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What changed in Fulgent Genetics, Inc.'s 10-K — 2022 vs 2023

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

+820 added−456 removedSource: 10-K (2024-02-28) vs 10-K (2023-02-28)

Top changes in Fulgent Genetics, Inc.'s 2023 10-K

820 paragraphs added · 456 removed · 371 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

117 edited+223 added−24 removed110 unchanged
Biggest changeOther potential consequences of regulatory non-compliance include, among other things, fines, warning letters or other enforcement-related letters or clinical holds on post-approval clinical trials; product seizure or detention, or refusal to permit the import or export of products; injunctions or the imposition of civil or criminal penalties; and/or consent decrees, corporate integrity agreements, debarment, or exclusion from federal health care programs. 9 Privacy and Security Laws and Regulations and Patient Information Access Laws and Regulations Applicable to Our Business HIPAA and HITECH Under the Administrative Simplification provisions of the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, as amended by the federal Health Information Technology for Economic and Clinical Health Act, or HITECH, the U.S.
Biggest changeOther potential consequences of regulatory non-compliance include, among other things: • Restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market or product recalls; • fines, warning letters or other enforcement-related letters or clinical holds on post-approval clinical trials; • refusal of the FDA to approve pending NDAs or supplements to approved NDAs; • product seizure or detention, or refusal to permit the import or export of products; injunctions or the imposition of civil or criminal penalties; • consent decrees, corporate integrity agreements, debarment, or exclusion from federal health care programs; or • mandated modification of promotional materials and labeling and the issuance of corrective information.
HIPAA also requires covered entities to enter into business associate agreements to obtain a written assurance of compliance with HIPAA from individuals or organizations who provide services to covered entities involving the use or disclosure of PHI, or also known as “business associates.” As a general rule, a covered entity or business associate may not use or disclose PHI, except as permitted under the privacy regulations of HIPAA and HITECH.
HIPAA also requires covered entities to enter into business associate agreements to obtain a written assurance of compliance with HIPAA from individuals or organizations who provide services to covered entities involving the use or disclosure of PHI, also known as “business associates.” As a general rule, a covered entity or business associate may not use or disclose PHI, except as permitted under the privacy regulations of HIPAA and HITECH.
In particular, we rely on Illumina, Inc. as the sole supplier of the next generation sequencers and associated reagents we use to perform our genetic tests and as the sole provider of maintenance and repair services for these sequencers; on Roche Holdings AG for certain laboratory equipment, supplies, and services for our immunohistochemistry services; on Beckman Coulter Diagnostics for certain laboratory equipment, supplies, and services for our flow cytometry tests and testing services; and on Abbott Laboratories for certain laboratory equipment, supplies, and services for our FISH tests and testing services.
In particular, we rely on Illumina, Inc., or Illumina, as the sole supplier of the next generation sequencers and associated reagents we use to perform our genetic tests and as the sole provider of maintenance and repair services for these sequencers; on Roche Holdings AG for certain laboratory equipment, supplies, and services for our immunohistochemistry services; on Beckman Coulter Diagnostics for certain laboratory equipment, supplies, and services for our flow cytometry tests and testing services; and on Abbott Laboratories for certain laboratory equipment, supplies, and services for our FISH tests and testing services.
If our clinical reference laboratories are out of compliance with the applicable state regulations, state agencies may suspend, restrict, or revoke our license to operate our clinical laboratories, assess substantial civil money penalties or impose specific corrective action plans. Any such actions could materially affect our business. Currently, we maintain good standing with all state authorities.
If our clinical laboratories are out of compliance with the applicable state regulations, state agencies may suspend, restrict, or revoke our license to operate our clinical laboratories, assess substantial civil money penalties or impose specific corrective action plans. Any such actions could materially affect our business. Currently, we maintain good standing with all state authorities.
However, following several years of litigation in the federal courts, in June 2021, the United States Supreme Court, or the Supreme Court, upheld the ACA when it dismissed a legal challenge to the Act’s constitutionality. Further legislative and regulatory changes under the ACA remain possible, although the new Democrat-led presidential administration has been taking steps to strengthen the ACA.
However, following several years of litigation in the federal courts, in June 2021, the United States Supreme Court, or the Supreme Court, upheld the ACA when it dismissed a legal challenge to the Act’s constitutionality. Further legislative and regulatory changes under the ACA remain possible, although the Democrat-led presidential administration has been taking steps to strengthen the ACA.
These criminal penalties increase if the wrongful conduct involves false pretenses or the intent to sell, transfer or use identifiable health information for commercial advantage, personal gain, or malicious harm. Covered entities are also subject to enforcement by state attorneys general who were given authority to enforce HIPAA under HITECH.
These criminal penalties increase if the wrongful conduct 19 involves false pretenses or the intent to sell, transfer or use identifiable health information for commercial advantage, personal gain, or malicious harm. Covered entities are also subject to enforcement by state attorneys general who were given authority to enforce HIPAA under HITECH.
The California Confidentiality of Medical Information Act, or CMIA, imposes restrictive requirements regulating the use and disclosure of health information and other personally identifiable information. 10 In addition to fines and penalties imposed upon violators, some of these state laws also afford private rights of action to individuals who believe their personal information has been misused.
The California Confidentiality of Medical Information Act, or CMIA, imposes restrictive requirements regulating the use and disclosure of health information and other personally identifiable information. In addition to fines and penalties imposed upon violators, some of these state laws also afford private rights of action to individuals who believe their personal information has been misused.
An institutional review board, or IRB, for each institution participating in the clinical trial must review and approve a new clinical protocol before a clinical trial commences at that institution and must also approve the information regarding the trial and the consent form that must be provided to each research subject or the subject’s legal representative, monitor the trial until completed, and otherwise comply with IRB regulations.
Furthermore, an institutional review board, or IRB, for each institution participating in the clinical trial must review and approve a new clinical protocol before a clinical trial commences at that institution and must also approve the information regarding the trial and the consent form that must be provided to each research subject or the subject’s legal representative, monitor the trial until completed, and otherwise comply with IRB regulations.
Among other things, CLEP also requires approval on a test-specific basis before testing can be performed on specimens from New York. Other states may adopt similar licensure requirements in the future, which could require us to modify, delay, or discontinue our operations in such jurisdictions.
Among other things, CLEP also requires approval on a test-specific basis before testing can be performed on specimens from New York. 7 Other states may adopt similar licensure requirements in the future, which could require us to modify, delay, or discontinue our operations in such jurisdictions.
Under PAMA, laboratories that receive the majority of their Medicare revenue from payments made under the CLFS or the Physician Fee Schedule are required to report private payor payment rates and volumes for clinical diagnostic laboratory tests, or CDLTs, to CMS every three years (or annually for advanced diagnostic laboratory test, or ADLT).
Under PAMA, laboratories that receive the majority of their Medicare revenue from payments made under the CLFS or the Physician Fee Schedule are required to report private payor payment rates and volumes for clinical diagnostic laboratory tests, or CDLTs, to CMS every three years (or annually for advanced diagnostic laboratory tests, or ADLT).
Section 505(b)(2) NDAs may provide an alternate path to FDA approval for new or improved formulations or new uses of previously 8 approved products; for example, an applicant may be seeking approval to market a previously approved drug for new indications or for a new patient population that would require new clinical data to demonstrate safety or effectiveness.
Section 505(b)(2) NDAs may provide an alternate path to FDA approval for new or improved formulations or new uses of previously approved products; for example, an applicant may be seeking approval to market a previously approved drug for new indications or for a new patient population that would require new clinical data to demonstrate safety or effectiveness.
Even if such trials are conducted, the FDA may not approve any expansion of the labeled indications for use in a timely fashion, or at all. In addition, FDA regulations require that products be manufactured in specific approved facilities and in accordance with cGMP.
Even if such trials are conducted, the FDA may not approve any expansion of the labeled indications for use in a timely fashion, or at all. 13 In addition, FDA regulations require that products be manufactured in specific approved facilities and in accordance with cGMP.
We believe these advantages will allow us to generate a 3 much broader range of drug candidate formulations, particularly amorphous drug candidate formulations, which can be used for both IV and oral formulations with a goal to improve PK profile, as well as safety and efficacy.
We believe these advantages will allow us to generate a much broader range of drug candidate formulations, particularly amorphous drug candidate formulations, which can be used for both IV and oral formulations with a goal to improve PK profile, as well as safety and efficacy.
Health care providers, including laboratories, are subject to civil monetary penalties for violations of the Information Blocking Rule, up to $1 million per violation. Foreign Laws and Other Laws We are also subject to foreign privacy laws in the jurisdictions in which we sell our tests.
Health care providers, including laboratories, are subject to civil monetary penalties for violations of the Information Blocking Rule, up to $1 million per violation. 20 Foreign Laws and Other Laws We are also subject to foreign privacy laws in the jurisdictions in which we sell our tests.
We intend to continue to comprehensively protect all personal information and to comply with applicable laws regarding the protection of such information. In many activities, including the conduct of clinical trials, we are subject to laws and regulations governing data privacy and the protection of health-related and other personal information.
We intend to continue to comprehensively protect all personal information and to comply with applicable laws regarding the protection of such information. 21 In many activities, including the conduct of clinical trials, we are subject to laws and regulations governing data privacy and the protection of health-related and other personal information.
Bribery of foreign public officials also falls within the scope of the Bribery Act of 2010. An individual found in 14 violation of the Bribery Act of 2010 faces imprisonment of up to 10 years and could be subject to an unlimited fine, as could commercial organizations for failure to prevent bribery.
Bribery of foreign public officials also falls within the scope of the Bribery Act of 2010. An individual found in violation of the Bribery Act of 2010 faces imprisonment of up to 10 years and could be subject to an unlimited fine, as could commercial organizations for failure to prevent bribery.
Healthcare Policy Laws Applicable to Our Business In March 2010, the Affordable Care Act, or ACA, was enacted in the United States. The ACA made a number of substantial changes to the way healthcare is financed both by governmental and private payors.
Healthcare Policy Laws Applicable to Our Business In March 2010, The Affordable Care Act, the ACA, was enacted in the United States and made a number of substantial changes to the way healthcare is financed both by governmental and private payors.
Clinical trials are typically conducted in three sequential phases that may overlap or be combined: • Phase 1: Initial safety study in healthy human subjects or patients where the candidate therapy is tested for safety, dosage tolerance, absorption, distribution, metabolism, and excretion. • Phase 2: Studies in a limited patient population designed to identify possible adverse effects and safety risks, to determine the efficacy of the product for specific targeted diseases, and to determine tolerance and optimal dosage. • Phase 3: Studies in an expanded patient population to further evaluate clinical efficacy and to further test for safety.
Clinical trials are typically conducted in three sequential phases that may overlap or be combined: • Phase 1: Initial safety study in appropriate human subjects or patients where the candidate therapy is tested for safety, dosage tolerance, absorption, distribution, metabolism, and excretion. • Phase 2: Studies in a limited patient population designed to identify possible adverse effects and safety risks, to determine the efficacy of the product for specific targeted diseases, and to determine tolerance and optimal dosage. • Phase 3: Studies in an expanded patient population to further evaluate clinical efficacy and to further test for safety.
Required breach notices must be made as soon as is reasonably practicable, but no later than sixty days following discovery of the breach. Reports must be made to affected individuals, the Secretary, and, depending on the size of the breach, the local and national media.
Required breach notices must be made as soon as reasonably practicable, but no later than sixty days following discovery of the breach. Reports must be made to affected individuals, the Secretary, and, depending on the size of the breach, the local and national media.
Starting in 2023, a manufacturer of drugs or biological products covered by Medicare Parts B or D must pay a rebate to the federal government if their drug product’s price increases faster than the rate of inflation.
Starting in 2023, a manufacturer of drugs products covered by Medicare Parts B or D must pay a rebate to the federal government if their drug product’s price increases faster than the rate of inflation.
If we or our vendors fail to comply with applicable data privacy laws, or if the legal mechanisms we or our vendors rely upon to allow for the transfer of personal data from the European Union to the United States (or other countries not considered by the European Commission to provide an adequate level of data protection) are not considered adequate, we could be subject to government enforcement actions and significant penalties against us, and our business could be adversely impacted if our ability to transfer personal data outside of the European Union is restricted, which could adversely impact our operating results.
If we or our vendors fail to comply with applicable data privacy or AI laws and directives, or if the legal mechanisms we or our vendors rely upon to allow for the transfer of personal data from the European Union to the United States (or other countries not considered by the European Commission to provide an adequate level of data protection) are not considered adequate, we could be subject to government enforcement actions and significant penalties against us, and our business could be adversely impacted if our ability to transfer personal data outside of the European Union is restricted, which could adversely impact our operating results.
As a result, they may be able to respond more quickly to changes in customer requirements or preferences, develop faster and better advancements for their technologies and tests, create and implement more successful strategies for the promotion and sale of their tests, obtain more favorable results from third-party payors regarding coverage and reimbursement for their offerings, adopt more aggressive pricing policies for their tests, secure supplies from vendors on more favorable terms, or devote substantially more resources to infrastructure and systems development.
As a result, they may be able to respond more quickly to changes in customer requirements or preferences, develop faster and better advancements for their technologies, product candidates and tests, create and implement more successful strategies for the promotion and sale of their tests, obtain more favorable results from third-party payors regarding coverage and reimbursement for their offerings, adopt more aggressive pricing policies for their tests, secure supplies from vendors on more favorable terms, or devote substantially more resources to infrastructure and systems development.
Prohibitions on the Corporate Practice of Medicine Numerous states have enacted laws prohibiting business corporations, such as us, from practicing medicine and employing or engaging physicians to practice medicine, generally referred to as the prohibition against the corporate practice of medicine.
Prohibitions on the Corporate Practice of Medicine 24 Numerous states have enacted laws prohibiting business corporations, such as us, from practicing medicine and employing or engaging physicians to practice medicine, generally referred to as the prohibition against the corporate practice of medicine.
Furthermore, the FDA or the sponsor may suspend clinical trials at any time on various grounds, including a finding that the research subjects or patients are being exposed to an unacceptable health risk.
The FDA or the sponsor may suspend clinical trials at any time on various grounds, including a finding that the research subjects or patients are being exposed to an unacceptable health risk.
We believe our tests fall within the definition of laboratory developed tests, or LDT. LDTs, which are a subset of IVDs that are intended for clinical use and designed, manufactured and used within a single laboratory.
We believe our tests fall within the definition of laboratory developed tests, or LDTs. LDTs, which are a subset of IVDs that are intended for clinical use and are designed, manufactured, and used within a single laboratory.
Department of Health and Human Services, or HHS, has issued regulations, or HIPAA Regulations, that establish uniform standards governing the conduct of certain electronic healthcare transactions and requirements for protecting the privacy and security of protected health information, or PHI, used or disclosed by healthcare providers, health plans, and healthcare clearinghouses that conduct certain healthcare transactions electronically, known as “covered entities.” As a clinical laboratory, we are acting as a covered entity and are subject to HIPAA and HITECH.
Department of HHS has issued regulations, or HIPAA Regulations, that establish uniform standards governing the conduct of certain electronic healthcare transactions and requirements for protecting the privacy and security of protected health information, or PHI, used or disclosed by healthcare providers, health plans, and healthcare clearinghouses that conduct certain healthcare transactions electronically, known as “covered entities.” As a clinical laboratory, we are acting as a covered entity and are subject to HIPAA and HITECH.
Unlike some of the drug delivery materials such as Human Serum Albumin, or HSA, which is only soluble in water, our nano-drug delivery materials used for drug candidate development are soluble not only in water, but also in various organic solvents, as well as capable of hot melt mixing with active pharmaceutical ingredients, or APIs.
Unlike some drug delivery materials such as Human Serum Albumin, which is only soluble in water, our nano-drug delivery materials used for drug candidate development are soluble not only in water, but also in various organic solvents, as well as capable of hot melt mixing with active pharmaceutical ingredients, or APIs.
California’s patient privacy laws, for example, provide for penalties of up to $250,000 and permit injured parties to sue for damages. CCPA/CPRA In addition to the CMIA, California recently adopted the California Consumer Privacy Act of 2018, or CCPA, which came into effect on January 1, 2020.
California’s patient privacy laws, for example, provide for penalties of up to $250,000 and permit injured parties to sue for damages. CCPA/CPRA In addition to the CMIA, the California Consumer Privacy Act of 2018, or CCPA, which came into effect on January 1, 2020.
Our Suppliers We rely on a limited number of suppliers for certain laboratory substances used in the chemical reactions incorporated into our tests and testing services, which we refer to as reagents, as well as for the sequencers, collection kits, and various other equipment and materials we use in our laboratory operations.
Our Suppliers We rely on a limited number of suppliers for certain laboratory substances used in the chemical reactions incorporated into our tests and testing services, which we refer to as reagents, as well as for the sequencers, and various other equipment and materials we use in our laboratory operations.
As required under PAMA, CMS uses the data reported by laboratories to develop Medicare payment rates for laboratory tests equal to the volume-weighted median of the private payor payment rates. For tests furnished on or after January 1, 2010, Medicare payments for CDLTs are based upon reported private payor rates.
As required under PAMA, CMS uses the data reported by laboratories to develop Medicare payment rates for laboratory tests equal to the volume-weighted median of the private payor payment rates. For tests furnished on or after January 1, 2018, Medicare payments for CDLTs are based upon reported private payor rates.
Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements, or if the therapeutic candidate has been associated with unexpected serious harm to patients.
Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements, or if the drug candidate has been associated with unexpected serious harm to patients.
Our laboratories located in California, Texas, Georgia, Massachusetts, Arizona, and New York are CLIA-certified and are accredited by the College of American Pathologists, or CAP, a Centers for Medicare & Medicaid Service, or CMS, approved accrediting organization.
Our laboratories located in California, Texas, Georgia, Massachusetts, Arizona, and New York are CLIA-certified and are accredited by the College of American Pathologists, or CAP, a Centers for Medicare & Medicaid Services, or CMS, approved accrediting organization.
Foreign licensure requirements could require review and modification of our tests in order to offer them in certain jurisdictions or could impose other limitations, such as restrictions on the transport of human blood or other tissue necessary for us to perform our tests that may limit our ability to make our tests available outside of the United States on a broad scale.
Foreign licensure requirements could require review and modification of our tests in order to offer them in certain jurisdictions or could impose other limitations, such as restrictions on international data transfer or on the transport of human blood or other tissue necessary for us to perform our tests, that may limit our ability to make our tests available outside of the United States on a broad scale.
Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information; imposition of post-market studies or clinical trials to assess new safety risks; or the imposition of distribution or other restrictions.
Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information; imposition of post-market studies or clinical trials to assess new safety risks; or the imposition of distribution or other restrictions under a REMS plan.
Additionally, starting for payment year 2026, CMS will negotiate drug prices annually for a select number of single source Part D drugs without generic or biosimilar competition. CMS will also negotiate drug prices for a select number of Part B drugs starting for payment year 2028.
Additionally, starting for payment year 2026, CMS will negotiate drug prices annually for a select number of single source Part D drugs without generic competition. CMS will also negotiate drug prices for a select number of Part B drugs starting for payment year 2028.
In addition, any person who presents or causes to be presented a claim to the Medicare program in violation of the Stark Law is subject to substantial civil monetary penalties of up to, an assessment of up to three times the amount claimed and possible exclusion from participation in federal healthcare programs.
In addition, any person who presents or causes to be presented a claim to the Medicare program in violation of the Stark Law is subject to substantial civil monetary penalties of an assessment of up to three times the amount claimed and possible exclusion from participation in federal health care programs.
However, many of our competitors have longer operating histories; larger customer bases; more expansive brand recognition; deeper market penetration; substantially greater financial, technological, and research and development resources; and selling and marketing capabilities and considerably more experience dealing with third-party payors.
However, many of our competitors have longer operating histories; larger customer bases; more expansive brand recognition; established manufacturing capabilities and facilities; deeper market penetration; substantially greater financial, technological, and research and development resources; and selling and marketing capabilities and considerably more experience dealing with third-party payors.
Future changes or additions to the ACA, the Medicare and Medicaid programs, and changes stemming from other health care reform measures, especially with regard to health care access, financing or other legislation in individual states, could have a material adverse effect on the health care industry in the U.S.
Future changes or additions to the ACA, the Medicare and Medicaid programs, and changes stemming from other healthcare reform measures, especially with regard to healthcare access, financing or other legislation in individual states, could have a material adverse effect on the healthcare industry in the U.S.
Following approval of a new therapeutic product, the manufacturer and the approved product are subject to pervasive and continuing regulation by the FDA, including, among other things, monitoring and record-keeping activities; reporting of adverse experiences with the product, samples, and distribution restrictions; complying with promotion and advertising requirements, which include restrictions on promoting drugs for unapproved uses or patient populations (i.e., “off-label use”) and limitations on industry-sponsored scientific and educational activities.
Post-Approval Requirements for Pharmaceutical Products Following approval of a new therapeutic product, the manufacturer and the approved product are subject to pervasive and continuing regulation by the FDA, including, among other things, monitoring and record-keeping activities; reporting of adverse experiences with the product; product samplings, and distribution restrictions; complying with promotion and advertising requirements, which include restrictions on promoting drugs for unapproved uses or patient populations (i.e., “off-label use”) and limitations on industry-sponsored scientific and educational activities.
Available Information We file reports with the Securities and Exchange Commission, or the SEC, and make available, free of charge, on or through our website, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy and information statements and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC on their website located at www.sec.gov. 16
Available Information We file reports with the Securities and Exchange Commission, or the SEC, and make available, free of charge, on or through our website, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy and information statements and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC on their website.
Regulation Federal Regulations Applicable to Our Laboratory Operations As we operate clinical laboratories in the United States, we are required to hold certain federal licenses, certifications, and permits to conduct our business. The Clinical Laboratory Improvement Amendments of 1988, or CLIA, establishes quality standards for all laboratory testing to ensure the accuracy, reliability and timeliness of patient test results.
Regulation Federal Regulations Applicable to Our Laboratory Operations As we operate clinical laboratories in the United States, we are required to hold certain federal licenses, certifications, and permits to conduct our business. CLIA establishes quality standards for all laboratory testing to ensure the accuracy, reliability and timeliness of patient test results.
The process for submitting a 510(k) premarket notification and receiving FDA clearance usually takes from three to 12 months, but it can take significantly longer, and clearance is never guaranteed. The process for submitting and obtaining FDA approval of a PMA generally takes from one to three years or even longer, and approval is not guaranteed.
The process for submitting a 510(k) premarket notification and receiving FDA clearance usually takes from 3 to 12 months, but it can take significantly longer, and clearance is never guaranteed. The process for submitting and obtaining FDA approval of a PMA generally takes from 1 to 3 years or even longer, and approval is not guaranteed.
On a regular basis, we continue to evaluate the need to grow the size of our sales team and market resources.
On a regular basis, we continue to evaluate the need to grow the size of our sales team and marketing resources.
The CPPA has the power to levy fines and bring other enforcement actions and is in the process of implementing further regulations that could have operational impacts. In addition to California, other states have similar privacy laws taking effect in 2023, including Virginia, Colorado, Connecticut, and Utah.
The CPPA has the power to levy fines and bring other enforcement actions and is in the process of implementing further regulations that could have operational impacts. In addition to California, other states have similar privacy laws that became effective in 2023, including Virginia, Colorado, Connecticut, and Utah.
Although the FDA has statutory authority to assure that medical devices, including IVDs, are safe and effective for their intended uses, the FDA has historically exercised its enforcement discretion and not enforced applicable provisions of the FDC Act and regulations with respect to LDTs.
Although the FDA has statutory authority to assure that medical devices, including IVDs, are safe and effective for their intended uses, the FDA historically exercised enforcement discretion and did not enforce applicable provisions of the FDC Act and regulations with respect to LDTs.
We also may be subject to foreign fraud and abuse laws. 12 Anti-Kickback and Fraud Statutes In the United States, the federal Anti-Kickback Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration, directly or indirectly, overtly or covertly, in cash or in kind, in order to induce or in return for the referral of an individual for the furnishing of, or the recommending or arranging for the furnishing of, purchasing, leasing, ordering or arranging for or recommending purchasing, leasing or ordering of any good, facility, service or item for which payment may be made in whole or in part by a federal healthcare program.
Anti-Kickback and Fraud Statutes In the United States, the federal Anti-Kickback Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration, directly or indirectly, overtly or covertly, in cash or in kind, in order to induce or in return for the referral of an individual for the furnishing of, or the recommending or arranging for the furnishing of, purchasing, leasing, ordering or arranging for or recommending purchasing, leasing or ordering of any good, facility, service or item for which payment may be made in whole or in part by a federal healthcare program.
While we strive to comply with all applicable privacy and security laws and regulations, legal standards for privacy continue to evolve, and any failure or perceived failure to comply may result in proceedings or actions against us by government entities or others, or could cause reputational harm, which could have a material adverse effect on our business.
While we strive to comply with all applicable privacy and security laws and regulations, legal standards for privacy continue to evolve, and any failure or perceived failure to comply may result in proceedings or actions against us by government entities or others, or could cause reputational harm, which could have a material adverse effect on our financial condition, prospects, reputation, and operations.
As an example, this technology platform allowed us to rapidly respond to the COVID-19 pandemic and scale our business to provide COVID-19 tests with reliable results and rapid turnaround time in a way that surpassed even our largest competitors.
As an example, this technology platform allowed us to rapidly respond to the 2019 novel coronavirus disease, or COVID-19, pandemic and scale our business to provide COVID-19 tests with reliable results and rapid turnaround time in a way that surpassed even our largest competitors.
Our Technology Platform Our business is built on our proprietary technology platform, which includes proprietary gene probes, data suppression and comparison algorithms, adaptive learning software, and proprietary laboratory information management systems. This platform provides a broad test menu, the ability to rapidly develop and launch new tests, customizable test offerings, lower costs per test, and high efficiency.
Our Technology Platform Our proprietary technology platform for our laboratory services business includes proprietary gene probes, data suppression and comparison algorithms, adaptive learning software, and proprietary laboratory information management systems. This platform provides a broad test menu, the ability to rapidly develop and launch new tests, customizable test offerings, lower costs per test, and high efficiency.
Sales and Marketing Our sales and marketing force currently consists of two internal teams of sales and marketing professionals, respectively, with deep experience in our industry, as well as a network of field-based sales representatives who are knowledgeable about our tests.
Sales and Marketing Our sales and marketing force for our laboratory services business currently consists of internal teams of sales and marketing professionals, respectively, with deep experience in our industry, as well as a network of field-based sales representatives who are knowledgeable about our tests.
Among other things, the IRA has multiple provisions that may impact the prices of drug products that are both sold into the Medicare program and throughout the United States.
Among other things, the IRA has multiple provisions that may impact the prices of drug products that are both sold into the Medicare program and throughout the U.S.
Healthcare Fraud and Abuse Laws Applicable to Our Business In the United States, we must comply with various fraud and abuse laws, and we are subject to regulation by various federal, state , and local authorities, including CMS, other divisions of HHS (such as the Office of Inspector General), the U.S. Department of Justice, individual U.S.
Healthcare Fraud and Abuse Laws Applicable to Our Business In the United States, we must comply with various fraud and abuse laws, and we are subject to regulation by various federal, state , and local authorities, including CMS, other divisions of HHS (such as the Office of Inspector General of the Department of Health and Human Services, or the OIG), the U.S.
There are also several federal privacy proposals under consideration in Congress, and other states have already introduced privacy legislation for consideration in 2023. The CPRA and other state privacy laws could impact our operations or that of our collaborators and business partners and impose new regulatory requirements and increase costs of compliance.
There are also several federal privacy proposals under consideration in Congress, and other states may introduce privacy legislation for consideration in 2024. The CPRA and other state privacy laws could impact our operations or that of our collaborators and business partners and impose new regulatory requirements and increase costs of compliance.
We also provide an expansive benefit offering including medical, dental, and vision health care coverage, life and AD&D coverage; optional legal, pet insurance, hospitalization, critical illness and accident coverage; insurance and disability coverage; 401(k) investment plans with Company matching; tax-advantaged savings accounts; paid time off and leaves of absence; and wellness programs.
We also provide an expansive benefit offering including medical, dental, and vision healthcare coverage; life and accidental death and dismemberment coverage; optional legal, pet insurance, hospitalization, critical illness and accident coverage; insurance and disability coverage; 401(k) investment plans with Company matching; tax-advantaged savings accounts; paid time off and leaves of absence; and wellness programs.
For example, our Texas laboratories hold the out-of-state licenses from California, New York, Maryland, Pennsylvania, and Rhode Island to perform testing on specimens from these states; and our Temple City, California laboratory holds the required out-of-state 5 laboratory licenses from New York, Maryland, Pennsylvania, and Rhode Island in order to perform testing on specimens from these states.
Our Texas laboratories currently hold the out-of-state licenses from California, New York, Maryland, Pennsylvania, and Rhode Island to perform testing on specimens from these states; and our California laboratory holds the required out-of-state laboratory licenses from New York, Maryland, Pennsylvania, and Rhode Island in order to perform testing on specimens from these states.
If and when the FDA begins to actively enforce its premarket submission regulations with respect to LDTs generally or to any of our tests in particular, whether as a result of new legislative authority or following formal notice-and-comment rulemaking, we may be required to obtain premarket clearance for our tests under Section 510(k) of the FDC Act or approval of a pre-market approval application, or PMA.
If and when the FDA begins to actively enforce its premarket submission regulations with respect to LDTs generally or to any of our tests in particular, whether as a result of new legislative authority or following finalization of the recently initiated notice-and-comment rulemaking, depending upon the risk classification of each individual test, we may be required to obtain premarket clearance for our tests under Section 510(k) of the FDC Act or approval of a pre-market approval application, or PMA.
While there are several sequencer suppliers that we believe could replace Illumina, and while we believe that we have sufficient alternative suppliers for our other needs, our laboratory operations could be interrupted if we encounter delays or difficulties in connection with securing these supplies, services, reagents, sequencers, other equipment, materials, or maintenance and repair services, which could occur for a variety of reasons, including if we need a replacement or temporary substitute for any of our limited or sole suppliers and are not able to locate and make arrangements with an acceptable replacement or temporary substitute. 2 Competition Our competitors include dozens of companies focused on pathology, genetic, and diagnostic testing services, including specialty and reference laboratories that offer traditional single-gene and multi-gene tests and other diagnostic test providers, as well as drug delivery platform companies and 505(b)(2) drug developers in the cancer therapeutics area.
While there are several sequencer suppliers that we believe could replace Illumina, and while we believe that we have sufficient alternative suppliers for our other needs, our laboratory operations or therapeutic development efforts could be interrupted if we encounter delays or difficulties in connection with securing these supplies, services, reagents, sequencers, other equipment, materials, or maintenance and repair services, which could occur for a variety of reasons, including if we need a replacement or temporary substitute for any of our limited or sole suppliers and are not able to locate and make arrangements with an acceptable replacement or temporary substitute. 4 Competition Our competitors for our laboratory services business include dozens of companies focused on pathology, genetic, and diagnostic testing services, including specialty and reference laboratories that offer traditional single-gene and multi-gene tests and other diagnostic test providers.
Although the CCPA does not directly apply to medical information covered by HIPAA or CMIA, certain other personal information that our business may collect and use is within the scope of the CCPA and does not fall under the CCPA exception.
Although the CCPA does not directly apply to medical information covered by HIPAA or CMIA, certain other personal information that our business may collect and use, including through our direct-to-consumer Picture Genetics platform, is within the scope of the CCPA and does not fall under the CCPA exception.
However, unlike the federal Anti-Kickback Statute, EKRA is not limited to services covered by federal or state health care programs but applies more broadly to services covered by “health care benefit programs,” including commercial insurers.
However, unlike the federal 22 Anti-Kickback Statute, EKRA is not limited to services covered by federal or state healthcare programs but applies more broadly to services covered by “healthcare benefit programs,” including commercial insurers.
Each of our laboratories must obtain a certificate from CMS, the agency that oversees CLIA, and CLIA compliance and certification is a prerequisite to be eligible to bill government payors and many private payors for our tests.
Each of our laboratories must obtain a certificate from CMS, the agency that enforces CLIA, and CLIA compliance and certification is a prerequisite to be eligible to bill government payors and many private payors for our tests. Each CLIA certificate is valid for two years from the date of issuance.
Assuming successful completion of the required clinical testing, the results of the non-clinical studies and clinical trials, along with detailed descriptions of the product’s chemistry, manufacturing and controls (CMC), proposed labeling and other relevant information are submitted to the FDA as part of a NDA requesting approval to market the product.
The results of the non-clinical studies and clinical trials, along with detailed descriptions of the product’s chemistry, manufacturing and controls, or CMC, proposed labeling and other relevant information are submitted to the FDA as part of an NDA requesting approval to market the product.
The steps required before a therapeutic product may be marketed in the United States are numerous and include, but are not limited to, the following: • completion of non-clinical laboratory tests, animal studies, chemical process development, and formulation studies according to good laboratory practices and other applicable regulations and guidance; • the submission to the FDA of an investigational new drug application, or IND, which must become effective before clinical trials may commence; • performance of adequate and well-controlled clinical trials according to good clinical practices, or GCPs, to establish the safety and efficacy of the therapeutic candidate for its intended use; • the submission of a New Drug Application, or NDA, to the FDA; • satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the therapeutic candidate is produced to assess readiness for commercial manufacturing and conformance to the manufacturing-related elements of the application, to conduct a data integrity audit, and to assess compliance with current Good Manufacturing Practices, or cGMPs, to assure that the facilities, methods and controls are adequate; and • FDA review and approval of the NDA.
The steps required before a therapeutic product may be marketed in the United States are numerous and include, but are not limited to, the following: • completion of non-clinical laboratory tests, animal studies, chemical process development, and formulation studies according to good laboratory practices and other applicable regulations and guidance; • the submission to the FDA of an investigational new drug application, or IND, which must become effective before clinical trials may commence; • performance of adequate and well-controlled clinical trials according to good clinical practices, or GCPs, to establish the safety and efficacy of the drug candidate for its intended use(s); • the submission of a New Drug Application, or NDA, to the FDA; • satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the drug candidate is produced to assess readiness for commercial manufacturing and conformance to the manufacturing-related elements of the application, to conduct a data integrity audit, and to assess compliance with current Good Manufacturing Practices, or cGMPs, to assure that the facilities, methods, and controls are adequate; and • FDA review and approval of the NDA. 10 The testing and formulation processes required to market a therapeutic product involves substantial time, effort, and financial resources; and we cannot be certain that any approvals for any of our future therapeutic products will be granted on a timely basis, if at all.
To encourage the professional and personal development of every Fulgent employee, we offer reimbursement for qualified educational expenses and successful completion of undergraduate, graduate, post-graduate, professional training, and licensure courses from accredited colleges, universities, and professional organizations.
In an effort to recruit the best talent pool and to encourage the professional and personal development of every employee, we offer reimbursement for qualified educational expenses and successful completion of undergraduate, graduate, post-graduate, professional training, and licensure courses from accredited colleges, universities and professional organizations.
For laboratories holding licenses from New York, the laboratory director of those laboratories must also maintain a Certificate of Qualification issued by New York’s Department of Health, Clinical Laboratory Evaluation Program, or CLEP, in the permitted categories. The New York state laboratory laws and regulations impose stringent requirements for personnel qualifications, specimen retention, and consent for testing.
Any laboratory holding a New York license must have a laboratory director who holds a Certificate of Qualification issued by New York’s Department of Health, Clinical Laboratory Evaluation Program, or CLEP, in the permitted categories. The New York state laboratory laws and regulations impose stringent requirements for personnel qualifications, specimen retention, and consent for testing.
Therapeutic products require government authorization before they may be clinically tested and commercially marketed for 7 human therapeutic use in the United States and other countries. The precise regulatory requirements with which we will have to comply are undergoing periodic revisions and refinement.
Generally, therapeutic products require government authorization before they may be clinically tested and commercially marketed for human therapeutic use in the United States and other countries. The precise regulatory requirements with which we will have to comply are undergoing periodic revisions and refinement. In the United States, the FDA regulates drugs under the FDC Act and its implementing regulations.
Principal competitors include companies such as Quest Diagnostics Incorporated; Laboratory Corporation of America Holdings; Abbott Laboratories; Ambry Genetics, a subsidiary of Konica Minolta Inc.; Baylor Genetics; Caris Life Sciences; GeneDx Holdings Corp.; Invitae Corporation; Myriad Genetics, Inc.; Natera, Inc.; NeoGenomics Laboratories, Inc.; Perkin Elmer, Inc.; Tempus; and other commercial and academic laboratories.
Principal competitors include companies such as Ambry Genetics Corporation, a subsidiary of Konica Minolta, Inc.; Baylor Genetics, LLC; Caris Life Sciences, LLC; Exact Sciences Corporation; Foundation Medicine, Inc.; GeneDx Holdings Corp; Guardant Health, Inc.; Invitae Corporation; Laboratory Corporation of America Holdings; Myriad Genetics, Inc.; Natera, Inc.; NeoGenomics Laboratories, Inc.; PerkinElmer, Inc.; Quest Diagnostics Incorporated; Tempus AI, Inc.; and other commercial and academic laboratories.
The interpretation, application, and interplay of consumer and health-related data protection laws in the United States, Europe, and elsewhere are often uncertain, contradictory, and in flux. For example, the General Data Protection Regulation, or GDPR, and Cybersecurity Directive have been enacted in the European Union and became effective in May 2018.
The interpretation, application, and interplay of consumer and health-related data protection laws in the United States, Europe, and elsewhere are often uncertain, contradictory, and in flux. For example, the General Data Protection Regulation, or GDPR, and Cybersecurity Directive applies to personal data in the European Union.
Additionally, participants in closely related markets, such as prenatal testing and clinical trial or companion diagnostic testing, could converge on offerings that are competitive with the type of tests we perform. Instances where potential competitors are aligned with key suppliers or are themselves suppliers could provide these potential competitors with significant advantages.
Additionally, participants in closely related markets, such as prenatal testing and clinical trial or companion diagnostic testing, could converge on offerings that are competitive with the type of tests we perform.
In addition, various states have enacted false claim laws analogous to the federal False Claims Act, although many of these state laws apply where a claim is submitted to any third-party payor and not merely a government payor program. 13 Civil Monetary Penalties Law The federal Civil Monetary Penalties Law, or the CMP Law, prohibits, among other things, (1) the offering or transfer of remuneration to a Medicare or state health care program beneficiary if the person knows or should know it is likely to influence the beneficiary’s selection of a particular provider, practitioner, or supplier of services reimbursable by Medicare or a state health care program, unless an exception applies; (2) employing or contracting with an individual or entity that the provider knows or should know is excluded from participation in a federal health care program; (3) billing for services requested by an unlicensed physician or an excluded provider; and (4) billing for medically unnecessary services.
Civil Monetary Penalties Law The federal Civil Monetary Penalties Law, or the CMP Law, prohibits, among other things, (1) the offering or transfer of remuneration to a Medicare or Medicaid beneficiary if the person knows or should know it is likely to influence the beneficiary’s selection of a particular provider, practitioner, or supplier of services reimbursable by Medicare or Medicaid, unless an exception applies; (2) employing or contracting with an individual or entity that the provider knows or should know is excluded from participation in a federal health care program; (3) billing for services requested by an unlicensed physician or an excluded provider; and (4) billing for medically unnecessary services.
We may not be able to compete effectively against these organizations. Fulgent Pharma In 2022, we completed our acquisition of Fulgent Pharma Holdings, Inc., or Fulgent Pharma. Our efforts at Fulgent Pharma are based on a novel nano-drug delivery platform technology capable of delivering various water insoluble or poorly soluble drugs.
Our Therapeutic Development Business - Fulgent Pharma In 2022, we completed our acquisition of Fulgent Pharma Holdings, Inc., or Fulgent Pharma. Our efforts at Fulgent Pharma are based on a novel nano-drug delivery platform technology capable of delivering various water insoluble or poorly soluble drugs.
The first product cand idate from this platform is FID-007, a nanoencapsulated paclitaxel, and the target markets we have chosen to investigate for this drug candidate are large and well-established, including head and neck, or H&N, pancreatic, breast, and non-small cell lung cancer, or NSCLC, as shown in the figures below: Note: U.S. opportunity shown Sources: Evaluate Pharma, Wall Street research, and management pricing expectations 1.H&N market opportunity for both 2ndline and 3rd line therapy FID-007 is currently being investigated in the United States in a Phase I clinical trial in patients diagnosed with various cancers including head and neck, ampullary, and pancreatic cancer.
The first drug candidate we are developing with this platform is FID-007, a nanoencapsulated paclitaxel, and the target markets we have chosen to investigate for this drug candidate are large and well-established, including head and neck, or H&N, pancreatic, breast, and non-small cell lung cancer, or NSCLC, as shown in the figures below: 1 Note: U.S. opportunity shown Sources: Evaluate Pharma, Wall Street research, and management pricing expectations 1.
Additionally, several states require licensure for the out-of-state laboratories that accept specimens originate from those states.
Additionally, certain states may require licensure for out-of-state laboratories that accept specimens originated from those states.
Failure to comply with any applicable FDA requirements could trigger a range of enforcement actions by the FDA, including warning letters, civil monetary penalties, fines, injunctions, criminal prosecution, consent decrees, repairs, replacements, refunds, recalls or seizures of products, operating restrictions, partial suspension or total shutdown of operations and denial of or challenges to applications for clearance or approval, as well as significant adverse publicity. 6 Regulations Regarding Advertising of Laboratory Services or LDTs Our advertising for laboratory services and tests is subject to federal truth-in-advertising laws enforced by the Federal Trade Commission, or FTC, as well as comparable state consumer protection laws.
Failure to comply with any applicable FDA requirements could trigger a range of enforcement actions by the FDA, including warning letters, civil monetary penalties, fines, injunctions, criminal prosecution, 8 consent decrees, repairs, replacements, refunds, recalls or seizures of products, operating restrictions, partial suspension or total shutdown of operations and denial of or challenges to applications for clearance or approval, as well as significant adverse publicity.
In addition to the ACA, there will likely continue to be proposals by legislators at both the federal and state levels, regulators and private third-party payors to reduce costs while expanding individual healthcare benefits. For example, in August 2022, President Biden signed into the law the Inflation Reduction Act of 2022, or the IRA.
In addition to the ACA, there will likely continue to be proposals by legislators at both the federal and state levels, regulators and private third-party payors to reduce costs while expanding individual healthcare benefits.
Because we are accredited by the CAP Laboratory Accreditation Program, we are deemed to also comply with CLIA. State and Foreign Clinical Laboratory Licensure Our clinical laboratories are required to maintain various state licenses issued by the respective Department of Health, based on all applicable state laws and regulations.
Because we are accredited by the CAP Laboratory Accreditation Program, we are deemed to also comply with CLIA. State and Foreign Clinical Laboratory Licensure Our clinical laboratories are required to maintain certain state laboratory licenses.
We cannot be certain that we or our suppliers will be able to comply with cGMP regulations and other FDA regulatory requirements. Accordingly, even after a new drug approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements and standards is not maintained, or if problems occur after the product reaches the market.
Accordingly, even after a new drug approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements and standards is not maintained, or if problems occur after the product reaches the market.
We also may become subject to these requirements if any therapeutic products currently in development are successfully approved by FDA and commercialized in the United States. Anti-Bribery Laws Applicable to Our Business FCPA We are subject to U.S.
We also may become subject to these requirements, as well as applicable state Sunshine Acts, if any therapeutic products currently in development are successfully approved by FDA, commercialized in the United States, and eligible for reimbursement under a federal healthcare program such as Medicare or Medicaid. Anti-Bribery Laws Applicable to Our Business FCPA We are subject to U.S.
Physician Sunshine Laws Applicable to Our Business The Physician Payments Sunshine Act imposes 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, teaching hospitals, and certain advanced non-physician health care practitioners, as well as ownership and investment interests held by physicians and their immediate family members.
The Stark Law also prohibits state receipt of federal Medicaid matching funds for services furnished pursuant to a prohibited referral, but this provision of the Stark Law has not been implemented by regulations. 23 Physician Sunshine Laws Applicable to Our Business The Physician Payments Sunshine Act imposes 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, teaching hospitals, and certain advanced non-physician health care practitioners, as well as ownership and investment interests held by physicians and their immediate family members.
We may become subject to such reporting requirements under the terms of current CMS regulations, however, if the Verifying Accurate, Leading-edge IVCT Development Act, or VALID Act, or other legislation renders our tests regulated by FDA, or if FDA engages in notice-and-comment rulemaking to exercise authority over LDTs or otherwise requires us to obtain premarket clearance or approval for our tests.
We may become subject to such reporting requirements under the terms of current CMS regulations, however, enacted federal legislation renders our tests regulated by FDA, or if FDA finalizes its recently initiated notice-and-comment rulemaking to exercise authority over LDTs as medical devices or otherwise requires us to obtain premarket clearance or approval for one or more of our tests.
These trials are used to gain additional experience from the treatment of patients in the intended therapeutic indication. In certain instances, FDA may mandate the performance of “Phase 4” clinical trials.
Post-approval trials, sometimes referred to as “Phase 4” clinical trials, may be conducted after initial marketing approval. These trials are used to gain additional experience from the treatment of patients in the intended therapeutic indication. In certain instances, FDA may mandate the performance of “Phase 4” clinical trials as a condition of approval of an NDA.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

191 edited+170 added−14 removed278 unchanged
Biggest changeThese laws and regulations currently include, among others: • CLIA’s and CAP’s regulation of our laboratory activities; • FDA laws and regulations, including but not limited to requirements for offering LDTs; • federal and state laws and standards affecting reimbursement by government health care programs, including certain coding requirements to obtain reimbursement and certain changes to the payment mechanism for clinical laboratory services resulting from the Protecting Access to Medicare Act of 2014, or PAMA; • HIPAA and HITECH, which establish comprehensive federal standards with respect to the privacy and security of PHI, and requirements for the use of certain standardized electronic transactions with respect to transmission of such information, as well as similar laws protecting other types of personal information; 32 • state laws governing the maintenance of personally identifiable information of state residents, including medical information, and which impose varying breach notification requirements, some of which allow private rights of action by individuals for violations and also impose penalties for such violations; • the federal Anti-Kickback Statute, which generally prohibits knowingly and willfully offering, paying, soliciting or receiving remuneration, directly or indirectly, in return for or to induce a person to refer to an individual any good, facility, item or service that is reimbursable under a federal health care program; • the federal Stark Law, which generally prohibits a physician from making a referral for certain designated health services covered by the Medicare program, including laboratory and pathology services, if the physician or an immediate family member has a financial relationship with the entity providing the designated health services; • the federal False Claims Act, which imposes civil penalties, and provides for civil whistleblower or qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government; • the federal Civil Monetary Penalties Law, which generally prohibits, among other things, the offering or transfer of remuneration to a Medicare or Medicaid beneficiary if it is likely to influence the beneficiary’s selection of a particular provider, practitioner or supplier of services reimbursable by Medicare or Medicaid; • the Eliminating Kickbacks in Recovery Act of 2018, or EKRA, which imposes criminal penalties for knowing or willful payment or offer, or solicitation or receipt, of any remuneration, whether directly or indirectly, overtly or covertly, in cash or in kind, in exchange for the referral or inducement of laboratory testing (among other health care services) covered by health care benefit programs (including commercial insurers) unless a specific exception applies; • the Affordable Care Act, or ACA, which, among other things, establishes a requirement for providers and suppliers to report and return any overpayments received from the Medicare and Medicaid programs; • other federal and state fraud and abuse laws, such as anti-kickback laws, prohibitions on self-referral, fee-splitting restrictions, insurance fraud laws, anti-markup laws, prohibitions on the provision of tests at no or discounted cost to induce physician or patient adoption and false claims acts, some of which may extend to services reimbursable by any third-party payor, including private payors; • the federal Physician Payments Sunshine Act and various state laws on reporting relationships with health care providers and customers, which could be determined to apply to our LDTs; • the prohibition on reassignment of Medicare claims and other Medicare and Medicaid billing and coverage requirements; • state laws that prohibit other specified healthcare practices, such as billing physicians for tests that they order, waiving coinsurance, copayments, deductibles and other amounts owed by patients, business corporations practicing medicine or employing or engaging physicians to practice medicine and billing a state Medicaid program at a price that is higher than what is charged to one or more other payors; • the U.S.
Biggest changeThese laws and regulations currently include, among others: • CLIA’s and CAP’s regulation of our laboratory activities; • FDA laws and regulations, including but not limited to requirements for offering LDTs; • federal and state laws and standards affecting reimbursement by government healthcare programs, including certain coding requirements to obtain reimbursement and certain changes to the payment mechanism for clinical laboratory services resulting from PAMA; • HIPAA and HITECH, which establish comprehensive federal standards with respect to the privacy and security of PHI, and requirements for the use of certain standardized electronic transactions with respect to transmission of such information, as well as similar laws protecting other types of personal information; • state laws governing the maintenance of personally identifiable information of state residents, including medical information, and which impose varying breach notification requirements, some of which allow private rights of action by individuals for violations and also impose penalties for such violations; • the federal Anti-Kickback Statute, which generally prohibits knowingly and willfully offering, paying, soliciting or receiving remuneration, directly or indirectly, in return for or to induce a person to refer to an individual any good, facility, item or service that is reimbursable under a federal healthcare program; • the federal Stark Law, which generally prohibits a physician from making a referral for certain designated health services covered by the Medicare program, including laboratory and pathology services, if the physician or an immediate family member has a financial relationship with the entity providing the designated health services; • the federal False Claims Act, which imposes civil penalties, and provides for civil whistleblower or qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government; • the federal Civil Monetary Penalties Law, which generally prohibits, among other things, the offering or transfer of remuneration to a Medicare or Medicaid beneficiary if it is likely to influence the beneficiary’s selection of a particular provider, practitioner or supplier of services reimbursable by Medicare or Medicaid; • EKRA, which imposes criminal penalties for knowing or willful payment or offer, or solicitation or receipt, of any remuneration, whether directly or indirectly, overtly or covertly, in cash or in kind, in exchange for the referral or inducement of laboratory testing (among other health care services) covered by healthcare benefit programs (including commercial insurers) unless a specific exception applies; • the ACA, which, among other things, establishes a requirement for providers and suppliers to report and return any overpayments received from the Medicare and Medicaid programs; • other federal and state fraud and abuse laws, such as anti-kickback laws, prohibitions on self-referral, fee-splitting restrictions, insurance fraud laws, anti-markup laws, prohibitions on the provision of tests at no or discounted cost to induce physician or patient adoption and false claims acts, some of which may extend to services reimbursable by any third-party payor, including private payors; 46 • the federal Physician Payments Sunshine Act and various state laws on reporting relationships with health care providers and customers, which could be determined to apply to our LDTs; • the prohibition on reassignment of Medicare claims and other Medicare and Medicaid billing and coverage requirements; • state laws that prohibit other specified healthcare practices, such as billing physicians for tests that they order, waiving coinsurance, copayments, deductibles and other amounts owed by patients, business corporations practicing medicine or employing or engaging physicians to practice medicine and billing a state Medicaid program at a price that is higher than what is charged to one or more other payors; • FCPA and applicable foreign anti-bribery laws; • federal, state and local regulations relating to the handling and disposal of regulated medical waste, hazardous waste and biohazardous waste and workplace safety for healthcare employees; • laws and regulations relating to health and safety, labor and employment, public reporting, taxation and other areas applicable to businesses generally, all of which are subject to change, including, for example, the significant changes to the taxation of business entities were enacted in December 2017; and • similar foreign laws and regulations that apply to us in the countries in which we operate or may operate in the future.
Item 1A. Ris k Factors. Summary Risk Factors Investing in our common stock involves a high degree of risk.
Item 1A. Ris k Factors. Summary of Risk Factors Investing in our common stock involves a high degree of risk.
Regulatory Risks • Any changes in laws, regulations or the enforcement discretion of the FDA with respect to the marketing of diagnostic products, or violations of laws or regulations by us, could materially and adversely affect our business, prospects, results of operations or financial condition. • If we fail to comply with applicable federal, state, local and foreign laboratory licensing requirements, we could lose the ability to perform our tests or experience material disruptions to our business. • We are subject to broad legal requirements regarding the information we test and analyze, and any failure to comply with these requirements could result in materially significant, penalties, materially damage our reputation and materially harm our business. • We conduct business in a heavily regulated industry.
Regulatory Risks • Any changes in laws, regulations or the enforcement discretion of the FDA with respect to the marketing of diagnostic products, or violations of laws or regulations by us, could materially and adversely affect our business, prospects, results of operations or financial condition. • If we fail to comply with applicable federal, state, local and foreign laboratory licensing requirements, we could lose the ability to perform our tests and experience material disruptions to our business. • We are subject to broad legal requirements regarding the information we test and analyze, and any failure to comply with these requirements could result in materially significant, penalties, materially damage our reputation and materially harm our business. • We conduct business in a heavily regulated industry.
We manage and maintain the data we generate, collect and store utilizing a combination of on-site systems and managed data center systems. We also communicate sensitive patient data when we deliver reports summarizing test results to our customers, which we deliver via our online encrypted web portal, encrypted email, or fax, or overnight courier.
We manage and maintain the data we generate and collect and store data utilizing a combination of on-site systems and managed data center systems. We also communicate sensitive patient data when we deliver reports summarizing test results to our customers, which we deliver via our online encrypted web portal, encrypted email, or fax, or overnight courier.
State Department has indicated that the United States no longer considers Hong Kong to have significant autonomy from China. The U.S. State Department has recently enacted sanctions related to China’s governing of Hong Kong. Any further changes in United States trade policy could trigger retaliatory actions by affected countries, including China, resulting in trade wars.
State Department has indicated that the United States no longer considers Hong Kong to have significant autonomy from China. The U.S. State Department has recently enacted sanctions related to China’s governing of Hong Kong. Any further changes in U.S. trade policy could trigger retaliatory actions by affected countries, including China, resulting in trade wars.
Satisfaction of these and other regulatory requirements is costly, time consuming, uncertain and subject to unanticipated delays. The time required to obtain FDA approval, and any other required approvals for pharmaceutical products, including any accelerated approval, is unpredictable but typically requires years to several years and may never be obtained.
Satisfaction of these and other regulatory requirements is costly, time consuming, uncertain and subject to unanticipated delays. The time required to obtain FDA approval, and any other required approvals for pharmaceutical products, including any accelerated approval, is unpredictable but typically requires years to several years and may never be obtained.
Although we maintain the types and amounts of insurance we view as customary and appropriate in the industries and countries in which we operate, if we are required to pay significant damages or incur significant defense costs in connection with any personal injury claim that is outside the scope of indemnification agreements we have with our clients, if any indemnification agreement is not performed in accordance with its terms or if our liability exceeds the amount of any applicable indemnification limits or available insurance coverage, our financial condition, results of operations and reputation could be materially and adversely affected.
Although we maintain the types and amounts of insurance we view as customary and appropriate in the industries and countries in which we operate, if we are required to pay significant damages or incur significant defense costs in connection with any personal injury claim that is outside the scope of indemnification agreements we have with our clients, if any indemnification agreement is not performed in accordance with its terms or if our liability 37 exceeds the amount of any applicable indemnification limits or available insurance coverage, our financial condition, results of operations and reputation could be materially and adversely affected.
If we are not able to obtain coverage and an acceptable level of reimbursement for our tests from third-party payors, the patient for whom the test is ordered typically will owe a greater co-insurance, deductible or co-payment amount or may be expected to pay the entire cost of the test out-of-pocket, which could dissuade practitioners from ordering our tests and, if ordered, could result in a delay in or decreased likelihood of collecting payment, whether from patients or from third-party payors.
If we are not able to obtain coverage and an acceptable level of reimbursement for our tests 40 from third-party payors, the patient for whom the test is ordered typically will owe a greater co-insurance, deductible or co-payment amount or may be expected to pay the entire cost of the test out-of-pocket, which could dissuade practitioners from ordering our tests and, if ordered, could result in a delay in or decreased likelihood of collecting payment, whether from patients or from third-party payors.
However, if we were to be deemed an investment company, 35 restrictions imposed by the 1940 Act, including limitations on our capital structure and our ability to transact with affiliates, could make it impractical for us to continue our business as it is currently being conducted and could have a material adverse effect on our business, financial condition and results of operations.
However, if we were to be deemed an investment company, restrictions imposed by the 1940 Act, including limitations on our capital structure and our ability to transact with affiliates, could make it impractical for us to continue our business as it is currently being conducted and could have a material adverse effect on our business, financial condition, and results of operations.
The VALID Act would codify into law the term “in vitro clinical test” to create a new medical product category separate from medical devices, and bring all such products within the scope of the FDA’s oversight. It is unclear whether the VALID Act would be passed by Congress in its current form or signed into law by President Biden.
The VALID Act would codify into law the term “in vitro clinical test” to create a new medical product category separate from medical devices, and 48 bring all such products within the scope of the FDA’s oversight. It is unclear whether the VALID Act would be passed by Congress in its current form or signed into law by President Biden.
Although we try to ensure that our employees and consultants do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or our employees or consultants have inadvertently or otherwise used or disclosed intellectual property rights, including trade secrets or other proprietary 41 information, of a former employer or other third-party.
Although we try to ensure that our employees and consultants do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or our employees or consultants have inadvertently or otherwise used or disclosed intellectual property rights, including trade secrets or other proprietary information, of a former employer or other third-party.
Other states are considering similar legislation, adding to the complexity, costs, and risk of compliance. Like the GDPR and CCPA, many of these state laws categorize medical or health data, genetic data, and biometric data that can be identify a natural person as “sensitive data” and the processing or collection of such will require additional compliance obligations.
Other states are considering similar legislation, adding to the complexity, costs, and risk of compliance. Like the GDPR and CCPA, many of these state laws categorize medical or health data, genetic data, and biometric data that can be used to identify a natural person as “sensitive data” and the processing or collection of such will require additional compliance obligations.
Breaches resulting in the compromise, disruption, degradation, manipulation, loss, theft, destruction, or unauthorized 21 disclosure of sensitive information can occur in a variety of ways, including but not limited to, negligent or wrongful conduct by employees or former employees or others with permitted access to our information technology systems and information, or wrongful conduct by hackers, competitors, or certain governments.
Breaches resulting in the compromise, disruption, degradation, manipulation, loss, theft, destruction, or unauthorized disclosure of sensitive information can occur in a variety of ways, including but not limited to, negligent or wrongful conduct by employees or former employees or others with permitted access to our information technology systems and information, or wrongful conduct by hackers, competitors, or certain governments.
Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations and prospects. Developments in patent law could have a negative impact on our business.
Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations and prospects. 58 Developments in patent law could have a negative impact on our business.
As a result, future Medicare payments may fluctuate more often and become subject to the 34 willingness of private payors to recognize the value of diagnostic tests generally and any given test individually. The impact of this payment system on rates for our tests, including any current or future tests we may develop, is uncertain.
As a result, future Medicare payments may fluctuate more often and become subject to the willingness of private payors to recognize the value of diagnostic tests generally and any given test individually. The impact of this payment system on rates for our tests, including any current or future tests we may develop, is uncertain.
If we are not able to attract and retain the necessary personnel to accomplish our business objectives, we may experience constraints that could adversely affect our ability to expand our business and support our clinical laboratory operations, and our sales and marketing and research and development efforts, which would negatively affect our prospects for future growth and success.
If we are not able to attract and retain the necessary personnel to accomplish our business objectives, we may experience constraints that could adversely affect our ability to expand our business and support our clinical 35 laboratory operations, and our sales and marketing and research and development efforts, which would negatively affect our prospects for future growth and success.
Prometheus Laboratories, or Prometheus, a case involving patent claims directed to optimizing the amount of drug administered to a specific patient, holding that the applicable patents’ claims 40 failed to incorporate sufficient inventive content above and beyond mere underlying natural correlations to allow the claimed processes to qualify as patent-eligible processes that apply natural laws.
Prometheus Laboratories , or Prometheus , a case involving patent claims directed to optimizing the amount of drug administered to a specific patient, holding that the applicable patents’ claims failed to incorporate sufficient inventive content above and beyond mere underlying natural correlations to allow the claimed processes to qualify as patent-eligible processes that apply natural laws.
We may also acquire contingent liabilities in connection with the acquisitions of a business, which may be material, and any estimates we might make regarding any acquired contingent liabilities and the likelihood that these liabilities will materialize could differ materially from the liabilities actually incurred. These circumstances could materially harm our business, results of operations and prospects.
We may also acquire contingent liabilities in connection with the acquisitions of a business, which may be material, and any estimates we might make regarding any 31 acquired contingent liabilities and the likelihood that these liabilities will materialize could differ materially from the liabilities actually incurred. These circumstances could materially harm our business, results of operations, and prospects.
As part of our strategy, we aim to increase our volume of direct sales to international customers in a variety of markets by conducting targeted marketing outreach activities and, if opportunities arise, engaging distributors or establishing other types of arrangements, such as additional joint ventures 23 or other relationships.
As part of our strategy, we aim to increase our volume of direct sales to international customers in a variety of markets by conducting targeted marketing outreach activities and, if opportunities arise, engaging distributors or establishing other types of arrangements, such as additional joint ventures or other relationships.
Although our competitors have utilized and are expected to continue to utilize technologies and methods similar to ours and have aggregated and are expected to continue to aggregate libraries of genetic information similar to ours, we believe our success will depend in part on our ability to develop proprietary methods and libraries and to defend any advantages afforded to us by these methods and libraries relative to our competitors.
Although our competitors have utilized and are expected to continue to utilize technologies and methods similar to ours and have aggregated and are expected to continue to aggregate libraries of genetic information similar to ours, we believe our success will depend in part on our ability to develop proprietary methods and libraries and to defend any advantages afforded to us by these methods and libraries relative to our 57 competitors.
Our competitors include dozens of companies focused on pathology, genetic, and diagnostic testing services, including specialty and reference laboratories that offer traditional single-gene and multi-gene tests. As such, we face intense competition from other life science, biotechnology, pharmaceutical, research and development, and diagnostic companies.
Our laboratory services competitors include dozens of companies focused on pathology, genetic, and diagnostic testing services, including specialty and reference laboratories that offer traditional single-gene and multi-gene tests. As such, we face intense competition from other life science, biotechnology, pharmaceutical, research and development, and diagnostic companies.
As a result, we do not anticipate declaring or paying any cash dividends or other distributions in the foreseeable future. Further, if we were to enter into a credit facility or issue debt securities or preferred stock in the future, we may become contractually 43 restricted from paying dividends.
As a result, we do not anticipate declaring or paying any cash dividends or other distributions in the foreseeable future. Further, if we were to enter into a credit facility or issue debt securities or preferred stock in the future, we may become contractually restricted from paying dividends.
Any failure to implement appropriate security measures to protect the confidentiality and integrity of personal information or any breach or other failure of these systems resulting in the unauthorized access, manipulation, disclosure, or loss of this information could result in our noncompliance with these laws.
Any failure to implement appropriate security measures to protect the confidentiality and integrity of personal information or any breach or other failure of these systems resulting in the unauthorized access, manipulation, disclosure, or loss of this information 44 could result in our noncompliance with these laws.
Coverage and reimbursement by third-party payors, including managed care organizations, private health insurers and government healthcare programs, such as Medicare and Medicaid, for the types of tests we perform can be limited and uncertain.
Coverage and reimbursement by third-party payors, including managed care organizations, other private health insurers and government healthcare programs, such as Medicare and Medicaid, for the types of tests we perform can be limited and uncertain.
For instance, if we are required by the FDA to label our tests as investigational, or if labeling claims the 29 FDA allows us to make are limited, order levels may decline and reimbursement may be adversely affected.
For instance, if we are required by the FDA to label our tests as investigational, or if labeling claims the FDA allows us to make are limited, order levels may decline and reimbursement may be adversely affected.
As a result, we may not have, or we may deem it imprudent to use, additional financial resources to continue development of a therapeutic candidate if there are issues that could delay or prevent marketing approval of, or ability to commercialize, Fulgent Pharma's therapeutic candidates, including: • negative or inconclusive results from clinical trials, or the clinical trials of others for similar therapeutic candidates, leading to a decision or requirement to conduct additional preclinical testing or clinical trials or abandon a program; • therapeutic-related side effects experienced by participants in its clinical trials or by individuals using drugs or other therapeutic products similar to its therapeutic candidates; • delays in submitting investigational new drug applications, or INDs, or comparable foreign clinical trial applications or delays or failure in obtaining the necessary approvals from regulators to commence a clinical trial, or a suspension or termination of a clinical trial once commenced; • conditions imposed by the FDA or comparable foreign authorities regarding the scope or design of clinical trials; • delays in enrolling research subjects or high drop-out rates of research subjects enrolled in clinical trials; • delays or difficulties in its clinical trials due to quarantines or other restrictions resulting from the COVID-19 pandemic or other public health emergencies; • unfavorable FDA or other regulatory agency inspection and review of a clinical trial site or the manufacturing location(s) for a therapeutic candidate; • inadequate supply or quality of therapeutic candidate clinical material or other raw materials or supplies necessary for the conduct of our clinical trials; • failure of third-party contractors or investigators to comply with regulatory requirements or otherwise meet their contractual obligations in a timely manner, or at all; • delays and changes in regulatory requirements, policy and guidelines, including with respect to our technology in particular; or • varying interpretations of data by the FDA and similar foreign regulatory agencies.
As a result, we may not have, or we may deem it imprudent to use, additional financial resources to continue development of a drug candidate if there are issues that could delay or prevent marketing approval of, or ability to commercialize, our drug candidates, including: • negative or inconclusive results from clinical trials, or the clinical trials of others for similar drug candidates, leading to a decision or requirement to conduct additional preclinical testing or clinical trials or abandon a program; • therapeutic-related side effects experienced by participants in its clinical trials or by individuals using drugs or other drugs similar to its drug candidates; • delays in submitting INDs or comparable foreign clinical trial applications or delays or failure in obtaining the necessary approvals from regulators to commence a clinical trial, or a suspension or termination of a clinical trial once commenced; • conditions imposed by the FDA or comparable foreign authorities regarding the scope or design of clinical trials; • delays in enrolling research subjects or high drop-out rates of research subjects enrolled in clinical trials; • delays or difficulties in its clinical trials due to quarantines or other restrictions resulting from the COVID-19 pandemic or other public health emergencies; • unfavorable FDA or other regulatory agency inspection and review of a clinical trial site or the manufacturing location(s) for a drug candidate; • inadequate supply or quality of drug candidate clinical material or other raw materials or supplies necessary for the conduct of our clinical trials; • failure of third-party contractors or investigators to comply with regulatory requirements or otherwise meet their contractual obligations in a timely manner, or at all; • delays and changes in regulatory requirements, policy and guidelines, including with respect to our technology in particular; or • varying interpretations of data by the FDA and similar foreign regulatory agencies.
As a result, they may be able to respond more quickly to changes in customer requirements or preferences, develop faster and better advancements for their technologies and tests, create and implement more successful strategies for the promotion and sale of their tests, obtain more favorable results from third-party payors regarding coverage and reimbursement for their offerings, adopt more aggressive pricing policies for their tests, secure supplies from vendors on more favorable terms or devote substantially more resources to infrastructure and systems development.
As a result, they may be able to respond more quickly to changes in customer requirements or preferences, develop faster and better advancements for their technologies, product candidates and tests, create and implement more successful strategies for the promotion and sale of their tests, obtain more favorable results from third-party payors regarding coverage and reimbursement for their offerings, adopt more aggressive pricing policies for their tests, secure supplies from vendors on more favorable terms or devote substantially more resources to infrastructure and systems development.
Therapeutic candidates could fail to receive, or could be delayed in receiving, marketing approval for many reasons, including any one or more of the following: • the FDA, European Medicines Agency, or EMA, or comparable foreign regulatory authorities may disagree with the design or implementation of clinical trials; • Fulgent Pharma may be unable to demonstrate to the satisfaction of the FDA, EMA or comparable foreign regulatory authorities that a product candidate is safe and effective for its proposed indication(s) for use; • the results of clinical trials may not meet the level of statistical significance required by the FDA, EMA or comparable foreign regulatory authorities for marketing approval; • Fulgent Pharma may be unable to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks; • the FDA, EMA or comparable foreign regulatory authorities may disagree with our interpretation of data from preclinical studies or clinical trials; • the data collected from clinical trials of product candidates may not be sufficient to support the submission of an application to obtain marketing approval in the United States or elsewhere; • upon review of clinical trial sites and data, the FDA or comparable foreign regulatory authorities may find record keeping or the record keeping of clinical trial sites to be inadequate or may identify other deficiencies related to the trials; 38 • the manufacturing processes or facilities of third-party manufacturers with which we or Fulgent Pharma contract for clinical and commercial supplies may fail to meet the requirements of the FDA, EMA or comparable foreign regulatory authorities; or • the medical standard of care or the approval policies or regulations of the FDA, EMA or comparable foreign regulatory authorities may significantly change in a manner that renders our clinical data insufficient for approval.
Drug candidates could fail to receive, or could be delayed in receiving, marketing approval for many reasons, including any one or more of the following: • the FDA, European Medicines Agency, or EMA, or comparable foreign regulatory authorities may disagree with the design or implementation of clinical trials; • we may be unable to demonstrate to the satisfaction of the FDA, EMA or comparable foreign regulatory authorities that a product candidate is safe and effective for its proposed indication(s) for use; • the results of clinical trials may not meet the level of statistical significance required by the FDA, EMA or comparable foreign regulatory authorities for marketing approval; 53 • we may be unable to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks; • the FDA, EMA or comparable foreign regulatory authorities may disagree with our interpretation of data from preclinical studies or clinical trials; • the data collected from clinical trials of product candidates may not be sufficient to support the submission of an application to obtain marketing approval in the United States or elsewhere; • upon review of clinical trial sites and data, the FDA or comparable foreign regulatory authorities may find record keeping or the record keeping of clinical trial sites to be inadequate or may identify other deficiencies related to the trials; • the manufacturing processes or facilities of third-party manufacturers with which we or Fulgent Pharma contract for clinical and commercial supplies may fail to meet the requirements of the FDA, EMA or comparable foreign regulatory authorities; or • the medical standard of care or the approval policies or regulations of the FDA, EMA or comparable foreign regulatory authorities may significantly change in a manner that renders our clinical data insufficient for approval.
Moreover, China’s legislature has adopted a national security law to substantially change the way Hong Kong has been governed since the territory was handed over by the United Kingdom to China in 1997.
Moreover, China’s legislature has adopted a national security law to substantially change the way Hong Kong has been 49 governed since the territory was handed over by the United Kingdom to China in 1997.
Our certificate of incorporation and bylaws provide that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for: • any derivative action brought on our behalf; • any direct action brought by a stockholder against us or any of our directors, officers or other employees, alleging a breach of a fiduciary duty; 44 • any action brought by a stockholder against us or any of our directors, officers or other employees, alleging a violation of the DGCL, our certificate of incorporation or our bylaws; and • any action brought by a stockholder against us or any of our directors, officers or other employees, asserting a claim against us governed by the internal affairs doctrine.
Our certificate of incorporation and bylaws provide that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for: • any derivative action brought on our behalf; • any direct action brought by a stockholder against us or any of our directors, officers or other employees, alleging a breach of a fiduciary duty; 65 • any action brought by a stockholder against us or any of our directors, officers or other employees, alleging a violation of the DGCL, our certificate of incorporation or our bylaws; and • any action brought by a stockholder against us or any of our directors, officers or other employees, asserting a claim against us governed by the internal affairs doctrine.
Each of these methods of fundraising is subject to a variety of risks, including those discussed above under “Any inability to obtain additional capital when needed and on acceptable terms may limit our ability to execute our business plans, and our liquidity needs could be materially affected by market fluctuations and general economic conditions.” Further, additional funds from capital-raising transactions may not be available when needed, on acceptable terms or at all.
Each of these methods of fundraising is subject to a variety of risks, including those discussed below under “Any inability to obtain additional capital when needed and on acceptable terms may limit our ability to execute our business plans, and our liquidity needs could be materially affected by market fluctuations and general economic conditions.” Further, additional funds from capital-raising transactions may not be available when needed, on acceptable terms or at all.
If our licensors fail to abide by the terms of a license agreement, fail to enforce licensed intellectual property against infringing third parties, if the licensed intellectual property are found to be invalid or unenforceable, or if we are unable to enter into necessary license agreements on acceptable terms or at all, we may be forced to engage in litigation to enforce our rights.
If our licensors fail to abide by the terms of a license agreement, if they fail to enforce licensed intellectual property against infringing third parties, if the licensed intellectual property is found to be invalid or unenforceable, or if we are unable to enter into necessary license agreements on acceptable terms or at all, we may be forced to engage in litigation to enforce our rights.
If there are delays in the completion of, or termination of, any clinical trial of therapeutic candidates, the commercial prospects of those therapeutic candidates may be harmed. In addition, any delays in completing clinical trials will increase costs, slow down product development and approval processes, and jeopardize the ability to commence product sales and generate revenue.
If there are delays in the completion of, or termination of, any clinical trial of drug candidates, the commercial prospects of those drug candidates may be harmed. In addition, any delays in completing clinical trials will increase costs, slow down product development and approval processes, and jeopardize the ability to commence product sales and generate revenue.
We perform our tests at our CLIA-certified laboratories in Temple City and El Monte, California; Irving, Texas; Needham, Massachusetts; Phoenix, Arizona; Alpharetta, Georgia; and New York, New York. Our laboratories and the equipment we use to perform our tests would be costly to replace and could require substantial lead time to replace and qualify for use.
We perform our tests at our CLIA-certified laboratories in El Monte, California; Irving, Texas; Needham, Massachusetts; Phoenix, Arizona; Alpharetta, Georgia; and New York, New York. Our laboratories and the equipment we use to perform our tests would be costly to replace and could require substantial lead time to replace and qualify for use.
We are also required to maintain a license to conduct testing in the State of California. California laws establish standards for day-to-day operation of our clinical reference laboratory in Temple City and El Monte, including with respect to the training and skills required of personnel, quality control and proficiency testing requirements.
We are also required to maintain a license to conduct testing in the State of California. California laws establish standards for day-to-day operation of our clinical reference laboratory in El Monte, including with respect to the training and skills required of personnel, quality control and proficiency testing requirements.
Further, a clinical trial may be suspended or terminated by the company, the institutional review boards, or IRBs, of the institutions in which such trials are being conducted, the Data Safety Monitoring Board, or DSMB, for such trial or by the FDA or other regulatory authorities due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using an investigational drug, changes in governmental regulations, administrative actions or lack of 37 adequate funding to continue the clinical trial.
Further, a clinical trial may be suspended or terminated by the company, the IRBs of the institutions in which such trials are being conducted, the Data Safety Monitoring Board, or DSMB, for such trial or by the FDA or other regulatory authorities due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using an investigational drug, changes in governmental regulations, administrative actions or lack of adequate funding to continue the clinical trial.
There are numerous risks associated with any patent infringement claim that may be brought against us, as discussed above under “—Litigation or other proceedings or third-party claims of intellectual property infringement or misappropriation could require us to spend significant time and money and prevent us from selling our tests or developing therapeutic candidates.” In addition, the Leahy-Smith America Invents Act, or America Invents Act, which was signed into law in 2011, includes a number of significant changes to U.S. patent law.
There are numerous risks associated with any patent infringement claim that may be brought against us, as discussed above under “Litigation or other proceedings or third-party claims of intellectual property infringement or misappropriation could require us to spend significant time and money and prevent us from selling our tests or developing drug candidates.” In addition, the Leahy-Smith America Invents Act, or America Invents Act, which was signed into law in 2011, includes a number of significant changes to U.S. patent law.
Cyber-attacks come in many forms, including the deployment of harmful malware or ransomware, exploitation of vulnerabilities, phishing, and other use of social engineering, and other means to compromise the confidentiality, integrity, and availability of our IT systems and confidential information.
Cyber-attacks come in many forms, including the deployment of harmful malware or ransomware, exploitation of vulnerabilities, phishing, and other use of social engineering, and other means to compromise the confidentiality, integrity, and availability of our information technology systems and confidential information.
Myriad Genetics, or Myriad, a case challenging the validity of patent claims relating to the breast cancer susceptibility genes BRCA1 and BRCA2, holding that isolated genomic DNA that exists in nature, such as the DNA constituting the BRCA1 and BRCA2 genes, is not patentable subject matter, but that cDNA, which is an artificial construct created from RNA transcripts of genes, may be patent eligible.
Myriad Genetics , or Myriad , a case challenging the validity of patent claims relating to the breast cancer susceptibility genes BRCA1 and BRCA2, holding that isolated genomic DNA that exists in nature, such as the DNA constituting the BRCA1 and BRCA2 genes, is not patentable subject matter, but that cDNA, which is an artificial construct created from ribonucleic acid transcripts of genes, may be patent eligible.
EKRA imposes criminal penalties for knowing or willful payment or offer, or solicitation or receipt, of any remuneration, whether directly or indirectly, overtly or covertly, in cash or in kind, in exchange for the referral or inducement of laboratory testing (among other health care services) payable by a "health care benefit program" (which includes private insurance companies), unless a specific exception applies.
EKRA imposes criminal penalties for knowing or willful payment or offer, or solicitation or receipt, of any remuneration, whether directly or indirectly, overtly or covertly, in cash or in kind, in exchange for the referral or inducement of laboratory testing (among other health care services) payable by a “healthcare benefit program” (which includes private insurance companies), unless a specific exception applies.
From time to time, the Supreme Court, other federal courts, the U.S. Congress or the U.S. Patent and Trademark Office, or USPTO, may change the standards of patentability, and any such changes could have a negative impact on our business. Three cases involving diagnostic method claims and “gene patents” have been decided by the Supreme Court in recent years.
From time to time, the Supreme Court, other federal courts, the U.S. Congress or the USPTO may change the standards of patentability, and any such changes could have a negative impact on our business. Three cases involving diagnostic method claims and “gene patents” have been decided by the Supreme Court in recent years.
Litigation or other proceedings or third-party claims of intellectual property infringement or misappropriation could require us to spend significant time and money and prevent us from selling our tests or developing therapeutic candidates.
Litigation or other proceedings or third-party claims of intellectual property infringement or misappropriation could require us to spend significant time and money and prevent us from selling our tests or developing drug candidates.
Additionally, any other laboratory facilities or equipment we may use could be damaged or rendered inoperable by natural disasters, which may be exacerbated by the effects of climate change, or man-made disasters which could render it difficult or impossible for us to perform our tests for some period of time.
Additionally, any other laboratory facilities or equipment we may use could be damaged or rendered inoperable by severe weather events, natural disasters, which may be exacerbated by the effects of climate change, or man-made disasters which could render it difficult or impossible for us to perform our tests for some period of time.
Any product that Fulgent Pharma may wish to develop, manufacture or market in countries other than the United States will also be subject to numerous foreign regulatory requirements governing the conduct of clinical trials, manufacturing and marketing, pricing and third-party reimbursement among other things in such countries.
Any product that we may wish to develop, manufacture or market in countries other than the United States will also be subject to numerous foreign regulatory requirements governing the conduct of clinical trials, manufacturing and marketing, pricing and third-party reimbursement among other things in such countries.
Moreover, any delay resulting from Fulgent Pharma’s inability to pursue the FDA's 505(b)(2) pathway could result in new competitive products reaching the market more quickly than its product candidates, which may have a material adverse impact on its competitive position and prospects.
Moreover, any delay resulting from our inability to pursue the FDA's 505(b)(2) pathway could result in new competitive products reaching the market more quickly than its product candidates, which may have a material adverse impact on our competitive position and prospects.
If our third-party licensors fail to comply with the terms of our license arrangements, we may be forced to engage in litigation to protection our rights, which may not be successful.
If our third-party licensors fail to comply with the terms of our license arrangements, we may be forced to engage in litigation to protect our rights, which may not be successful.
If our third-party licensors fail to comply with the terms of our license arrangements, we may be forced to engage in litigation to protection our rights, which may not be successful.
If our third-party licensors fail to comply with the terms of our license arrangements, we may be forced to engage in litigation to protect our rights, which may not be successful.
Doing business internationally involves a number of risks, including, among others: • compliance with the laws and regulations of multiple jurisdictions, which may be conflicting or subject to increasing stringency or other changes, including privacy and data protection regulations, tax laws, employment laws, healthcare regulatory requirements, and other related approvals, including permitting and licensing requirements; • logistics associated with the shipment of blood or other tissue specimens, including infrastructure conditions, transportation delays, and the impact of U.S. and local laws and regulations, such as export and import restrictions, tariffs, or other charges and other trade barriers, all of which involve increased risk related to the trade policies of the current administration, which may threaten existing and proposed trade agreements and impose more restrictive U.S. export-import regulations that impact our business; • limits on our ability to penetrate international markets, including legal and regulatory requirements that would force us to conduct our tests locally by building additional laboratories or engaging in joint ventures or other relationships in order to offer our tests in certain countries, which relationships could involve significant time and resources to establish, deny us control over certain aspects of the foreign operations, or reduce the economic value to us of these operations; • failure by us, any joint venturers, or other arrangements we have or may establish, or by any distributors or other commercial partners we have engaged or may engage to obtain any regulatory approvals required to market, sell, and use our tests in various countries; • challenges predicting the market for our tests and services generally and tailoring our test menu to meet varying customer expectations in different countries and territories; • difficulties gaining market share in territories in which we do not have a strong physical presence or brand awareness; • complexities and difficulties obtaining protection for and enforcing our intellectual property rights; • difficulties in staffing and managing foreign operations; • complexities associated with managing multiple payor coverage and reimbursement regimes, government payors, or patient self-pay systems; • financial risks, such as longer payment cycles, difficulty collecting trade accounts receivable and the impact of local and regional financial conditions on demand and payment for our tests; • exposure to foreign currency exchange rate fluctuations, conversions of currencies, and the risk of repatriation of certain foreign currencies; • natural disasters, political and economic instability, including wars (e.g. the war in Ukraine), terrorism and political unrest, outbreak of disease, boycotts, and other business restrictions; and • regulatory and compliance risks related to applicable anti-bribery laws, including requirements to maintain accurate information and control over activities that may fall within the purview of these laws.
Doing business internationally involves a number of risks, including, among others: • compliance with the laws and regulations of multiple jurisdictions, which may be conflicting or subject to increasing stringency or other changes, including privacy and data protection regulations, tax laws, employment laws, healthcare regulatory requirements, and other related approvals, including permitting and licensing requirements; • logistics associated with the shipment of blood or other tissue specimens, including infrastructure conditions, transportation delays, and the impact of U.S. and local laws and regulations, such as export and import restrictions, tariffs, or other charges and other trade barriers, all of which involve increased risk related to the trade policies of the current administration, which may threaten existing and proposed trade agreements and impose more restrictive U.S. export-import regulations that impact our business; • limits on our ability to penetrate international markets, including legal and regulatory requirements that would force us to conduct our tests locally by building additional laboratories or engaging in joint ventures or other relationships in order to offer our tests in certain countries, which relationships could involve significant time and resources to establish, deny us control over certain aspects of the foreign operations, or reduce the economic value to us of these operations; 36 • failure by us, any joint venturers, or other arrangements we have or may establish, or by any distributors or other commercial partners we have engaged or may engage to obtain any regulatory approvals required to market, sell, and use our tests in various countries; • challenges predicting the market for our tests and services generally and tailoring our test menu to meet varying customer expectations in different countries and territories; • difficulties gaining market share in territories in which we do not have a strong physical presence or brand awareness; • complexities and difficulties obtaining protection for and enforcing our intellectual property rights; • difficulties in staffing and managing foreign operations; • complexities associated with managing multiple payor coverage and reimbursement regimes, government payors, or patient self-pay systems; • financial risks, such as longer payment cycles, difficulty collecting trade accounts receivable and the impact of local and regional financial conditions on demand and payment for our tests; • inflationary pressures, such as those the global market is currently experiencing, which have and may increase costs for materials, supplies, and services; • exposure to foreign currency exchange rate fluctuations, conversions of currencies, and the risk of repatriation of certain foreign currencies; • natural disasters; political and economic instability, including wars , terrorism and political unrest, such as conflicts in the Ukraine and the Middle East; outbreak of disease; boycotts; and other business restrictions; and • regulatory and compliance risks related to applicable anti-bribery laws, including requirements to maintain accurate information and control over activities that may fall within the purview of these laws.
The Office of Inspector General for the Department of Health and Human Services and a variety of states’ Attorneys General have issued fraud alerts regarding a variety of cancer genetic testing fraud schemes, and the Department of Justice has announced indictments and guilty pleas in such fraud schemes involving a variety of individuals and entities, including genetic testing and other laboratories, physicians who ordered genetic testing for a large volume of patients without treating them, and third parties who arranged for the genetic testing by approaching patients through telemarketing calls, booths at public events, health fairs, and door-to-door visits.
The OIG and a variety of states’ Attorneys General have issued fraud alerts regarding a variety of cancer genetic testing fraud schemes, and the Department of Justice has announced indictments and guilty pleas in such fraud schemes involving a variety of individuals and entities, including genetic testing and other laboratories, physicians who ordered genetic testing for a large volume of patients without treating them, and third parties who arranged for the genetic testing by approaching patients through telemarketing calls, booths at public events, health fairs, and door-to-door visits.
In addition, because we receive test specimens originating from New York, we have obtained a state laboratory permit for our Temple City laboratory from the New York State Department of Health, or DOH. The New York state laboratory laws and regulations are equal to or more stringent than CLIA.
In addition, because we receive test specimens originating from New York, we have obtained a state laboratory permit for our California laboratory from the New York State Department of Health, or DOH. The New York state laboratory laws and regulations are equal to or more stringent than CLIA.
As a result, these billing 28 complexities, along with the related uncertainty in obtaining payment for our tests, could negatively affect our revenue and cash flow, our ability to achieve or sustain profitability and the consistency and comparability of our results of operations.
As a result, these billing complexities, along with the related uncertainty in obtaining payment for our tests, could negatively affect our revenue and cash flows, our ability to achieve or sustain profitability and the consistency and comparability of our results of operations.
The Drug Price Competition and Patent Term Restoration Act of 1984, informally known as the Hatch-Waxman Act, added Section 505(b)(2) to the FDCA.
The Drug Price Competition and Patent Term Restoration Act of 1984, informally known as the Hatch-Waxman Act, added Section 505(b)(2) to the FDC Act.
In the ordinary course of our business, we generate, collect and store sensitive data, including PHI, personally identifiable information, intellectual property, and proprietary and other business-critical information, such as research and development data, commercial data, and other business and financial information.
In the ordinary course of our business, we generate, collect and store sensitive data, including personal health information, or PHI; personally identifiable information; intellectual property; and proprietary and other business-critical information, such as research and development data, commercial data, and other business and financial information.
We are subject to laws and regulations governing the submission of claims for payment for our services, such as those relating to: coverage of our tests and testing services under Medicare, Medicaid and other state, federal and foreign health care programs; the amounts that we may bill for our services; and the party to which we must submit claims.
We are subject to laws and regulations governing the submission of claims for payment for our services, such as those relating to: coverage of our tests and testing services under Medicare, Medicaid, HRSA, and other state, federal and foreign healthcare programs; the amounts that we may bill for our services; and the party to which we must submit claims.
If our operations, including the conduct of our employees, consultants and commercial partners, are found to be in violation of any of these laws and regulations, we may be subject to applicable penalties associated with the violation, including administrative, civil and criminal penalties, damages, fines, individual imprisonment, exclusion from participation in federal healthcare programs, refunding of payments received by us and curtailment or cessation of our operations, which could materially harm our reputation, business, prospects or results of operations.
If our operations, including the conduct of our employees, consultants and commercial partners, are found to be in violation of any of these laws and regulations, (including in connection with the voluntary disclosure process described above), we may be subject to applicable penalties associated with the violation, including administrative, civil and criminal penalties, damages, fines, individual imprisonment, exclusion from participation in federal healthcare programs, refunding of payments received by us and curtailment or cessation of our operations, which could materially harm our reputation, business, prospects or results of operations.
Any of these occurrences may materially and adversely affect our or Fulgent Pharma's business, financial condition, results of operations and prospects. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of marketing approval of therapeutic candidates.
Any of these occurrences may materially and adversely affect our business, financial condition, results of operations, and prospects. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of marketing approval of drug candidates.
Although the FDA has statutory authority to assure that medical devices and IVDs, including potentially our tests, are safe and effective for their intended uses, the FDA has historically exercised its enforcement discretion and not enforced applicable provisions of the FDC Act and regulations with respect to laboratory developed tests, or LDTs, which are a particular type of medical device.
Although the FDA has statutory authority to assure that medical devices and IVDs, including potentially our tests, are safe and effective for their intended uses, the FDA had historically exercised enforcement discretion and not enforced applicable provisions of the FDC Act and regulations with respect to LDTs, which are a particular type of medical device.
In addition, many states, such as California (where one of our clinical laboratories is located), have implemented similar privacy laws and regulations, such as the California Confidentiality of Medical Information Act, that impose restrictive requirements regulating the use and disclosure of patient health information and other personal information.
In addition, many states, such as California (where one of our clinical laboratories is located), have implemented similar privacy laws and regulations, such as the CMIA, that impose restrictive requirements regulating the use and disclosure of patient health information and other personal information.
The failure to report and return an overpayment to the Medicare or Medicaid program within 60 days of identifying its existence can give rise to liability under the False Claims Act.
The failure to report and return an overpayment to the HRSA and Medicare or Medicaid programs within 60 days of identifying its existence can give rise to liability under the False Claims Act.
Utilization of the Section 505(b)(2) NDA pathway could expedite the development program for Fulgent Pharma's lead product candidate, FID-007. Notwithstanding the approval of an increasing number of products by the FDA under Section 505(b)(2) over the last few years, certain brand-name pharmaceutical companies and others have objected to the FDA’s interpretation of Section 505(b)(2).
Utilization of the Section 505(b)(2) NDA pathway could expedite the development program for our lead drug candidate, FID-007. Notwithstanding the approval of an increasing number of products by the FDA under Section 505(b)(2) over the last few years, certain brand-name pharmaceutical companies and others have objected to the FDA’s interpretation of Section 505(b)(2).
CLIA certification is required in order for us to be eligible to bill federal and state health care programs, as well as many private third-party payors, for our tests.
CLIA certification is required in order for us to be eligible to bill federal and state healthcare programs, as well as many private third-party payors, for our tests.
As part of our business strategy, we have previously and may again in the future pursue acquisitions of complementary businesses or assets (such as our acquisitions of CSI, Fulgent Pharma, and Inform Diagnostics), investments in other companies (such as our investment in Helio Health), technology licensing arrangements, joint ventures, or other strategic relationships.
As part of our business strategy, we have previously and may again in the future pursue acquisitions of complementary businesses or assets (such as our acquisitions of Cytometry Specialist, Inc. or CSI; Fulgent Pharma; and Symphony Buyer, Inc., or Inform Diagnostics), investments in other companies (such as our investment in Helio Health), technology licensing arrangements, joint ventures, or other strategic relationships.
If the FDA’s interpretation of Section 505(b)(2) is successfully challenged, or Congress were to amend the statute to alter the currently available regulatory pathway, the FDA may change its 505(b)(2) policies and practices, which could delay or even prevent the FDA from approving any NDA Fulgent Pharma submits under Section 505(b)(2).
If the FDA’s interpretation of Section 505(b)(2) is successfully challenged, or Congress were to amend the statute to alter the currently available regulatory pathway, the FDA may change its 505(b)(2) policies and practices, which could delay or even prevent the FDA from approving any NDA we submit under Section 505(b)(2).
Complying with the numerous statutes and regulations pertaining to our business is expensive and time-consuming, and any failure by us, our consultants or commercial partners to comply could result in substantial and material penalties. • We may be required to modify our business practices, pay fines, incur significant expenses or experience losses due to litigation or governmental investigations.
Complying with the numerous statutes and regulations pertaining to our business is expensive and time-consuming, and any failure by us, our consultants or commercial partners to comply could result in substantial and material penalties. • We may be required to modify our business practices, pay fines, incur significant expenses, or experience losses due to litigation or governmental investigations as a result of voluntary disclosure processes.
Our failure to comply with applicable laws and regulations could result in our inability to receive payment for our services or in attempts by state and federal health care programs, such as Medicare and Medicaid, to recover payments already made.
Our failure to comply with applicable laws and regulations could result in our inability to receive payment for our services or in attempts by state and federal healthcare programs, such as HRSA, Medicare and Medicaid, to recover payments already made.
We have obtained CLIA certification to conduct our tests at our laboratories in Temple City and El Monte, California; Irving, Texas; Needham, Massachusetts; Phoenix, Arizona; Alpharetta, Georgia; and New York, New York. In addition to CLIA requirements, we elect to have our laboratories accredited by CAP.
We have obtained CLIA certification to conduct our tests at our laboratories in El Monte, California; Irving, Texas; Needham, Massachusetts; Phoenix, Arizona; Alpharetta, Georgia; and New York, New York. 43 In addition, we elect to have our laboratories accredited by CAP.
Any future losses may have an adverse effect on our stockholders’ equity and working capital, which could negatively impact our operations and your investment in the Company.
Any losses would have an adverse effect on our stockholders’ equity and working capital, which could negatively impact our operations and your investment in the Company.
This would require Fulgent Pharma to conduct additional clinical trials, provide additional safety and efficacy data and other information, and meet additional standards for regulatory approval, including possibly nonclinical data.
This would require us to conduct additional clinical trials, provide additional safety and efficacy data and other information, and meet additional standards for regulatory approval, including possibly nonclinical data.
Among other things, the CPRA established the California Privacy Protection Agency, or 31 CPPA, a new regulatory authority charged with administering and enforcing the CRPA and privacy rights in California. The CPPA has the power to levy fines and bring other enforcement actions.
Among other things, the CPRA established the CPPA, a new regulatory authority charged with administering and enforcing the CRPA and privacy rights in California. The CPPA has the power to levy fines and bring other enforcement actions.
Our product candidates may not be effective, may be only moderately effective or may prove to have undesirable or unintended side effects, toxicities or other characteristics that may preclude our obtaining marketing approval or prevent or limit commercial use, or there may be deficiencies in manufacturing compliance by Fulgent Pharma or by its contract manufacturing organizations that could result in the candidate not being approved.
Our product candidates may not be effective, may be only moderately effective or may prove to have undesirable or unintended side effects, toxicities or other characteristics that may preclude our obtaining marketing approval or prevent or limit commercial use, or there may be deficiencies in manufacturing compliance by us or by our contract manufacturing organizations and partners that could result in the candidate not being approved.
In April 2014, Congress passed PAMA, which included substantial changes to the way in which clinical laboratory services are be paid under Medicare Clinical Laboratory Fee Schedule.
In April 2014, Congress passed PAMA, which included substantial changes to the way in which clinical laboratory services are be paid under Medicare CLFS.
We have been the subject of a shareholder class action, which was recently dismissed without prejudice; and may be subject to further shareholder litigation in the future; our costs of defending such litigation, arbitration and other proceedings and any adverse outcome of such litigation, arbitration, or other proceeding may have a material adverse effect on our business and the results of our operations. 26 We have been, and may from time to time in the future be, involved in and subject to material litigation and other legal proceedings.
We have been the subject of a shareholder class action, which was dismissed without prejudice; and may be subject to further shareholder litigation in the future; our costs of defending such litigation, arbitration and other proceedings and any adverse outcome of such litigation, arbitration, or other proceeding may have a material adverse effect on our business and the results of our operations.
This recent growth and other fluctuations in our operating results may render period-to-period comparisons less meaningful, and investors should not rely on the results of any one period as an indicator of future performance.
The fluctuations in our operating results may render period-to-period comparisons less meaningful, and investors should not rely on the results of any one period as an indicator of future performance.
The inability to perform our tests or the backlog that could develop if a laboratory becomes inoperable for even a short time could result in the loss of customers or harm to our reputation.
The inability to perform our tests or the backlog that could develop if a laboratory becomes inoperable for even a short time could result in adversely affected turnaround times, the loss of customers or harm to our reputation.
Medicare reimbursement for clinical laboratory diagnostic tests is based on the weighted-median of the payments made by private payors for these tests, rendering private payor payment levels even more significant than in the past.
Medicare reimbursement for CDLTs is based on the weighted-median of the payments made by private payors for these tests, rendering private payor payment levels even more significant than in the past.
The United States government has called for substantial changes to foreign trade policy with China and has raised, and has proposed to further raise in the future, tariffs on several Chinese goods. China has retaliated with increased tariffs on United States goods.
The U.S. government has called for substantial changes to foreign trade policy with China and has raised, and has proposed to further raise in the future, tariffs on several Chinese goods. China has retaliated with increased tariffs on U.S. goods.
The CPRA could impact our operations or that of our collaborators and business partners and impose new regulatory requirements and increase costs of compliance. Virginia, Connecticut, Utah, and Colorado enacted their own consumer privacy laws similar to CCPA and CPRA, all of which will take effect at various points in 2023.
The CPRA could impact our operations or that of our collaborators and business partners and impose new regulatory requirements and increase costs of compliance. Texas, Virginia, Connecticut, Utah, and Colorado enacted their own consumer privacy laws similar to CCPA and CPRA, all of which became effective at various points in 2023.
Although we have implemented security measures and other controls designed to protect sensitive information from unauthorized access, use, or disclosure, one of our subsidiaries has experienced security incidents to its information systems that resulted in the unauthorized access, use, and disclosure of PHI and other confidential information. To date, these incidents have not materially affected our business.
Although we have implemented security measures and other controls designed to protect sensitive information from unauthorized access, use, or disclosure, as disclosed previously, in 2022, one of our subsidiaries experienced security incidents to its information systems that resulted in the unauthorized access, use, and disclosure of PHI and other confidential information. These incidents have not materially affected our business.
Our executive officers, directors, beneficial owners of 5% or more of our outstanding voting equity and their respective affiliates collectively beneficially own approximately 44% of our outstanding voting equity as of December 31, 2022, and of this, Mr.
Our executive officers, directors, beneficial owners of 5% or more of our outstanding voting equity and their respective affiliates collectively beneficially own approximately 45% of our outstanding voting equity as of December 31, 2023, and of this, Mr.
Additionally, the California Privacy Rights Act, or CPRA, took full effect on January 1, 2023. The CPRA amends and expands the CCPA significantly, potentially resulting in further uncertainty, additional costs and expenses in an effort to comply, and additional harm and liability for failure to comply.
Additionally, the CPRA took full effect on January 1, 2023. The CPRA amends and expands the CCPA significantly, potentially resulting in further uncertainty, additional costs and expenses in an effort to comply, and additional harm and liability for failure to comply.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeWe have CLIA-certified laboratories located in Irving, Texas; Alpharetta, Georgia; Phoenix, Arizona; Needham, Massachusetts; and New York, New York. In Irving, Texas, we lease and occupy approximately 172,000 square feet under a lease that will expire in May 2024. In Alpharetta, Georgia, we lease and occupy approximately 65,000 square feet under a lease that will expire in March 2028.
Biggest changeWe use these facilities for laboratory testing and management activities and certain research and development, administrative and other functions. We have CLIA-certified laboratories located in Irving, Texas; Alpharetta, Georgia; Phoenix, Arizona; Needham, Massachusetts; and New York, New York. In Irving, Texas, we lease and occupy approximately 172,000 square feet under a lease that will expire in May 2024.
We believe our existing facilities are adequate for our current and expected near-term needs and additional space would be available on commercially reasonable terms if required.
We believe our existing facilities are adequate for our current and expected near-term needs and additional space would be available on commercially reasonable terms if required. 68
In Phoenix, Arizona, we lease and occupy approximately 25,000 square feet under a lease that will expire in November 2025. In Needham, Massachusetts, we lease and occupy approximately 21,000 square feet under a lease that will expire in September 2027.
In Alpharetta, Georgia, we lease and occupy approximately 65,000 square feet under a lease that will expire in March 2028. In Phoenix, Arizona, we lease and occupy approximately 25,000 square feet under a lease that will expire in November 2025. In Needham, Massachusetts, we lease and occupy approximately 21,000 square feet under a lease that will expire in September 2027.
We also own a real property located at 4399-4401 Santa Anita Avenue, El Monte, California, which consists of approximately 61,612 total square feet of building situated on 2.6 acres of land. We have built a CLIA-certified laboratory at this location.
We also own another real property located in Coppel, Texas, which consists of approximately 96,500 square feet of building space situated on 6.8 acres of land. We are building a CLIA-certified laboratory at this location.
Removed
Item 2. Pr operties. Our corporate headquarters and laboratory operations are located in Temple City, California, where we lease and occupy approximately 12,000 square feet of office and laboratory space under leases that will expire in January 2024. We use these facilities for laboratory testing and management activities and certain research and development, administrative and other functions.
Added
Item 2. Pr operties. Our corporate headquarters and laboratory operations are located in El Monte, California, where we own and occupy 61,612 square feet of building space situated on 2.6 acres of land. We have built a CLIA-certified laboratory at this location.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings. From time to time, we may be involved in legal proceedings arising in the ordinary course of our business. On September 20, 2022, the Company and two of its executive officers were named as defendants in a putative class action complaint filed in the U.S.
Biggest changeItem 3. Legal Proceedings. From time to time, we may be involved in legal proceedings arising in the ordinary course of our business.
The voluntary dismissal is without prejudice so there is no assurance that another complaint may not be filed in the future. Regardless of outcome, litigation can have an adverse impact on us due to defense and settlement costs, diversion of management resources, negative publicity and reputational harm, among other factors. Item 4. Mine Safe ty Disclosures.
The outcome of these matters are inherently uncertain, and there can be no assurances that a favorable outcome will be obtained. Regardless of outcome, litigation can have an adverse impact on us due to defense and settlement costs, diversion of management resources, negative publicity and reputational harm, among other factors. Item 4. Mine Safe ty Disclosures.
Removed
District Court for the Central District of California (Case No. 2:22-cv-06764) on behalf of individuals who purchased or otherwise acquired the Company’s securities between March 22, 2019 and August 4, 2022.
Added
As disclosed in Note 8, Debt, Commitments and Contingencies to the Consolidated Financial Statements, we are engaged in certain legal investigations, audits and voluntary disclosure processes, and the disclosure set forth in Note 8 relating to these certain legal matters is incorporated herein by reference.
Removed
The Complaint asserted claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 based on allegations that the Company and certain of its executive officers made false and/or misleading statements and/or failed to disclose laboratory testing, billing for laboratory testing, and remuneration received or provided that purportedly violated the Anti-Kickback Statute and Stark Law, and purportedly are the subject of the CID discussed in Note 8 , Debt, Commitments and Contingencies , of our condensed consolidated financial statements included in this report.
Removed
The Complaint sought recovery of unspecified damages, interest, costs, attorneys’ fees and other relief. 45 On November 30, 2022, the Court appointed Co-Lead Plaintiffs and Co-Lead Counsel. On February 21, 2023, Co-Lead Plaintiffs filed a Notice of Voluntary Dismissal of all claims against defendants, and without any payment by us or our insurers.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeNote that historic stock price performance is not necessarily indicative of future stock price performance. 47 Information on Share Repurchases The number of shares of common stock repurchased by the Company during the year ended December 31, 2022 and the average price paid per share are as follows: Period (a) Total Number of Shares Purchased (b) Average Price Paid Per Share (1) (c) Total Number of Shares Purchased As Part of Publicly Announced Plans or Programs (d) Maximum Dollar Value that May Yet Be Purchased Under the Plans or Programs May 2022 (5/1/2022 - 5/31/2022) 30,000 $ 49.56 30,000 $ 248,515,000 June 2022 (6/1/2022 - 6/30/2022) 185,000 $ 48.97 185,000 $ 239,429,000 August 2022 (8/1/2022 - 8/31/2022) 247,000 $ 47.68 247,000 $ 227,657,000 September 2022 (9/1/2022 - 9/30/2022) 533,000 $ 43.04 533,000 $ 204,752,000 October 2022 (10/1/2022 - 10/31/2022) 244,000 $ 37.33 244,000 $ 195,661,000 November 2022 (11/1/2022 - 11/30/2022) 234,000 $ 35.83 234,000 $ 187,276,000 December 2022 (12/1/2022 - 12/31/2022) 337,000 $ 34.32 337,000 $ 175,718,000 Total 1,810,000 1,810,000 (1) Includes commissions for the shares repurchased under the stock repurchase program.
Biggest changeNote that historic stock price performance is not necessarily indicative of future stock price performance. 70 Information on Share Repurchases The number of shares of common stock repurchased by the Company during the year ended December 31, 2023 and the average price paid per share are as follows: Period (a) Total Number of Shares Purchased (b) Average Price Paid Per Share (1) (c) Total Number of Shares Purchased As Part of Publicly Announced Plans or Programs (d) Maximum Dollar Value that May Yet Be Purchased Under the Plans or Programs May 2022 (5/1/2022 - 5/31/2022) 30,000 $ 49.56 30,000 $ 248,515,000 June 2022 (6/1/2022 - 6/30/2022) 185,000 $ 48.97 185,000 $ 239,429,000 August 2022 (8/1/2022 - 8/31/2022) 247,000 $ 47.68 247,000 $ 227,657,000 September 2022 (9/1/2022 - 9/30/2022) 533,000 $ 43.04 533,000 $ 204,752,000 October 2022 (10/1/2022 - 10/31/2022) 244,000 $ 37.33 244,000 $ 195,661,000 November 2022 (11/1/2022 - 11/30/2022) 234,000 $ 35.83 234,000 $ 187,276,000 December 2022 (12/1/2022 - 12/31/2022) 337,000 $ 34.32 337,000 $ 175,718,000 September 2023 (9/1/2023-9/30/2023) 80,000 $ 27.65 80,000 $ 173,522,000 October 2023 (10/1/2023-10/31/2023) 533,000 $ 25.65 533,000 $ 159,864,000 November 2023 (11/1/2023-11/30/2023) 222,000 $ 26.95 222,000 $ 153,875,000 December 2023 (12/1/2023-12/31/2023) 118,000 $ 27.01 118,000 $ 150,686,000 Total 2,763,000 2,763,000 (1) Includes commissions for the shares repurchased under the stock repurchase program.
Common Stock Performance Graph The following graph compares the cumulative total stockholder return, calculated on a dividend-reinvested basis, in Fulgent's Common Stock, the NASDAQ Composite Index, and the NASDAQ Biotechnology Index for the five years ended December 31, 2022.
Common Stock Performance Graph The following graph compares the cumulative total stockholder return, calculated on a dividend-reinvested basis, in Fulgent's Common Stock, the NASDAQ Composite Index, and the NASDAQ Biotechnology Index for the five years ended December 31, 2023.
The comparison assumes that $100 was invested in the Company’s Common Stock, the NASDAQ Composite Index, and the NASDAQ Biotechnology Index as of the market close on December 31, 2017.
The comparison assumes that $100 was invested in the Company’s common stock, the NASDAQ Composite Index, and the NASDAQ Biotechnology Index as of the market close on December 31, 2018.
Holders of Common Stock As of February 1, 2023, there were 12 holders of record of our common stock, plus an indeterminate number of additional stockholders whose shares of our common stock are held on their behalf by brokerage firms or other agents.
Holders of Common Stock As of February 1, 2024, there were 14 holders of record of our common stock, plus an indeterminate number of additional stockholders whose shares of our common stock are held on their behalf by brokerage firms or other agents.
Use of Proceeds from Registered Securities To date, we have used $85.9 million of the net proceeds from sales of our common stock, of which, $4.5 million was used for contributions to FF Gene Biotech prior to the FF Gene Biotech Acquisition and $81.4 million was used to fund the Company’s operation and a business combination.
Use of Proceeds from Registered Securities To date, we have used $146.7 million of the net proceeds from sales of our common stock, of which, $4.5 million was used for contributions to FF Gene Biotech prior to the FF Gene Biotech Acquisition, $126.4 million was used to fund the Company’s operation and a business combination, and $15.8 million was used to pay off the investment margin loan.

Item 7. Management's Discussion & Analysis

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

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Biggest changeYear Ended December 31, $ % 2022 2021 Change Change Statement of Operations Data: (dollars in thousands) Revenue $ 618,968 $ 992,584 $ (373,616 ) (38)% Cost of revenue 252,067 215,533 36,534 17% Gross profit 366,901 777,051 (410,150 ) (53)% Operating expenses: Research and development 28,910 24,219 4,691 19% Selling and marketing 38,918 24,439 14,479 59% General and administrative 111,074 50,732 60,342 119% Amortization of intangible assets 6,497 1,708 4,789 280% Restructuring costs 2,975 — 2,975 * Total operating expenses 188,374 101,098 87,276 86% Operating income 178,527 675,953 (497,426 ) (74)% Interest and other income, net 5,498 1,347 4,151 308% Income before income taxes and gain on equity-method investment 184,025 677,300 (493,275 ) (73)% Provision for income taxes 42,102 174,795 (132,693 ) (76)% Income before gain on equity-method investment 141,923 502,505 (360,582 ) (72)% Gain on equity-method investment — 3,734 (3,734 ) (100)% Net income from consolidated operations 141,923 506,239 (364,316 ) (72)% Net loss attributable to noncontrolling interests 1,480 1,125 355 32% Net income attributable to Fulgent $ 143,403 $ 507,364 $ (363,961 ) (72)% * Percentage not meaningful.
Biggest changeYear Ended December 31, $ % 2023 2022 Change Change Statement of Operations Data: (dollars in thousands) Revenue $ 289,213 $ 618,968 $ (329,755 ) (53)% Cost of revenue 184,757 252,067 (67,310 ) (27)% Gross profit 104,456 366,901 (262,445 ) (72)% Operating expenses: Research and development 41,440 28,910 12,530 43% Selling and marketing 41,467 38,918 2,549 7% General and administrative 88,999 111,074 (22,075 ) (20)% Amortization of intangible assets 7,845 6,497 1,348 21% Goodwill impairment loss 120,234 — 120,234 * Restructuring costs — 2,975 (2,975 ) * Total operating expenses 299,985 188,374 111,611 59% Operating (loss) income (195,529 ) 178,527 (374,056 ) (210)% Interest and other income, net 21,444 5,498 15,946 290% Income (loss) before income taxes (174,085 ) 184,025 (358,110 ) (195)% Provision for income taxes 1,154 42,102 (40,948 ) (97)% Net (loss) income from consolidated operations (175,239 ) 141,923 (317,162 ) (223)% Net loss attributable to noncontrolling interests 7,414 1,480 5,934 401% Net (loss) income attributable to Fulgent $ (167,825 ) $ 143,403 $ (311,228 ) (217)% Revenue Year Ended December 31, $ % 2023 2022 Change Change Revenue Data: (dollars in thousands) Precision diagnostics $ 131,990 $ 93,685 $ 38,305 41% Anatomic pathology 104,655 74,799 29,856 40% COVID-19 27,152 437,507 (410,355 ) (94)% BioPharma services 25,416 12,977 12,439 96% Total $ 289,213 $ 618,968 $ (329,755 ) (53)% Revenue decreased by $329.8 million, or 53%, from $619.0 million in 2022 to $289.2 million in 2023.
Forward-Looking Statements The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes included in this report and contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act.
Forward-Looking Statements The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes included in this report and contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act.
Investing Activities Cash used in investing activities in 2022 was $261.3 million, which primarily related to $418.0 million in purchase of marketable securities, $172.7 million related to business acquisitions, $18.8 million related to the purchase of fixed assets consisting mainly of medical laboratory equipment and building improvement, $15.0 million related to the purchase of redeemable preferred stock and $10.0 million related to contingent consideration payouts related to business acquisitions, partially offset by $232.5 million related to maturities of marketable securities and $140.2 million related to proceeds from sales of marketable securities.
Cash used in investing activities in 2022 was $261.3 million, which primarily related to $418.0 million in the purchase of marketable securities, $172.7 million related to business acquisitions, $18.8 million related to the purchase of fixed assets consisting mainly of medical laboratory equipment and building improvement, $15.0 million related to the purchase of redeemable preferred stock and $10.0 million related to contingent consideration payouts related to business acquisitions, and partially offset by $232.5 million related to maturities of marketable securities and $140.2 million related to proceeds from sales of marketable securities.
Our primary uses of cash are to fund our operations and to fund strategic acquisitions as we continue to invest in and seek to grow our business. Cash used to fund operating expenses is impacted by the timing of our expense payments, as reflected in the changes in our outstanding accounts payable and accrued expenses.
Our primary uses of cash are to repurchase our stock, fund our operations, and to fund strategic acquisitions as we continue to invest in and seek to grow our business. Cash used to fund operating expenses is impacted by the timing of our expense payments, as reflected in the changes in our outstanding accounts payable and accrued expenses.
We expect that these factors could cause our consolidated effective tax rate to differ significantly from the U.S. federal income tax rate in future periods. 53 Results of Operations The table below summarizes the results of our continuing operations for each of the periods presented.
We expect that these factors could cause our consolidated effective tax rate to differ significantly from the U.S. federal income tax rate in future periods. 76 Results of Operations The table below summarizes the results of our continuing operations for each of the periods presented.
Restructuring Costs Restructuring expenses represent one-time employee termination benefits provided to employees that were involuntarily terminated in association with the acquisition of a new entity in 2022. Interest and Other Income, Net Interest and other income, net is primarily comprised of net interest income, which was $5.3 million and $1.3 million for 2022 and 2021, respectively.
Restructuring Costs Restructuring expenses represent one-time employee termination benefits provided to employees that were involuntarily terminated in association with the acquisition of a new entity in 2022. Interest and Other Income, Net Interest and other income, net is primarily comprised of net interest income, which was $21.1 million and $5.3 million for 2023 and 2022, respectively.
We have omitted discussion of 2020 results where it would be redundant to the discussion previously included in Item 7 of our 2021 Annual Report on Form 10-K.
We have omitted discussion of 2021 results where it would be redundant to the discussion previously included in Item 7 of our 2022 Annual Report on Form 10-K.
The composition and concentration of our customer base can fluctuate from period to period, and in certain prior periods, a small number of customers has accounted for a significant portion of our revenue.
The composition and concentration of our customer base can fluctuate from period to period, and in certain prior periods, a small number of customers have accounted for a significant portion of our revenue.
Amortization of Intangible Assets Amortization of intangible assets represents amortization expenses on the intangible assets that arose from the business combinations in 2022 and 2021 and a patent purchased in 2021. The increase in amortization of intangible assets was primarily due to additions in intangible assets from business combinations in 2022.
Amortization of Intangible Assets Our consolidated amortization of intangible assets represents amortization expenses on the intangible assets that arose from the business combinations in 2022 and 2021 and a patent purchased in 2021. The increase in amortization of intangible assets was primarily due to additions in intangible assets from business combinations in 2022.
For further information, refer to Note 9 to the Consolidated Financial Statements. (2) Represents non-cancelable finance leases. For further information, refer to Note 9 to the Consolidated Financial Statements. (3) Represents non-cancelable purchase obligations for medical lab equipment, reagents and other supplies, see Note 8 to the Consolidated Financial Statements.
For further information, refer to Note 9, Leases, to the Consolidated Financial Statements. (2) Represents non-cancelable finance leases. For further information, refer to Note 9, Leases , to the Consolidated Financial Statements. (3) Represents non-cancelable purchase obligations for medical lab equipment, reagents and other supplies, see Note 8, Debt, Commitment and Contingencies , to the Consolidated Financial Statements.
Our marketable securities primarily consist of equity securities and corporate bonds, municipal bonds, and U.S. government and U.S. agency debt securities, U.S. treasury bills, and Yankee debt securities as of December 31, 2022 and 2021.
Our marketable securities primarily consist of U.S. government and U.S. agency debt securities, U.S. treasury bills, corporate bonds, municipal bonds, and Yankee debt securities as of December 31, 2023 and 2022.
Ability to Obtain Reimbursement As part of our business plan for future growth, we intend to pursue coverage and reimbursement from third-party payors at a level adequate for us to achieve profitability.
As part of our business plan for future growth, we intend to pursue coverage and reimbursement from third-party payors at a level adequate for us to again achieve and maintain profitability.
This interest income related to interest earned on various investments in marketable securities including realized and holding gain (loss) on marketable equity securities, net of interest expenses incurred on our notes payable and a margin loan. 55 Provision for Income Taxes Provision for income taxes were $42.1 million and $174.8 million in 2022 and 2021, respectively.
This interest income related to interest earned on various investments in marketable securities including realized and holding gain (loss) on marketable equity securities, net of interest expenses incurred on our notes payable and a margin loan. Provision for Income Taxes Provision for income taxes were $1.2 million and $42.1 million in 2023 and 2022, respectively.
We currently classify our customers into three payor types: (i) Insurance, including claim reimbursement from HRSA for uninsured individuals, (ii) Institutional, including hospitals, medical institutions, other laboratories, governmental bodies, municipalities and large corporations or (iii) Patients who pay directly.
We currently classify our customers into three payor types: (i) Insurance, (ii) Institutional, including hospitals, medical institutions, other laboratories, governmental bodies, municipalities and large corporations or (iii) Patients who pay directly.
During all periods covered by this report, we consider the estimated effect on our revenue of foreign currency exchange rate fluctuations to be immaterial; however, the impact of foreign currency exchange rate fluctuations may increase in future periods as we pursue continued international expansion. Business Risks and Uncertainties Our business and prospects are exposed to numerous risks and uncertainties.
During all periods covered by this report, we consider the estimated effect on our revenue of foreign currency exchange rate fluctuations to be immaterial; however, the impact of foreign currency exchange rate fluctuations may increase in future periods as we pursue continued international expansion.
Net Loss Attributable to Noncontrolling Interest Net loss attributable to noncontrolling interest represents net loss attributable to minority shareholders from entities not wholly owned. 56 Liquidity and Capital Resources Liquidity and Sources of Cash We had $852.9 million and $935.5 million in cash, cash equivalents and marketable securities as of December 31, 2022 and 2021, respectively.
Net Loss Attributable to Noncontrolling Interest Net loss attributable to noncontrolling interest represents net loss attributable to minority shareholders from entities not wholly owned. 80 Liquidity and Capital Resources Liquidity and Sources of Cash We had $847.7 million and $852.9 million in cash, cash equivalents and marketable securities as of December 31, 2023 and 2022, respectively.
Our therapeutic development business is focused on developing drug candidates for treating a broad range of cancers using a novel nanoencapsulation and targeted therapy platform designed to improve the therapeutic window and pharmacokinetic profile, or PK profile, of new and existing cancer drugs. We aim to transform from a genomic diagnostic business into a fully integrated precision medicine company.
Our therapeutic development business is focused on developing drug candidates for treating a broad range of cancers using a novel nanoencapsulation and targeted therapy platform designed to improve the therapeutic window and pharmacokinetic profile, or PK profile, of new and existing cancer drugs.
The increase in revenue from non-U.S. sources between periods were primarily due to increased sales of our traditional genetic testing services to customers in China through FF Gene Biotech which contributed $9.2 million in total revenue in 2022.
The increase in revenue from non-U.S. sources between periods were primarily due to increased sales of our traditional genetic testing services to customers in China through our joint venture, which contributed $11.4 million in total revenue in 2023.
The stock repurchase program has no expiration from the date of authorization. Under the stock repurchase program, the Company may repurchase shares from time to time in the open market or in privately negotiated transactions.
Stock Repurchase Program In March 2022, our Board authorized a $250.0 million stock repurchase program. The stock repurchase program has no expiration from the date of authorization. Under the stock repurchase program, the Company may repurchase shares from time to time in the open market or in privately negotiated transactions.
Costs associated with performing tests are recorded as tests are processed. We expect cost of revenue to generally increase as and if we increase the number of tests we deliver. Operating Expenses Our operating expenses are classified into five categories: research and development; selling and marketing; general and administrative; amortization of intangible assets; and restructuring costs.
Costs associated with performing tests are recorded as tests are processed. 74 Operating Expenses Our operating expenses are classified into five categories: research and development; selling and marketing; general and administrative; amortization of intangible assets; and restructuring costs if any.
No additional costs are expected to be incurred under the plan of termination post 2022, and the payable balance is expected to be paid off by August 2023. Provision for Income Taxes Provision for income taxes consists of U.S. federal and state income taxes.
No additional costs were incurred under the plan of termination post 2022, and the payable balance has been paid off. Provision for Income Taxes Provision for income taxes consists of U.S. federal and state income taxes.
Material Cash Requirements and Contractual Obligations as of December 31, 2022 As of December 31, 2022, we have an outstanding balance of $15.0 million under our margin account, $5.2 million in notes payable to Xilong Scientific, which is due in March 2023, and $3.8 million of an installment loan, of which, the current portion is $461,000.
Material Cash Requirements and Contractual Obligations as of December 31, 2023 As of December 31, 2023, we have an outstanding balance of $775,000 in notes payable to Xilong Scientific, which is due in March 2024, and $3.4 million of an installment loan, of which, the current portion is $408,000.
We expense all selling and marketing costs as incurred. We expect our selling and marketing expenses will continue to increase in absolute dollars, primarily driven by our increased investment in sales and marketing in recent periods, including developing and expanding our sales team, creating and implementing new sales and marketing strategies and increasing the overall scope of our marketing efforts.
We expect our selling and marketing expenses will continue to increase in absolute dollars, primarily driven by our increased investment in sales and marketing in recent periods, including developing and expanding our sales team, creating and implementing new sales and marketing strategies and increasing the overall scope of our marketing efforts. 75 General and Administrative Expenses General and administrative expenses include executive, finance, accounting, legal and human resources functions.
Cost of Revenue Cost of revenue reflects the aggregate costs incurred in delivering test results, including “sequencing as a service,” and consists of: costs of laboratory supplies, including collection kits, personnel costs, including salaries, employee benefit costs, bonuses and equity-based compensation expenses; depreciation of laboratory equipment; amortization of leasehold improvements; and allocated overhead expenses, including rent and utilities.
Cost of Revenue Cost of revenue reflects the aggregate costs incurred in delivering test results and consists of: costs of laboratory reagents and supplies; personnel costs, including salaries, employee benefit costs, bonuses and equity-based compensation expenses; depreciation of laboratory equipment; delivery and courier costs relating to the transportation of specimens to be tested; amortization of leasehold improvements; and allocated overhead expenses, including rent and utilities.
Financing Activities Cash used in financing activities in 2022 was $77.1 million, which primarily related to $74.3 million used in the repurchase of common stock and $1.8 million used in common stock withholding for employee tax obligations.
Cash used in financing activities in 2022 was $77.1 million, which primarily related to $74.3 million used in the repurchase of common stock and $1.8 million used in common stock withholding for employee tax obligations. We did not expect to use any credit facilities due to the strong cash position as of December 31, 2023.
Cash Flows The following table summarizes cash flows from continuing operations for each of the periods presented: Year Ended December 31, 2022 2021 (in thousands) Net cash provided by operating activities $ 253,520 $ 538,577 Net cash used in investing activities $ (261,314 ) $ (546,548 ) Net cash (used in) provided by financing activities $ (77,141 ) $ 85,405 Operating Activities Cash provided by operating activities in 2022 was $253.5 million.
Cash Flows The following table summarizes cash flows from continuing operations for each of the periods presented: Year Ended December 31, 2023 2022 (in thousands) Net cash provided by operating activities $ 27,003 $ 253,520 Net cash provided by (used in) investing activities $ 38,898 $ (261,314 ) Net cash used in financing activities $ (47,785 ) $ (77,141 ) Operating Activities During the year ended December 31, 2023, our operations provided $27.0 million of cash as compared to $253.5 million in 2022.
During the year ended December 31 2022, we repurchased 1.8 million shares of our common stock at an aggregate cost of $74.3 million under the stock repurchase program. As of December 31, 2022, a total of approximately $175.7 million remained available for future repurchases of our common stock under our stock repurchase programs.
During the year ended December 31 2023, we repurchased 953,000 shares of our common stock at an aggregate cost of $25.1 million under the stock repurchase program. During the year ended December 31 2022, we repurchased 1.8 million shares of our common stock at an aggregate cost of $74.3 million under the stock repurchase program.
However, due to decreased demand of testing, we experienced decreasing revenues from our COVID-19 testing services and we do not expect substantial revenue from COVID-19 testing in 2023. 50 Mix of Tests Delivered We offer our tests at different price points, and we incur different amounts and types of costs, depending on the nature and level of complexity and customization of the test and the specific terms we have negotiated for the tests, which can vary from customer to customer.
Factors Affecting Our Performance Mix of Tests Delivered 72 We offer our tests at different price points, and we incur different amounts and types of costs, depending on the nature and level of complexity and customization of the test and the specific terms we have negotiated for the tests, which can vary from customer to customer.
As a result, the amount, timing, nature and success of these investments, as well as other influences on our cost of revenue from period to period, can impact our costs. 51 Moreover, changes in our other operating expenses, due to investments in these aspects of our business or other factors, are not taken into account but impact our overall results, which can limit the utility of cost as an overall cost measurement tool.
Moreover, changes in our other operating expenses, due to investments in these aspects of our business or other factors, are not taken into account but impact our overall results, which can limit the utility of cost as an overall cost measurement tool. 73 Ability to Obtain Reimbursement Much of our revenue depends on receiving reimbursement for our tests from third-party payors, including our Insurance and Institutional customers.
For more information, see “Item 1A. Risk Factors” in this report. Financial Overview Revenue We generate revenue from sales of our test and testing services. We recognize revenue upon delivery of a report to the ordering physician or other customer based on the established billing rate, less contractual and other adjustments, to arrive at the amount we expect to collect.
Financial Overview Revenue Our laboratory service segment generates revenue from molecular testing, including precision diagnostics and anatomic pathology, BioPharma services, and COVID-19 testing. We recognize revenue upon delivery of a report to the ordering physician or other customer based on the established billing rate, less contractual and other adjustments, to arrive at the amount we expect to collect.
We expect our research and development expenses will continue to increase in absolute dollars as we expect to continue to invest in research and development activities. 52 Selling and Marketing Expenses Selling and marketing expenses consist of personnel costs, customer service expenses, direct marketing expenses, educational and promotional expenses, market research and analysis and allocated overhead expenses, including rent and utilities.
Accordingly, we expect to incur significant research and development expenses in connection with our initiation of Phase 2 trials for FID-007. Selling and Marketing Expenses Selling and marketing expenses consist of personnel costs, customer service expenses, direct marketing expenses, educational and promotional expenses, market research and analysis and allocated overhead expenses, including rent and utilities.
The acquisition method of accounting for business combinations requires us to estimate the fair value of assets acquired, liabilities assumed, and any noncontrolling interest in an acquired business to properly allocate purchase price consideration between assets that are depreciated or amortized and goodwill.
The acquisition method of accounting for business combinations requires us to estimate the fair value of assets acquired, liabilities assumed, and any noncontrolling interest in an acquired business to properly allocate purchase price consideration between assets that are depreciated or amortized and goodwill. 83 We assess goodwill and indefinite-lived intangibles for impairment on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.
General and Administrative Expenses General and administrative expenses include executive, finance, accounting, legal and human resources functions. These expenses consist of personnel costs, audit and legal expenses, consulting costs and allocated overhead expenses, including rent and utilities. We expense all general and administrative costs as incurred.
These expenses consist of personnel costs, audit and legal expenses, consulting costs and allocated overhead expenses, including rent and utilities. We expense all general and administrative costs as incurred. We expect our general and administrative expenses will continue to increase in absolute dollars as we seek to continue to scale our operations.
Recent Accounting Pronouncements See Note 2, Summary of Significant Accounting Policies , to our consolidated financial statements included in this report for information about recent accounting pronouncements.
Consequently, the eventual realized value, if any, of these acquired IPR&D projects may vary from their estimated fair values. Recent Accounting Pronouncements See Note 2, Summary of Significant Accounting Policies , to our consolidated financial statements included in this report for information about recent accounting pronouncements.
Most of the recent growth in our testing volume has resulted from COVID-19 tests that we conduct for certain counties, states and municipalities. The expansion of our COVID-19 testing business resulted in a substantial change in our business.
COVID-19 Testing Services We experienced significant volume growth in 2020, 2021 and 2022 after the launch of our COVID-19 testing services in 2020. Most of this growth in our testing volume resulted from COVID-19 tests that we conducted for certain counties, states and municipalities during the pandemic.
Cash used in investing activities in 2021 was $546.5 million, which primarily related to $710.5 million in purchases of marketable securities, $61.9 million related to business acquisitions, $23.8 million related to the purchase of fixed assets consisting mainly of medical laboratory equipment and building improvement, and $20.0 million related to the purchase of redeemable preferred stock, partially offset by proceeds of $185.7 million related to sales of marketable securities and $83.8 million related to maturities of marketable securities.
Cash provided by investing activities in 2023 was $38.9 million, which primarily related to $508.6 million related to maturities of marketable securities, $44.1 million related to proceeds from sales of marketable securities, and $775,000 related to the sale of fixed assets, and partially offset by $491.9 million in purchase of marketable securities, $22.2 million related to the purchase of fixed assets consisting mainly of medical laboratory equipment and building improvement, $399,000 related to a business acquisition.
Due to our out-of-network status with the majority of insurance payors for COVID-19 tests, estimation of the transaction price represents variable consideration. Valuation of Goodwill and Intangible Assets The valuation of assets acquired in a business combination and asset impairment reviews require the use of significant estimates and assumptions.
Valuation of Goodwill and Indefinite-Lived Intangible Assets The valuation of assets acquired in a business combination and asset impairment reviews require the use of significant estimates and assumptions.
Our gross profit as a percentage of revenue, or gross margin, decreased from 78.3% to 59.3% due to changes in product mix. Research and Development Research and development expenses increased $4.7 million, or 19%, from $24.2 million in 2021 to $28.9 million in 2022.
Our consolidated cost of revenues as a percentage of revenue increased from 40.7% to 63.9%. Our gross profit decreased by $262.4 million, or 72%, from $366.9 million in 2022 to $104.5 million in 2023. Our gross profit as a percentage of revenue, or gross margin, decreased from 59.3% to 36.1%.
The increase was primarily due to increases of $45.1 million in personnel costs including equity-based compensation, $6.6 million in allocated overhead expenses including security expenses, and $3.8 million in shipping and handling expense primarily due to additions of Inform Diagnostics and CSI, and $13.0 million in depreciation expenses primarily due to additions in fixed assets for production, remaining useful lives of COVID-related equipment and addition of Inform Diagnostics, partially offset by decreases of $27.2 million in reagent and supply expenses, $5.0 million in external customer engagement platforms, and $2.3 million in consulting and outside labor expense related to the decreased tests delivered.
The decrease was primarily due to decreases of $32.1 million in consulting and outside labor costs for production, $25.9 million in reagent and supply expenses, $12.3 million in depreciation expenses, $5.3 million in shipping expenses, and $1.2 million in travel and meals expense and $2.9 million in facility expense, all related to decreased COVID-19 testing, and partially offset by an increase of $15.4 million in personnel costs, including equity-based compensation expense, due to an additional four months of costs in 2023 compared to 2022 as Inform Diagnostics was acquired at the end of April 2022.
The following summarizes our contractual obligations as of December 31, 2022: Payments Due by Period Total Less than 1 year 1-3 years 3-5 years More than 5 years (in thousands) Operating lease obligations (1) $ 15,879 $ 6,590 $ 6,190 $ 2,882 $ 217 Finance lease obligations (2) 2,932 986 1,580 366 — Purchase obligations (3) 10,089 7,544 2,545 — — Total contractual obligations $ 28,900 $ 15,120 $ 10,315 $ 3,248 $ 217 58 (1) Represents non-cancelable operating leases.
The following summarizes our contractual obligations as of December 31, 2023: Payments Due by Period Total Less than 1 year 1-3 years 3-5 years More than 5 years (in thousands) Operating lease obligations (1) $ 12,242 $ 4,309 $ 4,140 $ 2,243 $ 1,550 Finance lease obligations (2) 1,368 532 836 — — Purchase obligations (3) 51,934 29,669 22,265 — — Total contractual obligations $ 65,544 $ 34,510 $ 27,241 $ 2,243 $ 1,550 82 (1) Represents non-cancelable operating leases.
General and Administrative General and administrative expenses increased $60.3 million, or 119%, from $50.7 million in 2021 to $111.1 million in 2022.
General and Administrative Our consolidated general and administrative expenses decreased by $22.1 million, or 20%, from $111.1 million in 2022 to $89.0 million in 2023.
Overview We are a technology-based company with a well-established clinical diagnostic business and a therapeutic development business. Our clinical diagnostic business offers molecular diagnostic testing services, comprehensive genetic testing, and high-quality anatomic pathology laboratory services designed to provide physicians and patients with clinically actionable diagnostic information to improve the quality of patient care.
Overview We are a technology-based company with a well-established laboratory services business and a therapeutic development business. Our laboratory services business—to which we formerly referred as our clinical diagnostic business, includes technical laboratory services and professional interpretation of laboratory results by licensed physicians.
The increase was primarily due to increases of $7.1 million in personnel costs including equity-based compensation expense related to increased headcount, $3.6 million in software expense from Inform Diagnostics, $1.0 million in travel expenses, $967,000 in commission expenses from CSI, $704,000 in consulting and outside labor related to marketing projects in 2022 and $632,000 in allocated overhead expenses due to addition of Inform Diagnostics.
The increase was primarily due to increases of $2.2 million in software expense, $1.5 million in facilities expense, $742,000 in personnel costs, including equity-based compensation expense, and $456,000 in advertising and marketing expenses, mainly due to an additional four months of costs in 2023 compared to 2022 as Inform Diagnostics was acquired at the end of April 2022, and partially offset by a decrease of $2.6 million in consulting and outside labor costs related to decreased COVID-19 testing.
The increase was primarily due to increases of $23.7 million in increased provision for credit losses stemming from the cessation of funding for the HRSA program in March 2022, $14.0 million in personnel costs including equity-based compensation expense related to increased headcount, $6.2 million in acquisition-related costs, $4.9 million in legal and professional fees primarily related to general corporate matters, $3.2 million in allocated overhead expenses, $3.1 million in license and permit expense and $2.4 million in depreciation expense primarily from Inform Diagnostics, $2.2 million in insurance expense, and $1.5 million in accounting expenses related to financial statement and internal control audit and reviews, partially offset by a decrease of $790,000 in consulting and outside labor expense.
The decrease was primarily due to decreases of $33.5 million in provision for credit losses due to subsequent collections from customers who were previously reserved, $6.2 million in acquisition related to business combinations in 2022, $2.6 million in one-time license and permit expense incurred by Inform Diagnostics, partially offset by increases of $6.6 million in personnel costs including equity-based compensation expense, $6.1 million in facility expense, and $3.6 million in depreciation expense, due to an additional four months of costs in 2023 compared to 2022 as Inform Diagnostics was acquired at the end of April 2022, and $3.0 million in legal and professional fees due to legal liabilities accrued in connection with our voluntary disclosure process as described in Note 8, Debt, Commitments and Contingencies to the Consolidated Financial Statements, and $1.5 million in accounting expense as the entities acquired in 2022 and 2021 were scoped in for financial statement and internal control audit and reviews.
The effective income tax rate was 22.7% and 25.8% of income before income taxes for 2022 and 2021, respectively. The decrease in the effective tax rate for 2022 relative to 2021 was primarily attributable to international restructuring costs that were incurred in 2021 but not 2022.
The effective income tax rate was (0.69)% and 22.7% of income before income taxes for 2023 and 2022, respectively. The change in the effective tax rate for 2023 relative to 2022 was due to the establishment of a valuation allowance on the Company’s net deferred tax assets.
Aggregating customers that are under common control, one of our customers, County of Los Angeles, contributed 19% and 26% of our revenue in 2022 and 2021, respectively. 54 Cost of Revenue Cost of revenue increased $36.5 million, or 17%, from $215.5 million in 2021 to $252.1 million in 2022.
For the laboratory services segment, aggregating customers that are under common control, one customer comprised $35.7 million or 12% of our revenue in 2023, and a different customer comprised $115.6 million or 19% and $260.2 million or 26% of our revenue in 2022 and 2021, respectively.
These costs consist of personnel costs, laboratory supplies, consulting costs and allocated overhead expenses, including rent and utilities. We expense all research and development costs in the periods in which they are incurred.
We expense all research and development costs in the periods in which they are incurred. We expect our research and development expenses will continue to increase in absolute dollars, as we expect to continue to invest in research and development activities and continue to innovate and expand the application of our platform.
Cash provided by financing activities in 2021 was $85.4 million, which primarily related to $89.5 million proceeds from an equity distribution agreement, partially offset by $4.2 million in common stock withholding for employee tax obligations. Stock Repurchase Program In March 2022, our Board authorized a $250.0 million stock repurchase program.
Financing Activities Cash used in financing activities in 2023 was $47.8 million, which primarily related to $25.1 million used in the repurchase of common stock $15.0 million used in the repayment for the margin account, $4.3 million used in the repayment of notes payable, and $2.7 million used in common stock withholding for employee tax obligations.
Removed
We recorded revenue and income from operations of $619.0 million and $143.4 million, respectively, in 2022, compared to revenue and income from operations of $992.6 million and $507.4 million, respectively, in 2021. 2022 Developments Opening of New State-of-the-Art Oncology Laboratory in El Monte, California In May 2022, we opened a new state-of-the-art oncology laboratory in El Monte, California, near our global headquarters in Temple City.
Added
We recorded revenue and net (loss) from operations of $289.2 million and ($167.8 million), respectively, in 2023, compared to revenue and net income from operations of $619.0 million and $143.4 million, respectively, in 2022. 2023 Developments In 2023, we launched new Beacon787 expanded carrier screening panel. Beacon787 includes a total of 787 genes associated with autosomal recessive and X-linked conditions.
Removed
This new CLIA-certified lab enables us to expand our capabilities in somatic molecular diagnostics and cancer testing and more efficiently serve oncology clients on the West Coast of the United States.
Added
Included in this panel are all of the American College of Medical Genetics and Genomics, or ACMG, tier 3 genes, which ACMG published in their latest practice guideline for carrier screening, recommending that all pregnant patients and those planning a pregnancy be offered this set of genes as an equitable, pan-ethnic screening approach.
Removed
Acquisition of Inform Diagnostics In April 2022, we completed the acquisition of Inform Diagnostics, a leading national independent pathology laboratory based in Irving, Texas, and a portfolio company of Avista Capital Partners.
Added
The ACMG list includes genes with carrier frequency of >1/200 for autosomal recessive conditions and disease prevalence of >1/40,000 for X-linked conditions. Leveraging our proprietary platform and informatics, Beacon787 frequently excels as it relates to analytical detection rates, ability to discern pseudogenes, and reliable copy number calls.
Removed
Inform Diagnostics, formerly known as Pathology Partners, was founded in 1996 and has since become one of the largest national pathology laboratories in the United States, with offerings across gastrointestinal pathology, dermatopathology, urologic pathology, and hematopathology, among others. Inform Diagnostics currently provides services to approximately 1,300 clients who represent over 2,700 physicians.
Added
This was an important product launch for us and a big step forward in carrier screening. Carrier screening assesses the risk for individuals and couples to pass on certain genetic conditions to their children. This testing is for women or couples who are currently expecting, considering pregnancy, or planning to become pregnant in the future.
Removed
Inform Diagnostics is committed to providing physicians and the patients they serve with efficient, dependable, and high-quality service to facilitate faster treatment for patients and more efficient workflows for clinicians.
Added
Most often, carriers for these conditions do not have symptoms or a positive family history of disease. Carrier screening can identify these otherwise unknown risks and allow patients to make informed decisions about family planning. The American College of Obstetricians and Gynecologists, ACOG, recommends offering carrier screening to all women who are considering pregnancy, regardless of ethnicity or family history.
Removed
The acquisition extends our capabilities into the pathology testing market, with the goal of continuing to innovate healthcare by developing new NGS based tests, among other technologies, to further serve the combined companies’ large, nationwide customer base.
Added
As a result, the amount, timing, nature and success of these investments, as well as other influences on our cost of revenue from period to period, can impact our costs.
Removed
With the addition of Inform Diagnostics’ extensive testing capabilities, nationwide 49 salesforce, and significant managed care contracts, we believe we are better positioned to become a one-stop shop for diagnostic services throughout the healthcare continuum and across the United States.
Added
These payors have complicated rules and procedures regarding submissions for reimbursement and their reimbursement practices and procedures may vary from period to period. Reimbursed amounts are often subject to audit and, and our ability to collect and retain reimbursement from these payors may vary from period to period.
Removed
We see valuable cross-selling opportunities with Inform Diagnostics’ national GI and GU specialist client base, including our newly launched liquid biopsy test for Hepatocellular carcinoma, HelioLiver, as well as an upcoming molecular test for urology, which is pending launch. In addition, we expect to offer high-value NGS-based oncology services to Inform Diagnostics’ hematology clients.
Added
If we are unable to obtain or retain reimbursement during any period, our rate of reimbursement is lower than expected or if reimbursement is delayed, our results of operations may be correspondingly affected and fluctuate significantly from period to period.
Removed
We believe Inform Diagnostics’ client relationships will enable us to access more patients along key touchpoints to provide a comprehensive suite of diagnostic products and services leading to improved healthcare.
Added
However, due to decreased demand of COVID-19 testing following the pandemic and our decision to scale back our COVID-19 testing services, we do not expect material revenue from COVID-19 testing in future periods. Business Risks and Uncertainties Our business and prospects are exposed to numerous risks and uncertainties. For more information, see “Item 1A. Risk Factors” in this report.
Removed
The acquisition extends our in-network relationships with managed care organizations to over 300 million covered lives and expands our geographic footprint with the addition of CLIA, CAP, and NY State certified laboratories in California, New York, Arizona, Massachusetts, and Texas.
Added
These costs consist of: • personnel costs, including salaries, benefits, and other employee-related costs, such as bonuses and equity-based compensation expenses; • consulting costs, including consulting fees and related travel expenses; • laboratory supplies; • costs associated with in-process research and conducting clinical studies to develop and support our products; • costs related to production of clinical materials; • set up costs, including electronic medical record set up costs, costs associated with setting up and conduct clinical studies at domestic and international sites; • costs related to compliance with regulatory requirements; and • allocated overhead expenses, including rent, information technology, equipment depreciation and utilities.
Removed
Acquisition of Fulgent Pharma In November 2022, we completed the acquisition of Fulgent Pharma, a clinical-stage, therapeutics development company focused on the development of innovative cancer treatments.
Added
Furthermore, we expect our research and development expenses for our therapeutic development segment to increase as we incur incremental expenses associated with our drug candidates that are currently under development and in clinical trials. Drug candidates in later stages of clinical development generally have higher development costs, primarily due to the increased size and duration of later-stage clinical trials.
Removed
Through this acquisition and assuming successful development and the requisite approvals, we plan to offer a vertically integrated solution to combat cancer with the potential to create value for both this therapeutic and diagnostic our businesses.
Added
We expense all selling and marketing costs as incurred.
Removed
Fulgent Pharma and Fulgent Genetics were previously both owned by Fulgent Therapeutics until 2016, when the businesses were separated ahead of the Initial Public Offering of Fulgent Genetics. The companies have operated as separate entities since 2016, enabling each business to focus on and achieve core objectives across genetic testing and therapeutic drug development.
Added
The decrease in revenue between periods was due to a decrease in COVID-19 testing revenue of 94%, and partially offset by increases in our other revenue streams of 44% for the periods. We ceased our COVID-19 testing operations at the end of the first quarter of 2023.
Removed
Fulgent Pharma has developed a novel nanoencapsulation and targeted therapy platform, which is designed to improve the therapeutic window and pharmacokinetic profile of new and existing cancer drugs.
Added
As a result, we have been focusing our efforts on growing our precision diagnostics, anatomic pathology, and BioPharma services revenue streams. For the year ended December 31, 2023, precision diagnostics, anatomic pathology, and BioPharma services accounted for 46%, 36%, and 9% of our consolidated revenue, respectively, and increased $38.3 million, $29.9 million, and $12.4 million, respectively, compared to 2022.
Removed
Fulgent Pharma’s lead candidate, FID-007, is currently being investigated in the United States in a Phase I clinical trial in patients diagnosed with various cancers including head and neck cancers, ampullary and pancreatic cancer. Top-line data from this trial is expected in the second quarter of 2023.
Added
The increase in precision diagnostics revenue and anatomic pathology revenue was due to an additional four months of revenue in 2023 compared to 2022 as Inform Diagnostics was acquired at the end of April 2022. The increase in precision diagnostics was also due to a growth in reproductive health services which included the launch of our expanded Beacon787 testing.
Removed
Assuming positive data, we intend to seek regulatory approval in the United States using the 505(b)(2) pathway, which may shorten the clinical trial process and accelerate potential commercialization.
Added
The increase in BioPharma services was due to the addition of a few concentrated customers.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

4 edited+0 added−0 removed6 unchanged
Biggest changeIf an adverse 10% foreign currency exchange rate change was applied to total monetary assets denominated in currencies other than the functional currencies at the balance sheet date, it would have resulted in decrease on income before income taxes of approximately $844,000 as of December 31, 2022. 60 Item 8. Financial Statemen ts and Supplementary Data.
Biggest changeIf an adverse 10% foreign currency exchange rate change was applied to total monetary assets denominated in currencies other than the functional currencies at the balance sheet date, it would have resulted in decrease on income before income taxes of approximately $1.3 million as of December 31, 2023, and $844,000 as of December 31, 2022. 85 Item 8.
We typically invest in highly rated securities, with the primary objective of minimizing the potential risk of principal loss. Our investments in fixed rate interest earning securities carry a degree of interest rate risk. Fixed rate securities may have their fair market value adversely affected due to a rise in interest rates.
We typically invest in highly rated securities, with the primary objective of minimizing the potential risk of principal loss. Our investments in fixed rate interest earning securities carry a degree of interest rate 84 risk. Fixed rate securities may have their fair market value adversely affected due to a rise in interest rates.
Based on investment positions as of December 31, 2022, a hypothetical 100 basis point increase in interest rates across all maturities would result in a $7.3 million incremental decline in the fair market value of the portfolio. Such losses would only be realized if we sold the investments prior to maturity.
Based on investment positions as of December 31, 2023 and, 2022, a hypothetical 100 basis point increase in interest rates across all maturities would result in an incremental decline of $10.1 million and $7.3 million, respectively, in the fair market value of the portfolio. Such losses would only be realized if we sold the investments prior to maturity.
The information required by this Item 8 immediately follows the signature page to this report and is incorporated herein by reference. Item 9. Changes in and Disagreements with Accou ntants on Accounting and Financial Disclosure. None.
Financial Statemen ts and Supplementary Data. The information required by this Item 8 immediately follows the signature page to this report and is incorporated herein by reference. Item 9. Changes in and Disagreements with Accou ntants on Accounting and Financial Disclosure. None.

Other FLGT 10-K year-over-year comparisons