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What changed in CASTLE BIOSCIENCES INC's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of CASTLE BIOSCIENCES INC's 2023 and 2024 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 2024 report.

+618 added−598 removedSource: 10-K (2025-02-27) vs 10-K (2024-02-28)

Top changes in CASTLE BIOSCIENCES INC's 2024 10-K

618 paragraphs added · 598 removed · 463 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

134 edited+32 added−44 removed129 unchanged
Biggest changeSanctions for a Stark Law violation include the following: • denial of payment for the services provided in violation of the prohibition; • refunds of amounts collected by an entity in violation of the Stark Law; • a civil penalty for each bill or claim for a service arising out of the prohibited referral; • the imposition of up to three times the amounts for each item or service wrongfully claimed; • possible exclusion from federal healthcare programs, including Medicare and Medicaid; and • a civil penalty for each arrangement or scheme that the parties know (or should know) has the principal purpose of circumventing the Stark Law’s prohibition.
Biggest changeTogether these restrictions generally prohibit us from billing a patient or any governmental or private payor for certain designated health services, including clinical laboratory services, when the physician ordering the service, or any member of such physician’s immediate family, has a financial interest, such as an ownership or investment interest in or compensation arrangement with us, unless the arrangement meets an exception to the prohibition. 19 Table of Contents Sanctions for a Stark Law violation include the following: • denial of payment for the services provided in violation of the prohibition; • refunds of amounts collected by an entity in violation of the Stark Law; • a civil penalty for each bill or claim for a service arising out of the prohibited referral; • the imposition of up to three times the amounts for each item or service wrongfully claimed; • possible exclusion from federal healthcare programs, including Medicare and Medicaid; and • a civil penalty for each arrangement or scheme that the parties know (or should know) has the principal purpose of circumventing the Stark Law’s prohibition.
We have received Medicare coverage for our DecisionDx-Melanoma, DecisionDx-SCC, MyPath Melanoma, DecisionDx-UM, TissueCypher and IDgenetix tests 8 Table of Contents which meet certain criteria for Medicare and Medicare Advantage beneficiaries. A “covered life” means a subscriber, or a dependent of a subscriber, who is insured under an insurance carrier’s policy.
We have received Medicare coverage for our DecisionDx-Melanoma, DecisionDx-SCC, TissueCypher, MyPath Melanoma, DecisionDx-UM and IDgenetix tests 8 Table of Contents which meet certain criteria for Medicare and Medicare Advantage beneficiaries. A “covered life” means a subscriber, or a dependent of a subscriber, who is insured under an insurance carrier’s policy.
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.
Achieving in-network contracts with third-party payors can shorten the time required to receive payments. Implementing our strategy includes our managed care, reimbursement 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.
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.
DecisionDx‑SCC 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.
Based on our published data, we have shown that DecisionDx-Melanoma can be an accurate, independent predictor of the risk of metastasis or recurrence, including recurrence to the sentinel lymph node. 5 Table of Contents DecisionDx-SCC DecisionDx®‑SCC is our proprietary risk stratification GEP test for use in patients with cutaneous squamous cell carcinoma (“SCC”), the second most common form of skin cancer, with one or more risk factors (also referred to as “high-risk” SCC).
Based on our published data, we have shown that DecisionDx-Melanoma can be an accurate, independent predictor of the risk of metastasis or recurrence, including recurrence to the sentinel lymph node. 5 Table of Contents DecisionDx-SCC DecisionDx‑SCC is our proprietary GEP test for use in patients with cutaneous squamous cell carcinoma (“SCC”), the second most common form of skin cancer, with one or more risk factors (also referred to as “high-risk” SCC).
We believe the principal competitive factors in our target markets include: • Proprietary, disciplined approach to genomic and proteomic analysis including the use of proprietary deep learning, machine learning, artificial intelligence and other techniques to identify and optimize biomarker selection and algorithmic approaches to answer the clinically important questions with accurate tests.
We believe the principal competitive factors in our target markets include: • Proprietary, disciplined approach to genomic and proteomic analysis including the use of proprietary deep learning, machine learning, artificial intelligence (“AI”) and other techniques to identify and optimize biomarker selection and algorithmic approaches to answer the clinically important questions with accurate tests.
Our DecisionDx-SCC and DiffDx-Melanoma tests were granted PLA CPT codes effective April 1, 2022. In 2023, IDgenetix test was granted a new PLA CPT code which became effective October 1, 2023. Healthcare Reform In March 2010, the Patient Protection and Affordable Care Act of 2010, as amended by the ACA became law.
Our DecisionDx-SCC and DiffDx-Melanoma tests were granted PLA CPT codes effective April 1, 2022. Our IDgenetix test was granted a new PLA CPT code and was effective October 1, 2023. Healthcare Reform In March 2010, the Patient Protection and Affordable Care Act of 2010, as amended by the ACA became law.
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.
In addition, we currently face, or may face, competition from companies such as Previse, Interpace Diagnostics, Lucid 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.
Maintaining commercial success for our existing test portfolio requires generating ongoing evidence, such as clinical use documentation, to support appropriate clinician adoption, reimbursement success and guideline inclusion. The clinical validity and utility of our test portfolio is supported by peer-reviewed publications and ongoing clinical studies.
Maintaining commercial success for our existing test portfolio requires generating ongoing evidence, such as clinical performance, clinical use documentation, to support appropriate clinician adoption, reimbursement success and guideline inclusion. The clinical validity and utility of our test portfolio is supported by peer-reviewed publications and ongoing clinical studies.
Raw Materials and Suppliers We procure certain reagents, equipment, chips/cards and other materials used to perform our tests from sole suppliers such as ThermoFisher Scientific, Inc. and Qiagen, Inc. Some of these items are unique to these suppliers and vendors.
Raw Materials and Suppliers We procure certain reagents, equipment, chips/cards and other materials used to perform our tests from sole suppliers such as ThermoFisher Scientific, Inc., Promega and Qiagen, Inc. Some of these items are unique to these suppliers and vendors.
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.
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 2024, we operated laboratory facilities in Phoenix, Arizona and Pittsburgh, Pennsylvania.
On July 27, 2023, Novitas posted a nearly identical proposed oncology biomarker LCD that continues to intend to rely upon evidentiary reviews sourced from three databases: ClinGen, OncoKB and NCCN. The proposed LCD also recommends non-coverage for our DecisionDx-SCC test. The comment period for the proposed LCD ended on September 9, 2023.
On July 27, 2023, Novitas posted a nearly identical proposed oncology biomarker LCD that continued to intend to rely upon evidentiary reviews sourced from three databases: ClinGen, OncoKB and NCCN. The proposed LCD also recommends non-coverage for our DecisionDx-SCC test. The comment period for the proposed LCD ended on September 9, 2023.
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 of December 31, 2024, 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.
Trademarks and Trade Secrets As of the date of this Annual Report on Form 10-K, our U.S. trademark portfolio contained 16 trademark registrations. We rely upon trade secrets, know-how, continuing technological innovation and potential in-licensing opportunities to develop and maintain our competitive position.
Trademarks and Trade Secrets As of the date of this Annual Report on Form 10-K, our U.S. trademark portfolio contained 22 trademark registrations. We rely upon trade secrets, know-how, continuing technological innovation and potential in-licensing opportunities to develop and maintain our competitive position.
For example, the rate for 2023 was set using median private payor rate data from January 1, 2021 to June 30, 2021. Our rate for 2022 and 2023 was $7,776 per test and is $7,776 for 2024. MyPath Melanoma On September 6, 2019, MyPath Melanoma was approved as a “new ADLT”.
For example, the rate for 2024 was set using median private payor rate data from January 1, 2022 to June 30, 2022. Our rate for 2022, 2023 and 2024 was $7,776 per test. Our 2025 rate is $7,776 per test. MyPath Melanoma On September 6, 2019, MyPath Melanoma was approved as a “new ADLT”.
New York regulations also mandate proficiency testing for laboratories licensed under New York state law, regardless of whether such laboratories are located in New York.
New York regulations also mandate proficiency testing for laboratories licensed under New York law, regardless of whether such laboratories are located in New York.
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 19 Table of Contents device.
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.
(3) We began offering the TissueCypher on December 3, 2021, following our acquisition of Cernostics. Our TissueCypher test report volumes primarily derived from processed backlog orders. We temporarily paused accepting additional orders in July 2023 and resumed accepting new orders in a phased approach in September 2023.
(3) We began offering the TissueCypher test on December 3, 2021, following our acquisition of Cernostics, Inc. (“Cernostics”). Our TissueCypher test report volumes primarily derived from processed backlog orders. We temporarily paused accepting additional orders in July 2023 and resumed accepting new orders in a phased approach in September 2023.
During the year ended December 31, 2023, we received multiple positive medical policy recommendations from many commercial payors for tests across our product line. We also received multiple positive medical policies and technology assessments from Laboratory Benefit Management (“LBM”) and Technology Evaluation Companies (“TEC”) organizations.
During the year ended December 31, 2024, we received multiple positive medical policy recommendations from many commercial payors for tests across our product line. We also received multiple positive medical policies and technology assessments from Laboratory Benefit Management (“LBM”) and Technology Evaluation Companies (“TEC”) organizations.
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.
In addition, we currently face, or may 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.
Submission of an IDE will not necessarily result in the ability to commence clinical trials, and although the FDA’s approval of an IDE allows clinical testing to go forward for a specified number of subjects, it does not bind the FDA to accept the results of the trial as sufficient to prove the product’s safety and efficacy, even if the trial meets its intended success criteria.
Submission of an IDE will not necessarily result in the ability to commence clinical trials, and although the FDA’s approval of an IDE allows clinical testing to go forward for a specified number 17 Table of Contents of subjects, it does not bind the FDA to accept the results of the trial as sufficient to prove the product’s safety and efficacy, even if the trial meets its intended success criteria.
Using this technology, we are able to provide a more accurate prediction of a patient’s metastatic risk as compared to other methods. We have secured and continue to pursue intellectual property rights globally, including through patent protection covering analysis of metastasis in cutaneous melanoma, the treatment of cutaneous SCC, BE and gastroenterology, and PGx for mental illness.
Using this technology, we are able to provide a more accurate prediction of a patient’s metastatic risk as compared to other methods. We have secured and continue to pursue intellectual property rights globally, including through patent protection covering analysis of metastasis in CM, the treatment of SCC, BE and gastroenterology, and PGx for mental illness.
While some clinical and pathology criteria have changed over time, this approach has been the standard of care in the United States for many years, and clinicians may be unwilling to accept the validity of the published data and adopt our test until it has become incorporated into national guidelines.
While some clinical and pathology criteria have changed over time, this approach has been the standard of 12 Table of Contents care in the United States for many years, and clinicians may be unwilling to accept the validity of the published data and adopt our test until it has become incorporated into national guidelines.
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.
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; • paid maternity, paternity and adoption leave policies; • paid holidays and paid time off; and • an employee assistance program.
ADLT status is not an indication of future coverage. 10 Table of Contents Medicare Reimbursement Rates DecisionDx-Melanoma On May 17, 2019, CMS determined that DecisionDx-Melanoma meets the criteria for “new ADLT” status. Our rate is set annually based upon the median private payor rate for the first half of the second preceding calendar year.
ADLT status is not an indication of future coverage. Medicare Reimbursement Rates DecisionDx-Melanoma On May 17, 2019, CMS determined that DecisionDx-Melanoma meets the criteria for “new ADLT” status. Our rate is set annually based upon the median private payor rate for the first half of the second preceding calendar year.
Criterion B: The test is cleared or approved by the FDA. Laboratories requesting ADLT status under this criterion are required to submit documentation of premarket approval (“PMA”) or premarket notification from the FDA. All five of our commercially available proprietary MAAA tests have been reviewed by the CMS and have been granted ADLT status.
Criterion B: The test is cleared or approved by the FDA. Laboratories requesting ADLT status under this criterion are required to submit documentation of premarket approval (“PMA”) or premarket notification from the FDA. 10 Table of Contents All five of our commercially available proprietary MAAA tests have been reviewed by the CMS and have been granted ADLT status.
For example, the rate for 2023 was set using median private payor rate data from January 1, 2021 to June 30, 2021. Our rate for 2022 and 2023 was $7,193 per test and is $7,193 for 2024.
For example, the rate for 2024 was set using median private payor rate data from January 1, 2022 to June 30, 2022. Our rate for 2022, 2023 and 2024 was $7,193 per test. Our 2025 rate is $7,193 per test.
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
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. 26 Table of Contents
The Medicare rates discussed below are prior to giving effect to applicable sequestration in effect from time to time as described in further detail under "Government Regulation and Product Approval—Healthcare Reform" included in Part 1, Item 1, “Business”, in this Annual Report on Form 10-K.
The Medicare rates discussed below are prior to giving effect to applicable sequestration in effect from time to time as described in further detail under "—Government Regulation and Product Approval—Healthcare Reform" included in Part 1, Item 1, “Business,” in this Annual Report on Form 10-K.
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.
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.
There are approximately four million patients in the U.S. currently diagnosed with BE and approximately 415,000 patients annually undergo an endoscopic biopsy with a subsequent diagnosis of ND, IND or LGD BE, representing an estimated U.S. TAM of approximately $1 billion. As of December 31, 2023, our TissueCypher test is supported by 14 peer-reviewed clinical validation and utility studies.
There are approximately four million patients in the U.S. currently diagnosed with BE and approximately 415,000 patients annually undergo an endoscopic biopsy with a subsequent diagnosis of ND, IND or LGD BE, representing an estimated U.S. TAM of approximately $1 billion. As of December 31, 2024, our TissueCypher test is supported by 16 peer-reviewed clinical validation and utility studies.
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.
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.
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.
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; and • Ability to efficiently commercialize both our current and our pipeline products.
They also set forth certain rights that an individual has with respect to his or her PHI maintained by a covered entity, including the right to access or amend certain records containing PHI, or to request restrictions on the use or disclosure of PHI.
They also set forth certain rights that an individual has with respect to 22 Table of Contents his or her PHI maintained by a covered entity, including the right to access or amend certain records containing PHI, or to request restrictions on the use or disclosure of PHI.
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.
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.
In April 2022, we acquired AltheaDx, a commercial-stage molecular diagnostics company specializing in the field of PGx testing services, for total consideration of $47.6 million, consisting of $30.5 million in cash and $17.1 million in shares of our common stock, adding the IDgenetix test to our portfolio.
In April 2022, we acquired AltheaDx, a commercial-stage molecular diagnostics company specializing in the field of PGx testing services, for total consideration of $47.6 million, consisting of $30.5 million in cash and $17.1 million in shares of our common stock, adding the IDgenetix test to our portfolio. In December 2021, we acquired Cernostics, Inc.
Class I devices are those with the lowest risk to the patient and are those for which safety and effectiveness can be reasonably assured by adherence to a set of FDA regulations, referred to as the General Controls for Medical Devices, which require compliance with the applicable portions of the FDA’s Quality System Regulation, facility registration and product listing, reporting of adverse events and malfunctions, and appropriate, truthful and non-misleading labeling and promotional materials.
Class I devices are those with the lowest risk to the patient and are those for which safety and effectiveness can be reasonably assured by adherence to a set of FDA regulations, referred to as the General Controls for Medical Devices, which require compliance with the applicable portions of the QSR, facility registration and product listing, reporting of adverse events and malfunctions, and appropriate, truthful and non-misleading labeling and promotional materials.
In April 2014, Congress passed the Protecting Access to Medicare Act (“PAMA”), which included substantial changes to the way in which clinical laboratory services will be paid under Medicare. Under PAMA, certain laboratories were required to report to CMS private payor payment rates and volumes for their tests.
In April 2014, Congress passed the Protecting Access to Medicare Act (“PAMA”), which included substantial changes to the way in which clinical laboratory services will be paid under Medicare. Under PAMA, certain laboratories were required to report to CMS private payor payment rates and volumes for their 23 Table of Contents tests.
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.
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.
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.
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.
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.
We additionally seek to preserve the 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.
Device Classification Under the FDCA, medical devices are classified into one of three classes-Class I, Class II or Class III depending on the degree of risk associated with each medical device and the extent of control needed to provide reasonable assurances with respect to safety and effectiveness.
Device Classification Under the FD&C Act, medical devices are classified into one of three classes-Class I, Class II or Class III depending on the degree of risk associated with each medical device and the extent of control needed to provide reasonable assurances with respect to safety and effectiveness.
The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions. Prior to approval of a PMA, the FDA may conduct inspections of the clinical trial data and clinical trial sites, as well as inspections of the manufacturing facility and processes.
The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions. Prior to approval of a PMA, the FDA typically conducts inspections of the clinical trial data and clinical trial sites, as well as inspections of the manufacturing facility and processes.
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.
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.
Since our inception, we have delivered more than 217,000 clinical patient test reports across our product portfolio.
Since our inception, we have delivered more than 315,000 clinical patient test reports across our product portfolio.
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.
This global patent portfolio has filing dates ranging from 2007 to 2024, and therefore are projected to expire between 2027 and 2044, subject to any patent term extension or patent term adjustment that might be available in a particular jurisdiction.
All clinical trials must be conducted in accordance with the FDA’s IDE regulations that govern investigational device labeling, prohibit promotion and specify an array of recordkeeping, reporting and monitoring responsibilities of study sponsors and study investigators. Clinical trials must further comply with the FDA’s good clinical practice regulations for IRB approval and for informed consent and other human subject protections.
The IDE regulations that govern investigational device labeling, prohibit promotion and specify an array of recordkeeping, reporting and monitoring responsibilities of study sponsors and study investigators. Clinical trials must further comply with the FDA’s good clinical practice regulations for IRB approval and for informed consent and other human subject protections.
If it is not, the agency will refuse to file the PMA. If it is, the FDA will accept the application for filing and begin the review. The FDA has 180 days to review a filed PMA application, however, in practice the application review process often exceeds this deadline.
If it is not, the agency will refuse to file the PMA. If 18 Table of Contents it is, the FDA will accept the application for filing and begin the review. The FDA has 180 days to review a filed PMA application, however, in practice the application review process often exceeds this deadline.
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.
From January 1, 2022 through March 31, 2022, we received payments for claims according to the published Clinical Laboratory Fee Schedule (“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.
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.
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.
IDgenetix has historically been billed to Medicare using an unspecified CPT code along with the IDgenetix test-specific MolDX Z-code (the “IDgenetix Z-Code”). We acquired AltheaDx and the IDgenetix test in April 2022 and received Medicare reimbursement at a rate of approximately $1,500 per test.
IDgenetix has historically been billed to Medicare using an unspecified Current Procedural Terminology (“CPT”) code along with the IDgenetix test-specific MolDX Z-code (the “IDgenetix Z-Code”). We acquired AltheaDx and the IDgenetix test in April 2022 and received Medicare reimbursement at a rate of approximately $1,500 per test.
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.
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 and remained effective through December 31, 2024.
The regulatory and compliance standards applicable to the testing we perform change periodically, and any such changes are published by CAP. Our SOPs, documents & records are updated accordingly and as needed. Any such changes may have a material effect on our business.
The regulatory and compliance standards applicable to the testing we perform change periodically, and any such changes are published by CAP. Our standard operating procedures (“SOPs”), documents and records are updated accordingly and as needed. Any such changes may have a material effect on our business.
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.
We received feedback from over 95% of our employees and achieved an engagement score of 85%, meaning that 85% of our employees are engaged or enthusiastically engaged in the culture at Castle. Our engagement score was higher than the healthcare benchmark average of 70% for other healthcare companies who conducted the same employee engagement survey in 2024.
The commencement or completion of any clinical trial may be delayed or halted, or be inadequate to support approval of a PMA application, for numerous reasons. The 510(k) Clearance Process Under the 510(k) clearance process, the manufacturer must submit to the FDA a premarket notification, demonstrating that the device is “substantially equivalent” to a legally marketed predicate device.
The commencement or completion of any clinical trial may be delayed, halted, or be inadequate to support approval of a PMA application, for any number of reasons. The 510(k) Clearance Process Under the 510(k) clearance process, the manufacturer must submit to the FDA a premarket notification, demonstrating that the device is “substantially equivalent” to a "predicate” device.
TAM of approximately $5 billion associated with this test. We began offering the IDgenetix test following our acquisition of AltheaDx, Inc. (“AltheaDx”), in April 2022. IDgenetix is supported by a published, peer-reviewed randomized controlled trial that demonstrated clinical utility over the standard of care when physicians used IDgenetix prior to prescribing a medication.
We began offering the IDgenetix test following our acquisition of AltheaDx, Inc. (“AltheaDx”) in April 2022. IDgenetix is supported by a published, peer-reviewed randomized controlled trial that demonstrated clinical utility over the standard of care when physicians used IDgenetix prior to prescribing a medication.
In May 2021, we acquired Myriad myPath, LLC and MyPath Melanoma test from Myriad Genetics, Inc. for a cash purchase price of $32.5 million. 7 Table of Contents Test Report Volume and Revenue The number of test reports we generate is a key indicator that we use to assess our business.
(“Cernostics”) and the TissueCypher platform for $30.7 million in cash consideration. In May 2021, we acquired Myriad myPath, LLC and MyPath Melanoma test from Myriad Genetics, Inc. for $32.5 million in cash consideration. 7 Table of Contents Test Report Volume and Revenue The number of test reports we generate is a key indicator that we use to assess our business.
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.
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, 2024 2023 2022 2021 2020 DecisionDx-Melanoma 36,008 33,330 27,803 20,328 16,232 DecisionDx‑SCC (1) 16,348 11,442 5,967 3,510 485 Diagnostic GEP offering (2) 3,909 3,962 3,561 2,662 73 Dermatologic Total 56,265 48,734 37,331 26,500 16,790 DecisionDx-UM 1,699 1,674 1,711 1,618 1,395 TissueCypher (3) 20,956 9,100 2,128 27 — IDgenetix (4) 17,151 10,921 3,249 — — Grand Total 96,071 70,429 44,419 28,145 18,185 Net Revenues (in thousands) $ 332,069 $ 219,788 $ 137,039 $ 94,085 $ 62,649 (1) On August 31, 2020, we commercially launched our cutaneous SCC proprietary GEP test for use in patients with one or more risk factors.
We estimate that approximately 50% of patients diagnosed with CM are 65 years of age or older. As of December 31, 2023, 49 peer-reviewed articles, six of which were published in 2023, support the clinical validity, clinical utility and impact on outcomes of our DecisionDx-Melanoma test.
We estimate that approximately 50% of patients diagnosed with CM are 65 years of age or older. As of December 31, 2024, 53 peer-reviewed articles, one of which was published in 2024, support the clinical validity, clinical utility and impact on outcomes of our DecisionDx-Melanoma test.
Our revenue from patients covered by Medicare as a percentage of total revenue, was 49% for the year ended December 31, 2023. Additionally, there was a commercial payor from which 14% of our revenue from patients was derived for the year ended December 31, 2023.
Our revenue from patients covered by Medicare as a percentage of total revenue, was 47% for the year ended December 31, 2024. Additionally, there was a commercial payor from which 15% of our revenue from patients was derived for the year ended December 31, 2024.
In addition, it is illegal for a company that reports to the SEC to have false or inaccurate books or records or to fail to maintain a system of internal accounting controls.
In addition, it is illegal for a company that reports to the Securities and Exchange Commission (the “SEC”) to have false or inaccurate books or records or to fail to maintain a system of internal accounting controls.
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.
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 (“AD”), psoriasis and related inflammatory skin conditions.
We will continue to assess the market needs in determining further expansions of our medical affairs team. Reimbursement The primary source of revenue for our products is reimbursement from third-party payors, which includes government payors, such as Medicare, and commercial payors, such as insurance companies.
Our medical affairs strategy complements our sales, marketing and clinical research operations efforts. We will continue to assess the market needs in determining further expansion of our medical affairs team. Reimbursement The primary source of revenue for our products is reimbursement from third-party payors, which includes government payors, such as Medicare, and commercial payors, such as insurance companies.
Although many 510(k) premarket notifications are cleared without clinical data, the FDA may require further information, including clinical data, to make a determination regarding substantial equivalence, which may significantly prolong the review process. If the FDA agrees that the device is substantially equivalent, it will grant clearance to commercially market the device.
Although many 510(k) submissions are cleared without clinical data, the FDA may require further information, including clinical data, to make a determination regarding substantial equivalence, which may significantly prolong the review process. If the FDA agrees that the device is substantially equivalent, it will "clear” the device for marketing.
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.
Among other things, pursuant to the FD&C Act and its implementing regulations, the FDA regulates the research, testing, manufacturing, safety, labeling, storage, recordkeeping, pre-market review and marketing authorization, product, marketing and promotion, and sales and distribution of medical devices in the United States to ensure that medical devices distributed domestically are reasonably safe and effective for their intended uses.
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 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 regrettable turnover remains low at 1.7% for the year ended December 31, 2024.
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.
For more information, please see “Risk Factors—Risks Related to Intellectual Property.” Patents and Patent Applications We have developed a global patent portfolio that as of December 31, 2024, 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 CM 3 18 21 Methods of diagnosing and treating patients with pigmented skin lesions 1 — 1 Methods of diagnosing and treating patients with SCC 4 22 26 Determining prognosis and treatment based on clinical-pathologic factors and continuous multigene-expression profile scores 1 — 1 Diagnosing and treating AD and/or psoriasis — 1 1 Method and kit for isolating and sequencing nucleic acid from skin samples 1 — 1 Genes and gene signatures for diagnosis and treatment of melanoma 6 29 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 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 28 110 138 Included in the table above are 18 issued U.S. patents and 78 issued international patents.
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.
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.
In the second quarter of 2020, we submitted our technical assessment dossier for DecisionDx-SCC to Palmetto and Noridian. The dossier was accepted as complete in the third quarter of 2020. On June 8, 2023, both Palmetto and Noridian posted a preliminary draft LCD recommending no coverage for DecisionDx-SCC. The comment period for the draft LCDs ended on July 22, 2023.
In the second quarter of 2020, we submitted our technical assessment dossier for DecisionDx-SCC to Palmetto and Noridian. The dossier was accepted as complete in the third quarter of 2020. On June 8, 2023, Palmetto and Noridian recommended no coverage for DecisionDx-SCC in a draft LCD.
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 clinically validated to predict metastatic risk for individual SCC patients with one or more risk factors.
We estimate 20% of SCC patients, or approximately 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 clinically validated to (i) predict responsiveness to adjuvant radiation therapy (“ART”) and (ii) predict metastatic risk in patients with high-risk SCC.
We subsequently obtained a test-specific PLA CPT code which became effective October 1, 2023. In November 2023, CMS posted its final CLFS determination which crosswalks our PLA CPT code to an existing PLA code at a rate of $1,336 per test effective January 1, 2024. Competition We are focused on improving health through innovative tests that guide patient care.
We subsequently obtained a test-specific PLA CPT code which became effective October 1, 2023. In November 2023, CMS posted its final CLFS determination which crosswalks our PLA CPT code to an existing PLA code at a rate of $1,336 per test effective January 1, 2024.
The de novo classification process is an alternate pathway to classify medical devices that are automatically classified into Class III, but which are low to moderate risk.
The De Novo Classification Process The de novo classification process is an alternate pathway to classify medical devices of new types marketed after May 28, 1976, that are automatically classified into Class III but that are low to moderate risk.
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.
In addition, the Federal Food, Drug and Cosmetic Act (the “FD&C Act”) 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, and which does not achieve its primary intended purposes via chemical action or metabolism.
As of December 31, 2023, DecisionDx-SCC was supported by 16 peer-reviewed publications. MyPath Melanoma MyPath® Melanoma is our proprietary GEP test offering for patients with difficult-to-diagnose melanocytic lesions. Of the two million suspicious pigmented lesions biopsied annually in the United States, we estimate approximately 300,000 of those present a difficult-to-diagnose melanocytic lesion, representing an estimated U.S.
MyPath Melanoma MyPath® Melanoma is our proprietary, diagnostic GEP test offering for use in patients with difficult-to-diagnose melanocytic lesions. Of the two million suspicious pigmented lesions biopsied annually in the United States, we estimate approximately 300,000 of those present a difficult-to-diagnose melanocytic lesion, representing an estimated U.S. TAM of approximately $600 million.
If the FDA determines that the device is not “substantially equivalent” to a predicate device, or if the device is automatically classified into Class III, the device sponsor must then fulfill the much more rigorous premarketing requirements of the PMA approval process, or seek reclassification of the device through the de novo process.
If the FDA determines that the device is not “substantially equivalent” to a predicate device, the device sponsor must then fulfill the much more rigorous premarketing requirements of the PMA approval process.
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.
We consider our relationship with our employees to be good. Employee Engagement We value the unique perspective our employees bring to the organization and encourage open channels of communication. In June 2024, we conducted our fourth annual employee engagement survey to understand what was working well at Castle and what opportunities we had for improvement.
To encourage employee development, we offer a professional development reimbursement program to eligible employees who attend job-related professional development activities. Corporate and Other Information We were incorporated in Delaware in September 2007. Our principal executive offices are located at 505 S. Friendswood Drive, Suite 401, Friendswood, Texas 77456 and our telephone number is (866) 788-9007.
We prioritize and encourage internal growth and professional development of our employees. To encourage employee development, we offer a professional development reimbursement program to eligible employees who attend job-related professional development activities. Corporate and Other Information We were incorporated in Delaware in September 2007. Our principal executive offices are located at 505 S.
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 believe the purpose of the proposals in this draft LCD are to streamline future reviews. 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.
Additionally, we maintain licenses in New York, California, Maryland, Pennsylvania and Rhode Island which require specific licensure for out-of-state laboratories that accept specimens from those states.
Additionally, we maintain licenses in New York, California, Maryland, 15 Table of Contents Pennsylvania and Rhode Island which require specific licensure for out-of-state laboratories that accept specimens from those states. Because we may receive specimens from residents of the state of New York, we sought and have received approval from NYSDOH.
For our tissue based tests, we use multi-analyte assays with algorithmic analysis (“MAAA”) to characterize an individual patient’s biology to inform specific risk of progression. Test Portfolio and Market Overview The foundation of our business is our dermatologic cancer franchise.
For our tissue based tests, we use multi-analyte assays with algorithmic analysis (“MAAA”) to characterize an individual patient’s biology to inform specific risk of progression.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeWe may consider raising additional capital in the future to expand our business, to pursue strategic investments, to take advantage of financing opportunities or for other reasons, including to: • increase our sales and marketing efforts for the DecisionDx-Melanoma, DecisionDx-SCC, MyPath Melanoma, DecisionDx-UM, TissueCypher and IDgenetix tests and address competitive developments among these or future commercial products; • fund ongoing evidence development for our existing products as well as additional pipeline programs; • expand our laboratory testing facility and related testing capacity; • expand our technologies into other types of dermatological, ocular, gastrointestinal or mental health disorders; • acquire, license or invest in technologies; • acquire or invest in complementary businesses or assets; and • finance capital expenditures and general and administrative expenses. 30 Table of Contents Our present and future funding requirements will depend on many factors, including: • our ability to achieve revenue growth; • our rate of progress in establishing payor coverage and reimbursement arrangements with third-party payors; • our rate of progress in, and cost of the sales, marketing, coverage and reimbursement activities associated with, establishing adoption of our lead product, DecisionDx-Melanoma, among our other products; • the cost of expanding our laboratory operations and offerings, including our sales, marketing, coverage and reimbursement efforts; • our rate of progress in, and cost of research and development activities associated with, diagnostic products in research and early development; • the potential cost of, and delays in, the development of new products as a result of changes in regulatory oversight applicable to our products; • acquisitions of businesses, assets, products or technologies; • the duration and effects of elevated inflation; • the effects on our operations of general political and economic conditions and evolving macroeconomic developments, including geopolitical and macroeconomic developments, such as the ongoing conflict between Ukraine by Russia and related sanctions or the Israel-Hamas war, public health crises, economic slowdowns, labor shortages, recessions or market corrections, supply chain disruptions, inflation and monetary policy shifts, bank failures or other disruptions in the banking system or financing markets, rising interest rates and tightening of credit markets resulting from the conflict or other evolving macroeconomic developments; and • the effect of competing technological and market developments.
Biggest changeOur present and future funding requirements will depend on many factors, including: • our ability to achieve revenue growth; • our rate of progress in establishing payor coverage and reimbursement arrangements with third-party payors; • our rate of progress in, and cost of the sales, marketing, coverage and reimbursement activities associated with, establishing adoption of our lead products, DecisionDx-Melanoma, DecisionDx-SCC, and TissueCypher, among our other products; • the cost of expanding our laboratory operations and offerings, including our sales, marketing, coverage and reimbursement efforts; • our rate of progress in, and cost of research and development activities associated with, diagnostic products in research and early development; • the potential cost of, and delays in, the development of new products as a result of changes in regulatory oversight applicable to our products; • acquisitions of businesses, assets, products or technologies; • the duration and effects of elevated inflation; • the effects on our operations of general political and economic conditions and evolving macroeconomic developments, including geopolitical and macroeconomic developments, such as the ongoing conflict between Ukraine by Russia and related sanctions or the Israel-Hamas war, public health crises, economic slowdowns, labor shortages, recessions or market corrections, supply chain disruptions, inflation and monetary policy shifts, bank failures or other disruptions in the banking system or financing markets, rising interest rates and tightening of credit markets resulting from the conflict or other evolving macroeconomic developments; and • the effect of competing technological and market developments.
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.
Our estimates of the TAM for DecisionDx-Melanoma, DecisionDx-SCC, TissueCypher, MyPath Melanoma, DecisionDx-UM 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.
Areas of the regulatory environment that may affect our ability to conduct business include, without limitation: • federal and state laws applicable to test ordering, documentation of tests ordered, billing practices and claims payment and/or regulatory agencies enforcing those laws and regulations; • federal and state fraud and abuse laws; • federal and state laboratory anti-mark-up laws; • coverage and reimbursement levels by Medicare, Medicaid, other governmental payors and private insurers; • restrictions on coverage of and reimbursement for tests; • federal and state laws governing laboratory testing, including CLIA, and state licensing laws and accreditation requirements; • federal and state laws and enforcement policies governing the development, use and distribution of diagnostic medical devices, including LDTs; • federal, state and local laws governing the handling and disposal of medical and hazardous waste; • federal and state Occupational Safety and Health Administration rules and regulations; and • HIPAA and similar state health data privacy laws.
Areas of the regulatory environment that may affect our ability to conduct business include, without limitation: • federal and state laws applicable to test ordering, documentation of tests ordered, billing practices and claims payment and/or regulatory agencies enforcing those laws and regulations; • federal and state fraud and abuse laws; • federal and state laboratory anti-mark-up laws; • coverage and reimbursement levels by Medicare, Medicaid, other governmental payors and private insurers; • restrictions on coverage of and reimbursement for tests; • federal and state laws governing laboratory testing, including CLIA, and state licensing laws and accreditation requirements; • federal and state laws and enforcement policies governing the development, use and distribution of diagnostic medical devices, including LDTs; • federal, state and local laws governing the handling and disposal of medical and hazardous waste; • federal and state Occupational Safety and Health Administration rules and regulations; and • HIPAA and similar health data privacy laws.
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.
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 are subject to varying applications and interpretations, which may be inconsistent or conflicting among jurisdictions, creating complex compliance issues for us and our clients.
Any of the foregoing could have a material adverse effect on our competitive position, business, financial conditions, results of operations and prospects.
Any of the foregoing could have a material adverse effect on our competitive position, business, financial conditions, results of operations and prospects.
Future or past business transactions (such as acquisitions or integrations) could expose us to additional cybersecurity risks and vulnerabilities, as our systems could be negatively affected by vulnerabilities present in acquired or integrated entities’ systems and technologies.
Future or past business transactions (such as acquisitions or integrations) expose us to additional cybersecurity risks and vulnerabilities, as our systems could be negatively affected by vulnerabilities present in acquired or integrated entities’ systems and technologies.
While we have implemented security measures designed to protect against security incidents, there can be no assurance that these measures will be effective. We take steps to detect and remediate vulnerabilities in our information systems (such as our hardware and/or software, including that of third parties upon which we rely).
While we have implemented security measures designed to protect against security incidents, there can be no assurance that these measures will be effective. We take steps designed to detect and remediate vulnerabilities in our information systems (such as our hardware and/or software, including that of third parties upon which we rely).
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.
Sarbanes-Oxley, as well as rules subsequently adopted by the SEC and Nasdaq to implement provisions of Sarbanes-Oxley, impose significant requirements on public companies, including requiring establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices.
Sarbanes-Oxley, as well as rules subsequently adopted by the SEC and Nasdaq to implement provisions of Sarbanes-Oxley, impose significant requirements on public companies, including requiring the establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices.
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.
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; 70 Table of Contents • 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.
The types of situations in which we may become a party to such litigation or proceedings include: • we may initiate litigation or other proceedings against third parties seeking to invalidate the patents held by those third parties or to obtain a judgment that our products or technologies do not infringe those third parties’ patents; • we may participate at substantial cost in International Trade Commission proceedings to abate importation of products that would compete unfairly with our products or technologies; • if a competitor files patent applications that claim technology also claimed by us or our licensors, we or our licensors may be required to participate in interference, derivation or opposition proceedings to determine the priority of invention, which could jeopardize our patent rights and potentially provide a third party with a dominant patent position; • if third parties initiate litigation claiming that our products or technologies infringe their patent or other intellectual property rights, we will need to defend against such proceedings; 54 Table of Contents • if third parties initiate litigation or other proceedings seeking to invalidate patents owned by or licensed to us or to obtain a declaratory judgment that their products, services, or technologies do not infringe our patents or patents licensed to us, we will need to defend against such proceedings; • we may be subject to ownership disputes relating to intellectual property, including disputes arising from conflicting obligations of consultants or others who are involved in developing our products and technologies; and • if a license to necessary technology is terminated, the licensor may initiate litigation claiming that our products or technologies infringe or misappropriate its patent or other intellectual property rights and/or that we breached our obligations under the license agreement, and we would need to defend against such proceedings.
The types of situations in which we may become a party to such litigation or proceedings include: • we may initiate litigation or other proceedings against third parties seeking to invalidate the patents held by those third parties or to obtain a judgment that our products or technologies do not infringe those third parties’ patents; • we may participate at substantial cost in International Trade Commission proceedings to abate importation of products that would compete unfairly with our products or technologies; • if a competitor files patent applications that claim technology also claimed by us or our licensors, we or our licensors may be required to participate in interference, derivation or opposition proceedings to determine the priority of invention, which could jeopardize our patent rights and potentially provide a third party with a dominant patent position; 54 Table of Contents • if third parties initiate litigation claiming that our products or technologies infringe their patent or other intellectual property rights, we will need to defend against such proceedings; • if third parties initiate litigation or other proceedings seeking to invalidate patents owned by or licensed to us or to obtain a declaratory judgment that their products, services, or technologies do not infringe our patents or patents licensed to us, we will need to defend against such proceedings; • we may be subject to ownership disputes relating to intellectual property, including disputes arising from conflicting obligations of consultants or others who are involved in developing our products and technologies; and • if a license to necessary technology is terminated, the licensor may initiate litigation claiming that our products or technologies infringe or misappropriate their patent or other intellectual property rights and/or that we breached our obligations under the license agreement, and we would need to defend against such proceedings.
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.
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, 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.
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. On June 5, 2023, our stock price decreased significantly and did not recover before June 30, 2023. In response to this trigger, we tested goodwill for impairment at June 30, 2023.
For example, 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. On June 5, 2023, our stock price decreased significantly and did not recover before June 30, 2023. In response to this trigger, we tested goodwill for impairment at June 30, 2023.
We believe that any disclosure controls and procedures or internal controls and procedures, no matter how well-conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake.
We believe that any disclosure controls and procedures or internal controls and procedures, no matter how well-conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake.
In addition, the FDA regulates the import and export of medical devices manufactured between the United States and international markets. CLIA Certifications We are subject to CLIA, a federal law that regulates clinical laboratories that perform testing on specimens derived from humans for the purpose of providing information for the diagnosis, prevention or treatment of disease.
In addition, the FDA regulates the import and export of medical devices manufactured between the United States and international markets. We are subject to CLIA, a federal law that regulates clinical laboratories that perform testing on specimens derived from humans for the purpose of providing information for the diagnosis, prevention or treatment of disease.
Further, there are inherent execution and business risks associated with managing the integration and growth objectives of more than one acquisition at the same time and such circumstances may have the effect of heightening the operational and financial risks related to acquisitions noted above and the other risks described in this “Risk Factors” section.
Further, there are inherent execution and business risks associated with managing the integration and growth objectives of more than one acquisition, integration, and growth strategy at the same time and such circumstances may have the effect of heightening the operational and financial risks related to acquisitions noted above and the other risks described in this “Risk Factors” section.
Unless the United States Department of the Treasury issues regulations that narrow the application of this provision to a smaller subset of our research and development expenses or the provision is deferred, modified, or repealed by Congress, it could harm our future operating results by effectively increasing our future tax obligations.
Unless the United States Department of the Treasury issues regulations that narrow the application of this provision to a smaller subset of our research and development expenses or the provision is modified or repealed by Congress, it could harm our future operating results by effectively increasing our future tax obligations.
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.
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 parties who have access to our proprietary, confidential and sensitive information including information related to our clinical trials.
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.
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 and handling 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.
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.
Our data processing activities 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; • 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; 32 Table of Contents • 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.
If one or more of our primary clinical laboratory facilities become damaged or inoperable or we are required to vacate our existing facility, our ability to conduct our laboratory analysis and pursue our research and development efforts may be jeopardized.
If one or more of our primary clinical laboratory facilities become damaged or inoperable or we are required to vacate our existing facilities, our ability to conduct our laboratory analysis and pursue our research and development efforts may be jeopardized.
Such consequences may disrupt our operations (including our ability to conduct our analyses, provide test results, bill payors or patients, process claims and appeals, provide customer assistance, conduct research and development activities, collect, process, and prepare company financial information, provide information about our products and other patient and physician education and outreach efforts through our website, and manage the administrative aspects of our business), damage our reputation, negatively impact our ability to grow our business, and others.
Such consequences may disrupt our operations (including our ability to conduct our analyses, provide test results, bill payors or patients, process claims and appeals, provide customer assistance, conduct research and development activities, collect, process, and prepare company financial information, provide information about our products and other patient and physician education and outreach efforts through our website, and manage the administrative aspects of our business), negatively impact our ability to grow our business, and others.
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.
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.
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.
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; • changes in trade and tariff policies; • 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; 68 Table of Contents • the size of our market float; and • any other factors discussed in this Annual Report on Form 10-K.
U.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.
U.S. and global market and economic conditions have been, and continue to be, disrupted and volatile due to many factors, including public health crises, 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.
Under the legislation known as the Tax Cuts and Jobs Act of 2017 (“TCJA”), as modified by the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), federal NOLs generated in taxable years beginning after December 31, 2017 may be carried forward indefinitely, but the deductibility of such NOL carryforwards is limited to 80% of taxable income.
Under the legislation known as the Tax Cuts and Jobs Act of 2017 (“TCJA”), as modified by the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), federal NOLs generated in taxable years beginning after December 31, 2017 may be carried forward indefinitely, but the deductibility of such NOL carryforwards in a taxable year is limited to 80% of taxable income in such year.
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; • HIPAA, as amended by HITECH, and their implementing regulations, which imposes privacy, security and breach reporting obligations with respect to individually identifiable health information upon entities subject to the law, such as health plans, healthcare clearinghouses and certain healthcare providers, known as covered entities, and their respective business associates, individuals or entities that perform services for them that involve individually identifiable health information as well as their covered subcontractors.
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; • HIPAA, as amended by HITECH, and their implementing regulations, which imposes privacy, security and breach reporting obligations with respect to individually identifiable health information upon entities subject to the law, such as health plans, healthcare clearinghouses and certain healthcare providers, known as 46 Table of Contents covered entities, and their respective business associates, individuals or entities that perform services for them that involve individually identifiable health information as well as their covered subcontractors.
Moreover, disputes may arise with respect to any one of our licensing agreements, including: • the scope of rights granted under the license agreement and other interpretation-related issues; • the extent to which our products, technology and processes infringe on intellectual property of the licensor that is not subject to the licensing agreement; • the sublicensing of patent and other rights under our collaborative development relationships; • our diligence obligations under the license agreement and what activities satisfy those diligence obligations; • the inventorship and ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us and our partners; and • the priority of invention of patented technology.
Moreover, disputes may arise with respect to any one of our licensing agreements, including: • the scope of rights granted under the license agreement and other interpretation-related issues; • the extent to which our products, technology and processes infringe on intellectual property of the licensor that is not subject to the licensing agreement; • the sublicensing of patent and other rights under our collaborative development relationships; • our diligence obligations under the license agreement and what activities satisfy those diligence obligations; 56 Table of Contents • the inventorship and ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us and our partners; and • the priority of invention of patented technology.
Certain data privacy and security obligations may require us to implement and maintain specific security measures or industry-standard or reasonable security measures to protect our information technology systems and sensitive information.
Certain data privacy and security obligations require us to implement and maintain specific security measures or industry-standard or reasonable security measures to protect our information technology systems and sensitive information.
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 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-SCC, TissueCypher, MyPath Melanoma, DecisionDx-UM, DecisionDx-PRAME, DecisionDx-UMSeq, IDgenetix and DiffDx-Melanoma have each been approved.
The FDA requires medical device manufacturers to comply with, among other things, current good manufacturing practices for medical devices, known as the Quality System Regulation, which requires manufacturers to follow elaborate design, testing, control, documentation and other quality assurance procedures during the manufacturing process; the medical device reporting regulation, which requires that manufacturers report to the FDA if their device may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if it were to recur; labeling regulations, including the FDA’s general prohibition against promoting products for unapproved or ‘‘off-label’’ uses; and the reports of corrections and removals regulation, which requires manufacturers to report to the FDA if a device correction or removal was initiated to reduce a risk to health posed by the device or to remedy a violation of the FDCA caused by the device which may present a risk to health.
The FDA requires medical device manufacturers to comply with, among other things, current good manufacturing practices for medical devices, known as the Quality System Regulation, which requires manufacturers to follow elaborate design, testing, control, documentation and other quality assurance procedures during the manufacturing process; the medical device reporting regulation, which requires that manufacturers report to the FDA if their device may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if it were to recur; labeling regulations, including the FDA’s general prohibition against promoting products for unapproved or ‘‘off-label’’ uses; and the reports of corrections and removals regulation, which requires manufacturers to report to the FDA if a device correction or removal was initiated to reduce a risk to health posed by the device or to remedy a violation of the FD&C Act caused by the device which may present a risk to health.
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.
Regardless of merit or eventual outcome, product liability claims may result in: • decreased demand for our current tests, or 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; 65 Table of Contents • 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 45 Table of Contents 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 or service reimbursable, in whole or in part, under a federal healthcare program, such as the Medicare and Medicaid programs.
Outside the United States, there are also an increasing number of laws, regulations, industry standards and other obligations concerning privacy and data security. For example, we may be subject to the European Union’s General Data Protection Regulation (“EU”) 2016/679 (“EU GDPR”) and the United Kingdom’s GDPR (“UK GDPR”) (collectively, “GDPR”).
Outside the United States, there are also an increasing number of laws, regulations, industry standards and other obligations concerning privacy and data security. For example, we are subject to the European Union’s General Data Protection Regulation (“EU”) 2016/679 (“EU GDPR”) and the United Kingdom’s GDPR (“UK GDPR”) (collectively, “GDPR”).
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.
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 taxes may be limited.
Therefore, the accuracy and correctness of the test reports that we deliver are dependent on proper chain of custody and appropriate methods of sample collection or preparation utilized by these third parties, and our ability to timely deliver reports is dependent upon the ability of these third parties to provide these samples to us in a timely manner.
Therefore, the accuracy and correctness of the test reports that we deliver are dependent on proper chain of custody and appropriate methods of sample collection, or preparation, storage and delivery utilized by these third parties, and our ability to timely deliver reports is dependent upon the ability of these third parties to provide these samples to us in a timely manner.
More generally, we are also bound by contractual obligations related to data privacy and security, and our efforts to comply with such obligations may not be successful. For example, certain privacy laws, such as the GDPR, the CCPA, and the CPRA, may require our customers to impose specific contractual restrictions on their service providers.
More generally, we are also bound by contractual obligations related to data privacy and security, and our efforts to comply with such obligations may not be successful. For example, certain privacy laws, such as the GDPR, may require our customers to impose specific contractual restrictions on their service providers.
We are subject to the reporting requirements of the Exchange Act or the other rules and regulations of the SEC and any securities exchange relating to public companies.
We are subject to the reporting requirements of the Exchange Act and other rules and regulations of the SEC and any securities exchange relating to public companies.
If the actual number of patients who would benefit from our products, the price at which we can sell future products, or the annual TAM for our products is smaller than we have estimated, it may impair our sales growth and have an adverse impact on our business.
If the actual number of patients who would benefit from our products, the price at which we can sell future products, or the annual TAM for our products is smaller than we have estimated, it may impair our sales growth and have an adverse impact on our business and results of operations.
Any errors in any part of the sample collection or preparation process could render us unable to process tests, or deliver test reports, or cause us to deliver incorrect test reports, potentially resulting in harm to patients whose clinicians implement a change in treatment decisions based upon our test report.
Any errors in any part of the sample collection, preparation and storage process could render us unable to process tests, or deliver test reports, or cause us to deliver incorrect test reports, potentially resulting in harm to patients whose clinicians implement a change in treatment decisions based upon our test report.
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.
For example, we license certain intellectual property from WUSTL that is incorporated into DecisionDx-UM. In 2024, 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.
Some of our patents or patent applications (including licensed patents) have been, are being or may be challenged at a future point in time in an opposition, nullification, derivation, reexamination, inter partes review, post-grant review or interference action in court or before patent offices or similar proceedings for a given period after allowance or grant, during which time third parties can raise objections against such grant.
Some of our patents or patent applications (including licensed patents) have been, are being or may be challenged at a future point in time in an opposition, nullification, derivation, reexamination, inter partes review, post-grant review or interference action in court or before patent offices or similar proceedings for a given period after allowance or 53 Table of Contents grant, during which time third parties can raise objections against such grant.
For example, while clinical utility of DecisionDx-Melanoma has been demonstrated in peer-reviewed publications, SLNB surgery is the most widely used pathology staging tool by clinicians for determining a cutaneous melanoma patient’s metastatic risk.
For example, while clinical utility of DecisionDx-Melanoma has been demonstrated in peer-reviewed publications, SLNB surgery is the most widely used pathology staging tool by clinicians for determining a CM patient’s metastatic risk.
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.
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; 34 Table of Contents • 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 47%, 49% and 53% of our revenue from test reports for the years ended December 31, 2024, 2023 and 2022, respectively, with an additional third-party payor accounting for 15% of our revenue from test reports for the year ended December 31, 2024; • 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.
In these situations, the third-party payor will typically notify us of their decision and then offset whatever amount they determine they overpaid against amounts they owe us on current claims. We cannot predict when, or how often, a third-party payor might engage in these reviews and we may not be able to dispute these retroactive adjustments.
In these situations, the third-party payor will typically notify us of their decision and then offset whatever amount they determine they overpaid against amounts they owe us on 38 Table of Contents current claims. We cannot predict when, or how often, a third-party payor might engage in these reviews and we may not be able to dispute these retroactive adjustments.
If economic conditions in Europe and other key markets for our business and the business of our suppliers, manufacturers and collaborators remain uncertain or deteriorate further, we could experience adverse effects on our business, financial condition, results of operations or cash flows. 32 Table of Contents Billing for our products is complex and requires substantial time and resources to collect payment.
If economic conditions in Europe and other key markets for our business and the business of our suppliers, manufacturers and collaborators remain uncertain or deteriorate further, we could experience adverse effects on our business, financial condition, results of operations or cash flows. Billing for our products is complex and requires substantial time and resources to collect payment.
In addition to data privacy and security laws, we are contractually subject to industry standards adopted by industry groups and may become subject to such obligations in the future. For example, we are subject to the Payment Card Industry Data Security Standard (“PCI DSS”).
In addition to data privacy and security laws, we are (and may in the future become) contractually subject to industry standards adopted by industry groups. For example, we are subject to the Payment Card Industry Data Security Standard (“PCI DSS”).
We could be adversely affected if regulatory agencies interpret our financial relationships with providers who may influence the ordering of and use of our products to be in violation of applicable laws. The scope and enforcement of each of these laws is uncertain and subject to rapid change in the current environment of healthcare reform.
We could be adversely affected if regulatory agencies interpret our financial relationships with providers who may influence the ordering of and use of our products to be in violation of applicable laws. 47 Table of Contents The scope and enforcement of each of these laws is uncertain and subject to rapid change in the current environment of healthcare reform.
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.
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.
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.
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.
Accordingly, because of the inherent limitations in our control system, misstatements due to error or fraud may occur and not be detected. In addition, we do not have a risk management program or processes or procedures for identifying and addressing risks to our business in other areas.
Accordingly, because of the inherent 69 Table of Contents limitations in our control system, misstatements due to error or fraud may occur and not be detected. In addition, we do not have a risk management program or processes or procedures for identifying and addressing risks to our business in other areas.
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.
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.
If an ownership change occurs and our ability to use our NOL carryforwards is materially limited, it would harm our future operating results by effectively increasing our future tax obligations.
If an ownership change occurs and our ability to use our NOL carryforwards is materially limited, it could harm our future operating results by effectively increasing our future tax obligations.
As applicable, such rights may include the right to access, correct, or delete certain personal data, and to opt-out of certain data processing activities, such as targeted advertising, profiling, and automated decision-making. The 48 Table of Contents exercise of these rights may impact our business and ability to provide our products and services.
As applicable, such rights include the right to access, correct, or delete certain personal data, and to opt-out of certain data processing activities, such as targeted advertising, profiling, and automated decision-making. The exercise of these rights may impact our business and ability to provide our products and services.
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 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.
Federal Reserve has raised, and may again raise, interest rates in response to concerns about inflation, which coupled with reduced government spending and volatility in financial markets may have the effect of further increasing economic uncertainty and heightening these risks.
In addition, the U.S. Federal Reserve has raised, and may again raise, interest rates in response to concerns about inflation, which coupled with reduced government spending and volatility in financial markets may have the effect of further increasing economic uncertainty and heightening these risks.
If we do not prevail in such disputes, we may lose any of such license agreements. 56 Table of Contents In addition, the agreements under which we currently license intellectual property or technology from third parties are complex, and certain provisions in such agreements may be susceptible to multiple interpretations.
If we do not prevail in such disputes, we may lose any of such license agreements. In addition, the agreements under which we currently license intellectual property or technology from third parties are complex, and certain provisions in such agreements may be susceptible to multiple interpretations.
Failure or perceived failure to comply with these obligations could result in significant consequences, including but not limited to government enforcement actions (e.g., investigations, fines, penalties, audits, inspections, and similar), litigation (including class-action claims) and mass arbitration demands, additional reporting requirements and/or oversight, bans on processing personal data, and orders to destroy or not use personal data.
Failure or perceived failure to comply with our privacy and security obligations could result in significant consequences, including but not limited to government enforcement actions (e.g., investigations, fines, penalties, audits, inspections, and similar), litigation (including class-action claims) and mass arbitration demands, additional reporting requirements and/or oversight, bans on processing personal data, and orders to destroy or not use personal data.
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 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 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.
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.
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.
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.
Additionally, our ability to successfully integrate, manage and derive financial and other benefits from any acquired business, asset, product or technology cannot be assured given our limited historical experience with such transactions. Our ability to use net operating loss carryforwards and certain other tax attributes to offset future taxable income and taxes may be subject to limitations.
Additionally, our ability to successfully integrate, manage and derive financial and other benefits from any acquired business, asset, product or technology cannot be assured given our limited historical experience with such transactions. 62 Table of Contents Our ability to use net operating loss carryforwards and certain other tax attributes to offset future taxable income and taxes may be subject to limitations.
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.
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 the supply chains of the third parties with whom we work 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.
Further, pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the SEC has adopted additional rules and regulations in these areas, such as mandatory ‘‘say on pay’’ voting requirements. Stockholder activism, the current political environment and the current high level of government intervention and regulatory reform may lead to substantial new regulations and disclosure obligations.
Further, pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the SEC has adopted additional rules and regulations in these areas, such as mandatory ‘‘say on pay’’ voting requirements. Stockholder activism, the current political environment, and the high level of government intervention and regulatory reform have led to substantial new regulations and disclosure obligations.
You should not rely on our past results as indicative of our future performance. In addition, a significant portion of our operating expense is relatively fixed in nature, and planned expenditures are based in part on expectations regarding future revenue.
You should not rely on our past results as indicative of our future performance. 28 Table of Contents In addition, a significant portion of our operating expense is relatively fixed in nature, and planned expenditures are based in part on expectations regarding future revenue.
Federal Supply Schedule contract with the Veterans Health Administration covering our covering all of our tests with the exception of DecisionDx-UM. Government contracts normally contain additional requirements that may increase our costs of doing business, reduce our profits (or increase our losses) and expose us to liability for failure to comply with these terms and conditions.
Federal Supply Schedule contract with the Veterans Health 43 Table of Contents Administration covering tests with the exception of DecisionDx-UM. Government contracts normally contain additional requirements that may increase our costs of doing business, reduce our profits (or increase our losses) and expose us to liability for failure to comply with these terms and conditions.
The occurrence of any of these events may have a material adverse effect on our business, results of operation, financial condition or cash flows. We depend on information technology systems that we license from third parties.
The occurrence of any of these events may have a material adverse effect on our business, results of operation, financial condition or cash flows. 55 Table of Contents We depend on information technology systems that we license from third parties.
If we fail to comply with our obligations associated with being a government contractor, our contracts may be subject to termination, and we 43 Table of Contents may be subject to financial and/or other liability under our contracts, which could adversely affect our results of operations.
If we fail to comply with our obligations associated with being a government contractor, our contracts may be subject to termination, and we may be subject to financial and/or other liability under our contracts, which could adversely affect our results of operations.
General business and economic conditions that could affect our business, financial condition or results of operations include fluctuations in economic growth, debt and equity capital markets, liquidity of the global financial markets, the availability and cost of credit, investor and consumer confidence, and the strength of the economies in which we, our collaborators, our manufacturers and our suppliers operate.
General business and economic conditions that could affect our business, financial condition or results of operations include fluctuations in economic growth, debt and equity capital markets, liquidity of the global financial markets, changes in trade and tariff policies, the availability and cost of credit, investor and consumer confidence, and the strength of the economies in which we, our collaborators, our manufacturers and our suppliers operate.
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.
Whether 35 Table of Contents 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.
If we are unable to increase sales and expand coverage and reimbursement for DecisionDx-Melanoma and our other tests, develop and commercialize other products, and successfully obtain coverage and adequate 31 Table of Contents reimbursement for such products, our revenue and our ability to achieve profitability would be impaired, and the market price of our stock could decline substantially.
If we are unable to increase sales and expand coverage and reimbursement for DecisionDx-Melanoma, TissueCypher, and our other tests, develop and commercialize other products, and successfully obtain coverage and adequate reimbursement for such products, our revenue and our ability to achieve profitability would be impaired, and the market price of our stock could decline substantially.
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.
The PCI DSS requires companies to 49 Table of Contents 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.
In addition, such clearance or approval may contain requirements for costly post-market testing and surveillance to monitor the safety or efficacy of the test. In addition, the FDA’s and other regulatory authorities’ policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approvals.
In addition, such marketing authorization may contain requirements for costly post-market testing and surveillance to monitor the safety or efficacy of the test. In addition, the FDA’s and other regulatory authorities’ policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approvals.
For example, the California Consumer Privacy Act of 2018, as amended by the California Rights Privacy Act of 2020 (“CPRA”) (collectively, the “CCPA”), applies to personal data of consumers, business representatives and employees who are California residents and requires businesses to provide specific disclosures in privacy notices and honor requests of such individuals to exercise certain privacy rights.
For example, the California Consumer Privacy Act of 2018, as amended (“CCPA”), applies to personal data of consumers, business representatives and employees who are California residents and requires businesses to provide specific disclosures in privacy notices and honor requests of such individuals to exercise certain privacy rights.
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.
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.
Although we would be given an opportunity to respond to those rejections, we may be unable to overcome such rejections. In addition, in the USPTO and in comparable agencies in many foreign jurisdictions, third parties are given an opportunity to oppose pending trademark applications and to seek to cancel registered trademarks.
Although we would be given an opportunity to respond to those rejections, we may be unable to overcome such rejections. In addition, in the USPTO and in comparable agencies in many foreign jurisdictions, third parties are given an opportunity to oppose pending trademark applications and to seek to cancel registered 58 Table of Contents trademarks.
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.
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.
A security incident could disrupt our ability (and that of the third parties upon whom we rely) to provide our services. We may expend significant resources or modify our business activities (including our clinical research activities) to try to protect against security incidents.
A security incident could disrupt our ability (and that of the third parties upon whom we rely) to provide our services. We have in the past and may in the future expend significant resources or modify our business activities (including our clinical research activities) to try to protect against security incidents.
Even if our products are allowed to remain on the market prior to clearance or approval, demand or reimbursement for our products may decline if there is uncertainty about our products, if we are required to label our products as investigational by the FDA, or if the FDA limits the labeling claims we are permitted to make for our products.
Even if our products are allowed to remain on the market prior to marketing authorization, demand or reimbursement for our products may decline if there is uncertainty about our products, if we are required to label our products as investigational by the FDA, or if the FDA limits the labeling claims we are permitted to make for our products.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeThe audit committee also receives various reports, summaries or presentations related to cybersecurity threats, risk and mitigation.
Biggest changeThe audit committee also receives various reports, summaries or presentations related to cybersecurity threats, risk and mitigation, and assessment of our cybersecurity program against programs of other organizations.
This group identifies and assesses risks from cybersecurity threats by monitoring and evaluating our threat environment and the Company’s risk profile using various methods including, for example: manual and automated tools; subscribing to and analyzing reports of cybersecurity threats and threat actors; conducing scans of our environment; evaluating our and our industry’s risk profile and threats reported to us; coordinating with law enforcement concerning certain threats; conducting internal and external audits and threat assessments; conducting vulnerability assessments; using external intelligence feeds; and working with a third-party test our incident response processes.
This group identifies and assesses risks from cybersecurity threats by monitoring and evaluating our threat environment and the Company’s risk profile using various methods including, for example: manual and automated tools; subscribing to and analyzing certain reports of cybersecurity threats and threat actors; conducing scans of our environment; evaluating our and our industry’s risk profile and certain threats reported to us; coordinating with law enforcement concerning certain threats; conducting internal and external audits and threat assessments; conducting vulnerability assessments; using external intelligence feeds; and working with a third-party to test our incident response processes.
Our cybersecurity incident response plan is designed to escalate certain cybersecurity incidents to members of management depending on the circumstances, including Security Management. Security Management work with the Company’s incident response team to help the Company mitigate and remediate cybersecurity incidents of 73 Table of Contents which they are notified.
Our cybersecurity incident response plan is designed to escalate certain cybersecurity incidents to members of management depending on the circumstances, including Security Management. Security Management works with the Company’s incident response team to help the Company mitigate and remediate cybersecurity incidents of 73 Table of Contents which they are notified.
Risk Factors in this Annual Report on Form 10-K, including “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.” Governance Our board of directors addresses the Company’s cybersecurity risk management as part of its general oversight function.
Risk Factors in this Annual Report on Form 10-K, including “If our information technology systems, or those of third parties with whom we work, 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.” Governance Our board of directors addresses the Company’s cybersecurity risk management as part of its general oversight function.

Item 2. Properties

Properties — owned and leased real estate

3 edited+2 added−1 removed0 unchanged
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.
Biggest changeWe lease approximately 45,000 square feet of commercial real estate located in Pittsburgh, Pennsylvania. This lease commenced in April 2023 under a 10.5-year term, expiring in October 2033, and provides us with a single five-year renewal option which we have not used. A majority of the square footage in this facility is dedicated for laboratory use.
Item 2. Properties. We have a lease agreement for approximately 26,700 square feet of office space in Friendswood, Texas that is used as our corporate headquarters. This lease commenced in late 2020 and has a 60-month term, expiring in November 2025, with an option to renew for one additional five-year period.
Item 2. Properties. We lease approximately 27,000 square feet of commercial office space located in Friendswood, Texas where our corporate headquarters is currently located. This lease commenced in late 2020 under a 60-month term that will expire in November 2025, and provides for a single five-year renewal option which we have not used.
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.
We lease approximately 46,000 square feet of commercial real estate located in Phoenix, Arizona under two agreements with terms expiring in July 2033 and October 2033, respectively. Each contract provides us with two five-year renewal options, none of which have been used. Most of the square footage at these locations is dedicated laboratory space.
Removed
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.
Added
We own 23 acres of land in Friendswood, Texas. We have contracted for the development and construction of an 80,000 square foot commercial office building on this land. Construction is currently underway and is expected to be completed in early 2026 and will be the future location for our corporate headquarters.
Added
We intend to lease out approximately 33,000 square feet of office space in our building.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeThese 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.
Biggest changeThis 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. 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.
Removed
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
On February 1, 2024, we received a subpoena from United States Department of Health and Human Services, Office of Inspector General, seeking documents and information concerning claims submitted for payment under federal healthcare programs. The subpoena requested that we produce documents relating primarily to interactions with medical providers and billing to government-funded healthcare programs for our tests.
Added
The time period covered by the subpoena is January 1, 2015 through the date of issuance of the subpoena. We are continuing to cooperate with the government’s request and is in the process of responding to the subpoena.
Added
We are unable to predict what action, if any, might be taken in the future by the Department of Health and Human Services, Office of Inspector General, or any other governmental authority as a result of the matters related to this subpoena. No claims have been made against us at this time.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe offer and sale of all of the shares of our common stock in the IPO were registered under the Securities Act pursuant to our Registration Statements on Form S-1, as amended (File Nos. 333-232369 and 333-232796), which were declared or became effective on July 24, 2019.
Biggest changeThe offer and sale of all of the shares of our common stock in the IPO were registered under the Securities Act of 1933, as amended (the “Securities Act”) pursuant to our Registration Statements on Form S-1, as amended (File Nos. 333-232369 and 333-232796), which were declared or became effective on July 24, 2019.
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.
Since the effective date of our registration statement through December 31, 2024, 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.
There has been no material change in our planned use of the net proceeds from the IPO as described in the final prospectus filed with the SEC on July 26, 2019 relating to our Registration Statements on Form S-1 (File Nos. 333-232369 and 333-232796).
There has been no material change in our planned use of the net proceeds from the IPO as described in the final prospectus filed with the Securities and Exchange Commission (the “SEC”) on July 26, 2019 relating to our Registration Statements on Form S-1 (File Nos. 333-232369 and 333-232796).
Holders 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.
Holders of Record As of February 20, 2025, there were approximately 90 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.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers None. Item 6. [Reserved].
Purchases of Equity Securities by the Issuer and Affiliated Purchasers None.
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Stock Performance Graph The following information is not deemed to be "soliciting material" or to be "filed" with the SEC or subject to Regulation 14A or 14C under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or to the liabilities of Section 18 of the Exchange Act, and will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent we specifically incorporate it by reference into such a filing. 75 Table of Contents The graph below compares the cumulative total stockholder return of our common stock to the Nasdaq Composite Index and the Nasdaq Biotechnology Total Return Index.
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The graph and table below assume that $100 was invested on December 31, 2019, and dividends, if any, were reinvested on the date of payment without payment of any commissions.
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The comparisons in the table are required by the SEC and are not intended to forecast or be indicative of future performance of our common stock. 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 12/31/2024 Castle Biosciences, Inc. $ 100.00 $ 195.37 $ 124.73 $ 68.49 $ 62.79 $ 77.54 Nasdaq Composite Index $ 100.00 $ 143.64 $ 174.36 $ 116.65 $ 167.30 $ 215.22 Nasdaq Biotechnology Total Return Index $ 100.00 $ 125.46 $ 125.49 $ 112.78 $ 117.96 $ 117.30 Item 6. [Reserved].

Item 7. Management's Discussion & Analysis

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

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Biggest changeCash 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.
Biggest changeCash 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, 2024 2023 Net cash provided by (used in) operating activities $ 64,866 $ (5,626) Net cash used in investing activities (50,137) (16,183) Net cash provided by (used in) financing activities 6,139 (2,298) Net change in cash and cash equivalents 20,868 (24,107) Cash and cash equivalents, beginning of year 98,841 122,948 Cash and cash equivalents, end of year $ 119,709 $ 98,841 Operating Activities Net cash provided by operating activities was $64.9 million for the year ended December 31, 2024, and was primarily attributable to the net income of $18.2 million, non-cash stock-based compensation expense of $50.3 million, depreciation and amortization of $16.0 million, increases in accrued compensation of $3.6 million, increases in deferred income taxes of $1.4 million, partially offset by increases in accounts receivable of $12.6 million, increases in accretion of discounts on marketable investment securities of $6.7 million, increases in accounts payable of $4.4 million and increases in prepaid expenses and other current assets of $1.1 million. 89 Table of Contents 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.
Investing Activities Net cash used in investing activities was $16.2 million for the year ended December 31, 2023 and consisted primarily of purchases of marketable investment securities of $189.1 million and purchases of property and equipment of $13.6 million, partially offset by the maturity of marketable investment securities of $186.5 million.
Net cash used in investing activities was $16.2 million for the year ended December 31, 2023 and consisted primarily of purchases of marketable investment securities of $189.1 million and purchases of property and equipment of $13.6 million, partially offset by the maturity of marketable investment securities of $186.5 million.
To measure the fair value of our reporting unit, we used a market approach whereby we calculated our total market capitalization on the impairment test date, based on the closing price of our common stock as reported on the Nasdaq Global Market, and applied a reasonable control premium.
To measure the fair value of our single reporting unit, we used a market approach whereby we calculated our total market capitalization on the impairment test date, based on the closing price of our common stock as reported on the Nasdaq Global Market, and applied a reasonable control premium.
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.
Our Financial Results Our net income (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.
Prior to our IPO, the estimated fair value of our common stock had been determined by our board of directors as of the date of each award, with input from management, considering our most recently available third-party valuations of common stock and our board of directors’ assessment of additional objective and subjective factors that it believed were relevant and which may have changed from the date of the most recent valuation through the date of the grant, which intended all options granted to be exercisable at price per share not less than the per share fair value of our common stock underlying those options on the grant date.
Prior to our IPO, the estimated fair value of our common stock had been determined by our board of directors as of the date of each award, with input from management, considering our most recently available third-party valuations of common stock and our board of directors’ assessment of additional objective and subjective factors that it believed 92 Table of Contents were relevant and which may have changed from the date of the most recent valuation through the date of the grant, which intended all options granted to be exercisable at price per share not less than the per share fair value of our common stock underlying those options on the grant date.
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.
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 81 Table of Contents 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. • Reimbursement.
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.
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 depend on our ability to integrate any acquisitions into our existing business and effectively scale their operations.
MyPath Melanoma is our proprietary GEP test for use in patients with a melanocytic lesion and uncertainty related to the malignancy of the lesion. We estimate approximately 300,000 patients each year present with a diagnostically ambiguous lesion, representing an estimated U.S. TAM of approximately $600 million.
TAM of approximately $820 million. MyPath Melanoma is our proprietary GEP test for use in patients with a melanocytic lesion and uncertainty related to the malignancy of the lesion. We estimate that approximately 300,000 patients each year present with a diagnostically ambiguous lesion, representing an estimated U.S. TAM of approximately $600 million.
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 are currently evaluating the impact this update will have on the 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.
We expect our lease obligations may increase in the future as we expand our facilities, operations and headcount in support of the anticipated growth in our portfolio of commercial products and pipeline tests. Refer to Note 10 of the consolidated financial statements for additional information on our leasing arrangements.
We expect our lease obligations may increase in the future as we expand our facilities, operations and headcount in support of the anticipated growth in our portfolio of commercial products and pipeline tests. Refer to Note 11 of the consolidated financial statements for additional information on our leasing arrangements.
Other Events Impact of Macroeconomic Conditions Macroeconomic conditions, including uncertainties associated with the Israel-Hamas war, the ongoing conflict between Ukraine and Russia, economic slowdowns, public health crises, 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 financing markets, rising interest rates and financial and credit market fluctuations, volatility in the capital markets or other evolving macroeconomic developments, continued to have direct and indirect impacts on our business and could in the future materially impact our results of operations and financial condition.
Other Events Impact of Macroeconomic Conditions Macroeconomic conditions, including uncertainties associated with the Israel-Hamas war, the ongoing conflict between Ukraine and Russia, economic slowdowns, public health crises, 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 financing markets, higher interest rates and financial and credit market fluctuations, volatility in the capital markets or other evolving macroeconomic developments, continue to have direct and indirect impacts on our business and could in the future materially impact our results of operations and financial condition.
In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280)—Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which require public companies disclose significant segment expenses and other segment items on an annual and interim basis and to provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually.
Recent Accounting Pronouncements In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280)—Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which require public companies disclose significant segment expenses and other segment items on an annual and interim basis and to provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually.
The guidance is effective for public entities for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The guidance is applied retrospectively to all periods presented in the financial statements, unless it is impracticable.
The guidance was effective for public entities for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption was permitted. The guidance was applied retrospectively to all periods presented in the financial statements, unless it was impracticable.
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.
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 including competitor actions.
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.
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 increases.
A 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 laboratory portion of the test is performed, including proprietary algorithmic analysis of the combined biomarkers and a report is then generated which is sent to the clinician who ordered the test.
A 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 laboratory portion of the test is performed, including proprietary algorithmic analysis of the combined biomarkers and a report is then delivered to the clinician who ordered the test.
We anticipate that a substantial portion of our cash requirements in the foreseeable future will relate to the further commercialization of our currently marketed products, the development of our future product candidates in our pipeline and the potential commercialization of these pipeline products, should their development be successful.
We anticipate that a substantial portion of our cash requirements in the foreseeable future will relate to the further commercialization of our currently marketed products, the development of our future product candidates in our pipeline and the potential commercialization of these pipeline products, should their development be successful and the construction of our future corporate headquarters.
Variable consideration may be constrained and excluded from the transaction price in situations where there is no contractually agreed upon reimbursement coverage or in the absence of a predictable pattern and history of collectability with a payor.
Variable consideration may be constrained and excluded from the transaction price in situations where there is no contractually agreed upon reimbursement coverage or in the absence of a 91 Table of Contents predictable pattern and history of collectability with a payor.
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.
We 87 Table of Contents 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.
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.
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 and that it is comparable to the technical performance of DiffDx-Melanoma.
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 have concluded that our business is comprised of a single reporting unit. For our annual impairment test for the year ended December 31, 2024, we elected to bypass the qualitative assessment and proceeded directly to the quantitative assessment by comparing our reporting unit’s fair value to its 93 Table of Contents carrying value.
Costs associated with testing samples are recorded when the test is processed regardless of whether and when revenues are recognized with respect to that test.
Costs 82 Table of Contents associated with testing samples are recorded when the test is processed regardless of whether and when revenues are recognized with respect to that test.
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”).
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 ESPP.
Effective April 1, 2024 and through December 31, 2025, the published CLFS rate for DecisionDx-SCC will be based on the median private payor rates received between July 1, 2023 and November 30, 2023. We submitted the median private payor data to CMS during the data reporting period in December 2023.
Effective April 1, 2024 and through December 31, 2025, the published Clinical Laboratory Fee Schedule (“CLFS”) rate for DecisionDx-SCC will be based on the median private payor rates received between July 1, 2023 and November 30, 2023. We submitted the median private payor data to CMS during the data reporting period in December 2023.
In part, the cash used during the year ended December 31, 2023 reflects the payment of annual cash bonuses to our employees as well as certain health care benefit payments totaling $17.7 million. In comparison, we paid $11.6 million during the same period in 2022 towards annual cash bonuses and certain health care benefits.
In part, the cash used during the year ended December 31, 2024 reflects the payment of annual cash bonuses to our employees as well as certain health care benefit payments totaling $20.8 million. In comparison, we paid $17.7 million during the same period in 2023 towards annual cash bonuses and certain health care benefits.
All five of our MAAA tests have been granted ADLT test status by CMS which means each test has demonstrated that (i) when combined with an empirically derived algorithm, it yields a result that predicts the probability a specific individual patient will develop a certain condition or conditions, or will respond to a particular therapy or therapies; and (ii) it provides new clinical diagnostic information that cannot be obtained from any other test or combination of tests.
All five of our MAAA tests have been granted Advanced Diagnostic Laboratory Test (“ADLT”) status by the Centers for Medicare and Medicaid (“CMS”) which means each test has demonstrated that (i) when combined with an empirically derived algorithm, it yields a result that predicts the probability a specific individual patient will develop a certain condition or conditions, or will respond to a particular therapy or therapies; and (ii) it provides new clinical diagnostic information that cannot be obtained from any other test or combination of tests.
Our ability to increase our revenues will depend on our ability to further penetrate our target markets, and, in particular, generate sales through our direct sales force, develop and commercialize additional tests, including through acquisitions, obtain reimbursement from additional third-party payors and increase our reimbursement rate for tests performed.
Our ability to increase our revenues will depend on our ability to further penetrate our target markets, and, in particular, generate sales through our direct sales force, maintain Medicare coverage for our currently marketed products , develop and commercialize additional tests, including through acquisitions, obtain reimbursement from additional third-party payors and increase our reimbursement rate for tests performed.
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.
Included in revenues for the years ended December 31, 2024 and 2023 were $1.8 million of net negative revenue adjustments and $4.5 million of net negative revenue adjustments, respectively, associated with changes in estimated variable consideration related to performance obligations satisfied in previous periods.
We expect our expenses will increase substantially over time as we: • execute clinical studies to generate evidence supporting our current and future product candidates; • execute our commercialization strategy for our current and future commercial products; • continue our ongoing and planned development of new products in our pipeline; • seek to discover and develop additional product candidates; • hire additional scientific and research and development staff; and • add additional operational, financial and management information systems and personnel.
We expect our expenses will increase substantially over time as we: • execute clinical studies to generate evidence supporting our current and future product candidates; • execute our commercialization strategy for our current and future commercial products; • continue our ongoing and planned development of new products in our pipeline; • seek to discover and develop additional product candidates; • hire additional scientific and research and development staff; • add additional operational, financial and management information systems and personnel; and • make additional capital expenditures to support business growth and sustain existing operations.
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.
Revenue Recognition We recognize revenue in accordance with ASC 606. 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.
(3) We temporarily paused accepting additional orders in July 2023 and resumed accepting new orders in a phased approach in September 2023. We completed processing of our pre-existing backlog orders in October 2023 and continue to accept new orders as of December 31, 2023.
We continue to offer our MyPath Melanoma test. (2) We temporarily paused accepting additional orders in July 2023 and resumed accepting new orders in a phased approach in September 2023. We completed processing of our pre-existing backlog orders in October 2023 and continue to accept new orders as of December 31, 2023.
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.
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 I, Item 1A., “Risk Factors” in this Annual Report on Form 10-K and in our other filings with the SEC.
The amount of revenue recognized reflects the amount of consideration to which we expect to be entitled, or the transaction price, and considers the effects of variable consideration. All of our revenues from contracts with customers are associated with the provision of diagnostic and prognostic testing services. Our revenues are primarily attributable to DecisionDx-Melanoma for cutaneous melanoma.
The amount of revenue recognized reflects the amount of consideration to which we expect to be entitled, or the transaction price, and considers the effects of variable consideration. All of our revenues from contracts with customers are associated with the provision of diagnostic, prognostic and predictive testing services.
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.
In a typical year, we estimate approximately 130,000 patients are diagnosed with invasive CM in the United States, representing an estimated U.S. total addressable market (“TAM”) of approximately $540 million. We estimate that approximately 50% of patients diagnosed with CM are 65 years of age or older.
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.
Currently, our revenue is primarily generated by our DecisionDx-Melanoma risk stratification test for cutaneous melanoma (“CM”) and our DecisionDx-SCC risk stratification test for cutaneous squamous cell carcinoma (“SCC”), which is supplemented by revenue generated from our TissueCypher risk stratification test for BE and our DecisionDx-UM risk stratification test for UM.
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.
Stock-Based Compensation Expense Stock-based compensation expense, which is allocated among cost of sales, research and development expense and SG&A expense, totaled $50.3 million for the year ended December 31, 2024 compared to $51.2 million for the 86 Table of Contents year ended December 31, 2023.
We expect material increases in stock-based compensation expense in future periods, attributable to both existing awards outstanding and anticipated additional grants to our current and future employees. We expect to complete an annual grant of equity awards to our employees in March 2024. As of December 31, 2023, we had 610 employees compared to 543 as of December 31, 2022.
We expect material increases in stock-based compensation expense in future periods, attributable to both existing awards outstanding and anticipated additional grants to our current and future employees. We had 761 employees as of December 31, 2024, compared to 610 as of December 31, 2023.
Our IDgenetix multi-gene panel was reimbursed by Medicare at approximately $1,500 per test from the April 2022 acquisition date through February 2023, when MolDX notified us that as part of its annual CPT code updates, IDgenetix should shift billing to the New CPT Code and continue using the IDgenetix Z-Code beginning in March 2023.
Our IDgenetix multi-gene panel was reimbursed by Medicare at approximately $1,500 per test from April 2022 through February 2023, when MolDX notified us that as part of its annual Current Procedural Terminology (“CPT”) code updates, IDgenetix should shift billing to a different generic gene sequencing CPT code (the “New CPT Code”) and continue using the IDgenetix Z-Code beginning in March 2023.
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.
As of December 31, 2024, total unrecognized stock-based compensation cost related to outstanding awards was $71.1 million, which is expected to be recognized over a weighted-average period of 2.2 years.
In 2023, DiffDx-Melanoma went through the CMS gapfill process which concluded in September 2023 with CMS posting a final MAC-specific gapfill rate of $1,950 per test. Our rate for 2024 is $1,950 per test. 77 Table of Contents Diagnostic GEP Offering Our Diagnostic GEP offering included MyPath Melanoma and DiffDx-Melanoma.
In 2023, DiffDx-Melanoma went through the CMS gapfill process which concluded in September 2023 with CMS posting a final MAC-specific gapfill rate of $1,950 per test. Our rate for 2024 was $1,950 per test and will continue to be $1,950 per test in 2025. Diagnostic GEP Offering Our Diagnostic GEP offering included MyPath Melanoma and DiffDx-Melanoma.
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.
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) that both predicts the risk of metastasis as well as response to adjuvant radiation therapy. We estimate 20% of SCC, or 200,000 annually in the United States, are classified as high risk, representing an estimated U.S.
Interest and Other Non-Operating Income Interest income consists primarily of earnings on cash and cash equivalents, primarily money market funds, and marketable investment securities, primarily short-term U.S. government obligations.
Interest Income Interest income consists primarily of earnings on cash and cash equivalents, primarily money market funds, and our short-term U.S. government obligations are a component of our marketable investment securities.
The $36.0 million decrease in net cash used in operating activities for the year ended December 31, 2023 compared to the year ended December 31, 2022 is primarily due to increases in collections from customers attributable to higher net revenues partially offset by increases in operating expenditures.
The $70.5 million increase in net cash provided by operating activities for the year ended December 31, 2024 compared to the year ended December 31, 2023 is primarily due to increases in collections from customers attributable to higher net revenues partially offset by increases in operating expenditures.
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.
Total undiscounted future minimum payment obligations under our operating leases and finance leases as of December 31, 2024 totaled approximately $23.3 million, of which $3.1 million is payable in 2025 and $20.2 million is payable through early 2034. The leases expire on various dates through 2034 and provide certain options to renew for additional periods.
On July 10, 2023, following approval by our board of directors, we entered into a definitive agreement to purchase a plot of land located in Friendswood, Texas for a purchase price of $7.6 million, subject to certain adjustments, for the purpose of developing a commercial office building which may be used as our future corporate headquarters.
In July 2023, we entered into a definitive agreement to purchase a plot of land located in Friendswood, Texas for a purchase price of $7.6 million, subject to certain adjustments, for the purpose of developing a commercial office building where our future corporate headquarters will be located.
We expect our cost of sales expenses (exclusive of amortization of acquired intangible assets) to continue to increase in future periods as we hire additional laboratory personnel and related resources to support our expected growth in volume for our dermatologic, gastrointestinal, mental health and pipeline tests.
We expect our cost of sales expenses (exclusive of amortization of acquired intangible assets) to continue to increase in future periods as we hire additional laboratory personnel and related resources to support expected operational growth and higher test volumes.
Further information about Medicare coverage and ADLT status with respect to each of our tests is set forth below. Test Overview Our Dermatologic Tests DecisionDx-Melanoma is our proprietary risk stratification GEP test that predicts the risk of metastasis or recurrence for patients diagnosed with invasive cutaneous melanoma.
Further information about Medicare coverage and ADLT status with respect to each of our tests is set forth below. Test Overview Our Dermatology Tests DecisionDx-Melanoma is our proprietary risk stratification gene expression profile (“GEP”) test that predicts the risk of metastasis or recurrence, including a positive sentinel lymph node, for patients diagnosed with invasive CM.
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 that 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.
On March 24, 2022, CMS determined that 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. 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.
Certain contracts contain a contractual commitment of a reimbursement rate that differs from our list prices. However, absent a contractually committed reimbursement rate with a commercial carrier or governmental program, our diagnostic tests may or may not be covered by these entities’ existing reimbursement policies.
However, absent a contractually committed reimbursement rate with a commercial carrier or governmental program, our diagnostic tests may or may not be covered by these entities’ existing reimbursement policies.
The preparation of our consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, costs and expenses, and the disclosure of contingent assets and liabilities in our consolidated financial statements.
Critical Accounting Estimates Our consolidated financial statements are prepared in accordance with U.S. GAAP. The preparation of our consolidated financial statements and related disclosures requires us to make estimates and judgments that affect 90 Table of Contents the reported amounts of assets, liabilities, costs and expenses, and the disclosure of contingent assets and liabilities in our consolidated financial statements.
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.
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. Our rate for 2022, 2023 and 2024 was $7,193 per test.
Our Uveal Melanoma Test DecisionDx-UM is a proprietary, risk stratification GEP test that helps healthcare providers predict the risk of metastasis for patients with UM. We believe DecisionDx-UM is the standard of care in the management of newly diagnosed UM in the majority of ocular oncology practices in the United States.
Our Ophthalmology Test DecisionDx-UM is a proprietary, risk stratification GEP test that predicts the risk of metastasis for patients with UM. We believe DecisionDx-UM is the standard of care in the management of newly diagnosed UM in the majority of ocular oncology practices in the United States. We estimate a U.S. TAM of approximately $10 million.
Our Gastroenterology Test TissueCypher is our proprietary risk stratification spatial omics test designed to predict future development of HGD and/or esophageal cancer in patients with ND, IND or LGD BE. We estimate a U.S. TAM of approximately $1 billion.
Our Gastroenterology Test TissueCypher is our proprietary risk stratification spatial-omics test designed to predict future development of progression of high-grade dysplasia (“HGD”) and/or esophageal cancer in patients with non-dysplastic (“ND”), indefinite dysplasia (“IND”) or low-grade dysplasia (“LGD”) BE. We estimate a U.S. TAM of approximately $1 billion.
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.
The following table sets forth the assumptions used to determine the fair value of stock options: Years Ended December 31, 2024 2023 2022 Average expected term (years) 5.0 5.0 5.8 Expected stock price volatility 80.20% - 80.20% 75.57% - 76.01% 68.3% - 75.0% Risk-free interest rate 4.39% - 4.39% 3.57% - 3.57% 1.5% - 4.2% 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, 2024 2023 2022 Average expected term (years) 1.2 1.3 1.3 Expected stock price volatility 59.85% - 105.39% 72.80% - 130.95% 63.0% - 91.8% Risk-free interest rate 3.82% - 5.14% 4.74% - 5.33% 0.6% - 3.5% 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.
For example, the rate for 2023 was set using median private payor rate data from January 1, 2021 to June 30, 2021. Our rate for 2022 and 2023 was $7,776 per test and is $7,776 for 2024. MyPath Melanoma and DiffDx-Melanoma MyPath Melanoma was covered under a test-specific LCD policy through Noridian that became effective in June 2019.
Our 2025 rate will continue to be $4,950 per test based on the median private payor rate data from January 1, 2023 to June 30, 2023. MyPath Melanoma and DiffDx-Melanoma MyPath Melanoma was covered under a test-specific LCD policy through Noridian that became effective in June 2019.
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.
As of December 31, 2024, we had federal NOL carryforwards of $129.4 million, of which $52.9 million will begin to expire in 2031 if not utilized to offset federal taxable income, and $76.5 million may be carried forward indefinitely.
Recent Accounting Pronouncements In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740) — Improvements to Income Tax Disclosures ("ASU 2023-09"), which is intended to enhance the transparency and decision usefulness of income tax disclosures.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740) — Improvements to Income Tax Disclosures ("ASU 2023-09"), which is intended to enhance the transparency and decision usefulness of income tax disclosures. The amendments in ASU 2023-09 provide for enhanced income tax information primarily through changes to the rate reconciliation and income taxes paid information.
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.
We expect to incur additional expenses 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.
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.
See the table in “—Results of Operations—Comparison of the years ended December 31, 2024 and 2023” 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.
Future rates will be set annually based upon the median private payor rate for the first half of the second preceding calendar year. ADLT status determines the process by which the rate is set and is not an indication of Medicare coverage. TissueCypher TissueCypher is processed in our Pittsburgh, Pennsylvania laboratory and falls under the Medicare jurisdiction managed by Novitas.
Future rates will be set annually based upon the median private payor rate for the first half of the second preceding calendar year. 78 Table of Contents TissueCypher Most of our TissueCypher tests are processed in our Pittsburgh laboratory under the Medicare jurisdiction managed by Novitas.
(2) Consists of TissueCypher, DecisionDx-UM and IDgenetix. 84 Table of Contents The following table presents the calculation of gross margin (in thousands, except percentages): Years Ended December 31, 2023 2022 Change Net revenues $ 219,788 $ 137,039 $ 82,749 Less: Cost of sales (exclusive of amortization of acquired intangible assets) 44,982 32,009 12,973 Less: Amortization of acquired intangible assets 9,013 8,266 747 Gross margin $ 165,793 $ 96,764 $ 69,029 Gross margin percentage 75.4 % 70.6 % 4.8 % Net Revenues Net revenues for the year ended December 31, 2023 increased by $82.7 million, or 60.4%, to $219.8 million compared to the year ended December 31, 2022 due to a $58.6 million increase in revenue from our dermatologic tests and a $24.1 million increase in revenue from our non-dermatologic tests.
(2) Consists of TissueCypher, DecisionDx-UM and IDgenetix. 84 Table of Contents The following table presents the calculation of gross margin (in thousands, except percentages): Years Ended December 31, 2024 2023 Change Net revenues $ 332,069 $ 219,788 $ 112,281 Less: Cost of sales (exclusive of amortization of acquired intangible assets) 60,205 44,982 15,223 Less: Amortization of acquired intangible assets 11,106 9,013 2,093 Gross margin $ 260,758 $ 165,793 $ 94,965 Gross margin percentage 78.5 % 75.4 % 3.1 % Net Revenues Net revenues for the year ended December 31, 2024 increased by $112.3 million, or 51.1%, to $332.1 million compared to the year ended December 31, 2023 due to a $73.6 million increase in revenue from our dermatologic tests and a $38.7 million increase in revenue from our non-dermatologic tests.
Rates for our MyPath Melanoma test are 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.
The rate for our MyPath Melanoma test 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 2024 was set using median private payor rate data from January 1, 2022 to June 30, 2022.
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.
We bill third-party payors and patients for the tests we perform. We have received Medicare coverage for our DecisionDx-Melanoma, DecisionDx-SCC, TissueCypher, MyPath Melanoma, DecisionDx-UM and IDgenetix tests which meet certain criteria for Medicare and Medicare Advantage beneficiaries.
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.
Additionally, as of December 31, 2024, we had a $25.0 million credit line available under the 2024 LSA. Our liquidity has been primarily derived from the revenue generated from the sale of our products, and proceeds from our IPO in July 2019 and our follow-on public offerings of common stock in June and December of 2020.
Accordingly, our cost of sales expense will not necessarily increase or decrease commensurately with the change in net revenues from period to period.
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.
Material Cash Requirements Our primary uses of capital are, and we expect will continue to be, compensation and related expenses, clinical research and development services, laboratory operations, equipment and related supplies, legal and other regulatory expenses, general administrative costs and, from time to time, expansion of our laboratory and office facilities in support of our growth.
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.” Material Cash Requirements Our primary uses of capital are, and we expect will continue to be, compensation and related expenses, clinical research and development services, laboratory operations, equipment and related supplies, legal and other regulatory expenses, general administrative costs and, from time to time, expansion of our laboratory and office facilities in support of our growth, such as the construction of our future corporate headquarters.
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.
We also offer a proprietary a pharmacogenomic (“PGx”) test to guide optimal drug treatment for patients diagnosed with depression, anxiety and other mental health conditions.
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.
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, 2024 increased by $15.2 million, or 33.8%, compared to the year ended December 31, 2023, primarily due to higher personnel costs and higher expense for supplies and depreciation.
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.
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 Accounting Standards Codification (‘‘ASC’’) Topic 606, Revenue from Contracts with Customers (“ASC 606”).
General and administrative expenses increased by $10.1 million, or 17.9%, for the year ended December 31, 2023, compared to the year ended December 31, 2022. The increase is primarily attributable to higher personnel costs and higher information technology and software-related costs. Increases in personnel costs reflect higher stock-based compensation and salaries.
General and administrative expenses increased by $10.1 million, or 15.2%, for the year ended December 31, 2024, compared to the year ended December 31, 2023. The increase is primarily due to higher personnel costs, professional fees and information technology-related cost expenses.
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.
Financing Activities Net cash provided by financing activities was $6.1 million for the year ended December 31, 2024, and consisted primarily of $10.0 million of proceeds from issuance of long-term debt and $3.0 million of proceeds from contributions to our 2019 Employee Stock Purchase Plan (the “ESPP”) and $2.0 million of proceeds from the exercise of stock options, partially offset by the $8.8 million payment of employee taxes attributable to the vesting of RSUs.
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.
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. Long-Term Debt We had no debt as of December 31, 2023.
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.
We began offering MyPath Melanoma following our acquisition of the Myriad MyPath Laboratory in May 2021 at which point we offered both our MyPath Melanoma test and our DiffDx-Melanoma test under an offering that we referred to as our Diagnostic GEP offering.
This rate is based on the median private payor rates received between April 1, 2022 and August 31, 2022.
This rate is based on the median private payor rates received between April 1, 2022 and August 31, 2022. Thereafter, the rate will be set annually based upon the median private payor rate for the first half of the second preceding calendar year.
We cannot predict whether this LCD will be finalized as proposed or what the timing of any final LCD might be. 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.
Palmetto’s 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.
For the years ended December 31, 2023 and 2022, our dermatologic test report volume increased by 30.5% and 40.9%, respectively, largely driven by continued growth from our DecisionDx-Melanoma and DecisionDx-SCC tests. Increases from our other tests (non-dermatologic), primarily IDgenetix and TissueCypher, also contributed to the overall volume increase.
(3) We began offering the IDgenetix test in April 2022, following our acquisition of AltheaDx. For the years ended December 31, 2024 and 2023, our dermatologic test report volume increased by 15.5% and 30.5%, respectively, largely driven by continued growth from our DecisionDx-Melanoma and DecisionDx-SCC tests.
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.
Also, as of December 31, 2024, we also had state NOL carryforwards of $86.5 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, 2024 and 2023 The following table summarizes our results of operations for the periods indicated (in thousands, except percentages): Years Ended December 31, Change 2024 2023 NET REVENUES $ 332,069 $ 219,788 $ 112,281 51.1 % OPERATING EXPENSES AND OTHER OPERATING INCOME Cost of sales (exclusive of amortization of acquired intangible assets) 60,205 44,982 15,223 33.8 % Research and development 52,041 53,618 (1,577) (2.9) % Selling, general and administrative 200,047 180,152 19,895 11.0 % Amortization of acquired intangible assets 11,106 9,013 2,093 23.2 % Total operating expenses, net 323,399 287,765 35,634 12.4 % Operating income (loss) 8,670 (67,977) 76,647 112.8 % Interest income 12,916 10,623 2,293 21.6 % Changes in fair value of trading securities 555 — 555 NA Interest expense (577) (11) (566) NM Income (loss) before income taxes 21,564 (57,365) 78,929 137.6 % Income tax expense 3,319 101 3,218 NM Net income (loss) $ 18,245 $ (57,466) $ 75,711 131.7 % (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, 2024 2023 Change Cost of sales (exclusive of amortization of acquired intangible assets) $ 5,529 $ 4,938 $ 591 Research and development 9,598 10,119 (521) Selling, general and administrative 35,193 36,162 (969) Total stock-based compensation expense $ 50,320 $ 51,219 $ (899) The following table provides a disaggregation of net revenues by type (in thousands): Years Ended December 31, 2024 2023 Change Dermatologic (1) $ 256,996 $ 183,375 $ 73,621 Non-Dermatologic (2) 75,073 36,413 38,660 Total net revenues $ 332,069 $ 219,788 $ 112,281 (1) Consists of DecisionDx-Melanoma, DecisionDx-SCC and our Diagnostic Gene Expression Profile offering (MyPath Melanoma and DiffDx-Melanoma).
The 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.
The number of test reports delivered by us during the years ended December 31, 2024 and 2023 are presented in the table below: Proprietary Dermatologic GEP Tests DecisionDx- Melanoma DecisionDx-SCC Diagnostic GEP offering (1) Dermatologic Total DecisionDx-UM TissueCypher (2) IDgenetix (3) Grand Total Q1 2024 8,384 3,577 998 12,959 422 3,429 4,078 20,888 Q2 2024 9,585 4,277 1,099 14,961 456 4,782 4,903 25,102 Q3 2024 9,367 4,195 933 14,495 397 6,073 5,045 26,010 Q4 2024 8,672 4,299 879 13,850 424 6,672 3,125 24,071 For the year ended December 31, 2024 36,008 16,348 3,909 56,265 1,699 20,956 17,151 96,071 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 (1) Our GEP offering included our MyPath Melanoma and DiffDx-Melanoma until we suspended our DiffDx-Melanoma in February 2023.
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.
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.
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.
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-UM DecisionDx-UM tests are processed from our Phoenix laboratory and are covered under LCDs finalized by MAC administrators Palmetto and Noridian in July 2017.

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