What changed in this filing

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Item 1A. Risk Factors

2021-08-06 compared with 2021-05-06 · 92 added, 55 removed, 803 unchanged (15% of the section changed)

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Such risks are discussed more fully below and include, but are not limited to, risks related to:

 The potential adverse impact of health epidemics, including the recent coronavirus outbreak;

 The potential adverse impact of health epidemics, including the ongoing COVID-19 pandemic;

 Our ability to successfully market, commercialize, and sell current and future products and related maintenance services;

 Our ability to achieve profitability for our business;

 Our ability to successfully leverage and integrate our acquisitions and future acquisitions;

 Our ability to successfully research, develop and timely manufacture our current and future products;

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Risks Related to Our Business

Our business may be adversely affected by health epidemics, including the recent coronavirus outbreak.

Our business may be adversely affected by health epidemics, including the ongoing COVID-19 pandemic.

Our business could be adversely impacted by the effects of COVID-19 or other epidemics or pandemics.

As a result of COVID-19, our 2020 financial results were impacted negatively as our customers in multiple regions around the world suspended their normal operations in efforts to curb the spread of the COVID-19 pandemic.

However, a significant number of our customer sites that had shut down due to COVID-19 have re-opened.

In addition, a significant number of customers have delayed purchases of capital due to the negative impact of the pandemic on their businesses.

While a significant number of our customer sites that shut down due to COVID-19 have re-opened, a significant number of our customers had delayed purchases of capital assets due to the negative impact of the pandemic on their businesses.

This dynamic continues to negatively impact the recognition of revenue related to the sale of our Sequel and Sequel II/IIe instruments and the associated consumables and software.

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To aid in containing the spread of COVID-19, we have implemented remote-work options and are limiting employee travel.

We are monitoring this rapidly evolving situation.

We are continuing to monitor this evolving situation.

Our manufacturing partners and suppliers could also be disrupted by conditions related to COVID-19 or other epidemics or pandemics, possibly resulting in disruption to the production of our products.

If our manufacturing partners or suppliers are unable or fail to fulfill their obligations to us for any reason, we may not be able to manufacture our products and satisfy customer demand or our obligations under sales agreements in a timely manner, and our business could be harmed as a result.

At this point in time, there is significant uncertainty relating to the potential effect of COVID-19 on our business.

There is significant uncertainty relating to the long-term effect of COVID-19 on our business.

Infections may resurge or become more widespread and the limitation on our ability to travel and timely sell and distribute our products, as well as any closures or supply disruptions, may be extended for longer periods of time, which could have a negative impact on our business, financial condition and operating results.

For example, because our semiconductor manufacturers are located in a region that has low immunization rates, the more contagious Delta variant of COVID-19 could impact workforce availability at those locations and disrupt supply.

Even after the COVID-19 pandemic has subsided, we may continue to experience an adverse impact to our business as a result of its global economic impact, including any recession that has occurred or may occur in the future.

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We have limited commercial sales to date and the commercialization and sales of our current or future products may be unsuccessful or less successful than anticipated.

Our first commercial product launched in 2011 and we have had limited sales to date.

Our first commercial product launched in 2011 and we have had limited sales to date, especially with respect to our current Sequel II/IIe systems.

As such, we have limited historical financial data upon which to base our projected revenue and planned operating expenses or upon which to evaluate our company and our commercial prospects.

Furthermore, in September 2015, we launched the PacBio Sequel ® System, and concurrently began phasing out production of PacBio RS II instruments, and, in April 2019 we announced the commercial launch of the Sequel II System .

In September 2015, we launched the PacBio Sequel ® System, and concurrently began phasing out production of PacBio RS II instruments, and, in April 2019 we announced the commercial launch of the Sequel II System .

In October 2020, we launched the Sequel IIe System, which has increased computational capacity, and is designed to enable customers to generate PacBio HiFi reads more efficiently.

In April 2021, we released a new HiFi sequencing workflow allowing for more accurate HiFi reads with limited sample quantities.

Based on our limited experience in developing and marketing our existing products and launching new products, we may not be able to effectively:

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If our cash, cash equivalents and investments are insufficient to fund our projected operating requirements and we are unable to raise capital, it could have a material adverse effect on our business, financial condition and results of operations and prospects.

We have made acquisitions and, in the future, may continue to acquire businesses, technologies or assets, form joint ventures or make other strategic investments with companies that could harm our operating results, dilute our stockholders’ ownership, or cause us to incur debt or significant expense.

As part of our business strategy, we have acquired and expect to continue to pursue acquisitions of complementary businesses, technologies or assets.

We may also pursue technology license arrangements, strategic alliances or investments that complement our business.

For example, we entered into a multi-year Development and Commercialization Agreement with Invitae, whereby Invitae provides us with funding to develop certain products relating to production-scale high-throughput sequencing .

In July 2021, we entered into an Agreement and Plan of Merger and Plan of Reorganization to acquire Omniome and we acquired Circulomics.

Acquisitions involve numerous risks, any of which could harm our business and negatively affect our financial condition and results of operations, including:

 intense competition for suitable acquisition targets, which could increase prices and adversely affect our ability to consummate deals on favorable or acceptable terms;

 failure or material delay in closing a transaction;

 transaction-related lawsuits or claims;

 difficulties in integrating the technologies, operations, existing contracts, and personnel of an acquired company;

 difficulties in retaining key employees or business partners of an acquired company;

 difficulties in retaining suppliers, partners or customers of an acquired company;

 challenges with integrating the brand identity of an acquired company with our own;

 diversion of financial and management resources from existing operations or alternative acquisition opportunities;

 failure to realize the anticipated benefits or synergies of a transaction;

 failure to identify the problems, liabilities, or other shortcomings or challenges of an acquired company or technology, including issues related to intellectual property, regulatory compliance practices, litigation, revenue recognition or other accounting practices, or employee or user issues;

 risks that regulatory bodies may enact new laws or promulgate new regulations that are adverse to an acquired company or business;

 risks that regulatory bodies do not approve our acquisitions or business combinations or delay such approvals;

 theft of our trade secrets or confidential information that we share with potential acquisition candidates;

 risk that an acquired company or investment in new services cannibalizes a portion of our existing business;

 adverse market reaction to an acquisition.

To finance any acquisitions or other strategic investments, we may raise additional funds, which could adversely affect our existing stockholders and our business.

If the price of our common stock is low or volatile, we may not be able to acquire other companies for stock.

In addition, our stockholders may experience substantial dilution as a result of additional securities we may issue for acquisitions.

Open market sales of substantial amounts of our common stock issued to stockholders of companies we acquire could also depress our stock price.

Additional funds may not be available on terms that are favorable to us, or at all.

If we fail to address the foregoing risks or other problems encountered in connection with past or future acquisitions of businesses, new technologies, services, and other assets and strategic investments, or if we fail to successfully integrate such acquisitions or investments, our business, financial condition, and results of operations could be adversely affected.

If we are unable to successfully develop and timely manufacture our current and future products, including with respect to the Sequel System, the SMRT Cell 8M and Sequel II/IIe Systems and related products, our business may be adversely affected.

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If we encounter development challenges or discover errors in our products late in our development cycle, we may be forced to delay product shipments or the scaling of manufacturing or supply.

In particular, if the continued rollout of our current and future products, including with respect to the SMRT Cell 8M and Sequel II/IIe Systems, is delayed or is not successful or less successful than anticipated, then we may not be able to achieve an acceptable return, if any, on our substantial research and development efforts, and our business may be materially and adversely affected.

In particular, if the continued rollout of our current and future products, including with respect to the SMRT Cell 8M and Sequel II/IIe Systems, is delayed or is not successful or

less successful than anticipated, then we may not be able to achieve an acceptable return, if any, on our substantial research and development efforts, and our business may be materially and adversely affected.

The expenses or losses associated with delayed or unsuccessful product development or lack of market acceptance of our existing and new products, including the SMRT Cell 8M and Sequel II/IIe Systems, could materially and adversely affect our business, operations, financial condition, and prospects.

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If we are unable to successfully manage such joint research and development efforts, our future results may be adversely impacted.

In January 2021, we entered into a multi-year collaboration with Invitae Corporation to begin development of a production-scale high-throughput sequencing platform;

In January 2021, we entered into a multi-year collaboration with Invitae to begin development of a production-scale high-throughput sequencing platform;

in certain termination circumstances of this collaboration, we may be obligated to refund all or a portion of the development funds advanced by Invitae and/or we may owe Invitae a share of the revenue generated from the sale of the program products.

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Our Chief Operating Officer, Mark Van Oene, and our Chief Commercial Officer, Peter Fromen, were each appointed effective January 8, 2021.

Also, our Vice President and Chief Accounting Officer Eric E.

Schaefer was appointed effective May 26, 2020, and our Chairman of the Board Dr.

Also, our Vice President and Chief Accounting Officer Michele Farmer was appointed effective May 17, 2021, and our Chairman of the Board Dr.

Milligan was appointed effective September 14, 2020.

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To accomplish this, we must successfully commercialize, and continue development of, our proprietary SMRT Sequencing technology for use in a variety of life science and other applications, including uses by academic, government and clinical laboratories, as well as pharmaceutical, diagnostic, biotechnology and agriculture companies, among others.

However, we may be unsuccessful in these efforts and

the sale and commercialization of the SMRT Cell 8M and Sequel II/IIe Systems, and related products may not grow sufficiently to cover our costs.

Our ability to further penetrate existing applications and any new applications depends on a number of factors, including the cost, performance and perceived value associated with our products, as well as customers’ willingness to adopt a different approach to nucleic acid sequencing.

However, we may be unsuccessful in these efforts and the sale and commercialization of the SMRT Cell 8M and Sequel II/IIe Systems, and related products may not grow sufficiently to cover our costs.

There can be no assurance that we will be successful in adding new products or securing additional customers for our current and future products, including with respect to the SMRT Cell 8M and Sequel II/IIe Systems and products related to our recent Circulomics acquisition and the pending Omniome transaction.

If we are unable to sell Circulomics products, or pending closing of the transaction, the Omniome products, or if the Omniome transaction does not close, we may fail to achieve our strategic commercial initiatives in connection with the planned release of new products and anticipated entry into new markets.

to adopt a different approach to nucleic acid sequencing.

Potential customers may have already made significant investments in other sequencing technologies and may be unwilling to invest in new technologies.

We are experiencing pricing pressures caused by industry competition and increased demand for lower-priced instruments and lower operational costs.

We have limited experience commercializing and selling products outside of the academic and research settings, thus cannot guarantee success in acquiring additional customers.

We have limited experience commercializing and selling products outside of the academic and research settings, and thus cannot guarantee success in acquiring additional customers.

Furthermore, we cannot guarantee that our products will be satisfactory to potential customers or that our products will perform in accordance with customer expectations.

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For example, a global

shortage of semiconductors, which has been reported since early 2021, has caused challenges in our supply chain.

For example, a global shortage of semiconductors, which has been reported since early 2021, has caused challenges in our supply chain.

In addition, because our semiconductor suppliers are in regions that have low vaccination rates, the more contagious Delta variant of COVID-19 could lead to increased infections among workers that could further disrupt the supply chain.

Our current manufacturing process is characterized by long lead times between the placement of orders for and delivery of our products.

If we have received insufficient components to manufacture our products on a timely basis to meet customer demand, our sales and our gross margin may be adversely affected and our business could be materially harmed.

If we are unable to reduce our manufacturing costs and establish and maintain reliable, high-volume manufacturing suppliers as we scale our operations, our business, operations, financial condition, and prospects could be materially and adversely harmed.

unable to reduce our manufacturing costs and establish and maintain reliable, high-volume manufacturing suppliers as we scale our operations, our business, operations, financial condition, and prospects could be materially and adversely harmed.

We may be unable to consistently manufacture our instruments and consumables, including SMRT Cells and reagents, to the necessary specifications or in quantities necessary to meet demand at an acceptable cost or at an acceptable performance level.

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There is also no assurance that we will be able to increase manufacturing yields and decrease costs, or that we will be successful in forecasting customer demand or manufacturing and supply costs, or that product supplies, including reagents or integrated chips, will not be limited or interrupted, or will be of satisfactory quality or continue to be available at acceptable prices.

Furthermore, we may not be able to increase manufacturing to meet anticipated demand or may experience downtime in our manufacturing facilities.

Furthermore, while we are undertaking efforts to increase our manufacturing scale and capability, we may not be able to increase manufacturing to meet anticipated demand or may experience downtime in our manufacturing facilities, including, for example, if we experience increased COVID-19 among our employees, or if our suppliers are unable to meet our increased demand at a time when the supply chain is under duress due to potential dislocations and disruptions in product and employee availability due to COVID-19.

An inability to manufacture products and components that consistently meet specifications, in necessary quantities and at commercially acceptable costs, will have a negative impact, and may have a material adverse effect on our business, product development timelines, financial condition and results of operations.

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We operate in a highly competitive industry and if we are not able to compete effectively, our business and operating results will likely be harmed.

There are a significant number of companies offering nucleic acid sequencing products and/or services, including Illumina, BGI Genomics, Thermo, ONT Ltd., Roche, and Qiagen.

There are a significant number of companies offering nucleic acid sequencing products and/or services, including Illumina, BGI Genomics, Thermo, Oxford Nanopore Technologies Ltd.

(“ ONT Ltd.”), Roche, and Qiagen.

Many of these companies currently have greater name recognition, more substantial intellectual property portfolios, longer operating histories, significantly greater financial, technical, research and/or other resources, more experience in new product development, larger and more established manufacturing capabilities and marketing, sales and support functions, and/or more established distribution channels to deliver products to customers than we do.

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As a consequence of the concentrated nature of our customer base and their purchasing behavior, our quarterly revenue and results of operations have fluctuated, and may fluctuate in the future, from quarter to quarter and are difficult to forecast.

For example, the cancellation of orders or acceleration or delay in anticipated product purchases or the acceptance of shipped

products by our larger customers has materially affected, and in the future could materially affect, our revenue and results of operations in any quarterly period.

example, the cancellation of orders or acceleration or delay in anticipated product purchases or the acceptance of shipped products by our larger customers has materially affected, and in the future could materially affect, our revenue and results of operations in any quarterly period.

We have been, and may be in the future be, unable to sustain or increase our revenue from our larger customers, or offset any discontinuation or decrease of purchases by our larger customers with purchases by new or other existing customers.

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Spending budgets are based on a wide variety of factors, including the allocation of available resources to make purchases, funding from government sources which is highly uncertain and subject to change, the spending priorities among various types of research equipment, policies regarding capital expenditures during economically uncertain periods and the impact of COVID-19.

Any decrease in capital spending or change in spending priorities of our current and potential customers could significantly reduce the demand for our products.

Any decrease in capital spending or change in spending priorities of our current and potential customers could significantly reduce the demand for our

Any delay or reduction in purchases by current or potential customers or our inability to forecast fluctuations in demand could materially and adversely harm our future operating results.

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These fluctuations, among other factors, also mean that our operating results in any particular period may not be relied upon as an indication of future performance.

Seasonal or cyclical variations in our sales have in the past, and may in the future, become more or less pronounced over time, and have in the past materially affected, and may in the future materially affect, our business, financial condition, results of operations and prospects.

Seasonal or cyclical variations in our sales have in the past, and may in

the future, become more or less pronounced over time, and have in the past materially affected, and may in the future materially affect, our business, financial condition, results of operations and prospects.

Our ability to use net operating losses to offset future taxable income may be subject to substantial limitations, and changes to U.S.

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Enforcing a claim that a third party illegally obtained and is using our trade secrets is expensive and time consuming, and the outcome is unpredictable.

Additionally, others may independently develop proprietary information and techniques that are substantially equivalent to ours.

Additionally, others may independently develop

proprietary information and techniques that are substantially equivalent to ours.

The occurrence of these events may have a material adverse effect on our business, financial condition or results of operations.

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Our products are based on complex, rapidly developing technologies.

We may not be aware of issued or previously filed patent applications that belong to third parties that mature into issued patents that cover some aspect of our products or their use.

We may not be aware of issued or previously filed patent applications that belong to third parties that mature into issued patents that cover some aspect of our products or

In addition, because patent litigation is complex and the outcome inherently uncertain, our belief that our products do not infringe third-party patents of which we are aware or that such third-party patents are invalid and unenforceable may be determined to be incorrect.

As a result, third parties have claimed, and may in the future claim, that we infringe their

patent rights and have filed, and may in the future file, lawsuits or engage in other proceedings against us to enforce their patent rights.

As a result, third parties have claimed, and may in the future claim, that we infringe their patent rights and have filed, and may in the future file, lawsuits or engage in other proceedings against us to enforce their patent rights.

For example, ONT Ltd.

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Open source license terms are often ambiguous and there is little legal precedent governing the interpretation of these licenses.

Successful claims made by the licensors of open source software that we have violated the terms of these licenses could result in unanticipated obligations, including being subject to significant damages, being enjoined from distributing products that incorporate open source software and being required to make available our proprietary source code pursuant to an open source license, which could substantially help our competitors develop products that are similar to or better than ours or otherwise materially and adversely affect our business.

products that incorporate open source software and being required to make available our proprietary source code pursuant to an open source license, which could substantially help our competitors develop products that are similar to or better than ours or otherwise materially and adversely affect our business.

Risks Related to Regulation

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The FDA has historically exercised enforcement discretion in not enforcing the medical device regulations against laboratories developing and offering LDTs.

However, on October 3, 2014, the FDA issued two draft guidance documents that set forth the FDA’s proposed risk-based framework for regulating LDTs, which are designed, manufactured, and used within a single laboratory.

However, on October 3, 2014, the FDA issued two draft guidance documents that set forth the FDA’s proposed risk-based framework for regulating LDTs, which are designed, manufactured, and used

within a single laboratory.

The draft guidance documents provide the anticipated details through which the FDA would propose to establish an LDT oversight framework, including premarket review for higher-risk LDTs, such as those that have the same intended use as FDA-approved or cleared companion diagnostic tests currently on the market.

In January 2017, the FDA announced that it would not issue final guidance on the oversight of LDTs and manufacturers of products used for

LDTs, but would seek further public discussion on an appropriate oversight approach, and give Congress an opportunity to develop a legislative solution.

In January 2017, the FDA announced that it would not issue final guidance on the oversight of LDTs and manufacturers of products used for LDTs, but would seek further public discussion on an appropriate oversight approach, and give Congress an opportunity to develop a legislative solution.

More recently, the FDA has issued warning letters to certain genomics labs for illegally marketing genetic tests that claim to predict patients’ responses to specific medications, noting that the FDA has not created a legal “carve-out” for LDTs and retains discretion to take action when appropriate, such as when certain genomic tests raise significant public health concerns.

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It generally takes a significant amount of time to prepare a 510(k), including conducting appropriate testing on our products, and several months to years for the FDA to review a submission.

Notwithstanding the effort and expense, FDA clearance or approval could be denied for some or all of our products for which we choose to market as a medical device or a clinical diagnostic device.

Notwithstanding the effort and expense, FDA clearance or approval could be

denied for some or all of our products for which we choose to market as a medical device or a clinical diagnostic device.

Even if we were to seek and obtain regulatory approval or clearance, it may not be for the intended uses we request or that we believe are important or commercially attractive.

There can be no assurance that future products for which we may seek premarket clearance or approval will be approved or cleared by FDA or a comparable foreign regulatory authority on a

timely basis, if at all, nor can there be assurance that labeling claims will be consistent with our anticipated claims or adequate to support continued adoption of such products.

There can be no assurance that future products for which we may seek premarket clearance or approval will be approved or cleared by FDA or a comparable foreign regulatory authority on a timely basis, if at all, nor can there be assurance that labeling claims will be consistent with our anticipated claims or adequate to support continued adoption of such products.

Compliance with FDA or comparable foreign regulatory authority regulations will require substantial costs, and subject us to heightened scrutiny by regulators and substantial penalties for failure to comply with such requirements or the inability to market our products.

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Further, the continued threats of tariffs, trade restrictions and trade barriers could have a generally disruptive impact on the global economy and, therefore, negatively impact our sales.

Given the relatively fluid regulatory environment in China and the United States and uncertainty how the U.S.

the relatively fluid regulatory environment in China and the United States and uncertainty how the U.S.

or foreign governments will act with respect to tariffs, international trade agreements and policies, there could be additional tax or other regulatory changes in the future.

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Any of these events could harm our business, operating results and financial condition.

We also expect that our operations will be affected by new environmental, health and safety laws and regulations on an ongoing basis, or more stringent enforcement of existing laws and regulations.

We also expect that our operations will be affected by new environmental, health and safety laws and regulations on an ongoing basis, or more stringent enforcement of existing laws

and regulations.

New laws or changes to existing laws may result in additional costs and may increase penalties associated with violations or require us to change the content of our products or how we manufacture them, which could have a material adverse effect on our business, operating results and financial condition.

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Any such issuances would result in dilution to our existing stockholders and the market price of our common stock may be adversely affected.

On July 19, 2021, we entered into a Purchase Agreement with certain qualified institutional buyers and institutional accredited investors, pursuant to which we agreed to sell an aggregate of 11,214,953 shares of our common stock, at a price of $26.75 per share, for aggregate gross proceeds of approximately $300 million.

The closing of the Private Placement is conditioned upon, among other customary closing conditions, the closing of the Omniome Merger.

In connection with the Private Placement, we entered into a Registration Rights Agreement with the Private Placement investors, providing them, among other things, certain registration rights, including our obligation to register the Private Placement shares for resale with the SEC within 30 days following the closing of the Private Placement.

Concentration of ownership by our principal stockholders may result in control by such stockholders of the composition of our board of directors.

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Also, SB Northstar LP, a subsidiary of SoftBank Group Corp., purchased $900 million in aggregate principal amount of our 1.50% Convertible Senior Notes due 2028, convertible at the option of the holders at any time into shares of our common stock based on an initial conversion rate of 22.9885 shares of common stock per $1,000 principal amount of the Notes (which is equal to an initial conversion price of $43.50 per share).

In addition, in July 2021, we entered into a Purchase Agreement with certain qualified institutional buyers and institutional accredited investors, pursuant to which we agreed to sell shares of our common stock for aggregate gross proceeds of approximately $300 million, including approximately $60 million to SB Northstar LP, which sale is conditioned

upon, among other customary closing conditions, the closing of the Omniome Merger.

As a result, these current and future stockholders may now and in the future be able to exercise a significant level of control over all matters requiring stockholder approval, including the election of directors.

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We anticipate that we will retain all of our future earnings for use in the operation of our business and for general corporate purposes.

Any determination to pay dividends in the future will be at the discretion of our board of directors.

Any determination to pay dividends in the future will be at the discretion of our board of

Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments.

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In addition, upon conversion of the Notes, unless we elect to deliver solely shares of our common stock to settle such conversion (other than paying cash in lieu of delivering any fractional share), we will be required to settle a portion or all of our conversion obligation in cash in respect of the Notes being converted.

Moreover, we will be required to repay the Notes

in cash at their maturity unless earlier converted, redeemed or repurchased.

Moreover, we will be required to repay the Notes in cash at their maturity unless earlier converted, redeemed or repurchased.

However, we may not have enough available cash or be able to obtain financing at the time we are required to make repurchases of Notes surrendered therefor or pay cash with respect to Notes being converted or at their maturity.

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Any failure to deliver products to our customers in a safe and timely manner may damage our reputation and brand and could cause us to lose customers.

If our relationship with any of these third-party carriers is terminated or impaired or if any of these carriers are unable to deliver our products, the delivery and acceptance of our products by our customers may be delayed, which could harm our business and financial results.

If our relationship with any of

these third-party carriers is terminated or impaired or if any of these carriers are unable to deliver our products, the delivery and acceptance of our products by our customers may be delayed, which could harm our business and financial results.

The failure to deliver our products in a safe and timely manner may harm our relationship with our customers, increase our costs and otherwise disrupt our operations.

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Conducting and launching operations on an international scale requires close coordination of activities across multiple jurisdictions and time zones and consumes significant management resources.

If we fail to coordinate and manage these activities effectively, our business, financial condition or results of operations could be materially and adversely affected and failure to comply with laws and regulations applicable to business operations in

foreign jurisdictions may also subject us to significant liabilities and other penalties.

International operations entail a variety of other risks, including, without limitation:

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The state of the global economy continues to be uncertain.

The current global economic conditions and uncertain credit markets and concerns regarding the availability of credit pose a risk that could impact customer demand for our products, as well as our

ability to manage normal commercial relationships with our customers, suppliers and creditors, including financial institutions.

The current global economic conditions and uncertain credit markets and concerns regarding the availability of credit pose a risk that could impact customer demand for our products, as well as our ability to manage normal commercial relationships with our customers, suppliers and creditors, including financial institutions.

If the current global economic environment deteriorates, our business could be negatively affected.

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Our business could be negatively impacted by changes in the United States political environment.

There is significant ongoing uncertainty with respect to potential legislation, regulation and government policy at the federal level, as well as the state and local levels, such as during this presidential election year.

There is significant ongoing uncertainty with respect to potential legislation, regulation and government policy at the federal level, as well as the state and local levels.

Any such changes could significantly impact our business as well as the markets in which we compete.

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Our success depends, in part, on the continued and uninterrupted performance of our IT systems.

IT systems may be vulnerable to damage from a variety of sources, including telecommunications or network failures, power loss, natural disasters, human acts, computer viruses, computer denial-of-service attacks, unauthorized access to customer or employee data or company trade secrets, and other attempts to harm our systems.

IT systems may be vulnerable to damage from a variety of sources, including telecommunications or network failures, power loss, natural disasters, human acts, computer viruses, ransomware, computer denial-of-service attacks, unauthorized access to customer or employee data or company trade secrets, and other attempts to harm our systems.

Certain of our systems are not redundant, and our disaster recovery planning is not sufficient for every eventuality.

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The secure processing, maintenance and transmission of this information is critical to our operations.

Despite our security measures, our IT infrastructure may be vulnerable to attacks by hackers, computer viruses, malicious codes, unauthorized access attempts, and cyber- or phishing-attacks, or breached or otherwise disrupted due to employee error, malfeasance, faulty password management or other disruptions.

Despite our security measures, our IT infrastructure may be vulnerable to attacks by hackers, computer viruses, malicious codes, ransomware, unauthorized access attempts, and cyber- or phishing-attacks, or breached or otherwise disrupted due to employee error, malfeasance, faulty password management or other disruptions.

Third parties may attempt to fraudulently induce employees or other persons into disclosing usernames, passwords or other sensitive information, which may in turn be used to access our IT systems, commit identity theft or carry out other unauthorized or illegal activities.

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We engage third-party vendors and service providers to store and otherwise process some of our data, including sensitive and personal information.

Our vendors and service providers may also be the targets of the risks described above, including cyberattacks, malicious software, phishing schemes, and fraud.

Our vendors and service providers may also be the targets of the risks described above, including cyberattacks, malicious software, ransomware, phishing schemes, and fraud.

Our ability to monitor our vendors and service providers’ data security is limited, and, in any event, third parties may be able to circumvent those security measures, resulting in the unauthorized access to, misuse, disclosure, loss or destruction of our data, including sensitive and personal information, and disruption of our or third-party service providers’ systems.

We and our third-party service providers may face difficulties in identifying, or promptly responding to, potential security breaches and other instances of unauthorized access to, or disclosure or other loss of, information.

Any hacking or other attack on our or our third-party service providers’ or vendors’ systems, and any unauthorized access to, or disclosure or other loss of, information suffered by us or our third-party service providers or vendors, or the perception that any of these have occurred, could result in legal claims or proceedings, loss of intellectual property, liability under laws that protect the privacy of personal information, negative publicity, disruption of our operations and damage to our reputation, which could divert our management’s attention from the operation of our business and materially and adversely affect our business, revenues and competitive position.

business, revenues and competitive position.

Moreover, we may need to increase our efforts to train our personnel to detect and defend against cyber- or phishing-attacks, which are becoming more sophisticated and frequent, and we may need to implement additional protective measures to reduce the risk of potential security breaches, which could cause us to incur significant additional expenses.

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Any such access, breach or other loss of information could result in legal claims or proceedings, and liability under federal or state laws that protect the privacy of personal information, such as the HIPAA, the Health Information Technology for Economic and Clinical Health Act (“HITECH”), and regulatory penalties.

Notice of breaches must be made to affected individuals, the Secretary of the Department of Health and Human Services, and for extensive breaches, notice may need to be made to the media or State Attorneys General.

Notice of breaches must be made to affected individuals, the Secretary of the Department of Health and Human

Services, and for extensive breaches, notice may need to be made to the media or State Attorneys General.

Such a notice could harm our reputation and our ability to compete.

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In addition, such requirements may require us to modify our data processing practices and policies, distract management or divert resources from other initiatives and projects, all of which could have a material adverse effect on our business, financial condition, results of operations and prospects.

Any failure or perceived failure by us or our third-party vendors, collaborators, contractors and consultants to comply with any

applicable federal, state or similar foreign laws and regulations relating to data privacy and security, or could result in damage to our reputation, as well as proceedings or litigation by governmental agencies or other third parties, including class action privacy litigation in certain jurisdictions, which would subject us to significant fines, sanctions, awards, penalties or judgments, all of which could have a material adverse effect on our business, financial condition, results of operations and prospects.

Any failure or perceived failure by us or our third-party vendors, collaborators, contractors and consultants to comply with any applicable federal, state or similar foreign laws and regulations relating to data privacy and security, or could result in damage to our reputation, as well as proceedings or litigation by governmental agencies or other third parties, including class action privacy litigation in certain jurisdictions, which would subject us to significant fines, sanctions, awards, penalties or judgments, all of which could have a material adverse effect on our business, financial condition, results of operations and prospects.

Unregistered Sales of Equity Securities and Use of Proceeds

5 unchanged sentences

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

What changed 10-Q

Item 1A. Risk Factors