What changed in this filing

/stocks — the workspaceLOADING

Item 1A. Risk Factors

2024-03-18 compared with 2023-03-20 · 233 added, 217 removed, 843 unchanged (35% of the section changed)

10 unchanged sentences

• We have a history of losses, we expect to incur net losses in the future and we may not be able to generate sufficient revenue to achieve and maintain profitability;

• If third-party payors do not provide coverage and adequate reimbursement for our testing products, or they breach, rescind or modify their contracts or reimbursement policies or delay payments for our testing products, or if we or our partners are unable to successfully negotiate payor contracts, our commercial success could be compromised;

• In the near-term, we expect that our financial results will depend primarily on sales of our testing products, and we will need to generate sufficient revenue from these testing products to grow our business;

8 unchanged sentences

Our failure to obtain additional financing when needed on acceptable terms, or at all, could force us to delay, limit, reduce or eliminate our product development programs, commercialization efforts or other operations;

• We have identified a material weakness in our internal control over financial reporting and determined that our disclosure controls and procedures were ineffective as of December 31, 2022, in connection with the restatement of our financial statements as of and for the three and six months ended June 30, 2022.

In the future, we may identify additional material weaknesses or otherwise fail to maintain an effective system of internal control over financial reporting or adequate disclosure controls and procedures, which may result in material errors in our financial statements or cause us to fail to meet our period reporting obligations;

• We conduct business in a heavily regulated industry.

Complying with the numerous statutes and regulations pertaining to our business is expensive and time-consuming, and any failure by us, our consultants or commercial partners to comply could result in substantial penalties;

• We may be required to modify our business practices, pay fines, incur significant expenses or experience losses due to litigation or governmental investigations;

• We have previously and may again in the future be required to modify our business practices, pay fines, incur significant expenses or experience losses due to litigation or governmental investigations;

• The FDA may disagree with our assessment that our AVISE® test products and any other tests we may develop are LDTs and determine that such test products are medical devices subject to the FDCA and FDA regulations;

7 unchanged sentences

Over the next several years, we expect to continue to devote substantially all of our resources to increase adoption of, and reimbursement for, our testing products and to develop future testing products.

We experienced and may continue to experience decreases in test volumes due to the impact of the COVID-19 pandemic.

We may not be able to generate sufficient revenue to achieve and maintain profitability.

Our failure to achieve and maintain profitability in the future could cause the market price of our common stock to decline.

Our failure to achieve and maintain profitability in the future could cause the market price of our common stock to decline and materially and adversely affect our prospects and business.

If third-party payors do not provide coverage and adequate reimbursement for our testing products, or they breach, rescind or modify their contracts or reimbursement policies or delay payments for our testing products, or if we or our partners are unable to successfully negotiate payor contracts, our commercial success could be compromised.

9 unchanged sentences

• included in clinical guidelines.

If we are unable to provide third-party payors with sufficient evidence of the clinical utility and validity of our test, they may not provide coverage, or may provide limited coverage, which will adversely affect our revenue and our ability to succeed.

ability to succeed.

In addition, clinicians may be less likely to order a test unless third-party payors pay a substantial portion of the test price.

1 unchanged sentence

Third-party payors and other entities also conduct technology assessments of new medical tests and devices and provide and/or sell the results of their assessments to other parties.

These assessments may be used by third-party payors and healthcare providers as grounds to deny coverage for or refuse to use a test or procedure.

These assessments may be and have been used by third-party payors and healthcare providers as grounds to deny coverage for or refuse to use a test or procedure, including our tests.

In addition, third-party payors have increased their efforts to control the cost, utilization and delivery of healthcare services.

19 unchanged sentences

If we are not successful in reversing existing non-coverage policies, or if other third-party payors issue negative coverage policies, these policies could have a material adverse effect on our business and operations.

Even if many third-party payors currently reimburse for our testing products, such payors may withdraw coverage at any time, review and adjust the rate of reimbursement, require co-payments from patients or stop paying for our testing products altogether, any of which would reduce our revenue.

Even if many third-party payors currently reimburse for our testing products, such payors have in the past and may again withdraw coverage at any time, review and adjust the rate of reimbursement, require co-payments from patients or stop paying for our testing products altogether, any of which could materially reduce our revenue.

In the near-term, we expect that our financial results will depend primarily on sales of our testing products, and we will need to generate sufficient revenue from these testing products to grow our business.

6 unchanged sentences

Further, we cannot ensure the continued availability of our testing products in commercial quantities at acceptable costs.

If we are unable to increase sales of our testing products, expand reimbursement for our testing products, or successfully develop and commercialize additional testing products, our revenue and our ability to achieve and sustain profitability would be impaired, and the market price of our common stock could decline.

If we are unable to increase sales of our testing products, expand reimbursement for our testing products, or successfully develop and commercialize

additional testing products, our revenue and our ability to achieve and sustain profitability would be impaired, and the market price of our common stock could decline.

Business disruptions could seriously harm our future revenue and financial condition and increase our costs and expenses.

Our operations could be subject to earthquakes, power shortages, telecommunications failures, water shortages, floods, hurricanes, typhoons, fires, extreme weather conditions, medical epidemics, political instability, acts of war, including the current conflict in Ukraine and the Middle East, and other natural or manmade disasters (which may be exacerbated due to climate change) or business interruptions, for which we are predominantly self-insured.

We rely on third-party manufacturers to produce our testing products.

Our ability to obtain clinical supplies of our testing products could be disrupted if the operations of these suppliers were affected by a man-made or natural disaster or other business interruption.

In addition, our corporate headquarters is located in Vista, California near major earthquake faults and fire zones, and the ultimate impact on us of being located near major earthquake faults and fire zones and being consolidated in a certain geographical area is unknown.

The occurrence of any of these business disruptions could seriously harm our operations and financial condition and increase our costs and expenses.

If we fail to maintain proper and effective internal control over financial reporting, our ability to produce accurate and timely financial statements could be impaired, investors may lose confidence in our financial reporting and the trading price of our common stock may decline.

Pursuant to Section 404 of Sarbanes-Oxley, our management is required to report upon the effectiveness of our internal control over financial reporting.

When we lose our status as an “emerging growth company” and reach an accelerated filer threshold, our independent registered public accounting firm will be required to attest to the effectiveness of our internal control over financial reporting.

The rules governing the standards that must be met for management to assess our internal control over financial reporting are complex and require significant documentation, testing and possible remediation.

To comply with the requirements of being a reporting company under the Exchange Act, we may need to upgrade our information technology systems;

implement additional financial and management controls, reporting systems and procedures;

and/or hire additional accounting and finance staff as we grow.

If we or, if required, our auditors are unable to conclude that our internal control over financial reporting is effective, investors may lose confidence in our financial reporting and the trading price of our common stock may decline.

On November 13, 2022, management and the Audit Committee determined that we made certain errors in revenue resulting from erroneous and duplicate billings related to changes in billing practices.

The errors were due to the inadequate design, implementation and precision of internal controls and procedures to evaluate and monitor the accounting for revenue recognition.

As a result, revenue and accounts receivable were overstated and other liabilities was understated for the quarter and year to date periods ended June 30, 2022.

We concluded that these were material errors in the financial statements requiring a restatement of the Form 10-Q for the three and six months ended June 30, 2022.

Accordingly, management determined that this control deficiency constituted a material weakness as of December 31, 2022.

In response to the material weaknesses, and as previously disclosed in Item 9A of our annual report on Form 10-K for the year ended December 31, 2022, we implemented a remediation plan which included, but was not limited to, evaluating the staffing level, skills and qualification of accounting department personnel, enhancement of our existing control structure and processes for revenue recognition and improving the detailed review process of our revenue recognition models.

The enhancements made to our control environment were in place as of December 31, 2023, and based on the evaluation of relevant internal controls, management has concluded that the material weaknesses previously identified have been remediated as of December 31, 2023.

We cannot assure you that there will not be material weaknesses or significant deficiencies in our internal control over financial reporting in the future.

Any failure to maintain internal control over financial reporting could severely inhibit our ability to accurately report our financial condition, results of operations or cash flows.

If we are unable to conclude that our internal control over financial reporting is effective, or if our independent registered public accounting firm determines we have a material weakness or significant deficiency in our internal control over financial reporting once that firm begin its Section 404 reviews, investors may lose confidence in the accuracy and completeness of our financial reports, the market price of our common stock could decline, and we could be subject to sanctions or investigations by Nasdaq, the SEC or other regulatory authorities.

Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets.

We may be unable to manage our growth effectively, which could make it difficult to execute our business strategy.

18 unchanged sentences

Further, our AVISE ® testing products consist of various biomarkers, any of which could independently encounter issues with manufacturing, supply or overall quality.

If any of the biomarkers in our AVISE ® CTD test were to encounter any issues, we may experience an impact in the overall

success of AVISE ® CTD as a whole, including a reduction in average selling price or overall revenue, until such time as it can be remedied.

If any of the biomarkers in our AVISE ® CTD test were to encounter any issues, we may experience an impact in the overall success of AVISE ® CTD as a whole, including a reduction in ASP or overall revenue, until such time as it can be remedied.

Moreover, if our testing products do not achieve an adequate level of acceptance by rheumatologists, hospitals, third-party payors or patients, we may not generate sufficient revenue from that testing product and may not become or remain profitable.

3 unchanged sentences

To generate increased demand, we will need to continue to educate rheumatologists about the benefits of our testing products through publications in peer-reviewed medical journals, presentations at medical conferences and other similar means.

For example, in the fourth quarter of 2022, we were featured in nine scientific presentations at the 2022 ACR Annual Conference, ACR Convergence 2022.

For example, in the fourth quarter of 2023, we were featured in five scientific presentations at the 2023 ACR Annual Conference, ACR Convergence 2023.

We will also need to generate demand for our testing products through one-on-one education by our sales force.

We also plan to focus on educating patients about the benefits of these testing products, which we believe will be necessary to generate further demand.

In addition, our inability to obtain and maintain coverage and adequate reimbursement from third-party payors may limit adoption by rheumatologists, as well as third-party payors exerting pressure on rheumatologists and healthcare providers to order in-network testing products which could adversely affect our revenue.

In addition, our inability to obtain and maintain coverage and adequate reimbursement

from third-party payors may limit adoption by rheumatologists, as well as third-party payors exerting pressure on rheumatologists and healthcare providers to order in-network testing products which could adversely affect our revenue.

Rheumatologists may rely on guidelines issued by industry groups regarding the diagnosis, prognosis, treatment and monitoring of autoimmune and autoimmune-related diseases, and the monitoring of the effectiveness of therapeutic drugs used to treat such diseases before utilizing any diagnostic test or monitoring solution.

16 unchanged sentences

• the extent to which our current testing and future testing products, if any, are eligible for coverage and reimbursement from third-party payors;

• public health crises such as the COVID-19 pandemic;

• the timing and cost of, and level of investment in, research, development, regulatory approval and commercialization activities relating to our testing products, which may change from time to time, and our ability to successfully commercialize new testing products;

4 unchanged sentences

• future accounting pronouncements or changes in our accounting policies;

• our ability to collect timely reimbursement for our tests;

• the rate and extent to which payors make an overpayment determination and require us to return all or some portion of payments which we received in a prior period;

1 unchanged sentence

The cumulative effects of these factors could result in large fluctuations and unpredictability in our quarterly and annual operating results.

For instance during 2023, our operating results varied due, in part, to our efforts regarding revenue cycle management.

As a result, comparing our operating results on a period-to-period basis may not be meaningful.

1 unchanged sentence

This variability and unpredictability could also result in our failing to meet the expectations of industry or financial analysts or investors for any period.

If our revenue or operating results fall below the expectations of analysts or investors or below any forecasts we may provide to the market, it could have a material adverse effect on our business, financial condition and results or operations.

We rely on sole suppliers for some of the reagents, equipment and other materials used in our testing products, and we may not be able to find replacements or transition to alternative suppliers.

We rely on sole suppliers for some of the reagents, equipment and other materials used in our testing products, and a sole third-party fulfillment center used to supply healthcare providers with our testing products, and we may not be able to find replacements or transition to alternative suppliers or fulfillment centers.

We rely on sole suppliers for critical supply of reagents, equipment and other materials that we use to perform the tests that comprise our testing products.

4 unchanged sentences

If our suppliers can no longer provide us with the materials we need to perform the tests that comprise our testing products, if the materials do not meet our quality specifications, or if we cannot obtain acceptable substitute materials, an interruption in test processing could occur and, in certain circumstances, we may be required to amend or cancel test results we have issued.

For example, in November 2019, we identified a potential quality issue with reagents for Anti-CarP, a biomarker that can be ordered with our AVISE ® CTD test that was resolved in September 2020.

However, if we are unable to remedy future potential quality issues with unique reagent suppliers, or otherwise find a supplier for future biomarkers with issues, we may experience difficulties obtaining market acceptance for our products.

Additionally, if we are unable to remedy future potential quality issues with unique reagent suppliers, or otherwise find a supplier for future biomarkers with issues, we may experience difficulties obtaining market acceptance for our products.

Moreover, any issues with quality may result in a change from time to time of the composition of our tests, including our AVISE ® CTD test, which could impact the average selling price and revenues received from sales of such test.

2 unchanged sentences

In addition, in order to mitigate these risks, we may need to maintain inventories of these supplies at higher levels than would be the case if multiple sources of supply were available.

We rely on a third party as our sole fulfillment center in Florida to supply healthcare providers with our testing products.

Our sole fulfillment center could be harmed or rendered inoperable by natural or man-made disasters, including fire, earthquake, hurricane, flooding, pandemics or other disease outbreaks and power outages, which may render it difficult or impossible for us to supply healthcare providers with our testing products for some period of time.

The inability to supply healthcare providers with our testing products or the backlog of tests that could develop if our sole fulfillment center is inoperable for even a short period of time, may result in the loss of customers or harm to our reputation or business relationships, and we may be unable to regain those customers or repair our reputation in the future.

Furthermore, our sole fulfillment center could be costly and time-consuming to repair or replace.

If our sole fulfillment center is destroyed or otherwise rendered inoperable, we may have difficulty replacing this fulfillment center and there can be no assurance we could do so in a timely manner, on terms favorable to us or at all.

If we are unable to support demand for our current testing products or any of our future testing products or solutions, our business could suffer.

2 unchanged sentences

We cannot assure you that any increases in scale, related improvements and quality assurance will be successfully implemented or that appropriate personnel will be available.

We will also need to purchase additional equipment, some of which can take several months or more to procure, setup and validate, and increase our software and computing capacity to meet increased demand.

We will also need to purchase additional equipment, some of which can

take several months or more to procure, setup and validate, and increase our software and computing capacity to meet increased demand.

Failure to implement necessary procedures, transition to new processes, hire the necessary personnel, obtain any necessary additional equipment and increase software and computing capacity could result in higher costs of processing tests or inability to meet demand.

28 unchanged sentences

Payors also conduct external audits to evaluate payments, which add further complexity to the billing process.

If the payor makes an overpayment determination, there is a risk that we

may be required to return all or some portion of prior payments we have received.

If the payor makes an overpayment determination, there is a risk that we may be required to return all or some portion of prior payments we have received.

Additionally, providers and suppliers must report and return overpayments received from the Medicare and Medicaid programs within 60 days of identification.

1 unchanged sentence

Additionally, from time to time, third-party payors change processes that may affect timely payment.

These changes may result in uneven cash flow or impact the timing of revenue recognized with these payors.

These changes have in the past and may again result in uneven cash flow or impact the timing of revenue recognized with these payors.

With respect to payments received from government healthcare programs, factors such as a prolonged government shutdown could cause significant regulatory delays or could result in attempts to reduce payments made to us by federal healthcare programs.

2 unchanged sentences

In 2023, Noridian posted the calendar year 2024 Medicare Physician Fee Schedule (MPFS), and CLFS, which establishes the reimbursement rates to be paid by Medicare for our jurisdiction for services performed on or after January 1, 2024.

We do not expect that PAMA or changes to the PFS will have a significant impact to Medicare reimbursement for AVISE ® CTD in 2023 compared to levels experienced in 2022.

PAMA and changes to the PFS did not have a significant impact to Medicare reimbursement for AVISE ® CTD in 2024 compared to levels experienced in 2023.

Revenue from Medicare comprised 34% and 39% of our revenue for the years ended December 31, 2023 and 2022, respectively.

22 unchanged sentences

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.

and the Mayo Clinic, all of which have existing infrastructures to support the commercialization of diagnostic services.

also face competition from commercial laboratories, such as ARUP Laboratories, Inc.;

Laboratory Corporation of America Holdings;

the Mayo Clinic;

and Quest Diagnostics Incorporated, all of which have existing infrastructures to support the commercialization of diagnostic services.

Large, multispecialty group medical clinics, health systems and academic medical university-based clinics may provide in-house clinical laboratories offering autoimmune and autoimmune-related disease testing services.

1 unchanged sentence

(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., AMPEL BioSolutions, and Immunovia AB.

Other potential competitors include companies that might develop diagnostic or disease or drug monitoring products, such as AMPEL BioSolutions, LLC;

DxTerity Diagnostics Inc.;

Genalyte Inc.;

Immunovia AB;

Oncimmune plc;

Progentec Diagnostics Inc.;

and Scipher Medicine Corporation.

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

7 unchanged sentences

and ease of use.

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 and selling and marketing capabilities than we do.

22 unchanged sentences

At any point, we may abandon development of a testing product candidate or we may be required to expend considerable resources repeating clinical studies, which would adversely affect the timing for generating potential revenue from a new testing product and our ability to invest in other products in our pipeline.

In 2022, we completed 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.

In light of our renewed focus on our flagship product, AVISE CTD, and selective approach to research and development projects, we expect to sublet the converted research and development space to a third party and to continue to use the remainder of our existing laboratory space.

In addition, as we develop testing products, we may have to make significant investments in product development, marketing and selling resources.

13 unchanged sentences

We also may pursue strategic alliances that leverage our core technology and industry experience to expand our offerings or distribution, make investments in other companies or acquire ownership rights to therapeutics that are synergistic with our testing products.

To date, other than our acquisition of the medical diagnostics division of Cypress in 2010, we have not acquired other companies or therapeutics and we have limited experience with respect to the formation of strategic alliances and joint ventures.

To date, other than our acquisition of the medical diagnostics division of Cypress Bioscience, Inc.

in 2010, we have not acquired other companies or therapeutics and we have limited experience with respect to the formation of strategic alliances and joint ventures.

If we make any acquisitions, we may not be able to integrate these acquisitions successfully into our existing business, and we could assume unknown or contingent liabilities.

8 unchanged sentences

In addition, our loan agreement restricts our ability to pursue certain mergers, acquisitions, amalgamations or consolidations that we may believe to be in our best interest.

Additionally, future acquisitions or dispositions could result in potentially dilutive issuances of our equity securities, the incurrence of debt, contingent liabilities or amortization expenses or write-offs of goodwill, any of which could harm our financial condition.

Additionally, future acquisitions or dispositions could result in potentially dilutive issuances of our equity

securities, the incurrence of debt, contingent liabilities or amortization expenses or write-offs of goodwill, any of which could harm our financial condition.

We cannot predict the number, timing or size of future joint ventures or acquisitions, or the effect that any such transactions might have on our operating results.

21 unchanged sentences

Our success depends largely on the skills, experience and performance of key members of our executive management team, including John Aballi, our President and Chief Executive Officer, and others in key management positions.

The efforts of each of these persons will be critical to us as we continue to develop our technologies and

test processes and focus on our growth.

The efforts of each of these persons will be critical to us as we continue to develop our technologies and test processes and focus on our growth.

If we were to lose one or more of these key employees, we may experience difficulties in competing effectively, developing our technologies and implementing our business strategy.

4 unchanged sentences

Additionally, our success depends on our ability to attract and retain qualified and highly-specialized salespeople.

We may have difficulties locating, recruiting or retaining qualified salespeople, which could cause a delay or decline in the rate of adoption of our testing products.

We may have difficulties locating, recruiting or retaining qualified salespeople, which could cause a delay or decline in the rate of adoption of

our testing products.

If we are not able to attract and retain the necessary personnel to accomplish our business objectives, we may experience constraints that could adversely affect our ability to support our research and development, clinical laboratory and sales efforts.

3 unchanged sentences

Vista is situated on or near earthquake fault lines.

Our facility and equipment could be harmed or rendered inoperable by natural or man-made disasters which may be exacerbated due to climate change, including earthquake, fire, flood, power loss, communications failure or terrorism, or public health crises such as the COVID-19 pandemic.

In particular, we store all of our flow cytometers, the instrument we use to detect CB-CAPs on cells, at our Vista facility.

15 unchanged sentences

Adverse consequences resulting from a delay in the laboratory expansion could harm our relationships with our customers and our reputation, and could affect our ability to generate revenue.

We carry insurance for damage to our property and the disruption of our business, but this insurance may not cover all of the risks associated with damage or disruption to our business, provide coverage in amounts sufficient to cover our potential losses or continue to be available to us on acceptable terms, if at all.

We carry insurance for damage to our property and the disruption of our business, but this insurance may not cover all the risks associated with damage or disruption to our business, provide coverage in amounts sufficient to cover our potential losses or continue to be available to us on acceptable terms, if at all.

Our testing process involves the use of sophisticated state-of-the-art equipment that requires precise calibration, and issues affecting such equipment may delay delivery or impact the quality of the test results to rheumatologists or otherwise adversely affect our operations.

As part of our process of determining CB-CAPs, the key biomarker detection and measurement technology incorporated into our AVISE ® Lupus and AVISE ® CTD products, we utilize a number of flow cytometers that require calibration and performance validation according to the requirements of the CAP at specified time intervals.

While we believe we have implemented appropriate controls and metrics in our laboratory to meet such requirements, we cannot provide any assurance that our instruments will not fall out of specification, in which case we would be required to re-calibrate them.

While we believe we have implemented appropriate controls and metrics in our laboratory to meet such requirements, we

cannot provide any assurance that our instruments will not fall out of specification, in which case we would be required to re-calibrate them.

Failure to timely re-calibrate our instruments could negatively impact the test results, which could result in liability and harm our reputation.

24 unchanged sentences

We manage and maintain our applications and data utilizing a combination of on-site and vendor-owned systems.

We face a number of risks related to our protection of, and our service providers’ protection of, this critical information, including loss of access, unauthorized disclosure and unauthorized access, as well as risks associated with our ability to identify and audit such events and risks associated with the need to reconstruct any lost or stolen data.

reconstruct any lost or stolen data.

In addition, we have limited control over the storage of sensitive data by our third-party partners as well as risks related to the transfer and sale of de-identified data files to such partners.

7 unchanged sentences

A security breach or privacy violation that leads to unauthorized access, disclosure or modification of, or prevents access to, patient information, including PHI, could implicate state and federal breach notification laws.

Any such access, disclosure or other loss of information could also result in legal claims or proceedings, and liability under laws that protect the privacy of personal information, such as HIPAA, as amended by the HITECH Act, and their implementing regulations including civil and criminal penalties.

Unauthorized access, loss or dissemination could also disrupt our operations, including our ability to process tests, provide test results, bill payors or patients, process claims and appeals, provide customer assistance services, conduct research and development activities, collect, process and prepare company financial information, provide information about our products and other patient and rheumatologist education and outreach efforts through our website and manage the administrative aspects of our business and could damage our reputation, any of which could adversely affect our business.

8 unchanged sentences

In addition, these breaches and other forms of inappropriate access can be difficult to detect, and any delay in identifying them may lead to increased harm of the type described above.

Our financial condition, commercialization efforts and results of operations could be adversely affected by outbreaks of contagious diseases, including the COVID-19 pandemic.

Any outbreak of a contagious disease, such as the COVID-19 pandemic, or other adverse public health developments, could have a material and adverse effect on our business operations.

Our financial condition, commercialization efforts and results of operations has been and may again in the future be adversely affected by outbreaks of contagious diseases.

Any outbreak of a contagious disease, or other adverse public health developments, could have a material and adverse effect on our business operations.

Such adverse effects could include disruptions or restrictions on the ability of our, our collaborators’, or our suppliers’ personnel to travel, and could result in temporary closures of our facilities or the facilities of our collaborators or suppliers, including our sole laboratory.

The extent to which COVID-19 affects our operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, additional information that may emerge concerning the severity of COVID-19 and ongoing actions to contain COVID-19 or mitigate its impact, among others, which could have a further adverse effect on our business, financial condition, results of operations, and cash flows.

While the impact of the COVID-19 pandemic on our business, financial condition, results of operations and cash flows has subsided, the extent to which COVID-19 will affect our operations in the future will depend on future developments, which are highly uncertain and cannot be predicted with confidence.

Performance issues, service interruptions or price increases by our shipping carrier could adversely affect our business, results of operations and financial condition, and harm our reputation and ability to provide testing services on a timely basis.

Expedited, reliable shipping is essential to our operations.

We have been utilizing both United Parcel Service and Federal Express Corporation for reliable and secure point-to-point transport of patient specimens to our laboratory and enhanced tracking of these patient specimens.

We have been utilizing both United Parcel Service and Federal Express Corporation (Federal Express) for reliable and secure point-to-point transport of patient specimens

to our laboratory and enhanced tracking of these patient specimens.

Should Federal Express, United Parcel Service, or any other carrier we may use in the future, encounter delivery performance issues such as loss, damage or destruction of a specimen, it may be difficult to replace our patient specimens in a timely manner and such occurrences may damage our reputation and lead to decreased utilization from rheumatologists for our testing services and increased cost and expense to our business.

In addition, any significant increase in shipping time or disruption to delivery service, whether due to bad weather, natural disaster (which may be exacerbated due to climate change), public health epidemics or pandemics (including, for example, the COVID-19 pandemic), terrorist attacks or threats, or for other reasons, could adversely affect our ability to receive and process patient specimens on a timely basis.

In addition, any significant increase in shipping time or disruption to delivery service, whether due to bad weather, natural disaster (which may be exacerbated due to climate change), public health epidemics or pandemics, terrorist attacks or threats, labor strikes, work stoppages or boycotts, or for other reasons, could adversely affect our ability to receive and process patient specimens on a timely basis.

If we, Federal Express, or United Parcel Service were to terminate our relationship, we would be required to find another party to provide expedited, reliable point-to-point transport of our patient specimens.

2 unchanged sentences

Even if we were to enter into an arrangement with any such provider, there can be no assurance that they will provide the same level of quality in transport services currently provided to us by Federal Express and United Parcel Service.

If any new provider does not provide, or if Federal Express or United Parcel Service does not continue to provide, the required quality and reliability of transport services at the same or similar costs, it could adversely affect our business, reputation, results of operations and financial condition.

If any new provider does not provide, or if Federal Express or United Parcel Service does not continue to provide, the required quality and reliability of transport services at the same or similar costs, it could materially and adversely affect our business, reputation, results of operations and financial condition.

Inflation could adversely affect our business and financial results.

7 unchanged sentences

The failure of financial institutions or transactional counterparties could adversely affect our current and projected business operations and our financial condition and results of operations.

On March 10, 2023, Silicon Valley Bank (SVB) was closed by the California Department of Financial Protection and Innovation, which appointed the FDIC as receiver.

On March 10, 2023, Silicon Valley Bank (SVB) was closed by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver.

Similarly, on March 12, 2023, Signature Bank and Silvergate Capital Corp.

10 unchanged sentences

In addition, federal NOL carryforwards generated in periods after December 31, 2017, may be carried forward indefinitely but, in taxable years beginning after December 31, 2020, may only be used to offset 80% of our taxable income.

As a result of the foregoing, if we earn net taxable income, our ability to use NOL carryforwards and other tax attributes to offset taxable income and taxes, as applicable, may be limited.

As a result of the foregoing, if we earn net taxable income,

our ability to use NOL carryforwards and other tax attributes to offset taxable income and taxes, as applicable, may be limited.

Our term loan contains restrictions that limit our flexibility in operating our business, and if we fail to comply with the covenants and other obligations under our loan agreement, the lenders may be able to accelerate amounts owed under the facility and may foreclose upon the assets securing our obligations.

In September 2017, we entered into the loan and security agreement with Innovatus Life Sciences Lending Fund I, LP (Innovatus), which we subsequently amended in November 2019 and November 2021 (the Amended Loan Agreement).

In September 2017, we entered into the loan and security agreement (the 2017 Term Loan) with Innovatus Life Sciences Lending Fund I, LP (Innovatus), which we subsequently amended in November 2019, November 2021 and April 2023 (the Amended Loan Agreement).

The Amended Loan Agreement is collateralized by substantially all of our personal property, including our intellectual property.

2 unchanged sentences

As a result of these covenants, we have certain limitations on the manner in which we can conduct our business, and we may be restricted from engaging in favorable business activities or financing future operations or capital needs until our current debt obligations are paid in full or we obtain the consent of Innovatus, which we may not be able to obtain.

As of December 31, 2022, there was $25.0 million in principal outstanding under the term loan and an additional $2.8 million outstanding representing interest at 2.0% per annum payable in-kind by adding the amount to the outstanding principal balance of the term loans.

Under the Amended Loan Agreement, we are required to repay any outstanding principal and capitalized interest in monthly installments over a two-year period commencing on December 1, 2024.

As of December 31, 2023, there was $15.0 million in principal outstanding under the term loan and an additional $3.2 million outstanding representing interest payable in-kind by adding the paid in-kind interest amount to the outstanding principal balance of the term loans.

Under the Amended Loan Agreement, we are required to repay any outstanding principal and capitalized interest in monthly installments over a ten-month period commencing on April 1, 2026.

At December 31, 2023, we were in compliance with all covenants of the Amended Loan Agreement.

10 unchanged sentences

If our available cash balances and anticipated future revenue are insufficient to satisfy our liquidity requirements, including because of lower demand for our testing products or lower-than-expected rates of reimbursement from commercial payors and government payors, or other risks described in this “Risk Factors” section, we may seek to raise additional capital through equity offerings, debt financings, collaborations or licensing arrangements.

On November 10, 2020, we filed a shelf registration statement on Form S-3.

We filed a prospectus on September 15, 2022 pursuant to this registration statement, registering sales of our common stock in an amount not to exceed $50.0 million, pursuant to a Sales Agreement by and between us and Cowen and Company, LLC (the Sales Agreement).

On November 17, 2023, we filed a shelf registration statement on Form S-3, as amended by Amendment No.

1 to Form S-3 filed on November 27, 2023, that provides for aggregate offerings of up to $150.0 million of our securities subject to various limitations.

We filed a prospectus on November 29, 2023 pursuant to this registration statement, registering sales of our common stock in an amount not to exceed $50.0 million, pursuant to a sales agreement by

and between us and Cowen and Company, LLC (TD Cowen), as amended by Amendment No.

1 to Sales Agreement dated November 17, 2023 (the Amended Sales Agreement).

Using a shelf registration statement to raise capital generally takes less time and is less expensive than other means, such as conducting an offering under a registration statement on Form S-1 and companies may be able to receive more favorable terms by raising capital pursuant to a shelf registration statement on Form S-3.

1 unchanged sentence

As of the date of this Annual Report, we are subject to the "baby shelf rule" because the market value of our outstanding shares of common stock held by non-affiliates, or public float, was less than $75.0 million as of the date of this Annual Report.

As a result, for sales following the date of this Annual Report and until we again have a public float with a value in excess of $75.0 million, if ever, we will be unable to use our shelf registration statement on Form S-3 or the Sales Agreement to raise additional funds to the extent the aggregate market value of securities sold by us or on our behalf pursuant to Instruction I.B.6.

As a result, for sales following the date of this Annual Report and until we again have a public float with a value in excess of $75.0 million, if ever, we will be unable to use our shelf registration statement on Form S-3 or the Amended Sales Agreement to raise additional funds to the extent the aggregate market value of securities sold by us or on our behalf pursuant to Instruction I.B.6.

of Form S-3 during the 12 calendar months immediately prior to, and including, any intended sale does not exceed one-third of the aggregate market value of our public float, calculated in accordance with the instructions to Form S-3.

In the case of the incurrence of further indebtedness, the Amended Loan Agreement, subject to certain customary exceptions, restricts our ability to incur additional indebtedness or encumber any of our property without the prior consent of Innovatus.

Under the Amended Loan Agreement, we are required to make monthly interest payments at a rate equal to 8.0% (provided that 2.0% of the 8.0% is payable in-kind by adding the amount to the outstanding principal balance of the term loans).

Under the Amended Loan Agreement, we are required to make monthly interest payments at a rate equal to the sum (the Basic Rate) of (a) the greater of 8.0% or The Wall Street Journal prime rate (the Prime Rate), plus (b) 2.0% (provided that 1.5% of the Basic Rate is payable in-kind by adding the amount to the outstanding principal balance of the term loans).

We may also consider raising additional capital in the future to expand our business, pursue strategic investments, take advantage of financing opportunities, or for other reasons.

9 unchanged sentences

Any equity securities issued also may provide for rights, preferences or privileges senior to those of holders of our common stock.

The incurrence of additional indebtedness or the issuance of certain equity securities could result in increased fixed payment obligations and could also result in restrictive covenants, such as limitations on our ability to incur additional debt or issue additional equity, limitations on our ability to acquire or license intellectual property rights, and other operating restrictions that could adversely affect our ability to conduct our business.

The incurrence of additional indebtedness or the issuance of certain equity securities could result in increased fixed payment obligations and could also result in restrictive covenants (similar to our current obligations pursuant to the Amended Loan Agreement), such as limitations on our ability to incur additional debt or issue additional equity, limitations on our ability to acquire or license intellectual property rights, and other operating restrictions that could adversely affect our ability to conduct our business.

In addition, our Amended Loan Agreement restricts our ability to incur additional indebtedness or encumber any of our property without the prior consent of Innovatus, subject to certain exceptions.

3 unchanged sentences

In addition, we may have to work with a partner on one or more of our testing products or market development programs, which could lower the economic value of those products or programs to our company.

We have identified a material weakness in our internal control over financial reporting and determined that our disclosure controls and procedures were ineffective as of December 31, 2022, in connection with the restatement of our financial statements as of and for the three and six months ended June 30, 2022.

Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures.

Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time period specified in the SEC’s rules and forms, and that the information required to be disclosed by us in such reports is accumulated and communicated to our management, including our principal executive officer and principal financial officer or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable and not absolute assurance of achieving the desired control objectives.

In reaching a reasonable level of assurance, management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

In addition, the design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions;

over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate.

On November 13, 2022, management and the audit committee of our board of directors determined that we made certain errors in revenue resulting from erroneous and duplicate billings related to changes in billing practices.

The errors were due to the inadequate design and implementation and precision of internal controls and procedures to evaluate and monitor the accounting for revenue recognition.

As a result, revenue and accounts receivable were overstated and other liabilities was understated for the quarter and year to date periods ended June 30, 2022.

We then determined that there were material errors in the financial statements requiring a restatement of the Form 10-Q for the three and six months ended June 30, 2022.

Accordingly, management has determined that this control deficiency constituted a material weakness and, as a result, management has concluded that, as of December 31, 2022, our internal control over financial reporting was not effective based on the criteria in Internal Control Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Management is actively engaged in the implementation of remediation efforts to address the material weakness.

The remediation plan includes:

(i) evaluating the staffing level, skills and qualification of accounting department personnel, (ii) enhancement of our existing control structure and processes for revenue recognition and (iii) improving the detailed review process of our revenue recognition models.

The elements of our remediation plan can only be accomplished over time, and we can offer no assurance that these initiatives will ultimately have the intended effects.

If we are not able to comply with the applicable requirements of the Sarbanes-Oxley Act of 2002 or if we are unable to maintain effective internal control over financial reporting, we may not be able to produce timely and accurate financial statements or guarantee that information required to be disclosed by us in the reports that we file with the SEC, is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.

Any failure of our internal control over financial reporting or disclosure controls and procedures could cause our investors to lose confidence in our publicly reported information, cause the market price of our stock to decline, expose us to sanctions or investigations by the SEC or other regulatory authorities, or impact our results of operations.

We are an emerging growth company and a smaller reporting company, and the reduced disclosure requirements applicable to emerging growth companies and smaller reporting companies may make our common stock less attractive to investors.

We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the JOBS Act) and may remain an emerging growth company until the last day of the fiscal year following the fifth anniversary of the completion of our IPO, or December 31, 2024.

However, if certain events occur prior to the end of such five-year period, including if we become a “large accelerated filer,” our annual gross revenue exceeds $1.235 billion or we issue more than $1.0 billion of non-convertible debt in any three-year period, we will cease to be an emerging growth company prior to the end of such five-year period.

For so long as we remain an emerging growth company,

we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies.

These exemptions include:

• being permitted to provide only two years of audited financial statements, in addition to any required unaudited interim condensed financial statements, with correspondingly reduced “Management’s discussion and analysis of financial condition and results of operations” disclosure;

• not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting;

• not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements;

• reduced disclosure obligations regarding executive compensation;

• exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

We cannot predict whether investors will find our common stock less attractive if we rely on these exemptions.

If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be reduced or more volatile.

In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards.

This allows an emerging growth company to delay the adoption of these accounting standards until they would otherwise apply to private companies.

We have elected to avail ourselves of this exemption and, therefore, we may not be subject to the same implementation timing for new or revised accounting standards as other public companies that are not emerging growth companies, which may make comparison of our financials to those of other public companies more difficult.

We are also a “smaller reporting company” as defined in the Exchange Act.

We may continue to be a smaller reporting company even after we are no longer an emerging growth company.

We may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as our voting and non-voting common stock held by non-affiliates is less than $250.0 million measured on the last business day of our second fiscal quarter, or our annual revenue is less than $100.0 million during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is less than $700.0 million measured on the last business day of our second fiscal quarter.

Risks Related to Regulatory and Compliance Matters

11 unchanged sentences

For instance, the payment reductions imposed by the ACA and the changes to reimbursement amounts paid by Medicare for tests such as ours based on the procedure set forth in PAMA, could limit the prices we will be able to charge or the amount of available reimbursement for our tests, which would reduce our revenue.

Additionally, these healthcare policy changes could be amended or additional healthcare initiatives could be implemented in the future.

Additionally, these healthcare laws, regulations and policies could be amended or additional healthcare initiatives could be implemented in the future.

Further, the impact on our business of the expansion of the federal and state governments’ role in the U.S.

21 unchanged sentences

New York law also mandates proficiency testing for laboratories licensed under New York state law, regardless of whether or not such laboratories are located in New York.

Moreover, several other states require that we hold licenses to test specimens from

patients in those states.

Moreover, several other states require that we hold licenses to test specimens from patients in those states.

Other states may have similar requirements or may adopt similar requirements in the future.

17 unchanged sentences

• the ACA, which, among other things, establishes a requirement for providers and suppliers to report and return any overpayments received from the Medicare and Medicaid programs;

discounted cost to induce physician or patient adoption and false claims acts, some of which may extend to services reimbursable by any third-party payor, including private payors;

• other federal and state fraud and abuse laws, such as anti-kickback laws, prohibitions on self-referral, fee-splitting restrictions, insurance fraud laws, anti-markup laws, prohibitions on the provision of tests at no or discounted cost to induce physician or patient adoption and false claims acts, some of which may extend to services reimbursable by any third-party payor, including private payors;

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

13 unchanged sentences

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

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

For additional information see the risk factor below entitled “We have previously and may again in the future be required to modify our business practices, pay fines, incur significant expenses or experience losses due to litigation or governmental investigations.” Any action brought against us for violation of these or other laws or regulations, even if we successfully defend against it, could cause us to incur significant legal expenses, divert our management’s attention from the operation of our business and harm our reputation.

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

5 unchanged sentences

Moreover, achieving and sustaining compliance with these laws may prove costly.

If we or our operations, or any of the rheumatologists or entities with whom we do business are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may be subject to significant penalties, including administrative, civil and/or criminal penalties, damages, fines, disgorgement, individual imprisonment, exclusion

from participation in U.S.

federal or state healthcare programs, such as Medicare and Medicaid, and similar programs outside the United States, a corporate integrity agreement or other agreement to resolve allegations of non-compliance with these laws, and the curtailment or restructuring of our operations, any of which could materially adversely affect our ability to operate our business and our financial results.

To the extent that any of our testing products are sold in a foreign country, we may be subject to similar foreign laws and regulations, which may include, for instance, applicable post-marketing requirements, including safety surveillance, anti-fraud and abuse laws, and implementation of corporate compliance programs and reporting of payments or transfers of value to healthcare professionals.

We may be required to modify our business practices, pay fines, incur significant expenses or experience losses due to litigation or governmental investigations.

If we use hazardous materials in a manner that causes contamination or injury, we could be liable for resulting damages.

We are subject to federal, state and local laws, rules and regulations governing the use, discharge, storage, handling and disposal of biological material, chemicals and waste.

We cannot eliminate the risk of accidental contamination or injury to employees or third parties from the use, storage, handling or disposal of these materials.

In the event of contamination or injury, we could be held liable for any resulting damages, remediation costs and any related penalties or fines, and any liability could exceed our resources or any applicable insurance coverage we may have.

The cost of compliance with these laws and regulations may become significant, and our failure to comply may result in substantial fines or other consequences, either of which could negatively affect our operating results.

We have previously and may again in the future be required to modify our business practices, pay fines, incur significant expenses or experience losses due to litigation or governmental investigations.

From time to time and in the ordinary course of our business, we have been and may be subject to litigation or governmental investigation on a variety of matters in the United States or foreign jurisdictions, including, without limitation, regulatory, intellectual property, product liability, antitrust, consumer, false claims, whistleblower, qui tam , privacy, anti-kickback, anti-bribery, environmental, commercial, securities and employment litigation and claims and other legal proceedings that may arise from the conduct of our business.

1 unchanged sentence

Like many companies in our industry, we have in the ordinary course of business received inquiries, subpoenas, civil investigative demands, and other types of information requests from government authorities.

For example, in February 2022, we received a subpoena issued by the U.S.

Department of Justice requesting documents related to its investigation of potential federal regulatory healthcare offenses.

We are fully cooperating with the U.S.

Department of Justice to promptly respond to the requests for information in this subpoena, but we cannot predict when the investigation will be resolved, the outcome of the investigation or its potential impact on our business which may ultimately be greater than we expect.

In addition, responding to this subpoena, and any litigation or government investigation generally, diverts the attention of our management team and diverts resources from our core business.

As such, the time and attention of our management team in responding to these matters may limit their time available to devote to our business, and we may also incur significant expenses or experience losses in relation to these matters.

As a result of these matters, we may also be required to alter the conduct of our operations or pay penalties.

In addition, any litigation or government investigation generally, diverts the attention of our management team and resources from our core business and limits the time and attention of our management team otherwise available to devote to our business.

Government investigation and litigation in general may cause us to incur significant expenses, to experience significant losses, and, as a result of such matters, we may also be required to materially alter the conduct of our operations or pay significant penalties.

For example, pursuant to a settlement agreement, we made a single lump-sum remittance to the government in the amount of $0.7 million plus interest in October 2023, the U.S.

Attorney’s Office dismissed this “covered conduct” in the qui tam with prejudice, while non-covered conduct was dismissed without prejudice.

In November 2023, the complaint was unsealed and served on Exagen.

Exagen filed a motion to dismiss the complaint.

In February 2024, the relator filed a motion for leave to amend the complaint.

Exagen opposed this motion, and all motions are still pending.

The Company intends to vigorously defend against the claims being asserted in the complaint.

Any of these circumstances may adversely affect our business, prospects, reputation and results of operations.

We are subject to U.S.

and certain foreign export and import controls, sanctions, embargoes, anti-corruption laws and anti-money laundering laws and regulations.

Compliance with these legal standards could impair our ability to compete in domestic and international markets.

We can face criminal liability and other serious consequences for violations, which can harm our business.

We are subject to export control and import laws and regulations, including the U.S.

Export Administration Regulations, U.S.

Customs regulations, various economic and trade sanctions regulations administered by the U.S.

Treasury Department’s Office of Foreign Assets Controls, the FCPA, the U.S.

domestic bribery statute contained in 18 U.S.C.

§ 201, the U.S.

Travel Act, the USA PATRIOT Act, and other state and national anti-bribery and anti-money laundering laws in the countries in which we conduct activities.

Anti-corruption laws are interpreted broadly and prohibit companies and their employees, agents, contractors and other collaborators from authorizing, promising, offering, or providing, directly or indirectly, improper payments or anything else of value to recipients in the public or private sector.

We may engage third parties to sell our testing products outside the United States, to conduct clinical trials, and/or to obtain necessary permits, licenses, patent registrations and other regulatory approvals.

We have direct or indirect interactions with officials and employees of government agencies or government-affiliated hospitals, universities and other organizations.

We can be held liable for the corrupt or other illegal activities of our employees, agents, contractors, and other collaborators, even if we do not explicitly authorize or have actual knowledge of such activities.

Any violations of the laws and regulations described above may result in substantial civil and criminal fines and penalties, imprisonment, the loss of export or import privileges, debarment, tax reassessments, breach of contract and fraud litigation, reputational harm and other consequences.

The FDA may disagree with our assessment that our AVISE ® test products and any other tests we may develop are LDTs and determine that such test products are medical devices subject to the FDCA and FDA regulations.

1 unchanged sentence

The 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.

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 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 to be IVDs subject to the agency’s regulatory requirements for IVDs.

However, the FDA has generally exercised its enforcement discretion and not enforced applicable regulations with respect to LDTs, which are IVDs that are designed, manufactured, and used within a single high-complexity CLIA-certified laboratory for use only in that laboratory.

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

5 unchanged sentences

While we believe that we are currently in material compliance with applicable laws and regulations as historically enforced by the FDA with respect to LDTs, we cannot assure you that the FDA will agree with our determination.

Any finding by the FDA or another regulatory authority that we have violated these laws and regulations, or a public announcement that we are being investigated for possible violations, could adversely affect our business, prospects, results of operations and financial condition.

The FDA may undertake rulemaking to regulate LDTs or Congress may reform the current legal requirements applicable to LDTs, in which case we may become subject to extensive regulatory requirements and may be required to conduct additional clinical trials prior to continuing to sell our existing tests or launching any other tests we may develop, which may increase the cost of conducting, or otherwise harm, our business.

The FDA may finalize its rulemaking to regulate LDTs or Congress may take action to reform the current legal requirements applicable to LDTs, and in either case, we may become subject to extensive regulatory requirements and may be required to conduct additional clinical trials prior to continuing to sell our existing tests or launching any other tests we may develop, which may increase the cost of conducting, or otherwise harm, our business.

We currently market our AVISE ® tests as LDTs and may, in the future, market other tests as LDTs.

The FDA has adopted a policy of enforcement discretion with respect to LDTs whereby the FDA does not generally actively enforce its regulatory requirements for such tests.

However, in the past the FDA has stated its intention to modify its enforcement discretion policy with respect to LDTs.

If there are changes in FDA regulations and legislative authorities such that the agency begins to exercise oversight over LDTs, we may become subject to extensive regulatory requirements and may be required to stop selling our existing tests or launching any other tests we may develop and to conduct additional clinical trials or take other actions prior to continuing to market our tests.

Although historically the FDA has applied a policy of enforcement discretion with respect to LDTs whereby the FDA does not generally actively enforce its regulatory requirements for such tests, in October 2023, the FDA issued a proposed rule to regulate LDTs under the current medical device framework.

The agency’s proposal also includes a plan to phase out its current enforcement discretion policy over several years.

This FDA rulemaking was initiated after years of failed congressional attempts to harmonize the regulatory paradigms applicable to LDTs and other in vitro diagnostic tests, as discussed further below.

The likelihood of the FDA finalizing the proposed rule following a public comment period, as well as potential litigation challenging its authority to take such action, is uncertain at this time as stakeholders continue to press for a comprehensive legislative solution instead of administrative agency action.

If there are changes in FDA regulations or legislative authorities such that the agency begins to exercise oversight over LDTs, or if the FDA disagrees that our marketed tests are within the scope of its criteria used for defining LDTs, we may become subject to extensive regulatory requirements and may be required to stop selling our existing tests or launching any other tests we may develop and to conduct additional clinical trials or take other actions prior to continuing to market our tests.

If the FDA allows our tests to remain on the market but there is uncertainty about our tests, if they are labeled investigational by the FDA or if labeling claims the FDA allows us to make do not include the claims necessary or desirable for successful commercialization, orders from healthcare providers or reimbursement for our tests may decline.

Since 2017, Congress has been working on legislation to create an LDT and IVD, regulatory framework that would be separate and distinct from the existing medical device regulatory framework.

Most recently, the VALID Act has been garnering bipartisan and bicameral support.

The VALID Act would codify the term IVCT to create a new medical product category separate from medical devices that includes products currently regulated as IVDs as well as LDTs, among other provisions.

The VALID Act would also create a new system for laboratories to use to submit their tests electronically to the FDA for approval, which is aimed at reducing the amount of time it would take 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.

If Congress were to pass the VALID Act or any other legislation applicable to the FDA’s regulation of LDTs, we will likely be subject to increased regulatory burdens such as registration and listing requirements, adverse event reporting requirements and quality control requirements.

In addition, as noted above, Congress had been working on legislation to create an LDT and IVD, regulatory framework that would be separate and distinct from the existing medical device regulatory framework.

Reform legislation called the VALID Act garnered bipartisan and bicameral support in recent years but failed to move out of committee during the last congressional session.

As drafted and re-introduced for consideration by the current Congress, the VALID Act would codify the term IVCT to create a new medical product category separate from medical devices to include products currently regulated as IVDs as well as LDTs, among other provisions.

The VALID Act would also create a new system for laboratories to use to submit their tests electronically to the FDA for

approval, which is aimed at reducing the amount of time it would take 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.

The FDA’s October 2023 publication of an LDT proposed rule that would apply the existing medical device framework to laboratory-developed products has renewed stakeholder calls for a more targeted approach to modernizing the federal government’s oversight of clinical diagnostic tests.

It remains possible that congressional action in this area could displace the need for the FDA to complete its recently proposed rulemaking.

If Congress were to pass the VALID Act or any other legislation applicable to the FDA’s regulation of LDTs, or if the FDA were to successfully promulgate new regulations for such products through the recently initiated notice-and-comment rulemaking or a future rulemaking proceeding, we will likely be subject to increased regulatory burdens such as registration and listing requirements, adverse event reporting requirements and quality control requirements.

Any legislation or formal FDA regulatory framework affecting LDTs is also likely to have premarket application requirements prohibiting commercialization without FDA authorization and controls regarding modification to the tests that may require further FDA submissions.

7 unchanged sentences

Even if such tests are authorized for marketing by the FDA, the agency could limit the test’s indications for use, which may significantly limit the market for that product and may adversely affect our business and financial condition.

FDA regulation of our AVISE ® RADR test could be disruptive to our business.

As described further above, the FDA has long claimed authority to regulate LDTs but has exercised its enforcement discretion to limit enforcement of IVD regulatory requirements on this category of products.

However, the FDA has

from time to time appeared to increase its attention to the marketing of pharmacogenetic tests.

For example, in late 2018, the FDA issued a safety communication regarding “genetic tests that claim results can be used to help physicians identify which antidepressant medication would have increased effectiveness or side effects compared to other antidepressant medications.” This safety communication explained that the FDA had reached out to several firms marketing such pharmacogenetic tests where the FDA believed the relationship between genetic variations and a medication’s effects had not been established, including a warning letter to Inova Genomics Laboratory.

More recently, in April 2022, a safety communication from the FDA warned patients and providers about the risks of false results with genetic non-invasive prenatal screening tests, which it noted have not been authorized, cleared, or approved by the agency via one of the medical device premarket pathways.

Our AVISE ® RADR test, one of our pipeline programs we are currently developing in collaboration with QMUL, may be considered by FDA to be a pharmacogenetic test because it involves the analysis of total RNA expression data from an individual RA patient through an algorithm to predict the patient’s biological therapeutic response.

In response to various public letters from the national laboratory trade association and patient groups, on February 20, 2020, the FDA announced a new “collaboration between FDA’s Center for Devices and Radiological Health and Center for Drug Evaluation and Research intended to provide the agency’s view of the state of the current science in pharmacogenetics.” Although the announcement again asserted that some of pharmacogenetic test offerings may pose significant risks to patients, the agency also acknowledged that pharmacogenetic testing “offers promise for informing the selection or dosing of some medications for certain individuals.” In conjunction with the announcement, the FDA also released an updated “Table of Pharmacogenetic Associations,” which lists gene-drug interactions that the agency believes are supported by FDA-approved drug labeling and/or “sufficient scientific evidence based on published literature.” The table has been updated periodically since that time.

While these developments may signal a positive shift in the FDA’s approach to regulating pharmacogenetic tests, we cannot predict with certainty the outcome of this matter or its timing, or whether FDA may object to the ultimate form of our AVISE ® RADR product candidate.

The FTC and/or state enforcement or regulatory agencies may object to the methods and materials we use to promote our tests and initiate enforcement against us, which could adversely affect our business and financial condition.

6 unchanged sentences

HIPAA and the HITECH Act require us to comply with standards for the use and disclosure of PHI within our company and with third parties.

The privacy, security and breach notification rules promulgated under HIPAA, as amended by the HITECH Act, Standards for Privacy of Individually Identifiable Health Information (Privacy Standards) and the Security Standards for the Protection of Electronic Protected Health Information (Security Standards) under HIPAA establish a set of basic national privacy and security standards for the protection of individually identifiable health information by Covered Entities and the Business Associates.

The privacy, security and breach

notification rules promulgated under HIPAA, as amended by the HITECH Act, Standards for Privacy of Individually Identifiable Health Information (Privacy Standards) and the Security Standards for the Protection of Electronic Protected Health Information (Security Standards) under HIPAA establish a set of basic national privacy and security standards for the protection of individually identifiable health information by Covered Entities and their Business Associates.

HIPAA requires Covered Entities, such as us, to develop and maintain policies and procedures with respect to individually identifiable health information that is used or disclosed, including the adoption of administrative, physical and technical safeguards to protect the privacy and security of such information.

HIPAA also requires us to provide individuals with certain rights with respect to their PHI.

If we engage a Business

Associate to help us carry out healthcare activities and functions, we must have a written Business Associate contract or other arrangement with the Business Associate that establishes specifically what the Business Associate has been engaged to do and requires the Business Associate to comply with the requirements of HIPAA.

If we engage a Business Associate to help us carry out healthcare activities and functions, we must have a written Business Associate contract or other arrangement with the Business Associate that establishes specifically what the Business Associate has been engaged to do and requires the Business Associate to comply with the requirements of HIPAA.

Further, in the event of a breach of unsecured PHI we must notify each individual whose PHI is breached as well as federal regulators and in some cases, must publicize the breach in local or national media.

13 unchanged sentences

Further, the CPRA went into effect in California amending the CCPA and may increase our compliance costs and potential liability, 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 adds opt outs for certain uses of sensitive data.

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

In the event that we are subject to or affected by HIPAA, the CCPA, the CPRA or other domestic privacy and data protection laws (for example Virginia's Consumer Data Protection Act and other similar laws that recently went into effect in Utah, Colorado and Connecticut), any liability from failure to comply with the requirements of these laws could adversely affect our financial condition.

It also created a new regulatory authority, the California Privacy Protection Agency (CPPA), which is authorized to issue substantive regulations and could result in increased privacy and information security enforcement.

In the event that we are subject to or affected by HIPAA, the CCPA, the CPRA or other domestic privacy and data protection laws (for example Virginia's Consumer Data Protection Act and other similar laws that recently went into effect in in other states, such as Utah, Colorado, Connecticut, Delaware, Florida, Indiana, Iowa, Montana, Oregon, Tennessee, and Texas), any liability from failure to comply with the requirements of these laws could adversely affect our financial condition.

In Europe, the GDPR went into effect in May 2018 and imposes strict requirements for processing the personal data of individuals within the EEA.

2 unchanged sentences

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 EU.

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

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

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

national law.

In July 2023, however, the European Commission adopted an adequacy decision for a new mechanism for transferring data from the EU to the United States – the EU-US Data Privacy Framework, which provides EU individuals with several new rights, including the right to obtain access to their data, or obtain correction or deletion of incorrect or unlawfully handled data.

The adequacy decision followed

the signing of an executive order introducing new binding safeguards addressing the reasons behind the Court of Justice of the EU’s invalidation of the original Privacy Shield.

The European Commission will continually review developments in the United States along with its adequacy decision.

However, future actions of EU data protection authorities are difficult to predict.

Relatedly, following the United Kingdom’s withdrawal from the EU, the GDPR was implemented in the United Kingdom as the U.K.

GDPR sits alongside the amended U.K.

Data Protection Act 2018, which implements certain derogations in the EU GDPR into U.K.

GDPR mirrors the fines under the GDPR, i.e., fines up to the greater of €20 million (£17.5 million) or 4% of global turnover.

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 issued a decision, which will sunset on June 27, 2025 without further action, that the United Kingdom ensures an adequate level of protection for personal data transferred under the EU GDPR from the EU to the United Kingdom.

The Parliament of the United Kingdom is currently considering the Data Protection and Digital Information Bill to harmonize the 2018 Data Protection Act, U.K.

GDPR, and the Privacy and Electronic Communications Regulations under one legislative framework.

The regulatory framework governing the collection, storage, use and sharing of certain information, particularly financial and other personal information, is rapidly evolving and is likely to continue to be subject to uncertainty and varying interpretations.

Additionally, increasing concerns about health information privacy have recently prompted the federal government to issue guidance taking a newly expansive view of the scope of the laws and regulations that they enforce.

It is possible that these laws may be interpreted and applied in a manner that is inconsistent with

our existing practices.

It is possible that these laws may be interpreted and applied in a manner that is inconsistent with our existing practices.

Any failure or perceived failure by us, or any third parties with which we do business, to comply with our privacy policies, changing expectations, evolving laws, rules and regulations, industry standards or contractual obligations to which we or such third parties are or may become subject, may result in actions or other claims against us by governmental entities or private actors, the expenditure of substantial costs, time and other resources or the incurrence of significant fines, penalties or other liabilities.

5 unchanged sentences

We are not permitted to market or promote any of our testing products before we receive regulatory approval from applicable regulatory authorities in foreign markets, and we may never receive such regulatory approvals for any of our testing products.

To obtain separate regulatory approval in many other countries, parties must comply with numerous and varying regulatory requirements regarding safety and efficacy and governing, among other things, clinical trials, commercial sales, pricing and distribution of our testing products.

If we obtain regulatory approval of our testing products and ultimately commercialize our testing products in foreign markets, we would be subject to additional risks and uncertainties, including:

To obtain separate regulatory approval in many other countries, we and our collaborators and service providers must comply with numerous and varying regulatory requirements regarding safety and efficacy and governing, among other things, clinical trials, commercial sales, pricing and distribution of our testing products.

If we obtain regulatory approval of our testing products and ultimately commercialize our testing products in foreign markets, we would be subject to additional risks and uncertainties, including any or all of the following:

• different regulatory requirements for approval of IVDs in foreign countries;

5 unchanged sentences

• foreign currency fluctuations, which could result in increased operating expenses and reduced revenue and other obligations incident to doing business in another country;

• inflationary pressures, such as those the global market is currently experiencing, which have and may increase costs for materials, supplies, and services;

• foreign reimbursement, pricing and insurance regimes;

1 unchanged sentence

• production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad;

• business interruptions resulting from geopolitical actions, including war and terrorism such as the current conflict in Ukraine, or natural disasters which may be exacerbated due to climate change, including earthquakes, typhoons, floods and fires.

• business interruptions resulting from geopolitical actions, including war and terrorism, such as current conflicts in Ukraine and the Middle East;

natural disasters which may be exacerbated due to climate change, including earthquakes, typhoons, floods and fires;

outbreak of disease;

or other business restrictions.

Risks Related to our Intellectual Property

If we are unable to maintain intellectual property protection, our competitive position could be harmed.

Our ability to protect our technologies, such as CB-CAPs and MTXPGs, affects our ability to compete and to achieve sustained profitability.

Our ability to protect our technologies, such as the AVISE ® Lupus test, affects our ability to compete and to achieve sustained profitability.

We rely on a combination of U.S.

1 unchanged sentence

We cannot be certain that the claims in our granted patents and pending patent applications covering our AVISE ® testing products will be considered patentable or enforceable by the United States Patent and Trademark Office (the USPTO) courts in the United States, or by patent offices and courts in foreign countries.

If we fail to

protect our intellectual property, third parties may be able to compete more effectively against us and we may incur substantial litigation costs in our attempts to recover or restrict use of our intellectual property.

If we fail to protect our intellectual property, third parties may be able to compete more effectively against us and we may incur substantial litigation costs in our attempts to recover or restrict use of our intellectual property.

We apply for patents covering our testing products and technologies and uses thereof, as we deem appropriate, however we may fail to apply for patents on important testing products and technologies in a timely fashion or at all, or we may fail to apply for patents in potentially relevant jurisdictions, or we may cease our prosecution and maintenance of patents in potentially relevant jurisdictions.

Currently, we own or have an exclusive license to 11 issued U.S.

patents and certain corresponding foreign counterpart patents, relevant to our AVISE ® testing products.

We own one issued U.S.

patent, three pending U.S.

patent applications, a pending Patent Cooperation Treaty patent application and certain corresponding foreign counterpart patents and patent applications relevant to our AVISE ® testing products.

Currently, we have an exclusive license to 12 issued U.S.

patents, one Patent Cooperation Treaty application, and certain corresponding foreign counterpart patents, relevant to our AVISE ® testing products.

We own five issued U.S.

patents, six pending U.S.

patent applications, one pending U.S.

provisional patent application and certain corresponding foreign counterpart patents relevant to our AVISE ® testing products.

While we intend to pursue additional patent applications, it is possible that our pending patent applications and any future applications may not result in issued patents.

7 unchanged sentences

Furthermore, if third parties bring these proceedings against our patents, we could experience significant costs and management distraction.

We previously held licenses to five patent families related to CB-CAPs technology from the University of Pittsburgh (UPitt).

We have terminated these license agreements (related to U.S.

7,361,517, 7,390,631, 7,585,640, 7,588,905, 8,080,382, 8,126,654, and foreign equivalents thereof), effective March 22, 2024, and as a result may face increased competition with respect to the portion of our testing products previously protected by these patents.

In addition to the protection afforded by patents, we rely on trade secret protection and confidentiality agreements to protect proprietary know-how that is not patentable, or that we elect not to patent, processes for which patents are difficult to enforce and any other elements of our AVISE ® testing products and development processes that involve proprietary know-how, information or technology that is not covered by patents.

However, trade secrets can be difficult to protect.

While we use commercially reasonable efforts to protect our trade secrets, our licensors, employees, consultants, contractors and other advisors may unintentionally or willfully disclose such trade secret information to third parties and competitors.

While we use commercially reasonable efforts to protect our trade secrets, our licensors,

employees, consultants, contractors and other advisors may unintentionally or willfully disclose such trade secret information to third parties and competitors.

We attempt to protect our proprietary technology in large part by entering into confidentiality and non-disclosure agreements with our employees, consultants and other contractors.

16 unchanged sentences

The United States has enacted and is currently implementing wide-ranging patent reform legislation.

Supreme Court rulings have narrowed the scope of patent protection available in certain circumstances and weakened the rights of patent owners in certain situations.

Recent Supreme Court rulings have narrowed the scope of patent protection available in certain circumstances and weakened the rights of patent owners in certain situations.

In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained.

17 unchanged sentences

or (iii) government action is necessary to meet requirements for public use under federal regulations (also referred to as “march-in rights”).

government also has the right to take title to these inventions if the grant recipient fails to disclose the invention to the government or fails to file an application to register the intellectual property within specified time limits.

government also has the right to take title to these inventions if the grant recipient fails to disclose the invention to the government or fails to file an

application to register the intellectual property within specified time limits.

Intellectual property generated under a government funded program is also subject to certain reporting requirements, compliance with which may require us to expend substantial resources.

34 unchanged sentences

We have not had and do not have primary control over these activities for certain of our patents or patent applications and other intellectual property rights.

We cannot be certain that such activities by third parties have been or will be conducted in compliance with applicable laws and regulations or will result in valid and enforceable patents or other intellectual property rights.

We cannot be certain that such activities by third parties have been or will be conducted

in compliance with applicable laws and regulations or will result in valid and enforceable patents or other intellectual property rights.

Pursuant to the terms of the license agreements with some of our licensors, the licensors may have the right to control enforcement of our licensed patents or defense of any claims asserting the invalidity of these patents and even if we are permitted to pursue such enforcement or defense, we will require the cooperation of our licensors.

11 unchanged sentences

We are a party to a number of license agreements under which we are granted intellectual property rights that are important to our business.

For example, certain patent rights related to AVISE ® Lupus are licensed from UPitt.

Our existing license agreements as related to our AVISE ® testing products impose various regulatory and/or commercial diligence obligations, payment of milestones and/or royalties and other obligations.

For example, we license certain patent rights from AHN, QMUL and JHU.

Our existing license agreements impose various regulatory and/or commercial diligence obligations, payment of milestones and/or royalties and other obligations.

If we fail to comply with our obligations under a license agreement, the license agreement may be terminated, in which event we would not be able to further develop or market certain AVISE ® testing products.

7 unchanged sentences

Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on any issued patents and/or applications are due to be paid to the USPTO and foreign patent agencies in several stages over the lifetime of the patents and/or applications.

Our outside counsel has systems in place to monitor deadlines to pay these fees and to remind us of these fees, and our outside counsel employs an outside firm to pay these fees due to the USPTO and to foreign patent agencies based on our instructions.

Our outside counsel has systems in place to monitor deadlines to pay these fees and to remind us of

these fees, and our outside counsel employs an outside firm to pay these fees due to the USPTO and to foreign patent agencies based on our instructions.

In the aggregate, these fees can be cost prohibitive for an early-stage company.

11 unchanged sentences

In that event, we may be required to expend significant time and resources to develop or license replacement technology.

The licensing and acquisition of third-party proprietary rights is a competitive area, and companies, which may be more established, or have greater resources than we do, may also be pursuing strategies to license or acquire third-party proprietary rights that we may consider necessary or attractive in order to further develop our AVISE ® testing

More established companies may have a competitive advantage over us due to their size, cash resources and greater clinical development and commercialization capabilities.

6 unchanged sentences

The Leahy-Smith America Invents Act introduced new procedures including inter partes review and post grant review.

The implementation of these procedures bring the possibility of third-party challenges to our patents and the outcome of such challenges could result in a loss or narrowing of our patent rights.

The implementation of these procedures brings the possibility of third-party challenges to our patents and the outcome of such challenges could result in a loss or narrowing of our patent rights.

In such an event, our competitors might be able to enter the market earlier than should otherwise have been the case, which would have a material adverse effect on our business.

4 unchanged sentences

Although we are not aware of any issued patents that will prevent us from marketing our AVISE ® testing products, there may be third-party patents of which we are currently unaware with claims to materials or methods of manufacture related to the use or manufacture of our AVISE ® testing products.

If a third party that owns such a patent asserts it successfully against one of our current or future AVISE ® testing products, we may be unable to market our product, which could materially harm our business and because patent applications can take many years to issue and may be confidential for 18 months or more after filing, there may be currently pending third-party patent applications which may later result in issued patents that our AVISE ® testing products or our technologies may infringe, or which such third parties claim are infringed by the use of our technologies.

patent applications which may later result in issued patents that our AVISE ® testing products or our technologies may infringe, or which such third parties claim are infringed by the use of our technologies.

Parties making claims against us for infringement or misappropriation of their intellectual property rights may seek and obtain injunctive or other equitable relief, which could effectively block our ability to further develop one or more of our AVISE ® testing products.

10 unchanged sentences

We may be involved in proceedings to protect or enforce our patents or the patents of our licensors, which could be expensive, time-consuming and unsuccessful.

Third parties may infringe, misappropriate or otherwise violate our existing patents, patents that may issue to us in the future, or the patents of our licensors that are licensed to us.

To counter infringement or unauthorized use, we

may be required to file infringement claims, which can be expensive and time-consuming.

Third parties may infringe, misappropriate or otherwise violate our existing patents, patents that may be issued to us in the future, or the patents of our licensors that are licensed to us.

To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time-consuming.

We may not be able to prevent, alone or with our licensors, misappropriation of our intellectual property rights, particularly in countries where the laws may not protect those rights as fully as in the United States.

40 unchanged sentences

• future sales of our common stock by our executive officers, directors and other stockholders;

• general economic conditions and slow or negative growth of our markets, including as a result of the current conflict in Ukraine.

• general economic conditions and slow or negative growth of our markets, including as a result of the current conflict in the Ukraine and the Middle East.

In addition, the stock market in general, and the market for stock of life sciences companies in particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies.

8 unchanged sentences

Any sales of securities by directors and executive officers, or the perception that those sales may occur, including the entry into such programmed selling plans, could have a material adverse effect on the trading price of our common stock, particularly if the trading volume of our common stock is relatively low at the time of these sales.

In addition, as of February 15, 2023, the holders of 1,277,220 shares of common stock and holders of warrants to purchase 409,108 shares of common stock are entitled to rights with respect to registration of such shares under the Securities Act pursuant to an investors’ rights agreement between such holders and us.

If such holders, by exercising their registration rights, sell a large number of shares, they could adversely affect the market price for our common stock.

If we file a registration statement for the purpose of selling additional shares to raise capital and are required to include shares held by these holders pursuant to the exercise of their registration rights, our ability to raise capital may be impaired.

Provisions in our charter documents and under Delaware law could discourage a takeover that stockholders may consider favorable and may lead to entrenchment of management.

14 unchanged sentences

Under Section 203, a corporation may not, in general, engage in a business combination with any holder of 15% or more of its capital stock unless the holder has held the stock for three years or, among other exceptions, the board of directors has approved the transaction.

Our amended and restated certificate of incorporation provide that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially all disputes between us and our stockholders, which

could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our amended and restated certificate of incorporation provide that the Court of Chancery of the State of Delaware is the exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a breach of fiduciary duty, any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our amended and restated certificate of incorporation, or any action asserting a claim against us that is governed by the internal affairs doctrine;

18 unchanged sentences

An active, liquid trading market for our common stock may not be maintained.

Prior to our IPO, there had been no public market for our common stock.

Prior to our initial public offering (IPO), there had been no public market for our common stock.

Our common stock began trading on The Nasdaq Global Market (Nasdaq) relatively recently, but we can provide no assurance that we will be able to develop and sustain an active trading market for our common stock.

3 unchanged sentences

During 2023, our average daily trading volume has been approximately 25,040 shares.

General Risk Factors

Our failure to meet the continued listing requirements of the Nasdaq Global Market or The Nasdaq Stock Market LLC could result in a delisting of our common stock.

Our failure to meet the continued listing requirements of Nasdaq or The Nasdaq Stock Market LLC could result in a delisting of our common stock.

If we fail to satisfy the continued listing requirements of Nasdaq, such as the corporate governance requirements or the minimum closing bid price requirement, Nasdaq may take steps to delist our common stock.

1 unchanged sentence

In the event of a delisting, we can provide no assurance that any action taken by us to restore compliance with listing requirements would allow our common stock to become listed again, stabilize the market price or improve the liquidity of our common stock, prevent our common stock from dropping below the Nasdaq minimum bid price requirement or prevent future non-compliance with Nasdaq’s listing requirements.

If securities or industry analysts issue an adverse opinion regarding our stock or do not publish research or reports about our company, our stock price and trading volume could decline.

If securities or industry analysts downgrade our common stock or otherwise issue adverse opinions or commentary regarding our stock or do not publish research or reports about our company, our stock price and trading volume could decline.

The trading market for our common stock depends in part on the research and reports that equity research analysts publish about us and our business.

3 unchanged sentences

If one or more equity research analysts cease coverage of our company, we could lose visibility in the market, which in turn could cause our stock price to decline.

For so long as we remain an emerging growth company, we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies.