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Item 1. Business

2023-03-20 compared with 2022-03-22 · 345 added, 353 removed, 567 unchanged (55% of the section changed)

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Exagen is dedicated to transforming the care continuum for patients suffering from debilitating and chronic autoimmune diseases by enabling timely differential diagnosis and optimizing therapeutic intervention.

We have developed and are commercializing a portfolio of innovative testing products under our AVISE ® brand, several of which are based on our proprietary Cell-Bound Complement Activation Products, or CB-CAPs, technology.

CB-CAPs assess the activation of the complement system, a biological pathway that is widely implicated across many autoimmune and autoimmune-related diseases, including systemic lupus erythematosus, or SLE.

Our goal is to enable rheumatologists to improve care for patients through the differential diagnosis, prognosis and monitoring of complex autoimmune and autoimmune-related diseases, including SLE and rheumatoid arthritis, or RA.

We currently market 10 testing products under our AVISE ® brand that allow for the differential diagnosis, prognosis and monitoring of complex autoimmune and autoimmune-related diseases.

Our lead testing product, AVISE ® CTD, enables differential diagnosis for patients presenting with symptoms indicative of a wide variety of connective tissue diseases, or CTDs, and other related diseases with overlapping symptoms.

We have developed and are commercializing a portfolio of innovative testing products under our AVISE ® brand, several of which incorporate Cell-Bound Complement Activation Products (CB-CAPs) technology.

Our goal is to enable healthcare providers to improve care for patients through the differential diagnosis, prognosis and monitoring of complex autoimmune and autoimmune-related diseases, including SLE and rheumatoid arthritis (RA).

We market testing products under our AVISE ® brand that allow for the differential diagnosis, prognosis and monitoring of complex autoimmune and autoimmune-related diseases.

Our lead testing product, AVISE ® CTD, enables differential diagnosis for patients presenting with symptoms indicative of a wide variety of connective tissue diseases (CTDs) and other related diseases with overlapping symptoms.

The comprehensive nature of AVISE ® CTD allows for the testing of a number of relevant biomarkers in one convenient blood draw, as opposed to testing serially for individual biomarkers, which adds time and cost to the diagnostic process.

We believe AVISE ® CTD may provide clinical utility for over 23 million patients in the United States suffering from these diseases, which include SLE, RA, Sjögren’s syndrome, antiphospholipid syndrome, or APS, other autoimmune-related diseases such as autoimmune thyroid, and other disorders that mimic these diseases, such as fibromyalgia.

We believe AVISE ® CTD may provide clinical utility for over 24 million patients in the United States suffering from these diseases, which include SLE, RA, Sjögren’s syndrome, antiphospholipid syndrome (APS), other autoimmune-related diseases such as autoimmune thyroid, and other disorders that mimic these diseases, such as fibromyalgia.

There is an unmet need for rheumatologists to add clarity in their CTD clinical evaluation, and we believe there is a significant opportunity for our tests that enable the differential diagnosis of these diseases, particularly for potentially life-threatening diseases such as SLE.

We are leveraging our portfolio of testing products to establish partnerships with leading pharmaceutical companies, academic research centers and patient advocacy organizations.

We also have agreements with other leading pharmaceutical companies and clinical research organizations, including GlaxoSmithKline LLC, or GSK, Labcorp Drug Development and Parexel that leverage our testing products and/or the data generated from such tests.

We provide GSK, a leader in lupus therapeutics, our test result data to provide market insight into and help increase awareness of the benefits of an early and accurate diagnosis of SLE and lupus nephritis, and monitoring disease activity.

We partner with academic research centers and patient advocacy organizations, such as Brigham and Women's Hospital, Hospital for Special Surgery, Duke University and Emory University as well as the Lupus Foundation of America, to help improve the quality of life for people affected by autoimmune diseases through programs of research, education, support and advocacy.

We plan to pursue additional partnerships that are synergistic with our evolving portfolio of testing products.

We have demonstrated a strong track record of developing innovative testing products that meet the needs of diagnosing, prognosing and monitoring CTDs, as illustrated below:

AVISE ® CTD leverages our proprietary CB-CAPs technology to enable the differential diagnosis SLE.

AVISE ® CTD leverages CB-CAPs technology to enable the differential diagnosis of SLE.

AVISE ® CTD provides rheumatologists and their patients with sensitive and specific results that allow for potentially faster and more accurate differential diagnosis of SLE as compared to other currently-marketed testing methods.

Beyond SLE, AVISE ® CTD allows rheumatologists to accurately diagnose other overlapping autoimmune and autoimmune-related diseases, including RA, with the same blood sample.

Our AVISE ® SLE Monitor testing product also leverages our proprietary CB-CAPs technology by measuring two CB-CAPs biomarkers that offer insight into a patient’s disease activity.

Our AVISE ® SLE Monitor testing product also leverages CB-CAPs technology by measuring two CB-CAPs biomarkers that offer insight into a patient’s disease activity.

This test is designed to enable rheumatologists to effectively assess and optimize therapeutic intervention in patients diagnosed with SLE.

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AVISE ® MTX is a drug monitoring test designed to aid in the optimization of methotrexate therapy, the standard of care and first-line therapy for patients with RA.

AVISE ® MTX is based on our proprietary methotrexate polyglutamate, or MTXPG, technology that measures blood levels of MTXPGs, the active metabolite of methotrexate linked to disease control in RA patients.

AVISE ® MTX is based on our proprietary methotrexate polyglutamate (MTXPG) technology that measures blood levels of MTXPGs, the active metabolite of methotrexate linked to disease control in RA patients.

Measuring MTXPGs allows rheumatologists to identify patients presenting with inadequate exposure to methotrexate enabling them to optimize dosing and achieve therapeutic levels commensurate with adequate disease control.

AVISE ® MTX is compatible with AVISE ® Touch, our low-volume test sample collection method that allows for a micro-volume blood sample to be collected anywhere from a simple fingerstick.

AVISE ® Anti-CarP, which measures anti-carbamylated protein antibody, or anti-CarP, was developed by the Leiden University Medical Center, and we introduced it as a biomarker-driven RA prognostic test through a distribution agreement with Werfen USA, LLC with the goal of identifying patients prone to more severe disease.

AVISE ® Touch, the low-volume test sample collection method, is no longer offered for any of our testing products.

AVISE ® Anti-CarP, which measures anti-carbamylated protein antibody (anti-CarP), was developed by the Leiden University Medical Center, and we introduced it as a biomarker-driven RA prognostic test through a distribution agreement with Werfen USA, LLC with the goal of identifying patients prone to more severe disease.

We market our AVISE ® testing products using our specialized sales force.

Since the launch of AVISE ® CTD in 2012 and through December 31, 2021, we have delivered over 615,000 of these tests.

For the year ended December 31, 2021, 128,246 AVISE ® CTD tests were delivered, representing an approximate 28% increase over the same period in 2020.

In the fourth quarter of 2021, the number of ordering healthcare providers reached a record 2,126 compared to 1,690 in the same period in 2020, and we reached a record 739 adopting healthcare providers (defined as those who previously prescribed at least 11 diagnostic tests in the corresponding period) compared to 635 in the same period in 2020.

A high percentage of adopting healthcare providers continue to order tests in subsequent quarters, including a retention rate of approximately 99% among adopting healthcare providers from the third quarter of 2021 that order at least one diagnostic test in the fourth quarter of 2021.

Since the launch of AVISE ® CTD in 2012 and through December 31, 2022, we have delivered approximately 750,000 of these tests.

For the year ended December 31, 2022, 135,210 AVISE ® CTD tests were delivered, representing an approximate 5% increase over 2021.

In the fourth quarter of 2022, the number of ordering healthcare providers reached a record 2,419 compared to 2,126 in the same period in 2021.

In addition, we continue to populate a growing proprietary database of de-identified patient test results from our clinical studies and our clinical laboratory.

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We believe we also have the ability to further leverage our database to optimize patient selection in clinical trials for companies developing therapeutics for autoimmune and autoimmune-related diseases.

collaborate with our existing and future pharmaceutical and biotechnology partners to help maximize the full value of our in-house database.

We also believe we can leverage our portfolio of testing products to market therapeutics through our sales channel, targeting the approximately 5,000 rheumatologists across the United States, by integrating testing products and therapeutics to offer targeted solutions to rheumatologists and ultimately, better serve patients.

We will continue to rely on our existing testing products to drive revenue growth and intend to leverage our integrated testing and therapeutics strategy to establish partnerships with a focus on the development and commercialization of therapeutics that are synergistic with our testing products.

We are led by an experienced management team with unique capabilities to execute on our strategy.

Our senior management has an average of over 20 years of experience in the healthcare industry with a focus on integrating diagnostics and therapeutics.

We develop and commercialize next-generation testing products to ultimately improve the continuum of care for patients suffering from debilitating and chronic autoimmune diseases.

We plan to collaborate with our existing and future pharmaceutical and biotechnology partners to help maximize the full value of our in-house database.

We address the unmet needs of those suffering from debilitating and chronic autoimmune disorders through aiding in the differential diagnosis, prognosis, monitoring and therapeutic selection, to ultimately improve the continuum of care for patients.

The key tenets of our business strategy include:

▪ Continue our track record of developing innovative testing products.

Since inception, we have demonstrated a strong track record of developing testing products that address the challenges in the differential diagnosis, prognosis and monitoring of patients with autoimmune and autoimmune-related diseases.

We are leveraging our proprietary CB-CAPs and methotrexate polyglutamate, or MTXPG, technologies to develop additional testing products designed to have superior clinical utility for CTDs.

We believe our commitment to innovating our portfolio of testing products will further strengthen our relationships with rheumatologists and our value proposition to our existing and future pharmaceutical and biotechnology partners.

▪ Drive additional market penetration for our testing products.

Our portfolio of testing products enables the differential diagnosis, prognosis and monitoring of complex autoimmune and autoimmune-related diseases.

We have demonstrated a strong track record of commercial growth from our testing products, leveraging our specialized sales force and expansive network of relationships with rheumatologists across the United States.

We believe we are uniquely positioned to continue expanding our commercial presence within the autoimmune disease market and plan to continue to invest in our sales force in order to achieve the optimal reach and frequency with rheumatologists.

In addition, we will continue to expand our efforts in the targeted promotion and education of rheumatologists and payors as to the clinical and cost benefits of our testing products.

We believe these efforts will position us to capture additional market share for our portfolio of testing products.

▪ Integrate the promotion of testing products and therapeutics for autoimmune and autoimmune-related diseases and establish partnerships.

We are seeking to leverage our sales and marketing efforts targeting rheumatologists for the commercialization of our testing products to promote therapeutics.

We intend to establish partnerships with a focus on the development and commercialization of therapeutics that are synergistic with our testing products to execute on this integrated testing and therapeutics strategy.

▪ Focus on our flagship product, AVISE ® CTD.

We have demonstrated a solid track record of commercial growth of our AVISE ® CTD test.

We believe we are uniquely positioned to continue expanding our commercial presence within the autoimmune disease market by leveraging our specialized sales force and expansive network of relationships with rheumatologists across the United States.

Using our specialty laboratory focused on rheumatology, we plan to build upon industry-leading quality, service and technology to support strong AVISE ® CTD adoption and continue to grow our ordering physician base.

▪ Continue developing innovative testing products, using clear criteria for R&D projects and commercialization milestones.

We intend to leverage our protein and molecular assay development capabilities, bioinformatic team and proprietary technologies to pursue the development of additional testing products designed to have superior clinical utility for CTDs.

We undertake research projects that have the potential for impactful results and address the top consumer needs in the rheumatology space.

The research projects we support will be those that we believe will have a competitive advantage (such as using proprietary technology), a pathway for reimbursement and an established evidence development plan with sufficient market size.

Criteria for developed products that we ultimately commercialize include Medicare coverage (specific to patient population), proprietary value-based pricing, published clinical utility and a strategy for medical guideline inclusion.

▪ Maintain meaningful margin.

We believe we are well positioned to maintain meaningful margin through a continued focus on increasing operating leverage through the implementation of certain internal initiatives, such as conducting additional validation and reimbursement oriented clinical studies to facilitate payor coverage of our testing products, capitalizing on our growing reagent purchasing to negotiate improved volume-based pricing and automation in our clinical laboratory to reduce material and labor costs.

We seek to maintain meaningful margin by continuing to focus on increasing operating leverage through the implementation of internal initiatives, such as leveraging validation and reimbursement-oriented clinical studies to facilitate payor coverage of our testing products.

We plan to increase our focus on long-term reimbursement and average sales price (ASP) growth, by optimizing revenue cycle practices, focusing managed care efforts on medical policy expansion and continuing to educate insurance payors on the published, real-world evidence of the clinical utility of our testing products, showing healthcare cost savings and reductions in time to diagnosis.

We also seek to improve our per-test costs by focusing on profitable, core test offerings, reducing fixed costs and overhead, and focusing our laboratory resources on AVISE ® CTD optimization.

Additionally, we employ a streamlined salesforce covering territories which are designed to achieve the most efficient and effective reach and frequency for the promotion of AVISE ® CTD.

We are currently aligning the organization with this new focus to best accomplish our goals.

Autoimmune and Connective Tissue Diseases

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These symptoms overlap among numerous CTDs, including SLE, one of the most severe CTDs and historically difficult to rule out, as well as other autoimmune-related diseases and other disorders that mimic these diseases, such as fibromyalgia.

Based on a study we commissioned in 2014, we estimate that there are approximately 23 million undiagnosed patients in the United States who are symptomatic of these conditions and who may benefit from the differential diagnosis of CTDs.

The National Institute of Environmental Health Sciences estimates that there are approximately 24 million patients in the United States with existing cases of autoimmune diseases.

Of these patients, we estimate approximately seven million are potentially referable to rheumatologists and would be candidates for an AVISE ® CTD test, representing a total addressable market of approximately $7.5 billion, based on the current Medicare allowable reimbursement rate.

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Current treatment for SLE involves the use of antimalarials, corticosteroids, immunosuppressants and biologic agents to prevent or suppress active disease or flares.

Standard laboratory tests for diagnosing SLE include measuring immunological biomarkers, such as antinuclear antibodies, or ANA, anti-double stranded DNA, or anti-dsDNA, and other autoantibody tests.

Standard laboratory tests for diagnosing SLE include measuring immunological biomarkers, such as antinuclear antibodies (ANA), anti-double stranded DNA (anti-dsDNA) and other autoantibody tests.

ANA are a group of autoantibodies produced by a person’s immune system when it fails to adequately distinguish between self and non-self.

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Therefore, the majority of individuals who test positive for ANA do not have SLE.

Only approximately 11-13% of individuals with a positive ANA test have SLE.

Approximately 11-13% of individuals with a positive ANA test have SLE.

This lack of specificity leads to many inappropriate non-autoimmune referrals to the rheumatologist from primary care physicians.

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In addition, a study published in 2012 reported the estimated prevalence of a positive ANA test in the normal, healthy, U.S.

population to be 13.8%, or 32 million people, indicating a significant need for a highly-specific test for this disease.

population to be 13.8% (32 million people), indicating a significant need for a highly-specific test for this disease.

Anti-dsDNA are autoantibodies that target a person’s double-stranded DNA.

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A strongly positive anti-dsDNA antibody test makes it very likely that a person has SLE, although if the test is negative it does not necessarily rule out SLE.

Approximately 30-70% of people with SLE have a negative anti-dsDNA antibody test, reaffirming the need for an effective testing product which adds clarity to the rheumatologist’s clinical assessment.

Many people with SLE have a negative anti-dsDNA antibody test, reaffirming the need for an effective testing product which adds clarity to the rheumatologist’s clinical assessment.

Activation of the complement system is an integral part of the disease process of SLE.

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In March 2011, the first new biologic targeting treatment of SLE in over 50 years, GSK’s Benlysta ® , was approved by the U.S.

Food and Drug Administration, or the FDA, and in December 2020, the FDA approved this biologic drug for the treatment of lupus nephritis.

It is the only approved biologic for the treatment of active, antibody-positive SLE who are receiving standard therapy, and in December 2020, the FDA approved this biologic for the treatment of adult patients with active lupus nephritis who are receiving standard therapy.

Food and Drug Administration (the FDA), and in December 2020, the FDA approved this biologic drug for the treatment of adult patients with active lupus nephritis who are receiving standard therapy.

Since Benlysta ® 's approval, there have been a number of drug development programs that have failed in SLE, which may suggest that guidelines for classifying SLE patients and the endpoints used to determine clinical effectiveness have not adequately addressed the complexity of the disease process and its heterogeneous population.

We believe biopharmaceutical companies would benefit from the differential diagnosis enabled by our AVISE ® testing products in order to better identify sub-populations of SLE patients for targeted therapies.

Rheumatoid Arthritis

RA is a chronic, systemic autoimmune disease in which the immune system attacks the joints and can also affect other organ systems.

The annual incidence and prevalence of RA in the United States is estimated to be 120,000 and two million, respectively.

Patients suffering from RA develop joint damage that is associated with painful inflammation which often progresses to irreversible damage of cartilage and bone leading to significant disability and a reduction in quality of life and the ability to work.

Early diagnosis and effective treatment of RA is critically important to prevent erosive bone or joint damage and disability.

The annual incidence and prevalence of RA in the United States is estimated to be 135,000 and 1.5 million, respectively.

Patients suffering from RA develop joint damage that is associated with painful inflammation and often progresses to irreversible damage of cartilage and bone, leading to significant disability and a reduction in quality of life and the ability to work.

Early diagnosis and effective treatment of RA is critically

important to prevent erosive bone or joint damage and disability.

Rheumatologists are compelled to reach a definitive diagnosis quickly and administer effective treatment.

Diagnosis of RA involves performing a complete medical history with physical and/or radiographic examination of the number and distribution of swollen, tender and painful joints that have persisted for more than six weeks.

Laboratory testing for rheumatoid factor, or RF, anti-cyclic citrullinated peptide, or CCP, antibodies, and testing for general, nonspecific inflammation with erythrocyte sedimentation rate, or the ESR, and C-reactive protein tests are used to assist in the diagnosis.

The standard of care for the treatment for RA involves the use of Disease Modifying Anti-Rheumatic Drugs, or DMARDs, which have shown, in clinical studies, the ability to slow or stop disease progression.

Laboratory testing for rheumatoid factor (RF), anti-cyclic citrullinated peptide (CCP) antibodies and testing for general, nonspecific inflammation with erythrocyte sedimentation rate (the ESR) and C-reactive protein tests are used to assist in the diagnosis.

The standard of care for the treatment for RA involves the use of Disease Modifying Anti-Rheumatic Drugs (DMARDs) which have shown, in clinical studies, the ability to slow or stop disease progression.

Methotrexate remains the most commonly used DMARD, due to its low cost, effectiveness, and the extensive clinical experience with its use.

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The first FDA approved biologics for RA were the anti-TNFs.

ENBREL ® was approved for RA in 1998 and the latest, SIMPONI ® , was approved in 2009.

The anti-TNFs dominate the therapy for RA and generally are the first biologics chosen to augment methotrexate when patients are not achieving a satisfactory response.

We currently market 10 testing products under our AVISE ® brand that allow for the differential diagnosis, prognosis and monitoring of complex autoimmune and autoimmune-related diseases, including SLE and RA.

Our product portfolio integrates our proprietary CB-CAPs technology, which is a stable and reliable method for differentially diagnosing SLE.

We market testing products under our AVISE ® brand that allow for the differential diagnosis, prognosis and monitoring of complex autoimmune and autoimmune-related diseases, including SLE and RA.

Our product portfolio integrates CB-CAPs technology, which is a stable and reliable method for differentially diagnosing SLE.

We are focused on leveraging our sales channel targeting the approximately 4,500 rheumatologists across the United States.

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For example, increased synthesis of C3 and C4 by the liver can offset increased C3 and C4 breakdown during activation of the complement cascade, resulting in no change in serum levels.

While the limitations and drawbacks of measuring standard

components of the complement system, such as C3 and C4, are well recognized by the medical community, these laboratory biomarkers are part of international guidelines for the classification of SLE.

While the limitations and drawbacks of measuring standard components of the complement system, such as C3 and C4, are well recognized by the medical community, these laboratory biomarkers are part of international guidelines for the classification of SLE.

We believe the availability of novel complement biomarkers supporting or replacing standard C3 and C4 measures will be of great value for rheumatologists and ultimately their patients.

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Our proprietary technology measures blood levels of MTXPGs, which are the active metabolite of methotrexate.

The technology uses a dried capillary blood-based collection method coupled with liquid chromatographic tandem mass spectrometry and quantifies nanomolar concentrations of MTXPG using at least two orders of magnitude lower blood volume than venipuncture.

The technology uses a dried capillary blood-based collection method coupled with liquid chromatographic tandem mass spectrometry and quantifies nanomolar concentrations of MTXPG using at least two

orders of magnitude lower blood volume than venipuncture.

MTXPG blood levels are actionable clinical utility checkpoints and can help clinicians identify causes for a lack of response to methotrexate, such as poor activation to active metabolites, underexposure secondary to poor absorption or poor compliance, all of which are limiting factors to the achievement of a robust clinical response with this first-line treatment.

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Our lead testing product, AVISE ® CTD, is a comprehensive test that aids in the differential diagnosis of SLE versus other common CTDs.

The SLE portion of the test employs our proprietary CB-CAPs technology and specifically measures activation of the complement system by quantifying the level of two CB-CAPs biomarkers in the patient’s blood, B-cell C4d, or BC4d, and erythrocyte bound C4d, or EC4d, which are higher in patients with SLE compared to patients with other CTDs.

The SLE portion of the test employs CB-CAPs technology and specifically measures activation of the complement system by quantifying the level of two CB-CAPs biomarkers in the patient’s blood, B-cell C4d (BC4d), and erythrocyte bound C4d (EC4d), which are higher in patients with SLE compared to patients with other CTDs.

In addition, the comprehensive nature of AVISE ® CTD enables testing for a series of biomarkers in one convenient blood draw to further aid in the differential diagnosis of a wide variety of CTDs and other diseases which can be challenging to diagnose as a result of overlapping symptoms.

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AVISE ® Lupus

The AVISE ® Lupus test employs our proprietary CB-CAPs technology and is the cornerstone of the SLE assessment within our more comprehensive AVISE ® CTD testing product.

The AVISE ® Lupus test employs CB-CAPs technology and is the cornerstone of the SLE assessment within our more comprehensive AVISE ® CTD testing product.

AVISE ® Lupus measures activation of the complement system by quantifying the level of BC4d and EC4d in the patient’s blood.

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AVISE ® Vasculitis AAV

In September 2020, we launched AVISE ® Vasculitis AAV which utilizes a testing panel of individual analytes designed to provide physicians with rapid and reliable results in the assessment and monitoring of anti-neutrophil cytoplasmic antibody, or ANCA, associated vasculitis, or AAV.

AAV is a group of autoimmune diseases characterized by vascular inflammation and damage.

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AVISE ® Anti-CarP

AVISE ® Anti-CarP, which measures anti-CarP, was developed by the Leiden University Medical Center, and we introduced it as a biomarker-driven RA prognostic test through a distribution agreement with Werfen USA, LLC.

with the goal of identifying patients prone to more severe disease.

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Furthermore, RA patients positive for Anti-CarP have an increased risk for more severe RA disease, including permanent joint damage .

AVISE ® PC4d, introduced in 2018, reflects over 10 years of research efforts and employs our proprietary CB-CAPs technology.

This proprietary CB-CAP biomarker measures platelet-bound C4d, or PC4d, and has been shown in clinical studies to have significant association with thrombosis and ischemic stroke in SLE.

AVISE ® PC4d, introduced in 2018, reflects over 10 years of research efforts and employs CB-CAPs technology.

This CB-CAP biomarker measures platelet-bound C4d (PC4d), and has been shown in clinical studies to have significant association with thrombosis and ischemic stroke in SLE.

These thrombotic events can be among the most damaging and deadly forms of lupus flares and often strike without warning.

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AVISE ® SLE Monitor

AVISE ® SLE Monitor is a blood test that employs our proprietary CB-CAPs technology and is intended to assess the condition of a patient that has been diagnosed with SLE.

AVISE ® SLE Monitor is a blood test that employs CB-CAPs technology and is intended to assess the condition of a patient that has been diagnosed with SLE.

It offers a unique combination of biomarkers that measure for EC4d, which has shown greater accuracy in tracking disease activity than C3 and C4, and PC4d, which is associated with thrombosis risk in SLE.

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They rely on imperfect biomarkers, overt symptoms or flares and patient reported history, all of which leave the rheumatologists looking for greater insights.

In surveys conducted with SLE patients, it has been reported that patients tend to under report their symptoms and over 70% of healthcare providers are unaware of this bias.

In surveys conducted with SLE patients, it has been reported that patients tend to under report their symptoms and many healthcare providers are unaware of this bias.

AVISE ® SLE Monitor demonstrates correlation to SLE disease activity and is therefore designed to enable rheumatologists to effectively assess and optimize therapeutic intervention in patients diagnosed with SLE.

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AVISE ® MTX provides crucial information as to whether a patient has achieved MTXPG blood levels consistent with an appropriate response to methotrexate, also known as the therapeutic level, or if the MTXPG blood levels are too low to produce adequate effects.

AVISE ® MTX can allow rheumatologists to make a more informed therapeutic decisions in their efforts to optimize methotrexate therapy and give patients their best chance at achieving an optimal response.

AVISE ® MTX is compatible with AVISE ® Touch, our low-volume test sample collection method that allows for a micro-volume blood sample to be collected anywhere from a simple fingerstick.

AVISE ® Touch has a number of advantages, including empowering rheumatologists to collect and submit samples without full phlebotomy services, convenience for patients who have trouble with venipuncture and potential patient self-collection.

AVISE ® HCQ is a blood test designed to help rheumatologists objectively monitor levels of hydroxychloroquine, or HCQ, in whole blood as they treat patients with SLE and other CTDs, including RA.

AVISE ® MTX can allow rheumatologists to make more informed therapeutic decisions in their efforts to optimize methotrexate therapy and give patients their best chance at achieving an optimal response.

AVISE ® HCQ is a blood test designed to help rheumatologists objectively monitor levels of hydroxychloroquine (HCQ), in whole blood as they treat patients with SLE and other CTDs, including RA.

HCQ is typically prescribed to patients to control SLE disease activity and prevent flares.

However, there is large variability in the response to HCQ therapy, the drug can sometimes take weeks or months to have a therapeutic effect and compliance has been documented to be an issue in CTD patients.

We believe measuring HCQ makes the patient accountable, and also helps to determine whether HCQ blood levels are adequate and consistent with clinical efficacy.

We believe measuring HCQ makes the patient accountable, and also

helps to determine whether HCQ blood levels are adequate and consistent with clinical efficacy.

The addition of new and costly biologic therapies approved for the treatment of SLE may drive interest by all healthcare stakeholders, especially payors, to adopt an approach that optimizes a generic drug before advancing to a costlier alternative.

AVISE ® HCQ is also compatible with AVISE ® Touch.

We provide the results of our AVISE ® testing products in a comprehensive and easy-to-understand test report typically sent to rheumatologists within five business days following receipt of the blood specimen.

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Our Pipeline and Growth Opportunities

We have a Scientific Advisory Board consisting of national experts in the clinical management of rheumatic autoimmune diseases, including RA and lupus, to help guide the organization’s leadership team on the design and

execution of research projects, as well as weigh-in on known and anticipated advances in technologies affecting clinical management of autoimmune diseases.

We believe there is significant potential to capitalize on our proprietary CB-CAPs and MTXPG technologies by integrating those technologies with commercially validated biomarkers to develop testing products with superior clinical utility.

The complement pathway is widely implicated in the pathogenesis of a variety of conditions, including autoimmune diseases and organ transplant rejection, and emerging data suggests its implication in cancer development.

We believe that our proprietary CB-CAPs technology, owing to its stability and reliability, will allow us to produce meaningful and differentiated proprietary solutions for rheumatologists.

For example, we are focused on leveraging our proprietary CB-CAPs technology by developing a thrombosis risk score with PC4d in prognosing cardiovascular events in SLE.

In addition, we are developing assays that we believe may have high diagnostic, prognostic, monitoring and/or therapeutic response value in patients with fibromyalgia, RA and additional autoimmune indications, and we continue to evaluate the use of AVISE ® Touch and microfluidics for our broader portfolio of testing products to increase convenience and cost-effectiveness.

We regularly confer with national experts in the clinical management of rheumatic autoimmune diseases, including RA and lupus, to help guide the organization’s leadership team on the design and execution of research projects, as well as weigh-in on known and anticipated advances in technologies affecting clinical management of autoimmune diseases.

We believe there is significant potential to capitalize on our proprietary technologies by integrating with commercially validated biomarkers to develop testing products with superior clinical utility.

The complement pathway is widely implicated in the pathogenesis of a variety of conditions, including autoimmune diseases and organ transplant rejection.

We believe that CB-CAPs technology, owing to its stability and reliability, will allow us to produce meaningful and differentiated proprietary solutions for rheumatologists.

For example, we are developing assays that we believe may have high diagnostic, prognostic, monitoring and/or therapeutic response value in patients with Lupus, RA and additional autoimmune indications.

AVISE ® RADR Platform

RA is estimated to affect approximately two million patients in the United States and can be difficult to manage due to the variability in treatment response from patient to patient.

Therapeutic agent selection for RA patients remains a significant unmet need.

RA is estimated to affect approximately 1.5 million patients in the United States and can be difficult to manage due to a well-defined treatment response ceiling for the spectrum of FDA-approved biological treatments for RA.

Personalized therapeutic agent selection for RA patients remains a significant unmet need.

RA patients often try multiple therapies empirically before they find one that lowers their disease activity.

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There are currently no reliable assays for predicting positive patient response prior to the selection of commonly prescribed biological therapeutic agents.

In collaboration with Queen Mary University of London, we are aiming to develop a family of patented assays pertaining to RNA expression patterns used in the prediction of patient response to commonly prescribed csDMARD (AVISE ® RADR 1) and biological therapeutics (AVISE ® RADR 2) for RA.

The assays utilize minimally invasive synovial tissue biopsies as input, which are then assessed for RNA expression data.

These data are then run through proprietary machine learning algorithms that provide actionable insights on predicted csDMARD and biological therapeutic response for RA patients based on an individual patient's RNA expression patterns.

In collaboration with Queen Mary University of London (QMUL), we are aiming to develop a family of patented assays pertaining to RNA expression patterns used in the prediction of patient response to biological therapeutics for RA.

The assays utilize minimally invasive synovial tissue biopsies as input, which are then processed for total RNA expression data.

The resulting data is then run through proprietary artificial intelligence (AI) developed algorithms that provide actionable insights on predicted biological therapeutic response for RA patients based on an individual patient's RNA expression patterns.

AVISE ® SLE Monitor (2.0)

SLE is characterized by a chronic, systemic inflammatory burden, and disease progression is defined by the accumulation of irreversible organ damage typically resulting from chronic inflammation and/or chronic corticosteroid use.

Among the challenges for rheumatologists responsible for the care of lupus patients is the unpredictability of the disease course defined by periods of waxing and waning episodes of inflammation.

The unpredictable nature of SLE and the lack of reliable conventional biomarkers indicative of present and near-term disease activity results in a significant unmet need for a surrogate method to monitor disease activity.

Our goal is to leverage clinical and laboratory data collected across multiple longitudinal SLE cohorts to identify a set of biomarkers that can inform an AI-developed algorithm aimed at guiding ongoing treatment decisions throughout the course of a lupus patient’s journey.

AVISE ® Lupus Nephritis

Lupus nephritis (LN) is an autoimmune disease and a frequent complication in people who have SLE.

It causes the immune system to produce proteins called autoantibodies that attack the body's own tissues and organs, including the kidneys.

If left untreated, LN can lead to significant health problems, permanent kidney damage and even death.

Early diagnosis and treatment are key to managing LN and to preventing it from escalating.

Although early onset of LN is not typically noticeable by patients, nearly 40% of SLE patients go on to develop LN.

Currently, urinary protein to creatine ratio measurement is the standard means of assessing kidney damage;

however, it is not necessarily indicative of kidney prognosis or treatment response.

We aim to develop a test for detecting protein analytes in urine that can aid rheumatologists in the ongoing management and risk stratification of patients suffering from lupus nephritis.

Sales and Marketing

Our specialized sales force is focused on targeting the approximately 4,500 rheumatologists across the United States.

Our sales representatives generally have extensive experience in healthcare sales with backgrounds in rheumatology, biologics, specialty therapeutics and/or testing.

Our sales representatives generally have extensive experience in healthcare sales with backgrounds in rheumatology, diagnostics and/or pharmaceutical sales.

In addition, our sales representatives complete a comprehensive disease-level sales training program and are required to participate in regular, ongoing training activities and certifications.

Our goal is for our sales representative to be viewed as a collaborative consultant versus a traditional drug sales representative.

As of December 31, 2021, our overall sales team consisted of approximately 79 members.

We have a sales force of 61 representatives, who are managed by a team of seven regional sales directors.

Our sales force is organized into seven regions which include, Pacific, Southwest, Midwest, Great Lakes, Southeast, Atlantic and Northeast.

As of December 31, 2021, our sales force was covering a total of 63 territories within the seven regions.

Our inside sales force helps further our reach with rheumatologists in white space, complementing our decentralized sales force and covering vacant territories.

In addition, we intend to continue to evaluate our sales force's reach and frequency of interactions with rheumatologists, including as we launch our pipeline products.

To further support our promotional efforts, we have a centralized, dedicated client services department with a high level of technical training that augments our specialized sales force and marketing activities and enhances sales efficiency and customer satisfaction by providing personalized customer support.

Right Doctor, Right Message, Right Frequency

Our focused “high-touch” selling approach emphasizes execution in three core areas:

Our goal is for our sales representative to be viewed as a collaborative resource to the rheumatologists and their practice.

Our field-based sales force is organized into 40 territories within the following four regions:

West, Central, Northeast and Southeast.

Our inside sales force helps further our brand awareness with, and access to, rheumatologists located in rural and outlying areas of the United States.

We intend to continue to evaluate our sales force's reach and frequency of interactions with rheumatologists, including as we launch our pipeline products.

This group enhances sales efficiency and customer satisfaction by providing personalized customer support.

Adoption and Growth through Quality Testing and Service

Our focus on quality allows for a dedicated sales approach which entails a commitment to understanding the needs of both provider and patient.

Through raising awareness of the benefits AVISE ® testing provides, our sales team is able to deliver quality testing and support services to providers, and ultimately, their patients.

To ensure our marketing and sales efforts are reaching those that we believe could benefit most from AVISE ® , we emphasize execution in three core areas:

targeting, messaging and call frequency.

We strategically target the highest-potential practices by utilizing various data sources (e.g., market analytics, demographic data, historical biologic and diagnostic product usage trends).

We strategically target the highest-potential practices by utilizing various data sources (e.g., market analytics, demographic data, historical therapeutic usage and diagnostic product trends).

Furthermore, we believe the increased access afforded by our testing products will allow for patient-focused messaging and the increased accuracy of our testing products over current standard of care diagnostic methodologies.

Finally, we execute a high-frequency promotional strategy for our top-targeted rheumatologists and their office personnel to build knowledge, understanding and retention of the benefits of our testing products.

We plan to leverage core channels for building awareness and adoption including our participation with multiple patient advocacy organizations, such as the Lupus Foundation of America, or LFA, and medical societies, such as the American College of Rheumatology, or ACR.

We have also established strong relationships with multiple rheumatology care management organizations, or super groups, which can be key in influencing favorable reimbursement.

We plan to leverage core channels for building awareness and adoption, including our participation with multiple patient advocacy organizations and medical societies, such as the American College of Rheumatology (ACR).

We have also established strong relationships with multiple rheumatology care management organizations (Super Groups), which can be key in influencing favorable reimbursement.

Our AVISE ® MTX testing product has been included in the clinical guidelines for two of these groups.

We believe our experience with advancing a testing product from initial development through clinical adoption differentiates us and uniquely positions us to replicate success with our other testing products.

Beyond working with these groups, we intend to continue to augment field selling activity with a balanced marketing mix including print and digital advertising, direct marketing, continuing medical education programs and working with key opinion leaders to support peer-to-peer educational events.

Beyond working with these Super Groups, we intend to continue to augment field selling activity with a balanced marketing mix, including print and digital advertising, direct marketing, continuing medical education programs and working with key opinion leaders to support peer-to-peer educational events.

Reimbursement, Clinical Validation and Clinical Utility

Reimbursement

We seek reimbursement for our testing products from several sources, including commercial third-party payors, government payors and patients.

Payment from commercial third-party payors differs depending on whether we have entered into a contract with the payor as a participating provider or do not have a contract and are considered to be an out-of-network provider.

When we contract to serve as a participating provider, reimbursements are made pursuant to a percentage of our charges or a negotiated fee schedule amount.

Where we are not reimbursed in full, or receive a claim denial, for in-network and out-of-network claims, we may elect to appeal the insurer’s underpayment or denial of payment or seek payment from the patient.

We continue to focus on expanding coverage among existing contracted providers and achieving coverage with additional commercial payors, laboratory benefit managers and evidence review organizations.

We employ a multi-pronged strategy designed to achieve broad coverage and reimbursement for our AVISE ® testing products:

The primary source of revenue for our products is reimbursement from third-party payors and client bill arrangements.

Third-party payors include government payors, such as Medicare and Medicaid, and commercial payors, such as insurance companies.

Achieving and maintaining broad coverage and reimbursement of our current products by third-party payors, including Medicare, are key components that contribute to our revenue and financial results.

Expanding coverage by government and commercial payors for our commercialized and pipeline tests is and will be important for our future growth.

We are actively engaged in efforts to achieve broad commercial coverage and reimbursement for our current and future products, followed by contracting with commercial payors.

Achieving positive coverage reduces the need for appeals and reduces failures to collect from the patient’s insurance.

Additionally, achieving in-network contracts with commercial payors can shorten the time required to receive payments.

Our approach to commercial payment is centered on impacting our standing in clinical guidelines and individual payor medical policies.

We seek to accomplish this through continued evidence development and publication, medical director engagement and individual claim-based appeal efforts, detailed as follows:

▪ Meet the evidence standards necessary to be consistent with leading clinical guidelines.

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When studies with such evidence are published in peer-reviewed journals, the authors of clinical guidelines may assess the level of evidence and determine whether modifying existing guidelines to include new technology is warranted.

For example, we previously conducted peer-reviewed, published clinical studies for AVISE ® Lupus which helped us secure favorable coverage from various commercial third-party payors.

In the future, we also intend to conduct similar studies in order to develop similar supporting literature with respect to our other testing products.

▪ Execute an internal managed care policy and claims adjudication function as part of our core business operations.

We employ a team of in-house claims processing and reimbursement specialists who work with patients and payors to obtain maximum reimbursement.

In parallel, a managed care team collaborates with our reimbursement specialists to ensure our payor outreach strategy reacts to and anticipates the changing needs of our customer base.

Our customer service team is an integral part of our reimbursement strategy, working with patients and rheumatologists to navigate the claims process.

In parallel, a managed care team collaborates with our reimbursement specialists to ensure our payor outreach strategy reacts to and anticipates the changing

needs of our customer base.

Overall, we work to address payors at the national level in addition to high claim volume regional payors we have identified based on our current territory coverage.

▪ Cultivate a network of key opinion leaders.

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We collaborate with key opinion leaders early in the development process to ensure our clinical studies are designed and executed in a way that clearly demonstrates the benefits of our testing products to healthcare providers and payors.

While we have contracts for reimbursement with a limited number of commercial payors, we are actively pursuing additional commercial payor contracts.

When we contract to serve as a participating provider, reimbursements are made pursuant to a percentage of our charges or a negotiated fee schedule amount.

Clinical Validation

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The final results of this study showed that AVISE ® Lupus demonstrated 86% specificity and 80% sensitivity in distinguishing SLE from other CTDs and fibromyalgia, was 33% more specific than ANA (53% specificity/89% sensitivity) and was 48% more sensitive than anti-dsDNA (32% sensitivity/97% specificity).

We further demonstrated the clinical validity of AVISE ® Lupus for detection of probable SLE, or pSLE, in a 246 subject multi-center, prospective, cross-sectional study, first published in the Arthritis & Rheumatology Journal in September 2019.

We further demonstrated the clinical validity of AVISE ® Lupus for detection of probable SLE (pSLE) in a 246 subject multi-center, prospective, cross-sectional study, first published in the Arthritis & Rheumatology Journal in September 2019.

The objective of this study was to evaluate the frequency of AVISE ® Lupus and CB-CAPs as a marker of complement activation in patients with pSLE and the usefulness of the AVISE ® Lupus test as a predictor of the evolution of pSLE into classified SLE by the ACR criteria.

Of the 92 pSLE patients, more pSLE were positive for CB-CAPs (28%) or AVISE ® Lupus (40%) than for low complement (9%) at the enrollment visit (p=0.0001, for

each) and an AVISE ® Lupus index score >0.08 prospectively associated with the development from pSLE to SLE by ACR classification criteria within 18 months (hazard ratio = 3.11, p<0.01).

Of the 92 pSLE patients, more pSLE were positive for CB-CAPs (28%) or AVISE ® Lupus (40%) than for low complement (9%) at the enrollment visit (p=0.0001, for each) and an AVISE ® Lupus index score >0.08 prospectively associated with the development from pSLE to SLE by ACR classification criteria within 18 months (hazard ratio = 3.11, p<0.01).

Clinical Utility

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The results of this study were published in the Open Rheumatology Journal in 2016 and suggested that a positive AVISE ® Lupus test aids in the diagnosis of SLE versus standard diagnostic tests.

In early 2018, we initiated CARE for Lupus, a prospective, randomized, multi-site study to assess the performance of AVISE ® Lupus versus standard diagnostic laboratory tests, or SDLT.

In early 2018, we initiated CARE for Lupus, a prospective, randomized, multi-site study to assess the performance of AVISE ® Lupus versus standard diagnostic laboratory tests (SDLT).

A total of 145 patients were enrolled across 32 sites between July 2017 and December 2018, with 73 patients enrolled in the SDLT group and 72 patients in the AVISE ® Lupus group.

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In the group of patients randomized to the AVISE ® Lupus group, positive test results associated significantly with initiation of prednisone (p=0.03) and a similar trend was observed with HCQ therapy (p=0.11).

Finally, in the group of patients randomized to the AVISE ® Lupus group, a positive test result associated with an increase in patient-reported outcomes measuring health-related quality of life using five-level EQ-5D, or EQ5D-5L index score, from enrollment to visit 2 (p=0.028), and greater improvements were detectable when compared to the group of patients positive for AVISE ® Lupus and randomized to the SDLT arm (p=0.049).

A cohort of 161 AVISE ® Lupus tested patients from 12 rheumatology centers across the U.S.

provided clinical outcome data on diagnosis and treatment decisions following AVISE ® Lupus testing.

The study findings revealed a 7 to 15-fold increased risk of Lupus diagnosis in AVISE ® Lupus Positive and anti-dsDNA negative patients relative to patients negative for both tests.

Finally, in the group of patients randomized to the AVISE ® Lupus group, a positive test result associated with an increase in patient-reported outcomes measuring health-related quality of life using five-level EQ-5D (EQ5D-5L index score) from enrollment to visit 2 (p=0.028), and greater improvements were detectable when compared to the group of patients positive for AVISE ® Lupus and randomized to the SDLT arm (p=0.049).

In July 2021, a real-world retrospective analysis of patients tested with the AVISE ® Lupus test was published in the journal Lupus Science & Medicine, titled "A multianalyte assay panel with cell-bound complement activation products demonstrates clinical utility in systemic lupus erythematosus clinical utility study summary." A cohort of 161 AVISE ® Lupus tested patients from 12 rheumatology centers across the United States provided clinical outcome data on diagnosis and treatment decisions following AVISE ® Lupus testing.

The study findings revealed a 7 to 15-

fold increased risk of Lupus diagnosis in AVISE ® Lupus Positive and anti-dsDNA negative patients relative to patients negative for both tests.

In addition, AVISE ® Lupus positive and anti-dsDNA negative patients were at 3 to 4-fold increased odds relative to patients testing negative for both tests of starting a new hydroxychloroquine (cornerstone therapy for Lupus) prescription following AVISE ® Lupus testing.

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standard diagnostic testing for the differential diagnosis of Lupus.

In July 2022, we announced new, real-world evidence illustrating that AVISE ® testing can enable decisive clinical action in the differential diagnosis of lupus.

The "Complement Activation Products vs Standard ANA Testing:

Treatment Outcomes, Diagnosis, and Economic Impact in Systemic Lupus Erythematosus" (CAPSTONE) study was the largest comparative utility study in lupus diagnostics and was published in the Journal of Managed Care & Specialty Pharmacy.

The study leveraged multiple databases encompassing electronic health records and linked insurance claims data on nearly 50,000 patients tested with AVISE ® or standard of care labs from hundreds of rheumatologists across the United States, comparing diagnosis, treatment and cost of care outcomes for new patients tested with AVISE ® Lupus and those tested with a traditional ANA (tANA) approach, including specific autoantibodies.

The CAPSTONE study supports that the AVISE ® Lupus test is more clinically effective, both for patients who test positive and those who test negative, as compared to the current standard of care.

Important key findings of the CAPSTONE study included, among other things, a:

(i) 2x decrease in diagnostic testing costs in the first six-month follow-up period for AVISE ® Lupus [-] vs.

(ii) 3.5x less frequent repeat testing overall when using AVISE ® Lupus vs.

(iii) 6x increased odds of establishing a new SLE diagnosis with AVISE ® Lupus [+] vs.

and (iv) 3x increased odds of initiating one or more SLE treatments with AVISE ® Lupus [+] vs.

The CAPSTONE study exemplifies the advantages of the AVISE ® Lupus test for patients, providers and payors.

Delayed diagnosis leads to increased disease burden and diminished quality of life for the patient relative to the current standard of care.

By receiving conclusive results, providers are able to initiate treatment early, reducing the need for more aggressive approaches down the road that can lead to irreversible consequences for the patient.

Additionally, a conclusive negative test allows providers to lower the number of repeat tests and follow-up visits which is a critical step for achieving diagnostic clarity for the patient.

Healthcare Economics

In October 2020, a study in collaboration with leading health economic experts was published in the journal ACR Open Rheumatology, titled "Evaluation of the Economic Benefit of Earlier Systemic Lupus Erythematosus (SLE) Diagnosis using a Multivariate Assay Panel (MAP)." This was the first ever evaluation of the economics of diagnosing SLE with AVISE ® Lupus (MAP) compared to standard diagnostic laboratory tests in a hypothetical cohort of 1,000 suspected SLE patients.

Over the four-year time horizon, AVISE ® Lupus demonstrated an estimated total direct cost savings of approximately $2.0 million, or $1,991 per patient.

In addition, the year one savings was $655,403, or $655 per eligible patient, with the use of AVISE ® Lupus, which aligns with early benefit to health plans looking for savings in the first year.

The above referenced studies are included in the AVISE ® Lupus Dossier.

In March 2020, we announced coverage and in-network contract with three California Medical Groups followed by coverage and an in-network agreement with TRICARE East Humana Military and Highmark BCBS coverage policy.

In February 2021, we entered into a coverage and in-network contract with TRICARE West followed by coverage and an in-network agreement with Inland Empire Health Plan.

We anticipate continued coverage determinations and in-network contracting announcements in 2022 and beyond.

We believe our reimbursement strategy, including establishing the clinical validation, clinical utility and health economics of our testing products, will continue to allow us to drive an expansion in reimbursement coverage for our testing products.

Over the four-year time horizon, AVISE ® Lupus demonstrated an estimated total direct cost savings of approximately $2.0 million ($1,991 per patient).

In addition, the year one savings was $0.7 million ($655 per eligible patient), with the use of AVISE ® Lupus, which aligns with early benefit to health plans looking for savings in the first year.

Laboratory Operations

We perform all of our AVISE ® tests in our approximately 10,000 square foot clinical laboratory located in Vista, California.

Our laboratory is certified to perform high-complexity testing under the Clinical Laboratory Improvement Amendments of 1988, or CLIA, and is accredited by the College of American Pathologists, or CAP.

Our laboratory also holds a license issued by the California Department of Public Health, and it is licensed by all states requiring out-of-state licensure.

Our clinical laboratory reports all AVISE ® testing product results within five business days.

In the second half of 2021, we began the conversion of approximately 8,000 square feet of warehouse space into additional clinical laboratory space and approximately 6,000 square feet of warehouse space into additional research and development facility space, and expect to complete such conversions by the first quarter of 2022 and mid 2022, respectively.

The expansion of our clinical laboratory and research and development facility are expected to allow us to enhance our testing capacity and improve efficiencies as well as allow us to develop molecular and multiomic capabilities and advance our product pipeline.

We perform all of our AVISE ® tests in our approximately 13,000 square foot laboratory located in Vista, California.

Our laboratory is certified under the Clinical Laboratory Improvement Amendments of 1988 (CLIA) and accredited by the College of American Pathologists (CAP).

Our laboratory is certified for performance of high-complexity testing by the Centers for Medicare & Medicaid Services (CMS) in accordance with CLIA and is licensed by California and all states requiring out-of-state licensure, including the New York State Department of Health (NYSDOH).

Our clinical laboratory typically reports AVISE ® testing product results within five business days.

We believe that our existing laboratory facility is adequate to meet our business needs for at least the next 12 months and that additional laboratory space will be available on commercially reasonable terms, if required.

Quality Assurance

Our quality assurance function oversees the quality of our laboratory as well as research and development, client services, billing, sales and marketing operations.

Our quality assurance function oversees the quality of our laboratory operations.

We have established oversight for systems implementation and maintenance procedures, document control processes, supplier qualification, preventive or corrective actions and employee training processes that we believe achieves excellence in operations.

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Our principal competition for our AVISE ® testing products is traditional methods used by healthcare providers to test patients with CTD-like symptoms.

Such traditional methods include testing for a broad range of diagnostic, immunology and chemistry biomarkers, such as ANA and anti-dsDNA, and serum complement biomarkers, such as C3 and C4.

Such traditional methods include testing for a broad range of diagnostic,

immunology and chemistry biomarkers, such as ANA and anti-dsDNA, and serum complement biomarkers, such as C3 and C4.

We also face competition from commercial laboratories, such as Laboratory Corporation of America Holdings, Quest Diagnostics Incorporated, ARUP Laboratories, Inc.

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(acquired by Laboratory Corporation of America in June 2020).

Other potential competitors include companies that might develop diagnostic or disease or drug monitoring products, such as Progentec Diagnostics Inc., Scipher Medicine Corporation, Genalyte Inc., Oncimmune plc, DxTerity Diagnostics Inc., Immunovia AB and EpicGenetics, Inc.

In the future, we may also face competition from companies developing new products or technologies.

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and ease of use.

Many of our potential competitors have widespread brand recognition and substantially greater financial, technical and research and development resources and selling and marketing capabilities than we do.

Others may develop products with prices lower than ours that could be viewed by rheumatologists and payors as functionally equivalent to our solution or offer solutions at prices designed to promote market penetration, which could force us to lower the list price of our products and affect our ability to achieve profitability.

If we are unable to change clinical practice in a meaningful way or compete successfully against current and future competitors, we may be unable to increase market acceptance and sales of our products, which could prevent us from increasing our revenue or achieving profitability and could cause the market price of our common stock to decline.

We rely upon independent sources for phlebotomy to obtain patient samples;

interruptions to this capability could dramatically impact patient access to our tests.

Many of our potential competitors have widespread brand recognition and substantially greater financial, technical and research and development resources;

in addition to greater selling and marketing capabilities.

Others may develop products with prices lower than ours or have preferred network status that could be viewed by rheumatologists and payors as functionally equivalent to our solution or offer solutions at prices designed to promote market penetration.

This could force us to lower the list price of our products and affect our ability to achieve profitability.

Agreements with Pharmaceutical Companies

Collaboration Agreement with GSK

In January 2018, we entered into a collaboration agreement with GSK, pursuant to which we provide GSK with our test result data to provide market insight into and help increase awareness on the benefits of an early and accurate diagnosis of SLE.

In January 2018, we entered into a collaboration agreement with GSK, pursuant to which we provided GSK with our test result data to provide market insight into and help increase awareness on the benefits of an early and accurate diagnosis of SLE.

The agreement was amended in November 2018 to, among other things, include data from our AVISE ® Prognostic and AVISE ® HCQ testing products and extend the term of the agreement through December 31, 2019.

The agreement was further amended in November 2019, November 2020, December 2021 and February 2022.

2022 to, among other things, extend the term of the agreement through December 31, 2020, December 31, 2021, January 31, 2022 and December 31, 2022, respectively.

Under the agreement, we are required to deliver weekly de-identified data files to GSK covering all data obtained from the performance of certain AVISE ® testing products, subject to applicable requirements under the Federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, internal policy requirements and other applicable laws.

Under the agreement, we were required to deliver weekly de-identified data files to GSK covering all data obtained from the performance of certain AVISE ® testing products, subject to applicable requirements under the Federal Health Insurance Portability and Accountability Act of 1996 (HIPAA) internal policy requirements and other applicable laws.

During the term of the agreement and amendments through December 31, 2021, the data we provided to GSK could not be provided, directly or through a third party, to any other pharmaceutical company that was marketing or developing a product for the treatment of SLE, however, the February 2022 amendment eliminated that limitation.

GSK made a single upfront payment in exchange for the right to receive the applicable data files.

In addition, GSK has agreed to create a joint steering committee to cooperate with us in order to raise awareness and physician support for our AVISE ® testing products, including through the development and delivery of approved promotional materials and the implementation of a related training plan for each party’s sales personnel.

The joint committee will meet at least 120 days prior to the end of the term of the agreement in order to discuss renewal options.

Either party may terminate the agreement for breach and, in certain cases, such breach must remain uncured for a certain period of time following receipt of written notice of such breach.

In addition, GSK may terminate the agreement immediately if we become insolvent or for convenience upon 60 days’ prior written notice.

In addition, GSK agreed to create a joint steering committee to cooperate with us in order to raise awareness and physician support for our AVISE ® testing products, including through the development and delivery of approved promotional materials and the implementation of a related training plan for each party’s sales personnel.

This agreement was terminated, effective January 1, 2023.

Intellectual Property Overview

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Our success will depend on our ability to obtain and maintain patent and other proprietary protection for commercially important technology, inventions and know-how related to our business, to defend and enforce our patents, to maintain our licenses to use intellectual property owned by third parties, to preserve the confidentiality of our trade secrets and to operate without infringing the valid and enforceable patents and other proprietary rights of third parties.

We also rely on continuing technological innovation and in-licensing opportunities to develop, strengthen, and maintain our proprietary position in the fields targeted by our testing products and services.

We also rely on continuing technological

innovation and in-licensing opportunities to develop, strengthen, and maintain our proprietary position in the fields targeted by our testing products and services.

We are the owner or licensee of a portfolio of patents and patent applications and possess substantial know-how and trade secrets which protect various aspects of our business.

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The patent families which we believe are important for the protection of AVISE ® are summarized below in the section entitled “License Agreements.” As of February 22, 2023, our portfolio primarily consisted of the following:

We are the exclusive licensee of five patent families related to CB-CAPs technology from the University of Pittsburgh, or UPitt.

We are the exclusive licensee of five patent families related to CB-CAPs technology from the University of Pittsburgh (UPitt).

We expect that these patent families (U.S.

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Foreign patents corresponding to U.S.

7,390,631 have issued in Japan (JP 4570872 and JP 4906898).

Foreign patents corresponding to U.S.

7,585,640 have issued in Australia (AU 2005242719) and Canada (CA 2,564,492).

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7,588,905 and 8,126,654 has issued in Japan (JP 4550051).

We also own one issued patent (US 10,132,813), three pending U.S.

nonprovisional patent applications, three pending foreign applications and a pending PCT application that relate to our AVISE ® Lupus products.

We own three issued patents (US 10,132,813, US 11,260,099, and 11,531,033), three pending U.S.

nonprovisional patent applications, and seven pending foreign applications that relate to our AVISE ® Lupus products.

Foreign patents corresponding to our issued U.S.

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nonprovisional patent applications have issued in Europe (EP 2,673,644 and EP2972365), China (CN105229470), Japan (JP 5,990,542 and JP6453299) and Hong Kong (HK1192316).

In order to manage our foreign filing costs and focus on the U.S.

market, we made the decision to cease the prosecution and maintenance of several of our foreign patents and patent applications related to our CB-CAPs technology, including EP 1,432,731;

EP 1,618,379;

EP 1,635,692;

EP 1,745,287;

EP 2,214,014;

EP 2,216,650, and certain of their corresponding family members .

MTX Exposure Assessment Products and Services

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Amended and Restated Exclusive License Agreement with the University of Pittsburgh

In August 2011, we entered into an amended and restated exclusive license agreement with UPitt, to amend and restate the exclusive license agreement we obtained by our purchase of the medical diagnostics division of Cypress Bioscience, Inc., or Cypress, in 2010, or the Cypress Purchase, and to obtain an exclusive license to UPitt’s patent rights in certain inventions, or the UPitt Patent Rights, related to the use of CB-CAPs technology in the diagnosis, prognosis and monitoring of diseases, including certain patents related to our AVISE ® testing products.

The agreement was amended three times, once in May 2012 to, among other things, limit the territory of the license to the United States and exclude certain foreign patents and applications from the agreement, once in September 2013 to add (1) an additional U.S.

(Cypress) in 2010 (the Cypress Purchase) and to obtain an exclusive license to UPitt’s patent rights in certain inventions (the UPitt Patent Rights) related to the use of CB-CAPs technology in the diagnosis, prognosis and monitoring of diseases, including certain patents related to our AVISE ® testing products.

additional U.S.

patent to the UPitt Patent Rights licensed under the agreement and (2) the field of monitoring of organ transplantation and organ rejection to the scope of the license, and once in June 2016 to, among other things, clarify the definition of combination products for determining royalties due under the license.

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UPitt retained the right to practice under the UPitt Patent Rights and to use such rights for non-commercial education and research purposes.

In addition, this agreement is subject to the rights of the United States government, if any, as set forth in 35 U.S.C.

In addition, this agreement is subject to the rights of the U.S.

government, if any, as set forth in 35 U.S.C.

§200, et seq.

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UPitt may terminate the agreement if we fail to meet such milestones.

In addition, if we fail to meet a milestone relating to development of

the UPitt Patent Rights in the monitoring of organ transplantation and organ rejection field, UPitt may remove that field from our licensed rights.

In addition, if we fail to meet a milestone relating to development of the UPitt Patent Rights in the monitoring of organ transplantation and organ rejection field, UPitt may remove that field from our licensed rights.

We are currently in compliance with these milestone requirements.

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Accordingly, in September 2013, we entered into an exclusive license agreement with UPitt to obtain an exclusive license to UPitt’s remaining ex-U.S.

patent rights in certain inventions, or the ex-U.S.

patent rights in certain inventions (the ex-U.S.

UPitt Patent Rights) related to the use of CB-CAPs technology in the diagnosis, prognosis and monitoring of diseases, including certain patents related to our AVISE ® testing products.

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In the event we sublicense any of the ex-U.S.

UPitt Patent Rights, we are obligated to pay UPitt a low single-digit percentage sublicense royalty on net sales of products or services sold by our sublicensees that utilize the sublicensed ex-U.S.

UPitt Patent Rights, we are obligated to pay UPitt a low single-digit percentage sublicense royalty on net sales of products or services sold by our sublicensees that utilize the

sublicensed ex-U.S.

UPitt Patent Rights and a low double-digit percentage of all non-royalty sublicensing income received by us.

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Absent early termination, the agreement will continue until the expiration date of the longest-lived patent right included in the UPitt Patent Rights.

Asset Purchase Agreement with Cypress (Royalty Pharma) and Proprius

In October 2010, we completed the Cypress Purchase pursuant to an asset purchase agreement with Cypress and its wholly-owned subsidiary, Proprius, under which we obtained certain assets related to our AVISE ® testing products and services.

The agreement was amended six times, once in March 2011 to change certain obligations relating to certain accounts receivable we acquired from Cypress, once in August 2012 to convert a one-time payment obligation to a payment plan over four years with interest, once in February 2013 to convert a one-time contingent milestone payment obligation concerning a CB-CAPs monitoring assay to a payment plan over two years with interest, once in October 2013 to, among other things, provide consent for Exagen to use its IP as collateral on a financing round, once in January 2016 to restate an annual sales milestone, and once in February 2017 to restate specifics of the monitoring assay royalty.

In 2011, Royalty Pharma Collection Trust, or Royalty Pharma, acquired Cypress and became its successor-in-interest under the agreement.

Asset Purchase Agreement with Cypress (Royalty Pharma) and Proprius Pharmaceuticals, Inc.

In October 2010, we completed the Cypress Purchase pursuant to an asset purchase agreement with Cypress and its wholly-owned subsidiary, Proprius Pharmaceuticals, Inc., under which we obtained certain assets related to our AVISE ® testing products and services.

In 2011, Royalty Pharma Collection Trust (Royalty Pharma), acquired Cypress and became its successor-in-interest under the agreement.

In consideration for the acquisition, we made certain initial cash payments to Cypress and we are currently making payments to Royalty Pharma, as a successor-in-interest to Cypress, pursuant to the August 2012 amendment, which payments are subject to acceleration in certain circumstances.

Under our agreements with Royalty Pharma, we are required to pay Royalty Pharma a low double-digit royalty on the world

wide net sales of CB-CAPs products and a low double-digit royalty on the net sales of certain new products in each case, for a period of eight years, which eight year period expired in January 2020.

Under our agreements with Royalty Pharma, we are required to pay Royalty Pharma a low double-digit royalty on the world-wide net sales of CB-CAPs products and a low double-digit royalty on the net sales of certain new products in each case, for a period of eight years, which eight-year period expired in January 2020.

In addition, we are required to make certain one-time contingent milestone payments for two third-party commercial programs, for the launch of a CB-CAPs monitoring assay, and for the achievement of an annual, worldwide net sales level for CB-CAPs products.

Our agreement with Royalty Pharma requires that we use commercially reasonable efforts to cause each of the milestones to be achieved.

In December 2015, we achieved the specified annual world-wide nets sales of CB-CAPs products which required us to make a $2.0 million milestone payment to Royalty Pharma.

In December 2015, we achieved the specified annual world-wide net sales of CB-CAPs products which required us to make a $2.0 million milestone payment to Royalty Pharma.

We paid the applicable $2.0 million milestone payment in 2016.

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Future royalties under this arrangement are limited to the lesser of $1,200,000 (including the upfront payment of $100,000) or the total royalty earned through January 1, 2024.

Thierry Dervieux and De Novo Diagnostics, Inc.

In September 2011, we entered into a license agreement with Dr.

Thierry Dervieux, our former Chief Scientific Officer, and his company De Novo Diagnostics, Inc., under which we obtained an exclusive, worldwide (except for Australia and New Zealand) license to Dr.

Dervieux’s patent rights and know-how in certain inventions, or the Dervieux Patent Rights, related to the diagnosis, prognosis and monitoring of diseases, including certain patents related to our AVISE ® testing products and services.

Under the agreement, we are permitted to develop, manufacture and commercialize products utilizing the Dervieux Patent Rights in the human healthcare market, and to sublicense such rights.

In consideration for the rights granted to us under the agreement, we are required to make milestone payments, up to an aggregate of $600,000, upon achievement of certain sales milestones.

In addition, we are required to pay Dr.

Dervieux a mid-single-digit royalty on net sales by us or our affiliates of any products utilizing the Dervieux Patent Rights, subject to adjustment in certain circumstances.

We are also obligated to pay Dr.

Dervieux a percentage in the mid-twenties of sublicense fees and royalties received by us.

To date, none of the circumstances under the agreement that would require us to make a payment to Dr.

Dervieux or De Novo Diagnostics, Inc.

have occurred and, accordingly, we have made no such payment.

We have provided a termination notice to Dr.

Dervieux and De Novo Diagnostics, Inc.

in accordance with the agreement and intend to terminate the agreement on June 9, 2022.

Exclusive License Agreement and Master Research Collaboration Agreement with Allegheny Health Network Research Institute

In May 2021, we entered into an exclusive license agreement with Allegheny Health Network Research Institute, or AHN, under which we obtained an exclusive, worldwide license to AHN's patent rights in certain inventions, or the AHN Patent Rights, related to diagnostics for autoimmune rheumatic diseases.

In May 2021, we entered into an exclusive license agreement with Allegheny Health Network Research Institute (AHN), under which we obtained an exclusive, worldwide license to AHN's patent rights in certain inventions (the AHN Patent Rights) related to diagnostics for autoimmune rheumatic diseases.

Under the agreement, we are permitted to make, use and sell products and services utilizing the AHN Patent Rights and to sublicense such rights;

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AHN retained the right to practice under the AHN Patent Rights and to use such rights for teaching, research, education, public service, clinical and other research-related purposes.

In addition, the agreement is subject to the rights of the United States government with respect to the AHN Patent Rights, including under a funding agreement between AHN and the United States Government and under the Bayh-Dole Act (35 U.S.C.

In addition, the agreement is subject to the rights of the U.S.

government with respect to the AHN Patent Rights, including under a funding agreement between AHN and the U.S.

government and under the Bayh-Dole Act (35 U.S.C.

§200, et seq.).

Pursuant to the Bayh-Dole Act, the United States Government may acquire a nonexclusive, nontransferable, paid up license to practice or have practiced for or on behalf of the U.S.

Pursuant to the Bayh-Dole Act, the U.S.

government may acquire a nonexclusive, nontransferable, paid-up license to practice or have practiced for or on behalf of the U.S.

government the inventions described in the AHN Patent Rights throughout the world.

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We are also required to pay AHN a low single-digit royalty on net sales of products utilizing the AHN Patent Rights through the first quarter of 2024 sold by us or our affiliates, subject to adjustment in certain circumstances.

Beginning in the second quarter of 2024, we are required to pay AHN an increased low single-digit royalty or a flat annual minimum royalty amount, which royalty obligations continue for each licensed product on a country-by-country basis until the expiration of the last licensed patent covering the applicable licensed product in such country, pending approvals and commercialization, or the earlier termination of the agreement (excluding payment obligations accruing prior to such termination).

commercialization, or the earlier termination of the agreement (excluding payment obligations accruing prior to such termination).

In the event we sublicense any of the AHN Patent Rights, we are obligated to pay AHN a mid-double-digit percentage of any sublicense income, whether in the form of royalties or sub-license fees.

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Exclusive License Agreement and Collaboration Agreement with Queen Mary University of London

In November 2021, we entered into an exclusive license agreement with Queen Mary University of London, or QMUL, under which we obtained an exclusive license to QMUL's patent-pending inventions, or the QMUL Patent Rights, related to diagnosis and/or development of diagnostic or companion diagnostics for rheumatoid arthritis.

In November 2021, we entered into an exclusive license agreement with QMUL, under which we obtained an exclusive license to QMUL's patent-pending inventions (the QMUL Patent Rights), related to diagnosis and/or development of diagnostic or companion diagnostics for rheumatoid arthritis.

Under the agreement, we are permitted to make, use and sell products and services utilizing the QMUL Patent Rights and to sublicense such rights;

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QMUL may terminate the agreement if we fail to develop the QMUL Patent Rights in the field of diagnosis and/or development of diagnostic or companion diagnostics for rheumatoid arthritis, QMUL may convert our license to non-exclusive.

We may terminate the agreement upon 6 month written notice to QMUL.

We may terminate the agreement upon six month written notice to QMUL.

QMUL may terminate the agreement in the event of our nonperformance of any of our material obligations under the agreement if such nonperformance remains uncured for a certain period of time following our receipt of written notice of such nonperformance or in the event of insolvency.

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State Laboratory Licensing

Our Vista facility also holds a state license issued by the California Department of Public Health, or DPH.

Our Vista facility also holds a state license issued by the California Department of Public Health (DPH).

California law and regulations establish standards for the day-to-day operation of a clinical laboratory, including the training and skills required of laboratory personnel and quality control.

In addition, California laws and regulations also mandate proficiency testing, which involves testing of specimens that have been specifically prepared for the laboratory for quality control purposes.

Because we receive specimens from New York, our Vista facility also is required to be licensed by the New York State Department of Health, or NYDOH, New York laws and regulations establish standards in a variety of operational areas, including:

Because we receive specimens from New York, our Vista facility is also required to be licensed by the NYDOH New York laws and regulations establish standards in a variety of operational areas, including:

▪ day-to-day operation of the laboratory, including training and skill levels required of laboratory personnel;

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New York's law and regulations are more stringent than CLIA in certain respects.

For example, NYDOH must approve an LDT before it is offered in New York.

For example, NYDOH must approve a laboratory developed test (LDT) before it is offered in New York.

We have received written approval from NYDOH to offer our products in New York.

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We perform our tests like AVISE ® CTD, AVISE ® SLE Prognostic and AVISE ® MTX assays in our Vista, California clinical laboratory, and they are primarily regulated under CLIA, as administered by CMS, as well as by applicable state laws, as described above.

The FDA regulates diagnostic tests that meet the definition of a medical device, except under specific, narrow circumstances.

The Federal Food, Drug and Cosmetic Act, or FDCA, defines a medical device as "an instrument, apparatus, implement, machine, contrivance, implant, in vitro reagent, or other similar or related article, including a component part, or accessory, which is, among other things:

intended for use in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment, or prevention of disease, in man or other animals and which does not achieve its primary intended purposes through chemical action within or on the body of man or other animals and which is not dependent upon being metabolized for the achievement of any of its primary intended purposes." By this definition, in vitro reagents and diagnostic tests are considered medical devices.

Specifically, the FDA defines an in vitro diagnostic test, or IVD, as "reagents, instruments, and systems

intended for use in the diagnosis of disease or other conditions, including a determination of the state of health, in order to cure, mitigate, treat, or prevent disease or its sequelae." Therefore, the FDA generally considers our testing products to be IVDs subject to the agency's regulatory requirements.

The FDA regulates any diagnostic tests that meet the definition of a medical device, except under specific, narrow circumstances.

The Federal Food, Drug and Cosmetic Act (FDCA) defines a medical device as "an instrument, apparatus, implement, machine, contrivance, implant, in vitro reagent, or other similar or related article, including a component part, or accessory, which is, among other things:

intended for use in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment, or prevention of disease, in man or

other animals and which does not achieve its primary intended purposes through chemical action within or on the body of man or other animals and which is not dependent upon being metabolized for the achievement of any of its primary intended purposes." By this definition, in vitro reagents and diagnostic tests are considered medical devices.

Specifically, the FDA defines an in vitro diagnostic test (IVD), as "reagents, instruments, and systems intended for use in the diagnosis of disease or other conditions, including a determination of the state of health, in order to cure, mitigate, treat, or prevent disease or its sequelae." Therefore, the FDA generally considers diagnostic testing products like ours to be IVDs subject to the agency's regulatory requirements.

Among other things, pursuant to the FDCA and its implementing regulations, the FDA regulates the research, testing, manufacturing, safety, labeling, storage, recordkeeping, pre-market clearance or approval, marketing and promotion and sales and distribution of medical devices, including IVDs, in the United States to ensure that medical products distributed domestically are safe and effective for their intended uses.

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Devices deemed by the FDA to pose the greatest risk, such as life-sustaining, life-supporting or implantable devices or devices deemed not substantially equivalent to a previously 510(k) cleared device, are categorized as Class III.

These devices typically require submission and approval of a premarket approval application, or PMA.

Devices deemed to pose lower risk are categorized as either Class I or II, which requires the manufacturer to submit to the FDA a 510(k) premarket notification submission requesting clearance of the device for commercial distribution in the United States.

Some low-risk devices are exempted from this requirement.

These devices typically require submission and approval of a premarket approval application (PMA).

Devices deemed to pose lower risk are categorized as either Class I or II.

For most Class II devices, a manufacturer must submit to the FDA a 510(k) premarket notification submission requesting clearance of the device for commercial distribution in the United States.

Some low-risk Class II devices are exempted from this requirement.

When a 510(k) premarket notification submission is required, the manufacturer must submit to the FDA a premarket notification submission demonstrating that the device is "substantially equivalent" to:

(i) a device that was legally marketed prior to May 28, 1976, for which PMA approval is not required, (ii) a legally marketed device that has been reclassified from Class III to Class II or Class I, or (iii) another legally marketed, similar device that has been cleared through the 510(k) clearance process.

Class II devices may also be subject to special controls such as performance standards, post-market surveillance, FDA guidelines, or particularized labeling.

Most Class I devices are exempt from 510(k) premarket notification requirements, but like Class II and III devices, are subject to general controls, such as registration and listing, quality system, labeling, and reporting requirements.

After the FDA permits a device to enter commercial distribution, numerous regulatory requirements apply.

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the FDA’s general prohibition against promoting products for unapproved or "off-label" uses;

and the Medical Device Reporting regulation, which requires that manufacturers report to the FDA if their device may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if it were to recur.

and the medical device reporting regulation, which requires that manufacturers report to the FDA if their device may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if the malfunction were to recur.

The FDA has broad post-market and regulatory and enforcement powers.

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medical device regulatory requirements could result in, among other things, warning letters, fines, injunctions, consent decrees, civil penalties, repairs, replacements, refunds, recalls or seizures of products, total or partial suspension of production, the FDA’s refusal to grant future premarket clearances or approvals, withdrawals or suspensions of current product applications, and criminal prosecution.

Although the FDA has statutory authority to assure that medical devices, including IVDs, are safe and effective for their intended uses, the FDA has generally exercised its enforcement discretion and not enforced applicable regulations with respect to IVDs that are designed, manufactured, and used within a single high-complexity CLIA-certified laboratory for use only in that laboratory.

Such tests are referred to as laboratory developed tests, or LDTs.

Although the FDA has statutory authority to assure that medical devices, including IVDs, are safe and effective for their intended uses, the FDA has generally exercised its enforcement discretion and not enforced applicable device regulations with respect to IVDs that are designed, manufactured and used within a single high-complexity CLIA-certified laboratory for use only in that laboratory.

Such tests are referred to as LDTs.

We believe that all of our AVISE ® test products are LDTs, as are our near-term pipeline candidate tests.

As a result, we believe our diagnostic services are currently subject to the FDA’s enforcement discretion and are not subject to the FDA’s oversight.

As a result, we believe our diagnostic services are currently subject to the FDA’s enforcement discretion and are not subject to the agency's direct oversight or enforcement of device regulations.

However, reagents, instruments, software or components provided by third parties and used to perform LDTs may be subject to regulation.

Even though we commercialize our tests as LDTs, our tests may in the future become subject to more onerous regulation by the FDA.

For example, in 2017, the FDA published a Discussion Paper on Laboratory Developed Tests to further public discussion about an appropriate LDT oversight approach and to give congressional committees the opportunity to develop a legislative solution to the competing interests of ensuring the public health and promoting innovation in the clinical testing industry.

However, in August 2020, the United States Department of Health and Human Services, or HHS, published a policy announcement that FDA must go through the formal notice-and-comment rulemaking process before requiring premarket review of LDTs rather than making such changes through guidance documents, compliance manuals, or other informal policy statements.

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

In November 2021, the Biden Administration withdrew that HHS policy announcement and ostensibly restored FDA’s regulatory oversight of LDTs.

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

On March 5, 2020, U.S.

Representatives Diana DeGette (D-CO) and Dr.

Larry Bucshon (R-IN) formally introduced the long-awaited legislation, called the Verifying Accurate, Leading-edge IVCT Development, or VALID Act.

An identical version of the bill was introduced concurrently in the Senate, demonstrating both bicameral and bipartisan support for the effort to overhaul how the FDA reviews and approves diagnostic tests going forward.

The VALID Act would codify into law the term "in vitro clinical test", or IVCT, to create a new medical product

category separate from medical devices that includes products currently regulated as IVDs as well as LDTs.

For several years, members of Congress have been working with stakeholders on a possible bill to regulate in vitro clinical tests including LDTs.

Most recently, legislation called the Verifying Accurate, Leading-edge IVCT Development (VALID Act), has been garnering bipartisan and bicameral support.

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 IVDs as well as LDTs.

The VALID Act would also create a new system for labs and hospitals to use to submit their tests electronically to the FDA for approval, which is aimed at reducing the amount of time it takes for the agency to approve such tests, and establish a new program to expedite the development of diagnostic tests that can be used to address a current unmet need for patients.

A substantively unchanged version of the VALID Act was re-introduced in both houses of Congress on June 24, 2021.

It is unclear whether the VALID Act would be passed by Congress in its current form or signed into law by the President.

Until the FDA finalizes its position on regulation of LDTs through formal notice-and-comment rulemaking, or the VALID Act or other federal legislation is passed reforming the government’s regulation of LDTs, or alternatively, if the FDA disagrees with our assessment that our tests fall within the definition of an LDT, we could be subject to enforcement of regulatory requirements such as registration and listing requirements, medical device reporting requirements and quality control requirements.

If the FDA finalizes its position on regulation of LDTs through formal notice-and-comment rulemaking, or the VALID Act or other federal legislation is passed reforming the government’s regulation of LDTs, or alternatively, if the FDA disagrees with our assessment that our tests fall within the definition of an LDT, we could be subject to enforcement of regulatory requirements such as registration and listing requirements, medical device reporting requirements and quality control requirements.

Any new legislation or formal FDA regulations affecting LDTs may result in increased regulatory burdens on our ability to continue marketing our tests and to develop and introduce new tests in the future.

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PMA approval typically requires extensive clinical data and can be significantly longer, more expensive and more uncertain than the 510(k) clearance process.

If premarket review is required for some or all of our tests, the FDA could require that we stop selling our products pending clearance or approval and conduct clinical testing prior to making submissions to FDA to obtain premarket clearance or approval.

The FDA could also require that we label our tests as investigational or limit the labeling claims we are permitted to make.

We also distribute the AVISE ® Touch blood specimen collection kit for collection and transport of blood samples from a healthcare provider to our laboratory.

The kit includes a blood specimen collection device that was designed and is manufactured for us by a third-party manufacturer, as well as a biohazard bag and a prepaid envelope for shipping the sample and instructions for use.

The FDA regulates a kit that contain multiple copackaged but independent medical devices as a "convenience kit," which is considered a separate medical device from the individual kit components.

Many types of convenience kits do not require marketing authorization because the FDA exercises enforcement discretion for such requirements, but they must meet FDA’s general controls for medical devices, including that they be manufactured in compliance with applicable quality system regulations for medical devices and adhere to device labeling requirements, among other regulatory controls.

Regulation of Clinical Trials

We have also conducted and may in the future conduct studies for our AVISE ® tests and our other tests in development that involve clinical investigators at sites in the U.S.

We may need to conduct additional studies for the AVISE ® tests, as well as other tests we may offer in the future, to drive test adoption in the marketplace and reimbursement.

We have also conducted and may in the future conduct research studies for our AVISE ® tests and our other tests in development that involve clinical investigators and human subjects (or stored specimens from human subjects) at sites in the United States.

We may need to conduct additional clinical trials for the AVISE ® tests, as well as other tests we may offer in the future, to drive test adoption in the marketplace and reimbursement.

Should we not be able to perform these studies, or should their results not provide clinically meaningful data and value for clinicians, adoption of our tests could be impaired and we may not be able to obtain reimbursement for them.

The conduct of clinical trials is also subject to extensive federal and institutional regulations intended to assure that the data and reported results are credible and accurate and that the rights, safety, and welfare of study participants are protected.

Most studies involving human participants must be reviewed and approved by, and conducted under the auspices of, a duly-constituted institutional review board, or IRB, which is a multi-disciplinary committee responsible for reviewing and evaluating the risks and benefits of a clinical trial for participating subjects and monitoring the trial on an ongoing basis.

Most studies involving human participants must be reviewed and approved by, and conducted under the auspices of, a duly-constituted institutional review board (IRB), which is a multi-disciplinary committee responsible for reviewing and evaluating the risks and benefits of a clinical trial for participating subjects and monitoring the trial on an ongoing basis.

Companies sponsoring the clinical trials and investigators also must comply with, as applicable, regulations, guidelines and IRB requirements for obtaining informed consent from the study subjects, following the protocol and investigational plan, adequately monitoring the clinical trial, and timely reporting of adverse events.

The sponsoring company or the IRB may suspend or terminate a clinical trial at any time on various grounds, including a finding that the subjects are being exposed to an unacceptable health risk.

In addition, studies involving human participants often require significant time and cash resources to complete and are subject to a high degree of risk, including risks of experiencing delays, failing to complete the trial or obtaining unexpected or negative results.

In addition, studies involving human subjects often require significant time and cash resources to complete and are subject to a high degree of risk, including risks of experiencing delays, failing to complete the trial or obtaining unexpected or negative results.

Advertising of Laboratory Services or LDTs

Whether regulated by FDA as Class I or Class II devices or not directly subject to FDA’s device requirements as LDTs, advertising for our laboratory services and diagnostic testing products is subject to federal truth-in-advertising laws enforced by the Federal Trade Commission (FTC), as well as comparable state consumer protection laws.

Under the Federal Trade Commission Act (FTC Act), the FTC is empowered, among other things, to (a) prevent unfair methods of competition and unfair or deceptive acts or practices in or affecting commerce;

(b) seek monetary redress and other relief for conduct injurious to consumers;

and (c) gather and compile information and conduct investigations relating to the organization, business, practices, and management of entities engaged in commerce.

The FTC has very broad enforcement authority, and failure to abide by the substantive requirements of the FTC Act and other consumer protection laws can result in administrative or judicial penalties, including civil penalties, injunctions affecting the manner in which we would be able to market services or products in the future, or criminal prosecution.

Federal and State Physician Self-Referral Prohibitions

We are subject to the federal physician self-referral prohibitions, commonly known as the Stark Law, and to similar state law restrictions, such as California’s Physician Ownership and Referral Act of 1933, or PORA, and other comparable state laws.

The Stark Law generally prohibits us from billing a patient or any governmental or private payor for certain designated health services, including clinical laboratory services, when the physician ordering the service, or any member of such physician’s immediate family, has a financial interest, such as an ownership or investment interest in or compensation arrangement with us, unless the arrangement meets an exception to the prohibition.

The Stark Law generally prohibits us from billing Medicare or Medicaid for certain designated health services, including clinical laboratory services, when the physician ordering the service, or any

member of such physician’s immediate family, has a financial relationship with us, unless the arrangement meets an exception to the prohibition.

A financial relationship can be a compensation arrangement or an ownership or investment interest.

Sanctions for a Stark Law violation include the following:

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Although the Anti-Kickback Statute applies only to items and services reimbursable under any federal healthcare program, a number of states, including California, have passed statutes substantially similar to the Anti-Kickback Statute that apply to all third-party payors, including commercial insurers, and, in some states, to patients without insurance.

The California Attorney General and courts have interpreted the California anti-kickback and fee-splitting

laws in substantially the same way as HHS and the courts have interpreted the Anti-Kickback Statute.

The California Attorney General and courts have interpreted the California anti-kickback and fee-splitting laws in substantially the same way as the courts have interpreted the Anti-Kickback Statute.

Penalties under such state laws include imprisonment and significant monetary fines.

In addition, in October 2018, the Eliminating Kickbacks in Recovery Act of 2018, or EKRA, was enacted as part of the Substance Use-Disorder Prevention that Promotes Opioid Recovery and Treatment for Patients and Communities Act.

In addition, in October 2018, the Eliminating Kickbacks in Recovery Act of 2018 (EKRA) was enacted as part of the Substance Use-Disorder Prevention that Promotes Opioid Recovery and Treatment for Patients and Communities Act.

EKRA is an all-payor anti-kickback law that makes it a criminal offense to pay any remuneration to induce referrals to, or in exchange for, patients using the services of a recovery home, a substance use clinical treatment facility, or laboratory.

However, unlike the Anti-Kickback Statute, EKRA is not limited to services covered by federal or state healthcare programs but applies more broadly to services covered by “healthcare benefit programs,” including private third-party payors.

However, unlike the Anti-Kickback Statute, EKRA is not limited to services covered by federal healthcare programs but applies more broadly to services covered by “healthcare benefit programs,” including commercial third-party payors.

Although EKRA apparently was intended to reach patient brokering and similar arrangements to induce patronage of substance use recovery and treatment, the language in EKRA is broadly written.

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Department of Justice to issue regulations clarifying EKRA’s exceptions or adding additional exceptions, but such regulations have not yet been issued.

Other Federal and State Health Care Laws

Other Federal and State Healthcare Laws

In addition to the requirements discussed above, several other healthcare fraud and abuse laws could have an effect on our business.

For example, federal law permits the Office of Inspector General for the Department of Health and Human Services to exclude an individual or entity from Medicare or Medicaid for charging Medicare or state healthcare programs, such as Medicaid, substantially in excess of its usual charges for its items or services absent a finding of good cause.

For example, federal law permits the Office of Inspector General for the Department of Health and Human Services to exclude an individual or entity from Medicare or Medicaid for charging federal healthcare programs, including Medicare or Medicaid, substantially in excess of its usual charges for its items or services absent a finding of good cause.

The terms “usual charge” and “substantially in excess” are subject to varying interpretations.

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Because the complaint in a qui tam action is initially filed under seal, the action may be pending for some time before the defendant is even aware of the action.

If the government intervenes and is ultimately successful in obtaining redress in the matter or if the relator succeeds in obtaining redress without the government’s involvement, then the relator will receive a percentage of the recovery.

In addition, providers and suppliers must report and return any overpayments received from the Medicare and Medicaid programs within 60 days of identification, and failure to identify and return such overpayments exposes the provider or supplier to False Claims Act liability.

Violation of the False Claims Act may result payment of up to three times the actual damages sustained by the government, plus significant per-claim civil penalties.

Several states, including California, have enacted comparable false claims laws that may be broader in scope and may apply regardless of payor.

The federal civil monetary penalties law, or the CMP Law, prohibits, among other things, (1) the offering or transfer of remuneration (including a waiver of copayments and deductible amounts) to a Medicare or state healthcare 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 healthcare program, unless an exception applies;

Regardless of whether the government intervenes in the action, the relator, if successful, will receive a percentage of the recovery.

Violation of the federal False Claims Act may result payment of up to three times the actual damages sustained by the government, plus significant per-claim civil penalties.

Several states, including California, have enacted comparable false claims laws that may apply regardless of payor.

The federal civil monetary penalties law (the CMP Law) prohibits, among other things, (1) the offering or transfer of remuneration (including a waiver of copayments and deductible amounts) 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 a state healthcare program, unless an exception applies;

(2) employing or contracting with an individual or entity that the provider knows or should know is excluded from participation in a federal healthcare program;

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and (5) presenting or causing to be presented a claim to a federal health program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent.

The penalties for violating the CMP Law include exclusion, substantial fines, and payment of up to three times the amount billed, depending on the nature of the offense.

A person who offers or provides to a Medicare or Medicaid beneficiary any remuneration, including waivers of co-payments and deductible amounts (or any part thereof), that the person knows or should know is likely to influence the beneficiary’s selection of a particular provider, practitioner or supplier of Medicare or Medicaid payable items or services may be liable for significant civil monetary penalties for each wrongful act and up to three times the amount improperly claimed.

Moreover, in certain cases, providers who routinely waive copayments, or coinsurance for Medicare, and deductibles for Medicare and Medicaid beneficiaries can also be held liable under the Anti-Kickback Statute and False Claims Act.

One of the statutory exceptions to the prohibition is non-routine, unadvertised waivers of copayments or deductible amounts based on individualized determinations of financial need or exhaustion of reasonable collection efforts.

The Office of Inspector General of HHS, or OIG, emphasizes, however, that this exception should only be used occasionally to address special financial needs of a particular patient.

The penalties for violating the CMP Law may include exclusion, substantial fines, and payment of up to three times the amount billed, depending on the nature of the offense.

As noted, a person who offers or provides to a Medicare or Medicaid beneficiary any remuneration, including waivers of co-payments, co-insurance and deductible amounts (or any part thereof), that the person knows or should know is likely to influence the beneficiary’s selection of a particular provider, practitioner or supplier of Medicare or Medicaid payable items or services may be held liable under the CMP Law.

Moreover, in certain cases, providers who routinely waive amounts owed by federal healthcare program beneficiaries can also be held liable under the Anti-Kickback Statute and the federal False Claims Act.

One of the exceptions to the prohibition under the CMP Law covers non-routine, unadvertised waivers of copayments or deductible amounts based on individualized determinations of financial need or exhaustion of reasonable collection efforts, and the Anti-Kickback Statute has a safe harbor.

Department of Health and Human Services (HHS) Office of Inspector General (OIG), has emphasized in guidance documents that this exception should only be used occasionally to address special financial needs of a particular patient.

Although this prohibition applies only to federal healthcare program beneficiaries, applicable state laws related to, among other things, unlawful schemes to defraud, excessive fees for services, tortious interference with patient contracts and statutory or common law fraud, may also be implicated for similar practices offered to patients covered by commercial payors.

Federal criminal statutes prohibit, among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including those administered by private third-party payors, and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services.

knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services.

Like the Anti-Kickback Statute, this federal criminal statute requires a showing of intent, but a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.

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In situations involving physicians employed by state-funded institutions or national healthcare agencies, violation of the local anti-kickback law may also constitute a violation of the U.S.

Foreign Corrupt Practices Act, or FCPA, and/or other applicable anti-corruption laws.

Foreign Corrupt Practices Act (FCPA), and/or other applicable anti-corruption laws.

The FCPA prohibits any U.S.

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Violations of the FCPA’s anti-bribery provisions for corporations and other business entities are subject to a fine of up to $2.0 million and officers, directors, stockholders, employees and agents are subject to a fine of up to $100,000 and imprisonment for up to five years.

Other countries, including the United Kingdom and other OECD Anti-Bribery Convention members, have similar anti-corruption regulations, such as the UK Bribery Act.

When marketing our testing products outside of the U.S., we may be subject to foreign regulatory requirements governing human clinical testing, prohibitions on the import of tissue necessary for us to perform our testing products or restrictions on the export of tissue imposed by countries outside of the U.S.

or the import of tissue into the U.S., and marketing approval.

These requirements vary by jurisdiction, differ from those in the U.S.

and may in some cases require us to perform additional pre-clinical or clinical testing.

In many countries outside of the U.S., coverage, pricing and reimbursement approvals are also required.

Other countries, including the United Kingdom and other Organisation for Economic Co-Operation and Development Anti-Bribery Convention members, have similar anti-corruption regulations, such as the U.K.

When marketing our testing products outside of the United States, we may be subject to foreign regulatory requirements governing human clinical testing, prohibitions on the import of tissue necessary for us to perform our testing products or restrictions on the export of tissue imposed by countries outside of the United States or the import of tissue into the United States, and marketing approval.

These requirements vary by jurisdiction, differ from those in the United States and may in some cases require us to perform additional pre-clinical or clinical testing.

In many countries outside of the United States, coverage, pricing and reimbursement approvals are also required.

Privacy and Security Laws

Data Privacy and Security Laws

The Health Insurance Portability and Accountability Act of 1996, or HIPAA, established comprehensive federal standards for the privacy and security of health information.

In 2009, Congress enacted Subtitle D of the Health Information Technology for Economic and Clinical Health Act.

or HITECH provisions of the American Recovery and Reinvestment Act of 2009.

HIPAA established comprehensive federal standards for the privacy and security of health information.

In 2009, Congress enacted Subtitle D of the Health Information Technology for Economic and Clinical Health Act (HITECH) provisions of the American Recovery and Reinvestment Act of 2009.

HITECH amended HIPAA and, among other things, expanded and strengthened HIPAA, created new targets for enforcement, imposed new penalties for noncompliance and established new breach notification requirements.

HIPAA applies to health plans, healthcare clearing houses, and healthcare providers that conduct certain healthcare transactions electronically, which we refer to collectively as Covered Entities, as well as individuals or entities that perform services for them involving the use, or disclosure of, individually identifiable health information or "protected health information" under HIPAA.

Such service providers are called "Business Associates." Under HIPAA, as amended by the HITECH Act, HHS has issued regulations to protect the privacy and security of protected health information, or PHI, used or disclosed by Covered Entities and Business Associates.

HIPAA applies to health plans, healthcare clearing houses and healthcare providers that conduct certain healthcare transactions electronically (collectively, Covered Entities), as well as individuals or entities that perform services for them involving the use, or disclosure of, individually identifiable health information or "protected health information" (PHI) under HIPAA (Business Associates).

Under HIPAA, as amended by the HITECH Act, HHS has issued regulations to protect the privacy and security of PHI used or disclosed by Covered Entities and Business Associates.

HIPAA also regulates and standardizes the codes, formats and identifiers used in certain healthcare transactions and standardization of identifiers for health plans and providers, for example insurance billing.

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They also set forth certain rights that an individual has with respect to his or her PHI maintained by a covered entity, including the right to access or amend certain records containing PHI, request an accounting of disclosures of PHI or to request restrictions on the use or disclosure of PHI.

Proposed modifications to the privacy regulations were published in January of 2021 with a public comment period that ended in May of 2021.

The content of any final rules and their potential impact on us is unknown.

The HIPAA breach notification regulations impose certain reporting requirements on Covered Entities and their Business Associates in the event of a breach of PHI.

Covered entities must report breaches of PHI that has not been encrypted or otherwise secured in accordance with guidance from the Secretary of HHS, or the Secretary.

Covered Entities must report breaches of PHI that has not been encrypted or otherwise secured in accordance with guidance from the Secretary of HHS (the Secretary).

Breaches must be reported as soon as reasonably practicable, but no later than sixty days following discovery of the breach.

Reports must be made to affected individuals, the HHS Secretary, and depending on the size of the breach, the local and national media.

Covered Entities like us are also subject the HHS HIPAA audit program and may be investigated in connection with a privacy or data security complaint.

Covered Entities like us are also subject to the HHS HIPAA audit program and may be investigated in connection with a privacy or data security complaint.

Significant civil and criminal fines and other penalties may be imposed for violating HIPAA directly, and in connection with acts or omissions of any agents, including a downstream business associates, as determined according to the federal common law of agency.

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Further, to the extent that we submit electronic healthcare claims and payment transactions that do not comply with the transaction standards established under HIPAA and HITECH, payments to us may be delayed or denied.

Even when HIPAA does not apply, according to the FTC, failing to take appropriate steps to keep consumers’ personal information secure constitutes unfair acts or practices in or affecting commerce in violation of Section 5(a)

of the Federal Trade Commission Act.

The FTC expects a company’s data security measures to be reasonable and appropriate in light of the sensitivity and volume of consumer information it holds, the size and complexity of its business, and the cost of available tools to improve security and reduce vulnerabilities.

Individually identifiable health information is considered sensitive data that merits stronger safeguards.

Individually identifiable health information is

considered sensitive data that merits stronger safeguards.

The FTC and states' Attorneys General have also brought enforcement actions and prosecuted some data breach cases as unfair and/or deceptive acts or practices under the FTC Act and comparable state laws.

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The State of California, for example, has implemented comprehensive laws and regulations.

The California Confidentiality of Medical Information Act, or CMIA, imposes restrictive requirements regulating the use and disclosure of health information and other personally identifiable information.

California has also recently adopted the California Consumer Privacy Act of 2018, or the CCPA, which went into effect January 1, 2020.

The California Confidentiality of Medical Information Act (CMIA), imposes restrictive requirements regulating the use and disclosure of health information and other personally identifiable information.

California has also recently adopted the California Consumer Privacy Act of 2018 (CCPA), which went into effect January 1, 2020.

The CCPA, among other things, creates new data privacy obligations for covered companies and provides new privacy rights to California residents, including the right to opt out of certain disclosures of their information.

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Although the law includes limited exceptions, including for PHI maintained by a Covered Entity or Business Associate under HIPAA and medical information maintained by healthcare providers under the CMIA, it may regulate or impact our processing of personal information depending on the context.

Further, the California Privacy Rights Act, or CPRA, recently passed in California.

The CPRA will impose additional data protection obligations on covered businesses, including additional consumer rights processes, limitations on data uses, new audit requirements for higher risk data, and opt outs for certain uses of sensitive data.

It will also create a new California data protection agency authorized to issue substantive regulations and could result in increased privacy and information security enforcement.

The majority of the provisions will go into effect on January 1, 2023, and additional compliance investment and potential business process changes may be required.

Further, the California Privacy Rights Act (CPRA) went into effect January 1, 2023 amending the CCPA.

The CPRA imposes additional data protection obligations on covered businesses, including additional consumer rights processes, limitations on data uses, new audit requirements for higher risk data, and opt outs for certain uses of sensitive data and expands the application of the CCPA to all human resources personal information of our California-based employees.

It also created a new California data protection agency authorized to issue substantive regulations and is expected to result in increased privacy and information security enforcement.

In addition to the CCPA, Virginia, Colorado, Connecticut, and Utah all enacted similar omnibus privacy laws that will also take effect in 2023, increasing the complexity of compliance and the risk of failures to comply.

Numerous other federal and state laws, including consumer protection laws and regulations, govern the collection, dissemination, use, access to, confidentiality and security of patient health information.

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Information Blocking Rules

The National Coordinator for Health Information Technology, or ONC, coordinates the ongoing development of standards to enable interoperable health information technology infrastructure nationwide in the healthcare sector.

The Office of the National Coordinator for Health Information Technology (ONC), coordinates the ongoing development of standards to enable interoperable health information technology infrastructure nationwide in the healthcare sector.

In May 2020, ONC released the final Information Blocking Rule to implement the interoperability and patient access provisions of the 21st Century Cures Act.

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Among other things, the Information Blocking Rule requires us to provide patients with on-demand access to laboratory test results.

These requirements can be inconsistent with our obligations as a laboratory under

state law and/or medical or ethical standards.

These requirements can be inconsistent with our obligations as a laboratory under state law and/or medical or ethical standards.

It is currently unclear how the ONC will approach delays in providing patient access in these situations.

Health care providers including laboratories will be subject to civil monetary penalties for violations of the Information Blocking Rule once the penalty regulations are finalized;

the proposed rule allows for up to $1 million in penalties per violation.

Healthcare providers including laboratories will be subject to

civil monetary penalties for violations of the Information Blocking Rule once the penalty regulations are finalized.

The amount of such penalties is unknown, but the regulations for health industry numbers (HINs), health information exchanges (HIEs), and certified developers of health information technology allow for up to $1.0 million in penalties per violation.

GDPR and Foreign Laws

We are also subject to foreign privacy laws in the foreign jurisdictions in which we sell our testing products.

The interpretation, application and interplay of consumer and health-related data protection laws in the U.S., Europe and elsewhere are often uncertain, contradictory and in flux.

In Europe, the General Data Protection Regulation, or GDPR, went into full effect in May 2018.

The GDPR implements stringent operational requirements for processors and controllers of personal data, including, for example, expanded disclosures about how personal information is collected and used, limitations on retention of information, increased requirements pertaining to health data and pseudonymised (i.e., key-coded) data, mandatory data breach notification requirements, more robust rights for individuals in regard to their personal data and higher standards for controllers to demonstrate that they have obtained valid consent for certain data processing activities.

It provides that European Union, or EU, and European Economic Area, or EEA, member states may make their own further laws and regulations, which may impose further limitations, including in relation to the processing of biometric or health data, which may result in differences between member state laws, limit our ability to use and share personal data, cause our costs to increase, and/or harm our business and/or financial condition.

Among other requirements, the GDPR also regulates transfers of personal data subject to the GDPR to third countries that have not been found to provide adequate protection to such personal data, including the United States, and the efficacy and longevity of current transfer mechanisms between the European Union, or EU, and the United States remains uncertain.

For example, in 2016, the EU and United States agreed to a transfer framework for data transferred from the EU to the United States, called the Privacy Shield, but the Privacy Shield was invalidated in July 2020 by the Court of Justice of the European Union.

Further, from January 1, 2021, companies have to comply with the GDPR and also the United Kingdom GDPR, or UK GDPR, which, together with the amended UK Data Protection Act 2018, retains the GDPR in UK national law.

The UK GDPR mirrors the fines under the GDPR, e.g.

The interpretation, application and interplay of consumer and health-related data protection laws in the United States, Europe and elsewhere are often uncertain, contradictory and in flux.

In Europe, the General Data Protection Regulation (GDPR) went into full effect in May 2018.

The GDPR implements stringent operational requirements for processors and controllers of personal data, including, for example, expanded disclosures about how personal information is collected and used, limitations on retention of information, increased requirements pertaining to health data and pseudonymized (i.e., key-coded) data, mandatory data breach notification requirements, more robust rights for individuals in regard to their personal data and higher standards for controllers to demonstrate that they have obtained valid consent for certain data processing activities.

It provides that European Union (EU), and European Economic Area (EEA), member states may make their own further laws and regulations, which may impose further limitations, including in relation to the processing of biometric or health data, which may result in differences between member state laws, limit our ability to use and share personal data, cause our costs to increase and/or harm our business and/or financial condition.

For example, in 2016, the EU and the United States agreed to a transfer framework for data transferred from the EU to the United States, called the Privacy Shield, but the Privacy Shield was invalidated in July 2020 by the Court of Justice of the EU.

Further, from January 1, 2021, companies have to comply with the GDPR and also the United Kingdom GDPR (U.K.

GDPR) which, together with the amended U.K.

Data Protection Act 2018, retains the GDPR in U.K.

national law.

GDPR mirrors the fines under the GDPR, e.g.

fines up to the greater of €20 million (£17.5 million) or 4% of global turnover.

The relationship between the United Kingdom and the European Union in relation to certain aspects of data protection law remains unclear, and it is unclear how United Kingdom data protection laws and regulations will develop in the medium to longer term, and how data transfers to and from the United Kingdom will be regulated in the long term.

Currently there is a four to six-month grace period agreed in the EU and United Kingdom Trade and Cooperation Agreement, ending June 30, 2021 at the latest, whilst the parties discuss an adequacy decision.

However, it is not clear whether (and when) an adequacy decision may be granted by the European Commission enabling data transfers from EU member states to the United Kingdom long term without additional measures.

These changes may lead to additional costs and increase our overall risk exposure.

The relationship between the United Kingdom and the EU in relation to certain aspects of data protection law remains unclear, and it is unclear how U.K.

data protection laws and regulations will develop in the medium to longer term, and how data transfers to and from the United Kingdom will be regulated in the long term.

In June of 2021, the European Commission granted the United Kingdom an adequacy decision with respect to data transfers under the GDPR.

This adequacy decision is expected to last until June 27, 2025.

Billing and Government Reimbursement for Clinical Laboratory Services

Medicare coverage is limited to items and services that are within the scope of a Medicare benefit category that are reasonable and necessary for the diagnosis or treatment of an illness or injury.

With respect to Medicare coverage, Palmetto GBA, the Medicare Administrative Contractor, or MAC, responsible for administering Medicare’s molecular diagnostic services program, or MolDX Program, issued a local coverage determination, or LCD, that provides coverage for our AVISE ® MTX test.

The MAC responsible for administering Medicare claims submitted by our laboratory, Noridian Healthcare Solutions, has adopted Palmetto’s positive coverage policy, along with a related local coverage article that identifies a unique billing identifier for this test.

Under Medicare, payment for our laboratory tests are generally made under the Clinical Laboratory Fee Schedule, or CLFS, with payment amounts assigned to specific procedure billing codes.

In April 2014, Congress passed the Protecting Access to Medicare Act, or PAMA, which substantially changed the way in which Medicare sets the payment amounts for clinical laboratory services.

Under PAMA, laboratories that receive the majority of their Medicare revenue from payments made under the CLFS or the Physician Fee Schedule are required to report to CMS, beginning in 2017 and every three years thereafter (or annually for "advanced diagnostic laboratory tests"), private payor payment rates and volumes for their tests.

Medicare coverage is limited to items and services, within the scope of a Medicare benefit category that are reasonable and necessary for the diagnosis or treatment of an illness or injury.

With respect to Medicare coverage, Palmetto GBA, the Medicare Administrative Contractor (MAC) responsible for administering Medicare’s molecular diagnostic services program (MolDX Program), issued a Local Coverage Determination (LCD) that provides coverage for our AVISE ® MTX test.

The MAC responsible for administering Medicare claims submitted by our laboratory, Noridian Healthcare Solutions (Noridian), has adopted Palmetto’s positive coverage policy, along with a related local coverage article that identifies a unique billing identifier for this test.

Under Medicare, payment for our laboratory tests are generally made under the Clinical Laboratory Fee Schedule (CLFS) with payment amounts assigned to specific procedure billing codes.

In April 2014, Congress passed the Protecting Access to Medicare Act (PAMA), which substantially changed the way in which Medicare sets the payment amounts for clinical laboratory services.

Under PAMA, laboratories that receive the majority of their Medicare revenue from payments made under the CLFS or the Physician Fee Schedule (PFS) are required to report to CMS, beginning in 2017 and every three years thereafter (or annually for "advanced diagnostic laboratory tests"), private payor payment rates and volumes for their tests.

Laboratories that fail to report the required payment information may be subject to substantial civil monetary penalties.

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On June 23, 2016, CMS published the final rule implementing the reporting and rate-setting requirements under PAMA.

For tests furnished on or after January 1, 2018, Medicare payments for clinical diagnostic laboratory tests are based upon these reported private payor rates.

For clinical diagnostic laboratory tests, or CDLTs, that are assigned a new or substantially revised CPT code, CMS will set the initial payment rates using the gap-fill

methodology, as under prior law.

Initial payment rates for new advanced diagnostic laboratory tests, or ADLTs, will be based on the actual list charge.

Any reductions to payment rates resulting from the new methodology are limited to up to 10% per test per year in each of the years 2018 through 2020 and up to 15% per test per year in each of the years 2021 through 2023.

For tests furnished on or after January 1, 2018, Medicare payments for clinical diagnostic laboratory tests (CDLTs) are based upon these reported private payor rates.

For CDLTs, for which there is no comparable existing CDLT, that are assigned a new or substantially revised Current Procedural Terminology (CPT) code, CMS will set the initial payment rates using the gap-fill methodology, as under prior law.

Initial payment rates for new advanced

diagnostic laboratory tests (ADLTs) will be based on the actual list charge.

Any reductions to payment rates resulting from the new methodology are limited to up to 10% per test per year in each of the years 2018 through 2020.

As noted below, federal law has delayed implementation of further reductions until 2024, at which time the reduction cap will rise to 15% per test per year.

PAMA did not impact Medicare reimbursement for AVISE ® CTD in 2022 compared to levels experienced in 2021.

Additionally, PAMA and changes to the Physician Fee Schedule will not have a significant impact to Medicare reimbursement for AVISE ® CTD in 2022 compared to levels experienced in 2021.

The Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, signed into law on March 27, 2020 provides clinical laboratories a one-year reprieve from reporting requirements under the Protecting Access to Medicare Act, as well as a one-year delay of rate cuts scheduled to take place next year.

Reporting was not required between January 1, 2020 to December 31, 2022.

Instead, it is required between January 1, 2023 and March 31, 2023.

Additionally, the next round of rate cuts was delayed until 2022 to 2023, with tests receiving cuts of up to 15% a year from 2023 through 2025.

On December 20, 2019, the Further Consolidated Appropriations Act, which included the Laboratory Access for Beneficiaries Act, or LAB Act, took effect.

Additionally, PAMA and changes to the PFS will not have a significant impact to Medicare reimbursement for AVISE ® CTD in 2023 compared to levels experienced in 2022.

On December 20, 2019, the Further Consolidated Appropriations Act, which included the Laboratory Access for Beneficiaries Act (LAB Act) took effect.

The LAB Act delayed by one year the reporting of payment data under PAMA for CDLTs that are not ADLTs until the first quarter of 2021.

The Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, which was signed into law on March 27, 2020, delayed the reporting period by an additional year, until the first quarter of 2022.

The CARES Act, which was signed into law on March 27, 2020, delayed the reporting period by an additional year, until the first quarter of 2022.

Then, on December 10, 2021, Congress passed the Protecting Medicare and American Farmers from Sequester Cuts Act, which included a provision that further delayed the next PAMA reporting period for CDLTs that are not ADLTs to January 1, 2023 through March 31, 2023.

The Consolidated Appropriations Act, 2023, enacted on December 29, 2022, delayed the next PAMA reporting period to January 1, 2024 through March 31, 2024, which will cover the original data collection period of January 1, 2019 through June 30, 2019.

New CLFS rates for CDLTs will be established based on that data beginning in 2025, subject to phase-in limits.

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PAMA also authorized the adoption of new, temporary billing codes and unique test identifiers for FDA-cleared or approved tests, as well as ADLTs.

The AMA’s CPT Editorial Panel has approved a proposal to create a new section of billing codes to facilitate implementation of this section of PAMA.

These proprietary laboratory analyses codes, or PLA codes, may be requested by a clinical laboratory or manufacturer to specifically identify a particular test.

The American Medical Association's (AMA) CPT Editorial Panel approved a proposal to create a new section of billing codes called Proprietary Laboratory Analyses (PLA) codes, to facilitate implementation of this section of PAMA.

The AMA publishes approved codes on a quarterly basis.

While our testing products are not presently identified by any PLA codes, we may seek a specific PLA code or codes to describe some of our testing products in the future.

We requested a PLA code and in the quarter ended March 31, 2022, CMS agreed, effective April 1, 2022, to recognize a new PLA code for our protein-based test, AVISE® Lupus.

Billing for diagnostic testing can be complicated.

Depending on the billing arrangement and applicable law, we must bill various payors, such as insurance companies, Medicare, Medicaid, physicians, hospitals, employer groups and patients, all of which have different billing requirements.

Depending on the billing arrangement and applicable law, we must bill various parties, such as commercial payors, Medicare, Medicaid, physicians, hospitals, employer groups and patients, all of which have different billing requirements.

Additionally, compliance with applicable laws and regulations as well as internal compliance policies and procedures adds further complexity to the billing process.

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Healthcare Reform

In March 2010, the ACA was enacted in the United States.

In March 2010, the Affordable Care Act (ACA) was enacted in the United States.

The ACA made a number of substantial changes to the way healthcare is financed both by governmental and private payors.

Although the ACA included a medical device tax, the tax never went into effect and was fully repealed by Congress with enactment of the 2019 federal spending package signed into law by President Trump on December 20, 2019.

Since the ACA’s 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.

following several years of litigation in the federal courts, in June 2021, the United States Supreme Court, or the Supreme Court, upheld the ACA when it dismissed a legal challenge to the Act’s constitutionality.

Further legislative and regulatory changes under the ACA remain possible, although the new Democrat-led presidential administration has been taking steps to strengthen the ACA and the 117th Congress is not expected to have the same interest in repealing the law, in part due to the healthcare economic impacts of the ongoing COVID-19 pandemic on many subsets of the U.S.

Future changes or additions to the ACA, the Medicare and Medicaid programs, such as changes allowing the federal government to directly negotiate drug prices, and changes stemming from other healthcare reform measures, especially with regard to healthcare access, financing or other legislation in individual states, could have a material adverse effect on the healthcare industry in the U.S.

However, following several years of litigation in the federal courts, in June 2021, the U.S.

Supreme Court (the Supreme Court) upheld the ACA when it dismissed a legal challenge to the ACA’s constitutionality.

Further legislative and regulatory

changes under the ACA remain possible, although the new Democrat-led presidential administration has been taking steps to strengthen the ACA.

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

The uncertainty around the future of the ACA, and in particular the impact to reimbursement levels and the number of insured individuals, may lead to delay in the purchasing decisions of our customers.

Other legislative changes have been proposed and adopted since the ACA was enacted.

These changes include aggregate reductions to Medicare payments to providers of 2% per fiscal year pursuant to the Budget Control Act of 2011, which went into effect on April 1, 2013, and due to subsequent legislative amendments to the statute, will remain in effect through 2030, unless additional Congressional action is taken.

The Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") which was signed into law on March 27, 2020, designed to provide financial support and resources to individuals and businesses affected by the COVID-19 pandemic, suspended the 2% Medicare sequester from May 1, 2020 through December 31, 2020, and extended the sequester by one year, through 2030, in order to offset the added expense of the 2020 cancellation.

Congress subsequently extended the sequester suspension period to June 30, 2022, with a 1% sequester in effect from April 1, 2022 to June 30, 2022.

These changes include aggregate reductions to Medicare payments to providers of 2% per fiscal year pursuant to the Budget Control Act of 2011, which went into effect on April 1, 2013, and due to subsequent legislative amendments, and the passage of the Consolidated Appropriations Act for 2023, will remain in effect through 2032, unless additional Congressional action is taken.

In addition, the American Taxpayer Relief Act of 2012, among other things, further reduced Medicare payments to certain providers and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.

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Human Capital

As of December 31, 2021, we had 219 full-time employees, and 3 part-time employees in the United States.

These included 47 in laboratory operations, 20 in research and development, 83 in sales and marketing and 69 in general and administrative functions.

None of our employees is represented by a labor union or covered by a collective bargaining agreement.

We consider our relationship with our employees to be good.

As of December 31, 2022, we had a total of 204 employees:

199 full-time employees and 5 part-time employees.

This includes 52 in laboratory operations, 9 in research and development, 62 in sales and marketing and 76 in general and administrative functions.

All of our employees are located in the United States, none of which are represented by a labor union or covered by a collective bargaining agreement.

We consider relations with our employees to be good.

We recognize that attracting, motivating and retaining talent at all levels is vital to our continued success.

Our employees are a significant asset and we aim to create an equitable, inclusive and empowering environment in which our employees can grow and advance their careers, with the overall goal of developing, expanding and retaining our workforce to support our current pipeline and future business goals.

Our employees are a significant asset and we aim to create an equitable, inclusive and empowering environment in which our employees can grow and advance their careers, with the overall goal of developing, retaining and expanding our workforce, as needed, to support our current pipeline and future business goals.

By focusing on employee retention and engagement, we also improve our ability to support our business and operations, our pipeline, and also protect the long-term interests of our securityholders.

Our success also depends on our ability to attract, engage and retain a diverse group of employees.

Our efforts to recruit and retain a diverse and passionate workforce include providing competitive compensation and benefits packages and ensuring we listen to our employees.

Our efforts to recruit and retain a diverse and passionate workforce include providing competitive compensation and benefits packages and efforts to ensure our employees' voices are heard.

We value innovation, passion, data-driven decision making, persistence and honesty, and are building a diverse environment where our employees can thrive and be inspired to make exceptional contributions to bring novel testing products to patients.

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We are committed to providing a competitive and comprehensive benefits package to our employees.

Our benefits package provides a balance of protection along with the flexibility to meet the individual health and wellness needs of our employees.

Our benefits package

provides a balance of protection along with the flexibility to meet the individual health and wellness needs of our employees.

We plan to continue to refine our efforts related to optimizing our use of human capital as we grow, including improvements in the way we hire, develop, motivate and retain employees.

To address the safety and health of our workforce due to the COVID-19 pandemic, we created a committee consisting of six members of our management team and implemented the following, among other steps:

• Established new safety protocols and procedures;

• Maintained regular communication regarding the impacts of the pandemic on our employees and operations;

• Developed and distributed a playbook to guide the safe return to offices, communities, and work sites;

• Provided paid time-off for those directly impacted by COVID-19, and instructed those who were infected to stay home;

• Increased sanitation protocols across the entire campus;

• Established physical distancing procedures, modified workspaces;

and provided personal protective equipment and cleaning supplies for employees who needed to be onsite;

• Created and refined protocols to address actual and suspected COVID-19 cases and potential exposures of our employees, customers, and trade partners.

We conduct periodic anonymous employee surveys aimed at measuring the overall satisfaction of our team and address issues brought to our attention, such as adherence to social distancing standards and vaccination acceptance.

The results consistently show that our employees believe in our mandate and consider their work valuable and meaningful.

We conduct periodic anonymous employee surveys aimed at measuring the overall satisfaction of our team and make efforts to address issues brought to our attention.

The results consistently show that our employees consider their work valuable and meaningful.

Information About Our Directors and Executive Officers

The following persons currently serve as the directors and executive officers of Exagen:

Directors and Executive Officers Position

Executive Officers

John Aballi President, Chief Executive Officer and Director

Kamal Adawi Chief Financial Officer and Corporate Secretary

Mark Hazeltine Chief Business Officer

Tina Nova, Ph.D.

President, CLIA US, Veracyte, Inc.

Brian Birk Managing Partner, Co-Founder, Sun Mountain Capital

Ana Hooker Senior Vice President, Chief Laboratory Officer, Exact Sciences Corporation

Wendy Johnson Chief Business Officer, Reneo Pharmaceuticals, Inc.

Ebetual Pallares, Ph.D.

Managing Member, Proficio Capital Management, LLC

Bruce Robertson, Ph.D.

Managing Director, H.I.G Capital, LLC

Frank Stokes Chief Financial Officer, Castle Biosciences, Inc.

Tullis Chairman and Founder, Tullis Health Investors

Diversity and Inclusion

Our organization recognizes the importance of diversity and inclusion in recruiting, developing and retaining the best available talent.

We are committed to further understand and build upon our diversity and inclusion strengths and are in the process of identifying opportunities and developing initiatives.

As of December 31, 2021, our employees were 59.5% female and 40.5% male.

Our overall employee population as of December 31, 2021 was 57.6% White, 20.7% Hispanic or Latino, 13.2% Asian, 3.5% Native Hawaiian or other Pacific Islander, 3.0% Black or African-American and 2.0% two or more races (not Hispanic or Latino) and other.

In executive positions, which we define as Senior Vice President and above, our employee population as of December 31, 2021 was 85.7% White and 14.3% Asian.

Females represented 28.5% of employees in executive positions.

In addition, three of our nine Board of Directors are female and two directors are Hispanic or Latino as of December 31, 2021.

We are continuing to further assess and understand additional measures of diversity.

We are committed to further understanding and building upon our diversity and inclusion strengths and are continuing the process of identifying opportunities and developing initiatives.

As of December 31, 2022, 58.6% of our employees identified as female, 37.9% identified as male and 3.5% of our employees identified as other or declined to self-identify.

Additionally, 52.4% of our employees identified as White, 22.8% as Hispanic or Latino, 13.3% as Asian, 3.0% as Black or African-American, 2.4% as two or more races (not Hispanic or Latino), 0.6% as Native Hawaiian or other Pacific Islander, and 0.6% as American Indian or Alaska Native.

4.9% of our employees identified as other or declined to self-identify.

Environmental, Social and Governance Matters

In 2020, we undertook a review of our environmental, social and governance, or ESG, matters.

In 2020, we undertook a review of our environmental, social and governance (ESG), matters.

In 2021, we released our initial Sustainability Report.

In 2022, we created an Environmental, Social and Governance Committee, or the ESG Committee, with the purpose, duties and responsibility to reviewing and recommending our ESG programs, policies and practices relating to ESG issues.

The ESG Committee meets formally at least quarterly and plans to make recommendations to our President and Chief Executive Officer to be presented to the Audit Committee of our Board of Directors.

In 2022, we created an Environmental, Social and Governance Committee (ESG Committee) with the purpose, duties and responsibility of reviewing and recommending our programs, policies and practices relating to ESG issues.

The ESG Committee meets formally at least annually and plans to make recommendations to our President and Chief Executive Officer to be presented to the Audit Committee of our Board of Directors.

For more information regarding our ESG initiatives, please refer to www.exagen.com/investors.

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We were incorporated under the laws of the state of New Mexico in 2002, under the name Exagen Corporation.

In 2003, we changed our state of incorporation from New Mexico to Delaware by merging with and into Exagen Diagnostics, Inc., pursuant to which we change our name to Exagen Diagnostics, Inc.

In 2003, we changed our state of incorporation from New Mexico to Delaware by merging with and into Exagen Diagnostics, Inc., pursuant to which we changed our name to Exagen Diagnostics, Inc.

In January 2019, we changed our name to Exagen Inc.

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Available Information

We file Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other information with the Securities and Exchange Commission, or SEC.

We file Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other information with the Securities and Exchange Commission (SEC).

Our filings with the SEC are available free of charge on the SEC’s website at www.sec.gov and on the "Investors" section of our website as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.

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-K

Item 1. Business