanged sentence

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors and other cautionary statements described under the heading “Item 1A.

Risk Factors” included in Part I of our Annual Report on Form 10-K filed with the SEC on February 28, 2024, "Item 1A.

Risk Factors" included in Part II of our Quarterly Report on Form 10-Q filed with the SEC on May 8, 2024 and this Quarterly Report on Form 10-Q, which could materially affect our business, financial condition or future results.

Risk Factors” included in Part I of our Annual Report on Form 10-K filed with the SEC on February 28, 2025, as updated below which could materially affect our business, financial condition or future results.

Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition or future results.

There have been no material changes in our risk factors from those described in our Annual Report on Form 10-K filed with the SEC on February 28, 2024 and our Quarterly Report on Form 10-Q filed with the SEC on May 8, 2024, other than the updates to the risk factors set forth below.

There have been no material changes in our risk factors from those described in our Annual Report on Form 10-K filed with the SEC on February 28, 2025, other than the updates to the risk factors set forth below.

We may disclose changes to risk factors or additional risk factors from time to time in our future filings with the SEC.

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.

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.

Such third-party payors include state and federal health care programs such as Medicare, managed care organizations, other private health insurers and other organizations.

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.

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 the Centers for Medicare & Medicaid Services, managed care organizations, and other third-party payors.

We do not receive reimbursement from third-party payers or payment from patients for many of the tests we perform.

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.

For example, on November 1, 2024, UnitedHealthcare updated its medical policy for pharmacogenetic testing to no longer provide coverage for certain multi-gene panel pharmacogenetic tests, including our GeneSight test, under its commercial and individual exchange benefit plans, effective January 1, 2025.

We recognized approximately $40.0 million in revenue for GeneSight volume from UnitedHealthcare under these commercial and individual exchange plans during the last twelve months ended September 30, 2024.

While we are still assessing the full impact of UnitedHealthcare's change in its GeneSight coverage policy, including our ability to offset the loss in GeneSight coverage, we anticipate that this change will negatively impact revenue in fiscal year 2025 and thereafter.

While we intend to continue our engagement with UnitedHealthcare regarding its decision to change its GeneSight coverage policy, there is no guarantee that our efforts will be successful or that our GeneSight test will be covered by UnitedHealthcare in the future.

If unchanged, UnitedHealthcare's updated medical policy for these plans will prevent us from sustaining previous GeneSight revenue or profitability levels and may materially and adversely affect our business and financial results as a whole and could lead to coverage changes in other UnitedHealthcare plans and at other payors.

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.

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.

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.

In addition, under the Protecting Access to Medicare Act of 2014 (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.

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.

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 Medicare’s Clinical Laboratory Fee Schedule (CLFS) for clinical diagnostic laboratory tests (CDLTs) that are not advanced diagnostic laboratory tests (ADLT).

Most recently, the Further Continuing Appropriations and Other Extensions Act of 2024 (Pub.L.

118-22, enacted on November, 16, 2023) further delayed the reporting requirement as well as the application of the 15% phase-in reduction.

Under these statutory provisions, the next data reporting period for CDLTs that are not ADLTs will be January 1, 2025 through March 31, 2025.

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.

The Further Continuing Appropriations and Other Extensions Act of 2024 further applied a 0.0 percent reduction limit for calendar year 2024.

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.

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.

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 change our revenue estimates for previously delivered tests or refund reimbursements already received.

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.

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 payment from our testing.

We also periodically receive and respond to requests for recoupment from third-party payors in the ordinary course of business.

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.

We may also continue to negotiate and settle with third-party payers in order to resolve allegations of overpayment.

As part of our revenue recognition process, we estimate the expected amount of consideration to be received from our tests using all the information (historical, current, and forecast) that is reasonably available to identify possible consideration amounts.

The estimate of revenue is affected by, among other factors, changes in payor mix, payor collections, current customer contractual requirements, experience with collections from third-party payors, and changes in medical policies.

We have experienced, and may continue to experience, positive and negative changes in our revenue estimates for previously delivered tests as a result of third-party payors disputing our bills or denying payment for tests that we have performed or from changes in the estimated transaction price due to contractual adjustments, obtaining updated information from payors and patients that was unknown at the time the performance obligation was met and settlements with third-party payors.

While we believe our revenue recognition process is reasonable and performed in accordance with applicable accounting standards, we cannot guarantee that our revenue estimates for our tests will be accurate or equal the amount of cash actually collected or that we will not continue to recognize positive or negative changes in our revenues for tests performed in prior periods.

For example, we have one third-party payor that represents 19% and 12% of our total accounts receivable balance as of September 30, 2024 and December 31, 2023.

If the actual amount of cash collected differs from our current estimates, our revenue may be materially impacted.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

The CDPH did not file a notice of appeal.

As a result of the foregoing, we expect to continue to be able to offer and perform our Prequel screening test in California.

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.

and foreign governments continue to propose and pass legislation designed to reduce the cost of health care.

For example, in some foreign markets, the government controls the pricing of many health care products.

We expect that there will continue to be federal and state proposals to implement governmental controls or impose health care requirements.

In addition, the Medicare program and increasing emphasis on managed care in the United States will continue to put pressure on product pricing.

Cost control initiatives could decrease the price that we would receive for any tests in the future, which would limit our revenue and profitability.

Changes in health care policy could increase our costs, decrease our revenue and impact sales of and reimbursement for our tests.

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, which was upheld by the U.S.

Supreme Court in 2021.

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.

Future changes or additions to the ACA or the Medicare and Medicaid programs, such as changes stemming from other health care reform measures, especially with regard to health care access, financing or other legislation in individual states, could have a material adverse effect on the health care industry in the United States.

The impact to reimbursement levels and the number of insured individuals under the ACA may lead to delay in the purchasing decisions of our customers, which may in turn negatively impact our product sales.

Further, if reimbursement levels are inadequate, our business and results of operations could be adversely affected.

The ACA has also been the focus of ongoing legal challenges that could materially affect insurance coverage for our products and services.

For example, in Braidwood Management v.

Becerra , the Fifth Circuit Court of Appeals in June 2024 upheld a lower court ruling that found the ACA’s mandate requiring insurance coverage for certain preventive services without cost sharing to be unconstitutional.

The case is currently on appeal to the U.S.

Supreme Court, which has agreed to hear it, with oral arguments expected in April 2025 and a decision anticipated in summer 2025.

While the ultimate outcome of Braidwood remains uncertain, as does the possibility of additional challenges to the ACA, any such developments could have an adverse impact on our business depending on how they affect reimbursement or coverage for our tests.

In addition to the ACA, there will continue to be proposals by legislators at both the federal and state levels, regulators and private third-party payors to reduce costs while expanding individual health care benefits.

Certain of these changes could impose additional limitations on the prices we will be able to charge for our tests or the amounts of reimbursement available for our tests from governmental agencies or private third-party payors.

Any future changes to legal or regulatory requirements or new cost containment initiatives could have a materially adverse effect on our business, financial condition, results of operation, and cash flows.

International trade disputes, including United States trade tariffs and retaliatory tariffs, could adversely impact our business.

Changes in United States trade policy, including recently announced or potential future tariffs, could have a material adverse impact on our business, financial condition, and results of operations.

The imposition of new tariffs or increases in existing tariffs on goods imported from or expected to be imported from countries where we or our suppliers operate could result in higher costs for materials or components essential to our operations.

These increased costs may reduce our margins, necessitate price adjustments, or impact the affordability and competitiveness of our offerings.

Additionally, retaliatory tariffs imposed by other countries on U.S.

exports could delay delivery of supplies to us and adversely affect our ability to operate or grow in certain international markets.

If we are unable to effectively mitigate these risks through supply chain adjustments, pricing strategies, or other measures, our financial performance and growth trajectory could be materially affected.

Impairment in the value of our goodwill or other intangible assets could have a material adverse effect on our operating results and financial condition.

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Intangible assets with definite lives are reviewed for impairment when events or circumstances indicate that their carrying value may not be recoverable.

Declines in operating results, divestitures, sustained market declines and other factors that impact the fair value of a reporting unit, such as the anticipated loss of future revenue from our Pharmacogenomics reporting unit, which unit accounted for approximately 42.3% of our total recorded goodwill at September 30, 2024, as a result of UnitedHealthcare's decision to no longer provide coverage for our GeneSight test under its commercial and individual exchange benefit plans, could result in an impairment of goodwill or intangible assets and, in turn, a charge to net income.

Any such charges could have a material adverse effect on our results of operations or financial condition.

Unregistered Sales of Equity Securities and Use of Proceeds.

Issuer Purchases of Equity Securities

Defaults Upon Senior Securities.

Mine Safety Disclosures.

Not applicable.

Declines in operating results, divestitures, sustained market declines and other factors that impact the fair value of an asset could result in an impairment of goodwill or intangible assets and, in turn, a charge to net incom e (loss).

For example, in 2025, our stock price and market capitalization decreased, which we believe was in part due to market volatility related to economic uncertainty.

If our stock price and market value continue to decline or remain at reduced levels, we may be required to record an impairment loss to goodwill or other intangible assets, which could be material.

An impairment loss and any other su ch charges could have a material adverse effect on our results of operations or financial condition.

If we experience a significant disruption in our information technology systems, or those of third-parties upon which we rely, including cloud-based services, our business operations and financial condition could be adversely affected.

Information technology (IT) and communication systems are an important part of our business operations.

These IT and communications systems support a variety of functions, including sample processing, tracking, quality control, customer service and support, billing, research and development activities, and various general and administrative activities.

The availability of our products and services and fulfillment of our customer contracts depends on the continuing operation of these systems.

In addition to our internally managed IT and communication systems, we rely on third-party IT and communication systems, some of which include cloud-based services, including data center hosting facilities.

Our IT and communication systems, and those of third-parties upon which we rely, may be susceptible to damage, disruptions or shutdowns due to power outages, hardware failures, computer viruses, attacks by computer hackers, telecommunication failures, user errors, natural disasters, or other unforeseen events.

Our IT and communication systems, and those of third-parties upon which we rely, 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, including with respect to electronic medical record (EMR) integrations.

New IT and communication systems, such as EMR integrations and our new order management system, may not work as intended or achieve the benefits we anticipated, which could negatively impact our ability to meet customer demands and grow or maintain revenue.

In addition, we may face challenges in maintaining the operational effectiveness of such IT and communication systems due to aging, accumulated technical debt, and gaps in our software release processes.

Any disruptions or failures in our new or existing IT and communication systems involving our customers, providers or suppliers could result in material adverse effects on our business.

Furthermore, cybersecurity incidents impacting our IT systems, and those of third-parties upon which we rely, could result in the misappropriation or unauthorized disclosure of personal, sensitive, proprietary or other confidential information relating to us, our employees, partners, customers, suppliers, or other third-parties, which could result in our suffering significant financial or reputational damage.

Additionally, any disruption, failure, or breach of our IT and communications systems, or those of third-parties upon which we rely, could significantly impact our operations.

For instance, if a key third party vendor experiences a cybersecurity incident, it could compromise our data security and lead to financial losses, regulatory penalties, and reputational damage.

Additionally, any operational disruptions from our third party vendors, such as delays in supply chain deliveries, could adversely affect our ability to meet customer demands and maintain business continuity.

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

What changed 10-Q

Item 1A. Risk Factors