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What changed in CASTLE BIOSCIENCES INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of CASTLE BIOSCIENCES INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+590 added−808 removedSource: 10-K (2024-02-28) vs 10-K (2023-02-28)

Top changes in CASTLE BIOSCIENCES INC's 2023 10-K

590 paragraphs added · 808 removed · 430 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

123 edited+32 added−265 removed152 unchanged
Biggest changePMA supplements often require submission of the same type of information as an initial PMA application, except that the supplement is limited to information needed to support any changes from the device covered by the approved PMA application and may or may not require as extensive technical or clinical data or the convening of an advisory panel, depending on the nature of the proposed change. 36 Table of Contents In approving a PMA application, as a condition of approval, the FDA may also require some form of post-approval study or post-market surveillance, whereby the applicant conducts a follow-up study or follows certain patient groups for a number of years and makes periodic reports to the FDA on the clinical status of those patients when necessary to protect the public health or to provide additional or longer-term safety and effectiveness data for the device.
Biggest changeIn approving a PMA application, as a condition of approval, the FDA may also require some form of post-approval study or post-market surveillance, whereby the applicant conducts a follow-up study or follows certain patient groups for a number of years and makes periodic reports to the FDA on the clinical status of those patients when necessary to protect the public health or to provide additional or longer-term safety and effectiveness data for the 19 Table of Contents device.
We will also be required to maintain accurate information and control over sales and distributors’ activities that may fall within the purview of the FCPA, its books and records provisions and its anti-bribery provisions. The standard of intent and knowledge in the Anti-Bribery cases is minimal-intent and knowledge are usually inferred from that fact that bribery took place.
We will also be required to maintain accurate information and control over sales and distributors’ activities that may fall within the purview of the FCPA, its books and records provisions and its anti-bribery provisions. The standard of intent and knowledge in the Anti-Bribery cases is minimal-intent and knowledge are usually inferred from the fact that bribery took place.
We will strive to ensure all aspects of employment, including recruitment, selection, job assignment, training, compensation, benefits, discipline, promotion, transfer, layoff and termination processes remain free of illegal or unethical discrimination based upon race, color, religion, sex (including pregnancy, sexual orientation, gender identity or transgender status), age, national origin, genetic information, marital status, political affiliation, disability, status as a parent, protected veteran status, or a person’s relationship or association with a protected veteran.
We strive to ensure all aspects of employment, including recruitment, selection, job assignment, training, compensation, benefits, discipline, promotion, transfer, layoff and termination processes remain free of illegal or unethical discrimination based upon race, color, religion, sex (including pregnancy, sexual orientation, gender identity or transgender status), age, national origin, genetic information, marital status, political affiliation, disability, status as a parent, protected veteran status, or a person’s relationship or association with a protected veteran.
Individuals (or their personal representatives, as applicable) have the right to access test reports directly from laboratories and to direct that copies of those reports be transmitted to persons or entities designated by the individual. HIPAA authorizes state attorneys general to file suit on behalf of their residents for violations.
Individuals (or their personal representatives, as applicable) have the right to access test reports directly from laboratories and to direct the copies of those reports to be transmitted to persons or entities designated by the individual. HIPAA authorizes state attorneys general to file suit on behalf of their residents for violations.
With the evolution of genetic testing, we have seen individual third-party payors’ medical coverage policies around the CPT codes we bill and their associated payment rates change over time, resulting in changes to our reimbursement revenues.
With the evolution of genetic testing, we have seen individual third-party payors’ medical coverage policies around the CPT codes we bill and their associated payment rates change over time, resulting in changes to our reimbursement.
In addition to competitive base pay, we offer the following benefits, among others, to our full-time employees: • a defined contribution 401(k) plan with employer matching contributions; 43 Table of Contents • an annual bonus opportunity; • equity compensation, including stock options and/or restricted stock units (“RSUs”) and an employee stock purchase plan; • medical, dental and vision plans; • paid maternity, paternity and adoption leave policies; • paid holidays and paid time off; and • an employee assistance program.
In addition to competitive base pay, we offer the following benefits, among others, to our full-time employees: • a defined contribution 401(k) plan with employer matching contributions; • an annual bonus opportunity; • equity compensation, including stock options and/or restricted stock units (“RSUs”) and an employee stock purchase plan; • medical, dental and vision plans; 26 Table of Contents • paid maternity, paternity and adoption leave policies; • paid holidays and paid time off; and • an employee assistance program.
We survey all new hires 90 days after the start of their employment to solicit feedback on employee engagement. We provide performance reviews at least once per year, with pay raises commensurate with market and performance indicators. Our turnover remains low for the year ended December 31, 2022. We prioritize and encourage internal growth and professional development of our employees.
We survey all new hires 90 days after the start of their employment to solicit feedback on employee engagement. We provide performance reviews at least once per year, with pay raises commensurate with market and performance indicators. Our turnover remains low for the year ended December 31, 2023. We prioritize and encourage internal growth and professional development of our employees.
We are committed to maintaining: • Respectful communication and cooperation between all employees 42 Table of Contents • Teamwork and employee participation that enables the representation of all groups and employee perspectives • Employer and employee contributions to the communities we serve to promote a greater understanding and respect for diversity • Equitable policies, processes and practices All of our employees have a responsibility to treat others with dignity and respect at all times.
We are committed to maintaining: • Respectful communication and cooperation between all employees • Teamwork and employee participation that enables the representation of all groups and employee perspectives • Employer and employee contributions to the communities we serve to promote a greater understanding and respect for diversity 25 Table of Contents • Equitable policies, processes and practices All of our employees have a responsibility to treat others with dignity and respect at all times.
The federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) created additional federal criminal statutes that prohibit, among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payors, and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in 38 Table of Contents connection with the delivery of, or payment for, healthcare benefits, items or services.
The federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) created additional federal criminal statutes that prohibit, among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payors, and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of, or payment for, healthcare benefits, items or services.
We are required to make milestone payments to WUSTL upon successful completion of development and commercialization milestones as set forth in the Development Plan. For each Product or Service that receives FDA approval, premarket approval (“PMA”) or premarket notification, we are obligated to make a milestone payment to WUSTL in the mid-four digits.
We are required to make milestone payments to WUSTL upon successful completion of development and commercialization milestones as set forth in the Development Plan. For each Product or Service that receives FDA approval, PMA or premarket notification, we are obligated to make a milestone payment to WUSTL in the mid-four digits.
See “Risk Factors—Risks Related to Intellectual Property—Our in-licensed intellectual property has been discovered through government funded programs and thus may be subject to federal regulations such as “march-in” rights, certain reporting requirements and a preference for U.S.-based companies, and compliance with such regulations may limit our exclusive rights, and limit our ability to contract with non-U.S. manufacturers.” Under the License Agreement, we are required to use best efforts to carry out the activities under an agreed-upon development plan (the “Development Plan”) and meet any and all milestones set forth in the Development Plan.
See “Risk Factors—Risks Related to Intellectual Property—Our in-licensed intellectual property has been discovered through government funded programs and thus may be subject to federal regulations such as “march-in” rights, certain reporting requirements 13 Table of Contents and a preference for U.S.-based companies, and compliance with such regulations may limit our exclusive rights, and limit our ability to contract with non-U.S. manufacturers.” Under the License Agreement, we are required to use best efforts to carry out the activities under an agreed-upon development plan (the “Development Plan”) and meet any and all milestones set forth in the Development Plan.
In addition, the Federal Food, Drug and Cosmetic Act (the “FDCA”) defines a medical device to include any instrument, apparatus, implement, machine, contrivance, implant, in vitro reagent, or other similar or related article, including a component part, or accessory, 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.
In addition, the Federal Food, Drug and Cosmetic Act (the “FDCA”) defines a medical device to include any instrument, apparatus, implement, machine, contrivance, implant, in vitro reagent, or other similar or related article, including a 16 Table of Contents component part, or accessory, 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.
Among other things, pursuant to the FDCA and its 33 Table of Contents implementing regulations, the FDA regulates the research, testing, manufacturing, safety, labeling, storage, recordkeeping, pre-market clearance or approval, marketing and promotion, and sales and distribution of medical devices in the United States to ensure that medical products distributed domestically are safe and effective for their intended uses.
Among other things, pursuant to the FDCA and its implementing regulations, the FDA regulates the research, testing, manufacturing, safety, labeling, storage, recordkeeping, pre-market clearance or approval, marketing and promotion, and sales and distribution of medical devices in the United States to ensure that medical products distributed domestically are safe and effective for their intended uses.
Two of the databases do not review GEP tests and NCCN has not yet, to our knowledge, reviewed DecisionDx-SCC. If finalized as proposed, then DecisionDx-SCC would not be included as a covered test in the associated billing and coding article. The comment period for the draft LCD ended on September 6, 2022.
Two of the databases do not review GEP tests and NCCN has not yet, to our knowledge, reviewed DecisionDx-SCC. If finalized as proposed, then DecisionDx-SCC would not have been included as a covered test in the associated billing and coding article. The comment period for the draft LCD ended on September 6, 2022.
We additionally seek to preserve the integrity and confidentiality of our data and trade secrets, such as our proprietary algorithms, by maintaining the 32 Table of Contents physical security of our premises and physical and electronic security of our information technology systems.
We additionally seek to preserve the 15 Table of Contents integrity and confidentiality of our data and trade secrets, such as our proprietary algorithms, by maintaining the physical security of our premises and physical and electronic security of our information technology systems.
With this expanded LCD and the accompanying billing and coding articles, we estimate that a significant majority of the DecisionDx- 26 Table of Contents Melanoma tests performed for Medicare patients will meet the coverage criteria. Noridian adopted the same coverage policy as Palmetto and also issued an expanded final LCD for DecisionDx-Melanoma, effective December 6, 2020.
With this expanded LCD and the accompanying billing and coding articles, we estimate that a significant majority of the DecisionDx-Melanoma tests performed for Medicare patients will meet the coverage criteria. Noridian adopted the same coverage policy as Palmetto and also issued an expanded final LCD for DecisionDx-Melanoma, effective December 6, 2020.
Our facilities are positioned to operate in all 50 states, including those requiring additional licenses or certifications such as California, Pennsylvania, Rhode Island, Maryland and New York. As of December 2022, we have folded operations from our San Diego lab into the Phoenix facility and permanently closed our California location.
Our facilities are positioned to operate in all 50 states, including those requiring additional licenses or certifications such as California, Pennsylvania, Rhode Island, Maryland and New York. In 2022, we folded operations from our San Diego lab into the Phoenix facility and permanently closed our California location.
We do not intend our use or display of other companies’ trade names or trademarks to imply a relationship with, endorsement of or sponsorship of us by, any other companies. 44 Table of Contents
We do not intend our use or display of other companies’ trade names or trademarks to imply a relationship with, endorsement of or sponsorship of us by, any other companies. 27 Table of Contents
Therefore, these devices are subject to the PMA 34 Table of Contents application process, which is generally more costly and time-consuming than the 510(k) process. Through the PMA application process, the applicant must submit data and information demonstrating reasonable assurance of the safety and effectiveness of the device for its intended use to the FDA’s satisfaction.
Therefore, these devices are subject to the PMA application process, which is generally more costly and time-consuming than the 510(k) process. Through the PMA application process, the applicant must submit data and information demonstrating reasonable assurance of the safety and effectiveness of the device for its intended use to the FDA’s satisfaction.
Generally, courts have taken a broad interpretation of the scope of the AKS, holding that the statute may be violated if merely one purpose of a payment arrangement is to induce referrals or purchases. 37 Table of Contents In addition to statutory exceptions to the AKS, regulations provide for a number of safe harbors.
Generally, courts have taken a broad interpretation of the scope of the AKS, holding that the statute may be violated if merely one purpose of a payment arrangement is to induce referrals or purchases. In addition to statutory exceptions to the AKS, regulations provide for a number of safe harbors.
CMS establishes new procedures and continuously evaluates and implements changes to the reimbursement process for billing the Medicare program. To receive reimbursement from third-party payors, we bill our tests using a variety of CPT codes, as defined by the AMA CPT Editorial Panel.
CMS establishes new procedures and continuously evaluates and implements changes to the reimbursement process for billing the Medicare program. 23 Table of Contents To receive reimbursement from third-party payors, we bill our tests using a variety of CPT codes, as defined by the AMA CPT Editorial Panel.
(2) Includes MyPath Melanoma and DiffDx-Melanoma. On November 2, 2020, we commercially launched our DiffDx-Melanoma test. We began offering MyPath Melanoma following our acquisition of the Myriad MyPath Laboratory on May 28, 2021. We offered both MyPath Melanoma and DiffDx-Melanoma under our Diagnostic GEP offering until February 2023 when we suspended the clinical offering of DiffDx-Melanoma, as discussed above.
(2) Includes MyPath Melanoma and DiffDx®-Melanoma. On November 2, 2020, we commercially launched our DiffDx-Melanoma test. We began offering MyPath Melanoma following our acquisition of the Myriad MyPath Laboratory on May 28, 2021. We offered both MyPath Melanoma and DiffDx-Melanoma under our Diagnostic GEP offering until February 2023 when we suspended the clinical offering of DiffDx-Melanoma.
If an arrangement meets the provisions of a safe harbor, it is deemed not to violate the AKS. An arrangement must fully comply with each element of an applicable safe harbor in order to qualify for protection. Failure to meet the requirements of the safe harbor, however, does not render an arrangement illegal.
If an arrangement meets the provisions of a safe harbor, it is deemed not to violate the AKS. An arrangement must fully comply with each element of an applicable safe harbor in order to qualify for protection. 20 Table of Contents Failure to meet the requirements of the safe harbor, however, does not render an arrangement illegal.
IDgenetix is designed to provide important genetic information to clinicians to help guide personalized treatment plans for their patients, with the potential to help patients achieve a faster therapeutic response and improve their chances of remission by identifying appropriate medications more efficiently than the standard of care trial-and-error approach.
IDgenetix is designed to provide important genetic information to clinicians to help guide personalized treatment plans for their patients, with the potential to help patients achieve a faster therapeutic response and improve their chances of remission by identifying appropriate medications more efficiently than the standard of care trial-and-error approach. We estimate a U.S.
Regular review helps ensure compliance with this policy. Employee Engagement We value the unique perspective our employees bring to the organization and encourage open channels of communication. In June 2022, we conducted our second annual employee engagement survey to understand what was working well at Castle and what opportunities we had for improvement.
Regular review helps ensure compliance with this policy. Employee Engagement We value the unique perspective our employees bring to the organization and encourage open channels of communication. In June 2023, we conducted our third annual employee engagement survey to understand what was working well at Castle and what opportunities we had for improvement.
All of our facilities are Clinical Laboratory Improvement Amendments of 1988 (“CLIA”) certified, College of American Pathologists (“CAP”) accredited labs, most recently the Pittsburgh facility. We manage these laboratories to produce the volume of testing required to cover our portfolio of products while maintaining efficiencies, redundant capabilities, and business continuity.
All of our facilities are Clinical Laboratory Improvement Amendments of 1988 (“CLIA”) certified, College of American Pathologists (“CAP”) accredited labs. We manage these laboratories to produce the volume of testing required to cover our portfolio of products while maintaining efficiencies, redundant capabilities, and business continuity.
The FDA requires each manufacturer to determine whether the proposed change requires a new submission in the first instance, but the FDA can review any such decision and disagree with a manufacturer’s determination. Many minor modifications are accomplished by a letter-to-file in which the manufacturer documents the change in an internal letter-to-file.
The FDA requires each manufacturer to determine whether 18 Table of Contents the proposed change requires a new submission in the first instance, but the FDA can review any such decision and disagree with a manufacturer’s determination. Many minor modifications are accomplished by a letter-to-file in which the manufacturer documents the change in an internal letter-to-file.
Moreover, in certain cases, providers who routinely waive copayments and deductibles for Medicare and Medicaid beneficiaries, for example, in connection with patient assistance programs, can also be held liable under the AKS and the FCA.
Moreover, in certain cases, providers who routinely waive co-payments and deductibles for Medicare and Medicaid beneficiaries, for example, in connection with patient assistance programs, can also be held liable under the AKS and the FCA.
HIPAA also regulates standardization of data content, codes and formats used in certain healthcare transactions and standardization of identifiers for health plans and providers. Penalties for violations of HIPAA and HITECH laws and regulations include significant civil and criminal penalties.
HIPAA also regulates 22 Table of Contents standardization of data content, codes and formats used in certain healthcare transactions and standardization of identifiers for health plans and providers. Penalties for violations of HIPAA and HITECH laws and regulations include significant civil and criminal penalties.
This process can require a letter of medical necessity from the ordering physician and it can result in a delay in processing the claim, a lower reimbursement amount, or denial of the claim.
This process can require a letter of medical necessity and other types of medical documentation from the ordering physician and it can result in a delay in processing the claim, a lower reimbursement amount, or denial of the claim.
Accordingly, a PMA typically includes, but is not limited to, extensive technical information regarding device design and development, pre-clinical and clinical trial data, manufacturing information, labeling and financial disclosure information for the clinical investigators in device studies.
Accordingly, a PMA typically includes, but is not limited to, extensive technical information regarding device design and development, pre-clinical 17 Table of Contents and clinical trial data, manufacturing information, labeling and financial disclosure information for the clinical investigators in device studies.
To date, our data has demonstrated that DecisionDx-UM is clinically and statistically superior to these products. Today, principal competition for the TissueCypher Barrett’s Esophagus Test is existing traditional clinical and pathology assessment. In the future this assessment may include the use of immunohistochemical evaluation of individual protein biomarkers as an aid to pathology.
To date, our data has demonstrated that DecisionDx-UM is clinically and statistically superior to these products. In the future, we may face additional competitors. Today, principal competition for the TissueCypher test is existing traditional clinical and pathology assessment. In the future this assessment may include the use of immunohistochemical evaluation of individual protein biomarkers as an aid to pathology.
From April 1, 2022 through December 31, 2022, CMS set the initial period rate equal to the original list price of $2,350. Effective January 1, 2023, the published CLFS rate for TissueCypher is $4,950, which will remain effective through December 31, 2024.
From April 1, 2022 through December 31, 2022, CMS set the initial period rate equal to the original list price of $2,350 per test. Effective January 1, 2023, the published CLFS rate for TissueCypher was set at $4,950 per test, which will remain effective through December 31, 2024.
Novitas On June 9, 2022, Novitas posted a draft oncology biomarker LCD that proposes to rely upon evidentiary reviews sourced from three databases for all oncology biomarker tests: ClinGen, OncoKB and NCCN. We believe the purpose of the proposals in this draft LCD are to streamline future reviews.
On June 9, 2022, Novitas posted a draft oncology biomarker LCD that proposes to rely upon evidentiary reviews sourced from three databases for all oncology biomarker tests: ClinGen, OncoKB and National Comprehensive Cancer Network (“NCCN”). We believe the purpose of the proposals in this draft LCD are to streamline future reviews.
With respect to IDgenetix, our competition arises from other parties using the same or similar methods as well as alternative methods of PGx testing. IDgenetix competes with Myriad Genetics’s GeneSight test, Genomind’s PGx test, and test from numerous small commercial and academic laboratories. Laboratory Operations In 2022, we operated laboratory facilities in Phoenix, Arizona; Pittsburgh, Pennsylvania; and San Diego, California.
With respect to IDgenetix, our competition arises from other parties using the same or similar methods as well as alternative methods of PGx testing. IDgenetix competes with Myriad Genetics’s GeneSight test, Genomind’s PGx test, and tests from numerous other commercial and academic laboratories. Laboratory Operations In 2023, we operated laboratory facilities in Phoenix, Arizona and Pittsburgh, Pennsylvania.
In 2021, we announced the launch of our innovative pipeline initiative to develop a genomic test aimed at predicting response to systemic therapy in patients with moderate to severe psoriasis, atopic dermatitis and related inflammatory skin conditions. In the U.S. alone, there are approximately 18 million patients diagnosed with psoriasis and atopic dermatitis.
In 2021, we announced the launch of our innovative pipeline initiative to develop a genomic test, or series of tests, aimed at predicting response to systemic therapy in patients with moderate to severe atopic dermatitis, psoriasis and related inflammatory skin conditions. In the United States alone, there are approximately 18 million patients diagnosed with psoriasis and atopic dermatitis.
Promoting transparency To ensure we are cultivating an authentic company culture, we will take the following actions: • Conduct annual diversity awareness/unconscious bias training • Monitor diversity data, including compensation data • Offer mentorship programs or networking groups • Support employee resource groups As of December 31, 2022, our employees were 65.7% female and 34.3% male.
Promoting transparency To ensure we are cultivating an authentic company culture, we will take the following actions: • Conduct annual diversity awareness/unconscious bias training • Monitor diversity data, including compensation data • Offer mentorship programs or networking groups • Support employee resource groups As of December 31, 2023, our employees were 64% female and 36% male.
This involves the ability to design and efficiently conduct the right clinical studies at the right time; • Research and development investments to document the quality, quantity, consistency and strength of the clinical validity data, the impact our products have on clinical use, and demonstration of net health outcome improvement that reduce health system costs; • Maintaining a strong reputation with the treating clinician by providing consistent, transparent, and clinically relevant information that will improve the appropriate management of their patients; • Ease of use in accessing our products, reimbursement support for our patients and laboratory reports that clearly communicate the clinically relevant data points; 29 Table of Contents • Demonstrated ability to work with, and secure coverage and reimbursement from, governmental and commercial payors; • Ability to efficiently commercialize pipeline products to the same customer base as our current products.
This involves the ability to design and efficiently conduct the right clinical studies at the right time; • Research and development investments to document the quality, quantity, consistency and strength of the clinical validity data, the impact our products have on clinical use, and demonstration of net health outcome improvement that reduce health system costs; • Maintaining a strong reputation with the treating clinician by providing consistent, transparent, and clinically relevant information that will improve the appropriate management of their patients; • Ease of use in accessing our products, reimbursement support for our patients and laboratory reports that clearly communicate the clinically relevant data points; • Demonstrated ability to work with, and secure coverage and reimbursement from, governmental and commercial payors; • Ability to efficiently commercialize both our current and our pipeline products We believe we compete favorably on the factors described above.
We understand the importance of maintaining a strong corporate culture with our employees at the center, based on the cornerstones we laid in 2008 at our inception: trust, excellence, collaboration, integrity, innovation and excitement. We strive to find members of our team who embody the values of our company.
We understand the importance of maintaining a strong corporate culture with our employees at the center, based on the cornerstones we laid in 2008 at our inception: trust, excellence, collaboration, integrity, innovation and excitement. We strive to find members of our team who embody the values of our company. As of December 31, 2023, we had 610 full-time employees.
We received feedback from over 89% of our employees and achieved an engagement score of 81%, meaning that 81% of our employees are engaged or enthusiastically engaged in the culture at Castle. Our engagement score was considerably higher than the healthcare benchmark average of 53% for other healthcare companies who conducted the same employee engagement survey in 2022.
We received feedback from over 95% of our employees and achieved an engagement score of 86%, meaning that 86% of our employees are engaged or enthusiastically engaged in the culture at Castle. Our engagement score was higher than the healthcare benchmark average of 75% for other healthcare companies who conducted the same employee engagement survey in 2023.
Acquisitions From time to time, we may consider strategic opportunities and engage in transactions such as acquisitions of businesses, assets, products or technologies, as well as technology licenses or investments in complementary businesses.
Acquisitions From time to time, we may consider engaging in transactions such as acquisitions of businesses, assets, products or technologies, as well as technology licenses or investments in complementary businesses where we believe strategic opportunities exist.
For more information, please see “Risk Factors—Risks Related to Intellectual Property.” 31 Table of Contents Patents and Patent Applications We have developed a global patent portfolio that as of December 31, 2022, is comprised as follows: Number of Applications and Patents Commercial Focus United States International Total Owned Patent Families Methods for predicting risk of metastasis in cutaneous melanoma 3 16 19 Methods of diagnosing and treating patients with pigmented skin lesions 1 1 2 Methods of diagnosing and treating patients with cutaneous squamous cell carcinoma 2 13 15 Determining Prognosis and Treatment based on Clinical-Pathologic Factors and Continuous Multigene-Expression Profile Scores 1 1 2 Genes and gene signatures for diagnosis and treatment of melanoma 5 30 35 Method for automated tissue analysis 2 3 5 Systems and compositions for diagnosing BE and methods of using same 3 13 16 Methods of predicting progression of BE 2 23 25 Expression profiling using microarrays 1 — 1 Strategies for gene expression analysis 1 — 1 Licensed Portfolio from WUSTL Method for predicting risk of metastasis 2 — 2 Compositions and methods for detecting cancer metastasis 2 2 4 Total 25 102 127 Included in the table above are 15 issued U.S. patents and 69 issued international patents.
For more information, please see “Risk Factors—Risks Related to Intellectual Property.” 14 Table of Contents Patents and Patent Applications We have developed a global patent portfolio that as of December 31, 2023, is comprised as follows: Number of Applications and Patents Commercial Focus United States International Total Owned Patent Families Methods for predicting risk of metastasis in cutaneous melanoma 3 19 22 Methods of diagnosing and treating patients with pigmented skin lesions 1 — 1 Methods of diagnosing and treating patients with cutaneous squamous cell carcinoma 2 19 21 Determining Prognosis and Treatment based on Clinical-Pathologic Factors and Continuous Multigene-Expression Profile Scores 1 — 1 Diagnosing and Treating Atopic Dermatitis and/or Psoriasis 2 — 2 Diagnosing and Treating Uveal Melanoma 1 — 1 Genes and gene signatures for diagnosis and treatment of melanoma 7 33 40 Method for automated tissue analysis 2 3 5 Systems and compositions for diagnosing BE and methods of using same 3 13 16 Methods of predicting progression of BE 2 22 24 Expression profiling using microarrays 1 — 1 Licensed Portfolio from WUSTL Method for predicting risk of metastasis 2 — 2 Compositions and methods for detecting cancer metastasis 2 2 4 Total 29 111 140 Included in the table above are 16 issued U.S. patents and 77 issued international patents.
The numbers of test reports delivered by us and our net revenues during the past five years are presented in the table below: Years Ended December 31, 2022 2021 2020 2019 2018 DecisionDx-Melanoma 27,803 20,328 16,232 15,529 12,032 DecisionDx‑SCC (1) 5,967 3,510 485 — — Diagnostic GEP offering (2) 3,561 2,662 73 — — Dermatologic Total 37,331 26,500 16,790 15,529 12,032 DecisionDx-UM 1,711 1,618 1,395 1,526 1,413 TissueCypher Barrett’s Esophagus Test (3) 2,128 27 — — — IDgenetix (4) 3,249 — — — — Grand Total 44,419 28,145 18,185 17,055 13,445 Net Revenues (in thousands) $ 137,039 $ 94,085 $ 62,649 $ 51,865 $ 22,786 (1) On August 31, 2020, we commercially launched our cutaneous SCC proprietary GEP test for use in patients with one or more risk factors.
The numbers of test reports delivered by us and our net revenues during the past five years are presented in the table below: Years Ended December 31, 2023 2022 2021 2020 2019 DecisionDx-Melanoma 33,330 27,803 20,328 16,232 15,529 DecisionDx‑SCC (1) 11,442 5,967 3,510 485 — Diagnostic GEP offering (2) 3,962 3,561 2,662 73 — Dermatologic Total 48,734 37,331 26,500 16,790 15,529 DecisionDx-UM 1,674 1,711 1,618 1,395 1,526 TissueCypher (3) 9,100 2,128 27 — — IDgenetix (4) 10,921 3,249 — — — Grand Total 70,429 44,419 28,145 18,185 17,055 Net Revenues (in thousands) $ 219,788 $ 137,039 $ 94,085 $ 62,649 $ 51,865 (1) On August 31, 2020, we commercially launched our cutaneous SCC proprietary GEP test for use in patients with one or more risk factors.
This global patent portfolio has filing dates ranging from 2004 to 2022, and therefore are projected to expire between 2024 and 2042, subject to any patent term extension or patent term adjustment that might be available in a particular jurisdiction.
This global patent portfolio has filing dates ranging from 2007 to 2023, and therefore are projected to expire between 2027 and 2043, subject to any patent term extension or patent term adjustment that might be available in a particular jurisdiction.
In addition, we may, in the near future, face competition from a limited number of companies who are working in this disease space, such as SkylineDx and Neracare. We are unaware of late-stage work being performed to develop and validate a product that would compete with DecisionDx-SCC.
In addition, we currently face, or may 12 Table of Contents face, competition from a limited number of companies who are working in this disease space, such as SkylineDx/Tempus/Quest, AMLo/Avero and Neracare. In the future, we may face additional competitors. We are unaware of late-stage work being performed to develop and validate a product that would compete with DecisionDx-SCC.
Our Commercial Channel Sales and Marketing Our sales and marketing efforts are primarily focused on the United States skin cancer, gastroenterology and mental health markets. We employ a direct sales and marketing strategy to educate clinicians, nurses, laboratory and pathology personnel, and finance administrators on the clinical and economic benefits of our products.
Our Commercial Channel Sales and Marketing Our sales and marketing efforts are primarily focused on the U.S. skin cancer, gastroenterology and mental health markets. We employ a direct sales and marketing strategy to educate clinicians and associated personnel on the clinical and economic benefits of our products.
Item 1. Business. As used in this Annual Report on Form 10-K, unless the context indicates or otherwise requires, “Castle Biosciences”, the “Company”, “we”, “us”, and “our” refer to Castle Biosciences, Inc., a Delaware Corporation. Overview Castle Biosciences is applying innovative diagnostics to inform disease management and improve patient outcomes.
Item 1. Business. As used in this Annual Report on Form 10-K, unless the context indicates or otherwise requires, “Castle Biosciences”, the “Company”, “we”, “us”, and “our” refer to Castle Biosciences, Inc., a Delaware Corporation.
Implementing our strategy includes our managed care and medical affairs teams educating third-party payors regarding our strong clinical utility and outcomes data, which we believe validates the value of our products and will persuade more third-party payors to provide value-based reimbursement.
Achieving in-network contracts with third-party payors can shorten the time required to receive payments. Implementing our strategy includes our managed care and medical affairs teams educating third-party payors regarding our strong clinical utility and outcomes data, which we believe validates the value of our products and will persuade more third-party payors to provide value-based reimbursement.
The Physician Payments Sunshine Act, enacted as part of the Patient Protection and Affordable Care Act of 2010, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, the “ACA”) also imposed annual reporting requirements on manufacturers of certain devices, drugs and biologics for certain payments and transfers of value by them and in some cases their distributors to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors), other healthcare professionals (such as physician assistants and nurse practitioners) and teaching hospitals, as well as information regarding ownership and investment interests held by physicians and their immediate family members.
Like the AKS, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. 21 Table of Contents The Physician Payments Sunshine Act, enacted as part of the Patient Protection and Affordable Care Act of 2010, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, the “ACA”) also imposed annual reporting requirements on manufacturers of certain devices, drugs and biologics for certain payments and transfers of value by them and in some cases their distributors to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors), other healthcare professionals (such as physician assistants and nurse practitioners) and teaching hospitals, as well as information regarding ownership and investment interests held by physicians and their immediate family members.
Achieving broad coverage and reimbursement of our current products by third-party payors and continued Medicare coverage are key components of our financial success. De novo coverage by government and third-party payors for our pipeline tests will be important over time. We bill third-party payors and patients for the tests we perform.
Achieving broad coverage and reimbursement of our current products by third-party payors and continued Medicare coverage are key components of our financial success. We bill third-party payors and patients for the tests we perform.
We believe that the current primary competitor for DecisionDx-SCC is existing traditional clinical and pathology staging criteria. In the future, we may face competition from SkylineDx who has been working to develop a diagnostic test. DecisionDx-UM competes with a subsidiary of LabCorp and several academic laboratories all of which have had tests available for several years.
We believe that the current primary competitor for DecisionDx-SCC is existing traditional clinical and pathology staging criteria. In the future, we may face additional competitors. DecisionDx-UM competes with a subsidiary of LabCorp and several academic laboratories, all of which have had tests available for several years.
In executive positions, which we define as Executive Director or Regional Business Director level and above, our employee population as of December 31, 2022 was 80.6% White, 6.5% Hispanic or Latino and 12.9% other (not Hispanic or Latino). Females represented 35.5% of employees in executive positions.
In executive positions, which we define as Executive Director or Regional Business Director level and above, our employee population as of December 31, 2023 was 72% White, 16% Hispanic or Latino and 12% other (not Hispanic or Latino). Females represented 39% of employees in executive positions.
Additionally, an ADLT cannot be sold for use by a laboratory other than a single laboratory that designed the test or a successor owner, and must meet one of the following criteria: Criterion A: The test: • Is an analysis of multiple biomarkers of DNA, RNA or proteins: When combined with an empirically derived algorithm, yields a result that predicts the probability a specific individual patient will develop a certain condition or conditions, or respond to a particular therapy or therapies; • Provides new clinical diagnostic information that cannot be obtained from any other test or combination of tests; and • May include other tests.
Advanced Diagnostic Laboratory Tests Advanced Diagnostic Laboratory Test (“ADLT”) status is a designation granted by CMS for clinical diagnostic laboratory tests offered and furnished by a single laboratory and covered under Medicare Part B that meet one of the following criteria: Criterion A: The test: • Is an analysis of multiple biomarkers of DNA, RNA or proteins; • When combined with an empirically derived algorithm, yields a result that predicts the probability a specific individual patient will develop a certain condition or conditions, or respond to a particular therapy or therapies; • Provides new clinical diagnostic information that cannot be obtained from any other test or combination of tests; and • May include other assays.
For 2022, the published CLFS payment rate was $2,513 for the test. ADLT On March 24, 2022, CMS determined TissueCypher meets the criteria for “new ADLT” status. ADLT status exempts TissueCypher from what is called the “14-day rule,” which simplifies the billing process for Medicare patients.
From January 1, 2022 through March 31, 2022, we received payments for claims according to the published CLFS rate at $2,513 per test. On March 24, 2022, CMS determined TissueCypher meets the criteria for “new ADLT” status. ADLT status exempts TissueCypher from what is called the “14-day rule,” which simplifies the billing process for Medicare patients.
In many countries outside of the United States, coverage, pricing and reimbursement approvals are also required. 39 Table of Contents Privacy and Security Laws Health Insurance Portability and Accountability Act Under HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act (“HITECH”) HHS has issued regulations to protect the privacy and provide for the security of protected health information (“PHI”) used or disclosed by certain entities including healthcare providers, such as us.
Privacy and Security Laws Health Insurance Portability and Accountability Act Under HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act (“HITECH”) HHS has issued regulations to protect the privacy and provide for the security of protected health information (“PHI”) used or disclosed by certain entities including healthcare providers, such as us.
In the second quarter of 2022, following the completion of a requested medical review and pricing of our DecisionDx-SCC test by Novitas, we obtained a PLA code and began receiving reimbursement from Novitas for DecisionDx-SCC at a rate of approximately $3,800 per test. In November 2022, CMS set our rate of reimbursement for DecisionDx-SCC at $3,873 per test.
In the second quarter of 2022, following the completion of a requested medical review and pricing of our DecisionDx-SCC test by Novitas, we obtained a PLA code and began receiving reimbursement from Novitas for DecisionDx-SCC at a rate of $3,873 per test. On June 30, 2023, CMS determined DecisionDx-SCC meets the criteria for “new ADLT” status.
The tables below provide information on the distribution of our employees by functional area and by location as of December 31, 2022: Number of Employees Laboratory Testing Operations 122 Research & Development 100 Sales & Marketing 187 Administrative & General 134 Total as of December 31, 2022 543 Number of Employees Friendswood, Texas 92 Phoenix, Arizona 171 Pittsburgh, Pennsylvania 31 Home-based 249 Total as of December 31, 2022 543 Our employees are not represented by labor unions or covered by collective bargaining agreements.
The tables below provide information on the distribution of our employees by functional area and by location as of December 31, 2023: Number of Employees Laboratory Testing Operations 164 Research & Development 103 Sales & Marketing 197 Administrative & General 146 Total as of December 31, 2023 610 Number of Employees Friendswood, Texas 105 Phoenix, Arizona 181 Pittsburgh, Pennsylvania 62 Home-based 262 Total as of December 31, 2023 610 Our employees are not represented by labor unions or covered by collective bargaining agreements.
These requirements vary by jurisdiction, differ from those in the United States and may in some cases require us to perform additional pre-clinical or clinical testing.
These requirements vary by jurisdiction, differ from those in the United States and may in some cases require us to perform additional pre-clinical or clinical testing. In many countries outside of the United States, coverage, pricing and reimbursement approvals are also required.
We have received formal approval from the NYSDOH to offer the following of our proprietary assays to New York patients: DecisionDx-Melanoma, DecisionDx-CMSeq, DecisionDx-UM, DecisionDx-PRAME, DecisionDx-UMSeq, DecisionDx-SCC, MyPath Melanoma, DiffDx-Melanoma and IDgenetix. Additionally, we have submitted and are working through the NYSDOH approval process for our Pennsylvania laboratory and TissueCypher.
We have received formal approval from the NYSDOH to offer the following of our proprietary assays to New York patients: DecisionDx-Melanoma, DecisionDx-CMSeq, DecisionDx-UM, DecisionDx-PRAME, DecisionDx-UMSeq, DecisionDx-SCC, MyPath Melanoma, and DiffDx-Melanoma. We have been given conditional approval for IDgenetix from the NYSDOH while we work through the formal review process. In July 2022, we submitted TissueCypher for review by the NYSDOH.
In addition, we may in the near future, face competition from a limited number of companies who are working in this disease space, such as Interpace Diagnostics. Other companies actively engaged in GERD screening to diagnose BE may also look to develop prognostic tests for patients diagnosed with BE, and these could compete with TissueCypher in the future.
In addition, we currently face, or may face, competition from companies such as Previse, Interpace Diagnostics and other companies. Other companies actively engaged in GERD screening to diagnose BE may also look to develop prognostic tests for patients diagnosed with BE, and these could compete with TissueCypher in the future. In the future, we may face additional competitors.
Medical Device Regulatory Framework Although we currently market our proprietary testing products as LDTs, which are currently subject to enforcement discretion, we could be subject to more onerous FDA compliance obligations in the future.
We may be required to conduct clinical trials prior to continuing to sell our existing products or launching any other products we may develop. Medical Device Regulatory Framework Although we currently market our proprietary testing products as LDTs, which are currently subject to enforcement discretion, we could be subject to more onerous FDA compliance obligations in the future.
As of December 31, 2022, we had 543 employees, of whom 542 were full-time employees. During the year ended December 31, 2022, we added 198 employees to our team, a 57.4% increase from 2021. We face competition for experienced, qualified personnel in our industry, particularly for highly skilled scientists, laboratory technicians and salespeople versed in diagnostic and prognostic testing services.
During the year ended December 31, 2023, we added 67 employees to our team, a 12% increase from 2022. We face competition for experienced, qualified personnel in our industry, particularly for highly skilled scientists, laboratory technicians and salespeople versed in diagnostic testing services.
The rate for 2023 is set at $1,755 per test based on data submitted by the predecessor owner of the Myriad MyPath Laboratory relating to the first half of 2021.
Our rate is set annually based upon the median private payor rate for the first half of the second preceding calendar year. Our rate for 2022 was $1,950 per test. Our 2023 rate was set at $1,755 per test, based on data submitted by the predecessor owner of the Myriad MyPath Laboratory relating to the first half of 2021.
Any failure to comply with these reporting requirements could result in significant fines and penalties. Because we and other companies with LDTs are considered healthcare providers rather than device manufacturers, and LDTs do not require approval or clearance from the FDA, we believe that we are exempt from these reporting requirements.
Any failure to comply with these reporting requirements could result in significant fines and penalties. Because we and other companies with LDTs are considered healthcare providers rather than device manufacturers, we believe that we are exempt from these reporting requirements. We cannot assure you, however, that the government will agree with our determination.
Numerous other federal, state and foreign laws, including consumer protection laws and regulations, govern the collection, dissemination, use, access to, confidentiality and security of patient health information.
Numerous other federal, state and foreign laws, including consumer protection laws and regulations, govern the collection, dissemination, use, access to, confidentiality and security of patient health information. We intend to continue to comprehensively protect all personal information and to comply with all applicable laws regarding the protection of such information.
Our overall employee population as of December 31, 2022 was 74.2% White, 11.6% Hispanic or Latino, 7.2% Asian, 2.9% Black or African-American and 4.1% two or more races (not Hispanic or Latino) and other.
Our overall employee population as of December 31, 2023 was 65% White, 21% Hispanic or Latino, 6% Asian, 3% Black or African-American and 5% two or more races (not Hispanic or Latino) and other.
A manufacturer can submit a petition for direct de novo review if the manufacturer is unable to identify an appropriate predicate device and the new device or new use of the device presents a moderate or low risk.
A manufacturer can submit a petition for direct de novo review if the manufacturer is unable to identify an appropriate predicate device and the new device or new use of the device presents a moderate or low risk. De novo classification may also be available after receipt of a “not substantially equivalent” letter following submission of a 510(k) to FDA.
We have broad positive policy coverage for our DecisionDx-UM test, have executed contracts with certain commercial payors and anticipate further increases in contracting. We also have positive policy recommendations from many third-party technical assessment review groups. We began engaging commercial third-party payors for positive coverage for DecisionDx-Melanoma and have seen some positive coverage policies.
We have broad positive policy coverage for our DecisionDx-UM test and have executed contracts with certain commercial payors. For our other tests, we engage third-party payors for positive coverage and have received positive policy recommendations from many third-party technical assessment review groups.
We believe we compete favorably on the factors described above. Today, our principal competition for DecisionDx-Melanoma is existing traditional clinical and pathology staging criteria.
Today, our principal competition for DecisionDx-Melanoma is existing traditional clinical and pathology staging criteria.
Our sales approach is highly technical, and our team is trained to articulate the scientific and clinical evidence behind our products and how they influence the clinical care pathway and ultimately improve patient outcomes. In dermatology, we began 2020 with 32 outside sales territories.
Our sales approach is highly technical, and our team is trained to articulate the scientific and clinical evidence behind our products and how they influence the clinical care pathway and ultimately improve patient outcomes. We will continue to assess market response in determining further commercial expansions and commercial team structure.
This estimated annual incidence number is based upon a calculation using data from the U.S. Surveillance, Epidemiology, and End Results (“SEER”) registries and subsequently adjusted for the documented underreporting of melanoma diagnoses which range from 30%-72%. Based on currently available data, we estimate the targetable clinician base treating melanoma is between 11,000 and 15,000.
Surveillance, Epidemiology, and End Results registries and subsequently adjusted for the documented underreporting of melanoma diagnoses which range from 30%-72%. Based on currently available data, we estimate the targetable clinician base treating melanoma is between 11,000 and 15,000. Based on the substantial clinical evidence that we have developed, we have received Medicare coverage for DecisionDx-Melanoma.
De novo classification may also be available after receipt of a “not substantially equivalent” letter following submission of a 510(k) to FDA. 35 Table of Contents After a device receives 510(k) clearance, any modification that could significantly affect its safety or effectiveness, or that would constitute a new or major change in its intended use, will require a new 510(k) clearance or, depending on the modification, could require a PMA application.
After a device receives 510(k) clearance, any modification that could significantly affect its safety or effectiveness, or that would constitute a new or major change in its intended use, will require a new 510(k) clearance or, depending on the modification, could require a PMA application.
The Medicare coverage includes depression and the following seven additional mental health conditions beyond major depressive disorder: schizophrenia, bipolar disorder, anxiety disorders, social phobia, obsessive-compulsive personality disorder, post-traumatic stress disorder and attention deficit hyperactivity disorder. The IDgenetix multi-gene panel is currently reimbursed by Medicare at approximately $1,500 per test.
IDgenetix IDgenetix is currently covered under a Noridian LCD policy and accompanying billing and coding article developed by MolDX. The Medicare coverage includes depression and the following seven additional mental health conditions beyond major depressive disorder: schizophrenia, bipolar disorder, anxiety disorders, social phobia, obsessive-compulsive personality disorder, post-traumatic stress disorder and attention deficit hyperactivity disorder.
Achieving positive coverage reduces the need for appeals and reduces failures to collect from the patient’s commercial insurance payor. Even with positive coverage decisions, we still experience delays in time to payment. Achieving in-network contracts with third-party payors can shorten the time required to receive payments.
Commercial Third-Party Payors We are actively engaged in efforts to achieve broad coverage and reimbursement for our products, followed by contracting with commercial payors. Achieving positive coverage reduces the need for appeals and reduces failures to collect from the patient’s commercial insurance payor. Even with positive coverage decisions, we still experience delays in time to payment.
Our rate for 2022 was $7,193 per test and will continue to be $7,193 per test for 2023. DecisionDx-UM LCD Palmetto issued a final LCD for DecisionDx-UM, which became effective in July 2017, and Noridian issued a similar LCD that became effective in September 2017.
DecisionDx-UM Palmetto issued a final test-specific LCD for DecisionDx-UM, which became effective in July 2017, and Noridian issued a similar LCD that became effective in September 2017.
Therefore, most of these tests have neither undergone premarket review nor received FDA clearance, authorization or approval for marketing. We will continue to monitor the FDA’s position as changes in this respect could materially affect our business, prospects, results of operations or financial condition.
We will continue to monitor the FDA’s position as changes in this respect could materially affect our business, prospects, results of operations or financial condition.
It is unclear how any additional healthcare reform measures of the Biden administration will impact the ACA and our business. 41 Table of Contents On August 2, 2011, the Budget Control Act of 2011 was signed into law, which, among other things, reduced Medicare payments to providers by 2% per fiscal year, effective on April 1, 2013 and, due to subsequent legislative amendments to the statute including the Infrastructure Investment and Jobs Act, will remain in effect through 2031, unless additional Congressional action is taken.
On August 2, 2011, the Budget Control Act of 2011 was signed into law, which, among other things, reduced Medicare payments to providers by 2% per fiscal year, effective on April 1, 2013 and, due to subsequent legislative amendments to the statute including the Infrastructure Investment and Jobs Act, will remain in effect through 2032, unless additional Congressional action is taken. 24 Table of Contents We anticipate there will continue to be proposals by legislators at both the federal and state levels, regulators and commercial third-party payors to reduce costs while expanding individual healthcare benefits.
Pipeline Initiatives We have significant expertise in developing proprietary algorithms, conducting clinical studies and using the necessary instrumentation required for efficiently developing our pipeline products.
As of December 31, 2023, our IDgenetix test is supported by 19 peer-reviewed publications. 6 Table of Contents Pipeline Initiatives We have significant expertise in developing proprietary algorithms, conducting clinical studies and using the necessary instrumentation required for efficiently developing our pipeline products.
As previously discussed, the Palmetto MolDX program oversees MAAA tests that are reported from our Arizona laboratory and Noridian is the MAC responsible for administering claims for test reports issued by our Arizona laboratory. Novitas is the MAC responsible for administering claims for test reports issued by our Pittsburgh laboratory.
We cannot predict whether this LCD will be finalized as proposed or what the timing of any final LCD might be. As previously discussed, the Palmetto MolDX program oversees MAAA tests that are reported from our Phoenix laboratory and Noridian is the MAC responsible for administering claims for test reports issued by our Phoenix laboratory.
Our full suite of dermatologic tests is now available to order within EMA with our integrated accounts. 25 Table of Contents Medical Affairs We also deploy an experienced medical affairs group to assist education of treating clinicians and key opinion leaders, to identify and engage sites for our sponsored clinical studies and to evaluate collaborative study opportunities.
Medical Affairs We also deploy an experienced medical affairs group to assist education of treating clinicians and key opinion leaders, to identify and engage sites for our sponsored clinical studies and to evaluate collaborative study opportunities. Our medical affairs strategy complements our sales, marketing and clinical research operations efforts.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeU.S. and global market and economic conditions have been, and continue to be, disrupted and volatile due to many factors, including the ongoing COVID-19 pandemic, material shortages and related supply chain challenges, geopolitical developments such as the conflict between Ukraine and Russia, and increasing inflation rates and the responses by central banking authorities to control such inflation, among others.
Biggest changeU.S. and global market and economic conditions have been, and continue to be, disrupted and volatile due to many factors, including public health crises such as the COVID-19 pandemic, geopolitical and macroeconomic developments, such as the Israel-Hamas war and the ongoing conflict between Ukraine and Russia and related sanctions, economic slowdowns, labor shortages, recessions or market corrections, supply chain disruptions, inflation and monetary policy shifts, liquidity concerns, at, and failures of, banks and other financial institutions or other disruptions in the banking system or financial markets, rising interest rates and tightening of credit markets resulting from the conflict or other evolving macroeconomic developments, among others.
In the ordinary course of our business, we collect, store, use, transmit, disclose, or otherwise process (“Process”) confidential, proprietary, and sensitive data, including PHI, personal information, credit card and other financial information, intellectual property and proprietary business information owned or controlled by ourselves or our customers, payors and other parties.
In the ordinary course of our business, we collect, store, use, transmit, disclose, or otherwise process (“Process”) confidential, proprietary, and sensitive data, including PHI, personal data, credit card and other financial information, intellectual property and proprietary business information owned or controlled by ourselves or our customers, payors and other parties.
For example, we or our licensors may have inventorship disputes arise from conflicting obligations of employees, consultants or others who are involved in developing our products. Litigation may be necessary to defend against these and other claims challenging inventorship or our or our licensors’ ownership of our owned or in-licensed patents, trade secrets or other intellectual property.
For example, we or our licensors may have inventorship disputes arise from conflicting obligations of employees, consultants or others who are involved in developing our products. Litigation may be necessary to defend against these and other claims challenging inventorship or our licensors’ ownership of our owned or in-licensed patents, trade secrets or other intellectual property.
If our information technology systems or data, or those of third parties upon which we rely, are or were compromised, we could experience adverse consequences resulting from such compromise, including but not limited to regulatory investigations or actions; litigation; fines and penalties; disruptions of our business operations; reputational harm; loss of revenue or profits; loss of customers or sales; and other adverse consequences.
If our information technology systems, or those of third parties upon which we rely, or our data are or were compromised, we could experience adverse consequences resulting from such compromise, including but not limited to regulatory investigations or actions; litigation; fines and penalties; disruptions of our business operations; reputational harm; loss of revenue or profits; loss of customers or sales; and other adverse consequences.
In particular, ransomware attacks have become increasingly prevalent and severe and can lead to significant interruptions in our operations, loss of data and income, reputational harm, and diversion of funds.
In particular, severe ransomware attacks have become increasingly prevalent and severe and can lead to significant interruptions in our operations, loss of data and income, reputational harm, and diversion of funds.
The full economic and social impact of the sanctions imposed on Russia (as well as possible future punitive measures that may be implemented), as well as the counter measures imposed by Russia, in addition to the ongoing military conflict between Ukraine and Russia, which could conceivably expand into the surrounding region, remains uncertain; however, both the conflict and related sanctions have resulted and could continue to result in disruptions to trade, commerce, pricing stability, credit availability, and/or supply chain continuity, in both Europe and globally, and has introduced significant uncertainty into global markets.
The full economic and social impact of the sanctions imposed on Russia (as well as possible future punitive measures that may be implemented), as well as the counter measures imposed by Russia, in addition to the ongoing military conflict between Ukraine and Russia, which could conceivably expand into the surrounding region, remains uncertain; however, both the conflict and related sanctions have resulted and could continue to result in disruptions to trade, commerce, pricing stability, credit availability, and/or supply chain continuity, in both Europe and globally, and has introduced significant uncertainty into global markets.
Our estimates of the TAM for the DecisionDx-Melanoma, DecisionDx-UM, DecisionDx-SCC, MyPath Melanoma, DiffDx-Melanoma, TissueCypher and IDgenetix tests are based on a number of internal and third-party estimates, including, without limitation, the annual rate of patients with the applicable indications, the list price of our products relative to the reimbursement we expect to receive from third-party payors and the assumed prices at which we can sell our products in markets that have not been established.
Our estimates of the TAM for the DecisionDx-Melanoma, DecisionDx-UM, DecisionDx-SCC, MyPath Melanoma, TissueCypher and IDgenetix tests are based on a number of internal and third-party estimates, including, without limitation, the annual rate of patients with the applicable indications, the list price of our products relative to the reimbursement we expect to receive from third-party payors and the assumed prices at which we can sell our products in markets that have not been established.
We cannot assure you, however, that our regulators, principally the federal government, will agree with our determination, and a determination 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; • the prohibition on reassignment of Medicare claims, which, subject to certain exceptions, precludes the reassignment of Medicare claims to any other part; • state and foreign law equivalents of each of the above federal laws, such as anti-kickback and false claims laws, which may impose similar or more prohibitive restrictions, and may apply to items or services reimbursed by any non-governmental third-party payors, including private insurers; and • federal, state, local and foreign laws that govern the privacy and security of health information in certain circumstances, including state health information privacy and data breach notification laws which govern the collection, use, disclosure, and protection of health-related and other personal information, many of which differ from each other in significant ways and often are not pre-empted by HIPAA, thus complicating compliance efforts.
We cannot assure you, however, that our regulators, principally the federal government, will agree with our determination, and a determination 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; • the prohibition on reassignment of Medicare claims, which, subject to certain exceptions, precludes the reassignment of Medicare claims to any other part; • state and foreign law equivalents of each of the above federal laws, such as anti-kickback and false claims laws, which may impose similar or more prohibitive restrictions, and may apply to items or services reimbursed by any non-governmental third-party payors, including private insurers; and • federal, state, local and foreign laws that govern the privacy and security of health information in certain circumstances, including state health information privacy and data breach notification laws which govern the collection, use, disclosure, and protection of health-related and other personal data, many of which differ from each other in significant ways and may not be pre-empted by HIPAA, thus complicating compliance efforts.
Doing business internationally involves a number of risks, including: • multiple, conflicting and changing laws and regulations such as privacy regulations, tax laws, export and import restrictions, economic sanctions and embargoes, employment laws, regulatory requirements and other governmental approvals, permits and licenses; • limits in our ability to penetrate international markets if we are not able to perform tests locally; • logistics and regulations associated with shipping tissue samples, including infrastructure conditions and transportation delays; • difficulties in staffing and managing foreign operations; • failure to obtain regulatory approvals for the commercialization of our products in various countries; • complexities and difficulties in obtaining intellectual property protection and enforcing our intellectual property; • complexities associated with managing multiple payor reimbursement regimes, government payors, or patient self-pay systems; • financial risks, such as longer payment cycles, difficulty collecting accounts receivable, the impact of local and regional financial crises on demand and payment for our products and exposure to foreign currency exchange rate fluctuations; • natural disasters, political and economic instability, including wars, terrorism, and political unrest, outbreak of disease, boycotts, curtailment of trade and other business restrictions; and • regulatory and compliance risks that relate to maintaining accurate information and control over sales and distributors’ activities that may fall within the purview of the FCPA, its books and records provisions, or its anti-bribery provisions.
Doing business internationally involves a number of risks, including: • multiple, conflicting and changing laws and regulations such as privacy regulations, tax laws, export and import restrictions, economic sanctions and embargoes, employment laws, regulatory requirements and other governmental approvals, permits and licenses; • limits in our ability to penetrate international markets if we are not able to perform tests locally; 65 Table of Contents • logistics and regulations associated with shipping tissue samples, including infrastructure conditions and transportation delays; • difficulties in staffing and managing foreign operations; • failure to obtain regulatory approvals for the commercialization of our products in various countries; • complexities and difficulties in obtaining intellectual property protection and enforcing our intellectual property; • complexities associated with managing multiple payor reimbursement regimes, government payors, or patient self-pay systems; • financial risks, such as longer payment cycles, difficulty collecting accounts receivable, the impact of local and regional financial crises on demand and payment for our products and exposure to foreign currency exchange rate fluctuations; • natural disasters, political and economic instability, including wars, terrorism, and political unrest, outbreak of disease, boycotts, curtailment of trade and other business restrictions; and • regulatory and compliance risks that relate to maintaining accurate information and control over sales and distributors’ activities that may fall within the purview of the FCPA, its books and records provisions, or its anti-bribery provisions.
The following examples are illustrative: 68 Table of Contents • others may be able to develop and/or practice technology that is similar to our technology or aspects of our technology, but that are not covered by the claims of the patents that we own or control, assuming such patents have issued or do issue; • we or our licensors or any future strategic partners might not have been the first to conceive or reduce to practice the inventions covered by the issued patents or pending patent applications that we own or have exclusively licensed; • we or our licensors or any future strategic partners might not have been the first to file patent applications covering certain of our inventions; • others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights; • it is possible that our pending patent applications will not lead to issued patents; • issued patents that we own or have exclusively licensed may not provide us with any competitive advantage, or may be held invalid or unenforceable, as a result of legal challenges by our competitors; • our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned from such activities to develop competitive tests for sale in our major commercial markets; • third parties performing manufacturing or testing for us using our products or technologies could use the intellectual property of others without obtaining a proper license; • parties may assert an ownership interest in our intellectual property and, if successful, such disputes may preclude us from exercising exclusive rights over that intellectual property; • we may not develop or in-license additional proprietary technologies that are patentable; • we may not be able to obtain and maintain necessary licenses on commercially reasonable terms, or at all; and • the patents of others may have an adverse effect on our business.
The following examples are illustrative: • others may be able to develop and/or practice technology that is similar to our technology or aspects of our technology, but that are not covered by the claims of the patents that we own or control, assuming such patents have issued or do issue; • we or our licensors or any future strategic partners might not have been the first to conceive or reduce to practice the inventions covered by the issued patents or pending patent applications that we own or have exclusively licensed; • we or our licensors or any future strategic partners might not have been the first to file patent applications covering certain of our inventions; • others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights; • it is possible that our pending patent applications will not lead to issued patents; • issued patents that we own or have exclusively licensed may not provide us with any competitive advantage, or may be held invalid or unenforceable, as a result of legal challenges by our competitors; • our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned from such activities to develop competitive tests for sale in our major commercial markets; • third parties performing manufacturing or testing for us using our products or technologies could use the intellectual property of others without obtaining a proper license; • parties may assert an ownership interest in our intellectual property and, if successful, such disputes may preclude us from exercising exclusive rights over that intellectual property; • we may not develop or in-license additional proprietary technologies that are patentable; • we may not be able to obtain and maintain necessary licenses on commercially reasonable terms, or at all; and • the patents of others may have an adverse effect on our business.
In order to test specimens from New York, LDTs must be approved by the NYSDOH on a test-by-test basis before they are offered. Our laboratory director and laboratory operations must also be separately qualified and approved through the state of New York. DecisionDx-Melanoma, DecisionDx-CMSeq, DecisionDx-UM, DecisionDx-PRAME, DecisionDx-UMSeq, DecisionDx-SCC, MyPath Melanoma, DiffDx-Melanoma and IDgenetix have each been approved.
In order to test specimens from New York, LDTs must be approved by the NYSDOH on a test-by-test basis before they are offered. Our laboratory director and laboratory operations must also be separately qualified and approved through the state of New York. DecisionDx-Melanoma, DecisionDx-CMSeq, DecisionDx-UM, DecisionDx-PRAME, DecisionDx-UMSeq, DecisionDx-SCC, MyPath Melanoma and DiffDx-Melanoma have each been approved.
In particular, the European Economic Area (“EEA”) and the UK have significantly restricted the transfer of personal data to the United States and other countries whose privacy laws it believes are inadequate. Other jurisdictions may adopt similarly stringent interpretations of their data localization and cross-border data transfer laws.
In particular, the European Economic Area (“EEA”) and the UK have significantly restricted the transfer of personal data to the United States and other countries whose privacy laws it generally believes are inadequate. Other jurisdictions may adopt similarly stringent interpretations of their data localization and cross-border data transfer laws.
The process to obtain Medicare coverage is lengthy, time-consuming, has changed over time, may change in the future and requires significant dedication of resources, and as we develop new products, we may be unsuccessful in receiving Medicare coverage for those products or in maintaining our current Medicare coverage.
The process to obtain Medicare coverage is lengthy, time-consuming, has changed over time, may change in the future and requires significant dedication of resources, and as we develop or acquire new products, we may be unsuccessful in receiving Medicare coverage for those products or in maintaining our current Medicare coverage.
A change in our MAC, or future changes in the MolDX program, the elimination of the program, or a change in the administrator of that program, may affect our ability to obtain Medicare coverage and reimbursement for products for which we have coverage, for products for which we do not yet have coverage, or for any products we may launch in the future, or delay payments for our tests.
A change in our MAC, or future changes in the MolDX program, the elimination of the program, or a change in the administrator of that program, may affect our ability to maintain Medicare coverage and reimbursement for products for which we have coverage, obtain Medicare coverage for products for which we do not yet have coverage, or obtain Medicare coverage for any products we may launch in the future, or delay payments for our tests.
Preparing for and complying with these obligations requires us to devote significant resources (including, without limitation, financial and time-related resources). These obligations may necessitate changes to our information technologies, systems, and practices and to those of any third parties that process personal information on our behalf.
Preparing for and complying with these obligations requires us to devote significant resources (including, without limitation, financial and time-related resources). These obligations may necessitate changes to our information technologies, systems, and practices and to those of any third parties that process personal data on our behalf.
HITECH also created new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable to business associates, and gave state attorneys general new authority to file civil actions for damages or injunctions in U.S. federal courts to enforce HIPAA and seek attorneys’ fees and costs associated with pursuing federal civil actions; • state laws that prohibit other specified practices, such as billing physicians for tests that they order or providing tests at no or discounted cost to induce physician or patient adoption; insurance fraud laws; waiving coinsurance, copayments, deductibles, and other amounts owed by patients; billing a state Medicaid program at a price that is higher than what is charged to one or more other third-party payors employing, exercising control over or splitting professional fees with licensed professionals in violation of state laws prohibiting fee splitting or the corporate practice of medicine and other professions; • federal and state consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm consumers; • the federal transparency requirements under the Physician Payments Sunshine Act, created under the ACA, which requires, among other things, certain manufacturers of drugs, devices, biologics and medical supplies reimbursed under Medicare, Medicaid, or the Children’s Health Insurance Program to annually report to CMS information related to payments and other transfers of value provided to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors), other healthcare professionals (such as physician assistants and nurse practitioners) and teaching hospitals and information regarding physician ownership and investment interests, including such ownership and investment interests held by a physician’s immediate family members.
HITECH also created new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable to business associates, and gave state attorneys general new 46 Table of Contents authority to file civil actions for damages or injunctions in U.S. federal courts to enforce HIPAA and seek attorneys’ fees and costs associated with pursuing federal civil actions; • state laws that prohibit other specified practices, such as billing physicians for tests that they order or providing tests at no or discounted cost to induce physician or patient adoption; insurance fraud laws; waiving coinsurance, co-payments, deductibles, and other amounts owed by patients; billing a state Medicaid program at a price that is higher than what is charged to one or more other third-party payors employing, exercising control over or splitting professional fees with licensed professionals in violation of state laws prohibiting fee splitting or the corporate practice of medicine and other professions; • federal and state consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm consumers; • the federal transparency requirements under the Physician Payments Sunshine Act, created under the ACA, which requires, among other things, certain manufacturers of drugs, devices, biologics and medical supplies reimbursed under Medicare, Medicaid, or the Children’s Health Insurance Program to annually report to CMS information related to payments and other transfers of value provided to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors), other healthcare professionals (such as physician assistants and nurse practitioners) and teaching hospitals and information regarding physician ownership and investment interests, including such ownership and investment interests held by a physician’s immediate family members.
Our data processing activities may subject us to numerous data privacy and security obligations, such as laws, regulations, guidance, industry standards, external and internal privacy and security policies, contracts and other obligations that govern the Processing of personal information by us and on our behalf.
Our data processing activities may subject us to numerous data privacy and security obligations, such as laws, regulations, guidance, industry standards, external and internal privacy and security policies, contracts and other obligations that govern the Processing of personal data by us and on our behalf.
Several factors make the billing process complex, including: • differences between the billing rates and reimbursement rates for our products; • compliance with complex federal and state regulations related to billing government healthcare programs, including Medicare, Medicaid, Veterans Health Administration and TRICARE; • risk of government audits related to billing; • disputes among payors as to which party is responsible for payment; • differences in coverage and information and billing requirements among payors, including the need for prior authorization and/or advanced notification; • the effect of patient co-payments or co-insurance and our ability to collect such payments from patients; • changes to billing codes used for our products; 50 Table of Contents • changes to requirements related to our current or future clinical studies, including our registry studies, which can affect eligibility for payment; • ongoing monitoring provisions of LCDs for our products, which can affect the circumstances under which a claim would be considered medically necessary; • incorrect or missing billing information; and • the resources required to manage the billing and claims appeals process.
Several factors make the billing process complex, including: • differences between the billing rates and reimbursement rates for our products; • compliance with complex federal and state regulations related to billing government healthcare programs, including Medicare, Medicaid, Veterans Health Administration and TRICARE; • risk of government audits related to billing; • disputes among payors as to which party is responsible for payment; • differences in coverage and information and billing requirements among payors, including the need for prior authorization and/or advanced notification; • the effect of patient co-payments or co-insurance and our ability to collect such payments from patients; • changes to billing codes used for our products; • changes to requirements related to our current or future clinical studies, including our registry studies, which can affect eligibility for payment; • ongoing monitoring provisions of LCDs for our products, which can affect the circumstances under which a claim would be considered medically necessary; • incorrect or missing billing information; and • the resources required to manage the billing and claims appeals process.
In the ordinary course of business, we and the third parties upon which we rely (such as contractors and consultants) Process proprietary, confidential, and sensitive information (including but not limited to intellectual property, proprietary business information and personal information).
In the ordinary course of business, we and the third parties upon which we rely (such as contractors and consultants) process proprietary, confidential, and sensitive information (including but not limited to intellectual property, proprietary business information and personal data).
Among other things, our amended and restated certificate of incorporation and amended and restated bylaws: • permit our board of directors to issue up to 10,000,000 shares of preferred stock, with any rights, preferences and privileges as they may designate (including the right to approve an acquisition or other change in our control); • provide that the authorized number of directors may be changed only by resolution of the board of directors; • provide that the board of directors or any individual director may only be removed with cause and the affirmative vote of the holders of at least 66-2/3% of the voting power of all of our then outstanding common stock; • provide that all vacancies, including newly created directorships, may, except as otherwise required by law, be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum; • divide our board of directors into three classes; • require that any action to be taken by our stockholders must be effected at a duly called annual or special meetings of stockholders and not be taken by written consent; • provide that stockholders seeking to present proposals before a meeting of stockholders or to nominate candidates for election as directors at a meeting of stockholders must provide notice in writing in a timely manner and also specify requirements as to the form and content of a stockholder’s notice; • do not provide for cumulative voting rights (therefore allowing the holders of a majority of the shares of common stock entitled to vote in any election of directors to elect all of the directors standing for election, if they should so choose); • provide that special meetings of our stockholders may be called only by the chairperson of the board, our Chief Executive Officer or by the board of directors pursuant to a resolution adopted by a majority of the total number of authorized directors; • provide that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (or, if and only if the Court of Chancery of the State of Delaware lacks subject matter jurisdiction, any state court located within the State of Delaware or, if and only if all such state courts lack subject matter jurisdiction, the federal district court for the District of Delaware) will be the sole and exclusive forum for the following types of actions or proceedings under Delaware statutory or common law: (i) any derivative action or proceeding brought on our behalf; (ii) any action or proceeding asserting a claim of breach of a fiduciary duty owed by any of our current or former directors, officers or other employees to us or our stockholders; (iii) any action or proceeding asserting a claim against us or any of our current or former directors, officers or other employees, arising out of or pursuant to any provision of the Delaware General Corporation Law, our certificate of incorporation or our bylaws; (iv) any action or proceeding to interpret, apply, enforce or determine the validity of our certificate of incorporation or our bylaws; (v) any action or proceeding as to which the Delaware General Corporation Law confers jurisdiction to the Court of Chancery of the State of Delaware; and (vi) any action asserting a claim against us or any of our directors, officers or other employees governed by the internal affairs doctrine, in all cases to the fullest extent permitted by law and subject to the court’s having personal jurisdiction over the indispensable parties named as defendants; provided these provisions of our amended and restated certificate of incorporation and amended and restated bylaws will not apply to suits brought to enforce a duty or liability created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction; and • provide that unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States of America shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act, subject to and contingent upon a final adjudication in the State of Delaware of the enforceability of such exclusive forum provision. 87 Table of Contents The amendment of any of these provisions, with the exception of the ability of our board of directors to issue shares of preferred stock and designate any rights, preferences and privileges thereto, would require approval by the holders of at least 66-2/3% of our then-outstanding common stock.
Among other things, our amended and restated certificate of incorporation and amended and restated bylaws: • permit our board of directors to issue up to 10,000,000 shares of preferred stock, with any rights, preferences and privileges as they may designate (including the right to approve an acquisition or other change in our control); • provide that the authorized number of directors may be changed only by resolution of the board of directors; • provide that the board of directors or any individual director may only be removed with cause and the affirmative vote of the holders of at least 66-2/3% of the voting power of all of our then outstanding common stock; 70 Table of Contents • provide that all vacancies, including newly created directorships, may, except as otherwise required by law, be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum; • divide our board of directors into three classes; • require that any action to be taken by our stockholders must be effected at a duly called annual or special meetings of stockholders and not be taken by written consent; • provide that stockholders seeking to present proposals before a meeting of stockholders or to nominate candidates for election as directors at a meeting of stockholders must provide notice in writing in a timely manner and also specify requirements as to the form and content of a stockholder’s notice; • do not provide for cumulative voting rights (therefore allowing the holders of a majority of the shares of common stock entitled to vote in any election of directors to elect all of the directors standing for election, if they should so choose); • provide that special meetings of our stockholders may be called only by the chairperson of the board, our Chief Executive Officer or by the board of directors pursuant to a resolution adopted by a majority of the total number of authorized directors; • provide that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (or, if and only if the Court of Chancery of the State of Delaware lacks subject matter jurisdiction, any state court located within the State of Delaware or, if and only if all such state courts lack subject matter jurisdiction, the federal district court for the District of Delaware) will be the sole and exclusive forum for the following types of actions or proceedings under Delaware statutory or common law: (i) any derivative action or proceeding brought on our behalf; (ii) any action or proceeding asserting a claim of breach of a fiduciary duty owed by any of our current or former directors, officers or other employees to us or our stockholders; (iii) any action or proceeding asserting a claim against us or any of our current or former directors, officers or other employees, arising out of or pursuant to any provision of the Delaware General Corporation Law, our certificate of incorporation or our bylaws; (iv) any action or proceeding to interpret, apply, enforce or determine the validity of our certificate of incorporation or our bylaws; (v) any action or proceeding as to which the Delaware General Corporation Law confers jurisdiction to the Court of Chancery of the State of Delaware; and (vi) any action asserting a claim against us or any of our directors, officers or other employees governed by the internal affairs doctrine, in all cases to the fullest extent permitted by law and subject to the court’s having personal jurisdiction over the indispensable parties named as defendants; provided these provisions of our amended and restated certificate of incorporation and amended and restated bylaws will not apply to suits brought to enforce a duty or liability created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction; and • provide that unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States of America shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act, subject to and contingent upon a final adjudication in the State of Delaware of the enforceability of such exclusive forum provision.
These and any other strategic acquisition transactions may entail numerous operational and financial risks, including: • delays, difficulties and higher than expected costs associated with integration activities, such as those involving operational processes, regulatory and licensure compliance, personnel and information technology systems; • difficulties in scaling and growing the operations of acquired businesses in a cost-efficient manner; • disruption of our existing business operations and diversion of management’s time, focus and attention; • decreases in our liquidity and operating cash flows, increases in our overall operating costs, substantial amounts of amortization expense, increased capital expenditure requirements and non-recurring charges, including possible impairments of acquired assets and losses on the remeasurement of contingent consideration; 78 Table of Contents • incurrence of substantial debt or dilutive issuances of equity securities, the assumption of additional liabilities, exposure to unknown liabilities and being subject to disputes with the former owners of an acquired businesses; • inability to retain key personnel of any acquired businesses; and • failure to realize any of the anticipated revenues, synergies, efficiencies or other benefits of a transaction within our estimated time frame or at all.
These and any other strategic acquisition transactions may entail numerous operational and financial risks, including: • delays, difficulties and higher than expected costs associated with integration activities, such as those involving operational processes, regulatory and licensure compliance, personnel and information technology systems; • difficulties in scaling and growing the operations of acquired businesses in a cost-efficient manner; • disruption of our existing business operations and diversion of management’s time, focus and attention; • decreases in our liquidity and operating cash flows, increases in our overall operating costs, substantial amounts of amortization expense, increased capital expenditure requirements and non-recurring charges, including possible impairments of acquired assets and losses on the remeasurement of contingent consideration; • incurrence of substantial debt or dilutive issuances of equity securities, the assumption of additional liabilities, exposure to unknown liabilities and being subject to disputes with former owners of acquired businesses; • inability to retain key personnel of any acquired businesses; and • failure to realize any of the anticipated revenues, synergies, efficiencies or other benefits of a transaction within our estimated time frame or at all.
Moreover, even if the FDA does not modify its policy of enforcement discretion, the FDA may disagree that we are marketing our LDTs within the scope of its policy of enforcement discretion and may impose significant regulatory requirements.
Even if the FDA does not modify its policy of enforcement discretion, the FDA may disagree that we are marketing our LDTs within the scope of its policy of enforcement discretion and may impose significant regulatory requirements.
Although we have a written policy on related party transactions that involves independent review and oversight by the audit committee of our board of directors, there can be no assurances that conflicts of interest will not exist, or that we will be able to adequately address or mitigate any actual or perceived conflicts of interest, and stockholders, analysts, proxy advisory firms, the news media and other parties may view these transactions as representing conflicts of interest or as otherwise inappropriate, which may result in negative public perception and reputational harm, and could impair our ability to enter into new customer relationships or attract and retain employees.
Although we have a written policy on related party transactions that involves independent review and oversight by the audit 69 Table of Contents committee of our board of directors, there can be no assurances that conflicts of interest will not exist, or that we will be able to adequately address or mitigate any actual or perceived conflicts of interest, and stockholders, analysts, proxy advisory firms, the news media and other parties may view these transactions as representing conflicts of interest or as otherwise inappropriate, which may result in negative public perception and reputational harm, and could impair our ability to enter into new customer relationships or attract and retain employees.
On August 2, 2011, the Budget Control Act of 2011 was signed into law, which, among other things, reduced Medicare payments to providers by 2% per fiscal year, effective on April 1, 2013 and, due to subsequent legislative amendments to the statute, including the Infrastructure Investment and Jobs Act, will remain in effect until 2031, unless additional Congressional action is taken.
On August 2, 2011, the Budget Control Act of 2011 was signed into law, which, among other things, reduced Medicare payments to providers by 2% per fiscal year, effective on April 1, 2013 and, due to subsequent legislative amendments to the statute, including the Infrastructure Investment and Jobs Act, will remain in effect until 2032, unless additional Congressional action is taken.
The law includes a limited number of exceptions, some of which closely align with corresponding federal AKS exceptions and safe harbors, and others that materially differ; 63 Table of Contents • HIPAA, which, among other things, imposes criminal liability for executing or attempting to execute a scheme to defraud any healthcare benefit program, including private third-party payors, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement or representation, in connection with the delivery of or payment for healthcare benefits, items or services.
The law includes a limited number of exceptions, some of which closely align with corresponding federal AKS exceptions and safe harbors, and others that materially differ; • HIPAA, which, among other things, imposes criminal liability for executing or attempting to execute a scheme to defraud any healthcare benefit program, including private third-party payors, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement or representation, in connection with the delivery of or payment for healthcare benefits, items or services.
If there is no lawful manner for us to transfer personal data from the EEA, the UK, or other jurisdictions to the United States, or if the requirements for a legally-compliant transfer are too onerous, we could face significant adverse consequences, including the interruption or degradation of our operations, the need to relocate part of or all of our business or data processing activities to other jurisdictions at significant expense, increased exposure to regulatory actions, substantial fines and penalties, the inability to transfer data and work with partners, vendors and other third parties, and injunctions against our processing or transferring of personal data necessary to operate our business.
If there is no lawful manner for us to transfer personal data from the EEA, the UK, or other jurisdictions to the United States, or if the requirements for a legally-compliant transfer are too onerous, we could face significant adverse consequences, including the interruption or degradation of our operations, the need to relocate part of or all of our business or data processing activities to other jurisdictions (such as Europe) at significant expense, increased exposure to regulatory actions, substantial fines and penalties, the inability to transfer data and work with partners, vendors and other third parties, and injunctions against our processing or transferring of personal data necessary to operate our business.
Regardless of merit or eventual outcome, product liability claims may result in: • decreased demand for our current tests any tests that we may develop, and the inability to commercialize such tests; • injury to our reputation and significant negative media attention; 81 Table of Contents • reluctance of experts willing to conduct our clinical studies; • initiation of investigations by regulators; • significant costs to defend the related litigation and diversion of management’s time and our resources; • substantial monetary awards to study subjects or patients; • product recalls, withdrawals or labeling, or marketing or promotional restrictions; and • loss of revenue.
Regardless of merit or eventual outcome, product liability claims may result in: • decreased demand for our current tests any tests that we may develop, and the inability to commercialize such tests; • injury to our reputation and significant negative media attention; • reluctance of experts willing to conduct our clinical studies; • initiation of investigations by regulators; • significant costs to defend the related litigation and diversion of management’s time and our resources; • substantial monetary awards to study subjects or patients; • product recalls, withdrawals or labeling, or marketing or promotional restrictions; and • loss of revenue.
The laws that affect our ability to operate include, but are not limited to: • the AKS, which prohibits, among other things, any person or entity from knowingly and willfully soliciting, receiving, offering or paying any remuneration, directly or indirectly, overtly or covertly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of an item or service reimbursable, in whole or in part, under a federal healthcare program, such as the Medicare and Medicaid programs.
The laws that affect our ability to operate include, but are not limited to: • the AKS, which prohibits, among other things, any person or entity from knowingly and willfully soliciting, receiving, offering or paying any remuneration, directly or indirectly, overtly or covertly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of an item 45 Table of Contents or service reimbursable, in whole or in part, under a federal healthcare program, such as the Medicare and Medicaid programs.
Changes in financial accounting standards or practices may cause adverse, unexpected financial reporting fluctuations and affect our reported operating results. Accounting principles generally accepted in the United States of America (“U.S. GAAP”) is subject to interpretation by the Financial Accounting Standards Board (‘‘FASB’’), the SEC, and various bodies formed to promulgate and interpret appropriate accounting principles.
Changes in financial accounting standards or practices may cause adverse, unexpected financial reporting fluctuations and affect our reported operating results. Accounting principles generally accepted in the United States of America (“U.S. GAAP”) is subject to interpretation by the Financial Accounting Standards Board (“FASB”), the SEC, and various bodies formed to promulgate and interpret appropriate accounting principles.
Bradbury, the chairperson of our board of directors, each served on the board of directors of AltheaDx, a commercial-stage molecular diagnostics company that we acquired in April 2022. Further, each of the following individuals was a direct or indirect beneficial owner of AltheaDx securities and received consideration in the transaction: Mr. Bradbury; Mr.
Bradbury, the chair of our board of directors, each served on the board of directors of AltheaDx, a commercial-stage molecular diagnostics company that we acquired in April 2022. Further, each of the following individuals was a direct or indirect beneficial owner of AltheaDx securities and received consideration in the transaction: Mr. Bradbury; Mr.
Risks Related to Our Business Our revenue currently depends primarily on sales of DecisionDx-Melanoma, and we will need to generate sufficient revenue from this and other products to grow our business. Our revenue in 2022 and 2021 was primarily derived from the sale of our lead product, DecisionDx-Melanoma.
Risks Related to Our Business Our revenue currently depends primarily on sales of DecisionDx-Melanoma, and we will need to generate sufficient revenue from this and other products to grow our business. Our revenue in 2023 and 2022 was primarily derived from the sale of our lead product, DecisionDx-Melanoma.
The ability of these third parties to provide these samples to us in a timely manner could be delayed by events beyond our control, including but not limited to operational problems, natural disasters and public health epidemics.
The ability of these third parties to provide these samples to us in a timely manner could be delayed by events beyond our control, including but not limited to operational problems, natural disasters and public health crises.
Additionally, supply-chain attacks have also increased in frequency and severity, and we cannot guarantee that third parties and infrastructure in our supply chain or our third-party partners’ supply chains have not been compromised or that they do not contain exploitable defects or bugs that could result in a breach of or disruption to 80 Table of Contents our information technology systems (including our services) or the third-party information technology systems that support us and our services.
Additionally, supply-chain attacks have also increased in frequency and severity, and we cannot guarantee that third parties and infrastructure in our supply chain or our third-party partners’ supply chains have not been compromised or that they do not contain exploitable defects or bugs that could result in a breach of or disruption to our information technology systems (including our services) or the third-party information technology systems that support us and our services.
The amounts are determined by historical average collection rates by test type and payor category taking into consideration the range of possible outcomes, the predictive value of our past experiences, the time period of when uncertainties expect to be resolved and the amount of consideration that is susceptible to factors outside of our influence, such as the judgment and actions of third parties.
The amounts are estimated using historical average collection rates by test type and payor category taking into consideration the range of possible outcomes, the predictive value of our past experiences, the time period of when uncertainties expect to be resolved and the amount of consideration that is susceptible to factors outside of our influence, such as the judgment and actions of third parties.
Precisely what constitutes a law of nature is uncertain, and it is possible that certain aspects of genetic diagnostics tests would be considered natural laws. Accordingly, the evolving case law in the United States may adversely affect our ability to obtain patents and may facilitate third-party challenges to any owned or licensed patents.
Precisely what constitutes a law of nature is uncertain, and it is possible that certain 51 Table of Contents aspects of genetic diagnostics tests would be considered natural laws. Accordingly, the evolving case law in the United States may adversely affect our ability to obtain patents and may facilitate third-party challenges to any owned or licensed patents.
As a result, our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing tests or other products similar or identical to ours. Risks Related to Employee Matters and Managing Growth and Other Risks Related to Our Business We are highly dependent on the services of our key personnel.
As a result, our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing tests or other products similar or identical to ours. 59 Table of Contents Risks Related to Employee Matters and Managing Growth and Other Risks Related to Our Business We are highly dependent on the services of our key personnel.
Obligations related to data privacy and security are quickly changing in an increasingly stringent fashion, creating regulatory uncertainty as to the effective future legal framework. These obligations may be subject to varying applications and interpretations, which may be inconsistent or conflicting among jurisdictions, creating complex compliance issues for us and our clients.
Obligations related to data privacy and security (and consumers’ data privacy expectations) are quickly changing in an increasingly stringent fashion, creating uncertainty as to the effective future legal framework. These obligations may be subject to varying applications and interpretations, which may be inconsistent or conflicting among jurisdictions, creating complex compliance issues for us and our clients.
As is the case with other life science companies, our success depends in large part on our ability to obtain and maintain protection of the intellectual property we may own solely or jointly with others or in-license from others, 67 Table of Contents particularly patents, in the United States and other countries with respect to our products and technologies.
As is the case with other life science companies, our success depends in large part on our ability to obtain and maintain protection of the intellectual property we may own solely or jointly with others or in-license from others, particularly patents, in the United States and other countries with respect to our products and technologies.
If a court were to find the choice of forum provisions contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions. 88 Table of Contents Item 1B. Unresolved Staff Comments. None.
If a court were to find the choice of forum provisions contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions. Item 1B. Unresolved Staff Comments. None.
We use standard industry CPT billing codes to bill for our products. If these codes were to change, there is a risk of an error being made in the claim adjudication process. Such errors can occur with claims submission, third-party transmission or in the processing of the claim by the payor.
We use CPT codes to bill for our products. If these codes were to change, there is a risk of an error being made in the claim adjudication process. Such errors can occur with claims submission, third-party transmission or in the processing of the claim by the payor.
The ultimate impact of any of these or similar events is highly uncertain and could have a material adverse impact on our operations. Risks Related to Ownership of Our Common Stock The price of our common stock may be volatile or may decline regardless of our operating performance, and you may lose all or part of your investment.
The ultimate impact of any of these or similar events is highly uncertain and could have a material adverse impact on our operations. 67 Table of Contents Risks Related to Ownership of Our Common Stock The price of our common stock may be volatile or may decline regardless of our operating performance, and you may lose all or part of your investment.
Even if we were able to bring our laboratory back into compliance, we could incur significant expenses and potentially lose revenue in doing so. 60 Table of Contents Doing business with the public sector, including the U.S. government, subjects us to risk of audits, investigations, sanctions and penalties.
Even if we were able to bring our laboratory back into compliance, we could incur significant expenses and potentially lose revenue in doing so. Doing business with the public sector, including the U.S. government, subjects us to risk of audits, investigations, sanctions and penalties.
From time to time, we may consider strategic opportunities and engage in transactions such as acquisitions of businesses, assets, products or technologies, as well as technology licenses or investments in complementary businesses. For example, in May 2021, December 2021 and April 2022, we completed the acquisitions of the Myriad MyPath Laboratory, Cernostics and AltheaDx, respectively.
From time to time, we may consider strategic opportunities and engage in transactions such as acquisitions of businesses, assets, products or technologies, as well as technology licenses or investments in complementary businesses. For example, in May 2021, December 2021 and April 2022, we completed the acquisitions of the 61 Table of Contents Myriad MyPath Laboratory, Cernostics and AltheaDx, respectively.
At any point, we may abandon development of a product or we may be required to expend considerable resources conducting research, which would adversely affect the timing for generating potential revenue from a new product and our ability to invest in other products in our pipeline.
At any point, we may abandon development of a product or we may be required to 35 Table of Contents expend considerable resources conducting research, which would adversely affect the timing for generating potential revenue from a new product and our ability to invest in other products in our pipeline.
In the past, stockholders of other companies have filed securities class action litigation following periods of market volatility. If we were to become involved in securities 84 Table of Contents litigation, it could subject us to substantial costs, divert resources and the attention of management from our business and adversely affect our business.
In the past, stockholders of other companies have filed securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business and adversely affect our business.
We depend on information technology systems for significant elements of our operations, such as our Laboratory Information Management System, including test validation, specimen tracking and quality control, our bioinformatics analytical software systems, our test report generating systems and billing systems. Essential elements of these systems depend on software that we license from third parties.
We depend on information technology systems for significant elements of our operations, such as our Laboratory Information Management System, including test validation, specimen tracking and quality control, our bioinformatics 55 Table of Contents analytical software systems, our test report generating systems and billing systems. Essential elements of these systems depend on software that we license from third parties.
The OIG has stated that it is particularly concerned about these types of arrangements because the choice of laboratory, as well 64 Table of Contents as the decision to order laboratory tests, typically are made or strongly influenced by the physician, with little or no input from patients.
The OIG has stated that it is particularly concerned about these types of arrangements because the choice of laboratory, as well as the decision to order laboratory tests, typically are made or strongly influenced by the physician, with little or no input from patients.
Although we have entered into agreements with our key personnel regarding their 76 Table of Contents employment, they are not for a specific term and each may terminate their employment with us at any time, though we are not aware of any present intention of any of these individuals to leave us.
Although we have entered into agreements with our key personnel regarding their employment, they are not for a specific term and each may terminate their employment with us at any time, though we are not aware of any present intention of any of these individuals to leave us.
If we are unable to comply with these requirements on a timely basis or if the attention of our management and personnel is diverted from other business concerns, it could have a material adverse effect on our business, financial condition and results of operations.
If we are unable to comply with these requirements on a timely basis or if the attention of our management and personnel is diverted from other business concerns, it 66 Table of Contents could have a material adverse effect on our business, financial condition and results of operations.
If elevated levels of inflation were to persist or if the rate of inflation were to accelerate, the purchasing power of our cash and cash equivalents and marketable investment securities may be further diminished, our expenses could increase faster than anticipated and we may utilize our capital 83 Table of Contents resources sooner than expected.
If elevated levels of inflation were to persist or if the rate of inflation were to accelerate, the purchasing power of our cash and cash equivalents and marketable investment securities may be further diminished, our expenses could increase faster than anticipated and we may utilize our capital resources sooner than expected.
Our ability to achieve and maintain commercial market acceptance of our existing and future products will depend on a number of factors, including: • our ability to increase awareness of our products through successful clinical utility and validity studies; • the rate of adoption of our products by physicians and other healthcare providers; • our ability to achieve guideline inclusion for our products; • the timeliness with which we can provide our clinical reports to the ordering clinician; • the timing and scope of any regulatory approval for our products, if such approvals become required, and maintaining ongoing compliance with regulatory requirements; • our ability to obtain and maintain positive coverage decisions for our products from government and commercial payors; 52 Table of Contents • our ability to obtain and maintain adequate reimbursement from third-party payors, such as Medicare, which accounted for 53% and 57% of our revenue from test reports for the years ended December 31, 2022 and 2021, respectively, with an additional third-party payor accounting for 12% of our revenue from test reports for the year ended December 31, 2022; • the impact of our investments in research and development and commercial growth; • negative publicity regarding our or our competitors’ products resulting from scientific publications, or defects or errors in the products; and • our ability to further validate our products through clinical research and accompanying publications.
Our ability to achieve and maintain commercial market acceptance of our existing and future products will depend on a number of factors, including: • our ability to increase awareness of our products through successful clinical utility and validity studies; • the rate of adoption of our products by physicians and other healthcare providers; • our ability to achieve guideline inclusion for our products; • the timeliness with which we can provide our clinical reports to the ordering clinician; • the timing and scope of any regulatory approval for our products, if such approvals become required, and maintaining ongoing compliance with regulatory requirements; • our ability to obtain and maintain positive coverage decisions for our products from government and commercial payors; • our ability to obtain and maintain adequate reimbursement from third-party payors, such as Medicare, which accounted for 49% and 53% of our revenue from test reports for the years ended December 31, 2023 and 2022, respectively, with an additional third-party payor accounting for 14% of our revenue from test reports for the year ended December 31, 2023; • the impact of our investments in research and development and commercial growth; • negative publicity regarding our or our competitors’ products resulting from scientific publications, or defects or errors in the products; and • our ability to further validate our products through clinical research and accompanying publications.
For example, we employ three children and a brother-in-law of Derek J. Maetzold, our President and Chief Executive Officer, three children and a son-in-law of Kristen M. Oelschlager, our Chief Operating Officer, and the son of Tobin W. Juvenal, our Chief Commercial Officer, in each 85 Table of Contents case in non-officer positions. Additionally, Derek J. Maetzold and Daniel M.
For example, we employ three children and a brother-in-law of Derek J. Maetzold, our President and Chief Executive Officer, three children and a son-in-law of Kristen M. Oelschlager, our Chief Operating Officer, and the son of Tobin W. Juvenal, our Chief Commercial Officer, in each case in non-officer positions. Additionally, Derek J. Maetzold and Daniel M.
It would be difficult, time-consuming and expensive to rebuild our facilities, to locate and qualify a new facility, replace certain pieces of equipment or license or transfer our proprietary technology to a third-party, particularly in light of licensure and accreditation requirements.
It would be difficult, time-consuming and expensive to rebuild our facilities, to locate and qualify a new facility, replace certain pieces of equipment or license or transfer our 34 Table of Contents proprietary technology to a third-party, particularly in light of licensure and accreditation requirements.
It is possible that third-party payors will resist reimbursement for the products that we offer, in favor of less expensive products, may require pre-approval for our products or may impose additional pricing pressure on and substantial administrative burden for reimbursement for our products.
It is possible that third-party payors will resist reimbursement for the products that we offer, in favor of less expensive 40 Table of Contents products, may require pre-approval for our products or may impose additional pricing pressure on and substantial administrative burden for reimbursement for our products.
For example, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets, and once disclosed, we are likely to lose trade secret protection and may not be able to obtain adequate remedies for such breaches.
For example, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets, and once disclosed, 57 Table of Contents we are likely to lose trade secret protection and may not be able to obtain adequate remedies for such breaches.
We also have outsourced elements of our operations to third parties, including third-party service providers and technologies to help operate critical business systems to Process proprietary, confidential and sensitive information, and as a result we manage a number of third-party contractors who have access to our proprietary, confidential and sensitive information.
We also have outsourced elements of our operations to third parties, including third-party service providers and technologies to help operate critical business systems to Process proprietary, confidential and sensitive information, and as a result we also manage a number of third-party contractors who have access to our proprietary, confidential and sensitive information including information related to our clinical trials.
To determine the priority of these inventions, we have and may have to participate in interference proceedings, derivation proceedings or other post-grant proceedings declared by the USPTO that could result in substantial cost to us. The 70 Table of Contents outcome of such proceedings is uncertain.
To determine the priority of these inventions, we have and may have to participate in interference proceedings, derivation proceedings or other post-grant proceedings declared by the USPTO that could result in substantial cost to us. The outcome of such proceedings is uncertain.
We expect to incur losses in the future as we plan to invest significant additional funds toward the expansion of our commercial organization, the conduct of clinical utility and validity studies to support adoption of our products and the development or acquisition of additional products.
We expect to incur losses in the future as we plan to invest significant additional funds toward the expansion of our commercial organization, the conduct of clinical utility and 28 Table of Contents validity studies to support adoption of our products and the development or acquisition of additional products.
Although these license agreements may provide guidelines for how our trademarks and 75 Table of Contents trade names may be used, a breach of these agreements or misuse of our trademarks and tradenames by our licensees may jeopardize our rights in or diminish the goodwill associated with our trademarks and trade names.
Although these license agreements may provide guidelines for how our trademarks and trade names may be used, a breach of these agreements or misuse of our trademarks and tradenames by our licensees may jeopardize our rights in or diminish the goodwill associated with our trademarks and trade names.
Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. 69 Table of Contents Depending on future actions by the U.S.
Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. Depending on future actions by the U.S.
Whether healthcare 53 Table of Contents providers adopt DecisionDx-Melanoma as a complementary or triage diagnostic method relative to the SLNB surgery will depend on our ability to increase awareness of DecisionDx-Melanoma and its clinical validation.
Whether healthcare providers adopt DecisionDx-Melanoma as a complementary or triage diagnostic method relative to the SLNB surgery will depend on our ability to increase awareness of DecisionDx-Melanoma and its clinical validation.
Such agreements may not be enforceable or may not provide meaningful protection for our trade secrets or other 74 Table of Contents proprietary information in the event of unauthorized use or disclosure or other breaches of the agreements, and we may not be able to prevent such unauthorized disclosure.
Such agreements may not be enforceable or may not provide meaningful protection for our trade secrets or other proprietary information in the event of unauthorized use or disclosure or other breaches of the agreements, and we may not be able to prevent such unauthorized disclosure.
The inability to perform tests or to reduce the backlog of sample analysis that could develop if our facility becomes inoperable, for even a short period of time, may result in the loss of revenue, loss of customers or harm to our reputation, and we may be unable to regain that revenue, those customers or repair our reputation in the future.
The inability to perform tests or to reduce the backlog of sample analysis that could develop if our facilities become inoperable, for even a short period of time, may result in the loss of revenue, loss of customers or harm to our reputation, and we may be unable to regain that revenue, those customers or repair our reputation in the future.
The PCI DSS requires companies to adopt certain measures to ensure the security of cardholder information, including using and maintaining firewalls, adopting proper password protections for certain devices and software, and 66 Table of Contents restricting data access.
The PCI DSS requires companies to adopt certain measures to ensure the security of cardholder information, including using and maintaining firewalls, adopting proper password protections for certain devices and software, and restricting data access.
These include provisions that affect the way patent applications are prosecuted, redefine prior art and provide more efficient and cost-effective avenues for competitors to challenge the validity of patents.
These include provisions that affect the way patent applications are prosecuted, 52 Table of Contents redefine prior art and provide more efficient and cost-effective avenues for competitors to challenge the validity of patents.
The market price of our common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including: • our operating performance and the performance of other similar companies; • our success in marketing and selling our products; • reimbursement determinations by third-party payors and reimbursement rates for our products; • changes in our projected operating results that we provide to the public, our failure to meet these projections or changes in recommendations by securities analysts that elect to follow our common stock; • regulatory or legal developments in the United States and other countries; • the level of expenses related to product development and clinical studies for our products; • our ability to achieve product development goals in the timeframes we announce; • announcements of clinical study results, regulatory developments, acquisitions, strategic alliances or significant agreements by us or by our competitors; • the success or failure of our efforts to acquire, license or develop additional tests; • recruitment or departure of key personnel; • general economic conditions and market conditions specific to our industry; • interest rates and the rate of inflation; • the extent and duration of the impacts on our operations of general political and economic conditions, including the COVID-19 pandemic, the invasion of Ukraine by Russia, economic slowdowns, recessions or market corrections, the duration and effects of elevated inflation, rising interest rates and tightening of credit markets resulting from the conflict or other evolving macroeconomic developments; • trading activity by a limited number of stockholders who together beneficially own a significant percentage of our outstanding common stock; • general investor interest in emerging growth stocks; • the size of our market float; and • any other factors discussed in this Annual Report on Form 10-K.
The market price of our common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including: • our operating performance and the performance of other similar companies; • our success in marketing and selling our products; • our ability to achieve guideline inclusion for our products; • reimbursement determinations by third-party payors, including MACs, and reimbursement rates for our products; • changes in our projected operating results that we provide to the public, our failure to meet these projections or changes in recommendations by securities analysts that elect to follow our common stock; • regulatory or legal developments in the United States and other countries; • the level of expenses related to product development and clinical studies for our products; • our ability to achieve product development goals in the timeframes we announce; • announcements of clinical study results, regulatory developments, acquisitions, strategic alliances or significant agreements by us or by our competitors; • the success or failure of our efforts to acquire, license or develop additional tests; • recruitment or departure of key personnel; • general economic conditions and market conditions specific to our industry; • interest rates and the rate of inflation; • the extent and duration of the impacts on our operations of general political and economic conditions, including the Israel-Hamas war, the ongoing conflict between Ukraine and Russia, economic slowdowns, recessions or market corrections, the duration and effects of elevated inflation, rising interest rates and tightening of credit markets resulting from the conflict or other evolving macroeconomic developments; • trading activity by a limited number of stockholders who together beneficially own a significant percentage of our outstanding common stock; • the size of our market float; and • any other factors discussed in this Annual Report on Form 10-K.
Even in the unlikely event that we are able to find a third party with such qualifications to enable us to resume our operations, we may be unable to negotiate commercially reasonable terms.
Even in the unlikely event that we are able to find a third party with qualifications enabling us to resume our operations, we may be unable to negotiate commercially reasonable terms.
We currently market our products as LDTs. The FDA has adopted a policy of enforcement discretion with respect to LDTs whereby the FDA does not actively require premarket review of LDTs or otherwise impose its requirements applicable to other medical devices on LDTs. However, the FDA has stated its intention to modify its enforcement discretion policy with respect to LDTs.
We currently market our products as LDTs. The FDA has adopted a policy of enforcement discretion with respect to LDTs whereby the FDA does not actively require premarket review of LDTs or otherwise impose its requirements applicable to other medical devices on LDTs.
We also make 61 Table of Contents assumptions, estimations, calculations and conclusions as part of our analyses of data, and we may not have received or had the opportunity to fully and carefully evaluate all data.
We also make assumptions, estimations, calculations and conclusions as part of our analyses of data, and we may not have received or had the opportunity to fully and carefully evaluate all data.
Any successful third-party challenge to our patents in this or any other proceeding could result in the unenforceability or invalidity of such patents, which may lead to increased competition to our business, which could harm our business.
Any successful third- 53 Table of Contents party challenge to our patents in this or any other proceeding could result in the unenforceability or invalidity of such patents, which may lead to increased competition to our business, which could harm our business.
For example, we license certain intellectual property from WUSTL that is incorporated into DecisionDx-UM. In 2022, we provided over 1,700 test reports for DecisionDx-UM. If the License Agreement were terminated, we would be unable to continue to issue test reports and thus sales of DecisionDx-UM.
For example, we license certain intellectual property from WUSTL that is incorporated into DecisionDx-UM. In 2023, we provided over 1,600 test reports for DecisionDx-UM. If the License Agreement were terminated, we would be unable to continue to issue test reports and thus sales of DecisionDx-UM.
Although the 2019 Plan provides for automatic increases in the number of shares authorized for issuance annually through January 1, 2029, there can be no assurances that these increases will be adequate to support our requirements for future equity awards or that we will be able to obtain approval from our stockholders in the future should we require authorization for the issuance of additional shares.
The 2019 Equity Incentive Plan (the “2019 Plan”) provides for automatic increases in the number of shares authorized for issuance annually through January 1, 2029, however, there can be no assurances that these increases will be adequate to support our requirements for future equity awards or that we will be able to obtain approval from our stockholders in the future should we require authorization for the issuance of additional shares.
Extortion payments may alleviate the negative impact of a ransomware attack, but we may be unwilling or unable to make such payments due to, for example, applicable laws or regulations prohibiting such payments.
Extortion payments may alleviate the negative impact of a ransomware attack, but we may be unwilling or unable to 63 Table of Contents make such payments due to, for example, applicable laws or regulations prohibiting such payments.
Despite the time, effort and expense expended, there can be no 58 Table of Contents assurance that a particular device ultimately will be cleared or approved by the FDA through either the 510(k) clearance process or the PMA process on a timely basis, or at all.
Despite the time, effort and expense expended, there can be no assurance that a particular device ultimately will be cleared or approved by the FDA through either the 510(k) clearance process or the PMA process on a timely basis, or at all.
While we also derive revenue from our other tests, we expect that the majority of our revenue for at least the next several years will be derived from sales of DecisionDx-Melanoma.
While we also derive revenue from our other tests, we expect that the majority of our revenue for at least the next several years will be derived from sales of DecisionDx-Melanoma as well as our other dermatologic tests.
CLIA certification or accreditation is also required in order for us to be eligible to bill state and federal healthcare programs, as well as commercial third-party payors, for our products. 59 Table of Contents CAP maintains a clinical laboratory accreditation program.
CLIA certification or accreditation is also required in order for us to be eligible to bill state and federal healthcare programs, as well as commercial third-party payors, for our products. CAP maintains a clinical laboratory accreditation program.
In addition, under Sections 382 and 383 of the IRC, and corresponding provisions of state law, if a corporation undergoes an ‘‘ownership change’’ (which is generally defined as a greater than 50% change (by value) in its equity ownership over a three-year period), the corporation’s ability to use its pre-change NOL carryforwards and other pre-change tax attributes (such as research tax credits) to offset its post-change income or taxes may be limited.
In addition, under Sections 382 and 383 of the Internal Revenue Code, and corresponding provisions of state law, if a corporation undergoes an ‘‘ownership change’’ (which is generally defined as a greater than 50% change (by value) in its equity ownership over a three-year period), the corporation’s ability to use its pre-change NOL carryforwards and other pre-change tax attributes (such as research tax credits) to offset its post-change income or 62 Table of Contents taxes may be limited.
If our revenue or operating results fall below the expectations of analysts or investors or below any guidance we may provide, or if the guidance 46 Table of Contents we provide is below the expectations of analysts or investors, the price of our common stock could decline substantially.
If our revenue or operating results fall below the expectations of analysts or investors or below any guidance we may provide, or if the guidance we provide is below the expectations of analysts or investors, the price of our common stock could decline substantially.
Certain potential competitors may be able to secure key inputs from vendors on more favorable terms, devote greater resources to marketing and promotional campaigns, adopt more aggressive pricing 54 Table of Contents policies and devote substantially more resources to test development than we can.
Certain potential competitors may be able to secure key inputs from vendors on more favorable terms, devote greater resources to marketing and promotional campaigns, adopt more aggressive pricing policies and devote substantially more resources to test development than we can.
The most recent CAP inspection of our Phoenix, Arizona laboratories occurred in October 2022. We currently have a CLIA certificate of registration for our Pittsburgh, Pennsylvania laboratories which expires in February 2024. In November 2022, our Pittsburgh, Pennsylvania passed CAP inspection and received CAP accreditation.
The most recent CAP inspection of our Phoenix, Arizona laboratories occurred in October 2022. 42 Table of Contents We currently have a CLIA certificate of registration for our Pittsburgh, Pennsylvania laboratory which expires in February 2024. In November 2022, our Pittsburgh, Pennsylvania passed CAP inspection and received CAP accreditation.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeIn April 2022, we entered into a lease agreement for 20,856 square feet of laboratory and office space in Pittsburgh, Pennsylvania, with a 10.5-year term and an option to renew for one additional five-year period. Starting in early 2026, the total square footage under this lease will increase to approximately 44,677.
Biggest changeIn April 2022, we entered into a lease agreement for 20,856 square feet of laboratory and office space in Pittsburgh, Pennsylvania, with a 10.5-year term and an option to renew for one additional five-year period. We commenced operations in the Pittsburgh facility in the second quarter of 2023.
We also lease approximately 35,600 square feet of laboratory and office space in Phoenix, Arizona under two agreements, expiring in April 2033 and July 2033. For both leases, there are options to renew for two additional five-year terms.
We also lease approximately 46,000 square feet of laboratory and office space in Phoenix, Arizona under two agreements, expiring in July 2033 and October 2033. For both leases, there are options to renew for two additional five-year terms.
Removed
We expect to commence operations in this new facility in the second quarter of 2023. In connection with our acquisition of Cernostics in December 2021, we occupy 8,100 square feet of office and laboratory space in Pittsburgh, Pennsylvania under a lease which we renewed in September 2022, expiring in May 2023.
Added
In February 2024, we purchased approximately 23 acres of land in Friendswood, Texas for the purpose of developing a commercial office building which may be used as our future corporate headquarters. We have initiated planning for such facilities and do not expect substantial construction of such facilities would be ready for operational use before the end of 2025.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Item 3. Legal Proceedings. From time to time, we may be involved in legal proceedings arising in the ordinary course of business. We believe there is no threatened litigation or litigation pending that could have, individually or in the aggregate, a material adverse effect on our financial position, results of operations or cash flows. Item 4. Mine Safety Disclosures.
Added
Item 3. Legal Proceedings. From time to time, we may be involved in legal proceedings arising in the ordinary course of business. Legal proceedings, including litigation, government investigations and enforcement actions could result in material costs, occupy significant management resources and entail civil and criminal penalties, even if we ultimately prevail.
Removed
Not applicable. 89 Table of Contents PART II
Added
On February 1, 2024, we received a subpoena from United States Department of Health and Human Services Office of Inspector General and are fully cooperating with the government’s inquiry. This inquiry, and any potential resulting claim asserted against us, with or without merit, could be time-consuming, expensive to address and divert management’s attention and other resources.
Added
These claims also could subject us to significant liability for damages and harm our reputation. Our insurance and indemnities may not cover all claims that may be asserted against us.
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We are unable to predict the outcome and are unable to make a meaningful estimate of the amount or range of loss, if any, that could result from any unfavorable outcome. Item 4. Mine Safety Disclosures. Not applicable. 74 Table of Contents PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeHolders of Record As of February 21, 2023, there were approximately 127 stockholders of record of our common stock, which does not include stockholders who hold shares in street name. Dividend Policy We have never declared or paid cash dividends on our capital stock.
Biggest changeHolders of Record As of February 21, 2024, there were approximately 132 stockholders of record of our common stock, which does not include stockholders who hold shares in street name. Dividend Policy We have never declared or paid cash dividends on our capital stock.
Since the effective date of our registration statement through December 31, 2022, we have not used any of the net proceeds from the IPO. Pending such uses, we have invested, and plan to continue to invest, the balance of the net proceeds from the IPO in cash and cash equivalent securities or highly liquid investment securities.
Since the effective date of our registration statement through December 31, 2023, we have not used any of the net proceeds from the IPO. Pending such uses, we have invested, and plan to continue to invest, the balance of the net proceeds from the IPO in cash and cash equivalent securities or highly liquid investment securities.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeA test report is generated when we receive a sample in our laboratory, and then the relevant test information is entered into our Laboratory Information Management System, the expression of the biomarkers is measured, then a proprietary algorithmic analysis of the combined biomarkers is performed to generate a report providing the results of that analysis, which is sent to the clinician who ordered the test. 94 Table of Contents The numbers of test reports delivered by us during the years ended December 31, 2022 and 2021 are presented in the table below: Proprietary Dermatologic GEP Tests DecisionDx- Melanoma DecisionDx-SCC Diagnostic GEP offering (1) Dermatologic Total DecisionDx-UM TissueCypher Barrett’s Esophagus Test (2) IDgenetix (3) Grand Total Q1 2022 6,023 1,142 950 8,115 456 56 — 8,627 Q2 2022 7,125 1,344 955 9,424 431 352 827 11,034 Q3 2022 7,354 1,636 834 9,824 392 690 1,208 12,114 Q4 2022 7,301 1,845 822 9,968 432 1,030 1,214 12,644 For the year ended December 31, 2022 27,803 5,967 3,561 37,331 1,711 2,128 3,249 44,419 Q1 2021 4,060 527 218 4,805 337 — — 5,142 Q2 2021 5,128 784 627 6,539 468 — — 7,007 Q3 2021 5,505 934 913 7,352 375 — — 7,727 Q4 2021 5,635 1,265 904 7,804 438 27 — 8,269 For the year ended December 31, 2021 20,328 3,510 2,662 26,500 1,618 27 — 28,145 (1) Includes MyPath Melanoma and DiffDx-Melanoma.
Biggest changeThe number of test reports delivered by us during the years ended December 31, 2023 and 2022 are presented in the table below: Proprietary Dermatologic GEP Tests DecisionDx- Melanoma DecisionDx-SCC Diagnostic GEP offering (1) Dermatologic Total DecisionDx-UM TissueCypher (3) IDgenetix (2) Grand Total Q1 2023 7,583 2,411 980 10,974 409 1,383 2,150 14,916 Q2 2023 8,597 2,681 953 12,231 461 1,447 2,681 16,820 Q3 2023 8,559 2,820 1,011 12,390 399 2,829 2,791 18,409 Q4 2023 8,591 3,530 1,018 13,139 405 3,441 3,299 20,284 For the year ended December 31, 2023 33,330 11,442 3,962 48,734 1,674 9,100 10,921 70,429 Q1 2022 6,023 1,142 950 8,115 456 56 — 8,627 Q2 2022 7,125 1,344 955 9,424 431 352 827 11,034 Q3 2022 7,354 1,636 834 9,824 392 690 1,208 12,114 Q4 2022 7,301 1,845 822 9,968 432 1,030 1,214 12,644 For the year ended December 31, 2022 27,803 5,967 3,561 37,331 1,711 2,128 3,249 44,419 (1) Includes MyPath Melanoma and DiffDx-Melanoma.
Investing Activities Net cash used in investing activities was $166.5 million for the year ended December 31, 2022 and consisted primarily of purchases of marketable investment securities of $134.7 million, the cash portion of the AltheaDx purchase consideration of $27.0 million (net of cash and cash equivalents acquired) and purchases of property and equipment of $5.6 million.
Net cash used in investing activities was $166.5 million for the year ended December 31, 2022 and consisted primarily of purchases of marketable investment securities of $134.7 million, the cash portion of the AltheaDx purchase consideration of $27.0 million (net of cash and cash equivalents acquired) and purchases of property and equipment of $5.6 million.
Currently, our revenues are primarily derived from the sale of DecisionDx-Melanoma, DecisionDx-SCC and DecisionDx-UM. We bill third-party payors and patients for the tests we perform. Under ASC 606, we recognize revenue at the amount we expect to be entitled, subject to a constraint for variable consideration, in the period in which our tests are delivered to the treating clinicians.
Currently, our revenues are primarily derived from the sale of DecisionDx-Melanoma, DecisionDx-SCC, TissueCypher and DecisionDx-UM. We bill third-party payors and patients for the tests we perform. Under ASC 606, we recognize revenue at the amount we expect to be entitled, subject to a constraint for variable consideration, in the period in which our tests are delivered to the treating clinicians.
The extent of the impact of these factors on our operational and financial performance, including our ability to execute our business strategies and initiatives in the expected timeframe, will depend on future developments, which are uncertain and cannot be predicted; however, any continued or renewed disruption resulting from these factors could negatively impact our business.
The extent of the impact of these factors on our operational performance and financial condition, including our ability to execute our business strategies and initiatives in the expected timeframe, will depend on future developments, which are uncertain and cannot be predicted; however, any continued or renewed disruption resulting from these factors could negatively impact our business.
Our Financial Results Our net (loss) income may fluctuate significantly from period to period, depending on the timing of our planned development activities, the growth of our sales and marketing activities and the timing of revenue recognition under ASC 606.
Our Financial Results Our net loss may fluctuate significantly from period to period, depending on the timing of our planned development activities, the growth of our sales and marketing activities and the timing of revenue recognition under ASC 606.
If we are unable to raise additional funds through debt or equity financings or other arrangements when needed, we may be required to delay, limit, reduce or terminate our product discovery and development activities or future commercialization efforts. Leases We have entered into various operating and finance leases, which are primarily associated with our laboratory facilities and office space.
If we are unable to raise additional funds through debt or equity financing or other arrangements when needed, we may be required to delay, limit, reduce or terminate our product discovery and development activities or future commercialization efforts. Leases We have entered into various operating and finance leases, which are primarily associated with our laboratory facilities and office space.
As a result, our cost of sales as a percentage of revenues may vary significantly from period to period because we do not recognize all revenues in the period in which the associated costs are incurred. We expect cost of sales in absolute dollars to increase as the number of tests we perform 97 Table of Contents increases.
As a result, our cost of sales as a percentage of revenues may vary significantly from period to period because we do not recognize all revenues in the period in which the associated costs are incurred. We expect cost of sales in absolute dollars to increase as the number of tests we perform 81 Table of Contents increases.
We have concluded that our business is comprised of a single reporting unit. For our annual impairment test for the year ended December 31, 2022, we elected to bypass the qualitative assessment and proceeded directly to the quantitative assessment by comparing our reporting unit’s fair value to its carrying value.
We have concluded that our business is comprised of a single reporting unit. For our annual impairment test for the year ended December 31, 2023, we elected to bypass the qualitative assessment and proceeded directly to the quantitative assessment by comparing our reporting unit’s fair value to its carrying value.
We also provide a test for UM, DecisionDx-UM. We began offering the TissueCypher Barrett’s Esophagus Test for patients with BE following an asset acquisition completed in December 2021. We began offering a proprietary PGx test service focused on mental health IDgenetix®, following a business combination completed in April 2022.
We also provide a test for UM, DecisionDx-UM. We began offering the TissueCypher test for patients with BE following an asset acquisition completed in December 2021. We began offering a proprietary PGx test service focused on mental health IDgenetix, following a business combination completed in April 2022.
We expect to incur additional expenses and losses in the future as we invest in the commercialization of our existing products, the development of our future product candidates and the commercialization of our product candidates. Further, we expect that any acquisitions of businesses, products, assets or technologies will also increase our expenses.
We expect to incur additional expenses and losses in the future as we invest in the commercialization of our existing products and the development and commercialization of our current pipeline products and future product candidates. Further, we expect that any acquisitions of businesses, products, assets or technologies will also increase our expenses.
The amounts are determined by historical average collection rates by test type and payor category taking into consideration the range of possible outcomes, the predictive value of our past experiences, the time period of when uncertainties expect to be resolved and the amount of consideration that is susceptible to factors outside of our influence, such as the judgment and actions of third parties.
The amounts are estimated using historical average collection rates by test type and payor category taking into consideration the range of possible outcomes, the predictive value of our past experiences, the time period of when uncertainties expect to be resolved and the amount of consideration that is susceptible to factors outside of our influence, such as the judgment and actions of third parties.
We believe that our existing cash and cash equivalents, marketable investment securities and anticipated cash generated from sales of our products will be sufficient to fund our operations for at least the next 12 months and for the foreseeable future.
We believe that our existing cash and cash equivalents, marketable investment securities and anticipated cash generated from sales of our products will be sufficient to fund our operations for at least the next 12 months.
Our actual results may differ from these estimates under different assumptions or conditions. 106 Table of Contents While our significant accounting policies are described in more detail in Note 2 to our audited consolidated financial statements, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements.
Our actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are described in more detail in Note 2 to our audited consolidated financial statements, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements.
We use this metric to evaluate the growth in adoption of our 95 Table of Contents tests and to measure against our internal performance objectives. We believe this metric is useful to investors in evaluating the volume of our business activity from period-to-period that may not be discernible from our reported revenues under ASC 606.
We use this metric to evaluate the growth in adoption of our tests and to measure against our internal performance objectives. We believe this metric is useful to investors in evaluating the volume of our business activity from period-to-period that may not be discernible from our reported revenues under ASC 606.
Additionally, we expect cost of sales to increase with the expansion of laboratory capacity and staffing in advance of the anticipated growth of our recently launched tests and tests acquired through acquisitions. For example, we expect to commence operations in a new expanded laboratory facility in Pittsburgh, Pennsylvania in the second quarter of 2023.
Additionally, we expect cost of sales to increase with the expansion of laboratory capacity and staffing in advance of the anticipated growth of our more recently launched tests and tests acquired through acquisitions. For example, we commenced operations in a new expanded laboratory facility in Pittsburgh, Pennsylvania in the second quarter of 2023.
We launched DecisionDx-Melanoma in May 2013. DecisionDx‑SCC is our proprietary GEP test for use in patients with SCC, with one or more risk factors (also referred to as “high-risk” SCC). We estimate 20% of SCC patients, or 200,000 annually in the United States, are classified as high risk, representing an estimated U.S. TAM of approximately $820 million.
DecisionDx‑SCC is our proprietary GEP test for use in patients with SCC, with one or more risk factors (also referred to as “high-risk” SCC). We estimate 20% of SCC, or 200,000 annually in the United States, are classified as high risk, representing an estimated U.S. TAM of approximately $820 million.
For example, we found that for the year ended December 31, 2022, approximately 79% of all clinicians ordering DecisionDx-SCC had also ordered our DecisionDx-Melanoma test during that same period. Information About Certain Metrics The following provides additional information about certain metrics we have disclosed in this Management’s Discussion and Analysis of Financial Condition and Results of Operations.
For example, we found that for the year ended December 31, 2023, approximately 78% of all clinicians ordering DecisionDx-SCC had also ordered our DecisionDx-Melanoma test during that same period. Information About Certain Metrics The following provides additional information about certain metrics we have disclosed in this Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Change in Fair Value of Contingent Consideration Change in fair value of contingent consideration is associated with our acquisitions of Cernostics and AltheaDx and the related additional contingent consideration of up to $50.0 million and $75.0 million, respectively, payable based on the achievement of certain commercial milestones relating to the year ending December 31, 2022 in the case of Cernostics, and the years ending December 31, 2022, 2023 and 2024, in the case of AltheaDx.
Change in Fair Value of Contingent Consideration Change in fair value of contingent consideration is associated with our acquisitions of Cernostics and AltheaDx and the related contingent consideration of up to $50.0 million and $75.0 million, respectively, payable based on the achievement of certain commercial milestones relating to the year ended December 31, 2022 in the case of Cernostics, and the years ending December 31, 2022, 2023 and 2024, in the case of AltheaDx (the “Earnout Payments”).
Payors require extensive evidence of clinical utility, clinical validity, patient outcomes and health economic benefits in order to provide reimbursement for diagnostic products. Our revenue depends on our ability to demonstrate the value of our products to these payors. • Gross margin. We believe that our gross margin is an important indicator of the operating performance of our business.
We believe that expanding reimbursement is an important indicator of the value of our products. Payors require extensive evidence of clinical utility, clinical validity, patient outcomes and health economic benefits in order to provide reimbursement for diagnostic products. Our revenue depends on our ability to demonstrate the value of our products to these payors. • Gross margin.
In accordance with ASC 606, we follow a five-step process to recognize revenues: (1) identify the contract with the customer, (2) identify the performance obligations, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations and (5) recognize revenues when the performance obligations are satisfied.
In accordance with ASC 606, we follow a five-step process to recognize revenues: (1) identify the contract with the customer, (2) identify the performance obligations, (3) 90 Table of Contents determine the transaction price, (4) allocate the transaction price to the performance obligations and (5) recognize revenues when the performance obligations are satisfied.
There are numerous risks and uncertainties associated with developing genomic tests, including, among others, the uncertainty of: • successful commencement and completion of clinical study protocols; • successful identification and acquisition of tissue samples; • the development and validation of genomic classifiers; and • acceptance of new genomic tests by clinicians, patients and third-party payors.
There are numerous risks and uncertainties associated with developing genomic tests, including, among others, the uncertainty of: 88 Table of Contents • successful commencement and completion of clinical study protocols; • successful identification and acquisition of tissue samples; • the development and validation of genomic classifiers; and • acceptance of new genomic tests by clinicians, patients and third-party payors including competitor actions.
Substantially all of the income tax benefit in the year ended December 31, 2022 was primarily attributable to a reduction of $1.6 million in our valuation allowance on net deferred tax assets resulting from our acquisition of AltheaDx in April 2022.
Our income tax benefit was $1.8 million for the year ended December 31, 2022, and was primarily attributable to a reduction of $1.6 million in our valuation allowance on net deferred tax assets resulting from our acquisition of AltheaDx in April 2022.
Since becoming a public company, our liquidity has been primarily derived from the revenue generated from the sale of our products, proceeds from our July 2019 IPO, follow-on public offerings of common stock in June 2020 and December 2020 and bank debt, which has since been repaid in full.
Since becoming a public company, our liquidity has been primarily derived from the revenue generated from the sale of our products, proceeds from our July 2019 IPO, follow-on public offerings of common stock in June 2020 and December 2020.
We believe that our existing cash and cash equivalents, marketable investment securities and anticipated cash generated from the sale of our commercial 104 Table of Contents products will be sufficient to fund our operations for at least the next 12 months and for the foreseeable future.
We believe that our existing cash and cash equivalents, marketable investment securities and anticipated cash generated from the sale of our commercial products will be sufficient to fund our operations for at least the next 12 months.
Two of the databases do not review GEP tests and NCCN has not yet, to our knowledge, reviewed DecisionDx-SCC. If finalized as proposed, then DecisionDx-SCC would not be included as a covered test in the associated billing and coding article. The comment period for the draft LCD ended on September 6, 2022.
Two of the databases do not review GEP tests and NCCN did not, to our knowledge, review DecisionDx-SCC. If finalized as proposed, then DecisionDx-SCC would not have been included as a covered test in the associated billing and coding article. The comment period for the draft LCD ended on September 6, 2022.
Financing Activities Net cash provided by financing activities was $1.5 million for the year ended December 31, 2022, and consisted primarily of $2.5 million of proceeds from contributions to our 2019 Employee Stock Purchase Plan (the “ESPP”) and $0.8 million of proceeds from exercise of common stock options, partially offset by payment of employees’ taxes on vested RSUs of $1.7 million.
Net cash provided by financing activities was $1.5 million for the year ended December 31, 2022, and consisted primarily of $2.5 million of proceeds from contributions to the ESPP and $0.8 million of proceeds from exercise of common stock options, partially offset by payment of employees’ taxes on vested RSUs of $1.7 million.
From April 1, 2022 through December 31, 2022, CMS has set the initial period rate equal to the original list price of $2,350. Effective January 1, 2023, the published CLFS rate for TissueCypher is $4,950, which will remain effective through December 31, 2024.
From April 1, 2022 through December 31, 2022, CMS set the initial period rate equal to the original list price of $2,350 per test. Effective January 1, 2023, the published CLFS rate for TissueCypher was set at $4,950 per test, which will remain effective through December 31, 2024.
The increases in total revenue were partially offset by the effect of variations in revenue adjustments related to tests delivered in previous periods, associated with changes in estimated variable consideration, which were $2.0 million of net negative revenue adjustments for the year ended December 31, 2022 compared to $3.3 million of net positive revenue adjustments for the year ended December 31, 2021.
The increases in total net revenues were partially offset by the effect of variations in revenue adjustments related to tests delivered in previous periods, associated with changes in estimated variable consideration, which were $4.5 million of net negative revenue adjustments for the year ended December 31, 2023 compared to $2.0 million of net negative revenue adjustments for the year ended December 31, 2022.
Variable consideration for Medicare claims that are not covered, including those claims subject to approval by an ALJ at an appeal hearing, is deemed to be fully constrained due to factors outside our influence (i.e., judgment or actions of third parties) and the uncertainty of the amount to be received is not expected to be resolved for a long period of time.
Variable consideration for Medicare claims for which there are no existing positive coverage decisions, including those claims subject to approval by an ALJ at an appeal hearing, is deemed to be fully constrained due to factors outside our influence (i.e., judgment or actions of third parties) and the uncertainty of the amount to be received is not expected to be resolved for a long period of time.
Medicare claims that were either submitted to Medicare prior to the LCD’s effective date or are not covered, but meet the definition of being medically reasonable and necessary pursuant to the controlling Section 1862(a)(1)(A) of the Social Security Act are generally appealed and may ultimately be paid at the first (termed “redetermination”), second (termed “reconsideration”) or third level of appeal ( de novo hearing with an ALJ).
Medicare claims that were either submitted to Medicare prior to a medical review and coverage, or an LCD’s effective date, or are not covered, but meet the definition of being medically reasonable and necessary pursuant to the controlling Section 1862(a)(1)(A) of the Social Security Act may be paid upon initial claim submission or if denied for payment are generally appealed and may ultimately be paid at the first (termed “redetermination”), second (termed “reconsideration”) or third level of appeal ( de novo hearing with an ALJ).
Stock-Based Compensation Expense Stock-based compensation expense, which is allocated among cost of sales, research and development expense, and SG&A expense, totaled $36.3 million for the year ended December 31, 2022 compared to $21.7 million for the year ended December 31, 2021.
Stock-Based Compensation Expense Stock-based compensation expense, which is allocated among cost of sales, research and development expense and SG&A expense, totaled $51.2 million for the year ended December 31, 2023 compared to $36.3 million for the year ended December 31, 2022.
Total undiscounted future minimum payment obligations under our operating leases and finance leases as of December 31, 2022 totaled approximately $23.5 million, of which $2.0 million is payable in 2023 and $21.6 million is payable through the end of 2033. The leases expire on various dates through 2033 and provide certain options to renew for additional periods.
Total undiscounted future minimum payment obligations under our operating leases and finance leases as of December 31, 2023 totaled approximately $24.4 million, of which $2.4 million is payable in 2024 and $22.0 million is payable through the end of 2033. The leases expire on various dates through 2033 and provide certain options to renew for additional periods.
Revenue Recognition We recognize revenue is recognized in accordance with ASC 606.
Revenue Recognition We recognize revenue in accordance with ASC 606.
Since we have a single reporting unit, fair value of the reporting unit was measured at our total market capitalization on the impairment test date based on the closing price of our common stock. Our impairment test indicated that the fair value of our reporting unit substantially exceeded its carrying value.
Since we have a single reporting unit, fair value of the reporting unit was measured at our total market capitalization on the impairment test date based on the closing price of our common stock.
Variable consideration is evaluated 107 Table of Contents each reporting period and adjustments are recorded as increases or decreases in revenues.
Variable consideration is evaluated each reporting period and adjustments are recorded as increases or decreases in revenues.
Subsequent to our IPO, the fair value of our common stock is the closing selling price per share of our common stock as reported on the Nasdaq Global Market on the date of grant or other relevant determination date. 108 Table of Contents The following table sets forth the assumptions used to determine the fair value of stock options: Years Ended December 31, 2022 2021 Average expected term (years) 5.8 6.1 Expected stock price volatility 68.34% - 75.02% 66.50% - 68.83% Risk-free interest rate 1.54% - 4.21% 0.51% - 1.48% Dividend yield —% —% The following table sets forth assumptions used to determine the fair value of the purchase rights issued under the ESPP: Years Ended December 31, 2022 2021 Average expected term (years) 1.3 1.2 Expected stock price volatility 62.98% - 91.78% 61.13% - 86.50% Risk-free interest rate 0.60% - 3.45% 0.06% - 0.20% Dividend yield —% —% Intangible Assets and Goodwill Intangible assets Our intangible assets, which are comprised primarily of acquired developed technology, are considered to be finite-lived and are amortized on a straight-line basis over their estimated useful lives.
Subsequent to our IPO, the fair value of our common stock is the closing selling price per share of our common stock as reported on the Nasdaq Global Market on the date of grant or other relevant determination date. 92 Table of Contents The following table sets forth the assumptions used to determine the fair value of stock options: Years Ended December 31, 2023 2022 Average expected term (years) 5.0 5.8 Expected stock price volatility 75.57% - 76.01% 68.34% - 75.02% Risk-free interest rate 3.57% - 3.57% 1.54% - 4.21% Dividend yield —% —% The following table sets forth assumptions used to determine the fair value of the purchase rights issued under the ESPP: Years Ended December 31, 2023 2022 Average expected term (years) 1.3 1.3 Expected stock price volatility 72.80% - 130.95% 62.98% - 91.78% Risk-free interest rate 4.74% - 5.33% 0.60% - 3.45% Dividend yield —% —% Intangible Assets and Goodwill Intangible assets Our intangible assets, which are comprised primarily of acquired developed technology, are considered to be finite-lived and are amortized on a straight-line basis over their estimated useful lives.
If the revised useful lives are shorter than originally estimated, our future amortization expense will increase. Goodwill Our goodwill is not amortized but is tested for impairment on an annual basis or whenever events or changes in circumstances indicate that it may be impaired. We perform annual impairment reviews of our goodwill balance during the fourth quarter of each year.
If the revised useful lives are shorter than originally estimated, our future amortization expense will increase. Goodwill Our goodwill is not amortized but is tested for impairment on an annual basis or whenever events or changes in circumstances indicate that it may be impaired.
To date, neither Palmetto nor Noridian has posted a draft LCD for DecisionDx-SCC. On June 9, 2022, Novitas posted a draft oncology biomarker LCD that proposes to rely upon evidentiary reviews sourced from three databases for all oncology biomarker tests: ClinGen, OncoKB and NCCN. We believe the purpose of the proposals in this draft LCD are to streamline future reviews.
On June 9, 2022, Novitas posted a draft oncology biomarker LCD that proposes to rely upon evidentiary reviews sourced from three databases for all oncology biomarker tests: ClinGen, OncoKB and NCCN. We believe the purpose of the proposals in this draft LCD were to streamline future reviews.
The period in which a test report is delivered does not necessarily correspond with the period the related revenue, if any, is recognized, due to the timing and amount of adjustments for variable consideration under ASC 606.
Test Reports Delivered Test reports delivered represents the number of completed test reports delivered by us during the reporting period indicated. The period in which a test report is delivered does not necessarily correspond with the period in which the related revenue, if any, is recognized, due to the timing and amount of adjustments for variable consideration under ASC 606.
Our actual liability with respect to these commercial milestone payments from our acquisitions will depend, in part, on our ability to successfully integrate IDgenetix (acquired from AltheaDx) into our suite of commercial product offerings and the timing thereof. See Note 6 to the consolidated financial statements for additional information on recent acquisitions.
Our actual liability with respect to these commercial milestone payments from our acquisition will depend, in part, on our ability to successfully grow IDgenetix (acquired from AltheaDx) revenue and timing thereof. See Note 6 of the consolidated financial statements for additional information on the acquisition of AltheaDx.
Our future funding requirements will depend on and could increase significantly as a result of, many factors, including those listed above as well as those listed in Part 1, Item 1A., “Risk Factors” in this Annual Report on Form 10-K. We do not currently have any committed external source of funds.
Our future funding requirements will depend on and could increase significantly as a result of, many factors, including those listed above as well as those listed in Part 1, Item 1A., “Risk Factors” in this Annual Report on Form 10-K.
Amortization of Acquired Intangible Assets Amortization of acquired intangible assets are primarily associated with developed technology obtained through acquisitions, such as our acquisitions of the Myriad MyPath Laboratory in May 2021, Cernostics in December 2021 and AltheaDx in April 2022.
Amortization of Acquired Intangible Assets Amortization of acquired intangible assets is primarily associated with developed technology obtained through acquisitions, such as our acquisitions of Cernostics in December 2021 and AltheaDx in April 2022.
Currently, our revenue is primarily generated by our DecisionDx-Melanoma risk stratification test for cutaneous melanoma, our DecisionDx-SCC risk stratification test for SCC and our DecisionDx-UM risk stratification test for UM.
Currently, our revenue is primarily generated by our DecisionDx-Melanoma risk stratification test for cutaneous melanoma, which is supplemented by revenue generated from our DecisionDx-SCC risk stratification test for SCC, our TissueCypher risk stratification test for BE and our DecisionDx-UM risk stratification test for UM.
Also, as noted above, in 2021, we initiated our IDENTITY Study, a 4,800 patient, prospective, multi-center clinical study to develop, validate and bring to market a pipeline test aimed at predicting response to systemic therapy in patients with moderate to severe psoriasis, atopic dermatitis and related inflammatory skin conditions.
Also, in 2021, we initiated our large prospective, multi-center clinical study to develop, validate and bring to market a pipeline genomic test, or tests, aimed at predicting response to systemic therapy in patients with moderate to severe psoriasis, atopic dermatitis and related inflammatory skin conditions.
We have received Medicare coverage for our DecisionDx-Melanoma, DecisionDx-SCC, MyPath Melanoma, DecisionDx-UM, TissueCypher and IDgenetix tests which meet certain criteria for Medicare and Medicare Advantage beneficiaries, representing approximately 60 million covered lives. A ‘‘covered life’’ means a subscriber, or a dependent of a subscriber, who is insured under an insurance carrier’s policy.
We bill third-party payors and patients for the tests we perform. We have received Medicare coverage for our DecisionDx-Melanoma, DecisionDx-SCC, MyPath Melanoma, DecisionDx-UM, TissueCypher and IDgenetix tests which meet certain criteria for Medicare and Medicare Advantage beneficiaries, representing. A ‘‘covered life’’ means a subscriber, or a dependent of a subscriber, who is insured under an insurance carrier’s policy.
Cash Flows The following table summarizes our sources and uses of cash and cash equivalents for each of the periods presented (in thousands): Years Ended December 31, 2022 2021 Net cash used in operating activities $ (41,655) $ (18,983) Net cash used in investing activities (166,545) (66,657) Net cash provided by financing activities 1,515 5,421 Net change in cash and cash equivalents (206,685) (80,219) Cash and cash equivalents, beginning of year 329,633 409,852 Cash and cash equivalents, end of year $ 122,948 $ 329,633 105 Table of Contents Operating Activities Net cash used in operating activities was $41.7 million for the year ended December 31, 2022, and was primarily attributable to the net loss of $67.1 million, the change in fair value of contingent consideration of $18.3 million, increases in accounts receivable of $6.2 million, deferred income taxes of $1.9 million, increases in inventory of $1.7 million and increases in accretion of discounts on marketable investment securities of $1.4 million, partially offset by non-cash stock-based compensation expense of $36.3 million, depreciation and amortization of $10.5 million and increases in accrued compensation of $8.5 million.
Cash Flows The following table summarizes our sources and uses of cash and cash equivalents for each of the periods presented (in thousands): Years Ended December 31, 2023 2022 Net cash used in operating activities $ (5,626) $ (41,655) Net cash used in investing activities (16,183) (166,545) Net cash (used in) provided by financing activities (2,298) 1,515 Net change in cash and cash equivalents (24,107) (206,685) Cash and cash equivalents, beginning of year 122,948 329,633 Cash and cash equivalents, end of year $ 98,841 $ 122,948 Operating Activities Net cash used in operating activities was $5.6 million for the year ended December 31, 2023, and was primarily attributable to the net loss of $57.5 million, increases in accounts receivable of $14.9 million, increases in accretion of discounts on marketable investment securities of $5.5 million and increases in inventory of $4.0 million, partially offset by non-cash stock-based compensation expense of $51.2 million, depreciation and amortization of $12.3 million, increases in accounts payable of $5.7 million, increases in accrued compensation of $4.6 million and increases in other accrued and current liabilities of $2.1 million. 89 Table of Contents Net cash used in operating activities was $41.7 million for the year ended December 31, 2022, and was primarily attributable to the net loss of $67.1 million, the change in fair value of contingent consideration of $18.3 million, increases in accounts receivable of $6.2 million, deferred income taxes of $1.9 million, increases in inventory of $1.7 million and increases in accretion of discounts on marketable investment securities of $1.4 million, partially offset by stock compensation expense of $36.3 million, depreciation and amortization of $10.5 million and increases in accrued compensation of $8.5 million.
Gross Margin Our gross margin percentage was 70.6% for the year ended December 31, 2022, compared to 81.1% for the same period in 2021.
Gross Margin Our gross margin percentage was 75.4% for the year ended December 31, 2023, compared to 70.6% for the same period in 2022.
As of December 31, 2022, we had federal NOL carryforwards of $207.2 million, of which $106.1 million will begin to expire in 2029 if not utilized to offset federal taxable income, and $101.1 million may be carried forward indefinitely.
As of December 31, 2023, we had federal NOL carryforwards of $197.1 million, of which $92.0 million will begin to expire in 2029 if not utilized to offset federal taxable income, and $105.1 million may be carried forward indefinitely.
Cost of Sales (exclusive of amortization of acquired intangible assets) Cost of sales (exclusive of amortization of acquired intangible assets) for the year ended December 31, 2022 increased by $16.2 million, or 102.3%, compared to the year ended December 31, 2021, primarily due to higher personnel costs, increased expenditures on supplies and third-party services.
Cost of Sales (exclusive of amortization of acquired intangible assets) Cost of sales (exclusive of amortization of acquired intangible assets) for the year ended December 31, 2023 increased by $13.0 million, or 40.5%, compared to the year ended December 31, 2022, primarily due to increased expenditures on supplies, higher personnel costs, third-party services and rent.
With respect to AltheaDx, we agreed to pay additional contingent consideration of up $75.0 million, 50% in cash and 50% in common stock, based on the achievement of certain commercial milestones relating to the years ending December 31, 2022, 2023 and 2024.
In April 2022, we acquired AltheaDx, for $30.5 million in cash and $17.1 million in shares of our common stock. We agreed to pay contingent consideration of up $75.0 million, 50% in cash and 50% in common stock, based on the achievement of certain commercial milestones relating to the years ending December 31, 2022, 2023 and 2024.
Selling, General and Administrative Selling, general and administrative (“SG&A”) expenses include executive, selling and marketing, legal, finance and accounting, human resources and billing. These expenses consist of personnel costs (including salaries, bonuses, benefits and stock-based compensation expense), direct marketing expenses, audit and legal expenses, consulting costs, payor outreach programs and allocated overhead, including rent, information technology, equipment depreciation, and utilities.
These expenses consist of personnel costs (including salaries, bonuses, benefits and stock-based compensation expense), direct marketing expenses, audit and legal expenses, consulting costs, payor outreach programs and allocated overhead, including rent, information technology, equipment depreciation, and utilities.
Beginning in 2022, the rate for DecisionDx-Melanoma has been set annually based upon the median private payor rate for the first half of the second preceding calendar year. For example, the rate for 2023 was set using median private payor rate data from January 1, 2021 to June 30, 2021.
DecisionDx-Melanoma has met ADLT status, as determined by the CMS, since 2019. Since 2022, the rate for DecisionDx-Melanoma is set annually based upon the median private payor rate for the first half of the second preceding calendar year. For example, the rate for 2023 was set using median private payor rate data from January 1, 2021 to June 30, 2021.
The increase is primarily associated with amortization of developed technology attributable to the acquisitions of Myriad MyPath Laboratory, Cernostics and AltheaDx in May 2021, December 2021 and April 2022, respectively. Amortization of acquired intangible assets is projected to be approximately $9.0 million for the year ending December 31, 2023.
The increase is primarily associated with amortization of developed technology attributable to the acquisition of AltheaDx in April 2022. Amortization of acquired intangible assets is projected to be approximately $9.0 million for the year ending December 31, 2024.
Included in revenues for the years ended December 31, 2022 and 2021 were $1,987,000 of net negative revenue adjustments and $3,324,000 of net positive revenue adjustments, respectively, associated with changes in estimated variable consideration related to performance obligations satisfied in previous periods.
Included in revenues for the years ended December 31, 2023 and 2022 were $4.5 million of net negative revenue adjustments and $2.0 million of net negative revenue adjustments, respectively, associated with changes in estimated variable consideration related to performance obligations satisfied in previous periods.
Income Tax (Benefit) Expense In connection with our acquisitions of AltheaDx in April 2022 and Cernostics in December 2021, and taking into consideration the additional deferred tax liabilities resulting from such acquisitions, we determined that a portion of our valuation allowance should be reduced, which was reflected in our income tax benefit for the years ended December 31, 2022 and 2021, respectively.
Interest Expense Interest expense is primarily attributable to finance leases. 82 Table of Contents Income Tax Expense (Benefit) In connection with our acquisition of AltheaDx in April 2022, and taking into consideration the additional deferred tax liabilities resulting from such acquisition, we determined that a portion of our valuation allowance should be reduced, which was reflected in our income tax benefit for the year ended December 31, 2022.
Higher gross margins reflect the average selling price of our tests, as well as the operating efficiency of our laboratory operations. • Expansion of our sales force and marketing programs.
We believe that our gross margin is an important indicator of the operating performance of our business. Higher gross margins reflect the average selling price of our tests, as well as the operating efficiency of our laboratory operations. • Expansion of our sales force and marketing programs.
As a smaller reporting company, we are not required to provide the information required by this Item.
Quantitative and Qualitative Disclosures About Market Risk. As a smaller reporting company, we are not required to provide the information required by this Item.
The rate for 2022 was $1,950 per test. Our 2023 rate will be set at $1,755 per test, based on data submitted by the predecessor owner of the Myriad MyPath Laboratory relating to the first half of 2021.
Our 2023 rate was set at $1,755 per test, based on data submitted by the predecessor owner of the Myriad MyPath Laboratory relating to the first half of 2021. Our 2024 rate is set at $1,950 per test. In the second quarter of 2022, we obtained a PLA code for DiffDx-Melanoma.
Recent Accounting Pronouncements W e have evaluated recently issued, but not yet effective, accounting pronouncements and do not believe that these accounting pronouncements will have any material impact on our consolidated financial statements or disclosures upon adoption. Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
We are currently evaluating the impact this update will have on our consolidated financial statements and disclosures. W e have evaluated all other recently issued, but not yet effective, accounting pronouncements and do not believe that these accounting pronouncements will have any material impact on our consolidated financial statements or disclosures upon adoption. Item 7A.
We launched DiffDx-Melanoma in November 2020 and began to offer MyPath Melanoma following our acquisition of the Myriad MyPath Laboratory from Myriad Genetics, Inc. in 2021. Our internal data indicates that we have improved the technical performance of MyPath Melanoma such that it is now comparable to the technical performance of DiffDx-Melanoma.
We began offering MyPath Melanoma following our acquisition of the Myriad MyPath Laboratory on May 28, 2021. Our internal data indicates that we have improved the technical performance of MyPath Melanoma such that it is now comparable to the technical performance of DiffDx-Melanoma.
Our Test Portfolio We currently market five proprietary MAAA tests for use in the dermatologic, ocular and gastroenterology fields. We also offer a proprietary PGx test to guide optimal drug treatment for patients suffering from depression, anxiety and other mental health conditions following our acquisition of AltheaDx in April 2022, as discussed below.
We also offer a proprietary PGx test to guide optimal drug treatment for patients diagnosed with depression, anxiety and other mental health conditions following our acquisition of AltheaDx in April 2022, as discussed below.
Our revenue and costs are affected by the volume of testing and mix of customers. Our performance depends on our ability to retain and broaden adoption with existing prescribing clinicians, as well as attract new clinicians.
Our revenue and costs are affected by the volume of testing and mix of customers. Our performance depends on our ability to retain and broaden adoption with existing prescribing clinicians, as well as attract new clinicians. Our report volume could be negatively impacted by developments related to evolving macroeconomic developments, as discussed above. 80 Table of Contents • Reimbursement.
We intend on filing a new shelf registration statement later in 2023. 103 Table of Contents As mentioned above, we expect to use a portion of our cash and cash equivalents and marketable investment securities to further support and accelerate our research and development activities, including the clinical studies noted above in “Components of the Results of Operations—Research and Development.” Public Offerings of Common Stock On June 29, 2020 and July 2, 2020, we issued and sold 2,000,000 and 300,000 shares of our common stock, respectively, of our common stock in a follow-on public offering at a price of $37.00 per share.
Concurrently with the filing of this Annual Report Form 10-K, we are filing a shelf registration statement on Form S-3 pursuant to which we will be allowed to issue up to $300.0 million of common stock, preferred stock, debt securities and warrants from time-to-time in one or more offerings. 87 Table of Contents As mentioned above, we expect to use a portion of our cash and cash equivalents and marketable investment securities to further support and accelerate our research and development activities, including the clinical studies noted above in “Components of the Results of Operations—Research and Development.” Public Offerings of Common Stock On June 29, 2020 and July 2, 2020, we issued and sold 2,000,000 and 300,000 shares of our common stock, respectively, of our common stock in a follow-on public offering at a price of $37.00 per share.
As of December 31, 2022, we had marketable investment securities of $135.7 million, and we had no such balance as of December 31, 2021. As of December 31, 2022 and 2021, we had cash and cash equivalents of $122.9 million and $329.6 million, respectively.
As of December 31, 2023 and December 31, 2022, we had marketable investment securities of $144.3 million and $135.7 million, respectively. As of December 31, 2023 and 2022, we had cash and cash equivalents of $98.8 million and $122.9 million, respectively.
In developing our DecisionDx-SCC and DiffDx-Melanoma tests, we believed that in addition to addressing significant unmet clinical needs, we would see strategic opportunities for leverage, as many of the clinicians currently ordering DecisionDx-Melanoma would likely be the same clinicians who would find value in our DecisionDx-SCC test.
For a discussion of how we recognize revenue derived from our tests, refer to “Net Revenues” under “Components of Results of Operations” below. 79 Table of Contents In developing our DecisionDx-SCC test, we believed that in addition to addressing significant unmet clinical needs, we would see opportunities for leverage, as many of the clinicians currently ordering DecisionDx-Melanoma would likely be the same clinicians who would find value in our DecisionDx-SCC test.
Due to the nature of our business, a significant portion of our cost of sales expenses represents fixed costs associated with our testing operations. Accordingly, our cost of sales expense will not necessarily increase or decrease commensurately with the change in net revenues from period to period.
Accordingly, our cost of sales expense will not necessarily increase or decrease commensurately with the change in net revenues from period to period.
Since our inception, we have generally incurred significant losses and negative cash flows. For the year ended December 31, 2022 we had a net loss of $67.1 million and an accumulated deficit of $160.9 million as of December 31, 2022.
On February 9, 2024, we closed on the purchase of the land for cash consideration of $7.2 million. Since our inception, we have generally incurred significant losses and negative operating cash flows. For the year ended December 31, 2023 we had a net loss of $57.5 million and an accumulated deficit of $218.4 million as of December 31, 2023.
TAM of approximately $5 billion associated with this test. We began offering the IDgenetix test following our acquisition of AltheaDx in April 2022. Commercial Expansion Efforts During the first half of 2021, we expanded our dermatologic commercial team, bringing our dermatologic sales force to the mid-60s.
TAM of approximately $5 billion associated with this test. We began offering the IDgenetix test following our acquisition of AltheaDx in April 2022. Commercial Expansion Efforts During the year ended December 31, 2022, we expanded our outside territories for our TissueCypher test to 16 sales territories.
We began offering MyPath Melanoma following our acquisition of the Myriad MyPath Laboratory on May 28, 2021. We offered both MyPath Melanoma and DiffDx-Melanoma under our Diagnostic GEP offering until February 2023 when we suspended the offering of DiffDx-Melanoma, as discussed above.
We offered both MyPath Melanoma and DiffDx-Melanoma under our Diagnostic GEP offering until February 2023 when we suspended the offering of DiffDx-Melanoma, as discussed above. (2) We began offering the IDgenetix test on April 26, 2022, following our acquisition of AltheaDx. Includes both single-gene and multi-gene tests.
We believe the expansion of our direct sales force and marketing organization to educate clinicians and pathologists on the value of our molecular diagnostic testing products will significantly impact our performance. • Integrating acquisitions.
We believe the expansion of our direct sales force and marketing organization to educate clinicians and pathologists on the value of our molecular testing products will significantly impact our performance. • Integrating acquisitions. Revenue growth, operational results and advances to our business strategy depends on our ability to integrate any acquisitions into our existing business and effectively scale their operations.
Net cash provided by financing activities was $5.4 million for the year ended December 31, 2021, and consisted primarily of $4.2 million of proceeds from exercise of common stock options and $2.3 million of proceeds from contributions to the ESPP, partially offset by payment of employees’ taxes on vested RSUs of $0.8 million and payment of common stock offering costs of $0.3 million.
Financing Activities Net cash used in financing activities was $2.3 million for the year ended December 31, 2023, and consisted primarily of payment of employees’ taxes on vested RSUs of $5.1 million, partially offset by $2.7 million of proceeds from contributions to our 2019 Employee Stock Purchase Plan (the “ESPP”).
Gross margin and gross margin percentage are key indicators we use to assess our business. See the table in “Results of Operations—Comparison of the years ended December 31, 2022 and 2021” for details.
Gross margin and gross margin percentage are key indicators we use to assess our business. See the table in “Results of Operations—Comparison of the years ended December 31, 2023 and 2022” for details. Research and Development Research and development expenses include costs incurred to develop our tests, collect clinical samples and conduct clinical studies to develop and support our products.
We expect to use a portion of our cash and cash equivalents and marketable investment securities to further support and accelerate our research and development activities, including two important studies that are underway to support our DecisionDx-Melanoma test. The first is the CONNECTION study, which is collecting long-term outcomes for up to 10,000 patients who have been tested with DecisionDx-Melanoma.
We expect to use a portion of our cash and cash equivalents and marketable investment securities to further support and accelerate our research and development activities, including important studies that are underway to support our DecisionDx-Melanoma test.
Test Overview Our Dermatologic Tests Our lead product is DecisionDx-Melanoma, a proprietary risk stratification GEP test that predicts the risk of metastasis or recurrence for patients diagnosed with invasive cutaneous melanoma. In a typical year, we estimate approximately 130,000 patients are diagnosed with invasive cutaneous melanoma in the United States, representing an estimated U.S. TAM of approximately $540 million.
In a typical year, we estimate approximately 130,000 patients are diagnosed with invasive cutaneous melanoma in the United States, representing an estimated U.S. TAM of approximately $540 million. We estimate that approximately 50% of patients diagnosed with CM are 65 years of age or older.
As of December 31, 2022, the total unrecognized stock-based compensation cost related to outstanding awards was $131.6 million, which is expected to be recognized on a straight-line basis over a weighted-average period of 3.0 years. We expect to continue granting stock-based compensation awards, which we expect to further contribute to increases in stock-based compensation expense in future periods.
As of December 31, 2023, the total unrecognized stock-based compensation cost related to outstanding awards was $85.5 million, which is expected to be recognized over a weighted-average period of 2.3 years.
Also, as of December 31, 2022, we had state NOL carryforwards of $114.0 million, which begin to expire in 2028 if not utilized to offset state taxable income. 99 Table of Contents Results of Operations Comparison of the Years Ended December 31, 2022 and 2021 The following table summarizes our results of operations for the periods indicated (in thousands, except percentages): Years Ended December 31, Change 2022 2021 Net revenues $ 137,039 $ 94,085 $ 42,954 45.7 % Operating expenses and other operating income: Cost of sales (exclusive of amortization of acquired intangible assets) 32,009 15,822 16,187 102.3 % Research and development 44,903 29,646 15,257 51.5 % Selling, general and administrative 143,003 86,738 56,265 64.9 % Amortization of acquired intangible assets 8,266 1,958 6,308 322.2 % Change in fair value of contingent consideration (18,287) — (18,287) NA Total operating expenses, net 209,894 134,164 75,730 56.4 % Operating loss (72,855) (40,079) (32,776) (81.8) % Interest income 3,968 68 3,900 NM Interest expense (17) (1) (16) NM Loss before income taxes (68,904) (40,012) (28,892) (72.2) % Income tax benefit (1,766) (8,720) 6,954 79.7 % Net loss $ (67,138) $ (31,292) $ (35,846) (114.6) % (1) NA = Not applicable (2) NM = Not meaningful The following table provides a disaggregation of net revenues by type (in thousands): Years Ended December 31, 2022 2021 Change Dermatologic (1) $ 124,809 $ 85,753 $ 39,056 Other (2) 12,230 8,332 3,898 Total net revenues $ 137,039 $ 94,085 $ 42,954 (1) Consists of DecisionDx-Melanoma, DecisionDx-SCC and Diagnostic GEP offering.
Also, as of December 31, 2023, we had state NOL carryforwards of $114.3 million, which begin to expire in 2028 if not utilized to offset state taxable income. 83 Table of Contents Results of Operations Comparison of the Years Ended December 31, 2023 and 2022 The following table summarizes our results of operations for the periods indicated (in thousands, except percentages): Years Ended December 31, Change 2023 2022 Net revenues $ 219,788 $ 137,039 $ 82,749 60.4 % Operating expenses and other operating income: Cost of sales (exclusive of amortization of acquired intangible assets) 44,982 32,009 12,973 40.5 % Research and development 53,618 44,903 8,715 19.4 % Selling, general and administrative 180,152 143,003 37,149 26.0 % Amortization of acquired intangible assets 9,013 8,266 747 9.0 % Change in fair value of contingent consideration — (18,287) 18,287 100.0 % Total operating expenses, net 287,765 209,894 77,871 37.1 % Operating loss (67,977) (72,855) 4,878 6.7 % Interest and other non-operating income 10,623 3,968 6,655 167.7 % Interest expense (11) (17) 6 NM Loss before income taxes (57,365) (68,904) 11,539 16.7 % Income tax expense (benefit) 101 (1,766) 1,867 105.7 % Net loss $ (57,466) $ (67,138) $ 9,672 14.4 % (1) NA = Not applicable (2) NM = Not meaningful The following table indicates the amount of stock-based compensation expense (non-cash) reflected in the line items above (in thousands): Years Ended December 31, 2023 2022 Change Cost of sales (exclusive of amortization of acquired intangible assets) $ 4,938 $ 3,755 $ 1,183 Research and development 10,119 7,635 2,484 Selling, general and administrative 36,162 24,931 11,231 Total stock-based compensation expense $ 51,219 $ 36,321 $ 14,898 The following table provides a disaggregation of net revenues by type (in thousands): Years Ended December 31, 2023 2022 Change Dermatologic (1) $ 183,375 $ 124,809 $ 58,566 Non-Dermatologic (2) 36,413 12,230 24,183 Total net revenues $ 219,788 $ 137,039 $ 82,749 (1) Consists of DecisionDx-Melanoma, DecisionDx-SCC and our Diagnostic GEP offering.
The expected term is the period of time that granted options are expected to be outstanding.
Set forth below is a description of the significant assumptions used in the option pricing model: • Expected term . The expected term is the period of time that granted options are expected to be outstanding.
As such, following an internal assessment of the clinical value of offering both tests, we made the decision to suspend the clinical offering of DiffDx-Melanoma in February 2023. Our Uveal Melanoma Test DecisionDx-UM is a proprietary, risk stratification GEP test that predicts the risk of metastasis for patients with UM.
As such, following an internal assessment of the clinical value of offering both tests, we made the decision to suspend the clinical offering of DiffDx-Melanoma in February 2023. DecisionDx‑SCC We issue our DecisionDx-SCC tests from our Pittsburgh and Phoenix labs, with a majority of tests being issued from our Pittsburgh lab.
Factors that could result in an impairment of goodwill in the future include declines in the price of our common stock, increased competition, changes in macroeconomic developments and unfavorable government or regulatory developments.
Factors that could result in an impairment of goodwill in the future include declines in the price of our common stock, increased competition, changes in macroeconomic developments and unfavorable government or regulatory developments. On June 2, 2023, a MAC finalized an LCD pursuant to which the DecisionDx-SCC test would no longer be covered by Medicare effective July 17, 2023.
We launched DecisionDx-SCC in August 2020. Initially, we offered both our MyPath Melanoma test and our DiffDx-Melanoma test under an offering that we referred to as our Diagnostic GEP offering for use in patients with a melanocytic lesion and uncertainty related to the malignancy of the lesion.
Initially, we offered both our MyPath Melanoma test and our DiffDx-Melanoma test under an offering that we referred to as our Diagnostic GEP offering.

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