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

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Paragraph-level year-over-year comparison of NEOGENOMICS 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.

+412 added−381 removedSource: 10-K (2024-02-20) vs 10-K (2023-02-24)

Top changes in NEOGENOMICS INC's 2023 10-K

412 paragraphs added · 381 removed · 289 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

96 edited+30 added−12 removed98 unchanged
Biggest changeCongress has also considered a number of legislative proposals in recent years that would amend the regulatory framework for LDTs, including, among other requirements, FDA premarket review of certain LDTs. The most recent such proposal, the Verifying Accurate Leading-edge IVCT Development (“VALID”) Act, was introduced in both the House and Senate on June 24, 2021.
Biggest changeUnlike previous FDA proposals, the proposed rule does not “grandfather” any currently marketed tests. The content and timing of any final rule on LDTs is uncertain at this time. Congress has also considered a number of legislative proposals in recent years that would amend the regulatory framework for LDTs, including, among other requirements, FDA premarket review of certain LDTs.
While we do not believe a short-term disruption from any one of these suppliers would have a material effect on our business, it could result in short-term impact on our turnaround time or gross margin depending on the nature of or extent of the disruption.
While we do not believe a short-term disruption from any one of these suppliers would have a material effect on our business, it could result in short-term impact on our turnaround time or gross margin depending on the nature or extent of the disruption.
The Company endeavors to structure its financial relationships in compliance with the Stark Law and with similar state physician self-referral laws, and performs routine audits in furtherance of this. Many states have promulgated self-referral laws and regulations similar to the federal Stark Law, but these vary significantly based on the state.
The Company endeavors to structure its financial relationships in compliance with the Stark Law and with similar state physician self-referral laws, and performs routine audits in furtherance of this compliance. Many states have promulgated self-referral laws and regulations similar to the federal Stark Law, but these vary significantly based on the state.
Markets The medical testing laboratory market can be broken down into the following three primary markets: • Clinical Pathology testing; • Anatomic Pathology testing; and • Genetic and Molecular testing. Clinical Pathology testing covers high volume, highly automated, lower complexity tests on easily procured specimens such as blood and urine.
Markets The medical testing laboratory market can be broken down into the following three primary markets: • Clinical Pathology testing; • Anatomic Pathology testing; and • Genetic and Molecular testing. Clinical Pathology testing covers high volume, automated, lower complexity tests on easily procured specimens such as blood and urine.
This ability helps to speed the commercialization of a drug and can enable Pharma sponsors to reach patients through our broad distribution channel in the Clinical Services segment. We are committed to connecting patients with life-altering therapies and trials.
This ability helps to speed the commercialization of a drug and can enable sponsors to reach patients through our broad distribution channel in the Clinical Services segment. We are committed to connecting patients with life-altering therapies and trials.
Competition For our Clinical Services segment, the genetic and molecular testing niche of the laboratory testing industry is highly competitive and, given the opportunities in this industry, we expect it to become even more competitive.
For our Clinical Services segment, the genetic and molecular testing niche of the laboratory testing industry is highly competitive and, given the opportunities in this industry, we expect it to become even more competitive.
In addition to the HIPAA Rules described above, the Company is subject to additional federal and state laws regarding the handling and disclosure of patient records and patient health information. Effective April 5, 2021, HHS published a final rule implementing the information blocking provisions (Information Blocking Rules) of the 21 st Century Cures Act.
In addition to the HIPAA Rules described above, the Company is subject to additional federal and state laws regarding the handling and disclosure of patient records and patient health information. Effective April 5, 2021, HHS published a final rule implementing the information blocking provisions (“Information Blocking Rules”) of the 21 st Century Cures Act.
We expect that other states will enact similar legislation in the future, and we will be required to analyze the effect of those laws on our business. Due to the Company’s international expansion, we are subject to a variety of international laws which serve to protect the personal data of individuals who are located in those countries.
We expect that other states will enact similar legislation in the future, and we will be required to analyze the effect of each of these laws on our business. Due to the Company’s international expansion, we are subject to a variety of international laws which serve to protect the personal data of individuals who are located in those countries.
The services provided at NeoGenomics may 4 Table of Contents NEOGENOMICS, INC. include primary diagnosis, in which a sample is received for processing and our pathologists provide the initial diagnosis; or may include secondary consultations, in which slides and/or tissue blocks are received from an outside institution for second opinion.
The services provided at NeoGenomics may include primary diagnosis, in which a sample is received for processing and our pathologists provide the initial diagnosis; or 5 Table of Contents NEOGENOMICS, INC. may include secondary consultations, in which slides and/or tissue blocks are received from an outside institution for second opinion.
We also work on developing tests that will be used as part of a companion diagnostic to determine patients’ response to a particular drug. As studies unfold, our clinical trials team reports the data and often provides key analysis and insights back to the sponsors.
We also work on developing tests that will be used as part of a companion diagnostic to determine patients’ responses to a particular drug. As studies unfold, our clinical trials team reports the data and often provides key analysis and insights back to the sponsors.
We have experience in supporting submissions to the Federal Drug Administration (“FDA”) for companion diagnostics. Our Pharma Services strategy is focused on helping to bring more effective oncology treatments to market through providing world-class laboratory services in oncology to key pharmaceutical companies in the industry.
We have experience in supporting submissions to the Federal Drug Administration (“FDA”) for companion diagnostics. Our Advanced Diagnostics strategy is focused on helping to bring more effective oncology treatments to market through providing world-class laboratory services in oncology to key pharmaceutical companies in the industry.
Similar laws have been proposed or passed at the U.S. federal and state level, including the Virginia Consumer Data Protection Act, which took effect on January 1, 2023, the Colorado Consumer Protection Act, which will take effect on July 1, 2023, the Connecticut Data Privacy Act, which will take effect on July 1, 2023, and the Utah Consumer Privacy Act, which will take effect on December 31, 2023.
Similar laws have been proposed or passed at the U.S. federal and state level, including the Virginia Consumer Data Protection Act, which took effect on January 1, 2023, the Colorado Consumer Protection Act, which took effect on July 1, 2023, the Connecticut Data Privacy Act, which took effect on July 1, 2023, and the Utah Consumer Privacy Act, which took effect on December 31, 2023.
We believe that we are well positioned to service Pharma sponsors across the full continuum of the drug development process.
We believe that we are well positioned to service sponsors across the full continuum of the drug development process.
We offer a comprehensive suite of technical and professional interpretation services to meet the needs of clients who are not credentialed and/or trained in interpreting various testing modalities and who require Neo pathology specialists to interpret their testing results.
We offer a comprehensive suite of technical and professional interpretation services to meet the needs of clients who are not credentialed and/or trained in interpreting various testing modalities and who require NeoGenomics' pathology specialists to interpret their testing results.
ITEM 1. BUSINESS NeoGenomics, Inc., a Nevada corporation (referred to individually as the “Parent Company” or collectively with its subsidiaries as “NeoGenomics”, “we”, “us”, “our”, or the “Company” in this Annual Report) is the registrant for SEC reporting purposes. Our common stock is listed on The Nasdaq Stock Market LLC (“Nasdaq”) under the symbol “NEO”.
ITEM 1. BUSINESS NeoGenomics, Inc., a Nevada corporation (referred to individually as the “Parent Company” or collectively with its subsidiaries as “NeoGenomics”, “we”, “us”, “our”, or the “Company” in this Annual Report on Form 10-K) is the registrant for SEC reporting purposes. Our common stock is listed on The Nasdaq Stock Market LLC (“Nasdaq”) under the symbol “NEO”.
Our in-house customer care team is aligned with our field sales team to serve the needs of our clients by utilizing the same LIS and CRM. Our field teams can see in real-time when a client calls the laboratory, the reason for the call, the resolution, and if face-to-face interaction is needed for follow-up.
Our in-house customer care team is aligned with our field sales team to serve the needs of our clients by utilizing the same LIMS and CRM. Our field teams can see in real time when a client calls the laboratory, the reason for the call and the resolution, and determine if face-to-face interaction is needed for follow-up.
Clinical Services Segment The clinical cancer testing services we offer to community-based pathologists and oncologists are designed to be a natural extension of, and complementary to, the services that they perform within their own practices.
The cancer testing services we offer to community-based pathologists and oncologists are designed to be a natural extension of, and complementary to, the services that they perform within their own practices.
Dependence on Major Clients We market our services to pathologists, oncologists, other clinicians, hospitals, pharmaceutical companies, academic centers and other clinical laboratories throughout the United States, Europe and Asia. Our client base consists of a large number of geographically dispersed clients diversified across various customer types.
Dependence on Major Clients We market our services to pathologists, oncologists, other clinicians, hospitals, pharmaceutical companies, academic centers and other clinical laboratories throughout the United States and the United Kingdom. Our client base consists of a large number of geographically dispersed clients diversified across various customer types.
We continuingly strive to promote a workplace in which people of diverse race, ethnicity, veteran status, marital status, socio-economic level, national origin, religious belief, physical ability, sexual orientation, age, class, political ideology, gender identity and expression participate in, contribute to, and benefit equally.
We continuingly strive to promote a workplace in which people of diverse race, ethnicity, veteran status, marital status, socioeconomic level, national origin, religious belief, physical ability, sexual orientation, age, class, political ideology, gender identity and expression participate in, contribute to, and benefit equally.
The FDA has also claimed regulatory authority over LDTs but has generally exercised enforcement discretion with regard to most LDTs offered by high complexity CLIA-certified laboratories and has not subjected these tests to FDA rules and regulations governing medical devices, including premarket review requirements.
The FDA has also claimed regulatory authority over LDTs but has historically exercised enforcement discretion with regard to most LDTs offered by CLIA-certified laboratories performing high complexity tests, and has not subjected these tests to FDA rules and regulations governing medical devices, including premarket review requirements.
Turnaround times allow for the performance of other adjunctive tests within an acceptable diagnosis window in order to augment or confirm results and more fully inform treatment options. Additionally, we believe that our rapid turnaround time on testing and our project milestones are a key factor in our Pharma Services segment.
Turnaround times allow for the performance of other adjunctive tests within an acceptable diagnosis window in order to augment or confirm results and more fully inform treatment options. Additionally, we believe that our rapid turnaround time on testing and our project milestones are a key factor in our Advanced Diagnostics segment.
Innovative Service Offerings We believe we currently have the most extensive menu of tech-only FISH services in the country as well as extensive and advanced tech-only flow cytometry and IHC testing services. These types of testing services allow the professional interpretation component of a test to be performed and billed separately by our physician clients.
Innovative Service Offerings We believe we currently have one of the most extensive menu of tech-only FISH services in the United States as well as extensive and advanced tech-only flow cytometry and IHC testing services. These types of testing services allow the professional interpretation component of a test to be performed and billed separately by our physician clients.
Whether serving as the single contract research organization or partnering with one, our Pharma Services team provides significant technical expertise, working closely with our customers to support each stage of clinical trial development. Each trial we support comes with rapid turnaround time, dedicated project management and quality assurance oversight.
Whether serving as the single contract research organization or partnering with one, our Advanced Diagnostics team provides significant technical expertise, working closely with our customers to support each stage of clinical trial development. Each trial we support comes with rapid turnaround time, dedicated project management and quality assurance oversight.
In our Pharma Services segment, we enter into both short-term and long-term contracts, ranging from one month to several years. While the volume of this testing is not as directly affected by seasonality as described above, the testing volume does vary based on the terms of the contract.
In our Advanced Diagnostics segment, we enter into both short-term and long-term contracts, ranging from one month to several years. While the volume of this testing is not as directly affected by seasonality as described above, the testing volume does vary based on the terms of the contract.
Our Clinical customers include community-based pathology and oncology practices, hospital pathology labs, reference labs, and academic centers. Our Pharma customers include pharmaceutical companies to whom we provide testing and other services to support their research studies and clinical trials.
Our Clinical Services customers include community-based pathology and oncology practices, hospital pathology labs, reference labs, and academic centers. Our Advanced Diagnostics customers include pharmaceutical companies to whom we provide testing and other services to support their research studies and clinical trials.
Pharma Services Segment Our Pharma Services revenue consists of the following three revenue streams: • Clinical trials and research; • Validation laboratory services; and • Informatics. Our Pharma Services segment supports pharmaceutical firms in their drug development programs by supporting various clinical trials and research.
Our Advanced Diagnostics revenue consists of the following three revenue streams: • Clinical trials and research; • Validation laboratory services; and • Informatics. Our Advanced Diagnostics segment supports pharmaceutical firms in their drug development programs by supporting various clinical trials and research.
Our Pharma Services segment provides comprehensive testing services in support of our pharmaceutical clients’ oncology programs from discovery to commercialization. In biomarker discovery, our aim is to help our customers discover the right content.
Our Advanced Diagnostics segment provides comprehensive testing services in support of our pharmaceutical clients’ oncology programs from discovery to commercialization. In biomarker discovery, our aim is to help our customers discover the right content.
Personalized or precision medicine better allows clinicians to know if a patient will or will not respond to certain cancer medications like Herceptin®, Keytruda®, PIQRAY®, and Opdivo®, among many others.
Personalized or precision medicine better allows clinicians to know if a patient will or will not respond to certain cancer medications such as Herceptin®, Keytruda®, PIQRAY®, and Opdivo®, among many others.
Our Pharma Services team can work with these sponsors during the basic research and development phase as compounds come out of translational research departments, as well as work with clients from Phase I, Phase II and Phase III clinical trials as the sponsors work to demonstrate the efficacy of their drugs.
Our Advanced Diagnostics team can work with these sponsors during the basic research and development phase as compounds come out of translational research departments, as well as work with clients from Phase I, Phase II and Phase III clinical trials as the sponsors work to demonstrate the efficacy of their drugs.
Morphologic analysis may be performed on a wide variety of samples, such as peripheral blood, bone marrow, lymph node, and from other sites such as lung, breast, etc.
Morphologic analysis may be performed on a wide variety of samples, such as peripheral blood, bone marrow, lymph nodes, and other sites such as lung, breast, etc.
If we are found to be in violation of the Stark Law or a similar state self-referral law, we could be subject to significant penalties, including fines, exclusion from participation in government and private payer programs, or obligations to refund amounts previously received from government payers. 13 Table of Contents NEOGENOMICS, INC.
If we are found to be in violation of the Stark Law or a similar state self-referral law, we could be subject to significant penalties, including fines, exclusion from participation in government and private payer programs, or obligations to refund amounts previously received from government payers.
These sales representatives utilize our custom Customer Relationship Management System (“CRM”) to manage their territories, and we have integrated the key customer care functionality within our Laboratory Information Services (“LIS”) into the CRM so that our sales representatives can stay informed of emerging issues and opportunities within their regions.
These sales representatives utilize our custom Customer Relationship Management System (“CRM”) to manage their territories, and we have integrated the key customer care functionality within our LIMS into the CRM so that our sales representatives can stay informed of emerging issues and opportunities within their regions.
Our Molecular and NGS test menus provide clients with the ability to order single gene molecular tests, targeted NeoTYPE panels that include the relevant actionable genes for a particular cancer type as well as large NGS panels. Our Pharma Services segment offers a full range of sequencing testing including whole exome and whole genome sequencing.
Our Molecular and NGS Clinical Services segment test menus provide clients with the ability to order single gene molecular tests, targeted NeoTYPE panels that include the relevant actionable genes for a particular cancer type, as well as comprehensive NGS panels. Our Advanced Diagnostics segment offers a full range of sequencing testing including whole exome and whole genome sequencing.
This portion of our business often involves working with the pharmaceutical firms (“sponsors”) 5 Table of Contents NEOGENOMICS, INC. on study design as well as performing the required testing. Our medical team often advises the sponsor and works closely with them as specimens are received from the enrolled sites.
This portion of our business often involves working with the pharmaceutical firms (“sponsors”) on study design as well as performing the required testing. Our medical team often advises the sponsor and works closely with them as specimens are received from the enrolled sites.
In carrying out these commitments, we aim to provide transparency and choice to patients regarding the handling and use of their data through our Notice of Privacy Practices, and have invested in leading technologies to ensure the data we maintain is secure at all times.
In carrying out these commitments, we aim to provide transparency and choice to patients regarding the handling and use of their data through our Notice of Privacy Practices, and have invested in leading technologies to secure the data we maintain.
Laws Governing Source Relationships The federal laws governing Medicare, Medicaid, and other federal health benefits, as well as other state and federal laws, regulate certain aspects of the relationships between health care providers, including clinical laboratories, and their referral 12 Table of Contents NEOGENOMICS, INC. sources, including physicians, hospitals, other laboratories, and other entities.
Laws Governing Source Relationships The federal laws governing Medicare, Medicaid, and other federal health benefits, as well as other state and federal laws, regulate certain aspects of the relationships between health care providers, including clinical laboratories, and their referral sources, including physicians, hospitals, other laboratories, and other entities.
Payer Mix The following table reflects our estimate of the breakdown of net clinical revenue by type of payer for the years ended December 31, 2022, 2021 and 2020: 2022 2021 2020 Client direct billing 67 % 63 % 63 % Commercial insurance 17 % 19 % 20 % Medicare and other government 16 % 18 % 17 % Total 100 % 100 % 100 % All of our Pharma Services revenue is billed directly to clients or the pharmaceutical sponsor.
Payer Mix The following table reflects our estimate of the breakdown of net clinical revenue by type of payer for the years ended December 31, 2023, 2022 and 2021: 2023 2022 2021 Client direct billing 67 % 67 % 63 % Commercial insurance 18 % 17 % 19 % Medicare and other government 15 % 16 % 18 % Total 100 % 100 % 100 % All of our Advanced Diagnostics revenue is billed directly to clients or the pharmaceutical sponsor.
As drafted, an EKRA prohibition on incentive compensation to sales employees, payments to group purchasing organizations (“GPOs”), or group practices is broader than the federal AKS. Significantly, EKRA permits the DOJ to issue regulations clarifying EKRA’s exceptions or adding additional exceptions, but such regulations have not yet been issued.
As drafted, an EKRA prohibition on incentive compensation to sales employees, payments to group purchasing organizations (“GPOs”), or group practices is broader than the federal AKS. Significantly, EKRA permits the U.S. Department of Justice (the “DOJ”) to issue regulations clarifying EKRA’s exceptions or adding additional exceptions, but such regulations have not yet been issued.
Overview We provide a wide range of oncology diagnostic testing and consultative services which include technical laboratory services and professional interpretation of laboratory test results by licensed physicians who specialize in pathology and oncology. We operate a network of cancer-focused testing laboratories in the United States, Europe and Asia. Our mission is to save lives by improving patient care.
Overview NeoGenomics provides a wide range of oncology diagnostic testing and consultative services which includes technical laboratory services and professional interpretation of laboratory test results by licensed physicians who specialize in pathology and oncology. We operate a network of cancer-focused testing laboratories in the United States and the United Kingdom. Our mission is to save lives by improving patient care.
Compliance with licensure, accreditation, and quality standards are verified through periodic inspections by agents of relevant regulatory agencies and accrediting organizations, and we believe we are in material compliance with all licensure, accreditation, and quality requirements. 11 Table of Contents NEOGENOMICS, INC.
Compliance with licensure, accreditation, and quality standards are verified through periodic inspections by agents of relevant regulatory agencies and accrediting organizations, and we believe we are in material compliance with all licensure, accreditation, and quality requirements.
CAP’s proficiency testing programs require participating laboratories to test specimens that they receive from an approved testing entity and return the results. The testing entity conducting the program analyzes the results and provides to the Company a quality control report assessing the results.
CAP’s proficiency testing programs require participating laboratories to test specimens that they receive from an approved testing entity and return the results. The testing entity conducting the program analyzes the results and provides to the Company a quality control report assessing the results. 12 Table of Contents NEOGENOMICS, INC.
We also drive high levels of performance and improvement by prioritizing training and development, and we motivate and develop our employees by providing them with opportunities for advancement and offering robust onsite and remote learning opportunities for employees at every stage in their career. Our employees’ health and safety is also important to us.
We also drive high levels of performance and improvement by prioritizing training and development, and we motivate and develop our employees by providing them with opportunities for advancement and offering robust onsite and remote learning opportunities for employees at every stage in their career.
We are also subject to international laws and regulations, including the U.S. Foreign Corrupt Practices Act (“FCPA”) and the U.K. Bribery Act, relating to corrupt and illegal payments to, and contracting practices with regard to, government officials and others.
We are also subject to international laws and regulations, including the U.S. Foreign Corrupt Practices Act (“FCPA”) and the U.K. Bribery Act, relating to corrupt and illegal payments to, and contracting practices with regard to, government officials 14 Table of Contents NEOGENOMICS, INC. and others.
Although the Company’s business is conducted primarily in the United States, we do receive some samples for clinical testing from countries outside of the United States, and we collect data of individuals internationally as part of the Company’s Pharma business, which obligates us to comply with these laws.
Although the Company’s business is conducted primarily in the United States, we do receive some samples for clinical testing from countries outside of the United States, have employee data from European Union and the United Kingdom and we collect data of individuals internationally as part of the Company’s Advanced Diagnostics business, which obligates us to comply with these laws.
As of December 31, 2022, the Company operated College of American Pathologists (“CAP”) accredited and Clinical Laboratory Improvement Amendments of 1988 (“CLIA”) certified laboratories in Fort Myers, Florida; Aliso Viejo and San Diego, California; Research Triangle Park, North Carolina; and Houston, Texas; and CAP accredited full-service, sample-processing laboratories in Rolle, Switzerland; Singapore and China.
As of December 31, 2023, the Company operated College of American Pathologists (“CAP”) accredited and Clinical Laboratory Improvement Amendments of 1988 (“CLIA”) certified laboratories in Fort Myers, Florida; Aliso Viejo and San Diego, California; Research Triangle Park, North Carolina; and Houston, Texas; and a CAP accredited full-service, sample-processing laboratory in Cambridge, United Kingdom.
Consequently, we are unable to ascertain with certainty that our arrangements and transactions will not be subject to scrutiny and, if scrutinized, will not result in sanctions or penalties.
Consequently, we are unable to ascertain with certainty 15 Table of Contents NEOGENOMICS, INC. that our arrangements and transactions will not be subject to scrutiny and, if scrutinized, will not result in sanctions or penalties.
Our vision is become the world’s leading cancer testing, information, and decision support company by providing uncompromising quality, exceptional service, and innovative solutions.
Our vision is to become the world’s leader in cancer testing, information, and decision support by providing uncompromising quality, exceptional service, and innovative solutions.
Of the three, the fastest growing area is predictive testing, which is utilized by 6 Table of Contents NEOGENOMICS, INC. clinicians to predict which treatment options a patient will be most likely to benefit from in order to deliver “personalized or precision medicine” that is optimized to that patient’s particular circumstances.
Of the three, the fastest growing area is predictive testing, which is utilized by clinicians to predict which treatment options a patient will be most likely to benefit from in order to deliver “personalized” or “precision medicine” that is optimized to that patient’s particular circumstances.
In certain circumstances, we act as a business associate under HIPAA and could be subject to such enforcement if we were to fail to comply with HIPAA as a business associate.
In certain circumstances, we act as a business associate under HIPAA and could be subject to such enforcement if we were to fail to comply with HIPAA as a business associate. 16 Table of Contents NEOGENOMICS, INC.
We also act as a reference laboratory supplying Anatomic Pathology testing. The field of cancer genetics is evolving rapidly and new tests continue to be developed at an accelerated pace. Based on medical and scientific discoveries over the last decade, cancer testing falls into one of three categories: diagnostic testing, prognostic testing and predictive testing.
The field of cancer genetics is evolving rapidly and new tests continue to be developed at an accelerated pace. Based on medical and scientific discoveries over the last decade, cancer testing falls into one of three categories: diagnostic testing, prognostic testing and predictive testing.
We believe several key factors are influencing the rapid growth in the market for cancer testing: (i) every year, more and more genes and genomic pathways are implicated in the development and/or clinical course of cancer; (ii) cancer is primarily a disease of the elderly – one in four senior citizens is likely to develop some form of cancer during the rest of their lifetime once they turn sixty, and now that the baby boomer generation has started to reach this age range, the incidence rates of cancer are rising; (iii) increasingly, new drugs are being targeted to certain cancer subtypes and pathways which require companion diagnostic testing; (iv) patient and payer awareness of the value of genetic and molecular testing; (v) decreases in the cost of performing genetic and molecular testing; (vi) increased coverage from third party payers and Medicare for such testing; and (vii) the health insurance coverage to uninsured Americans under the Patient Protection and Affordable Care Act as amended by the Health Care and Education Reconciliation Act, each enacted in March 2010.
We believe several key factors are influencing the rapid growth in the market for cancer testing: (i) every year, more and more genes and genomic pathways are implicated in the development and/or clinical course of cancer; (ii) the incidence rates of cancer are rising, notably in younger populations, and more than one in three citizens is likely to develop some form of cancer in their lifetime; (iii) increasingly, new drugs are being targeted to certain cancer subtypes and pathways which require companion diagnostic testing; (iv) patient and payer awareness of the value of genetic and molecular testing; (v) decreases in the cost of performing genetic and molecular testing; (vi) increased coverage from third party payers and Medicare for such testing; and (vii) the health insurance coverage to uninsured Americans under the Patient Protection and Affordable Care Act as amended by the Health Care and Education Reconciliation Act, each enacted in March 2010.
It is possible that legislation and resulting FDA regulation may result in increased regulatory burdens and costs for us to seek marketing authorization for and maintain ongoing compliance for our existing tests, any modifications thereto, or any future tests we may develop.
It is possible that changes to FDA’s regulatory approach, whether triggered by legislation or not, may result in increased regulatory burdens and costs for us to seek marketing authorization for and maintain ongoing compliance for our existing tests, any modifications thereto, or any future tests we may develop.
Turnaround Times We consistently focus on improving turnaround times for test results to our clients nationwide in the Clinical Services segment. By providing information to our clients in a timely manner, physicians can begin treating their patients as soon as possible. Timeliness of results by our Clinical Services segment is a driver of additional testing requests by referring physicians.
By providing information to our clients in a timely manner, physicians can begin treating their patients as soon as possible. Timeliness of results by our Clinical Services segment is a driver of additional testing requests by referring physicians.
Failure to comply could subject the Company to various administrative and/or other enforcement actions. Confidentiality and Security of Personal Information The Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) contains provisions that protect individually identifiable health information from unauthorized use or disclosure by covered entities and their business associates.
Confidentiality and Security of Personal Information The Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) contains provisions that protect individually identifiable health information from unauthorized use or disclosure by covered entities and their business associates.
Over the past few years, we have expanded our Pharma Services business into Europe and Asia at the request of our clients and we believe that our expansive oncology testing menu and our high level of service along with our international expansion will allow us to continue to gain market share in this segment.
Over the past few years, we have expanded our Advanced Diagnostics business into Europe at the request of our clients and we 10 Table of Contents NEOGENOMICS, INC. believe that our expansive oncology testing menu and our high level of service will allow us to continue to gain market share in this segment.
Genetic and Molecular testing typically involves analyzing chromosomes, genes, proteins, and/or DNA/RNA sequences for abnormalities. Genetic and molecular testing requires highly specialized equipment and credentialed individuals (typically MD or PhD level) to certify results and typically yields the highest reimbursement levels of the three market segments. NeoGenomics operates primarily in the Genetic and Molecular testing market.
Genetic and molecular testing requires highly specialized equipment and credentialed individuals (typically MD or PhD level) to certify results and typically yields the highest reimbursement levels of the three market segments. NeoGenomics operates primarily in the Genetic and Molecular testing market and the Anatomic Pathology market.
For the years ended December 31, 2022, 2021 and 2020, no single client accounted for more than 10% of revenue. 9 Table of Contents NEOGENOMICS, INC.
For the years ended December 31, 2023, 2022 and 2021, no single client accounted for more than 10% of revenue.
Molecular testing technologies include: liquid biopsy tests for advanced non-small cell lung cancer, all solid tumor types (pan-cancer), and certain breast cancer cases; DNA fragment length analysis; polymerase chain reaction (“PCR”) analysis; reverse transcriptase polymerase chain reaction (“RT-PCR”) analysis, real-time (or quantitative) polymerase chain reaction (“qPCR”) analysis; bi-directional Sanger sequencing analysis; and next-generation sequencing (“NGS”) analysis. • Morphologic analysis – the process of analyzing cells under the microscope by a pathologist, usually for the purpose of diagnosis.
Common molecular testing technologies include: DNA fragment length analysis; polymerase chain reaction (“PCR”) analysis; reverse transcriptase polymerase chain reaction (“RT-PCR”) analysis, real-time (or quantitative) polymerase chain reaction (“qPCR”) analysis; bi-directional Sanger sequencing analysis; and next-generation sequencing (“NGS”) analysis. • Morphologic analysis – the process of analyzing cells under the microscope by a pathologist, usually for the purpose of diagnosis.
CAP accreditation is pending in Cambridge, United Kingdom. We also have several, small, non-processing laboratory locations across the United States for providing analysis services. We currently offer the following types of testing services: • Cytogenetics (“karyotype analysis”) – the study of normal and abnormal chromosomes and their relationship to disease.
We also have several, small, non-processing laboratory locations across the United States for providing analysis services. We currently offer the following types of testing services: • Cytogenetics (“karyotype analysis”) – the study of normal and abnormal chromosomes and their relationship to disease. Cytogenetics involves analyzing the chromosome structure to identify changes from patterns seen in normal chromosomes.
In 2022, our Clinical Services segment accounted for 82% of consolidated revenue and our Pharma Services segment accounted for 18% of consolidated revenue. Please refer to Note 20. Segment Information, to our Consolidated Financial Statements included in this Annual Report for further financial information about these segments.
In 2023, our Clinical Services segment accounted for 84% of consolidated revenue and our Advanced Diagnostics segment accounted for 16% of consolidated revenue. Please refer to Note 17. Segment Information, to our Consolidated Financial Statements included in this Annual Report for further financial information about these segments.
A “financial relationship” includes both an ownership interest and/or a compensation arrangement with a physician, both direct and indirect, and DHS includes, but is not limited to, laboratory services The Stark Law prohibits an entity that receives a prohibited DHS referral from seeking payment from Medicare and Medicaid for any DHS services performed as a result of such a referral, unless an arrangement is carefully structured to satisfy every requirement of a regulatory exception.
The Stark Law prohibits an entity that receives a prohibited DHS referral from seeking payment from Medicare and Medicaid for any DHS services performed as a result of such a referral, unless an arrangement is carefully structured to satisfy every requirement of a regulatory exception.
Our sales team will be focused on end-to-end client experience as a growth driver. Our Pharma Services segment has a dedicated team of business development specialists who are experienced in working with Pharma sponsors and helping them with the testing needs of their research and development projects as well as Phase I, II and III studies.
Our Advanced Diagnostics segment has a dedicated team of business development specialists who are experienced in working with sponsors and helping them with the testing needs of their research and development projects as well as Phase I, II and III studies.
These laws cover a broader range of data in addition to patient data including data of employees, clients, and other individuals whose data we hold. Like HIPAA, these laws contain regulatory requirements for both robust data privacy and security programs and require data breach reporting should personal data be used or disclosed in a manner not allowed under the laws.
Like HIPAA, these laws contain regulatory requirements for both robust data privacy and security programs and require data breach reporting should personal data be used or disclosed in a manner not allowed under the laws.
This is attractive to our clients as patient samples do not need to be split and then managed across several laboratories. The acquisition of Inivata provided us with oncology Liquid Biopsy technology capabilities.
This comprehensive molecular test menu allows our clients to obtain most of their molecular oncology testing needs satisfied by our laboratory. This is attractive to our clients as patient samples do not need to be split and then managed across several laboratories. The acquisition of Inivata in June of 2021 provided us with oncology liquid biopsy technology capabilities.
The laboratories are licensed as required by the states or countries in which they are located. In addition, the laboratories in Fort Myers, Florida; Aliso Viejo and Carlsbad, California; Nashville, Tennessee; and Houston, Texas are licensed by the State of New York as the laboratories accept clinical specimens obtained in New York.
In addition, the laboratories in Fort Myers, Florida; Aliso Viejo and Carlsbad, California; Nashville, Tennessee; and Houston, Texas are licensed by the State of New York as the laboratories accept clinical specimens obtained in New York. All of our domestic laboratories are certified in accordance with the CLIA.
InVisionFirst ® -Lung is a highly sensitive, targeted plasma-based assay for patients with non-small cell lung cancer, and RaDaR ® is an industry-leading liquid biopsy assay designed to detect residual disease and recurrence in plasma samples from patients with solid tumor malignancies. We expect our Molecular laboratory and NGS capabilities to be a key growth driver in the coming years.
InVisionFirst ® -Lung is a highly sensitive, targeted plasma-based assay for patients with non-small cell lung cancer, and RaDaR ® is a liquid biopsy assay designed to detect residual disease and recurrence in plasma samples from patients with solid tumor malignancies.
Other countries where the Company conducts business have similar laws and regulations concerning the environment and human health and safety with which the Company must also comply. The 14 Table of Contents NEOGENOMICS, INC. Company seeks to comply with all relevant environmental and human health and safety laws and regulations.
Other countries where the Company conducts business have similar laws and regulations concerning the environment and human health and safety with which the Company must also comply. The Company seeks to comply with all relevant environmental and human health and safety laws and regulations. Failure to comply could subject the Company to various administrative and/or other enforcement actions.
All of our domestic laboratories are certified in accordance with the Clinical Laboratory Improvement Amendments of 1988 (“CLIA”). Under CLIA, the Centers for Medicare & Medicaid Services (“CMS”) establishes various operational, personnel, facilities, administration, quality, and proficiency requirements for testing performed by a laboratory, intended to ensure testing services are accurate, valid, and timely.
Under CLIA, the Centers for Medicare & Medicaid Services (“CMS”) establish various operational, personnel, facilities, administration, quality, and proficiency requirements for testing performed by a laboratory, intended to ensure testing services are accurate, valid, and timely.
We have developed privacy and security programs intended to meet these international obligations and continue to reassess and improve these programs continually.
We have developed privacy and security programs intended to meet these international obligations and continue to reassess and improve these programs continually. Available Information Our internet website address is www.neogenomics.com .
Additionally, there is an increased focus on developing tests for monitoring purposes, including MRD and recurrence detection in cancer survivors, which could also broaden the use of certain tests and influence the market for cancer testing. 2023 Focus Areas: We are committed to sustainable growth while transforming cancer care for patients and providers.
These factors have driven significant growth in the market for this type of testing. Additionally, there is an increased focus on developing tests for monitoring purposes, including MRD and recurrence detection in cancer survivors, which could also broaden the use of certain tests and influence the market for cancer testing.
The loss or suspension of a CLIA certification could have a material adverse effect on the Company. Certain Company laboratories are also accredited by the College of American Pathologists (“CAP”), including our laboratories in Cambridge, United Kingdom; Rolle, Switzerland; Singapore; and Suzhou, China, and actively participate in CAP’s proficiency testing programs for all tests offered by the Company.
The loss or suspension of a CLIA certification could have a material adverse effect on the Company. Our laboratory in Cambridge, United Kingdom is accredited by CAP and actively participates in CAP’s proficiency testing programs for all tests offered by the Company.
These comprehensive panels can allow for faster treatment decisions for patients as compared to a series of single-gene molecular tests being ordered sequentially. We have a broad Molecular testing menu and our targeted NeoTYPE panels include genes relevant to a particular cancer type. These tests are complemented by IHC and FISH tests.
We have a broad molecular testing menu, and our targeted NeoTYPE panels include genes relevant to a particular cancer type. These tests are complemented by IHC and FISH tests, as necessary.
The Office of Inspector General of the Department of Health and Human Services (“OIG”) has published compliance program guidance, including the Compliance Program Guidance for Clinical Laboratories in August of 1998, fraud alerts, and advisory opinions.
The Office of Inspector General of the Department of Health and Human Services (“OIG”) has published compliance program guidance, including a General Compliance Program Guidance issued in November 2023 and applicable to all health care companies and stakeholders, a specific Compliance Program Guidance for Clinical Laboratories issued in August of 1998 (which the OIG plans to update in the coming years), fraud alerts, and advisory opinions.
We intend to continue our efforts to gain market share by offering rapid turnaround times, a broad service menu, high-quality test reports, new tests including proprietary ones, enhanced post-test consultation services, and personal attention from our direct sales force.
We intend to continue our efforts to gain market share by offering a broad portfolio of tests with rapid turnaround times, wrap-around services, and solutions targeted to hospitals and community oncology segments. The addition of new tests (including proprietary ones), enhanced post-test consultation services, and personal attention from our direct sales force will further enhance our efforts.
World-Class Culture We promote a World-Class Culture through Employee Engagement, Training and Development, Wellness, Work-Life Balance, and Communication initiatives. Human capital management, including the recruitment and retention of a talented, diverse and highly motivated workforce, is an essential component of our strategy for long-term value creation.
Human capital management, including the recruitment and retention of a talented, diverse and highly motivated workforce, is an essential component of our strategy for long-term value creation. We value our teammates and focus on driving employee engagement through internal programs, external outreach, and other internal collaborative initiatives.
We believe that a diverse and inclusive workforce, where all perspectives are recognized and respected, positively impacts our performance and strengthens our culture.
Ethnicity is also strongly represented: 44.6% of our workforce and 25.0% of our independent Board of Directors are ethnically diverse. We believe that a diverse and inclusive workforce, where all perspectives are recognized and respected, positively impacts our performance and strengthens our culture.
Competitive Strengths In addition to the competitive strengths discussed below, we believe that our superior testing technologies and instrumentation, laboratory information system, client education programs and broad domestic and international presence also differentiates NeoGenomics from its competitors. 7 Table of Contents NEOGENOMICS, INC.
Competitive Strengths In addition to the competitive strengths discussed below, we believe that our superior testing technologies and instrumentation, laboratory information system, client education programs and domestic and international presence also differentiate NeoGenomics from its competitors. Turnaround Times We consistently focus on improving turnaround times for test results to our clients nationwide in the Clinical Services segment.
In the latter setting, the expert pathologists at NeoGenomics assist our client pathologists on their most difficult and complex cases. Reportable Segments We have analyzed our reporting structure, the information available to our Chief Operating Decision Maker (“CODM”) and the information being used to make strategic decisions and have identified two primary types of customers: Clinical and Pharma.
Reportable Segments We have analyzed our reporting structure, the information available to our Chief Operating Decision Maker (“CODM”) and the information being used to make strategic decisions and have identified two primary types of customers, served by two distinct company divisions: Clinical Services and Advanced Diagnostics.
We also support our pathology clients with interpretation and consultative services using our own specialized team of pathologists for difficult or complex cases and we provide overflow interpretation services when requested by clients. We are a leading provider of Molecular and NGS testing.
We also support our pathology clients with interpretation and consultative services using our own specialized team of pathologists for difficult or complex cases and we provide overflow interpretation services when requested by clients. In addition, we directly serve oncology, dermatology and other clinician practices that prefer to have a direct relationship with a laboratory for cancer-related genetic testing services.
Many of these competitors are much larger and have a greater international presence than we do.
Our Advanced Diagnostics business competes against many other Contract Research Organizations (“CROs”) and central reference laboratories. Many of these competitors are much larger and have a greater international presence than we do.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeGeneral Risk Factors • The COVID-19 pandemic is highly dynamic in the United States and throughout the world and may adversely affect our operations and financial condition. • We are dependent on key personnel and need to hire additional qualified personnel in order for our business to succeed. • Our business operations and reputation may be materially impaired if we do not comply with privacy laws or information security policies. • We may not be able to implement our business strategy, which could impair our ability to continue operations. • We may be unable to realize estimated benefits from our cost reduction and restructuring efforts and our profitability may be hurt or our business might otherwise be adversely affected. 17 Table of Contents NEOGENOMICS, INC. • If we are unable to successfully integrate future acquisitions with our legacy business, the anticipated benefits of such transaction may not be realized. • If goodwill and intangible assets that we recorded in connection with our acquisitions become impaired, we may have to take significant charges against earnings. • We may incur greater costs than anticipated, which could result in sustained losses. • We may face fluctuations in our results of operations and we are subject to seasonality in our business which could negatively affect our business operations. • The steps we have taken to protect our proprietary rights may not be adequate, which could result in infringement or misappropriation by third parties.
Biggest changeGeneral Risk Factors • We are dependent on key personnel and need to hire additional qualified personnel in order for our business to succeed. • We may not be able to implement our business strategy, which could impair our ability to continue operations. • We may be unable to realize estimated benefits from our cost reduction and restructuring efforts and our profitability may be hurt or our business might otherwise be adversely affected. • If we are unable to successfully integrate future acquisitions with our legacy business, the anticipated benefits of such transaction may not be realized. • If goodwill and intangible assets that we recorded in connection with our acquisitions become impaired, we may have to take significant charges against earnings. • We may incur greater costs than anticipated, which could result in sustained losses. • We may face fluctuations in our results of operations and we are subject to seasonality in our business which could negatively affect our business operations. • The steps we have taken to protect our proprietary rights may not be adequate, which could result in infringement or misappropriation by third parties.
We are subject to extensive state and federal regulatory oversight regarding laboratory licensing and operations. Each of our laboratories must satisfy federal requirements under CLIA and to maintain the appropriate CLIA Certificate for all testing performed at the lab.
We are subject to extensive state and federal regulatory oversight regarding laboratory licensing and operations. Each of our laboratories must satisfy federal requirements under CLIA and maintain the appropriate CLIA Certificate for all testing performed at the lab.
Products that are under development have taken time and considerable resources to develop, and we may not be able to complete the development and commercialization of such products for clinical use on a timely basis, or at all. For example, there can be no assurance that we will be able to produce commercial products for early detection of cancer.
Our products that are under development have taken time and considerable resources to develop, and we may not be able to complete the development and commercialization of such products for clinical use on a timely basis, or at all. For example, there can be no assurance that we will be able to produce commercial products for early detection of cancer.
While we invest in our systems and technology and in the protection of its products and data to reduce the risk of an attack or other significant disruption, there can be no assurance that these measures and efforts will prevent future attacks or other significant disruptions to any of the systems on which we rely.
While we invest in our systems and technology and in the protection of our products and data to reduce the risk of an attack or other significant disruption, there can be no assurance that these measures and efforts will prevent future attacks or other significant disruptions to any of the systems on which we rely.
It is possible that legislation and resulting FDA regulation may result in increased regulatory burdens and costs for us to seek marketing authorization for and maintain ongoing compliance for our existing tests, any modifications thereto, or any future tests we may develop.
However, it is possible that legislation and resulting FDA regulation may result in increased regulatory burdens and costs for us to seek marketing authorization for and maintain ongoing compliance for our existing tests, any modifications thereto, or any future tests we may develop.
We may be unable to realize estimated benefits from our cost reduction and restructuring efforts and our profitability may be hurt or our business might otherwise be adversely affected. We engaged in restructuring activities in 2022 and these types of cost reduction and restructuring activities are ongoing and complex.
We may be unable to realize estimated benefits from our cost reduction and restructuring efforts and our profitability may be hurt or our business might otherwise be adversely affected. We engaged in restructuring activities beginning in 2022 and these types of cost reduction and restructuring activities are ongoing and complex.
Such pre-market clinical testing could delay the commencement or completion of clinical testing, significantly increase our test development costs, delay commercialization of any future tests, and interrupt sales of our current tests.
Such additional pre-market clinical testing could delay the commencement or completion of clinical testing, significantly increase our test development costs, delay commercialization of any future tests, and interrupt sales of our current tests.
Additionally, should we choose to, or are required to, sell these securities in the future at a loss, our consolidated operating results or cash flows may be affected. Other manufacturers may discontinue or recall testing products used in our business. We rely heavily on reagents, test kits and instruments manufactured by third parties in our testing services.
Additionally, if we choose to, or are required to, sell these securities in the future at a loss, our consolidated operating results or cash flows may be affected. Other manufacturers may discontinue or recall testing products used in our business. We rely heavily on reagents, test kits and instruments manufactured by third parties in our testing services.
As of December 31, 2022, the Company has accrued a reserve of $11.2 million in other long-term liabilities on the Consolidated Balance Sheets for potential damages and liabilities associated with the federal healthcare program revenue received by the Company in connection with the agreements at issue that were identified during the course of this internal investigation.
As of December 31, 2023, the Company has accrued a reserve of $11.2 million in other long-term liabilities on the Consolidated Balance Sheets for potential damages and liabilities associated with the federal healthcare program revenue received by the Company in connection with the agreements at issue that were identified during the course of this internal investigation.
In addition, we may not be able to establish or maintain relationships with these parties on favorable terms, if at all. Each of these outcomes would harm our ability to market our tests and/or to achieve sustained profitability. Healthcare reform programs may impact our business and the pricing we receive for our services.
In addition, we may not be able to establish or maintain relationships with these parties on favorable terms, if at all. Each of these outcomes would harm our ability to market our tests and/or to achieve sustained profitability. Healthcare reform efforts may impact our business and the pricing we receive for our services.
Our future success also depends on our continuing ability to attract and retain highly qualified managerial and technical personnel as we continue to grow.
Our future success also depends on our continuing ability to attract and retain highly qualified managerial, scientific, and technical personnel as we continue to grow.
We also face increased competition from laboratories that are more specialized and focused on particular areas such as liquid biopsies or large tissue based molecular panels such as Guardant Health, Inc., Natera, Inc., Exact Sciences, Corp, Caris Life Science, and Tempus Labs, Inc.
We also face increased competition from laboratories that are more specialized and focused on particular areas such as liquid biopsies or large tissue based molecular panels such as Guardant Health, Inc., Natera, Inc., Exact Sciences Corp, Caris Life Science, Tempus Labs, Inc and Myriad Genetics, Inc.
In addition, stock markets in general and the market for shares of healthcare stocks in particular, have experienced extreme price and volume fluctuations in recent years, fluctuations that frequently have been unrelated to the operating performance of the affected companies. These broad market fluctuations may adversely affect the market price of our common stock.
In addition, stock markets in general and the market for shares of healthcare stocks in particular, have experienced extreme price and volume fluctuations in recent years, which frequently have been unrelated to the operating performance of the affected companies. These broad market fluctuations may adversely affect the market price of our common stock.
The Convertible Notes may from time to time in the future be convertible at the option of their holders prior to their scheduled terms under certain circumstances. Any sales in the public market of the common stock issuable upon such conversion could adversely affect prevailing market prices of our common stock.
The Convertible Notes may from time to time in the future be convertible at the option of their holders prior to their scheduled terms under certain circumstances. Any sales in the public market of the common stock issuable upon such conversion could adversely affect prevailing market price of our common stock.
Similar laws have been proposed or passed at the U.S. federal and state level, including the Virginia Consumer Data Protection Act, which took effect on January 1, 2023, the Colorado Consumer Protection Act, which will take effect on July 1, 2023, the Connecticut Data Privacy Act, which will take effect on July 1, 2023, and the Utah Consumer Privacy Act, which will take effect on December 31, 2023.
Similar laws have been proposed or passed at the U.S. federal and state level, including the Virginia Consumer Data Protection Act, which took effect on January 1, 2023, the Colorado Consumer Protection Act, which took effect on July 1, 2023, the Connecticut Data Privacy Act, which took effect on July 1, 2023, and the Utah Consumer Privacy Act, which took effect on December 31, 2023.
Potential difficulties we may encounter as part of the integration process, all of which could materially and adversely affect our business, financial condition, results of operations, and cash flows, include the following: 34 Table of Contents NEOGENOMICS, INC. • the potential inability to successfully combine the acquired company’s business with our legacy business in a manner that permits us to achieve the cost synergies expected to be achieved when expected, or at all, and other benefits anticipated to result from such transaction; • challenges optimizing the customer information and technology of the two companies, including the goal of consolidating to one laboratory information system and one billing system; • challenges effectuating any diversification strategy, including challenges achieving revenue growth from sales of each company’s products and services to the customers of the other company; • difficulties offering products and services across our expanded portfolio; • the need to revisit assumptions about reserves, revenues, capital expenditures, and operating costs, including expected synergies; • challenges faced by a potential diversion of the attention of our management as a result of the integration, which in turn could adversely affect our ability to maintain relationships with customers, employees and other constituencies or our ability to achieve the anticipated benefits of such transaction; • the potential loss of key employees, customers, managed care contracts, or strategic partners, or the ability to attract or retain key management and other key personnel, which could have an adverse effect on our ability to integrate and operate the acquired business; • complexities associated with managing the combined businesses, including difficulty addressing possible differences in corporate cultures and management philosophies and the challenge of integrating complex systems, technology, networks, and other assets of each of the companies in a seamless manner that minimizes any adverse impact on customers, suppliers, employees, and other constituencies; • costs and challenges related to the integration of the acquired company’s internal controls over financial reporting with ours; and • potential unknown liabilities and unforeseen increased expenses.
Potential difficulties we may encounter as part of the integration process, include the following: • the potential inability to successfully combine the acquired company’s business with our business in a manner that permits us to achieve the cost synergies expected to be achieved when expected, or at all, and other benefits anticipated to result from such transaction; 37 Table of Contents NEOGENOMICS, INC. • challenges optimizing the customer information and technology of the two companies, including the goal of consolidating to one laboratory information system and one billing system; • challenges effectuating any diversification strategy, including challenges achieving revenue growth from sales of each company’s products and services to the customers of the other company; • difficulties offering products and services across our expanded portfolio; • the need to revisit assumptions about reserves, revenues, capital expenditures, and operating costs, including expected synergies; • challenges faced by a potential diversion of the attention of our management as a result of the integration, which in turn could adversely affect our ability to maintain relationships with customers, employees and other constituencies or our ability to achieve the anticipated benefits of such transaction; • the potential loss of key employees, customers, managed care contracts, or strategic partners, or the ability to attract or retain key management and other key personnel, which could have an adverse effect on our ability to integrate and operate the acquired business; • complexities associated with managing the combined businesses, including difficulty addressing possible differences in corporate cultures and management philosophies and the challenge of integrating complex systems, technology, networks, and other assets of each of the companies in a seamless manner that minimizes any adverse impact on customers, suppliers, employees, and other constituencies; • costs and challenges related to the integration of the acquired company’s internal controls over financial reporting with ours; and • potential unknown liabilities and unforeseen increased expenses.
Our competitors may develop products and services that are superior to ours or that achieve greater market acceptance than our offerings. Many of our competitors have long established relationships with their customers and third-party payers. We cannot assure you that we will be able to compete successfully with such entities in the future.
Our competitors may develop products and services that are superior to ours or that achieve greater market acceptance than our offerings. Many of our competitors have long established relationships with their customers and third-party payers. We cannot assure you that we will be able to compete successfully with these entities or other competitors in the future.
For example, in the U.S., the CCPA affords California residents expanded privacy rights and protections and provides for civil penalties for violations and a private right of action related to certain data security breaches. These protections have been expanded by the California Privacy Rights Act (“CPRA”), which became operational in most key respects on January 1, 2023.
For example, in the U.S., the CCPA affords California residents expanded privacy rights and protections and provides for civil penalties for violations and a private right of action related to certain data security breaches. These protections have been expanded by the CPRA, which became operational in most key respects on January 1, 2023.
We require extensive, comprehensive training of all sales and marketing personnel, but cannot guarantee that every staff member will comply with the training. Thus, in addition to the cost of training sales and marketing personnel, we could face liability under the AKS for non-compliance by individuals engaged in prohibited sales and marketing activities.
We require extensive, comprehensive training of all sales and marketing personnel, but cannot guarantee that every staff member will comply with the training. Thus, we could face liability under the AKS for non-compliance by individuals engaged in prohibited sales and marketing activities.
We may not have sufficient cash flow from our business to pay our obligations under the Convertible Notes, which could adversely affect our financial condition and operating results. • We may not have the ability to raise the funds necessary to settle conversions of the Convertible Notes in cash or to repurchase the Convertible Notes upon a fundamental change, and our future debt may contain limitations on our ability to pay cash upon conversion or repurchase of the Convertible Notes. • The capped call transactions may affect the value of the 2028 Convertible Notes and our common stock. • Conversion of the Convertible Notes may dilute the ownership interest of existing stockholders or may otherwise depress the price of our common stock.
We may not have sufficient cash flow from our business to pay our obligations under the Convertible Notes, which could adversely affect our financial condition and operating results. 18 Table of Contents NEOGENOMICS, INC. • We may not have the ability to raise the funds necessary to settle conversions of the Convertible Notes in cash or to repurchase the Convertible Notes upon a fundamental change, and our future debt may contain limitations on our ability to pay cash upon conversion or repurchase of the Convertible Notes. • The capped call transactions may affect the value of the 2028 Convertible Notes and our common stock. • Conversion of the Convertible Notes may dilute the ownership interest of existing stockholders or may otherwise depress the price of our common stock.
We have conducted clinical trials and presently support many clinical trials run by third parties, which ordinarily involve testing an investigational drug on a limited number of individuals to evaluate a product’s safety, determine a safe dosage range and identify side effects.
We have conducted clinical trials and presently support many clinical trials run by third parties, which ordinarily involve testing an investigational drug on a limited number of individuals to evaluate the drug’s safety, determine a safe dosage range and identify side effects.
Risk Factors Summary The following is a summary of the principal risks that could adversely affect our business, financial condition or results of operations.
Risk Factors Summary The following is a summary of the material risks that could adversely affect our business, financial condition or results of operations.
Risks Relating to Government Regulation and Reimbursement • Regulatory changes, such as proposed government regulation of Laboratory Developed Tests, could require us to conduct additional clinical trials or result in delays, result in increased costs, or the failure to obtain necessary regulatory approvals, which could harm our business. • Healthcare reform programs may impact our business and the pricing we receive for our services. • Changes in laws, regulations, contracting arrangements with payers, or payer policies, including steps taken by payers to control utilization and reimbursement of healthcare services, may adversely affect coverage or reimbursement for our specialized diagnostic services, which may decrease our revenues and adversely affect our results of operations and financial condition. • Failure to comply with laws and regulations regarding laboratory licensing and operations, including CLIA environmental, health, and safety laws and regulations such as the federal Occupational Safety and Health Administration Act and the Needlestick Safety and Prevention Act, could result in fines and penalties and loss of licensure, and have a material adverse effect upon our business. • Our net revenue will be diminished if payers do not adequately cover or reimburse our services. • Third-party billing is extremely complicated and results in significant additional costs to us. • Our operations are subject to strict laws prohibiting fraudulent billing and other abuse, and our failure to comply with such laws could result in substantial penalties, including exclusion from participation in Medicare, Medicaid, and other governmental payer programs. • The failure to comply with fraud and abuse laws, including physician self-referral laws and anti-kickback laws, may subject us to liability, penalties, or limitation of operations. • Failure to comply with federal, state and international laws related to privacy and security could result in fines, penalties, and damage to the Company’s reputation with customers and could have a material adverse effect upon the Company’s business.
Risks Relating to Government Regulation and Reimbursement • If the FDA were to begin to enforce regulation of Laboratory Developed Tests it could require us to conduct additional clinical trials, result in increased costs or delays, or we could fail to obtain necessary regulatory approvals, all of which could harm our business. • Healthcare reform efforts may impact our business and the pricing we receive for our services. • Changes in laws, regulations, contracting arrangements with payers, or payer policies, including steps taken by payers to control utilization and reimbursement of healthcare services, may adversely affect coverage or reimbursement for our specialized diagnostic services, which may decrease our revenues and adversely affect our results of operations and financial condition. • Failure to comply with laws and regulations regarding laboratory licensing and operations, including CLIA environmental, health, and safety laws and regulations such as the federal Occupational Safety and Health Administration Act and the Needlestick Safety and Prevention Act, could result in fines and penalties and loss of licensure, and have a material adverse effect upon our business. • Our net revenue will be diminished if payers do not adequately cover or reimburse our services. • Our operations are subject to strict laws prohibiting fraudulent billing and other abuse, and our failure to comply with such laws could result in substantial penalties, including exclusion from participation in Medicare, Medicaid, and other governmental payer programs. • The failure to comply with fraud and abuse laws, including physician self-referral laws and anti-kickback laws, may subject us to liability, penalties, or limitation of operations. • Failure to comply with federal, state and international laws related to privacy and security could result in fines, penalties, and damage to the Company’s reputation with customers and could have a material adverse effect upon the Company’s business.
If these parties do not successfully carry out their contractual duties or obligations or meet expected deadlines, or if the quality, completeness, or 24 Table of Contents NEOGENOMICS, INC. accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols or for other reasons, our clinical trials may have to be extended, delayed, or terminated.
If these parties do not successfully carry out their contractual duties or obligations or meet expected deadlines, or if the quality, completeness, or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols or for other reasons, our clinical trials may have to be extended, delayed, or terminated.
We cannot be certain that a physician or physician’s professional organization will not seek to terminate an agreement with us on any basis, nor can we be certain that governmental authorities in those states will not seek termination of these arrangements on the basis of state laws prohibiting the corporate practice of medicine.
We cannot be certain that a physician or physician’s professional organization will not seek to terminate an 34 Table of Contents NEOGENOMICS, INC. agreement with us on any basis, nor can we be certain that governmental authorities in those states will not seek termination of these arrangements on the basis of state laws prohibiting the corporate practice of medicine.
Similarly, the cost of compensating additional management, employees, and consultants or other operating costs may be more than we estimate, which could result in ongoing and sustained losses. We may face fluctuations in our results of operations and we are subject to seasonality in our business which could negatively affect our business operations.
Similarly, the cost of compensating additional management, employees, and consultants or other operating costs may be more than we estimate, which could result in ongoing and sustained losses. 38 Table of Contents NEOGENOMICS, INC. We may face fluctuations in our results of operations and we are subject to seasonality in our business which could negatively affect our business operations.
We may find it necessary to engage contract research organizations to perform data collection and analysis and other aspects of our clinical trials, which might increase the cost and complexity of our trials. We may also depend on clinical investigators, medical institutions, and contract research organizations to perform the trials.
We may find it necessary to engage CROs to perform data collection and analysis and other aspects of our clinical trials, which might increase the cost and complexity of our trials. We may also depend on clinical investigators, medical institutions, and CROs to perform the trials.
Tests which are reimbursed by Medicare and other Government payers (for example, State Medicaid programs) accounted for approximately 16%, 18% and 17% of our revenues for the years ended December 31, 2022, 2021 and 2020, respectively.
Tests which are reimbursed by Medicare and other government payers (for example, State Medicaid programs) accounted for approximately 15%, 16% and 18% of our revenues for the years ended December 31, 2023, 2022 and 2021, respectively.
The primary objective of our investment activity is to maintain the safety of principal and provide for future liquidity requirements while maximizing yields without significantly increasing risk. Should any of our investments or marketable securities lose value or have their liquidity impaired, it could affect our overall financial condition.
The primary objective of our investment activity is to maintain the safety of principal while maximizing yields without significantly increasing risk. Should any of our investments or marketable securities lose value or have their liquidity impaired, it could affect our overall financial condition.
We have had certain tests discontinued by manufacturers and have had to develop alternative solutions for our clients. We depend substantially upon third parties for payment of services, which reliance could have a material adverse effect on our cash flows and results of operations.
We have had certain tests discontinued by manufacturers and have had to develop alternative solutions for our clients. We depend substantially upon third parties for payment of services, which reliance could have a material adverse effect on our cash flows and results of operations. 23 Table of Contents NEOGENOMICS, INC.
The Stark Law prohibits an entity that receives a prohibited DHS referral from seeking payment from Medicare for any DHS services performed as a result of such a referral, unless an arrangement is carefully structured to satisfy every requirement of a regulatory exception.
The Stark Law prohibits an entity that receives a prohibited DHS referral from seeking payment from Medicare for any DHS services performed as a result of such a referral, 33 Table of Contents NEOGENOMICS, INC. unless an arrangement is carefully structured to satisfy every requirement of a regulatory exception.
Likewise, any pricing pressure exerted by these third-party payers on our clients may, in turn, be exerted by our clients on us. If government and other third-party payers do not provide adequate coverage and reimbursement for our tests, it could adversely affect our operating results, cash flows and/or our financial condition. 27 Table of Contents NEOGENOMICS, INC.
Likewise, any pricing pressure exerted by these third-party payers on our clients may, in turn, be exerted by our clients on us. If government and other third-party payers do not provide adequate coverage and reimbursement for our tests, it could adversely affect our operating results, cash flows and/or our financial condition.
Competition for such personnel is intense and we may not be able to retain our key managerial and technical employees or may not be able to attract and retain additional highly qualified managerial and technical personnel in the future.
Competition for such personnel is intense among the laboratory testing industry and we may not be able to retain our key managerial and technical employees or may not be able to attract and retain additional highly qualified managerial and technical personnel in the future.
We may incur greater costs than anticipated, which could result in sustained losses. We use reasonable efforts to assess and predict the expenses necessary to pursue our business strategies.
We may incur greater costs than anticipated in connection with implementing our business strategy, which could result in sustained losses. We use reasonable efforts to assess and predict the expenses necessary to pursue our business strategies.
These CMS changes to reimbursement for NGS testing could directly affect our revenue for this test type. In recent years, Medicare has encouraged beneficiaries to participate in managed care programs, known as “Medicare Advantage” programs, and has encouraged beneficiaries from the traditional fee-for-service Medicare program to switch to Medicare Advantage programs.
These CMS changes to reimbursement for NGS testing could directly affect our revenue for this test type. In recent years, Medicare has encouraged beneficiaries to participate in managed care programs, known as “Medicare Advantage” programs, and has encouraged beneficiaries from the traditional fee-for-service Medicare program to switch to 30 Table of Contents NEOGENOMICS, INC. Medicare Advantage programs.
In December 2017, Public Law No. 115-97, which made changes to the tax code and included, among other things, a repeal of the ACA’s penalties for the individual mandate, a provision that required individuals to buy health insurance or pay a fine, became law.
In December 2017, Public Law No. 115-97, which made changes to the tax code and included, among other things, a repeal of the ACA’s penalties for the individual mandate, a provision that required individuals to buy health insurance or pay a fine, became law. On June 17, 2021, the U.S.
We may not have the ability to raise the funds necessary to settle conversions of the Convertible Notes in cash or to repurchase the Convertible Notes upon a fundamental change, and our future debt may contain limitations on our ability to pay cash upon conversion or repurchase of the Convertible Notes.
We may not have the ability to raise the funds necessary to settle conversions of the Convertible Notes in cash or to repurchase the Convertible Notes upon a fundamental change, and our future debt may contain limitations on our ability to pay cash upon conversion or repurchase of the Convertible Notes. 26 Table of Contents NEOGENOMICS, INC.
If we are unable to maintain and expand our marketing and sales networks, or if our sales personnel do not perform to our standards, we may be unable to maintain or 33 Table of Contents NEOGENOMICS, INC. grow our existing business and our results of operations and financial condition will likely suffer accordingly.
If we are unable to maintain and expand our marketing and sales networks, or if our sales personnel do not perform to our standards, we may be unable to maintain or grow our existing business and our results of operations and financial condition will likely suffer accordingly.
Our expenses are based in part on our expectations as to future revenues and to a significant extent are relatively fixed, at least in the short-term. We may not be able to adjust spending in a timely manner to compensate for any unexpected revenue shortfall.
Accordingly, future sales and operating results are difficult to forecast. Our expenses are based in part on our expectations as to future revenues and to a significant extent are relatively fixed, at least in the short-term. We may not be able to adjust spending in a timely manner to compensate for any unexpected revenue shortfall.
In addition, the existence of the Convertible Notes may encourage short selling by market participants because conversion could be used to satisfy short positions, and the anticipated conversion of the Convertible Notes into shares of our common stock could depress the price of our common stock. 23 Table of Contents NEOGENOMICS, INC.
In addition, the existence of the Convertible Notes may encourage short selling by market participants because conversion could be used to satisfy short positions, and the anticipated conversion of the Convertible Notes into shares of our common stock could depress the price of our common stock.
There can be no assurance that we will be 26 Table of Contents NEOGENOMICS, INC. successful in entering into agreements with these managed care programs at rates of payment similar to those we realize from our non-managed care lines of business.
There can be no assurance that we will be successful in entering into agreements with these managed care programs at rates of payment similar to those we realize from our non-managed care lines of business.
Our Pharma Services clients may delay, terminate or reduce the scope of our contracts for a variety of reasons beyond our control, including but not limited to actions by regulatory authorities, negative clinical results, lack of patient enrollment, or shifts in internal priorities.
Our Advanced Diagnostics clients may delay, terminate or reduce the scope of our contracts for a variety of reasons beyond our control, including but not limited to actions by regulatory authorities, negative clinical results, lack of patient enrollment, lack of available financing or shifts in internal priorities.
The development, marketing, sale, and performance of healthcare services expose us to the risk of litigation, including professional negligence or product liability claims, were someone to allege that our tests failed to perform as designed.
For example, development, marketing, sale, and performance of laboratory testing services expose us to the risk of litigation, including professional negligence or product liability claims, were someone to allege that our tests failed to perform as designed.
The loss of the services of any of our executive officers, our medical staff, our laboratory directors or other key employees could have a material adverse effect on our business, results of operations, and our financial condition.
The loss 36 Table of Contents NEOGENOMICS, INC. of the services of any of our executive officers, our medical staff, our laboratory directors or other key employees could have a material adverse effect on our business, results of operations, and our financial condition.
However, implementing our business strategies may require more employees, capital equipment, supplies, or other expenditure items than management has predicted, particularly as we continue to assess any further needs resulting from the growth of our Pharma Services segment.
However, implementing our business strategy may require more employees, capital equipment, supplies, or other expenditure items than management has predicted, particularly as we continue to assess any further needs resulting from the growth of our Advanced Diagnostics segment.
However, we do not have contractual relationships with some of the insurance companies with whom 20 Table of Contents NEOGENOMICS, INC. we deal, nor are we necessarily able to become an approved provider for all government programs.
However, we do not have contractual relationships with some of the insurance companies with whom we deal, nor are we necessarily able to become an approved provider for all government programs.
Third-party payers, including governmental payers such as Medicare and private payers, are scrutinizing new medical products and services and may not cover or may limit coverage and the level of reimbursement for our services.
Third-party payers, including governmental payers such as Medicare and private payers, are scrutinizing new medical products and services and may not cover or may limit coverage and the level of reimbursement for 31 Table of Contents NEOGENOMICS, INC. our services.
In addition, governmental enforcement action may result in substantial fines, penalties or administrative remedies, including exclusion from government reimbursement programs and entry into corporate integrity agreements with governmental agencies, which could entail significant obligations and costs. 28 Table of Contents NEOGENOMICS, INC.
In addition, governmental enforcement action may result in substantial fines, penalties or administrative remedies, including exclusion from government reimbursement programs and entry into corporate integrity agreements with governmental agencies, which could entail significant obligations and costs.
Many of these factors would be beyond our control. We may not be able to enter into replacement arrangements without undue delays or considerable expenditures.
Many of these factors would be beyond our control. We may not be able to enter into 28 Table of Contents NEOGENOMICS, INC. replacement arrangements without undue delays or considerable expenditures.
If we are unable to successfully integrate future acquisitions with our legacy business, the anticipated benefits of such transaction may not be realized. Acquisitions require us to devote significant management attention and resources to integrating the acquired company’s business practices and operations with our own.
If we are unable to successfully integrate future acquisitions with our business, the anticipated benefits of such transaction may not be realized and our business, financial conditions, results of operations and cash flows may be adversely affected. Acquisitions require us to devote significant management attention and resources to integrating the acquired company’s business practices and operations with our own.
In the event that the FDA begins to regulate our tests, it may require additional pre-market clinical testing prior to submitting a regulatory notification or application for commercial sales.
In the event that the FDA begins to regulate our tests, it may require additional pre-market clinical testing prior to submitting a premarket approval, premarket notification, or other application to permit commercial sales.
In 21 Table of Contents NEOGENOMICS, INC. addition, any significant increase in shipping rates could adversely affect our operating margins and results of operations. Similarly, strikes, severe weather, natural disasters, or other service interruptions by delivery services we use would adversely affect our ability to receive and process patient samples on a timely basis.
In addition, any significant increase in shipping rates could adversely affect our operating margins and results of operations. Similarly, strikes, severe weather, natural disasters, or other service interruptions by delivery services we use would adversely affect our ability to receive and process patient samples on a timely basis and, accordingly, our ability to compete with other providers of similar services.
Risks Relating to Our Business • Our business is subject to rapid scientific change, which could have a material adverse effect on our business, results of operations, and financial condition. • We face the risk of capacity constraints, which could have a material adverse effect on our business, results of operations, and financial condition. • Increased competition, including price competition, could have a material adverse impact on our net revenues and profitability . • New product development and commercialization involve a lengthy and complex process and we may be unable to develop or commercialize new products on a timely basis, or at all. • Failure to develop, or acquire licenses for, new or improved testing technologies could materially and adversely affect our revenues. • The potential loss or delay of our material Pharma Services customer contracts or of multiple contracts could adversely affect our results. • Clinicians or patients using our services may sue us, and our insurance may not sufficiently cover all claims brought against us, which will increase our expenses. • We may become involved in litigation that may materially adversely affect us. • Our involvement with clinical trials and research services create a risk of liability. • Our investments in marketable securities are subject to certain risks which could affect our overall financial condition, results of operations, or cash flows. • Other manufacturers may discontinue or recall testing products used in our business. • We depend substantially upon third parties for payment of services, which reliance could have a material adverse effect on our cash flows and results of operations. • We may fail to protect our facilities, which could have a material adverse effect on our business, results of operations, and financial condition. • We depend on information technology systems and maintain protected personal data, and a cyber-attack or other breach affecting these information technology systems or protected data could have a material adverse effect on our results of operations. 16 Table of Contents NEOGENOMICS, INC. • Performance issues, service interruptions, or price increases by our shipping carrier could adversely affect our business, results of operations, and financial condition, and harm our reputation and ability to provide our specialized diagnostic services on a timely basis. • We use biological and hazardous materials that require considerable expertise and expense for handling, storage, or disposal and may result in claims against us.
Risks Relating to Our Business • Our business is subject to rapid scientific change, which could have a material adverse effect on our business, results of operations, and financial condition. • We face the risk of capacity constraints, which could have a material adverse effect on our business, results of operations, and financial condition. • Increased competition, including price competition, could have a material adverse impact on our net revenues and profitability . • New product development and commercialization involve a lengthy and complex process and we may be unable to develop or commercialize new products on a timely basis, or at all. • Failure to develop, or acquire licenses for, new or improved testing technologies could materially and adversely affect our revenues. • The potential loss or delay of our material Advanced Diagnostics customer contracts or of multiple contracts could adversely affect our results. • We may become involved in litigation that may materially adversely affect us. • Intellectual property dispute over the RaDaR ® assay may necessitate redesign, licensing, discontinuation, or significant damages, potentially harming our overall financial condition, results of operations, or cash flows. • Our involvement with clinical trials and research services create a risk of liability. • Our investments in marketable securities are subject to certain risks which could affect our overall financial condition, results of operations, or cash flows. • Other manufacturers may discontinue or recall testing products used in our business. • We depend substantially upon third parties for payment of services, which reliance could have a material adverse effect on our cash flows and results of operations. • We may fail to protect our facilities, which could have a material adverse effect on our business, results of operations, and financial condition. • We depend on information technology systems and maintain protected personal data, and a cyber-attack or other breach affecting these information technology systems or protected data could have a material adverse effect on our results of operations. • Performance issues, service interruptions, or price increases by our shipping carriers could adversely affect our business, results of operations, and financial condition, and harm our reputation and ability to provide our specialized diagnostic services on a timely basis. • We use biological and hazardous materials that require considerable expertise and expense for handling, storage, or disposal and may result in claims against us.
In addition, litigation could have a material adverse effect on our business if it impacts our existing and potential customer relationships, creates adverse public relations, diverts management resources from the operation of the business, or hampers our ability to otherwise conduct our business. We may become involved in litigation that may materially adversely affect us.
In addition, litigation could have a material adverse effect on our business if it impacts our existing and potential customer relationships, creates adverse public relations, diverts management resources from the operation of the business, or hampers our ability to otherwise conduct our business.
Because litigation is inherently unpredictable, we cannot assure you that the results of any of these actions will not have a material adverse effect on our business, results of operations and financial condition. Our involvement with clinical trials and research services create a risk of liability.
Because litigation is inherently unpredictable, we cannot assure you that the results of any of these actions will not have a material adverse effect on our business, results of operations and financial condition.
Further, the GDPR prohibits the transfer of personal data to countries outside of the EU that are not considered by the European Commission to provide an adequate level of data protection, including to the United States, except if the data controller meets very specific requirements.
Further, the GDPR prohibits the transfer of personal data to countries outside of the EU that are not considered by the European Commission to provide an adequate level of data protection, including to the United States, except if the data controller meets very specific requirements. In July 2020, the Court of Justice of the European Union (CJEU) invalidated the E.U.-U.S.
These and other laws could create liability for us or increase our cost of doing business. Outside of the U.S., the GDPR, for example, imposes penalties of up to 4.0% of annual global turnover.
These and other laws could increase regulatory compliance risk, create liability for us or increase our cost of doing business. Outside of the U.S., the European Union's data privacy law, the GDPR, for example, imposes penalties of up to 4.0% of annual global revenue.
Contracting with excluded 29 Table of Contents NEOGENOMICS, INC. individuals or entities, such as hiring an excluded person or contracting with an excluded vendor, can result in significant penalties.
Contracting with excluded individuals or entities, such as hiring an excluded person or contracting with an excluded vendor, can result in significant penalties.
Before we can commercialize any new products, we will need to expend significant funds in order to: • conduct substantial research and development, including validation studies and clinical studies; • further develop and scale our laboratory processes to accommodate different products; and • further develop and scale our infrastructure to be able to analyze increasingly large amounts of data.
Before we can commercialize any new products, we will need to expend significant funds in order to: • conduct substantial research and development, including validation studies and clinical studies; • further develop and scale our laboratory processes to accommodate different products, including the expansion of our medical staff and PhDs; and • further develop and scale our infrastructure to be able to analyze increasingly large amounts of data; and • seek and obtain regulatory clearance or approvals of our new products, as required by applicable regulations.
Our industry is subject to rapidly changing technology and new product introductions. Other companies or individuals, including our competitors, may obtain patents or other intellectual property rights that would prevent, limit or interfere with our ability to develop, perform or sell our solutions or operate our business or increase our costs.
In addition, other companies or individuals, including our competitors, may obtain patents or other intellectual property rights that would prevent, limit or interfere with our ability to develop, perform or sell our solutions or operate our business or increase our costs.
Risks Relating to Government Regulation and Reimbursement Regulatory changes, such as proposed government regulation of Laboratory Developed Tests, could require us to conduct additional clinical trials or result in delays, result in increased costs, or the failure to obtain necessary regulatory approvals, which could harm our business.
Risks Relating to Government Regulation and Reimbursement If the FDA were to begin to enforce regulation of Laboratory Developed Tests it could require us to conduct additional clinical trials, result in increased costs or delays, or we could fail to obtain necessary regulatory approvals, all of which could harm our business.
We frequently develop diagnostic tests for clients that cannot currently be provided using test kits approved or cleared by the FDA. The FDA has been considering changes to the way that it regulates these LDTs. Currently, all LDTs are conducted and offered in accordance with CLIA, and individual state licensing procedures.
We frequently develop diagnostic tests for clients that cannot currently be provided using test kits approved or cleared by the FDA. Currently, all LDTs are conducted and offered in accordance with the requirements of CLIA and individual state licensing procedures, but the FDA has had a policy of enforcement discretion with regard to LDTs.
In addition, if we are unable to license new or improved technologies to expand our testing operations, our testing methods may become outdated when compared with our competition and testing volume and revenue may be materially and adversely affected. The potential loss or delay of our material Pharma Services customer contracts or of multiple contracts could adversely affect our results.
In addition, if we are unable to license new or improved technologies to expand our testing operations, our testing methods may become outdated when compared with our competition and testing volume and revenue may be materially and adversely affected.
We depend on information technology systems and maintain protected personal data, and a cyber-attack or other breach affecting these information technology systems or protected data could have a material adverse effect on our results of operations. Our laboratory operations depend, in part, on the continued performance of our information technology systems.
We depend on our information technology systems and those of our third-party service providers and maintain protected personal data, and a cyber-attack or other breach affecting these information technology systems or protected data could have a material adverse effect on our business, reputation and results of operations.
Existing federal laws governing Medicare and Medicaid, as well as other state and federal laws, also regulate certain aspects of the relationship between healthcare providers, including clinical laboratories, and their referral sources, including physicians, hospitals and other laboratories. Some of these laws, including the federal AKS and the federal Stark Law contain extremely broad proscriptions.
Existing federal laws governing Medicare and Medicaid, as well as other state and federal laws, also regulate certain aspects of the relationship between healthcare providers, including clinical laboratories, and their referral sources, including 32 Table of Contents NEOGENOMICS, INC. physicians, hospitals and other laboratories.
Federal, state, and local laws and regulations govern the use, generation, manufacture, storage, handling, and disposal of these materials and wastes. Compliance with applicable environmental laws and regulations may be expensive, and current or future environmental laws and regulations may impair business efforts. If we do not comply with applicable regulations, we may be subject to fines and penalties.
Federal, state, and local laws and regulations also govern the use, generation, manufacture, 25 Table of Contents NEOGENOMICS, INC. storage, handling, and disposal of these materials and wastes. Compliance with applicable environmental laws and regulations may be expensive, and current or future environmental laws and regulations may impair business efforts.
As we develop products, we have made and will have to make significant investments in product development, marketing and selling resources, including investing heavily in clinical studies, which could adversely affect our future cash flows. Failure to develop, or acquire licenses for, new or improved testing technologies could materially and adversely affect our revenues.
As we develop products, we have made and will have to make significant investments in product development, marketing and selling resources, including investing heavily in clinical studies, which could adversely affect our future cash flows. We expect to make significant investments in the development of new genetic tests and other future products.
The revenue attributable to our Pharma Services clients may also fluctuate in the future, which could have an adverse effect on our financial condition and results of operations. Most of our Pharma Services segment clients can terminate our contracts upon proper notice.
The revenue attributable to our Advanced Diagnostics clients may also fluctuate in the future, which could have an adverse effect on our financial condition and results of operations.
The Consolidated Appropriations Act 2023 further delayed the implementation of the 15.0 percent rate reduction cap to 2024 and extended the 15.0 percent rate reduction cap through 2026. When rate reductions begin to take effect again in 2024, this will further reduce Medicare program payments for CLFS tests. It is possible that additional reductions could be enacted in the future.
The Further Continuing Appropriations and Other Extensions Act of 2024 was passed in 2023 and further delayed the implementation of the 15.0 percent rate reduction cap to 2025 and extended the 15.0 percent rate reduction cap through 2027. When rate reductions begin to take effect again in 2024, this will further reduce Medicare program payments for CLFS tests.
CMS also adopts regulations and policies, from time to time, revising, limiting, or excluding coverage or reimbursement for certain of the tests that we perform. Likewise, many state governments are under budget pressures and are also considering reductions to their Medicaid fees. Further, Medicare, Medicaid, and other third-party payers audit for overutilization of billed services.
It is possible that additional reductions could be enacted in the future. CMS also adopts regulations and policies, from time to time, revising, limiting, or excluding coverage or reimbursement for certain of the tests that we perform. Likewise, many state governments are under budget pressures and are also considering reductions to their Medicaid fees.
The laboratory business is intensely competitive, both in terms of price and service. Pricing of laboratory testing services is often one of the most significant factors used by healthcare providers and third-party payers in selecting a laboratory. As a result of the laboratory industry undergoing consolidation, larger laboratory providers are able to increase cost efficiencies afforded by large-scale automated testing.
The laboratory testing business is intensely competitive, both in terms of price and service. Pricing of laboratory testing services is often one of the most significant factors used by healthcare providers and third-party payers in selecting a laboratory.
Our ability to make scheduled payments of the principal of, pay interest on, or refinance our indebtedness depends on our future performance, which is subject to economic, financial, competitive, and other factors beyond our control. Our business may not continue to generate cash flow from operations in the future sufficient to service our indebtedness and to make necessary capital expenditures.
We may also incur additional indebtedness in the future. Our ability to make scheduled payments of the principal of, pay interest on, or refinance our indebtedness depends on our future performance, which is subject to economic, financial, competitive, and other factors beyond our control.
Increased competition, including price competition, could have a material adverse impact on our net revenues and profitability. The market for genetic and molecular testing services is highly competitive and we expect competition to continue to increase. Our competitors within the broader genomics profiling space include laboratory companies such as, Quest Diagnostics, Laboratory Corporation of America, and Bio-Reference Laboratories.
The market for genetic and molecular testing services is highly competitive, and, given the opportunities in this market within the laboratory testing industry, we expect competition to continue increasing. Our competitors within the broader genomics profiling space include laboratory companies such as Quest Diagnostics, Laboratory Corporation of America, and Bio-Reference Laboratories.
Breaches with respect to personal data could result in violations of HIPAA, the HITECH Act, GDPR, and other federal, state, and international laws regarding the privacy, confidentiality, and security of such information.
Breaches resulting in the loss or unauthorized access to or use of such information, including that of our employees, could result in violations of HIPAA, the HITECH Act, GDPR, and other federal, state, and international laws regarding the privacy, confidentiality, and security of such information.
Management expects that our results of operations may fluctuate significantly in the future as a result of a variety of factors, including, but not limited to: (i) the continued rate of growth, usage, and acceptance of our products and services; (ii) demand for our products and services; (iii) the introduction and acceptance of new or enhanced products or services by us or by competitors; (iv) our ability to anticipate and effectively adapt to developing markets and to rapidly changing technologies; 35 Table of Contents NEOGENOMICS, INC.
Management expects that our results of operations may fluctuate significantly in the future as a result of a variety of factors, including, but not limited to: (i) the continued rate of growth, usage, and acceptance of our products and services; (ii) demand for our products and services; (iii) the introduction and acceptance of new or enhanced products or services by us or by competitors; (iv) our ability to anticipate and effectively adapt to developing markets and to rapidly changing technologies; (v) our ability to attract, retain, and motivate qualified personnel; (vi) the initiation, renewal, or expiration of significant contracts with any major clients; (vii) pricing changes by us, our suppliers, or our competitors; (viii) seasonality; and (ix) general economic conditions and other factors.
The Information Blocking Rules prohibit covered actors, including healthcare providers, from engaging in activity that is likely to interfere with the access, exchanges, or use of electronic health information (“EHI”) unless such activity falls into one of eight exceptions.
The Information Blocking Rules prohibit covered actors, including healthcare providers, from engaging in activity that is likely to interfere with the access, exchange, or use of EHI unless such activity falls into one of eight exceptions. The Information Blocking Rules provide for civil monetary penalties for noncompliance by healthcare IT vendors and, separately, “appropriate disincentives” for noncompliance by healthcare providers.
We may also be subject to liability for errors in the test results we provide to pathologists and oncologists or for a misunderstanding of, or inappropriate reliance upon, the information we provide. Damages assessed in connection with, and 19 Table of Contents NEOGENOMICS, INC. the costs of defending, any legal action could be substantial.
We may also be subject to liability for errors in the test results we provide to pathologists and oncologists or for a misunderstanding of, or inappropriate reliance upon, the information we provide.
In the United States, in addition to the HIPAA Rules described above, the Company is subject to additional federal and state laws regarding the handling and disclosure of patient records and patient health information. Effective April 5, 2021, HHS published a final rule implementing the information blocking provisions (Information Blocking Rules) of the 21 st Century Cures Act.
In the United States, in addition to the HIPAA Rules described above, the Company is subject to additional federal and state laws regarding the handling and disclosure of patient records and patient health information.
Sustained system failures or interruption of our systems in one or more of our laboratory operations could disrupt our ability to process laboratory requisitions, perform testing, provide test results in a timely manner, and/or bill the appropriate party. We also collect, manage and process protected personal data, including protected health information subject to HIPAA, in connection with our service offerings.
Sustained system failures or interruption of our systems in one or more of our laboratory operations could disrupt our ability to process laboratory requisitions, perform testing, provide test results in a timely manner, and/or bill the appropriate party. 24 Table of Contents NEOGENOMICS, INC.
Delays, terminations or reductions in the scope of our contracts impact our ability to convert our backlog into revenue for the Company. If we cannot realize the full benefits of our backlog of contractually committed services due to delay, cancellation or reduction in our client’s contractual commitments, this will materially impact our revenues.
Our ability to realize the full benefits of our backlog of contractually committed services due to delay, cancellation or reduction in our client’s contractual commitments, would materially impact our revenues.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe following table summarizes our facilities by location and approximate square footage: Location Square Footage Fort Myers, Florida 150,000 Aliso Viejo, California 112,700 Houston, Texas 32,800 Carlsbad, California 28,600 San Diego, California 25,400 Durham, North Carolina 14,500 Cambridge, United Kingdom 12,500 Geneva (Rolle), Switzerland 8,000 Nashville, Tennessee 7,800 Tampa, Florida 5,600 Phoenix, Arizona 4,700 Chicago, Illinois 4,600 Singapore 4,000 Atlanta, Georgia 3,800 Suzhou, China 3,400 Fresno, California 2,600 Our Nashville, Tennessee; Tampa, Florida; Atlanta, Georgia; and Phoenix, Arizona locations support our Clinical Services segment exclusively.
Biggest changeThe following table summarizes our facilities by location and approximate square footage: Location Square Footage Durham, North Carolina 187,700 Fort Myers, Florida 150,000 Aliso Viejo, California 112,700 Carlsbad, California 28,600 Houston, Texas 28,100 San Diego, California 25,400 Cambridge, United Kingdom 12,500 Nashville, Tennessee 7,800 Tampa, Florida 5,600 Phoenix, Arizona 4,700 Atlanta, Georgia 3,800 Fresno, California 2,600 Chicago, Illinois 2,200 Our Nashville, Tennessee; Tampa, Florida; Atlanta, Georgia; and Phoenix, Arizona locations support our Clinical Services segment exclusively.
ITEM 2. PROPERTIES We operate an international network of laboratories. Our leases expire at various dates through 2041. We believe that these locations are sufficient to meet our needs at existing volume levels and, if needed, additional space will be available at a reasonable cost.
ITEM 2. PROPERTIES We operate an international network of laboratories. Our leases expire at various dates through 2041. We believe that these locations are sufficient to meet our needs at existing volume levels and, if needed, additional space will be available at a reasonable cost. 39 Table of Contents NEOGENOMICS, INC.
Our Rolle, Switzerland; Singapore and Suzhou, China laboratories support our Pharma Services 36 Table of Contents NEOGENOMICS, INC. segment exclusively. All other locations serve both segments of the business. For further financial information about our segments, please refer to Note 20. Segment Information, in the notes to our Consolidated Financial Statements.
All other locations serve both segments of the business. For further financial information about our segments, please refer to Note 17. Segment Information, in the notes to our Consolidated Financial Statements.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeITEM 3. LEGAL PROCEEDINGS From time to time the Company is engaged in legal proceedings, including proceedings that arise in the ordinary course of business. For further information on legal proceedings, please refer to Note 18. Commitments and Contingencies, in the notes to our Consolidated Financial Statements. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. PART II
Biggest changeITEM 3. LEGAL PROCEEDINGS From time to time the Company is engaged in legal proceedings, including proceedings that arise in the ordinary course of business. For further information on legal proceedings, please refer to Note 15. Commitments and Contingencies, in the notes to our Consolidated Financial Statements. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

7 edited+0 added−5 removed4 unchanged
Biggest changeCurrently the Company’s Equity Incentive Plan, as amended most recently on May 27, 2021, and the Company’s ESPP, as amended most recently on June 2, 2022, are the only equity compensation plans in effect. Recent Sales of Unregistered Securities None for the year ended December 31, 2022 that have not been previously included in a Current Report on Form 8-K.
Biggest changeRecent Sales of Unregistered Securities None for the year ended December 31, 2023 that have not been previously included in a Current Report on Form 8-K. 40 Table of Contents NEOGENOMICS, INC.
The results assume that $100 (with reinvestment of all dividends) was invested in our common stock, the index, and in the peer group and its relative performance tracked through December 31, 2022. The comparisons are based on historical data and are not indicative of, nor intended to forecast, the future performance of our common stock.
The results assume that $100 (with reinvestment of all dividends) was invested in our common stock, the index, and in the peer group and its relative performance tracked through December 31, 2023. The comparisons are based on historical data and are not indicative of, nor intended to forecast, the future performance of our common stock.
Comparison of Cumulative Five Year Total Return We have presented below the cumulative total return to our stockholders of $100 during the period from December 31, 2017, through December 31, 2022, in comparison to the cumulative return on the S&P 500 Index, the Nasdaq Biotechnology Index (^NBI) and a customized peer group of five publicly traded companies during that same period.
Comparison of Cumulative Five Year Total Return We have presented below the cumulative total return to our stockholders of $100 during the period from December 31, 2018, through December 31, 2023, in comparison to the cumulative return on the S&P 500 Index, the Nasdaq Biotechnology Index (^NBI) and a customized peer group of five publicly traded companies during that same period.
The performance graph set forth above shall not be deemed incorporated by reference into any filing by us under the Securities Act of 1933, as amended (the “Securities Act”) or the Exchange Act except to the extent that we specifically incorporate such information by reference therein. ITEM 6. SELECTED FINANCIAL DATA Reserved.
The performance graph set forth above shall not be deemed incorporated by reference into any filing by us under the Securities Act of 1933, as amended (the “Securities Act”) or the Exchange Act except to the extent that we specifically incorporate such information by reference therein.
The average prices listed in the above table are averages of the fair market prices at which we valued shares withheld for purposes of calculating the number of shares to be withheld. 38 Table of Contents NEOGENOMICS, INC.
The average prices listed in the above table are averages of the fair market prices at which we valued shares withheld for purposes of calculating the number of shares to be withheld.
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our common stock is listed on The Nasdaq Stock Market LLC under the symbol “NEO.” Holders of Common Stock As of February 20, 2023, there were 741 stockholders of record of our common stock.
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our common stock is listed on The Nasdaq Stock Market LLC under the symbol “NEO.” Holders of Common Stock As of February 13, 2024, there were 645 stockholders of record of our common stock.
Issuer Purchases of Equity Securities The following table sets forth information concerning our purchases of common stock for the periods indicated: Period of Repurchase Total Number of Shares Purchased (4) Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs October 1, 2022 - October 31, 2022 67 $ 8.10 — — November 1, 2022 - November 30, 2022 15 $ 10.43 — — December 1, 2022 - December 31, 2022 22,546 $ 9.24 — — Total 22,628 — — (4) The Company’s Equity Incentive Plan, as amended on May 27, 2021, allows participants to surrender vesting shares having a fair market value equal to the required withholding tax related to the vesting of restricted stock.
Issuer Purchases of Equity Securities The following table sets forth information concerning our purchases of common stock for the periods indicated: Period of Repurchase Total Number of Shares Purchased (1) Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs October 1, 2023 - October 31, 2023 425 $ 12.31 — — November 1, 2023 - November 30, 2023 2,365 $ 14.03 — — December 1, 2023 - December 31, 2023 14,819 $ 18.01 — — Total 17,609 — — (1) The Company’s 2023 Equity Incentive Plan, adopted on May 25, 2023, allows participants to surrender vesting shares having a fair market value equal to the required withholding tax related to the vesting of restricted stock.
Removed
Equity Compensation Plan Information The following table summarizes the securities authorized for issuance under equity compensation plans as of December 31, 2022: Plan Category Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted average exercise price of outstanding options, warrants and rights Number of securities remaining available for future issuance under equity compensation plans Equity compensation plans approved by security holders: Amended and Restated Equity Incentive Plan (“Equity Incentive Plan”) (1) 3,271,004 $ 17.67 4,868,198 Employee Stock Purchase Plan (“ESPP”) (2) — N/A 709,107 Equity compensation plans not approved by security holders: Inducement Awards (3) 943,613 $ 12.36 — Total 4,214,617 5,577,305 (1) The Company’s Equity Incentive Plan was amended, restated and subsequently approved by a majority of stockholders on December 21, 2015, and amended and subsequently approved by a majority of stockholders on May 25, 2017, and then amended and subsequently approved by a majority of stockholders again on May 27, 2021.
Removed
The most recent amendment increased the maximum aggregate number of shares of the Company’s common stock reserved and available for issuance under the Equity Incentive Plan to 25,625,000.
Removed
(2) The Company’s Employee Stock Purchase Plan was amended, restated and subsequently approved by a majority of stockholders on June 6, 2013, and amended and subsequently approved by a majority of stockholders on May 25, 2017, amended and subsequently approved by a majority of stockholders again on June 1, 2018, and then amended and subsequently approved by a majority of stockholders again 37 Table of Contents NEOGENOMICS, INC. on June 2, 2022.
Removed
The most recent amendment increased the maximum aggregate number of shares reserved and available for issuance under the Employee Stock Purchase Plan to 2,500,000. (3) Mr. Christopher M. Smith was appointed CEO effective August 15, 2022. Mr. Jeffrey S. Sherman was appointed CFO effective December 5, 2022.
Removed
In connection with these appointments, the Company entered into a Form of Stand-Alone Inducement Restricted Stock Agreement and a Form of Stand-Alone Inducement Stock Option Agreement with Mr. Smith, and subsequently with Mr. Sherman (together, the “2022 Inducement Agreements”). The maximum aggregate number of shares reserved and available for issuance under the 2022 Inducement Agreements is 1,679,641.

Item 7. Management's Discussion & Analysis

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

69 edited+20 added−41 removed47 unchanged
Biggest changeThe following is a reconciliation of GAAP net loss to Non-GAAP EBITDA and Adjusted EBITDA for the years ended December 31, 2022 and 2021 (dollars in thousands): 2022 2021 NET LOSS (GAAP) $ (144,250) $ (8,347) Adjustments to net loss: Interest expense, net 1,506 5,082 Income tax benefit (15,092) (6,728) Depreciation 35,372 30,192 Amortization of intangibles 34,058 23,160 EBITDA (non-GAAP) (88,406) 43,359 Further Adjustments to EBITDA: Acquisition and integration related expenses 2,479 15,683 Write-off of COVID-19 PCR testing inventory and equipment — 6,061 CEO transition costs 4,518 591 New headquarters moving expenses — 1,521 Non-cash stock-based compensation 24,672 22,458 Gain on investment in and loan receivable from non-consolidated affiliate, net — (109,260) Loss contingency for regulatory matter — 11,200 Restructuring charges 4,516 — Other significant expenses (income), net (6) 4,211 4,226 ADJUSTED EBITDA (non-GAAP) $ (48,010) $ (4,161) _________________ (6) For the year ended December 31, 2022, other significant (income) expenses, net, includes fees related to a regulatory matter, moving costs, a gain on the sale of a building and other non-recurring items.
Biggest changeThe following is a reconciliation of GAAP net loss to Non-GAAP EBITDA and Adjusted EBITDA for the years ended December 31, 2023 and 2022 (dollars in thousands): 2023 2022 NET LOSS (GAAP) $ (87,968) $ (144,250) Adjustments to net loss: Interest income (16,902) (6,075) Interest expense 6,907 7,581 Income tax benefit (9,129) (15,092) Depreciation 37,450 35,372 Amortization of intangibles 35,133 34,058 EBITDA (non-GAAP) (34,509) (88,406) Further Adjustments to EBITDA: Acquisition and integration related expenses — 2,479 CEO transition costs 500 4,518 Non-cash stock-based compensation 24,633 24,672 Restructuring charges 11,088 4,516 Other significant expenses (income), net (3) 1,774 4,211 ADJUSTED EBITDA (non-GAAP) $ 3,486 $ (48,010) _________________ (3) For the year ended December 31, 2023, other significant (income) expenses, net, includes fees related to a regulatory matter and other non-recurring items.
NeoGenomics is a member of the American Clinical Laboratory Association (“ACLA”), which has been in active discussions with the FDA and Congress regarding FDA oversight of LDT’s.
NeoGenomics is a member of the American Clinical Laboratory Association (“ACLA”), which has been in active discussions with the FDA and Congress regarding the FDA oversight of LDT’s.
However, recent agency announcements made in the context of the COVID-19 public health emergency have produced a shifting policy landscape and further uncertainty regarding FDA’s role in regulating LDTs: in August 2020, HHS announced that FDA would not require premarket review of LDTs absent notice-and-comment rulemaking, but in November 2021, HHS issued a statement withdrawing that prior announcement, indicating a return to FDA’s longstanding approach to the regulation and enforcement discretion toward LDTs.
However, recent agency announcements made in the context of the COVID-19 public health emergency have produced a shifting policy landscape and further uncertainty regarding the FDA’s role in regulating LDTs: in August 2020, HHS announced that the FDA would not require premarket review of LDTs absent notice-and-comment rulemaking, but in November 2021, HHS issued a statement withdrawing that prior announcement, indicating a return to FDA’s longstanding approach to the regulation and enforcement discretion toward LDTs.
The information contained below includes statements of management’s beliefs, expectations, hopes, goals and plans that, if not historical, are forward-looking statements subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements.
The information contained below includes statements of management’s beliefs, expectations, goals and plans that, if not historical, are forward-looking statements subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements.
Effects of Inflation During the years ended December 31, 2022, 2021 and 2020, inflation did not have a material effect on our business. Widely reported inflation has occurred, however, and may be ongoing for the foreseeable future. Depending on the severity and persistence of these inflationary pressures, we could experience, in the future, a negative impact on our financial results.
Effects of Inflation During the years ended December 31, 2023, 2022 and 2021, inflation did not have a material effect on our business. Widely reported inflation has occurred, however, and may be ongoing for the foreseeable future. Depending on the severity and persistence of these inflationary pressures, we could experience, in the future, a negative impact on our financial results.
We closely monitor changes in legislation and take specific actions to identify and estimate the impact of changes in legislation whenever possible as regulatory changes can affect reimbursement for clinical laboratory services. We do not anticipate significant changes to our clinical revenue in 2023 resulting from known changes in legislation or rulemaking.
We closely monitor changes in legislation and take specific actions to identify and estimate the impact of changes in legislation whenever possible as regulatory changes can affect reimbursement for clinical laboratory services. We do not anticipate significant changes to our clinical revenue in 2024 resulting from known changes in legislation or rulemaking.
Interest expense for the years ended December 31, 2022 and 2021 primarily reflects the effective interest rate on the 2028 Convertible Notes and the 2025 Convertible Notes which is 0.70% and 1.96%, respectively. Interest on the 2028 Convertible Notes and 2025 Convertible Notes began accruing upon issuance and is payable semi-annually.
Interest expense for the years ended December 31, 2023 and 2022 primarily reflects the effective interest rate on the 2028 Convertible Notes and the 2025 Convertible Notes which is 0.70% and 1.96%, respectively. Interest on the 2028 Convertible Notes and 2025 Convertible Notes began accruing upon issuance and is payable semi-annually.
InVisionFirst ® -Lung is a highly sensitive, targeted plasma-based assay for patients with non-small cell lung cancer, and RaDaR ® is an industry-leading liquid biopsy assay designed to detect residual disease and recurrence in plasma samples from patients with solid tumor malignancies. We expect our Molecular laboratory and NGS capabilities to be a key growth driver in the coming years.
InVisionFirst ® -Lung is a highly sensitive, targeted plasma-based assay for patients with non-small cell lung cancer, and RaDaR ® is a liquid biopsy assay designed to detect residual disease and recurrence in plasma samples from patients with solid tumor malignancies. We expect our molecular laboratory and NGS capabilities to be a key growth driver in the coming years.
While we anticipate an increasingly uncertain macroeconomic environment in fiscal year 2023, we will continue to mitigate through targeted pricing and various sourcing strategies. We remain optimistic about our growth opportunities in our key markets in fiscal year 2023.
While we anticipate an increasingly uncertain macroeconomic environment in fiscal year 2024, we will continue to mitigate through targeted pricing and various sourcing strategies. We remain optimistic about our growth opportunities in our key markets in fiscal year 2024.
The laboratory biomarker tests that are developed during this process may become companion diagnostic (“CDx”) tests, that will be used on patients to determine if they could respond to a certain therapy. We are able to offer these CDx tests to the market immediately after FDA approval as part of our Day 1 readiness program.
The laboratory biomarker tests that are developed during this process may become CDx tests that will be used on patients to determine if they could respond to a certain therapy. We are able to offer these CDx tests to the market immediately after FDA approval as part of our Day 1 readiness program.
This ability helps to speed the commercialization of a drug and can enable Pharma sponsors to reach patients through our broad distribution channel in the Clinical Services segment. We are committed to connecting patients with life-altering therapies and trials.
This ability helps to speed the commercialization of a drug and can enable Advanced Diagnostics sponsors to reach patients through our broad distribution channel in the Clinical Services segment. We are committed to connecting patients with life-altering therapies and trials.
Reportable Segments We report our activities in two reportable segments—the Clinical Services Segment and the Pharma Services Segment. We have presented the financial information reviewed by the Chief Operating Decision Maker including revenues, cost of revenue, and gross margin for each of our reportable segments.
Reportable Segments We report our activities in two reportable segments—the Clinical Services Segment and the Advanced Diagnostics Segment. We have presented the financial information reviewed by the Chief Operating Decision Maker including revenues, cost of revenue, and gross margin for each of our reportable segments.
Whether serving as the single contract research organization or partnering with one, our Pharma Services team provides significant technical expertise, working closely with our customers to support each stage of clinical trial development. Each trial we support comes with rapid turnaround time, dedicated project management and quality assurance oversight.
Whether serving as the single contract research organization or partnering with one, our Advanced Diagnostics team provides significant technical expertise, working closely with our customers to support each stage of clinical trial development. Each trial we support comes with rapid turnaround time, dedicated project management and quality assurance oversight.
Implicit price concessions represent differences between amounts billed and the estimated consideration we expect to receive based on negotiated discounts, historical collection experience and other anticipated adjustments, including anticipated payer denials.
Implicit price concessions represent differences between amounts billed and the estimated consideration we expect to receive based on negotiated discounts, historical collection experience, assumptions in payer mix, and other anticipated adjustments, including anticipated payer denials.
We believe our relationship as a non-competitive partner to community-based pathology practices, hospital pathology labs, reference labs, and academic centers can empower them to expand their breadth of testing to provide a menu of services that could match or exceed the level of service found in any center of excellence around the world.
We believe our relationship as 43 Table of Contents NEOGENOMICS, INC. a non-competitive partner to community-based pathology practices, hospital pathology labs, reference labs, and academic centers can empower them to expand their breadth of testing to provide a menu of services that could match or exceed the level of service found in any center of excellence around the world.
These 41 Table of Contents NEOGENOMICS, INC. comprehensive panels can allow for faster treatment decisions for patients as compared to a series of single-gene molecular tests being ordered sequentially. We have a broad Molecular testing menu and our targeted NeoTYPE panels include genes relevant to a particular cancer type, as well as other complementary tests such as IHC and FISH.
These comprehensive panels can allow for faster treatment decisions for patients as compared to a series of single-gene molecular tests being ordered sequentially. We have a broad Molecular testing menu and our targeted NeoTYPE panels include genes relevant to a particular cancer type, as well as other complementary tests such as IHC and FISH.
At this time, we cannot predict what the current administration impact will be on the oversight and regulation of LDTs or if there will be any additional changes to current rules and regulations.
At this time, we cannot predict what the current administration's impact will be on the oversight and regulation of LDTs or if there will be any changes to current rules and regulations.
Pharma Services Our Pharma Services revenue consists of three revenue streams: • Clinical trials and research; • Validation laboratory services; and • Informatics. Our Pharma Services segment supports pharmaceutical firms in their drug development programs by supporting various clinical trials and research.
Advanced Diagnostics Our Advanced Diagnostics revenue consists of three revenue streams: • Clinical trials and research; • Validation laboratory services; and • Informatics. Our Advanced Diagnostics segment supports pharmaceutical firms in their drug development programs by supporting various clinical trials and research.
Our Pharma Services segment provides comprehensive testing services in support of our pharmaceutical clients’ oncology programs from discovery to commercialization. In biomarker discovery, our aim is to help our customers discover the right content.
Our Advanced Diagnostics segment provides comprehensive testing services in support of our pharmaceutical clients’ oncology programs from discovery to commercialization. In biomarker discovery, our aim is to help our customers discover the right content.
Our Pharma Services team can work with these sponsors during the basic research and development phase as compounds come out of translational research departments, as well as work with clients from Phase I, Phase II and Phase III clinical trials as the sponsors work to demonstrate the efficacy of their drugs.
Our Advanced Diagnostics team can work with these sponsors during the basic research and development phase as compounds come out of translational research departments, as well as work with clients from Phase I, Phase II and Phase III clinical trials as the sponsors work to demonstrate the efficacy of their drugs.
Accordingly, we performed a quantitative analysis and compared our reporting units’ fair values to their carrying values to determine whether goodwill was impaired. We determined the fair values of our reporting units using a combination of the income approach using discounted cash flows and the market approach utilizing comparable companies’ data.
Accordingly, we performed a quantitative analysis and compared our reporting units’ fair values to their carrying values to determine whether goodwill was impaired. We determined the fair values of our reporting units using a combination of the income approach 45 Table of Contents NEOGENOMICS, INC. using discounted cash flows and the market approach utilizing comparable companies’ data.
In carrying out these commitments, we aim to provide transparency and choice to patients regarding the handling and use of their data through our Notice of Privacy 42 Table of Contents NEOGENOMICS, INC. Practices, and have invested in leading technologies to ensure the data we maintain is secure at all times.
In carrying out these commitments, we aim to provide transparency and choice to patients regarding the handling and use of their data through our Notice of Privacy Practices, and have invested in leading technologies to ensure the data we maintain is secure at all times.
Research and Development Expenses Research and development expenses relate to costs of developing new proprietary and non-proprietary genetic tests, including payroll and payroll related costs, maintenance of laboratory equipment, laboratory supplies (reagents), and outside consultants and experts assisting our research and development team.
Research and Development Expenses Research and development expenses relate to costs of developing new proprietary and non-proprietary genetic tests, including compensation and benefit costs, maintenance of laboratory equipment, laboratory supplies (reagents), and outside consultants and experts assisting our research and development team.
We believe that we are well positioned to service Pharma sponsors across the full continuum of the drug development process.
We believe that we are well positioned to service Advanced Diagnostics sponsors across the full continuum of the drug development process.
We first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying 43 Table of Contents NEOGENOMICS, INC. amount, including goodwill.
We first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill.
Cost of Revenue and Gross Profit Cost of revenue includes payroll and payroll related costs for performing tests, maintenance and/or depreciation of laboratory equipment, rent for laboratory facilities, laboratory reagents, probes and supplies, delivery and courier costs relating to the transportation of specimens to be tested, and amortization for acquired Inivata developed technology intangible assets.
Cost of Revenue and Gross Profit Cost of revenue includes compensation and benefit costs for performing tests, maintenance and/or depreciation of laboratory equipment, rent for laboratory facilities, laboratory reagents, probes and supplies, delivery and courier costs relating to the transportation of specimens to be tested, and amortization for acquired intangible assets.
Our critical accounting policies are those where we have made difficult, subjective, or complex judgments in making estimates and/or where these estimates can significantly impact our financial results under different assumptions and conditions.
Our critical accounting policies are those where we have made difficult, subjective, or complex judgments in making estimates and/or where these estimates can significantly impact our financial results under different assumptions and conditions. Our critical accounting policies are: • Goodwill; • Contingencies; and • Revenue Recognition and Accounts Receivable.
The cash provided by financing activities during the year ended December 31, 2022 consisted of $12.6 million for the issuance of common stock net of issuance costs offset by $0.8 million used for the repayment of equipment financing obligations.
The cash provided by financing activities during the year ended December 31, 2023 consisted of $4.6 million for the issuance of common stock net of issuance costs offset by $0.1 million used for the repayment of equipment financing obligations.
Cash Flows from Operating Activities Cash used in operating activities during the year ended December 31, 2022, was $66.0 million compared to $26.7 million in the same period in 2021.
Cash Flows from Operating Activities Cash used in operating activities during the year ended December 31, 2023, was $2.0 million compared to $66.0 million in the same period in 2022.
Cash Flows from Investing Activities During the year ended December 31, 2022, cash provided by investing activities was $0.5 million, compared to $632.4 million of cash used in investing activities for the same period in 2021.
Cash Flows from Investing Activities During the year ended December 31, 2023, cash provided by investing activities was $76.7 million, compared to $0.5 million of cash used in investing activities for the same period in 2022.
Liquidity Outlook As of December 31, 2022, we had $263.2 million in cash and cash equivalents in addition to $174.8 million of marketable securities available to support current operational liquidity needs. We anticipate that the cash on hand, marketable securities, and cash collections are sufficient to fund our near-term capital and operating needs for at least the next 12 months.
Liquidity Outlook As of December 31, 2023, we had $342.5 million in cash and cash equivalents in addition to $72.7 million of marketable securities available to support current operational liquidity needs. We anticipate that the cash on hand, marketable securities, and cash collections are sufficient to fund our near-term capital and operating needs for at least the next 12 months.
GAAP financial results, should not be considered measures of liquidity, and are unlikely to be comparable to non-GAAP financial measures used by other companies. 49 Table of Contents NEOGENOMICS, INC.
GAAP financial results, should not be considered measures of liquidity, and are unlikely to be comparable to non-GAAP financial measures used by other companies.
Cash Flows from Financing Activities During the year ended December 31, 2022, cash provided by financing activities was $11.8 million compared to $725.3 million for the same period in 2021.
Cash Flows from Financing Activities During the year ended December 31, 2023, cash provided by financing activities was $4.6 million compared to $11.8 million for the same period in 2022.
Operating needs include, but are not limited to, the planned costs to operate our business (including amounts required to fund working capital and capital expenditures, continued research, and development efforts) and potential strategic acquisitions and investments. Related Party Transactions Please refer to Note 19.
Operating needs include, but are not limited to, the planned costs to operate our business (including amounts required to fund working capital and capital expenditures, continued research, and development efforts) and potential strategic acquisitions and investments. Related Party Transactions Please refer to Note 16. Related Party Transactions, to our Consolidated Financial Statements for a description of our related party transactions.
This $39.3 million increase was primarily driven by our operating results (net loss adjusted for depreciation, amortization of intangibles, and other non-cash charges) which resulted in $12.2 million of higher cash used by operating activities year-over-year, as well as a $27.1 million increase in cash used resulting from net changes in operating assets and liabilities.
This $64.0 million decrease was primarily driven by our operating results (net loss adjusted for depreciation, amortization of intangibles, and other non-cash charges) which resulted in $57.8 million of lower cash used by operating activities year-over-year, as well as a $6.2 million decrease in cash used resulting from net changes in operating assets and liabilities.
We expect to continue to grow our Pharma Services business through (i) global expansion in both Europe and Asia, (ii) expansion of our test offerings (including leading edge NGS tools such as WES, WGS, RaDaR), and (iii) our unique capabilities for developing and commercializing companion diagnostic tests.
We expect to continue to grow our Advanced Diagnostics business through (i) expansion of our test offerings (including leading edge NGS tools such as WES, WGS, and others), and (ii) our unique capabilities for developing and commercializing companion diagnostic tests.
Clinical Services revenue increased $14.6 million, or 3.6%, to $418.8 million in 2022 as compared to $404.2 million in 2021. Increases in Clinical Services revenue reflects an increase in average unit price due to strategic reimbursement initiatives and a more favorable test mix.
Clinical Services revenue increased $76.9 million, or 18.4%, to $495.6 million in 2023 as compared to $418.8 million in 2022. Increases in Clinical Services revenue reflects an increase in test volume, a more favorable test mix, and an increase in average unit price due to strategic reimbursement initiatives.
We have experience in supporting submissions to the Federal Drug Administration (“FDA”) for companion diagnostics. Our Pharma Services strategy is focused on helping to bring more effective oncology treatments to market through providing world-class laboratory services in oncology to key pharmaceutical companies in the industry.
We have experience in supporting submissions to the FDA for companion diagnostics. Our Advanced Diagnostics strategy is focused 44 Table of Contents NEOGENOMICS, INC. on helping to bring more effective oncology treatments to market through providing world-class laboratory services in oncology to key pharmaceutical companies in the industry.
The following table presents a summary of our consolidated cash flows for operating, investing, and financing activities for the years ended December 31, 2022 and 2021, as well as the period ending cash and cash equivalents and working capital (in thousands): 50 Table of Contents NEOGENOMICS, INC. 2022 2021 Net cash (used in) provided by: Operating activities $ (65,993) $ (26,723) Investing activities 517 (632,367) Financing activities 11,829 725,285 Net change in cash and cash equivalents (53,647) 66,195 Cash, cash equivalents and restricted cash, beginning of year 316,827 250,632 Cash and cash equivalents, end of year $ 263,180 $ 316,827 Working Capital, (7) end of period $ 515,359 $ 594,276 _________________ (7) Defined as current assets less current liabilities.
The following table presents a summary of our consolidated cash flows for operating, investing, and financing activities for the years ended December 31, 2023 and 2022, as well as the period ending cash and cash equivalents and working capital (in thousands): 50 Table of Contents NEOGENOMICS, INC. 2023 2022 Net cash (used in) provided by: Operating activities $ (1,953) $ (65,993) Investing activities 76,707 517 Financing activities 4,554 11,829 Net change in cash and cash equivalents 79,308 (53,647) Cash, cash equivalents and restricted cash, beginning of year 263,180 316,827 Cash and cash equivalents, end of year $ 342,488 $ 263,180 Working Capital, (4) end of period $ 500,508 $ 515,359 _________________ (4) Defined as current assets less current liabilities.
Consolidated research and development expense for the years ended December 31, 2022 and 2021 are as follows (dollars in thousands): 2022 2021 $ Change % Change Research and development $ 30,326 $ 21,873 $ 8,453 38.6 % Research and development as a percentage of revenue 5.9 % 4.5 % Research and development expenses increased $8.5 million in 2022 compared to 2021.
Consolidated research and development expense for the years ended December 31, 2023 and 2022 are as follows (dollars in thousands): 2023 2022 $ Change % Change Research and development $ 27,309 $ 30,326 $ (3,017) (9.9) % Research and development as a percentage of revenue 4.6 % 5.9 % Research and development expenses decreased $3.0 million in 2023 compared to 2022.
Definitions of Non-GAAP Measures Non-GAAP Adjusted EBITDA “Adjusted EBITDA” is defined by NeoGenomics as net (loss) income from continuing operations before: (i) interest expense, net, (ii) tax (benefit) or expense, (iii) depreciation and amortization expense, (iv) non-cash stock-based compensation expense, and, if applicable in a reporting period, (v) acquisition and integration related expenses, (vi) write-off of COVID-19 PCR testing inventory and equipment, (vii) CEO transition costs, (viii) new headquarters moving expenses, (ix) gain on investment in and loan receivable from non-consolidated affiliate, net, (x) loss contingency for regulatory matter, (xi) restructuring charges, and (xii) other significant or non-operating (income) or expenses, net.
Definitions of Non-GAAP Measures Non-GAAP Adjusted EBITDA “Adjusted EBITDA” is defined by NeoGenomics as net (loss) income from continuing operations before: (i) interest income and expense, (ii) tax (benefit) or expense, (iii) depreciation and amortization expense, (iv) non-cash stock-based compensation expense, and, if applicable in a reporting period, (v) acquisition and integration related expenses, (vi) CEO transition costs, (vii) restructuring costs, and (viii) other significant or non-operating expenses, net.
Consolidated sales and marketing expenses for the years ended December 31, 2022 and 2021, are as follows (dollars in thousands): 2022 2021 $ Change % Change Sales and marketing $ 67,321 $ 62,594 $ 4,727 7.6 % Sales and marketing as a percentage of revenue 13.2 % 12.9 % Sales and marketing expenses increased $4.7 million in 2022 compared to 2021.
Consolidated sales and marketing expenses for the years ended December 31, 2023 and 2022, are as follows (dollars in thousands): 2023 2022 $ Change % Change Sales and marketing $ 70,842 $ 67,321 $ 3,521 5.2 % Sales and marketing as a percentage of revenue 12.0 % 13.2 % Sales and marketing expenses increased $3.5 million in 2023 compared to 2022.
In October 2014 the FDA announced its proposed framework and timetable and indicated it would move toward greater oversight of LDTs. The FDA has not finalized the framework they announced in 2014.
Regulatory Environment The FDA is currently considering changes that may include increased regulation of LDTs by the FDA. In October 2014 the FDA announced its proposed framework and timetable and indicated it would move toward greater oversight of LDTs. The FDA has not finalized the framework they announced in 2014.
We forecast capital expenditures in order to execute on our business plan and maintain growth; however, the actual amount and timing of such capital expenditures will ultimately be determined by the volume of business. We currently anticipate that our capital expenditures for the year ended December 31, 2023, will be in the range of $30.0 million to $40.0 million.
Capital Expenditures We forecast capital expenditures in order to execute on our business plan and maintain growth; however, the actual amount and timing of such capital expenditures will ultimately be determined by the volume of business.
Such indicators could include, but are not limited to, (1) a significant adverse change in legal factors or in business climate, (2) unanticipated competition, or (3) an adverse action or assessment by a regulator.
Goodwill We evaluate goodwill on an annual basis in the fourth quarter, or more frequently if management believes indicators of impairment exist. Such indicators could include, but are not limited to, (1) a significant adverse change in legal factors or in business climate, (2) unanticipated competition, or (3) an adverse action or assessment by a regulator.
Consolidated general and administrative expenses for the years ended December 31, 2022 and 2021 are as follows (dollars in thousands): 2022 2021 $ Change % Change General and administrative $ 243,356 $ 221,347 $ 22,009 9.9 % General and administrative as a percentage of revenue 47.7 % 45.7 % General and administrative expenses increased $22.0 million in 2022 compared to 2021.
Consolidated general and administrative expenses for the years ended December 31, 2023 and 2022 are as follows (dollars in thousands): 47 Table of Contents NEOGENOMICS, INC. 2023 2022 $ Change % Change General and administrative $ 243,101 $ 243,356 $ (255) (0.1) % General and administrative as a percentage of revenue 41.1 % 47.7 % General and administrative expenses decreased $0.3 million in 2023 compared to 2022.
Pharma Services revenue increased $10.8 million, or 13.5%, to $91.0 million in 2022 as compared to $80.2 million in 2021, primarily driven by increased volume and higher billings across its portfolio, including RaDaR™ testing.
Advanced Diagnostics revenue increased $5.0 million, or 5.5%, to $96.0 million in 2023 as compared to $91.0 million in 2022, primarily driven by increased volume and higher billings across its portfolio.
Contingencies We accrue contingent losses when estimated impacts of various conditions, situations or circumstances involve uncertain outcomes. Contingent losses are recorded based on management judgment along with internal and external advice from legal counsel and/or technical consultants.
Contingent losses are recorded based on management judgment along with internal and external advice from legal counsel and/or technical consultants.
For discussion and analysis pertaining to 2021 overview and highlights as compared to 2020, please refer to the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on February 25, 2022. Our Company NeoGenomics is a high-complexity clinical laboratory that specializes in cancer genetics diagnostic testing and pharma services.
For discussion and analysis pertaining to 2022 overview and highlights as compared to 2021, please refer to the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on February 24, 2023.
This 1.7% decrease is primarily due to the amortization of acquired Inivata developed technology intangibles and higher payroll and payroll-related costs. General and Administrative Expenses General and administrative expenses consist of payroll and payroll related costs for our executive, billing, finance, human resources, information technology, and other administrative personnel, as well as stock-based compensation.
This 4.4% increase is primarily related to increases in revenue partially offset by higher compensation and benefits costs and supplies expense. General and Administrative Expenses General and administrative expenses consist of compensation and benefit costs for our executive, billing, finance, human resources, information technology, and other administrative personnel, as well as stock-based compensation.
For the year ended December 31, 2021, other significant (income) expenses, net, includes strategic deal costs, moving costs, and other non-recurring items. Liquidity and Capital Resources To date, we have financed our operations primarily through cash generated from operations, public and private sales of debt and equity securities, and bank debt borrowings.
Liquidity and Capital Resources To date, we have financed our operations primarily through cash generated from operations, public and private sales of debt and equity securities, and bank debt borrowings.
The consolidated cost of revenue and gross profit metrics for the years ended December 31, 2022 and 2021 are as follows (dollars in thousands): 46 Table of Contents NEOGENOMICS, INC. 2022 2021 % Change Cost of revenue: Clinical Services (2) $ 261,742 $ 244,360 7.1 % Pharma Services (3) 60,090 52,909 13.6 % Total cost of revenue $ 321,832 $ 297,269 8.3 % Cost of revenue as a percentage of revenue 63.1 % 61.4 % Gross Profit: Clinical Services $ 157,012 $ 159,812 (1.8) % Pharma Services 30,884 27,248 13.3 % Total gross profit $ 187,896 $ 187,060 0.4 % Gross profit margin 36.9 % 38.6 % _________________ (2) Clinical Services cost of revenue in 2022 includes $17.1 million of amortization of acquired Inivata developed technology intangible assets.
The consolidated cost of revenue and gross profit metrics for the years ended December 31, 2023 and 2022 are as follows (dollars in thousands): 2023 2022 % Change Cost of revenue: Clinical Services (1) $ 287,059 $ 261,742 9.7 % Advanced Diagnostics (2) 59,980 60,090 (0.2) % Total cost of revenue $ 347,039 $ 321,832 7.8 % Cost of revenue as a percentage of revenue 58.7 % 63.1 % Gross Profit: Clinical Services $ 208,577 $ 157,012 32.8 % Advanced Diagnostics 36,027 30,884 16.7 % Total gross profit $ 244,604 $ 187,896 30.2 % Gross profit margin 41.3 % 36.9 % _________________ (1) Clinical Services cost of revenue for the twelve months ended December 31, 2023 and December 31, 2022 include $17.3 million and $17.1 million, respectively, of amortization of acquired intangible assets.
The increase primarily reflects an increase in payroll and payroll-related costs due to the expansion of our precision medicine sales team. We expect higher commissions expense in the coming quarters as our sales representatives generate new business in our business segments.
The increase primarily reflects increases in compensation and benefit costs due to increased headcount, an increase in sales commissions, and an increase in travel expenses partially offset by a decrease in professional fees. We expect higher commissions expense in the coming quarters as our sales representatives generate new business in our business segments.
We continue to develop our company-wide focus, which includes the following four critical success factors for 2023: Profitably Grow Core Business • Grow volume and NGS mix; • Improve turnaround time; • Win on service; • Expand and optimize commercial optimization; and • Improve product offering.
We continue to develop our company-wide focus, which includes the following four critical success factors for 2024: 42 Table of Contents NEOGENOMICS, INC. Profitably Grow Core Business • Grow volume and NGS mix; • Drive market penetration; • Win on oncology; and • Improve revenue cycle management.
The following table reflects our estimate of the breakdown of net clinical revenue by type of payer for the years ended December 31, 2022, 2021 and 2020: 44 Table of Contents NEOGENOMICS, INC. 2022 2021 2020 Client direct billing 67 % 63 % 63 % Commercial insurance 17 % 19 % 20 % Medicare and other government 16 % 18 % 17 % Total 100 % 100 % 100 % Pharma Services Revenue Our Pharma Services segment generally enters into contracts with pharmaceutical and biotech customers as well as other contract research organizations (“CROs”) to provide research and clinical trial services.
The following table reflects our estimate of the breakdown of net clinical revenue by type of payer for the years ended December 31, 2023, 2022 and 2021: 2023 2022 2021 Client direct billing 67 % 67 % 63 % Commercial insurance 18 % 17 % 19 % Medicare and other government 15 % 16 % 18 % Total 100 % 100 % 100 % Results of Operations for the year ended December 31, 2023 as compared with the year ended December 31, 2022 Revenue The Company has historically reported its activities in two reportable segments; (1) the Clinical Services segment and (2) the Pharma Services segment.
These diagnostic services are billed to various payers, including client direct billing, commercial insurance, Medicare and other government payers, and patients. Revenue is recorded for all payers based on the amount expected to be collected, which considers implicit price concessions.
Revenue is recorded for all payers based on the amount expected to be collected, which considers implicit price concessions. Accounts receivable are reported for all Clinical Services payers based on the amount expected to be collected, which also considers implicit price concessions.
Revenue Recognition Clinical Services Revenue Our specialized diagnostic services are performed based on an online test order or a written test requisition form. The performance obligation is satisfied and revenues are recognized once the diagnostic services have been performed and the results have been delivered to the ordering physician.
Revenue Recognition and Accounts Receivable Clinical Services Revenue is recognized when, or as, performance obligations under the terms of a contract are satisfied, which occurs when control of the promised products or services is transferred to a customer. For Clinical Services, our specialized diagnostic services are performed based on an online test order or a written test requisition form.
Revenue Clinical Services and Pharma Services net revenue for the years ended December 31, 2022 and 2021, are as follows (dollars in thousands): 2022 2021 % Change Net revenue: Clinical Services $ 418,754 $ 404,172 3.6 % Pharma Services 90,974 80,157 13.5 % Total net revenue $ 509,728 $ 484,329 5.2 % Consolidated revenue in 2022 increased $25.4 million, or 5.2%, as compared to 2021.
Clinical Services and Advanced Diagnostics net revenue for the years ended December 31, 2023 and 2022, are as follows (dollars in thousands): 46 Table of Contents NEOGENOMICS, INC. 2023 2022 % Change Net revenue: Clinical Services $ 495,636 $ 418,754 18.4 % Advanced Diagnostics 96,007 90,974 5.5 % Total net revenue $ 591,643 $ 509,728 16.1 % Consolidated revenue in 2023 increased $81.9 million, or 16.1%, as compared to 2022.
These critical success factors have been communicated throughout our Company. We have structured departmental goals around these factors and have created employee incentive plans in which every employee will have a meaningful incentive for our success. Regulatory Environment The FDA is currently considering changes that may include increased regulation of LDTs by the FDA.
Enhance Our People and Culture • Enhance teammate development and engagement; and • Grow a customer-oriented and growth mindset. These critical success factors have been communicated throughout our Company. We have structured departmental goals around these factors and have created employee incentive plans in which every employee will have a meaningful incentive for our success.
This increase primarily reflects an increase in research and development expenses for the Inivata subsidiary which was acquired in June of 2021. We anticipate research and development expenditures will significantly increase in the future as we continue to invest in development costs for strategic innovation projects and bringing new tests to market.
This decrease is primarily due to decreases in compensation and benefits costs and professional fees and an increase in research and development tax credits from the UK government. We anticipate research and development expenditures will increase in the future as we continue to invest in development activities for innovation projects and bringing new tests to market.
Restructuring charges Consolidated restructuring charges for the years ended December 31, 2022 and 2021 are as follows (dollars in thousands): 2022 2021 $ Change % Change Restructuring charges $ 4,516 $ — $ 4,516 NM (4) Restructuring charges as a percentage of revenue 1.0 % — % _________________ (4) NM - Not meaningful Restructuring charges relate to a restructuring program to improve execution and drive efficiency across the organization.
Restructuring charges Consolidated restructuring charges for the years ended December 31, 2023 and 2022 are as follows (dollars in thousands): 2023 2022 $ Change % Change Restructuring charges $ 11,088 $ 4,516 $ 6,572 145.5 % Restructuring charges as a percentage of revenue 2.0 % 1.0 % 48 Table of Contents NEOGENOMICS, INC.
Interest expense also includes amortization related to our fixed income investments. Interest expense was partially offset for the years ended December 31, 2022 and 2021 by interest income on funds held in our cash equivalent and marketable securities accounts. For further details regarding the convertible notes and our investments in marketable securities, please refer to Note 9.
Interest income includes interest earned on funds held in our cash equivalent and marketable securities accounts. The increase in interest income in 2023 was due to the higher interest rate environment experienced when compared to the same period in 2022. For further details regarding our investments in marketable securities, please refer to Note 3.
Net Loss The following table provides the net loss for the years ended December 31, 2022 and 2021, along with the computation of basic and diluted net loss per share (in thousands, except per share amounts): 2022 2021 Net loss $ (144,250) $ (8,347) Basic weighted average shares outstanding 124,217 119,962 Effect of potentially dilutive securities — — Diluted weighted average shares outstanding 124,217 119,962 Basic net loss per share $ (1.16) $ (0.07) Diluted net loss per share $ (1.16) $ (0.07) Non-GAAP Measures Use of Non-GAAP Financial Measures In order to provide greater transparency regarding our operating performance, the financial results and financial guidance include the use of certain non-GAAP financial measures that involve adjustments to GAAP results.
Net Loss The following table provides the net loss for the years ended December 31, 2023 and 2022, along with the computation of basic and diluted net loss per share (in thousands, except per share amounts): 2023 2022 Net loss $ (87,968) $ (144,250) Basic weighted average shares outstanding 125,502 124,217 Diluted weighted average shares outstanding 125,502 124,217 Basic net loss per share $ (0.70) $ (1.16) Diluted net loss per share $ (0.70) $ (1.16) 49 Table of Contents NEOGENOMICS, INC.
Restructuring charges consist of severance and other employee costs, costs for optimizing the Company’s geographic presence, and consulting and other costs. For the year ended December 31, 2022, we recorded $4.5 million of restructuring charges.
Restructuring charges relate to a restructuring program to improve execution and drive efficiency across the organization. Restructuring charges consist of severance and other employee costs, costs for optimizing the Company’s geographic presence, and consulting and other costs. Restructuring charges increased $6.6 million in 2023 compared to 2022.
Debt, and Note 4. Fair Value Measurements, respectively, in the accompanying notes to the Consolidated Financial Statements.
For further details regarding the convertible notes please refer to Note 7. Debt in the accompanying notes to the Consolidated Financial Statements.
Interest Expense, Net Interest expense, net, for the years ended December 31, 2022 and 2021 is as follows (dollars in thousands): 2022 2021 $ Change % Change Interest expense, net $ 1,506 $ 5,082 $ (3,576) (70.4) % 48 Table of Contents NEOGENOMICS, INC. Interest expense, net, decreased $3.6 million in 2022 compared to 2021.
Interest Income Interest income for the years ended December 31, 2023 and 2022 is as follows (dollars in thousands): 2023 2022 $ Change % Change Interest income $ (16,902) $ (6,075) $ (10,827) 178.2 % Interest income increased $10.8 million in 2023 compared to 2022.
Cost of revenue for the year ended December 31, 2021, includes $10.4 million of amortization of acquired Inivata developed technology intangible assets and write-offs of $5.3 million for COVID-19 PCR testing inventory.
(2) Advanced Diagnostics cost of revenue for both the twelve months ended December 31, 2023 and December 31, 2022 include $2.4 million of amortization of acquired intangible assets.
Pharma Services cost of revenue in 2021 includes $1.2 million of amortization of acquired Inivata developed technology intangible assets. Consolidated cost of revenue increased for the year ended December 31, 2022 when compared to the same period in 2021 primarily due to higher payroll and payroll-related costs and the amortization of acquired Inivata developed technology intangible assets.
Consolidated cost of revenue increased for the year ended December 31, 2023 when compared to the same period in 2022 primarily due to higher compensation and benefit costs and an increase in supplies expense partially offset by a decrease in professional fees and shipping costs. Gross profit margin for 2023 was 41.3% compared to 36.9% in 2022.
The charges were comprised of $1.0 million in severance and other employee costs, $0.7 million loss on the impairment of facilities and assets, and $2.8 million of consulting and other costs. There were no such amounts recorded for the year ended December 31, 2021.
The increase is primarily due to restructuring activities commencing in the fourth quarter of 2022. Restructuring charges in 2023 consist of $5.6 million in severance and other employee costs, $3.4 million loss on the impairment of facilities and assets, and $2.1 million of consulting and other costs.
Removed
Our testing services include cytogenetics, FISH, flow cytometry, IHC, molecular testing and morphologic analysis. We operate CAP accredited and CLIA certified laboratories for full-service sample processing in Fort Myers, Florida; Aliso Viejo and San Diego, California; Research Triangle Park, North Carolina; and Houston, Texas; and CAP accredited full-service, sample-processing laboratories in Rolle, Switzerland; Singapore and China.
Added
Our Company NeoGenomics, Inc., a Nevada corporation (the “Parent,” “Company,” or “NeoGenomics”), and its subsidiaries provide a wide range of oncology diagnostic testing and consultative services which includes technical laboratory services and professional interpretation of laboratory test results by licensed physicians who specialize in pathology and oncology.
Removed
CAP accreditation is pending in 39 Table of Contents NEOGENOMICS, INC. Cambridge, United Kingdom. NeoGenomics also has several, small, non-processing laboratory locations across the United States for providing analysis services.
Added
The Company operates a network of cancer-focused testing laboratories in the United States and the United Kingdom. 2023 Overview and Highlights • We increased consolidated revenue by 16.1% compared to 2022, including increases in Clinical Services revenue of 18.4% and in Advanced Diagnostics Services revenue of 5.5%; • Net cash used in operations improved $64.0 million compared to 2022; • We increased Adjusted EBITDA $51.5 million to positive $3.5 million compared to in 2022; and • We improved gross margin by 448 basis points while also improving turnaround time.
Removed
NeoGenomics serves the needs of pathologists, oncologists, academic centers, hospital systems, pharmaceutical firms, integrated service delivery networks, and managed care organizations throughout the United States and pharmaceutical firms in Europe and Asia. 2022 Overview and Highlights • We increased consolidated revenue by 5.2% compared to 2021, including increases in Clinical Services revenue of 3.6% and in Pharma Services revenue of 13.5%; • Revenue growth over prior year accelerated each quarter in 2022; • Reported sequential revenue, gross margin and adjusted EBITDA growth in each of the four quarters of 2022; • Strengthened our executive leadership team by welcoming Chris Smith, Chief Executive Officer; Jeff Sherman, Chief Financial Officer; Warren Stone, President, Clinical Services; Vishal Sikri, President, Pharma Services and President and Chief Commercial Officer, Inivata; and Melody Harris, President, Enterprise Operations; • Developed our vision of “OneNeo” to better integrate the Company, align our core capabilities and enhance communication; and • Initiated a restructuring effort to take significant costs out of the business in 2023.
Added
Accelerate Advanced Diagnostics • Execute Neo Comprehensive 2.0 launch; • Execute liquid biopsy CGP launch; and • Improve gross margin. Drive Value Creation • Increase productivity and efficiency; • Improve gross margin; • Implement LIMS Phase 1; and • Prioritize quality system enhancements.
Removed
Accelerate Advanced Diagnostics • Execute clinical RaDaR™ (MRD) launch; 40 Table of Contents NEOGENOMICS, INC. • Launch Neo Comprehensive, new NGS offering; • Continue to improve Pharma growth and profitability; and • Focus on enterprise data strategy. Improve Profitability • Increase productivity and efficiency; • Manage general and administrative spend; • Focused investments; and • Prioritize revenue cycle management.
Added
On October 1, 2023, we performed a qualitative assessment to determine whether it was more likely than not that the fair values of our reporting units were less than their carrying values.
Removed
Our critical accounting policies are: • Business Combinations; • Accounts Receivable; • Recoverability and Impairment of Long-Lived Assets; • Goodwill; • Contingencies; • Stock-based Compensation; • Revenue Recognition; and • Deferred Taxes. Business Combinations Results of operations and cash flows of acquired companies are included in our operating results from the date of acquisition.
Added
As a result of the qualitative assessment, we determined that it is not more likely than not that the fair value of our reporting units is less than their carrying amounts. Contingencies We accrue contingent losses when estimated impacts of various conditions, situations or circumstances involve uncertain outcomes.
Removed
We allocate the purchase price of acquisitions to the assets acquired and liabilities assumed based on their estimated fair values. Any excess purchase price over the estimated fair value assigned to the net tangible and identifiable intangible assets acquired and liabilities assumed is recorded to goodwill. Transaction costs associated with acquisitions are expensed as incurred in general and administrative expenses.

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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 changeOur international revenues and expenses denominated in foreign currencies (primarily British Pounds, Swiss Francs, Singapore Dollars and Chinese Yuan), expose us to the risk of fluctuations in foreign currency exchange rates against the U.S. dollar. We do not hedge foreign currency exchange risks and do not currently believe that these risks are significant. 53 Table of Contents NEOGENOMICS, INC.
Biggest changeOur international revenues and expenses denominated in foreign currencies (primarily British Pounds), expose us to the risk of fluctuations in foreign currency exchange rates against the U.S. dollar. We do not hedge foreign currency exchange risks and do not currently believe that these risks are significant. 52 Table of Contents NEOGENOMICS, INC.
To minimize our exposure due to adverse shifts in interest rates, we invest in short-term securities with short maturities. If a 1% change in interest rates were to have occurred on December 31, 2022, this change would not have had a material effect on the fair value of our investment portfolio as of that date.
To minimize our exposure due to adverse shifts in interest rates, we invest in short-term securities with short maturities. If a 1% change in interest rates were to have occurred on December 31, 2023, this change would not have had a material effect on the fair value of our investment portfolio as of that date.
Due to the short holding period of our investments, we do not believe that we have a material financial market risk 52 Table of Contents NEOGENOMICS, INC. exposure and do not expect our operating results or cash flows to be materially affected by a sudden change in market interest rates.
Due to the short holding period of our investments, we do not believe that we have a material financial market risk exposure and do not expect our operating results or cash flows to be materially affected by a sudden change in market interest rates.
While we believe our marketable securities do not contain excessive risk, we cannot provide absolute assurance that in the future our investments will not be subject to adverse changes in market value. Foreign Currency Exchange Risk We have operations in Cambridge, United Kingdom; Rolle, Switzerland; Singapore; and Suzhou, China.
While we believe our marketable securities do not contain excessive risk, we cannot provide absolute assurance that in the future our investments will not be subject to adverse changes in market value. Foreign Currency Exchange Risk We have operations in Cambridge, United Kingdom.

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