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

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Paragraph-level year-over-year comparison of Natera, 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.

+407 added−429 removedSource: 10-K (2024-02-29) vs 10-K (2023-03-01)

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

407 paragraphs added · 429 removed · 360 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

136 edited+20 added−24 removed180 unchanged
Biggest changeWe believe the principal competitive factors in our molecular diagnostic testing markets include the following: ● test performance, as demonstrated in clinical and analytical studies and clinical trials as well as in commercial experience; ​ ● comprehensiveness of coverage and ease of use, including user experience for both patients and providers; ​ ● value of product offerings, including pricing and impact on other healthcare spending; ​ ● scope and extent of reimbursement and payer coverage; ​ ● effectiveness of sales and marketing efforts; ​ ● breadth of distribution of products and partnership base; 14 Table of Contents ​ ● reputation among patients and providers for development and introduction of new, innovative products; ​ ● operational execution, including test turn-around time and test failures; ​ ● key opinion leader support; and ​ ● brand awareness.
Biggest changeWe believe the principal competitive factors in our molecular diagnostic testing markets include the following: ● test performance, as demonstrated in clinical and analytical studies and clinical trials as well as in commercial experience; ​ ● comprehensiveness of coverage and ease of use, including user experience for both patients and providers; ​ ● value of product offerings, including pricing and impact on other healthcare spending; ​ ● scope and extent of reimbursement and payer coverage; ​ ● effectiveness of sales and marketing efforts; ​ ● breadth of distribution of products and partnership base; ​ ● reputation among patients and providers for development and introduction of new, innovative products; ​ ● operational execution, including test turn-around time and test failures; ​ ● key opinion leader support; and ​ ● brand awareness. 14 Table of Contents We believe that we compare favorably against our competitors based on various key differentiators, including in particular: ● our core technology, which can be applied across a range of conditions and disease types with a high degree of specificity and sensitivity; ​ ● our continued investment in generating scientific data through clinical trials and publication in peer-reviewed studies; ​ ● our strong commercial teams; and ​ ● our user experience, including ease of use for patients through offerings such as mobile phlebotomy and for physicians through ordering efficiencies and EMR integrations, and patient and provider educational materials.
In addition to our sales force, we market to physicians through channels and media, such as clinical journals, educational webinars, at conferences and tradeshows, and e-mail and social media marketing campaigns. While we currently do not sell directly to patients, we do engage in brand awareness campaigns directed at patients to highlight our products.
In addition to our sales force, we market to physicians through channels and media, such as clinical journals, educational webinars, at conferences and tradeshows, and through e-mail and social media marketing campaigns. While we currently do not sell directly to patients, we do engage in brand awareness campaigns directed at patients to highlight our products.
Some of these laws and regulations are particular to our laboratory business while others relate to conducting business generally (e.g., export controls laws, U.S. Foreign Corrupt Practices Act and similar laws of other jurisdictions). We also are subject to inspections, audits and other inquiries by certain federal and state governmental agencies.
Some of these laws and regulations are particular to our laboratory business while others relate to conducting business generally (e.g., export controls laws, U.S. Foreign Corrupt Practices Act and similar laws of other jurisdictions). Also, we are subject to inspections, audits and other inquiries by certain federal and state governmental agencies.
If the device is reclassified as Class II, the FDA will identify “special controls” that the manufacturer must implement, which may include labeling, performance standards or other requirements. Subsequent applicants can rely upon the de novo product as a predicate when submitting a 510(k) premarket notification, unless FDA exempts subsequent devices from the need for a 510(k).
If the device is reclassified as Class II, the FDA will identify “special controls” that the manufacturer must implement, which may include labeling, performance standards or other requirements. Subsequent applicants can rely upon the de novo product as a predicate when submitting a 510(k) premarket notification, unless the FDA exempts subsequent devices from the need for a 510(k).
The de novo route is intended to be less burdensome than the PMA process. In October 2021, the FDA issued final regulations codifying FDA’s expectations for de novo requests, which went into effect in January 2022.
The de novo route is intended to be less burdensome than the PMA process. In October 2021, the FDA issued final regulations codifying the FDA’s expectations for de novo requests, which went into effect in January 2022.
In October 2021, FDA also issued updated and final guidance on the de novo request and classification process, for the purpose of providing clarity and transparency regarding the de novo classification process. The de novo route has historically been used for many IVD products. Post-market general controls .
In October 2021, the FDA also issued updated and final guidance on the de novo request and classification process, for the purpose of providing clarity and transparency regarding the de novo classification process. The de novo route has historically been used for many IVD products. Post-market general controls .
Therefore, we are required to meet certain laboratory licensing requirements for those states in which we offer services or from which we accept specimens and that have adopted regulations beyond CLIA.
Therefore, we are required to meet certain laboratory licensing requirements for those states in which we offer services or from which we accept specimens, and that have adopted laboratory regulations beyond CLIA.
Statutory or regulatory noncompliance may result in a laboratory’s operator, owners and/or laboratory director being found guilty of a misdemeanor under New York law. Clinical laboratories must also provide notice to CLEP of any changes in ownership, directorship, name or location of the laboratory.
Statutory or regulatory noncompliance may result in a laboratory’s operator, owners and/or laboratory director being found guilty of a misdemeanor under New York law. Clinical laboratories must also provide notice to the CLEP of any changes in ownership, directorship, name or location of the laboratory.
Our Prospera Lung test also exhibited strong performance in our clinical validation study, published in Transplant Direct , distinguishing antibody mediated and acute cellular rejection from stable patients with an AUC of 0.91, as well as distinguishing organ injury – including acute rejection, chronic rejection and infection (which can be more challenging) – from stable patients with an AUC of 0.76.
Our Prospera Lung test exhibited strong performance in our clinical validation study, published in Transplant Direct , distinguishing antibody mediated and acute cellular rejection from stable patients with an AUC of 0.91, as well as distinguishing organ injury – including acute rejection, chronic rejection and infection (which can be more challenging) – from stable patients with an AUC of 0.76.
Although full compliance with these safe harbors ensures against prosecution under the federal Anti-Kickback Statute, the failure of a transaction or arrangement to fit within a specific safe harbor does not necessarily mean that the payment is per se illegal or that prosecution under the federal Anti-Kickback Statute will be pursued.
Although full compliance with these safe harbors ensures protection against prosecution under the federal Anti-Kickback Statute, the failure of a transaction or arrangement to fit within a specific safe harbor does not necessarily mean that the payment is per se illegal or that prosecution under the federal Anti-Kickback Statute will be pursued.
The federal Civil Monetary Penalty statute pertaining to health care fraud and abuse prohibits, among other things, the offer or payment of remuneration to a Medicare beneficiary that the offeror or payer knows or should know is likely to influence the beneficiary to order or receive a reimbursable item or service from a particular provider, practitioner, or supplier; contracting with an individual or entity that the person knows or should know is excluded from participation in a federal health care program; and knowingly making or causing to be made any false statement, omission, or misrepresentation of a material fact in any application, bid, or contract to participate or enroll as a provider of services or a supplier under a federal health care program.
The federal Civil Monetary Penalty Law pertaining to health care fraud and abuse prohibits, among other things, the offer or payment of remuneration to a Medicare beneficiary that the offeror or payer knows or should know is likely to influence the beneficiary to order or receive a reimbursable item or service from a particular provider, practitioner, or supplier; contracting with an individual or entity that the person knows or should know is excluded from participation in a federal health care program; and knowingly making or causing to be made any false statement, omission, or misrepresentation of a material fact in any application, bid, or contract to participate or enroll as a provider of services or a supplier under a federal health care program.
We do not incorporate the information on, or accessible through, our website into this Annual Report on Form 10-K or any other report we file with or finish to the SEC, and you should not consider any information on, or accessible through, our website as part of this Annual Report on Form 10-K or any other report we file with or furnish to the SEC.
We do not incorporate the information on, or accessible through, our website into this Annual Report on Form 10-K or any other report we file with or furnish to the SEC, and you should not consider any information on, or accessible through, our website as part of this Annual Report on Form 10-K or any other report we file with or furnish to the SEC.
We do not incorporate the information on, or accessible through, our website into this Annual Report on Form 10-K or any other report we file with or finish to the SEC, and you should not consider any information on, or accessible through, our website as part of this Annual Report on Form 10-K or any other report we file with or furnish to the SEC.
We do not incorporate the information on, or accessible through, our website into this Annual Report on Form 10-K or any other report we file with or furnish to the SEC, and you should not consider any information on, or accessible through, our website as part of this Annual Report on Form 10-K or any other report we file with or furnish to the SEC.
As such, the reimbursement rates for our diagnostic tests vary by third-party payer. CMS has established a pricing benchmark of $802 for aneuploidy and microdeletions testing, and approximately $2,450 for expanded carrier screening testing.
As such, the coverage and reimbursement rates for our diagnostic tests vary by third-party payer. CMS has established a pricing benchmark of $802 for aneuploidy and microdeletions testing, and approximately $2,450 for expanded carrier screening testing.
This is partially a result of Panorama’s unique ability to detect a vanishing twin, which is a known driver of fetal sex errors with quantitative methods used by our competitors.
This is partially a result of Panorama’s unique ability to detect a vanishing twin, which is a known driver of fetal sex errors with the quantitative methods used by our competitors.
In validation studies, Vistara demonstrated a combined analytical sensitivity and analytical specificity of greater than 99%. Spectrum, our preimplantation genetic tests for couples undergoing IVF, can improve the chance of a successful pregnancy while reducing the chance of miscarriage or of having a child with a chromosomal condition, by helping to identify the healthiest embryos during an IVF cycle.
In validation studies, Vistara demonstrated a combined analytical sensitivity and analytical specificity of greater than 99%. Spectrum, our preimplantation genetic test for couples undergoing IVF, can improve the chance of a successful pregnancy while reducing the chance of miscarriage or of having a child with a chromosomal condition, by helping to identify the healthiest embryos during an IVF cycle.
Most commercial health insurers, as well as an increasing number of state Medicaid programs, have a positive coverage determination for NIPT for average-risk pregnancies. As of December 31, 2022, we and our laboratory distribution partners had in-network contracts with health plans that accounted for over 231 million covered lives in the United States.
Most commercial health insurers, as well as an increasing number of state Medicaid programs, have a positive coverage determination for NIPT for average-risk pregnancies. As of December 31, 2023, we and our laboratory distribution partners had in-network contracts with health plans that accounted for over 231 million covered lives in the United States.
Based on our internal estimates, we believe that the total addressable market in the United States for recurrence and treatment monitoring for solid tumor cancers is over $15 billion. Signatera Signatera is our personalized ctDNA blood test for MRD assessment and surveillance of disease recurrence in patients previously diagnosed with cancer.
Based on our internal estimates, we believe that the total addressable market in the United States for recurrence and treatment monitoring for solid tumor cancers is over $15 billion. Signatera Signatera is our personalized ctDNA blood test for MRD assessment, surveillance of disease recurrence, and evaluation of treatment response in patients previously diagnosed with cancer.
These methodologies include next generation sequencing to detect single nucleotide variants, insertions and deletions, and copy number changes, and PCR fragment analysis to detect certain genetic variants. Other women’s health products While Panorama and Horizon represent a majority of our women’s health revenues, we offer a portfolio of tests addressing reproductive and women’s health.
These methodologies include next generation sequencing to detect single nucleotide variants, insertions and deletions, and copy number changes, and PCR fragment analysis to detect certain genetic variants. Other women’s health products While Panorama and Horizon represent the significant majority of our women’s health revenues, we offer a portfolio of tests addressing reproductive and women’s health.
Panorama demonstrates the capabilities of our technology by employing our fundamentally unique approach of simultaneously measuring thousands 7 Table of Contents of SNPs in a single test reaction to identify genetic variations in fetal DNA with a high degree of specificity and sensitivity, which we believe can give patients and their physicians a greater degree of comfort in choosing to forego unnecessary invasive procedures, limiting the resulting risk of spontaneous miscarriage associated with invasive procedures and lowering the total cost to the healthcare system of these procedures.
Panorama demonstrates the capabilities of our technology by employing our fundamentally unique approach of simultaneously measuring thousands of SNPs in a single test reaction to identify genetic variations in fetal DNA with a high degree of specificity and sensitivity, which we believe can give patients and their physicians a greater degree of comfort in choosing to forego unnecessary invasive procedures, limiting the resulting risk of spontaneous miscarriage associated with invasive procedures and lowering the total cost to the healthcare system of these procedures.
Although the federal Anti-Kickback Statute applies only to federal healthcare programs, a most U.S. states have passed laws substantially similar to the federal Anti-Kickback Statute pursuant to which similar types of prohibitions are made applicable to all commercial health plans or any health care services, depending on the state.
Although the federal Anti-Kickback Statute applies only to federal health care programs, most U.S. states have passed laws substantially similar to the federal Anti-Kickback Statute pursuant to which similar types of prohibitions are made applicable to all commercial health plans or any health care services, depending on the state.
Panorama screens for common genetic conditions that affect both high-risk pregnancies, where maternal age is 35 years or older and which we estimate represent approximately 800,000 of the approximately 4.4 million pregnancies in the United States, and average-risk pregnancies, which we estimate represent approximately 3.6 million pregnancies in the United States.
Panorama screens for common genetic conditions that affect both high-risk pregnancies, where maternal age is 35 years or older and which we estimate represent approximately 800,000 of the approximately 4.3 million pregnancies in the United States, and average-risk pregnancies, which we estimate represent approximately 3.5 million pregnancies in the United States.
Healthcare Fraud and Abuse Laws Federal and state governmental authorities scrutinize arrangements between healthcare providers and potential referral sources to ensure that the arrangements are not designed as a mechanism to induce patient care referrals for items or services billable to governmental health care programs.
Healthcare Fraud and Abuse Laws Federal and state governmental authorities scrutinize arrangements between healthcare providers and potential referral sources to ensure that the arrangements are not designed as a mechanism to induce patient care referrals for items or services billable to governmental health care programs and commercial health plans.
Related-donor cases are challenging because it is technically difficult to differentiate between DNA patterns of close relatives; however, we were able to achieve a high degree of accuracy by leveraging our experience with SNP-based methods in the reproductive health setting. This is promising for the estimated 52% of live kidney donations that are from a biological relative of the patient.
Related-donor cases are challenging because it is technically difficult to differentiate between DNA patterns of close relatives; however, we were able to achieve a high degree of accuracy by leveraging our experience with SNP-based methods in the reproductive health setting. 11 Table of Contents This is promising for the estimated 52% of live kidney donations that are from a biological relative of the patient.
We must also comply with the standards for the privacy of individually identifiable health information, which limit the use and disclosure of most paper and oral communications, as well as those in electronic form, regarding an individual’s past, present or future physical or mental health or condition, or relating to the provision of healthcare to the individual or payment for that healthcare, if the individual can or may be identified by such information.
We must also comply with the standards for the privacy of individually identifiable health information, which limit the use and disclosure of most paper and oral communications, as well as those in electronic form, regarding an individual’s past, present or future physical or mental health or condition, or relating to the provision of 21 Table of Contents healthcare to the individual or payment for that healthcare, if the individual can or may be identified by such information.
We are also subject to the Physician Self-Referral law, commonly known as the Stark Law, which prohibits, with certain exceptions, an ownership or financial arrangement with a physician (or physician’s immediate family member) in 24 Table of Contents exchange for the referral of designated health services, including clinical laboratory services, or presenting or causing to be presented claims to Medicare and Medicaid for such services referred by the physician.
We are also subject to the Physician Self-Referral law, commonly known as the Stark Law, which prohibits, with certain exceptions, an ownership or financial arrangement with a physician (or a physician’s immediate family member) in exchange for the referral of designated health services, including clinical laboratory services, or presenting or causing to be presented claims to Medicare and Medicaid for such services referred by the physician.
Panorama Panorama, our NIPT, helps physicians assess the risk of fetal genetic abnormalities by non-invasively screening for fetal chromosomal abnormalities, including Down syndrome, Edwards syndrome, Patau syndrome, Turner syndrome and triploidy, which often result in intellectual disability, severe organ abnormalities and miscarriage.
Panorama helps physicians assess the risk of fetal genetic abnormalities by non-invasively screening for fetal chromosomal abnormalities, including Down syndrome, Edwards syndrome, Patau syndrome, Turner syndrome and triploidy, which often result in intellectual disability, severe organ abnormalities and miscarriage.
California has an anti-markup statute with which we must comply, which prohibits providers from charging for any laboratory test that it did not perform unless the provider (a) notifies the patient, client or customer of the name, address, and charges of the laboratory performing the test, and (b) charges no more than what the provider was charged by the clinical laboratory which performed 25 Table of Contents the test except for any other service actually rendered to the patient by the provider (for example, specimen collection, processing and handling) (Business and Professions Code Section 655.5).
California has an anti-markup statute with which we must comply, which prohibits providers from charging for any laboratory test that it did not perform unless the provider (a) notifies the patient, client or customer of the name, address, and charges of the laboratory performing the test, and (b) charges no more than what the provider was charged by the clinical laboratory which performed the test except for any other service actually rendered to the patient by the provider (for example, specimen collection, processing and handling) (CA Business and Professions Code Section 655.5).
Our environmental sustainability program addresses, among others, emissions reduction; water and energy conservation; sustainability in supply chain management; waste reduction; employee engagement; and sustainable building design and operations. In particular, we have established Scope 1, 2 and 3 intensity reduction targets as part of our broader climate action plan as outlined in our 2025 Environmental, Social and Governance goals.
Our environmental sustainability program addresses, among others, emissions reduction; water and energy conservation; sustainability in supply chain management; waste reduction; employee engagement; and sustainable building design and operations. In particular, we have established Scope 1, 2 and 3 intensity reduction targets as part of our broader climate action plan as outlined in our 2025 ESG goals.
As part of our sustainability and environmental, social, and governance (ESG) program, we have an executive steering committee responsible for overseeing sustainability projects to reduce the environmental impact of our laboratory operations, our corporate offices, and our supply chain.
As part of our sustainability and ESG program, we have an executive steering committee responsible for overseeing sustainability projects to reduce the environmental impact of our laboratory operations, our corporate offices, and our supply chain.
Anora, our products of conception, or POC, test, analyzes miscarriage tissue from women who have experienced one or more pregnancy losses to determine whether there was an underlying chromosomal reason for the loss. Anora can detect trisomy, triploidy, extra or missing chromosome pieces, and uniparental disomy.
Anora, our products of conception, or POC, test, analyzes miscarriage tissue from women who have experienced one or more pregnancy losses to determine whether there was an underlying chromosomal reason for the loss. Anora can 9 Table of Contents detect trisomy, triploidy, extra or missing chromosome pieces, and uniparental disomy.
CLIA certification is also a prerequisite to be eligible to bill state and federal healthcare programs, as well as many commercial third-party payers, for laboratory testing services. Our laboratories located in Austin, Texas and in San Carlos, California are CLIA certified, and must comply with all applicable CLIA regulations and standards.
CLIA certification is also a prerequisite to be eligible to bill state and federal health care programs, as well as many commercial third-party payers, for laboratory testing services. Our laboratories located in Austin, Texas and in San Carlos, California are CLIA certified, and must comply with all applicable CLIA regulations and standards.
CNV – copy number variation; a genetic mutation in which relatively large regions of the genome have been deleted or duplicated. 27 Table of Contents CPT – Current Procedure Terminology; codes used by doctors and health care professionals for identifying medical services and procedures. ctDNA – circulating tumor DNA; tumor DNA circulating in a blood sample.
CNV – copy number variation; a genetic mutation in which relatively large regions of the genome have been deleted or duplicated. CPT – Current Procedure Terminology; codes used by doctors and health care professionals for identifying medical services and procedures. ctDNA – circulating tumor DNA; tumor DNA circulating in a blood sample.
The California Insurance Code includes similar prohibitions against any consideration for the referral or procurement of patients if a claim is submitted to a commercial insurer, CA Ins. Code § 750, which is punishable by criminal penalties mirroring those that apply to violations of Business and Professions Code Section 650.
The California Insurance Code includes similar prohibitions against any consideration for the 23 Table of Contents referral or procurement of patients if a claim is submitted to a commercial insurer, CA Ins. Code § 750, which is punishable by criminal penalties mirroring those that apply to violations of Business and Professions Code Section 650.
We strive to offer an excellent customer and patient experience through our field sales reps, medical science liaisons and medical affairs, and customer service and mobile phlebotomy offering. Where possible, we aim to maximize sales opportunities by educating the physician practices on the benefits of combining complementary tests from our portfolio of products.
We strive to offer an excellent customer and patient experience through our field sales reps, medical science liaisons and medical affairs personnel, and our customer service and mobile phlebotomy offerings. Where possible, we aim to maximize sales opportunities by educating the physician practices on the benefits of combining complementary tests from our portfolio of products.
We are subject to California’s Physician Ownership and Referral Act, or PORA, which generally prohibits us from billing a patient or any governmental or private payer for any laboratory services when the physician ordering the service, or any member of such physician’s immediate family, has a “financial interest” with us, unless the arrangement meets an exception (CA Business and Professions Code Section 650.02).
We are subject to California’s Physician Ownership and Referral Act, or PORA, which generally prohibits us from billing a patient or any governmental or commercial third-party payer for any laboratory services when the physician ordering the service, or any member of such physician’s immediate family, has a “financial interest” with us, unless the arrangement meets an exception (CA Business and Professions Code Section 650.02).
Sensitivity is calculated as the ratio between the number of individuals that test positive for the condition over the total number of individuals in the tested cohort who actually have the condition. SNP – single nucleotide polymorphism; a position on the chromosome at which single DNA base changes are common in the population.
Sensitivity is calculated as the ratio between the number of individuals that test positive for the condition over the total number of individuals in the tested cohort who actually have the condition. 28 Table of Contents SNP – single nucleotide polymorphism; a position on the chromosome at which single DNA base changes are common in the population.
Unlike static liquid biopsy panels (also known as therapy selection or comprehensive genomic profiling, or CGP, which screen for a generic set of mutations independent of an individual’s tumor, Signatera is not intended to 10 Table of Contents match patients with any particular therapy.
Unlike static liquid biopsy panels (also known as therapy selection) or comprehensive genomic profiling, or CGP, which screen for a generic set of mutations independent of an individual’s tumor, Signatera is not intended to match patients with any particular therapy.
The federal Anti-Kickback Statute makes it a felony for a provider or supplier, including a laboratory, to knowingly and willfully offer, pay, solicit or receive remuneration, directly or indirectly, in order to induce business that is reimbursable under any federal healthcare program.
The federal Anti-Kickback Statute makes it a felony for a provider or supplier, including a laboratory, to knowingly and willfully offer, pay, solicit or receive remuneration, directly or indirectly, in order to induce business that is reimbursable under any federal health care program.
Empower, our hereditary cancer screening test, screens for certain genes associated with increased risk for common hereditary cancers, such as breast, ovarian, endometrial, and colorectal cancers.
Empower, our hereditary cancer screening test, screens for over 80 genes associated with increased risk for certain common hereditary cancers, such as breast, ovarian, endometrial, and colorectal cancers.
Screening for these conditions early in a pregnancy can facilitate early diagnosis, enable patients to be referred to MFMs and other specialists for targeted evaluations, to guide labor and delivery management, and to allow families to mobilize resources, 9 Table of Contents ask questions and anticipate future needs. We have received a CE Mark for Vistara from the European Commission.
Screening for these conditions early in a pregnancy can facilitate early diagnosis, enable patients to be referred to MFMs and other specialists for targeted evaluations, to guide labor and delivery management, and to allow families to mobilize resources, ask questions and anticipate future needs. We have received a CE Mark for Vistara from the European Commission.
AUC – area under the receiver operating curve; a measure of the diagnostic performance of a test, based on sensitivity and specificity. cfDNA – cell-free DNA. CLIA – Clinical Laboratory Improvement Amendments. CMS – Centers for Medicare and Medicaid Services.
AUC – area under the receiver operating curve; a measure of the diagnostic performance of a test, based on sensitivity and specificity. cfDNA – cell-free DNA. 27 Table of Contents CLIA – Clinical Laboratory Improvement Amendments. CMS – Centers for Medicare and Medicaid Services.
The New York DOH may suspend, limit, revoke or annul the New York laboratory permit or otherwise discipline the permit holder for a violation. 23 Table of Contents Because we operate a laboratory facility located in Texas, our business arrangements are subject to certain Texas laws. Texas’s primary anti-kickback statute, Texas Patient Solicitation Act (Tex. Occ.
The New York DOH may suspend, limit, revoke or annul the New York laboratory permit or otherwise discipline the permit holder for a violation. Because we operate a laboratory facility located in Texas, our business arrangements are subject to certain Texas laws. Texas’s primary anti-kickback statute, Texas Patient Solicitation Act (Tex. Occ.
Women of Natera and our Diversity & Inclusion Group both serve as resources to the organization in fostering a culture of inclusion and diversity by providing a platform of networking, ongoing learning and exchange to support professional development and promote workplace equality and 26 Table of Contents diversity.
Women of Natera and our Diversity & Inclusion Group both serve as resources to the organization in fostering a culture of inclusion and diversity by providing a platform of networking, ongoing learning and exchange to support professional development and promote workplace equality and diversity.
For example, when learning prior to birth that a newborn has 22q11.2 deletion syndrome, doctors will know to monitor the infant and administer calcium if needed to avoid seizures and permanent cognitive impairment, and will know to avoid administering routine vaccinations due to the immunodeficiency frequently associated with this condition.
For example, when learning prior to birth that a newborn has 22q11.2 deletion syndrome, doctors will know to monitor the infant and administer calcium if needed to avoid seizures and permanent cognitive impairment, and will know to avoid administering routine vaccinations due to the immunodeficiency frequently 7 Table of Contents associated with this condition.
Conduct which violates the federal Anti-Kickback Statute or similar laws also triggers liability under the Federal False Claims Act, which prohibits 22 Table of Contents knowingly presenting or causing to be presented a false, fictitious or fraudulent claim for payment to the U.S. Government and can result in additional penalties and fines.
Conduct which violates the federal Anti-Kickback Statute or similar laws also triggers liability under the Federal False Claims Act, which prohibits knowingly presenting or causing to be presented a false, fictitious or fraudulent claim for payment to the U.S. Government and can result in additional penalties and fines.
Generally, courts have taken a broad interpretation of the scope of the federal Anti-Kickback Statute, holding that the statute may be violated if merely one purpose of a payment arrangement is to induce future referrals.
Generally, courts have taken a broad interpretation of the scope of 22 Table of Contents the federal Anti-Kickback Statute, holding that the statute may be violated if merely one purpose of a payment arrangement is to induce future referrals.
The OIG emphasized in the Special Fraud Alerts that when one purpose of such arrangements is to induce referrals of government program-reimbursed laboratory testing, both the clinical laboratory and the healthcare provider (e.g., physician) may be liable under the federal Anti-Kickback Statute, and may be subject to civil and/or criminal prosecution and exclusion from participation in any federal healthcare programs, such as the Medicare and Medicaid programs.
The OIG emphasized in the Special Fraud Alerts that when one purpose of such arrangements is to induce referrals of government program-reimbursed laboratory testing, both the clinical laboratory and the healthcare provider (e.g., physician) may be liable under the federal Anti-Kickback Statute, and may be subject to civil and/or criminal prosecution and exclusion from participation in any federal health care programs.
In that study, Panorama demonstrated sensitivity of 83%, clinical PPV of approximately 53%, and a false positive rate of 0.05% for 22q11.2 deletion syndrome using our updated artificial intelligence algorithm.
In the SMART study, Panorama demonstrated sensitivity for 22q11.2 deletion syndrome of 83%, clinical PPV of approximately 53%, and a false positive rate of 0.05% using our updated artificial intelligence algorithm.
The only case law issued to date involves decisions interpreting the EKRA as it applies to compensation of laboratory sales personnel hired as independent contractors, and the courts differ on interpretation and application of the law.
The only 24 Table of Contents case law issued to date involves decisions interpreting the EKRA as it applies to compensation of laboratory sales personnel hired as independent contractors, and the courts differ on interpretation and application of the law.
The American Journal of Obstetrics & Gynecology noted that the ability of Panorama to identify additional fetal haplotypes is expected to result in fewer false positive calls and prevent incorrect fetal sex calls.
The American Journal of Obstetrics & Gynecology noted that the ability of Panorama to identify additional fetal haplotypes is expected to result in fewer false positive calls and prevent incorrect fetal sex calls compared to other methods.
Once the American Medical Association, or AMA, establishes a CPT code, 15 Table of Contents the Centers for Medicare & Medicaid Services, or CMS, establishes payment levels and coverage rules under Medicare, while state Medicaid programs and commercial health plans establish rates and coverage rules independently in accordance with applicable rules.
Once the American Medical Association, or AMA, establishes a CPT code, the Centers for Medicare & Medicaid Services, or CMS, establishes payment levels and coverage rules under Medicare, while state Medicaid programs and commercial health plans establish rates and coverage rules independently in accordance with applicable rules.
In June 2021, Congress introduced legislation called the Verifying Accurate, Leading-edge IVCT Development Act, or VALID Act, which would have established a new risk-based regulatory framework for in vitro clinical tests, or IVCTs, a category that would have included IVDs, LDTs, collection devices, and instruments used with such tests.
In addition, in June 2021, Congress 18 Table of Contents introduced legislation called the Verifying Accurate, Leading-edge IVCT Development Act, or VALID Act, which would have established a new risk-based regulatory framework for in vitro clinical tests, or IVCTs, a category that would have included IVDs, LDTs, collection devices, and instruments used with such tests.
A violation of the federal Civil Monetary Penalty statute may result in maximum civil fines up to $112,131 plus treble damages and exclusion from participation in any federal health care program. Because we operate a laboratory facility located in California and licensed by California’s DHS, California law is applicable to our business arrangements.
A violation of the federal Civil Monetary Penalty statute may result in maximum civil fines – up to $120,816 in 2023 – plus treble damages and exclusion from participation in any federal health care program. Because we operate a laboratory facility located in California and licensed by California’s DHS, California law is applicable to our business arrangements.
Violation of the federal False Claims Act may result in fines of up to three times the actual damages sustained by the government, plus mandatory civil penalties of up to approximately $25,076 per false claim or statement, imprisonment or both, reimbursement of the whistleblower’s attorneys’ fees, and possible exclusion from any federal health care programs.
Violation of the federal False Claims Act may result in fines of up to three times the actual damages sustained by the government, plus mandatory civil penalties – up to approximately $27,018 in 2023 – per false claim or statement, imprisonment or both, reimbursement of the whistleblower’s attorneys’ fees, and possible exclusion from any federal health care programs.
Any person who presents or causes to be presented a claim to the Medicare or Medicaid programs in violation of the Stark Law may be subject to civil monetary penalties of up to $27,750 per claim submission, an assessment of up to three times the amount claimed, and exclusion from participation in any federal health care program.
Any person who presents or causes to be presented a claim to the Medicare or Medicaid programs in violation of the Stark Law may be subject to civil monetary penalties – up to $29,899 in 2023 – per claim submission, an assessment of up to three times the amount claimed, and exclusion from participation in any federal health care program.
SNV – single nucleotide variant; a genetic mutation in which a single chemical base in DNA has changed. 28 Table of Contents Specificity – the likelihood that an individual without a condition will be correctly found not to have that condition.
SNV – single nucleotide variant; a genetic mutation in which a single chemical base in DNA has changed. Specificity – the likelihood that an individual without a condition will be correctly found not to have that condition.
In addition, HIPAA mandates that the Secretary of HHS conduct periodic compliance audits of health care providers, such as us, and their business associates for compliance with the HIPAA privacy and security standards.
In addition, HIPAA mandates that the Secretary of the Department of Health and Human Services, or HHS, conduct periodic compliance audits of health care providers, such as us, and their business associates for compliance with the HIPAA privacy and security standards.
Glossary of Terms ACOG – the American Congress of Obstetricians and Gynecologists. ACMG – the American College of Medical Genetics and Genomics. Allograft – the transplant of an organ or tissue from one individual to another individual of the same species who is not genetically identical. AMA – American Medical Association.
The Company does not conduct animal testing. Glossary of Terms ACOG – the American Congress of Obstetricians and Gynecologists. ACMG – the American College of Medical Genetics and Genomics. Allograft – the transplant of an organ or tissue from one individual to another individual of the same species who is not genetically identical. AMA – American Medical Association.
In organ health, our competitors include CareDx, Inc. and Eurofins Viracor, Inc. We expect additional competition as other established and emerging companies enter these markets, including through business combinations, and as new tests and technologies are introduced. These competitors could have greater technological, financial, reputational and market access resources than us.
In organ health, our primary competitor is CareDx, Inc. We expect additional competition as other established and emerging companies enter these markets, including through business combinations, and as new tests and technologies are introduced. These competitors could have greater technological, financial, reputational and market access resources than us.
In the year ended December 31, 2022, approximately three-quarters of customers who ordered the basic Panorama panel directly from us also ordered screening for 22q11.2 deletion syndrome or the full microdeletions panel, and approximately one-third of customers who ordered Panorama directly from us also ordered Horizon carrier screening.
In the year ended December 31, 2023, approximately three-quarters of customers who ordered the basic Panorama panel directly from us also ordered screening for 22q11.2 deletion syndrome or the full microdeletions panel, and approximately 43% of customers who ordered Panorama directly from us also ordered Horizon carrier screening.
Through this model, we have been able to expand access to our molecular and bioinformatics capabilities worldwide, enabling laboratories, under a license from us, to run the molecular workflows themselves and then access our computation-intensive bioinformatics algorithms through Constellation, which runs in the cloud, to analyze the results.
Constellation Our Constellation software forms the core of our cloud-based distribution model. Through this model, we have been able to expand access to our molecular and bioinformatics capabilities worldwide, enabling laboratories, under a license from us, to run the molecular workflows themselves and then access our computation-intensive bioinformatics algorithms through Constellation, which runs in the cloud, to analyze the results.
In addition to our direct sales force in the United States, we have a global network of over 100 laboratory and distribution partners, including many of the largest international laboratories. We are committed to generating peer-reviewed clinical evidence for our tests, and have published over 75 publications in women’s health, 40 in oncology, and over 20 in organ health.
In addition to our direct sales force in the United States, we have a global network of over 100 laboratory and distribution partners, including many of the largest international laboratories. We are committed to generating peer-reviewed clinical evidence for our tests, and have 85 peer-reviewed publications in women’s health, over 60 in oncology, and over 30 in organ health.
To this end, it is important to us to create an inclusive and equitable environment that represents a broad spectrum of backgrounds and cultures. We have two employee resource groups, or ERGs, committed to furthering our efforts in this area.
To this end, it is important to us to create an inclusive culture of belonging that represents a broad spectrum of backgrounds. We have two employee resource groups, or ERGs, committed to furthering our efforts in this area.
A person who engages in a scheme to circumvent the Stark Law’s referral prohibition may be fined up to $185,009 for each such arrangement or scheme.
A person who engages in a scheme to circumvent the Stark Law’s referral prohibition may be fined – up to $199,338 in 2023 – for each such arrangement or scheme.
In women’s health, this approach is distinct from the approach employed with other commercially available NIPTs, which use first-generation “quantitative”, or counting, methods to compare the relative number of sequence reads from a chromosome of interest to a reference chromosome.
We believe our approach represents a fundamental advance in molecular biology. In women’s health, this approach is distinct from the approach employed with other commercially available NIPTs, which use first-generation “quantitative”, or counting, methods to compare the relative number of sequence reads from a chromosome of interest to a reference chromosome.
Unlike the federal Anti-Kickback Statute, EKRA is not limited to government health care benefit programs, so the prohibitions extend to services covered by commercial health plans. Additionally, most of the safe harbors available under the federal Anti-Kickback Statute are not reiterated under EKRA, and certain EKRA safe harbors conflict with the safe harbors available under the federal Anti-Kickback Statute.
Unlike the federal Anti-Kickback Statute, EKRA is not limited to federal health care programs and extends the prohibitions to services covered by commercial health plans. Additionally, not all of the safe harbors available under the federal Anti-Kickback Statute are not reiterated under EKRA, and certain EKRA exceptions conflict with the federal Anti-Kickback Statute safe harbors.
The Protecting Access to Medicare Act of 2014, or PAMA, introduced a multi-year pricing program and new payment methodology to calculate the rates for tests listed under the CLFS that are reimbursable by Medicare Part B. Under the new payment methodology, the Medicare Part B CLFS payment rate is derived from a volume-weighted median of private payer rates for tests.
The Protecting Access to Medicare Act of 2014, or PAMA, introduced a multi-year pricing program and new payment methodology to calculate the rates for tests listed under the CLFS that are reimbursable by Medicare Part B.
Entities found in violation may be liable for civil monetary penalties of up to $100,000 for each wrongful act.
Entities found in violation may be liable for civil monetary penalties – up to $100,000 (or $24,164 for each wrongful act) in 2023.
We currently have licensing contracts with various laboratories in the United States and internationally who are using our Constellation platform commercially in NIPT and in prenatal paternity testing, and we may expand this distribution model to other products in the future.
We currently have licensing contracts with various laboratories in the United States and internationally who are using our Constellation platform commercially in NIPT and in prenatal paternity testing, and we may expand this distribution model to other products in the future. We also leverage Constellation to perform our internal commercial laboratory activities and research and development of our products.
It is unclear how FDA will apply the guidance document to currently marketed software and to software that may be developed in the future. It is also unclear whether FDA will apply the final guidance to CDS software that is used by clinical laboratories as part of an LDT, since LDTs have historically been subject to FDA enforcement discretion.
It is also unclear whether the FDA will apply the final guidance to CDS software that is used by clinical laboratories as part of an LDT, since LDTs have historically been subject to FDA enforcement discretion.
A violation of the federal Anti-Kickback Statute may result in imprisonment for up to ten years and/or criminal or civil fines of up to $104,330 and exclusion from participation in federal healthcare programs.
A violation of the federal Anti-Kickback Statute may result in imprisonment for up to ten years and/or criminal or civil fines – up to $104,330 (or $27,018 for each wrongful act) in 2023 – and exclusion from participation in federal health care programs.
Our approach combines proprietary molecular biology and computational techniques to measure genomic variations in tiny amounts of DNA, as small as a single cell; our core technology has, to date, been proven across these three diverse fields of women’s health, oncology and organ health. 6 Table of Contents DNA is a naturally occurring information storage system that conveys genetic inheritance.
Our approach combines proprietary molecular biology and computational techniques to measure genomic variations in tiny amounts of DNA, as small as a single cell. Our core technology has, to date, been proven across these three diverse fields of women’s health, oncology and organ health. DNA is the molecule that carries genetic information in an organism.
Furthermore, with recent technological advances validated in our SNP-based Microdeletions and Aneuploidy RegisTry (SMART) study described below, Panorama leverages artificial intelligence to enable highly accurate results on samples for which a result would otherwise be difficult to determine.
Furthermore, with recent technological advances validated in the SMART study, Panorama leverages artificial intelligence to enable highly accurate results on samples for which a result would otherwise be difficult to determine.
Furthermore, our tests can be applied to assess a range of conditions and disease types, including common fetal aneuploidies, microdeletions, triploidy, and inherited genetic conditions that could be passed on from parent to child; a growing number of cancer types; and rejection of heart, lung, and kidney transplants. We believe our approach represents a fundamental advance in molecular biology.
Furthermore, our tests can be applied to assess a range of conditions and disease types, including common fetal aneuploidies, microdeletions, triploidy, and inherited genetic conditions that could be passed on from parent to child; a broad range of cancer types; rejection of heart, lung, and kidney transplants; and genetic bases of kidney disease.
We have launched Altera, our tissue based comprehensive genomic profiling test that provides insight into genomic alterations and biomarkers found in a patient’s tumor, supporting treatment decisions and therapy selection by prioritizing potentially beneficial therapies based on the patient’s tumor biomarkers and cancer type.
Altera Altera is our tissue based comprehensive genomic profiling test that provides insight into genomic alterations and biomarkers found in a patient’s tumor, supporting treatment decisions and therapy selection by prioritizing potentially beneficial therapies based on the patient’s tumor biomarkers and cancer type. Based on our internal estimates, therapy selection represents an approximate $6.0 billion market opportunity.
We are working towards a 2025 Environmental, Social and Governance goal of all managers complete annual diversity training. Sustainability We recognize that in our work to improve the state of disease globally, it is important to develop and maintain a strong ethos of sustainability, responsibility, and stewardship with respect to environmental matters.
In 2023, over 93% of people managers completed annual diversity training in furtherance of our 2025 Environmental, Social and Governance, or ESG, goals. Sustainability We recognize that in our work to improve the state of disease globally, it is important to develop and maintain a strong ethos of sustainability, responsibility, and stewardship with respect to environmental matters.
We also compete against companies providing carrier screening tests such as LabCorp; Myriad Genetics, Inc.; Invitae Corp.; BillionToOne Inc.; Quest; NxGen; Ambry Genetics; and GenPath Diagnostics, a business unit of Bio-Reference. Each of these companies offers comprehensive carrier screening panels.
We also compete against companies providing carrier screening tests such as LabCorp; Myriad Genetics, Inc.; Fulgent Genetics; BillionToOne Inc.; Quest; Ambry Genetics; and GenPath Diagnostics, a division of BioReference Health, LLC. Each of these companies offers comprehensive carrier screening panels.
As of December 31, 2022, we held over 150 issued U.S. and foreign patents, which expire between November 2026 and February 2044, and over 220 pending U.S. and foreign patent applications.
As of December 31, 2023, we held approximately 170 issued U.S. and foreign patents, which expire between November 2026 and November 2044, and approximately 250 pending U.S. and foreign patent applications.
Also based on self-identification data, minorities comprised over 40% of our U.S. workforce. We are committed to attracting, retaining, developing, and nurturing a diverse workforce, which we believe is necessary in order to deliver upon our mission of changing the management of disease worldwide.
We are committed to attracting, retaining, developing, and nurturing a diverse workforce, which we believe is necessary in order to deliver upon our mission of changing the management of disease worldwide.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeFood and Drug Administration, or the FDA, or other U.S. or foreign regulatory or legislative bodies may adopt new regulations or policies, or take other actions that impose significant restrictions on our ability to market and sell our tests, including requiring FDA clearance or approval for the sale of our tests, or of the sequencers, reagents, kits and other consumable products that we purchase from third parties in order to perform our testing; • our laboratory partners may choose to develop their own tests that are competitive with ours or offer tests provided by our competitors due to pricing or other reasons as has happened in the past, or otherwise fail to effectively market our tests; and competitors may develop and commercialize more effective and/or less expensive tests that deliver comparable results to our tests; • we may fail to adequately protect or enforce our intellectual property relating to our tests, leading to increased competition; or other parties may claim that the practice of our technology by us or our licensees and collaborators infringes such other party’s intellectual property rights, as certain of our competitors have claimed in lawsuits filed against us, as discussed further in “Note 8—Commitments and Contingencies— 30 Table of Contents Legal Proceedings” in the Notes to Consolidated Financial Statements; if we are required to pay license fees in order to license third-party intellectual property rights due to actual or alleged infringement based on our running our tests, we may experience increased costs in running our tests, and we may be unable to pass such costs on to our customers; • we may be unable to dedicate adequate resources to the maintenance and further technological advancement of our current tests that are necessary for such tests to be competitive in the marketplace because of the demands placed on our research and development and product teams with respect to our continuously expanding portfolio of products and programs, in particular our efforts and focus on developing our oncology and organ health products; • in the event that it is in our commercial or financial interest or we are forced to transition sequencing platforms for Panorama, we may be unable to do so in a commercially sustainable way and that could survive claims of infringement of intellectual property rights of Illumina and other competitors, in a timely manner or at all; and • we may not be successful in commercializing our cloud-based distribution model.
Biggest changeFood and Drug Administration, or the FDA, or other U.S. or foreign regulatory or legislative bodies may adopt new regulations or policies, or take other actions that impose significant restrictions on our ability to market and sell our tests, including requiring FDA clearance or approval for the sale of our tests (for example, the VALID Act or a proposed rule published by the FDA in September 2023), as further discussed in the risk factor entitled “ Regulatory and Compliance Risks — If the FDA were to begin actively regulating our tests, we could incur substantial costs and delays associated with trying to obtain premarket 510(k) clearance, de novo classification, or premarket approval and incur costs associated with complying with 30 Table of Contents post market controls ”) or of the sequencers, reagents, kits and other consumable products that we purchase from third parties in order to perform our testing; • our laboratory partners may choose to develop their own tests that are competitive with ours or offer tests provided by our competitors due to pricing or other reasons as has happened in the past, or otherwise fail to effectively market our tests; and competitors may develop and commercialize more effective and/or less expensive tests that deliver comparable results to our tests; • we may fail to adequately protect or enforce our intellectual property relating to our tests, leading to increased competition; or other parties may claim that the practice of our technology by us or our licensees and collaborators infringes such other party’s intellectual property rights, as certain of our competitors have claimed in lawsuits filed against us, as discussed further in “Note 8—Commitments and Contingencies—Legal Proceedings” in the Notes to Consolidated Financial Statements; if we are required to pay litigation judgments or settlements or pay license fees in order to license third-party intellectual property rights due to actual or alleged infringement based on our running our tests, our results of operations or financial condition could be adversely impacted; • we may be unable to dedicate adequate resources to the maintenance and further technological advancement of our current tests that are necessary for such tests to be competitive in the marketplace because of the demands placed on our research and development and product teams with respect to our continuously expanding portfolio of products and programs, in particular our efforts and focus on developing our oncology and organ health product offerings; • in the event that it is in our commercial or financial interest or we are forced to transition sequencing platforms for Panorama, we may be unable to do so in a commercially sustainable way and that could survive claims of infringement of intellectual property rights of Illumina and other competitors, in a timely manner or at all; and • we may not be successful in commercializing our cloud-based distribution model.
Among the factors complicating our billing of third-party payers are disparity in coverage among various payers; disparity in, and increasingly difficult, information and billing requirements among payers, including with respect to prior authorization requirements and procedures and establishing medical necessity; and incorrect or missing billing information, which is required to be provided by the ordering healthcare practitioner.
Among the factors complicating our billing of third-party payers are disparity in coverage among various payers; disparity in, and increasingly difficult, information and billing requirements among third-party payers, including with respect to prior authorization requirements and procedures and establishing medical necessity; and incorrect or missing billing information, which is required to be provided by the ordering healthcare practitioner.
In addition, various states have enacted false claim laws analogous to the federal False Claims Act, and in some cases go even further because many of these state laws apply where a claim is submitted to any third-party payer and not merely a governmental payer program.
In addition, various states have enacted false claim laws analogous to the federal False Claims Act, and in some cases go even further because many of these state laws apply where a claim is submitted to any third-party payer and not merely a governmental program.
If third party payers do not reimburse for NIPT for microdeletions in the future, our future revenues and results of operations would be adversely affected, particularly to the extent that we continue to perform large volumes of tests for which third party payors do not reimburse. In addition, a CPT code for microdeletions took effect in January 2017.
If third-party payers do not reimburse for NIPT for microdeletions in the future, our future revenues and results of operations would be adversely affected, particularly to the extent that we continue to perform large volumes of tests for which third-party payers do not reimburse. In addition, a CPT code for microdeletions took effect in January 2017.
Among the risks to our business and results of operations from our Constellation model are the following: • our and our licensees’ ability to obtain required regulatory authorizations from the FDA and international regulatory agencies as further described in the risk factor entitled “ Regulatory and Compliance Risks— 34 Table of Contents Failure to obtain necessary regulatory approvals may adversely affect our ability to expand our operations internationally, including our ability to continue commercializing our cloud-based distribution model ;” • supply constraints, including with respect to the blood collection tubes that are used for many of our tests, such as Panorama, Signatera and Prospera, and that are supplied by Streck, Inc., or Streck, as further described in the risk factor entitled “— We rely on a limited number of suppliers or, in some cases, single suppliers, for some of our laboratory instruments and materials and may not be able to find replacements or immediately transition to alternative suppliers ;” • allegations or potential third-party claims that the tests, based on our technology, developed by our licensees violate such third parties’ intellectual property rights; • licensing portions of our proprietary technology to third parties that may not take the same security precautions as we do to protect this information; and • an inability to achieve anticipated benefits and costs savings.
Among the risks to our business and results of operations from our Constellation model are the following: • our and our licensees’ ability to obtain required regulatory authorizations from the FDA and international regulatory agencies as further described in the risk factor entitled “ Regulatory and Compliance Risks—Failure to obtain necessary regulatory approvals may adversely affect our ability to expand our operations internationally, including our ability to continue commercializing our cloud-based distribution model ;” • supply constraints, including with respect to the blood collection tubes that are used for many of our tests, such as Panorama, Signatera and Prospera, and that are supplied by Streck, Inc., or Streck, as further described in the risk factor entitled “— We rely on a limited number of suppliers or, in some cases, single suppliers, for some of our laboratory instruments and materials and may not be able to find replacements or immediately transition to alternative suppliers ;” • allegations or potential third-party claims that the tests, based on our technology, developed by our licensees violate such third parties’ intellectual property rights; • licensing portions of our proprietary technology to third parties that may not take the same security precautions as we do to protect this information; and • an inability to achieve anticipated benefits and costs savings.
Accordingly, the market price of our common stock is likely to be subject to wide fluctuations in response to numerous factors, many of which are beyond our control, such as those in this “Risk Factors” section and others including: 62 Table of Contents • actual or anticipated variations in our and our competitors’ results of operations, as well as how those results compare to analyst and investor expectations; • announcements by us or our competitors of new products, significant acquisitions, other strategic transactions, including strategic and commercial partnerships and relationships, joint ventures, divestitures, collaborations or capital commitments; • changes in reimbursement practices by current or potential payers; • failure of analysts to initiate or maintain coverage of our company, issuance of new securities analysts’ reports or changed recommendations for our stock; • negative publicity, including misinformation, about our company, our tests, or the commercial markets in which we operate; • forward-looking statements related to our financial guidance or projections, our failure to meet or exceed our financial guidance or projections or changes in our financial guidance or projections; • actual or anticipated changes in regulatory oversight of our products; • development of disputes concerning our intellectual property or other proprietary rights; • commencement of, or our involvement in, litigation; • announcement or expectation of additional debt or equity financing efforts; • any major change in our management; • general economic conditions and slow or negative growth of our markets, including as a result of changes in the rate of inflation (including the cost of raw materials, commodities, and supplies) and interest rates; and • changes in business, economic, and political conditions, including war, political instability and related military action.
Accordingly, the market price of our common stock is likely to be subject to wide fluctuations in response to numerous factors, many of which are beyond our control, such as those in this “Risk Factors” section and others including: • actual or anticipated variations in our and our competitors’ results of operations, as well as how those results compare to analyst and investor expectations; • announcements by us or our competitors of new products, significant acquisitions, other strategic transactions, including strategic and commercial partnerships and relationships, joint ventures, divestitures, collaborations or capital commitments; • changes in reimbursement practices by current or potential payers; • failure of analysts to initiate or maintain coverage of our company, issuance of new securities analysts’ reports or changed recommendations for our stock; • negative publicity, including misinformation, about our company, our tests, or the commercial markets in which we operate; • forward-looking statements related to our financial guidance or projections, our failure to meet or exceed our financial guidance or projections or changes in our financial guidance or projections; • actual or anticipated changes in regulatory oversight of our products; • development of disputes concerning our intellectual property or other proprietary rights; • commencement of, or our involvement in, litigation and the outcomes of our litigation matters; • announcement or expectation of additional debt or equity financing efforts; • any major change in our management; • general economic conditions and slow or negative growth of our markets, including as a result of changes in the rate of inflation (including the cost of raw materials, commodities, and supplies) and interest rates; and 63 Table of Contents • changes in business, economic, and political conditions, including war, political instability and related military action.
In addition, if we obtain FDA clearance, approval or de novo classification for any of our tests as an in vitro diagnostic, or IVD, such issues with suppliers or the components that we source from suppliers could affect our commercialization efforts for such an IVD, as further described in the risk factor entitled “ Regulatory and Compliance Risks—If the FDA were to begin actively regulating our tests, we could incur substantial costs and delays associated with trying to obtain premarket clearance or approval and incur costs associated with complying with post-market controls. ” Our failure to maintain a continued supply of components, or a supply that meets our quality control requirements, or changes to or termination of our agreements or inability to renew our agreements with these parties or enter into new agreements with other suppliers, particularly in the case of sole suppliers such as Streck and Illumina, could result in the loss of access to important components of our tests and impact our test performance or affect our ability to perform our tests in a timely manner or at all, which could impair, delay or suspend our commercialization activities.
In addition, if we obtain FDA clearance, approval or de novo classification for any of our tests as an in vitro diagnostic, or IVD, such issues with suppliers or the components that we source from suppliers could affect our commercialization efforts for such an IVD, as further described in the risk factor entitled “ Regulatory and Compliance Risks—If the FDA were to begin actively regulating our tests, we could incur substantial costs and delays associated with trying to obtain premarket clearance or approval and incur costs 38 Table of Contents associated with complying with post-market controls. ” Our failure to maintain a continued supply of components, or a supply that meets our quality control requirements, or changes to or termination of our agreements or inability to renew our agreements with these parties or enter into new agreements with other suppliers, particularly in the case of sole suppliers such as Streck and Illumina, could result in the loss of access to important components of our tests and impact our test performance or affect our ability to perform our tests in a timely manner or at all, which could impair, delay or suspend our commercialization activities.
Streck is the sole supplier of the blood collection tubes included in Panorama and our other cell-free DNA tests under a supply arrangement with Streck under which we are required to exclusively use Streck tubes.
Streck is the sole supplier of the blood collection tubes included in Panorama and our other cell-free DNA tests under a supply arrangement with Streck under which we are required to exclusively use Streck tubes for Panorama.
As further described in the risk factor entitled “Uncertainty in the development and commercialization of our enhanced or new tests or services could materially adversely affect our business, financial condition and results of operations,” completing such studies requires the expenditure of time, attention and financial and other resources, and may not yield the desired results, which may delay, limit or prevent regulatory clearances, approvals or de novo classifications.
As further described in the risk factor entitled “Uncertainty in the development and commercialization of our enhanced or new tests or services could materially adversely affect our business, financial condition and results of operations,” completing such submissions requires the expenditure of time, attention and financial and other resources, and may not yield the desired results, which may delay, limit or prevent regulatory clearances, approvals or de novo classifications.
As our test volumes and product offerings continue to grow, we will need to continue to ramp up our testing capacity and implement increases in scale, such as increased headcount, additional or new equipment, laboratory space and qualified laboratory personnel, increased office and laboratory space, expanded customer service capabilities, billing and systems process improvements, enhanced controls and procedures, and an expanded internal quality assurance program and technology platform.
As our test volumes and product portfolio continue to grow, we will need to continue to ramp up our testing capacity and implement increases in scale, such as increased headcount, additional or new equipment, laboratory space and qualified laboratory personnel, increased office and laboratory space, expanded customer service capabilities, billing and systems process improvements, enhanced controls and procedures, and an expanded internal quality assurance program and technology platform.
In addition, sales and marketing activities in the healthcare space are subject to various rules and regulations, as described in the risk factor entitled “ Reimbursement and Regulatory Risks Related to Our Business—If we or our laboratory distribution partners, consultants or commercial partners act in a manner that violates healthcare fraud and abuse laws or otherwise engage in misconduct, we may be subject to civil or criminal penalties .” Moreover, our billing and marketing messaging can be complex and nuanced, and there may be errors or misunderstandings in our employees’ communication of such messaging.
In addition, sales and marketing activities in the healthcare space are subject to various rules and regulations, as described in the risk factor entitled “ Reimbursement and Regulatory Risks Related to Our Business—If we or our laboratory distribution partners, consultants or commercial partners act in a manner that violates healthcare fraud and abuse laws or otherwise engage in misconduct, we may be subject to civil or criminal penalties .” Moreover, our billing and marketing messaging can be complex and 50 Table of Contents nuanced, and there may be errors or misunderstandings in our employees’ communication of such messaging.
If we or our laboratory distribution partners, consultants or commercial partners act in a manner that violates healthcare fraud and abuse laws or otherwise engage in misconduct, we may be subject to civil or criminal penalties. 55 Table of Contents We are subject to healthcare fraud and abuse regulation and enforcement by both the U.S. federal government and the states in which we conduct our business, including: • HIPAA, which created federal civil and criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters and also imposes significant obligations with respect to maintenance of the privacy and security, and transmission, of individually identifiable health information; • federal and state laws and regulations governing informed consent for genetic testing and the use of genetic material; • federal and state laws and regulations governing the submission of claims, as well as billing and collection practices, for healthcare services; • the federal Anti-Kickback Statute, which prohibits, among other things, the knowing and willful solicitation, receipt, offer or payment of remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual for, or the purchase, order or recommendation of, any good or service for which payment may be made under federal healthcare programs, such as Medicare; • the federal False Claims Act which prohibits, among other things, the presentation of false or fraudulent claims for payment from Medicare, Medicaid, or other government-funded third-party payers; • federal laws and regulations governing the Medicare program, providers of services covered by the Medicare program, and the submission of claims to the Medicare program, as well as the manuals and guidance issued by CMS and the local medical policies promulgated by the Medicare Administrative Contractors with respect to the implementation and interpretation of such laws and regulations; • the federal Stark law, also known as the physician self-referral law, which, subject to certain exceptions, prohibits a physician from making a referral for certain designated health services covered by the Medicare program (and according to case law in some jurisdictions, the Medicaid program as well), including laboratory and pathology services, if the physician or an immediate family member has a financial relationship with the entity providing the designated health services; • the federal Civil Monetary Penalties statute, which, subject to certain exceptions, prohibits, among other things, the offer or transfer of remuneration to a Medicare or state healthcare program beneficiary if the person knows or should know it is likely to influence the beneficiary’s selection of a particular provider, practitioner or supplier of services reimbursable by Medicare or a state healthcare program; • EKRA, which applies to items or services reimbursed by any health care benefits program, including commercial insurers, that, among other things, prohibits the knowing or willful payment or offer, or the solicitation or receipt, of any remuneration, whether directly or indirectly, overtly or covertly, in cash or in kind, in exchange for the referral or inducement of laboratory testing; • the prohibition on reassignment by the program beneficiary of Medicare claims to any party; and • state law equivalents to the above laws, which may apply to items or services reimbursed by any third-party payer, including commercial insurers, and state data privacy and security laws which may be more stringent than HIPAA.
We are subject to healthcare fraud and abuse regulation and enforcement by both the U.S. federal government and the states in which we conduct our business, including: • HIPAA, which created federal civil and criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters and also imposes significant obligations with respect to maintenance of the privacy and security, and transmission, of individually identifiable health information; • federal and state laws and regulations governing informed consent for genetic testing and the use of genetic material; • federal and state laws and regulations governing the submission of claims, as well as billing and collection practices, for healthcare services; • the federal Anti-Kickback Statute, which prohibits, among other things, the knowing and willful solicitation, receipt, offer or payment of remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual for, or the purchase, order or recommendation of, any good or service for which payment may be made under federal health care programs, such as Medicare; • the federal False Claims Act which prohibits, among other things, the presentation of false or fraudulent claims for payment from Medicare, Medicaid, or other government-funded third-party payers; • federal laws and regulations governing the Medicare program, providers of services covered by the Medicare program, and the submission of claims to the Medicare program, as well as the manuals and guidance issued by CMS and the local medical policies promulgated by the Medicare Administrative Contractors with respect to the implementation and interpretation of such laws and regulations; • the federal Stark law, also known as the physician self-referral law, which, subject to certain exceptions, prohibits a physician from making a referral for certain designated health services covered by the Medicare program (and according to case law in some jurisdictions, the Medicaid program as well), including laboratory and pathology services, if the physician or an immediate family member has a financial relationship with the entity providing the designated health services; • the federal Civil Monetary Penalties Law, which, subject to certain exceptions, prohibits, among other things, the offer or transfer of remuneration to a Medicare or state healthcare program beneficiary if the person knows or should know it is likely to influence the beneficiary’s selection of a particular provider, practitioner or supplier of services reimbursable by Medicare or a state healthcare program; • EKRA, which applies to items or services reimbursed by any health care benefits program, including commercial insurers, that, among other things, prohibits the knowing or willful payment or offer, or the solicitation or receipt, of any remuneration, whether directly or indirectly, overtly or covertly, in cash or in kind, in exchange for the referral or inducement of laboratory testing; 56 Table of Contents • the prohibition on reassignment by the program beneficiary of Medicare claims to any party; and • state law equivalents to the above laws, which may apply to items or services reimbursed by any third-party payer, including commercial insurers, and state data privacy and security laws which may be more stringent than HIPAA.
For example, physicians may be reluctant to order our tests due to the potential of a substantial cost to the patient if reimbursement coverage is unavailable or insufficient. In making coverage determinations, third-party payers often rely on practice guidelines issued by professional societies.
For example, physicians may be reluctant to order our tests due to the potential of a substantial out-of-pocket cost to the patient if reimbursement coverage is unavailable or insufficient. In making coverage determinations, third-party payers often rely on practice guidelines issued by professional societies.
The Sarbanes-Oxley Act also requires that our management report on internal controls over financial reporting be attested to by our independent registered public accounting firm. Although we determined that our internal controls over financial reporting were effective as of December 31, 2022, we must continue to monitor and assess our internal controls over financial reporting.
The Sarbanes-Oxley Act also requires that our management report on internal controls over financial reporting be attested to by our independent registered public accounting firm. Although we determined that our internal controls over financial reporting were effective as of December 31, 2023, we must continue to monitor and assess our internal controls over financial reporting.
The financial condition of these third parties could weaken, or they could terminate their relationship with us and/or stop selling our products, as has happened in the past; reduce their marketing efforts in respect of our products; develop and commercialize or otherwise sell competing products in addition to or in lieu of our tests, as has also occurred; merge with or be acquired by a competitor of ours or a company that chooses to de-prioritize or cease the efforts 41 Table of Contents to develop, sell or otherwise partner with us on our products; or otherwise breach their agreements with us.
The financial condition of these third parties could weaken, or they could terminate their relationship with us and/or stop selling our products, as has happened in the past; reduce their marketing efforts in respect of our products; develop and commercialize or otherwise sell competing products in addition to or in lieu of our tests, as has also occurred; merge with or be acquired by a competitor of ours or a company that chooses to de-prioritize or cease the efforts to develop, sell or otherwise partner with us on our products; or otherwise breach their agreements with us.
To 50 Table of Contents the extent that there is any violation, whether actual, perceived or alleged, of our policies or applicable laws and regulations, we may incur additional training and compliance costs; may, and from time to time do, receive inquiries, such as informal requests for documents, civil investigative demands, and subpoenas, from third-party payers or other third parties, including government entities; or may be held liable or otherwise responsible for such acts of non-compliance.
To the extent that there is any violation, whether actual, perceived or alleged, of our policies or applicable laws and regulations, we may incur additional training and compliance costs; may, and from time to time do, receive inquiries, such as informal requests for documents, civil investigative demands, and subpoenas, from third-party payers or other third parties, including government entities; or may be held liable or otherwise responsible for such acts of non-compliance.
If FDA premarket clearance, approval or de novo classification is required for any of our existing or future tests, or for any components or materials we use in tests, we may be forced to stop selling our tests or we may be required to modify claims for or make other changes to our tests while we or our supplier work to obtain FDA clearance, approval or de novo classification.
If FDA premarket clearance, approval or de novo classification is required for any of our existing or future tests, or for any components or materials we use in tests, we may be forced to stop selling our tests or we may be required to modify claims for or make other changes to our tests while we or our suppliers work to obtain FDA clearance, approval or de novo classification.
If we are found to be out of compliance with either California or New York requirements, CDPH or NYSDOH may suspend, restrict or revoke our license or laboratory permit, respectively (and, with respect to California, may exclude persons or entities from owning, operating or directing a laboratory for two years following such license revocation), assess civil monetary penalties, or impose specific corrective action plans, among other sanctions.
If we are found to be out of compliance with either California or New York requirements, CDPH or NYSDOH may suspend, restrict or revoke our license or laboratory permit, 54 Table of Contents respectively (and, with respect to California, may exclude persons or entities from owning, operating or directing a laboratory for two years following such license revocation), assess civil monetary penalties, or impose specific corrective action plans, among other sanctions.
In addition, as further described in the risk factor entitled “— If the FDA were to begin actively regulating our tests, we could incur substantial costs and delays associated with trying to obtain premarket clearance or approval and incur costs associated with complying with post-market controls, ” development of the data necessary to obtain regulatory clearance and approval of a test is time-consuming and carries with it the risk of not yielding the desired results.
In addition, as further described in the risk factor entitled “— If the FDA were to begin actively regulating our tests, we could incur substantial costs and delays associated with trying to obtain premarket clearance or approval and incur costs associated with complying with post-market controls, ” development of the data necessary to obtain regulatory clearance and approval of a test is time-consuming, requires us to incur significant costs, and carries with it the risk of not yielding the desired results.
If our operations, including the conduct of our employees, distributors, consultants and commercial partners, are found to be in violation of any laws or regulations that apply to us, we may be subject to penalties, including civil, criminal and administrative penalties, damages, fines, disgorgement of profits, exclusion from participation in government programs, injunctions, recall or seizure of products, total or partial suspension of production, denial or withdrawal of pre-marketing product approvals, contractual damages, reputational harm, diminished profits and future earnings and the curtailment or restructuring of our operations, any of which could materially and adversely affect our business, financial condition and results of operations.
If our operations, including the conduct of our employees, distributors, consultants and commercial partners, are found to be in violation of any laws or regulations that apply to us, we may be subject to penalties, including civil, criminal and administrative penalties, damages, fines, disgorgement of profits, exclusion from participation in federal health care programs, injunctions, recall or seizure of products, total or partial suspension of production, denial or withdrawal of pre-marketing product approvals, contractual damages, reputational harm, diminished profits and future earnings and the curtailment or restructuring of our operations, any of which could materially and adversely affect our business, financial condition and results of operations.
Unauthorized access, loss or dissemination could also disrupt our operations, including our ability to perform tests, provide test results, bill payers or patients, process claims and appeals, provide customer assistance services, conduct research and development activities, develop and commercialize tests, collect, process and prepare company financial information, provide information about our tests, and manage the administrative aspects of our business, any of which could damage our reputation and adversely affect our business.
Unauthorized access, loss or dissemination could also disrupt our operations, including our ability to perform tests, provide test results, bill payers or patients, process claims and appeals, provide customer assistance services, conduct research and development activities, develop and commercialize tests, collect, process and prepare company financial 39 Table of Contents information, provide information about our tests, and manage the administrative aspects of our business, any of which could damage our reputation and adversely affect our business.
Therefore, while we have implemented policies and procedures related to compliance with the HIPAA regulations, we are also required to comply with various state privacy and security laws and regulations, and could incur penalties, compliance costs as a result of non-compliance, or damages under state laws pursuant to an action brought by a private party for the wrongful use or disclosure of confidential health information or other private personal information.
Therefore, while we have implemented policies and 57 Table of Contents procedures related to compliance with the HIPAA regulations, we are also required to comply with various state privacy and security laws and regulations, and could incur penalties, compliance costs as a result of non-compliance, or damages under state laws pursuant to an action brought by a private party for the wrongful use or disclosure of confidential health information or other private personal information.
The application of the if-converted method may reduce our reported diluted net income per share to the extent we are profitable, and accounting standards may change in the future in a manner that may otherwise adversely affect our diluted net income per share. ​ Conversion of the Convertible Notes will dilute the ownership interest of existing stockholders, including holders who had previously converted their Convertible Notes, or may otherwise depress the price of our common stock.
The application of the if-converted method may reduce our reported diluted net income per share to the extent we are profitable, and accounting standards may change in the future in a manner that may otherwise adversely affect our diluted net income per share. ​ 62 Table of Contents Conversion of the Convertible Notes will dilute the ownership interest of existing stockholders, including holders who had previously converted their Convertible Notes, or may otherwise depress the price of our common stock.
CLIA regulations require clinical laboratories to obtain a certificate and mandate specific standards in areas including personnel qualifications, administration, participation in proficiency testing, patient test management and quality assurance. CLIA certification is also required in order for us to be eligible to bill federal healthcare programs, as well as many commercial third-party payers, for our tests.
CLIA regulations require clinical laboratories to obtain a certificate and mandate specific standards in areas including personnel qualifications, administration, participation in proficiency testing, patient test management and quality assurance. CLIA certification is also required in order for us to be eligible to bill federal health care programs, as well as many commercial third-party payers, for our tests.
Under PAMA, services payable by Medicare under the CLFS are calculated based on negotiated payment rates paid by private payers for the same test. The implementation of the PAMA rates negatively impacted overall pricing and reimbursement for many clinical laboratory testing services.
Under PAMA, services payable by Medicare under the CLFS are adjusted based on negotiated payment rates paid by private payers for the same test. The implementation of the PAMA rates negatively impacted overall pricing and reimbursement for many clinical laboratory testing services.
In the event that we transition to a new supplier from any of our sole suppliers, doing so could be time-consuming and expensive, may result in interruptions in our ability to supply our products to the market, could affect the performance of our tests or could require that we re-validate our affected tests using replacement 38 Table of Contents equipment and supplies, which could delay the performance of our tests and result in increased costs.
In the event that we transition to a new supplier from any of our sole suppliers, doing so could be time-consuming and expensive, may result in interruptions in our ability to supply our products to the market, could affect the performance of our tests or could require that we re-validate our affected tests using replacement equipment and supplies, which could delay the performance of our tests and result in increased costs.
Our ability to forecast our future operating results, including revenues, cash flows and profitability, is limited and subject to a number of uncertainties. We have also encountered and will continue to encounter risks and uncertainties frequently experienced by 31 Table of Contents rapidly growing companies in the life sciences and technology industry, such as those described in this report.
Our ability to forecast our future operating results, including revenues, cash flows and profitability, is limited and subject to a number of uncertainties. We have also encountered and will continue to encounter risks and uncertainties frequently experienced by rapidly growing companies in the life sciences and technology industry, such as those described in this report.
In the event of any adverse developments with these third-party laboratories or their ability to perform their obligations to us in a timely manner and in accordance with the standards that we and our customers expect, our ability to service our customers may be delayed, interrupted or otherwise adversely affected, which could result in a loss of customers and harm to our reputation.
In the event of any adverse developments with these third-party laboratories or their ability to perform their obligations to us in a timely manner and in accordance with the standards that we and our customers expect, 36 Table of Contents our ability to service our customers may be delayed, interrupted or otherwise adversely affected, which could result in a loss of customers and harm to our reputation.
If we are not able to maintain regulatory compliance to the extent required, we may not be permitted to offer our Constellation software and may be subject to enforcement action by the FDA, such as the issuance of warning or untitled letters, fines, injunctions and civil penalties; recall or seizure of products; operating restrictions and criminal prosecution.
If we are not able to maintain regulatory 52 Table of Contents compliance to the extent required, we may not be permitted to offer our Constellation software and may be subject to enforcement action by the FDA, such as the issuance of warning or untitled letters, fines, injunctions and civil penalties; recall or seizure of products; operating restrictions and criminal prosecution.
In the United States, the Patient Protection and Affordable Care Act, as amended by the Healthcare and Education Reconciliation Act of 2010, or collectively, the PPACA expanded, among other things, the healthcare fraud and abuse laws such as the False Claims Act and the Anti-Kickback Statute, including but not limited to required disclosures of financial arrangements with physician customers, required reporting of discovered overpayments, lower thresholds for violations, new government investigative powers, and enhanced penalties for such violations.
In the U.S., the Patient Protection and Affordable Care Act, as amended by the Healthcare and Education Reconciliation Act of 2010, or collectively, the PPACA expanded, among other things, the healthcare fraud and abuse laws such as the False Claims Act and the Anti-Kickback Statute, including but not limited to required disclosures of financial arrangements with physician customers, required reporting of discovered overpayments, lower thresholds for violations, new government investigative powers, and enhanced penalties for such violations.
For example, to the extent that any of our laboratory customers for whom we currently perform our tests entirely in our laboratory transition to our cloud-based distribution model, our revenues from such customers will decrease because we are not able to charge as high an amount per test as when we perform the entire test ourselves.
For example, to the extent that any of our laboratory customers for whom we currently perform 34 Table of Contents our tests entirely in our laboratory transition to our cloud-based distribution model, our revenues from such customers will decrease because we are not able to charge as high an amount per test as when we perform the entire test ourselves.
Because of Illumina’s ownership of Verinata, we face increased risk and uncertainty regarding continuity of a successful working relationship with Illumina under our supply agreement, as well as in our ability to compete with Verinata in the marketplace in view of economic advantages enjoyed by Verinata with respect to the cost of sequencers and related consumables.
Because of Illumina’s ownership of Verinata, we face increased risk and uncertainty regarding continuity of a successful working relationship with Illumina under our supply agreement, as well as in our ability to compete with Verinata in the marketplace in view of economic advantages enjoyed by Verinata with respect to the cost of sequencers and related 37 Table of Contents consumables.
We are also subject to the risks described above as a result of our relationships with third party vendors and their subcontractors, whose systems may be breached and may cause our sensitive data, including patient data, to be 39 Table of Contents compromised. We have on occasion experienced such disruptions by way of third-party vendors.
We are also subject to the risks described above as a result of our relationships with third-party vendors and their subcontractors, whose systems may be breached and may cause our sensitive data, including patient data, to be compromised. We have on occasion experienced such disruptions by way of third-party vendors.
Our ability to use these carryforwards could be limited if we experience an “ownership change.” Our estimates of total addressable market opportunity and forecasts of market growth may prove to be inaccurate, and even if the market in which we compete achieves the forecasted growth, our business could fail to grow at similar rates.
Our ability to use these carryforwards could be limited if we experience an “ownership change.” 46 Table of Contents Our estimates of total addressable market opportunity and forecasts of market growth may prove to be inaccurate, and even if the market in which we compete achieves the forecasted growth, our business could fail to grow at similar rates.
While we have a compliance plan to address compliance with federal and state laws and regulations, including applicable fraud and abuse laws and regulations such as those described in this risk factor, the evolving commercial 53 Table of Contents compliance environment and the need to build and maintain robust and scalable systems to comply with regulations in multiple jurisdictions with different compliance and reporting requirements increases the possibility that we could inadvertently violate one or more of these requirements.
While we have a compliance plan and policies to address compliance with federal and state laws and regulations, including applicable fraud and abuse laws and regulations such as those described in this risk factor, the evolving commercial compliance environment and the need to build and maintain robust and scalable systems to comply with laws and regulations in multiple jurisdictions with different compliance and reporting requirements increases the possibility that we could inadvertently violate one or more of these requirements.
Where we are considered to be an out of network provider, which is the case with some third-party payers from whom we receive reimbursement, such third-party payers could deny coverage and decline to reimburse for our tests according to each plan enrollee’s policy.
Where we are considered to be an out of network provider, which is the case with some third-party payers from whom we receive reimbursement, such third-party payers could deny coverage and decline to reimburse for our tests 49 Table of Contents according to each plan enrollee’s policy.
Our business would be adversely affected while such review is ongoing and if we or our supplier are ultimately unable to obtain premarket clearance, approval or de novo classification.
Our business could be adversely affected while such review is ongoing and if we or our supplier are ultimately unable to obtain premarket clearance, approval or de novo classification.
Any of these factors could adversely affect our ability to obtain commercially relevant or competitively advantageous patent protection for our products. If we are not able to adequately protect our trade secrets and other proprietary information, the value of our technology and products could be significantly diminished.
Any of these factors could adversely affect our ability to obtain commercially relevant or competitively advantageous patent protection for our products. 60 Table of Contents If we are not able to adequately protect our trade secrets and other proprietary information, the value of our technology and products could be significantly diminished.
Any change in the federal or state laws or regulations, including as a result of political pressure, relating to our business may require us to implement changes to our business or practices, and we may not be able to do so in a timely or cost-effective manner.
Any change in the federal or state laws or regulations, 53 Table of Contents including as a result of political pressure, relating to our business may require us to implement changes to our business or practices, and we may not be able to do so in a timely or cost-effective manner.
However, we may not have enough available cash, or be able to obtain sufficient financing, at the time we are required to repurchase the Convertible Notes. 61 Table of Contents The conditional conversion feature of the Convertible Notes, when triggered, may adversely affect our financial condition and operating results.
However, we may not have enough available cash, or be able to obtain sufficient financing, at the time we are required to repurchase the Convertible Notes. The conditional conversion feature of the Convertible Notes, when triggered, may adversely affect our financial condition and operating results.
The False Claims Act imposes liability for, among other things, knowingly presenting, or causing to be presented, a false or fraudulent claim for payment by a federal governmental payer program.
The False Claims Act imposes liability for, among other things, knowingly presenting, or causing to be presented, a false or fraudulent claim for payment to a federal governmental program.
The qui tam provisions of the False Claims Act allow a private individual to bring civil actions on behalf of the federal government for violations of the False Claims Act 56 Table of Contents and permit such individuals to share in any amounts paid by the defendant to the government in fines or settlement.
The qui tam provisions of the False Claims Act allow a private individual to bring civil actions on behalf of the federal government for violations of the False Claims Act and permit such individuals to share in any amounts paid by the defendant to the government in fines or settlement.
Furthermore, the FDA may conclude that laboratories 51 Table of Contents using Constellation and related products from us do not meet the criteria for qualifying as an LDT, and require that such laboratories discontinue use of Constellation and related products. Such an FDA determination could have an adverse impact on the commercialization of Constellation.
Furthermore, the FDA may conclude that laboratories using Constellation and related products from us do not meet the criteria for qualifying as an LDT, and require that such laboratories discontinue use of Constellation and related products. Such an FDA determination could have an adverse impact on the commercialization of Constellation.
Our ability to make scheduled payments of the principal of, to pay interest on, or to refinance our indebtedness, including the amounts payable under the Convertible Notes, depends on our future performance, which is subject to economic, financial, competitive, and other factors beyond our control.
Our ability to make scheduled payments of the principal of, to pay interest on, or to refinance our indebtedness, including the amounts payable under the Convertible Notes, depends on our future performance, which is subject to 61 Table of Contents economic, financial, competitive, and other factors beyond our control.
Any such issuance could result in substantial dilution to our existing stockholders and cause the price of our common stock to decline. 64 Table of Contents If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.
Any such issuance could result in substantial dilution to our existing stockholders and cause the price of our common stock to decline. If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.
Peer-reviewed publications regarding 32 Table of Contents our tests may be limited by many factors, including delays in the completion of, poor design of, or lack of compelling data from, clinical studies, as well as delays in the review, acceptance and publication process.
Peer-reviewed publications regarding our tests may be limited by many factors, including delays in the completion of, poor design of, or lack of compelling data from, clinical studies, as well as delays in the review, acceptance and publication process.
We have experienced low average reimbursement rates for microdeletions testing under this code, and our microdeletions reimbursement may continue to remain low, at least in the near term, either due to reduced reimbursement, or third-party payers declining to reimburse, under the microdeletions code, which has had and will likely continue to have an adverse effect on our revenues.
We have experienced low average reimbursement rates for microdeletions testing under this code, and our microdeletions 31 Table of Contents reimbursement may continue to remain low, at least in the near term, either due to reduced reimbursement, or third-party payers declining to reimburse, under the microdeletions code, which has had and will likely continue to have an adverse effect on our revenues.
Either of our laboratories may be harmed or rendered inoperable, or samples could be damaged or destroyed, by natural or manmade disasters, including earthquakes, severe weather, flooding, power outages and contamination, including as a result of the COVID-19 pandemic, which may render it difficult or impossible for us to perform our tests for some period of time.
Either of our laboratories may be harmed or rendered inoperable, or samples could be damaged or destroyed, by natural or manmade disasters, including earthquakes, severe weather, flooding, power outages and contamination, including as a result of a health pandemic, which may render it difficult or impossible for us to perform our tests for some period of time.
Although we take measures to protect sensitive information from unauthorized access, use or disclosure, our information technology and infrastructure, and that of our technology and other third-party service providers and their subcontractors, are nevertheless inherently vulnerable, to some extent, to cyber-attacks by hackers or viruses or breaches due to employee error, technical error, malfeasance or other disruptions.
Although we take measures to protect sensitive information from unauthorized access, use or disclosure, our information technology and infrastructure, and that of our technology and other third-party service providers and their subcontractors, are nevertheless inherently vulnerable to, and from time to time experience, cyber-attacks by hackers or viruses or breaches due to employee error, technical error, malfeasance or other disruptions.
However, we cannot be certain that these third parties will comply with the terms of our agreements, nor that they will not experience security breaches or other disruptions. The marketing, sale, and use of Panorama, Horizon and our other products could result in substantial damages arising from product liability, professional liability, or other claims that exceed our resources.
However, we cannot be certain that these third parties will comply with the terms of our agreements, nor that they will not experience security breaches or other disruptions. The marketing, sale, and use of our tests could result in substantial damages arising from product liability, professional liability, or other claims that exceed our resources.
If we are unable to obtain such required cooperation, we may be unable to achieve the desired regulatory clearances, approvals or de novo classifications or may be delayed or be required to expend additional costs and other resources in doing so. For example, Illumina currently is our sole sequencer and sequencing reagent supplier.
If we are unable to obtain such required cooperation, we may be unable to achieve the desired regulatory clearances, approvals or de novo classifications or may be delayed or be required to expend additional costs 51 Table of Contents and other resources in doing so. For example, Illumina currently is our sole sequencer and sequencing reagent supplier.
An important part of our business strategy is to expand and offer our tests internationally, either by providing our testing services directly or through our laboratory partners, or through our licensees under our Constellation cloud-based 52 Table of Contents distribution model.
An important part of our business strategy is to expand and offer our tests internationally, either by providing our testing services directly or through our laboratory partners, or through our licensees under our Constellation cloud-based distribution model.
Regulatory and Compliance Risks We may be subject to increased compliance risks as a result of our rapid growth, including our dependence on our sales, marketing and billing efforts. Approximately 89% of our total revenues for each of the years ended December 31, 2022 and 2021 were attributable to our U.S. direct sales.
Regulatory and Compliance Risks We may be subject to increased compliance risks as a result of our rapid growth, including our dependence on our sales, marketing and billing efforts. Approximately 91% and 89% of our total revenues for each of the years ended December 31, 2023 and 2022, respectively, were attributable to our U.S. direct sales.
These types of problems may be caused by a variety of factors, including infrastructure changes, human or software errors, viruses, security attacks, fraud, spikes in customer usage and denial of service issues.
These types of problems may be caused by a variety of 35 Table of Contents factors, including infrastructure changes, human or software errors, viruses, security attacks, fraud, spikes in customer usage and denial of service issues.
We may decide to incur debt in connection with an acquisition or issue shares of our common stock or other equity securities to the stockholders of the acquired company, 43 Table of Contents which would cause dilution to our existing stockholders.
We may decide to incur debt in connection with an acquisition or issue shares of our common stock or other equity securities to the stockholders of the acquired company, which would cause dilution to our existing stockholders.
We expect that competition in all of the markets in which we operate will continue to increase. Some of our competitors’ products and services are sold at a lower price than ours, which could cause sales of our tests and services to decline or force us to reduce our prices.
It is possible that competition in all of the markets in which we operate will continue to increase. Some of our competitors’ products and services are sold at a lower price than ours, which could cause sales of our tests and services to decline or force us to reduce our prices.
The regulatory environment for LDTs is unstable – in 2020 HHS directed FDA to stop regulating LDTs, but in 2021, HHS reversed its policy. Thereafter, the FDA resumed requiring submission of emergency use authorization, or EUA, requests, for COVID-19 LDTs, but has not sought to regulate other, non-COVID, LDTs.
The regulatory environment for LDTs is unstable – in 2020 HHS directed FDA to stop regulating LDTs, but in 2021, HHS reversed its policy. Thereafter, the FDA resumed requiring submission of emergency use authorization, or EUA, requests, for COVID-19 LDTs, but did not seek to regulate other, non-COVID, LDTs.
The marketing, sale and use of Panorama, Horizon and our other products could lead to product liability claims against us if someone were to allege that our test failed to perform as it was designed or as claimed in our promotional materials, was performed pursuant to incorrect or inadequate laboratory procedures, if we delivered incorrect or incomplete test results or our test failed to produce a result, or if someone were to misinterpret test results.
The marketing, sale and use of our tests could lead to product liability claims against us if someone were to allege that our test failed to perform as it was designed or as claimed in our promotional materials, was performed pursuant to incorrect or inadequate laboratory procedures, if we delivered incorrect or incomplete test results or our test failed to produce a result, or if someone were to misinterpret test results.
Even if our testing is covered by a state Medicaid program, we must be recognized as a Medicaid provider by the state in which the Medicaid recipient receiving the services resides in order for us to be reimbursed by a state’s Medicaid program, including under a Medicaid managed care plan.
Even if our testing is covered by a state Medicaid program, we must be recognized as an enrolled Medicaid provider by the state in which the Medicaid beneficiary receiving the services resides in order for us to be reimbursed by a state’s Medicaid program, including under a Medicaid managed care plan.
We have agreed, and may in the future agree, to defend or indemnify third 59 Table of Contents parties if we determine it to be in the best interests of our business relationships.
We have agreed, and may in the future agree, to defend or indemnify third parties if we determine it to be in the best interests of our business relationships.
Distributing Panorama, Signatera and our other products through partners reduces our control over our revenues, our market penetration and our gross margin on sales by the partner if we could have otherwise made that sale through our direct sales force.
Distributing Panorama, Signatera and our other products through partners reduces our control over our revenues, our 41 Table of Contents market penetration and our gross margin on sales by the partner if we could have otherwise made that sale through our direct sales force.
Our ability to increase sales and establish significant levels of adoption and reimbursement for our tests is uncertain, and it may be challenging for us to achieve profitability for many reasons, including, among others: 29 Table of Contents • the market for our tests may not grow as we expect; in particular, NIPTs may not gain acceptance for use as a screen for microdeletions, which would limit the market for Panorama, and we may fail to compete successfully in this market, whatever its size; • if we are unable to demonstrate that our tests are superior to competing tests, laboratories, clinics, clinicians, physicians, payers and patients may not adopt the use of our tests on a broad basis, and may not be willing to pay the price premium over competing tests that we have, to date, been able to achieve; • third-party payers, such as commercial insurance companies and government insurance programs, may decide not to reimburse for our tests, such as for the screening of microdeletions, may set the amounts of any reimbursements at prices that do not allow us to cover our expenses, or may otherwise adopt regulations, programs, policies or procedures that restrict or harm our business; for example, with respect to Panorama, many third-party payers currently have negative coverage determinations or otherwise do not reimburse for microdeletions screening and we expect low reimbursement rates for microdeletions screening to continue, at least in the near term; also, most state Medicaid programs currently either reimburse at low rates or do not reimburse for our tests; • third-party payers have increasingly required that prior authorization be obtained prior to conducting genetic testing as a condition to reimbursing for it, which has reduced and/or delayed the reimbursement amounts we receive for our tests and impacted our results of operations; • the results of our SMART Study evaluating the performance of Panorama may fail to convince laboratories, clinics, clinicians, physicians or patients of the benefits of utilizing Panorama for microdeletions and may not increase reimbursement for Panorama; • the results of our clinical trials and any additional clinical and economic utility data that we may develop, present and publish in the future, or that comes from the commercial use of our tests, may be inconsistent with our existing data and may raise questions about the performance of our tests, or may fail to convince laboratories, clinics, clinicians, physicians, payers or patients of the value of our tests; • we may experience supply constraints, including those due to the failure of our key suppliers to provide required sequencers and reagents in sufficient amounts or of adequate quality or disputes with our key suppliers, including those with respect to the required sequencers and reagents from our supplier, Illumina, Inc., or Illumina, who is also one of our main NIPT competitors through its subsidiary, Verinata Health Inc., or Verinata, and with whom we have historically been involved in patent proceedings; • we may experience increased cost of product revenues, and cost of licensing and other revenues, as a percentage of total revenues, as has been the case in previous fiscal periods; • the U.S.
Our ability to increase sales and establish significant levels of adoption and reimbursement for our tests is uncertain, and it may be challenging for us to achieve profitability for many reasons, including, among others: • the market for our tests may not grow as we expect; in particular, NIPTs may not gain acceptance for use as a screen for microdeletions, which would limit the market for Panorama, and we may fail to compete successfully in this market, whatever its size; • if we are unable to demonstrate that our tests are superior to competing tests, laboratories, clinics, clinicians, physicians, payers and patients may not adopt the use of our tests on a broad basis, and may not be willing to pay the price premium over competing tests that we have, to date, been able to achieve; • third-party payers, such as commercial insurance companies and government insurance programs, may decide not to reimburse for our tests, such as for the screening of microdeletions, may set the amounts of any reimbursements at prices that do not allow us to cover our expenses, or may otherwise adopt regulations, programs, policies or procedures that restrict or harm our business; for example, with respect to Panorama, many third-party payers currently have negative coverage determinations or otherwise do not reimburse for microdeletions screening and we expect low reimbursement rates for microdeletions screening to continue, at least in the near term; also, most state Medicaid programs currently either reimburse at low rates or do not reimburse for our tests; • billing operations, including managing various requirements by third-party payers to obtain reimbursement for our tests, are complex and time-consuming, and if we are unable to successfully manage such requirements, we may experience reduced and/or delayed reimbursement for our tests, which may impact our results of operations, as has happened in the past with respect to evolving prior authorization requirements; • the results of our SMART Study evaluating the performance of Panorama may fail to convince laboratories, clinics, clinicians, physicians or patients of the benefits of utilizing Panorama for microdeletions and may not increase reimbursement for Panorama; • the results of our clinical trials and any additional clinical and economic utility data that we may develop, present and publish in the future, or that comes from the commercial use of our tests, may be inconsistent with our existing data and may raise questions about the performance of our tests, or may fail to convince laboratories, clinics, clinicians, physicians, payers or patients of the value of our tests; • we may experience supply constraints, including those due to the failure of our key suppliers to provide required sequencers and reagents in sufficient amounts or of adequate quality or disputes with our key suppliers, including those with respect to the required sequencers and reagents from our supplier, Illumina, Inc., or Illumina, who is also one of our main NIPT competitors through its subsidiary, Verinata Health Inc., or Verinata, and with whom we have historically been involved in patent proceedings; • we may experience increased cost of product revenues, and cost of licensing and other revenues, as a percentage of total revenues, as has been the case in previous fiscal periods; • the U.S.
Our laboratories located in Austin, Texas and San Carlos, California are both CLIA certified and accredited by the College of American Pathologists, or CAP, a third party accreditation organization with deeming, or delegated, authority from CMS to determine compliance. To renew these certifications, we are subject to survey and inspection every two years.
Our laboratories located in Austin, Texas and San Carlos, California are both CLIA certified and accredited by the College of American Pathologists, or CAP, a third-party accreditation organization with deeming, or delegated, authority from CMS to determine compliance. To renew these certifications, we are subject to a formal external survey and inspection of each site at least every two years.
While the severity of the COVID-19 pandemic has lessened significantly, the pandemic has had a significant negative impact on the macroeconomic environment, such as decreases in per capita income and level of disposable income, inflation, rising interest rates, and supply chain issues.
The COVID-19 pandemic has had a significant negative impact on the macroeconomic environment, such as decreases in per capita income and level of disposable income, inflation, rising interest rates, and supply chain issues.
These provisions, among other things: • authorize the issuance of “blank check” preferred stock that our board of directors could use to implement a stockholder rights plan; • prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders; • eliminate the ability of our stockholders to call special meetings of stockholders; • establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at annual stockholder meetings; • establish a classified board of directors so that not all members of our board are elected at one time; • permit the board of directors to establish the number of directors; • provide that directors may only be removed “for cause” and only with the approval of 75% of our stockholders; • require super-majority voting to amend some provisions in our amended and restated certificate of incorporation and amended and restated bylaws; and • provide that the board of directors is expressly authorized to make, alter or repeal our amended and restated bylaws. 65 Table of Contents In addition, Section 203 of the Delaware General Corporation Law may discourage, delay or prevent a change in control of our company.
These provisions, among other things: • authorize the issuance of “blank check” preferred stock that our board of directors could use to implement a stockholder rights plan; • prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders; • eliminate the ability of our stockholders to call special meetings of stockholders; • establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at annual stockholder meetings; • establish a classified board of directors so that not all members of our board are elected at one time; • permit the board of directors to establish the number of directors; • provide that directors may only be removed “for cause” and only with the approval of 75% of our stockholders; 65 Table of Contents • require super-majority voting to amend some provisions in our amended and restated certificate of incorporation and amended and restated bylaws; and • provide that the board of directors is expressly authorized to make, alter or repeal our amended and restated bylaws.
In addition, we may be subject to liability for errors in, a misunderstanding of, or inappropriate reliance upon, the information we provide, or for failure to provide such information, in connection with our marketing and promotional activities or as part of the results generated by Panorama, Horizon and our other products.
In addition, we may be subject to liability for errors in, a misunderstanding of, or inappropriate reliance upon, the information we provide, or for failure to provide such information, in connection with our marketing and promotional activities or as part of the results generated by our tests.
In addition, federal budgetary limitations and changes in healthcare policy, such as the creation of broad limits for our tests and requirements that beneficiaries of government health plans pay for, or pay for higher portions of, clinical laboratory tests or services received, could substantially diminish the utilization of our tests, increase costs and adversely affect our ability to generate revenues and achieve profitability.
In addition, federal budgetary limitations and changes in healthcare policy, such as the creation of broad limits for our tests and requirements that beneficiaries of federal health care programs pay for, or pay for higher portions 55 Table of Contents of, clinical laboratory tests or services received, could substantially diminish the utilization of our tests, increase costs and adversely affect our ability to generate revenues and achieve profitability.
While our current processes and practices 57 Table of Contents comply with the GDPR, we have needed to expend considerable time and resources, including management attention, to revise our practices to ensure ongoing compliance with GDPR.
While our current processes and practices comply with the GDPR, we have needed to expend considerable time and resources, including management attention, to revise our practices to ensure ongoing compliance with GDPR.
If we sell or issue common stock, convertible securities, or other equity securities, or common stock is issued pursuant to equity incentive plans, investors in our common stock may be materially diluted.
If we sell or 64 Table of Contents issue common stock, convertible securities, or other equity securities, or common stock is issued pursuant to equity incentive plans, investors in our common stock may be materially diluted.
When an entity is determined to have violated the False Claims Act, it is subject to mandatory damages of three times the actual damages sustained by the government, plus mandatory civil penalties of up to approximately $25,076 for each false claim or statement.
When an entity is determined to have violated the False Claims Act, it is subject to mandatory damages of three times the actual damages sustained by the government, plus mandatory civil penalties – up to approximately $27,108 in 2023 – for each false claim or statement.
By operating internationally, we may experience longer accounts receivable payment cycles and difficulties in collecting accounts receivable; realize lower margins due to lower pricing in many countries; incur potentially adverse tax consequences, including the complexities of foreign value added tax systems, tax inefficiencies related to our corporate structure and restrictions on the repatriation of earnings; experience financial accounting and reporting burdens and 42 Table of Contents complexities; experience difficulties in staffing and managing foreign operations, including under labor and employment laws and regulations that are new or unfamiliar to us; be subject to trade barriers such as tariffs, quotas, preferential bidding or import or export licensing requirements; be exposed to political, social and economic instability abroad, including terrorist attacks and security concerns; be exposed to fluctuations in currency exchange rates; and experience reduced or varied protection for intellectual property rights and practical difficulties in enforcing intellectual property and other rights, including with respect to assignment of inventions to us by our consultants in foreign jurisdictions.
We may also face competition from companies located in the countries in which we or our partners or licensees offer our tests, and in which we may be at a competitive disadvantage because the country may favor a local provider or for other reasons. 42 Table of Contents By operating internationally, we may experience longer accounts receivable payment cycles and difficulties in collecting accounts receivable; realize lower margins due to lower pricing in many countries; incur potentially adverse tax consequences, including the complexities of foreign value added tax systems, tax inefficiencies related to our corporate structure and restrictions on the repatriation of earnings; experience financial accounting and reporting burdens and complexities; experience difficulties in staffing and managing foreign operations, including under labor and employment laws and regulations that are new or unfamiliar to us; be subject to trade barriers such as tariffs, quotas, preferential bidding or import or export licensing requirements; be exposed to political, social and economic instability abroad, including terrorist attacks and security concerns; be exposed to fluctuations in currency exchange rates; and experience reduced or varied protection for intellectual property rights and practical difficulties in enforcing intellectual property and other rights, including with respect to assignment of inventions to us by our consultants in foreign jurisdictions.
We also face competition in the fields of oncology and organ health from other companies, many of which are larger, more established and have more experience and more resources than we do.
We also face competition in the fields of oncology and organ health from other companies, which may be larger, more established, or have more experience or more resources than we do.
Our business depends on our ability to obtain and maintain adequate coverage and reimbursement from third-party payers and patients. Third-party reimbursement for our testing represents a significant portion of our revenues, and we expect third-party payers such as insurance companies and government healthcare programs to continue to be our primary source of payments.
Our business depends on our ability to obtain and maintain adequate coverage and reimbursement from third-party payers and patients. Third-party reimbursement for our testing represents a significant portion of our revenues, and we expect government and commercial third-party payers to continue to be our primary source of payments.
As of December 31, 2022, we had federal, state, and foreign NOL carryforwards of approximately $1.4 billion, $1.0 billion and $3.8 million, respectively, which, if not utilized, begin to expire in 2027, 2028, and 2031, respectively. Approximately $1.1 billion of these federal NOLs can be carried forward indefinitely.
As of December 31, 2023, we had federal, state, and foreign NOL carryforwards of approximately $1.6 billion, $1.1 billion and $3.8 million, respectively, which, if not utilized, begin to expire in 2027, 2024, and 2027, respectively. Approximately $1.3 billion of these federal NOLs can be carried forward indefinitely.
The FDA has stated that it would not prevent us from marketing Constellation in the United States while we discuss with the FDA how it will be regulated; however, it is possible that the FDA may reverse itself either on the appropriate regulatory review path or regarding our ability to continue to market Constellation.
The FDA has stated that it would not prevent us from marketing Constellation in the United States; however, it is possible that the FDA may reverse itself either on the appropriate regulatory review path or regarding our ability to continue to market Constellation.
We are involved in legal matters, including investigations, subpoenas, demands, disputes, litigation, requests for information, and other regulatory or administrative actions or proceedings, including those with respect to intellectual property, testing and test performance, billing, reimbursement, marketing, short seller and media allegations, employment, and other matters.
We are involved in legal matters, including investigations, subpoenas, demands, disputes, litigation, requests for information, and other regulatory or administrative actions or proceedings, including those with respect to intellectual property, testing and test performance, billing, reimbursement, marketing, short seller and media allegations, employment, and other matters. See Note 8— Commitments and Contingencies—Legal Proceedings for a description of our legal matters.
UBS has the right to demand full or partial payment of the Credit Line obligations and terminate the Credit Line, in its discretion and without cause, at any time. 45 Table of Contents Recent macroeconomic pressures resulting from the COVID-19 pandemic and ongoing geopolitical matters, or future health epidemics, may have an adverse impact on our business, financial results and prospects.
UBS has the right to demand full or partial payment of the Credit Line obligations and terminate the Credit Line, in its discretion and without cause, at any time. Recent macroeconomic pressures resulting from ongoing geopolitical or other matters may have an adverse impact on our business, financial results and prospects.
We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties. We employ individuals who were previously employed at other biotechnology or diagnostic companies.
We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties. We employ individuals who were previously employed at other biotechnology or diagnostic companies, including our competitors in the various markets in which we operate.
We may experience research and development, regulatory, marketing and other difficulties that could delay or prevent our introduction of enhanced or new tests and result in increased costs and the diversion of management’s attention and resources from other business matters, such as from our Panorama and Horizon product offerings, which currently represent the significant majority of our revenues.
We may experience research and development, regulatory, marketing and other difficulties that could delay or prevent our introduction of enhanced or new tests and result in increased costs and the diversion of management’s attention and resources from other business matters, such as from our existing product offerings.
Our actual liquidity and capital funding requirements will depend on numerous factors, including: • our ability to achieve broader commercial success with Panorama, Horizon and our other products; • the costs and success of our research, development, and commercialization efforts for potential new products and additional indications for, and enhancements to, current products; • our ability to obtain more extensive coverage and reimbursement for our tests, including for microdeletions screening in NIPT, as well as in additional indications in oncology and organ health as we continue to invest in expanding our offerings in these fields; • our ability to generate sufficient revenues from our cloud-based distribution model; 44 Table of Contents • our ability to collect on our accounts receivable; • our need to finance capital expenditures and further expand our clinical laboratory operations; • our ability to manage our operating costs; and • the timing and results of any regulatory authorizations that we are required to obtain for our tests.
Our actual liquidity and capital funding requirements will depend on numerous factors, including: • our ability to achieve broader commercial success with our tests and product offerings; • the costs and success of our research, development, and commercialization efforts for potential new products and additional indications for, and enhancements to, current products; 44 Table of Contents • our ability to obtain more extensive coverage and reimbursement for our tests, including for microdeletions screening in NIPT, as well as in additional indications in oncology and organ health as we continue to invest in expanding our offerings in these fields; • our ability to generate sufficient revenues from our cloud-based distribution model; • our ability to collect on our accounts receivable; • our need to finance capital expenditures and further expand our clinical laboratory operations; • our ability to manage our operating costs; • costs and expenses to protect or enforce our intellectual property rights or to defend against infringement claims brought against us, including any associated litigation settlements or judgments we are required to pay; and • the timing and results of any regulatory authorizations that we are required to obtain for our tests.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeIn December 2021, we entered into an amendment of the Austin lease agreement which extended the lease of the current premises through March 2033. The amendment also includes two additional office spaces, referred to as the First Expansion Premises and the Second Expansion Premises. The First Expansion Premises consists of 32,500 rentable square feet and commenced in February 2022.
Biggest changeThe amendment also includes two additional office spaces, referred to as the First Expansion Premises and the Second Expansion Premises. The First Expansion Premises consists of 32,500 rentable square feet and commenced in February 2022. The Second Expansion Premises consists of 65,222 rentable square feet and commenced in September 2022.
The annual lease payment starts at $0.2 million and will expire in August 2023. ​ We have also historically entered into leases of individual workspaces and storage spaces at various locations on both a month-to-month basis without an established lease term, and more recently for certain locations, have committed to terms approximating one to five years.
The annual lease payment starts at $0.2 million and expired in August 2023. ​ 68 Table of Contents We have also historically entered into leases of individual workspaces and storage spaces at various locations on both a month-to-month basis without an established lease term, and more recently for certain locations, have committed to terms approximating one to five years.
The Second Expansion Premises consists of 65,222 rentable square feet and commenced in September 2022. The terms of the First and Second Expansion Premises expire in March 2033. ​ We entered into a lease agreement in November 2020 to lease 11,395 square feet of space located in South San Francisco, California over a three-year term.
The terms of the First and Second Expansion Premises expire in March 2033. ​ We entered into a lease agreement in November 2020 to lease 11,395 square feet of space located in South San Francisco, California over a three-year term. The premises is used for general office, laboratory and research use.
The premises is used for general office, laboratory and research use. In December 2022, we exercised the renewal option of the South San Francisco lease agreement.
In December 2022, we exercised the renewal option of the South San Francisco lease agreement.
In January 2023, we entered in an amendment to extend the lease term of the South San Francisco premises by three years, through November 2026. ​ As part of the in-process research and development, or the IPR&D, asset acquisition in September 2021, we inherited a 24-month lease for 7,107 square feet of laboratory space in Canada.
In January 2023, we entered in an amendment to extend the lease term of the South San Francisco premises by three years, through November 2026. ​ We entered into a lease agreement in September 2023 to lease 16,319 square feet of space located in Pleasanton, California over a 60-month term.
We do not intend to exercise its option to renew the facility upon expiration. ​ Our subsidiary leases laboratory and office space in Austin, Texas, comprising approximately 94,000 square feet pursuant to a lease expiring in November 2026. The lease term is 132 months beginning in December 2015 and expiring in November 2026 with monthly payments beginning in December 2016.
We did not exercise the option to renew the facility upon expiration. ​ We lease laboratory and office space in Austin, Texas, comprising approximately 94,000 square feet pursuant to a lease expiring in November 2026. In December 2021, we entered into an amendment of the Austin lease agreement which extended the lease of the current premises through March 2033.
This lease covers two office spaces, referred to as the First Space and the Second Space. The First Space covers approximately 88,000 square feet at an average base rent of $340,972 per month for the year 2020. The Second Space covers approximately 48,000 square feet at an average base rent of $197,605 per month.
This lease covers two office spaces, referred to as the First Space and the Second Space. The First Space covers approximately 88,000 square feet. The Second Space covers approximately 48,000 square feet. The original lease term was approximately 84 months. An amendment was signed in January 2021 which extended the term of the lease for 48 months.
Removed
The original lease term is approximately 84 months and expires in October 2023. In January 2021, we entered into an amendment of the lease to extend the term for 48 months to October 2027.
Added
The amended term of the lease commenced in October 2023 and will expire in October 2027 with a combined monthly rent for the First Space and Second Space of $776,671. ​ In Tukwila, Washington, we lease a facility initially to provide storage of our cord blood tissue units.
Removed
The combined monthly rent for the First Space and Second Space will be $776,671 commencing in October 2023. ​ 66 Table of Contents We entered into a sublease agreement in June 2019 with a third party to sublease 25,879 square feet of space located on the third floor of the San Carlos, California building while maintaining its primary obligation as the intermediate lessor.
Added
The premises will be used for laboratory and research use and commenced in December 2023. The annual lease payment starts at $ 0.5 million and increases annually. ​ As part of the in-process research and development, or the IPR&D, asset acquisition in September 2021, we inherited a 24-month lease for 7,107 square feet of laboratory space in Canada.
Removed
The term of this lease is approximately 48 months commencing in October 2019 and expiring in September 2023.
Removed
In February 2021, we entered into an amendment of the San Carlos sublease agreement whereas the third party will initially return approximately 3,474 rentable square feet with the remainder of the subleased premises, consisting of approximately 22,405 rentable square feet, between October 2021 and December 2021. ​ In Tukwila, Washington, we lease a facility initially to provide storage of our cord blood tissue units.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeMINE SAFETY DISCLOSURES ​ Not applicable. ​ 67 Table of Contents PART II ​
Biggest changeMINE SAFETY DISCLOSURES ​ Not applicable. ​ PART II ​

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeItem 4. Mine Safety Disclosures ​ 67 ​ ​ ​ ​ ​ PART II ​ ​ ​ ​ ​ ​ Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ​ 68 Item 6. Selected Financial Data ​ 70 Item 7.
Biggest changeItem 4. Mine Safety Disclosures ​ 69 ​ ​ ​ ​ ​ PART II ​ ​ ​ ​ ​ ​ Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ​ 69 Item 6. Selected Financial Data ​ 71 Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations ​ 71 Item 7A. Quantitative and Qualitative Disclosures About Market Risk ​ 82 Item 8. Financial Statements and Supplementary Data ​ 83
Management’s Discussion and Analysis of Financial Condition and Results of Operations ​ 72 Item 7A. Quantitative and Qualitative Disclosures About Market Risk ​ 82 Item 8. Financial Statements and Supplementary Data ​ 83

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe stock price performance on the following graph is not necessarily indicative of future stock price performance. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nasdaq ​ Nasdaq Trade Date ​ Natera, Inc. ​ Biotechnology ​ Composite Base period 7/2/2015 ​ $ 100 ​ $ 100 ​ $ 100 12/31/2015 ​ $ 47.49 ​ $ 91.34 ​ $ 99.96 12/31/2016 ​ $ 51.50 ​ $ 71.53 ​ $ 107.46 12/31/2017 ​ $ 39.53 ​ $ 86.6 ​ $ 137.81 12/31/2018 ​ $ 61.39 ​ $ 78.52 ​ $ 132.46 12/31/2019 ​ $ 147.45 ​ $ 97.34 ​ $ 178.59 12/31/2020 ​ $ 437.64 ​ $ 122.78 ​ $ 257.29 12/31/2021 ​ $ 408.40 ​ $ 122.00 ​ $ 312.32 12/31/2022 ​ $ 176.65 ​ $ 108.69 ​ $ 208.94 ​ ​ ​ Recent Sales of Unregistered Securities ​ None. ​ 69 Table of Contents Purchases of Equity Securities by the Issuer and Affiliated Parties None. ​
Biggest changeThe stock price performance on the following graph is not necessarily indicative of future stock price performance. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nasdaq Nasdaq Trade Date ​ Natera, Inc. ​ Biotechnology ​ Composite Base period 7/2/2015 ​ $ 100.00 ​ $ 100.00 ​ $ 100.00 12/31/2015 ​ $ 47.49 ​ $ 91.34 ​ $ 99.96 12/31/2016 ​ $ 51.50 ​ $ 71.53 ​ $ 107.46 12/31/2017 ​ $ 39.53 ​ $ 86.60 ​ $ 137.81 12/31/2018 ​ $ 61.39 ​ $ 78.52 ​ $ 132.46 12/31/2019 ​ $ 147.45 ​ $ 97.34 ​ $ 178.59 12/31/2020 ​ $ 437.64 ​ $ 122.78 ​ $ 257.29 12/31/2021 ​ $ 408.40 ​ $ 122.00 ​ $ 312.32 12/31/2022 ​ $ 176.65 ​ $ 108.69 ​ $ 208.94 12/31/2023 ​ $ 275.46 ​ $ 112.76 ​ $ 299.67 ​ Recent Sales of Unregistered Securities ​ None. ​ 70 Table of Contents Purchases of Equity Securities by the Issuer and Affiliated Parties None. ​
Any future determination to declare cash dividends will be made at the discretion of our board of directors, subject to applicable laws, and will depend on our financial condition, results of operations, capital requirements, general business conditions and other factors our board of directors may deem relevant. ​ ​ 68 Table of Contents Performance Graph ​ This performance graph shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or incorporated by reference into any of our other filings under the Exchange Act or the Securities Act except to the extent we specifically incorporate it by reference into such filing.
Any future determination to declare cash dividends will be made at the discretion of our board of directors, subject to applicable laws, and will depend on our financial condition, results of operations, capital requirements, general business conditions and other factors our board of directors may deem relevant. ​ ​ 69 Table of Contents Performance Graph ​ This performance graph shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or incorporated by reference into any of our other filings under the Exchange Act or the Securities Act except to the extent we specifically incorporate it by reference into such filing.
The following graph compares the cumulative total stockholder return on our common stock between our initial public offering on July 2, 2015 and December 31, 2022 with the cumulative total return of (i) the NASDAQ Biotechnology Index and (ii) the NASDAQ Composite Index over the same period.
The following graph compares the cumulative total stockholder return on our common stock between our initial public offering on July 2, 2015 and December 31, 2023 with the cumulative total return of (i) the NASDAQ Biotechnology Index and (ii) the NASDAQ Composite Index over the same period.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES ​ Market Price of Our Common Stock ​ Our common stock is listed on the Nasdaq Global Select Market under the symbol “NTRA”. ​ Holders ​ As of March 1, 2023, we had 33 holders of record of our common stock.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES ​ Market Price of Our Common Stock ​ Our common stock is listed on the Nasdaq Global Select Market under the symbol “NTRA”. ​ Holders ​ As of January 31, 2024, we had 25 holders of record of our common stock.

Item 7. Management's Discussion & Analysis

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

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Biggest changeThere were no asset impairment charges for the years ended December 31, 2022 and 2021. ​ Results of Operations ​ Comparison of the years ended December 31, 2022, 2021, and 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ Changes (in thousands) 2022 2021 2020 2022 - 2021 ​ 2021 - 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ Amount ​ Percent ​ ​ Amount ​ Percent ​ Revenues: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Product revenues $ 797,307 ​ $ 580,080 ​ $ 377,877 ​ ​ $ 217,227 ​ 37.4 % ​ $ 202,203 ​ 53.5 % Licensing and other revenues ​ 22,915 ​ ​ 45,406 ​ ​ 13,128 ​ ​ ​ (22,491) ​ (49.5) ​ ​ ​ 32,278 ​ 245.9 ​ Total revenues ​ 820,222 ​ ​ 625,486 ​ ​ 391,005 ​ ​ ​ 194,736 ​ 31.1 ​ ​ ​ 234,481 ​ 60.0 ​ Cost and expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cost of product revenues ​ 453,632 ​ ​ 315,195 ​ ​ 200,097 ​ ​ ​ 138,437 ​ 43.9 ​ ​ ​ 115,098 ​ 57.5 ​ Cost of licensing and other revenues ​ 2,624 ​ ​ 3,223 ​ ​ 3,523 ​ ​ ​ (599) ​ (18.6) ​ ​ ​ (300) ​ (8.5) ​ Research and development ​ 316,415 ​ ​ 264,208 ​ ​ 100,035 ​ ​ ​ 52,207 ​ 19.8 ​ ​ ​ 164,173 ​ 164.1 ​ Selling, general and administrative ​ 588,591 ​ ​ 511,034 ​ ​ 303,627 ​ ​ ​ 77,557 ​ 15.2 ​ ​ ​ 207,407 ​ 68.3 ​ Total cost and expenses ​ 1,361,262 ​ ​ 1,093,660 ​ ​ 607,282 ​ ​ ​ 267,602 ​ 24.5 ​ ​ ​ 486,378 ​ 80.1 ​ Loss from operations ​ (541,040) ​ ​ (468,174) ​ ​ (216,277) ​ ​ ​ (72,866) ​ 15.6 ​ ​ ​ (251,897) ​ 116.5 ​ Interest expense ​ (9,319) ​ ​ (8,305) ​ ​ (15,082) ​ ​ ​ (1,014) ​ 12.2 ​ ​ ​ 6,777 ​ (44.9) ​ Interest and other income, net ​ 3,538 ​ ​ 5,381 ​ ​ 7,562 ​ ​ ​ (1,843) ​ (34.3) ​ ​ ​ (2,181) ​ (28.8) ​ Loss on debt extinguishment ​ — ​ ​ — ​ ​ (5,848) ​ ​ ​ — ​ — ​ ​ ​ 5,848 ​ 100.0 ​ Loss before income taxes ​ (546,821) ​ ​ (471,098) ​ ​ (229,645) ​ ​ ​ (75,723) ​ 16.1 ​ ​ ​ (241,453) ​ 105.1 ​ Income tax expense ​ (978) ​ ​ (618) ​ ​ (98) ​ ​ ​ (360) ​ 58.3 ​ ​ ​ (520) ​ 530.6 ​ Net loss $ (547,799) ​ $ (471,716) ​ $ (229,743) ​ ​ $ (76,083) ​ 16.1 % ​ $ (241,973) ​ 105.3 % _______________________ ​ Revenues ​ Total revenues are comprised of product revenues, which are primarily driven by sales of our Panorama and HCS tests, and licensing and other revenues, which primarily includes development licensing revenue, licensing of our Constellation software to our licensees.
Biggest changeThe measurement of stock-based compensation is subject to periodic adjustments as the underlying equity instruments vest, and the resulting change in value, if any, is recognized in our statements of operations and comprehensive loss during the period that the related services are rendered. ​ Results of Operations ​ Comparison of the years ended December 31, 2023, 2022, and 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ Changes (in thousands) 2023 2022 2021 2023 - 2022 ​ 2022 - 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ Amount ​ Percent ​ ​ Amount ​ Percent ​ Revenues: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Product revenues $ 1,068,522 ​ $ 797,307 ​ $ 580,080 ​ ​ $ 271,215 ​ 34.0 % ​ $ 217,227 ​ 37.4 % Licensing and other revenues ​ 14,049 ​ ​ 22,915 ​ ​ 45,406 ​ ​ ​ (8,866) ​ (38.7) ​ ​ ​ (22,491) ​ (49.5) ​ Total revenues ​ 1,082,571 ​ ​ 820,222 ​ ​ 625,486 ​ ​ ​ 262,349 ​ 32.0 ​ ​ ​ 194,736 ​ 31.1 ​ Cost and expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cost of product revenues ​ 588,564 ​ ​ 453,632 ​ ​ 315,195 ​ ​ ​ 134,932 ​ 29.7 ​ ​ ​ 138,437 ​ 43.9 ​ Cost of licensing and other revenues ​ 1,267 ​ ​ 2,624 ​ ​ 3,223 ​ ​ ​ (1,357) ​ (51.7) ​ ​ ​ (599) ​ (18.6) ​ Research and development ​ 320,678 ​ ​ 316,415 ​ ​ 264,208 ​ ​ ​ 4,263 ​ 1.3 ​ ​ ​ 52,207 ​ 19.8 ​ Selling, general and administrative ​ 618,307 ​ ​ 588,591 ​ ​ 511,034 ​ ​ ​ 29,716 ​ 5.0 ​ ​ ​ 77,557 ​ 15.2 ​ Total cost and expenses ​ 1,528,816 ​ ​ 1,361,262 ​ ​ 1,093,660 ​ ​ ​ 167,554 ​ 12.3 ​ ​ ​ 267,602 ​ 24.5 ​ Loss from operations ​ (446,245) ​ ​ (541,040) ​ ​ (468,174) ​ ​ ​ 94,795 ​ 17.5 ​ ​ ​ (72,866) ​ (15.6) ​ Interest expense ​ (12,638) ​ ​ (9,319) ​ ​ (8,305) ​ ​ ​ (3,319) ​ (35.6) ​ ​ ​ (1,014) ​ (12.2) ​ Interest and other income, net ​ 24,353 ​ ​ 3,538 ​ ​ 5,381 ​ ​ ​ 20,815 ​ 588.3 ​ ​ ​ (1,843) ​ (34.3) ​ Loss before income taxes ​ (434,530) ​ ​ (546,821) ​ ​ (471,098) ​ ​ ​ 112,291 ​ 20.5 ​ ​ ​ (75,723) ​ (16.1) ​ Income tax expense ​ (271) ​ ​ (978) ​ ​ (618) ​ ​ ​ 707 ​ 72.3 ​ ​ ​ (360) ​ (58.3) ​ Net loss $ (434,801) ​ $ (547,799) ​ $ (471,716) ​ ​ $ 112,998 ​ 20.6 % ​ $ (76,083) ​ (16.1) % _______________________ ​ Revenues ​ Total revenues are comprised of product revenues, which are primarily driven by sales of our Panorama and HCS tests, and licensing and other revenues, which primarily includes development licensing revenue, licensing of our Constellation software to our licensees.
Research and Development ​ Research and development expenses include costs incurred to develop our technology, collect clinical samples and conduct clinical studies to develop and support our products.
Expenses ​ Research and Development ​ Research and development expenses include costs incurred to develop our technology, collect clinical samples and conduct clinical studies to develop and support our products.
Revenues recognized from tests processed through our Constellation model, and from our strategic partnership agreements, are reported in licensing and other revenues. 72 Table of Contents In cases where we sell our tests through our laboratory partners, the majority of our laboratory partners bill the patient, clinic or insurance carrier for the performance of our tests, and we are entitled to either a fixed price per test or a percentage of their collections. ​ Our ability to increase our revenues will depend on our ability to further penetrate the domestic and international markets and, in particular, generate sales through our direct sales force, develop and commercialize additional tests, obtain reimbursement from additional third-party payers and increase our reimbursement rates for tests performed.
Revenues recognized from tests processed through our Constellation model, and from our strategic partnership agreements, are reported in licensing and other revenues. 73 Table of Contents In cases where we sell our tests through our laboratory partners, the majority of our laboratory partners bill the patient, clinic or insurance carrier for the performance of our tests, and we are entitled to either a fixed price per test or a percentage of their collections. ​ Our ability to increase our revenues will depend on our ability to further penetrate the domestic and international markets and, in particular, generate sales through our direct sales force, develop and commercialize additional tests, obtain reimbursement from additional third-party payers and increase our reimbursement rates for tests performed.
However, cost of licensing and other revenues for the Constellation software platform are relatively low, and therefore, its associated gross margin is higher. ​ 73 Table of Contents Cost of Product Revenues The components of our cost of product revenues are material and service costs, impairment charges associated with testing equipment, personnel costs, including stock-based compensation expense, equipment and infrastructure expenses associated with testing samples, electronic medical records, order and delivery systems, shipping charges to transport samples, costs incurred from third party test processing fees, and allocated overhead such as rent, information technology costs, equipment depreciation and utilities.
However, cost of licensing and other revenues for the Constellation software platform are relatively low, and therefore, its associated gross margin is higher. ​ 74 Table of Contents Cost of Product Revenues The components of our cost of product revenues are material and service costs, impairment charges associated with testing equipment, personnel costs, including stock-based compensation expense, equipment and infrastructure expenses associated with testing samples, electronic medical records, order and delivery systems, shipping charges to transport samples, costs incurred from third party test processing fees, and allocated overhead such as rent, information technology costs, equipment depreciation and utilities.
We also offer our Signatera molecular residual disease test for oncology applications, which we commercialize as a test run in our CLIA (as defined below) laboratory and offer on a research use only basis to research laboratories and pharmaceutical companies; and our Prospera organ transplant assessment tests. ​ We process tests in our laboratories certified under the Clinical Laboratory Improvement Amendments of 1988 (“CLIA”) in Austin, Texas and San Carlos, California.
We also offer our Signatera molecular residual disease test for oncology applications, which we commercialize as a test run in our CLIA (as defined below) laboratory and offer on a research use only basis to research laboratories and pharmaceutical companies; and our Prospera organ transplant assessment tests. ​ We process tests in our laboratories certified under the Clinical Laboratory Improvement Amendments of 1988, or CLIA, in Austin, Texas and San Carlos, California.
We currently have 11 revenue generating licensing and service agreements with laboratories under our Constellation distribution model. We consider our cost of licensing and other revenues for the Constellation software platform to be relatively low, and therefore we expect its associated gross margin is higher. We expect our cost of licensing will increase in relation to volume growth.
We currently have 15 revenue generating licensing and service agreements with laboratories under our Constellation distribution model. We consider our cost of licensing and other revenues for the Constellation software platform to be relatively low, and therefore we expect its associated gross margin is higher. We expect our cost of licensing will increase in relation to volume growth.
In November 2022, we completed an additional underwritten equity offering and sold 13,144,500 shares of our common stock at a price of $35 per share to the public. Before offering expenses of $0.5 million, we received proceeds of $433.2 million net of the underwriting discount.
In November 2022, we completed an underwritten equity offering and sold 13,144,500 shares of our common stock at a price of $35 per share to the public. Before offering expenses of approximately $0.5 million, we received proceeds of approximately $433.2 million net of the underwriting discount.
As of December 31, 2022, we are recognizing revenues on 11 licensing and service arrangements with laboratories under our Constellation model. ​ Our strategy to offer access to our algorithm to laboratory licensees via our Constellation cloud-based software platform may also cause our revenues to decrease because we do not process the tests and perform the molecular biology analysis in our own laboratory under this model, and therefore are not able to charge as high an amount, and as a result realize lower revenues per test than when we perform the entire test ourselves.
As of December 31, 2023, we are recognizing revenues on 15 licensing and service arrangements with laboratories under our Constellation model. ​ Our strategy to offer access to our algorithm to laboratory licensees via our Constellation cloud-based software platform may also cause our revenues to decrease because we do not process the tests and perform the molecular biology analysis in our own laboratory under this model, and therefore are not able to charge as high an amount, and as a result realize lower revenues per test than when we perform the entire test ourselves.
Costs associated with Whole Exome Sequencing (“WES”) are also included, as well as labor costs, relating to our Signatera CLIA and Signatera research use only offerings . Costs associated with performing tests are recorded when the test is accessioned. We expect cost of product revenues in absolute dollars to increase as the number of tests we perform increases.
Costs associated with Whole Exome Sequencing, or WES, are also included, as well as labor costs, relating to our Signatera CLIA and Signatera research use only offerings . Costs associated with performing tests are recorded when the test is accessioned. We expect cost of product revenues in absolute dollars to increase as the number of tests we perform increases.
The Convertible Notes are senior, unsecured obligations of the Company and bear interest at a rate of 2.25% per year, payable in cash semi-annually in arrears in May and November of 81 Table of Contents each year, beginning in November 2020. The Convertible Notes mature in May 2027, unless earlier converted, repurchased or redeemed in accordance with their terms.
The Convertible Notes are senior, unsecured obligations of the Company and bear interest at a rate of 2.25% per year, payable in cash semi-annually in arrears in May and November of each year, beginning in November 2020. The Convertible Notes mature in May 2027, unless earlier converted, repurchased or redeemed in accordance with their terms.
Such arrangements include those related to our lease commitments, Credit Line (as defined below), Convertible Notes, commercial supply agreements and other agreements. ​ Credit Line ​ The short-term debt obligations consist of the $80.4 million principal amount drawn from the UBS Credit Line (the “Credit Line’) and applicable interest.
Such arrangements include those related to our lease commitments, Credit Line (as defined below), Convertible Notes, commercial supply agreements and other agreements. ​ Credit Line ​ The short-term debt obligations consist of the $80.4 million principal amount drawn from the UBS Credit Line, or the Credit Line, and applicable interest.
The number of tests that we accession is a key indicator that we use to assess our business. A test is accessioned when we receive the test at our laboratory, the relevant information about the test is entered into our computer system, and the test sample is routed 71 Table of Contents into the appropriate workflow.
The number of tests that we accession is a key indicator that we use to assess our business. A test is accessioned when we receive the test at our laboratory, the relevant information about the test is entered into our computer system, and the test sample is routed into the appropriate workflow.
As of December 31, 2022, we have $70.0 million available on the Credit Line. ​ While we have introduced multiple products that are generating revenues, these revenues have not been sufficient to fund all operations. Accordingly, we have funded the portion of operating costs that exceeds revenues through a combination of equity issuances and debt and other financings.
As of December 31, 2023, we have $20.0 million available on the Credit Line. ​ While we have introduced multiple products that are generating revenues, these revenues have not been sufficient to fund all operations. Accordingly, we have funded the portion of operating costs that exceeds revenues through a combination of equity issuances and debt and other financings.
This increase in volume represents continuous commercial growth of Panorama and HCS, both as tests performed in our laboratories as well as through our Constellation software platform. ​ The percent of our revenues attributable to our U.S. direct sales force were 89%, 89% and 87% for the years ended December 31, 2022, 2021, and 2020, respectively.
This increase in volume represents continuous commercial growth of Panorama and HCS, both as tests performed in our laboratories as well as through our Constellation software platform. ​ The percent of our revenues attributable to our U.S. direct sales force were 91%, 89% and 89% for the years ended December 31, 2023, 2022, 2021, respectively.
We intend to mitigate any impact by driving more business from our most profitable accounts. ​ Licensing and Other Revenues ​ Revenues recognized from tests processed through our Constellation model, and from our strategic partnership agreements (which during the three years ended December 31, 2020, 2021 and 2022 comprised the Qiagen LC, or Qiagen, BGI Genomics Co.
We intend to mitigate any impact by driving more business from our most profitable accounts. ​ Licensing and Other Revenues ​ Revenues recognized from tests processed through our Constellation model, and from our strategic partnership agreements (which during the three years ended December 31, 2023, 2022 and 2021 comprised the Qiagen, BGI Genomics Co.
Discussions of year-to-year comparisons between 2021 and 2020 that are not included in this Annual Report on Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of Part II of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on February 24, 2022. ​ Revenues ​ Product Revenues ​ We generate revenues from the sale of our tests, primarily from the sale of our Panorama and HCS tests.
Discussions of year-to-year comparisons between 2022 and 2021 that are not included in this Annual Report on Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of Part II of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on March 1, 2023. ​ Revenues ​ Product Revenues ​ We generate revenues from the sale of our tests, primarily from the sale of our Panorama and HCS tests.
For the year ended December 31, 2022, we had a net loss of $547.8 million, and we expect to continue to incur losses in future periods as we continue to devote a substantial portion of our resources to our research and development and commercialization efforts for our existing and new products.
For the year ended December 31, 2023, we had a net loss of $434.8 million, and we expect to continue to incur losses in future periods as we continue to devote a substantial portion of our resources to our research and development and commercialization efforts for our existing and new products.
The interest rate was subsequently changed to the 30-day Secured Overnight Financing Rate (“SOFR”) average, plus 1.21% in 2022. The SOFR rate is variable. UBS has the right to demand 79 Table of Contents full or partial payment of the Credit Line obligations and terminate it, in its discretion and without cause, at any time.
UBS has the right to demand full or partial payment of the Credit Line obligations and terminate it, in its discretion and without cause, at any time. The interest rate was subsequently changed to the 30-day Secured Overnight Financing Rate, or SOFR, average, plus 1.21%. The SOFR rate is variable.
For the years ended December 31, 2022, 2021, and 2020, there were no customers exceeding 10% of the total revenues on an individual basis. Revenues from customers outside the United States were $34.4 million, representing 4% of total revenues for the year ended December 31, 2022.
For the years ended December 31, 2023, 2022, and 2021, there were no customers exceeding 10% of the total revenues on an individual basis. Revenues from customers outside the United States were $34.9 million, representing 3% of total revenues for the year ended December 31, 2023.
We consider our critical accounting policies and estimates to be revenue recognition, leases, fair value measurements, and stock-based compensation. Recent Accounting Pronouncements We believe that the impact of accounting standards updates recently issued that are not yet effective will not have a material impact on our financial position or results of operations upon adoption.
We consider our critical accounting policies and estimates to be revenue recognition and stock-based compensation attributable to performance-based awards. Recent Accounting Pronouncements We believe that the impact of accounting standards updates recently issued that are not yet effective will not have a material impact on our financial position or results of operations upon adoption.
The Credit Line was amended in July 2017 and bears interest at 30-day LIBOR plus 1.10%, and it is secured by a first priority lien and security interest in our money market and marketable securities held in our managed investment account with UBS. The interest rate was subsequently changed to the 30-day SOFR average, plus 1.21% in 2022.
The Credit Line was amended in July 2017 and bears interest at 30-day LIBOR plus 1.10%, and it is secured by a first priority lien and security interest in our money market and marketable securities held in our managed investment account with UBS.
The number of tests that we process is a key metric as it tracks overall volume growth, particularly as our laboratory partners may transition from sending samples to our laboratory to our cloud-based distribution model, as a result of which our tests accessioned would decrease but our tests processed would remain unchanged. ​ During the year ended December 31, 2022, we processed approximately 2,066,500 tests, comprised of approximately 2,004,000 tests accessioned in our laboratories.
The number of tests that we process is a key metric as it tracks overall 72 Table of Contents volume growth, particularly as our laboratory partners may transition from sending samples to our laboratory to our cloud-based distribution model, as a result of which our tests accessioned would decrease but our tests processed would remain unchanged. ​ During the year ended December 31, 2023, we processed approximately 2,496,100 tests, comprised of approximately 2,426,500 tests accessioned in our laboratories.
This included non-cash stock compensation expense of $152.4 million, $115.2 million, and $50.2 million for the years ended December 31, 2022, 2021, and 2020, respectively.
This included non-cash stock compensation expense of $191.8 million, $152.4 million, and $115.2 million for the years ended December 31, 2023, 2022, and 2021, respectively.
As of December 31, 2022, we had an accumulated deficit of $1.9 billion. ​ Components of the Results of Operations ​ The section of this Management’s Discussion and Analysis generally discusses year-to-year comparisons between 2022 and 2021.
As of December 31, 2023, we had an accumulated deficit of $2.4 billion. ​ Components of the Results of Operations ​ The section of this Management’s Discussion and Analysis generally discusses year-to-year comparisons between 2023 and 2022.
As of December 31, 2022, we had an accumulated deficit of $1.9 billion. As of December 31, 2022, we had $466.1 million in cash and cash equivalents and restricted cash, $432.3 million in marketable securities, $80.4 million of outstanding balance of the Credit Line including accrued interest, and $287.5 million outstanding principal balance on the Convertible Notes.
As of December 31, 2023, we had an accumulated deficit of $2.4 billion. As of December 31, 2023, we had $642.1 million in cash and cash equivalents and restricted cash, $236.9 million in marketable securities, $80.4 million of outstanding balance of the Credit Line including accrued interest, and $287.5 million outstanding principal balance on the Convertible Notes.
The percent of our revenues attributable to U.S. laboratory partners for the year ended December 31, 2022, 2021, and 2020 were 7%, 5% and 7%, respectively.
The percent of our revenues attributable to U.S. laboratory partners for the year ended the year ended December 31, 2023, 2022, 2021, was 6%, 7% and 5%, respectively.
Total revenues for the year ended December 31, 2022 increased by $194.7 million, or 31.1%, when compared to the year ended December 31, 2021. We derive our revenues from tests based on units reported to customers—tests delivered with a result. All reported units are either accessioned in our laboratories or processed outside of our laboratories.
Total revenues for the year ended December 31, 2023 increased by $262.3 million, or 32.0%, when compared to the year ended December 31, 2022. We derive our revenues from tests based on units reported to customers—tests delivered with a result. All reported units are either accessioned in our laboratories or processed outside of our laboratories.
The Credit Line was amended in July 2017 and bears interest at 30-day LIBOR plus 1.10%, and it is secured by a first priority lien and security interest in our money market and marketable securities held in our managed investment account with UBS. The Credit Line was subsequently increased from $50.0 million to $150.0 million in 2020.
The Credit Line was amended in July 2017 and bears interest at 30-day LIBOR plus 1.10%, and it is secured by a first priority lien and security interest in our money market and marketable securities held in our managed investment account with UBS.
We generate a majority of our revenues from the sale of Panorama, our non-invasive prenatal test (“NIPT”), as well as Horizon, our Carrier Screening (“HCS”) test.
We generate a majority of our revenues from the sale of Panorama, our non-invasive prenatal test, or NIPT, as well as Horizon, our Carrier Screening, or HCS, test.
Product revenues generated from our testing accounted for $797.3 million or 97% of total revenues for the year ended December 31, 2022, compared to $580.1 million or 93% of total revenues for the year ended December 31, 2021 and $377.9 million or 97% of total revenues for the year ended December 31, 2020.
Product revenues generated from our testing accounted for $1,068.5 million or 99% of total revenues for the year ended December 31, 2023, compared to $797.3 million or 97% of total revenues for the year ended December 31, 2022 and $580.1 million or 93% of total revenues for the year ended December 31, 2021.
Operating liabilities resulted in cash inflows of $8.0 million resulting from a $19.2 million increase in accounts payable, a $10.5 million increase in accrued compensation, a $32.7 million increase in other accrued liabilities, offset by a $44.2 million decrease in deferred revenue and a $10.3 million decrease in operating lease liabilities. ​ Cash Used in Investing Activities ​ Cash provided by investing activities for the year ended December 31, 2022 totaled $330.3 million, which was comprised of $248.4 million in proceeds from sale of investments and $216.5 million proceeds of investments maturities, offset by $86.9 million purchases of new investments and $47.7 million in cash paid for the purchase of property and equipment. ​ Cash used in investing activities for the year ended December 31, 2021 totaled $205.2 million, which was comprised of purchasing new investments of $876.1 million, $41.0 million in acquisitions of property and equipment, and $8.6 million in cash paid for the acquisition of an asset, offset by $187.6 million proceeds from sale of investments and $532.9 million from proceeds of investments maturities. ​ Cash Provided by Financing Activities ​ Cash provided by financing activities for the year ended December 31, 2022 totaled $482.6 million comprised of $433.2 million net proceeds from our equity offering completed in the fourth quarter of 2022, $30.0 million proceeds from Credit Line, $13.0 million in issuance of common stock under the employee stock purchase plan, and $6.4 million cash proceeds from the exercise of stock options. ​ Cash provided by financing activities for the year ended December 31, 2021 totaled $576.2 million comprised of $11.8 million cash proceeds from the exercise of stock options, $13.6 million in issuance of common stock under the employee stock purchase plan, and $550.8 million net proceeds from our equity offering completed in the third quarter of 2021. ​ Contractual Obligations and Other Commitments ​ We have entered into arrangements that contractually obligate us to make payments that will affect our liquidity and cash flows in future periods.
Operating liabilities resulted in cash inflows of $48.4 million resulting from a $5.5 million increase in accounts payable, a $3.1 million increase in accrued compensation, a $47.7 million increase in other accrued liabilities, a $2.1 million increase in deferred revenue offset by a $10.0 million decrease in operating lease liabilities. ​ Cash Provided by Investing Activities ​ Cash provided by investing activities for the year ended December 31, 2023 totaled $168.5 million, which was comprised of $306.0 million proceeds of investments maturities, offset by $98.3 million purchases of new investments and $39.2 million in cash paid for the purchase of property and equipment. ​ Cash provided by investing activities for the year ended December 31, 2022 totaled $330.3 million, which was comprised of $248.4 million in proceeds from sale of investments and $216.5 million proceeds of investments maturities, offset by $86.9 million purchases of new investments and $47.7 million in cash paid for the purchase of property and equipment. ​ Cash Provided by Financing Activities ​ Cash provided by financing activities for the year ended December 31, 2023 totaled $254.4 million comprised of $235.4 million net proceeds from our equity offering completed in the third quarter of 2023, $15.1 million in issuance of common stock under the employee stock purchase plan, and $3.9 million cash proceeds from the exercise of stock options. ​ Cash provided by financing activities for the year ended December 31, 2022 totaled $482.6 million comprised of $433.2 million net proceeds from our equity offering completed in the fourth quarter of 2022, $30.0 million proceeds from Credit Line, $13.0 million in issuance of common stock under the employee stock purchase plan, and $6.4 million cash proceeds from the exercise of stock options. ​ Contractual Obligations and Other Commitments ​ We have entered into arrangements that contractually obligate us to make payments that will affect our liquidity and cash flows in future periods.
For the years ended December 31, 2021 and 2020, revenues from customers outside the United States were $34.6 million and $25.3 million, respectively, representing approximately 6% of total revenues in both years. ​ Our net losses for the years ended December 31, 2022, 2021, and 2020, were $547.8 million, $471.7 million, and $229.7 million, respectively.
For the year ended December 31, 2021, revenues from customers outside the United States were $34.6 million, representing approximately 6% of total revenues. ​ Our net losses for the years ended December 31, 2023, 2022, and 2021, were $434.8 million, $547.8 million, and $471.7 million, respectively.
The percent of our revenues attributable to international laboratory partners and other international sales for the year ended December 31, 2022 was 4%, down from 6% for both the years ended December 31, 2021 and December 31, 2020. ​ For the year ended December 31, 2022, total revenues were $820.2 million, compared to $625.5 million and $391.0 million in the years ended December 31, 2021 and 2020, respectively.
The percent of our revenues attributable to international laboratory partners and other international sales was 3%, 4% and 6% for the years ended December 31, 2023, 2022 and 2021, respectively. ​ For the year ended December 31, 2023, total revenues were $1,082.6 million, compared to $820.2 million and $625.5 million in the years ended December 31, 2022 and 2021, respectively.
During the year ended December 31, 2021, we processed approximately 1,570,000 tests, comprised of approximately 1,513,400 tests accessioned in our laboratories. During the year ended December 31, 2020, we processed approximately 1,026,500 tests, comprised of approximately 974,400 tests accessioned in our laboratories.
During the year ended December 31, 2022, we processed approximately 2,066,500 tests, comprised of approximately 2,004,000 tests accessioned in our laboratories. During the year ended December 31, 2021, we processed approximately 1,570,000 tests, comprised of approximately 1,513,400 tests accessioned in our laboratories.
The net loss of $547.8 million includes $200.9 million in non-cash charges resulting from $16.7 million of depreciation and amortization, $9.2 million milestone expense for in-process research and development, $13.8 million of non-cash lease expense, $152.4 million of stock-based compensation expense, $4.8 million premium amortization and discount accretion on investment securities, $0.9 million loss on investments, $1.2 million for amortization of debt discount and issuance cost, $0.3 million in other non-cash benefits, and $1.8 million of provision for credit losses offset by $0.2 million of inventory reserve adjustments.
The net loss of $547.8 million includes $199.3 million in non-cash charges resulting from $16.7 million of depreciation and amortization, $9.3 million milestone expense for in-process research and development, $13.8 million of non-cash lease expense, $152.4 million of stock-based compensation expense, $4.8 million premium amortization and discount accretion on investment securities, $0.9 million loss on investments, $1.3 million for amortization of debt discount and issuance cost, and $0.3 million in non-cash interest expense.
We used approximately $79.2 million of the net proceeds from the Convertible Notes offering to repay our obligations under the 2017 Term Loan with OrbiMed. ​ Cash Flows ​ The following table summarizes our cash flows for the periods indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ ​ December 31, ​ ​ 2022 2021 ​ 2020 ​ ​ (in thousands) Cash used in operating activities ​ $ (431,501) ​ $ (335,236) ​ $ (182,512) ​ Cash provided by (used in) investing activities ​ 330,338 ​ (205,193) ​ ​ (331,461) ​ Cash provided by financing activities ​ 482,640 ​ 576,188 ​ ​ 500,847 ​ Net increase (decrease) in cash, cash equivalents and restricted cash ​ 381,477 ​ ​ 35,759 ​ ​ (13,126) ​ Cash, cash equivalents and restricted cash, beginning of period ​ 84,614 ​ 48,855 ​ ​ 61,981 ​ Cash, cash equivalents and restricted cash, end of year ​ $ 466,091 ​ $ 84,614 ​ $ 48,855 ​ ​ Cash Used in Operating Activities ​ Cash used in operating activities during the year ended December 31, 2022 was $431.5 million.
We used approximately $79.2 million of the net proceeds from the Convertible Notes offering to repay our obligations under the 2017 Term Loan with OrbiMed in 2020. ​ Cash Flows ​ The following table summarizes our cash flows for the periods indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ ​ December 31, ​ ​ 2023 2022 ​ 2021 ​ ​ (in thousands) Cash used in operating activities ​ $ (246,955) ​ $ (431,501) ​ $ (335,236) ​ Cash provided by (used in) investing activities ​ 168,498 ​ 330,338 ​ ​ (205,193) ​ Cash provided by financing activities ​ 254,461 ​ 482,640 ​ ​ 576,188 ​ Net change in cash, cash equivalents and restricted cash ​ 176,004 ​ ​ 381,477 ​ ​ 35,759 ​ Cash, cash equivalents and restricted cash, beginning of period ​ 466,091 ​ 84,614 ​ ​ 48,855 ​ Cash, cash equivalents and restricted cash, end of year ​ $ 642,095 ​ $ 466,091 ​ $ 84,614 ​ ​ Cash Used in Operating Activities ​ Cash used in operating activities during the year ended December 31, 2023 was $247.0 million.
As noted in “Overview,” the number of tests that we process is a key metric as it tracks overall volume growth. During the year ended December 31, 2022, total reported units were approximately 1,919,600, comprised of approximately 1,861,000 tests reported in our laboratories.
As noted in “Overview,” the number of tests that we process is a key metric as it tracks overall volume growth. During the year ended December 31, 2023, total reported units were approximately 2,388,200, comprised of approximately 2,323,400 tests reported in our laboratories.
This was offset by a $6.8 million decrease in marketing expenses. ​ Interest Expense ​ Interest expense increased by $1.0 million, 12.2%, in the year ended December 31, 2022 compared to the same period in the prior year due to an increase in interest rate as well as a $30.0 million drawdown from November 2022 for the UBS Credit Line. ​ 78 Table of Contents Interest and Other Income ​ Interest and other income decreased by $1.8 million, or 34.3%, in the year ended December 31, 2022, compared to the same period in the prior year, primarily due to less interest income as a result of less investments held by the Company compared to the prior year. ​ Liquidity and Capital Resources ​ We have incurred net losses each year since our inception.
This was offset by a $9.1 million decrease in marketing costs and a $3.2 million net decrease in travel, facilities, office and other costs. ​ Interest Expense ​ Interest expense increased by $3.3 million, 35.6%, in the year ended December 31, 2023 compared to the same period in the prior year due to an increase in interest rate as well as a $30.0 million drawdown from November 2022 for the UBS Credit Line. ​ 78 Table of Contents Interest and Other Income ​ Interest and other income increased by $20.8 million, or 588.3%, in the year ended December 31, 2023, compared to the same period in the prior year, primarily due to higher interest rates and greater average cash and investment balances. ​ Liquidity and Capital Resources ​ We have incurred net losses each year since our inception.
Operating liabilities resulted in cash inflows of $49.0 million resulting from a $5.5 million increase in accounts payable, a $3.1 million increase in accrued compensation, a $47.7 million increase in other accrued liabilities, a $2.1 million increase in deferred revenue offset by a $9.4 million decrease in operating lease liabilities.
Operating liabilities resulted in cash inflows of $9.0 million resulting from a $21.6 million increase in accrued compensation, a $10.3 million increase in other accrued liabilities, and a $5.0 million increase in deferred revenue, offset by a $15.5 million decrease in accounts payable and a $12.4 million decrease in operating lease liabilities.
In September 2020, we completed an additional underwritten equity offering and sold 4,791,665 shares of our common stock at a price of $60 per share to the public. Before offering expenses of $0.3 million, we received proceeds of $271.0 million net of the underwriting discount.
In September 2023, we completed an underwritten equity offering and sold 4,550,000 shares of our common stock at a price of $55 per share to the public. Before offering expenses of approximately $0.4 million, we received proceeds of approximately $235.8 million net of the underwriting discount.
Cash used in operating activities during the year ended December 31, 2021 was $335.2 million.
Cash used in operating activities during the year ended December 31, 2022 was $431.5 million.
Please refer to Note 8, Commitments and Contingencies for further details. ​ The following table summarizes our unconditional purchase and contractual commitments as of December 31, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Payments Due by Period ​ ​ Less Than 1 to 3 3 to 5 More Than ​ ​ Total ​ 1 Year ​ Years ​ Years ​ 5 Years ​ ​ (in thousands) Short-term debt obligations (1) ​ 80,000 ​ 80,000 ​ — ​ — ​ — ​ Long-term debt obligations (2) ​ ​ 287,500 ​ ​ — ​ ​ — ​ ​ 287,500 ​ ​ — ​ Interest accrued on debt (3) ​ ​ 1,428 ​ ​ 1,428 ​ ​ — ​ ​ — ​ ​ — ​ Inventory purchase and other contractual obligations (4) ​ 78,353 ​ 57,530 ​ 20,742 ​ 81 ​ — ​ Total ​ $ 447,281 ​ $ 138,958 ​ $ 20,742 ​ $ 287,581 ​ $ — ​ ​ ​ (1) Represents proceeds drawn from our Credit Line.
Please refer to Note 8, Commitments and Contingencies for further details. ​ The following table summarizes our unconditional purchase and contractual commitments as of December 31, 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Payments Due by Period ​ ​ Less Than 1 to 3 3 to 5 More Than ​ ​ Total ​ 1 Year ​ Years ​ Years ​ 5 Years ​ ​ (in thousands) Short-term debt obligations (1) ​ 80,000 ​ 80,000 ​ — ​ — ​ — ​ Long-term debt obligations (2) ​ ​ 287,500 ​ ​ — ​ ​ — ​ ​ 287,500 ​ ​ — ​ Interest accrued on debt (3) ​ ​ 1,480 ​ ​ 1,480 ​ ​ — ​ ​ — ​ ​ — ​ Inventory purchase and other contractual obligations (4) ​ 94,533 ​ 58,875 ​ 17,658 ​ 18,000 ​ — ​ Total ​ $ 463,513 ​ $ 140,355 ​ $ 17,658 ​ $ 305,500 ​ $ — ​ ​ ​ (1) Represents proceeds drawn from our Credit Line.
Operating assets had cash outflows of $133.6 million resulting from $124.1 million in increases in accounts receivable, $8.3 million in increases in inventory, and $1.2 million in increases in prepaid expenses and other current assets.
Operating assets had cash outflows of $131.4 million resulting from $122.3 million in increases in accounts receivable, $8.5 million in increases in inventory, and $1.2 million in increases in prepaid expenses and other current assets , offset by $0.6 million from cash inflows in operating lease right-of-use assets .
These expenses consist of personnel costs, including stock-based compensation expense; direct marketing expenses; audit and legal expenses; consulting costs; training and medical education activities; payer outreach programs and allocated overhead, including rent, information technology, equipment depreciation, and utilities. ​ Interest Expense ​ Interest expense is attributable to borrowing under our Convertible Senior Notes (the “Convertible Notes”) and credit line with UBS (the “Credit Line”), including the amortization of debt discounts. ​ 74 Table of Contents Interest Income and Other (Expense) Income, Net ​ Interest income and other (expense) income, net is comprised of interest earned on our cash, realized gains and losses on investments and assets, sublease rental income, and foreign currency remeasurement gains and losses. ​ Loss on Debt Extinguishment The loss on debt extinguishment of $5.8 million was a result of the repayment of the outstanding principal and interest under the 2017 Term Loan with Orbimed in the second quarter of 2020.
These expenses consist of personnel costs, including stock-based compensation expense; direct marketing expenses; audit and legal expenses; consulting costs; training and medical education activities; payer outreach programs and allocated overhead, including rent, information technology, equipment depreciation, and utilities. ​ Interest Expense ​ Interest expense is attributable to borrowing under our Convertible Senior Notes (the “Convertible Notes”) and credit line with UBS (the “Credit Line”), including the amortization of debt discounts. ​ 75 Table of Contents Interest Income and Other (Expense) Income, Net ​ Interest income and other (expense) income, net is comprised of interest earned on our cash, realized gains and losses on investments and assets, sublease rental income, and foreign currency remeasurement gains and losses. ​ Critical Accounting Policies ​ Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States.
The decrease in revenue was primarily due to $28.6 million of revenue recognized from Qiagen associated with deferred revenues recognized as a result from a settlement with Qiagen in prior year partially offset by a $6.1 million net increase in revenue from our collaborative and royalty agreements . ​ Cost of Product Revenues ​ During the year ended December 31, 2022, cost of product revenues increased by $138.4 million or 43.9% when compared to the year ended December 31, 2021, primarily due to higher costs related to inventory consumption of $21.9 million driven by an increase in accessioned cases, a $58.6 million increase in third-party fees, a $14.2 million increase in shipping related charges due to higher volume, and a $43.7 million increase in labor and overhead costs driven by headcount growth and product support. ​ Cost of Licensing and Other Revenues ​ Cost of licensing and other revenues for the year ended December 31, 2022, when compared to the year ended December 31, 2021, decreased by approximately $0.6 million, or 18.6%, primarily due to a net decrease in costs to support our collaborative agreements. ​ Research and Development ​ Research and development expenses during the year ended December 31, 2022 increased by $52.2 million, or 19.8%, when compared to the year ended December 31, 2021.
The decrease was primarily due to a decrease in revenue from our collaborative agreements. ​ Cost of Product Revenues ​ During the year ended December 31, 2023, cost of product revenues increased by $134.9 million or 29.7% when compared to the year ended December 31, 2022, primarily due to higher costs related to inventory consumption of $42.1 million driven by an increase in accessioned cases, a $42.5 million increase in third-party fees, a $6.1 million increase in shipping related charges, a $10.7 million increase in equipment and related depreciation expense, and a $33.5 million increase in labor, overhead, and other related costs driven by headcount growth and product support. ​ Cost of Licensing and Other Revenues ​ Cost of licensing and other revenues for the year ended December 31, 2023, when compared to the year ended December 31, 2022, decreased by approximately $1.4 million, or 51.7%, primarily due to a net decrease in costs to support our collaborative agreements. ​ Expenses ​ Research and Development ​ Research and development expenses during the year ended December 31, 2023 increased by $4.3 million, or 1.3%, when compared to the year ended December 31, 2022.
Revenue Recognition We recognize revenues when, or as, performance obligations in the contracts are satisfied, in the amount reflecting the expected consideration to be received from the goods or services transferred to the customers. Product Revenues Product revenues are derived from contracts with insurance carriers, laboratory partners and patients in connection with sales of prenatal genetic and other diagnostics tests.
Revenue Recognition We recognize revenues when, or as, performance obligations in the contracts are satisfied, in the amount reflecting the expected consideration to be received from the goods or services transferred to the customers.
The SOFR rate is variable. UBS has the right to demand full or partial payment of the Credit Line obligations and terminate it, in its discretion and without cause, at any time.
UBS has the right to demand full or partial payment of the Credit Line obligations and terminate it, in its discretion and without cause, 81 Table of Contents at any time. In October 2023, the interest rate was subsequently changed to the 30-day SOFR average, plus 0.5%.
As of December 31, 2022, the total principal amount outstanding with accrued interest was $80.4 million.
As of December 31, 2023, the total principal amount outstanding with accrued interest was $80.4 million and $20.0 million is remaining as available under the Credit Line.
This was offset by a net $27.0 million decrease in IPR&D expense mainly related to a $35.0 million upfront payment made in September 2021 upon acquisition, offset by an increase in accruals for the remaining milestones, and a $5.2 million decrease in consulting and legal fees. ​ Selling, General and Administrative ​ Selling, general and administrative expenses increased by $77.6 million, or 15.2%, in the year ended December 31, 2022 compared to the year ended December 31, 2021.
This was offset by a $12.7 million decrease in IPR&D expense mainly related to the milestone payments for the September 2021 acquisition, a $7.7 million decrease in consulting expenses, and a $6.6 million decrease in lab and clinical trial related expenses. ​ Selling, General and Administrative ​ Selling, general and administrative expenses increased by $29.7 million, or 5.0%, in the year ended December 31, 2023 compared to the year ended December 31, 2022.
Comparatively, during the year ended December 31, 2021, total reported units were approximately 1,453,500, comprised of approximately 1,400,100 tests reported in our laboratories. During the year ended December 31, 2022 and 2021, total oncology units processed were approximately 196,400 and 76,400, respectively.
Comparatively, during the year ended December 31, 2022, total reported units were approximately 1,919,600, comprised of approximately 1,861,000 tests reported in our laboratories.
We enter into contracts with insurance carriers with primarily payment terms related to tests provided to the patients who have health insurance coverage. Insurance carriers are considered to be third-party payers on behalf of the patients, and the patients are considered as the customers who receive genetic test services.
Insurance carriers are considered to be third-party payers on behalf of the patients, and the patients are considered as the customers who receive genetic test services. Tests may be billed to insurance carriers, patients, or a combination of insurance carriers and patients.
Operating assets had cash outflows of $54.0 million resulting from $43.4 million in increases in accounts receivable, $7.5 million in increases in inventory, and $0.2 million in increases in prepaid expenses and $2.9 million in increases of other current assets.
Operating assets had cash outflows of $57.0 million resulting from $33.9 million in increases in accounts receivable, $5.4 million in increases in inventory, and $26.1 million in increases in prepaid expenses and other current assets, offset by $8.4 million 80 Table of Contents from cash inflows in operating lease right-of-use assets.
Because our revenues from Horizon continue to represent a significant proportion of our overall revenues, a decline in our reimbursement rates for, and therefore our average selling price of, Horizon, could result in a decline in our overall revenue. ​ Entering into in-network contracts continues to be an important part of our business strategy, as we believe that in-network coverage of our tests by third-party payers is crucial to our growth and long-term success, as in-network pricing is more predictable than out-of-network pricing, enables us to develop stable, long-term relationships with third-party payers, and provides access to a larger population of covered lives.
Many third-party payers do not currently reimburse for microdeletions screening in part because there has historically been limited published data on the performance of microdeletions screening tests, with our SMART study results being published relatively recently, in early 2022. ​ Entering into in-network contracts continues to be an important part of our business strategy, as we believe that in-network coverage of our tests by third-party payers is crucial to our growth and long-term success, as in-network pricing is more predictable than out-of-network pricing, enables us to develop stable, long-term relationships with third-party payers, and provides access to a larger population of covered lives.
The net loss of $471.7 million includes $182.5 million in non-cash charges resulting from $11.3 million of depreciation and amortization, $35.6 million expense of in-process research and development, $10.9 million of non-cash lease expense, $115.2 million 80 Table of Contents of stock-based compensation expense, $0.6 million of inventory reserve adjustments, $7.8 million premium amortization and discount accretion on investment securities, $1.2 million for amortization of debt discount and issuance cost, $0.1 million in other non-cash benefits, offset by $0.2 million of provision for credit losses.
The net loss of $434.8 million includes $235.8 million in non-cash charges resulting from $24.1 million of depreciation and amortization, $2.7 million milestone expense for in-process research and development, $14.5 million of non-cash lease expense, $191.8 million of stock-based compensation expense, $1.1 million premium amortization and discount accretion on investment securities, $0.3 million in foreign exchange adjustment, and $1.3 million for amortization of debt discount.
Product Revenues ​ 77 Table of Contents During the year ended December 31, 2022, product revenues increased by $217.2 million, or 37.4% compared to the year ended December 31, 2021, as a result of the continued revenue growth from increased test volumes. ​ Licensing and Other Revenues ​ Licensing and other revenues decreased by $22.5 million, or 49.5%, during the year ended December 31, 2022 compared to the year ended December 31, 2021.
During the year ended December 31, 2023 and 2022, total oncology units processed were approximately 340,700 and 196,400, respectively. 77 Table of Contents Product Revenues ​ During the year ended December 31, 2023, product revenues increased by $271.2 million, or 34.0% compared to the year ended December 31, 2022, as a result of the continued revenue growth from increased test volumes as well as average selling price improvements. ​ Licensing and Other Revenues ​ Licensing and other revenues decreased by $8.9 million, or 38.7%, during the year ended December 31, 2023 compared to the year ended December 31, 2022.
The contractual obligations also include the potential earnout payment from our IPR&D asset acquisition less the portion accrued on the Balance Sheet. Payments due upon cancellation generally consist only of payments for services provided or expenses incurred, including non-cancellable obligations of our service providers, up to the date of cancellation.
Payments due upon cancellation generally consist only of payments for services provided or expenses incurred, including non-cancellable obligations of our service providers, up to the date of cancellation. These payments have not been included separately within these contractual and other obligations disclosures.
The increase was driven by a $61.8 million increase in salary and related expenditures primarily due to headcount growth, which includes a $20.7 million increase in stock-based compensation expense, a $19.2 million increase in clinical trial expenses, and an increase of $3.4 million of marketing, travel, facilities, office and other costs to support increases in the Company’s headcount , new product offerings and research and development project pipeline.
The increase was driven by a $27.7 million increase in salary and related expenditures, which includes a $20.4 million increase in stock-based compensation expense, and a $3.6 million net increase in office, facilities, and other expenses.
Credit Line Agreement ​ In September 2015, we entered into a Credit Line with UBS (“the Credit Line”) providing for a $50.0 million revolving line of credit which could be drawn in increments at any time.
Based on our current business plan, we believe that our existing cash and marketable securities will be sufficient to meet our anticipated cash requirements for at least 12 months after February 28, 2024. 79 Table of Contents Credit Line Agreement In September 2015, we entered into a Credit Line with UBS, or the Credit Line, providing for a $50.0 million revolving line of credit which could be drawn in increments at any time.
The increase was attributable to an increase of $48.7 million in salary and related expenditures primarily due to headcount growth to support new product offerings, which includes a $13.5 million increase in stock-based compensation expense, a $11.1 million increase in travel related costs, a $10.5 million increase from consulting and legal related costs, and a $14.1 million increase related to business support including business insurance, billing services, facilities, office and other costs to support increases in the Company’s headcount and new product offerings.
The increase was attributable to a $18.0 million increase in consulting and legal expenses, a $16.0 million increase in third party billing expenses, and a net increase of $8.0 million in salary and related compensation expenditures primarily related to an increase in stock-based compensation expense.
In addition to our direct sales force in the United States, we have a global network of over 100 laboratory and distribution partners, including many of the largest international laboratories. ​ We currently provide a comprehensive suite of products in women’s health, as well as our oncology and organ health products, and our Constellation cloud-based platform.
We aim to make personalized genetic testing and diagnostics part of the standard of care to protect health and inform earlier and more targeted interventions that help lead to longer, healthier lives. ​ We currently provide a comprehensive suite of products in women’s health, as well as our oncology and organ health products, and our Constellation cloud-based platform.
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We began in the women’s health space, in which we develop and commercialize non- or minimally- invasive tests to evaluate risk for, and thereby enable early detection of, a wide range of genetic conditions, such as Down syndrome.
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Our cell-free DNA, or cfDNA, technology combines our novel molecular assays, which reliably measure many informative regions across the genome from samples as small as a single cell, with our statistical algorithms which incorporate data available from the broader scientific community to identify genetic variations covering a wide range of serious conditions with high accuracy and coverage.
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Our technology is now also being used in the oncology market, in which we are commercializing, among others, a personalized blood-based DNA test to detect molecular residual disease and monitor disease recurrence, as well as in the organ health market, with tests to assess organ transplant rejection.
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For the year ended December 31, 2022, revenues from customers outside the United States were $34.4 million, representing approximately 4% of total revenues.
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We seek to enable even wider adoption of our technology through Constellation, our global cloud-based distribution model.
Added
For example, our financial performance depends on reimbursement for microdeletions testing.
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For example, our financial performance depends on reimbursement for microdeletions testing. Many third-party payers do not currently reimburse for microdeletions screening in part because there has historically been limited published data on the performance of microdeletions screening tests, with our SMART study results being published relatively recently, in early 2022.
Added
Product Revenues Product revenues are derived by performing genetic testing services and our performance obligation is complete when test results are delivered to a clinic or patient, who are considered the customer for such services. We enter into contracts with insurance carriers with primarily payment terms related to tests provided to the patients who have health insurance coverage.
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A current procedure terminology (“CPT”) code for microdeletions went into effect beginning January 1, 2017. We have experienced low average reimbursement rates for microdeletions testing under this code, and we expect that this will continue to be the case, at least in the near term, due to third-party payers declining to reimburse and through reduced reimbursement under the CPT code.
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We also record revenues from the sale of IVD kits in licensing and other revenues. ​ 76 Table of Contents Stock-Based Compensation Attributable to Performance-Based Awards ​ Stock-based compensation expense for stock options with performance metrics is calculated based upon probability of achievement of the metrics specified in the grant.
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This has had, and we expect it will continue to have, an adverse impact on our revenues.
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The Credit Line was subsequently increased from $50.0 million to $150.0 million. In June 2023, the Credit Line decreased to $100.0 million. In October 2023, the interest rate for the Credit Line was subsequently changed to the 30-day SOFR average, plus 0.5%.
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In addition, a new CPT code for expanded carrier screening went into effect beginning January 1, 2019, and has had, and may continue to have, an adverse effect on our reimbursement rates for our broader Horizon carrier screening panel for which we previously primarily received reimbursement on a per-condition basis, as those tests may be reimbursed as a combined single panel instead of as multiple individual tests.
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We are required to maintain a minimum of at least $150.0 million in our UBS accounts as collateral which has been classified as short-term investments in the consolidated balance sheet. The interest rate was subsequently changed to the 30-day SOFR average, plus 1.21%. The SOFR rate is variable.
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Critical Accounting Policies ​ Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States.
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Tests may be billed to insurance carriers, patients, or a combination of insurance carriers and patients.
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We also record revenues from the sale of IVD kits in licensing and other revenues. 75 Table of Contents ​ Income Taxes ​ We account for income taxes in accordance with ASC 740, Income Taxes (“ASC 740”), which requires recognition of deferred tax assets and liabilities for the expected tax consequences of our future financial and operating activities.
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Under ASC 740, we determine deferred tax assets and liabilities based on the temporary difference between the financial statement and tax bases of assets and liabilities using the tax rates in effect for the year in which we expect such differences to reverse.
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If we determine that it is more likely than not that we will not generate sufficient taxable income to realize the value of some or all of our deferred tax assets (net of our deferred tax liabilities), we establish a valuation allowance offsetting the amount we do not expect to realize.
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We perform this analysis each reporting period and reduce our measurement of deferred taxes, if the likelihood we will realize them becomes uncertain.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeAn incremental change in the investment yield of 100 basis points would increase our annual interest income by approximately $4.3 million annually in relation to amounts we would expect to earn, based on our short-term investments as of December 31, 2022. 82 Table of Contents For the fiscal year ending December 31, 2022, compared to the fiscal year ending December 31, 2021, our total comprehensive loss increased by approximately $7.5 million due to the increase average yield rate. ​ Foreign Currency Exchange Rate Fluctuations ​ Our operations are currently conducted primarily in the United States.
Biggest changeAn incremental change in the investment yield of 100 basis points would increase our annual interest income by approximately $2.4 million annually in relation to amounts we would expect to earn, based on our short-term investments as of December 31, 2023.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RIS K ​ Interest Rate Risk ​ We are exposed to market risks in the ordinary course of our business. These risks primarily relate to interest rates. Our Credit Line has an interest rate of 30-day LIBOR plus 1.10%.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RIS K ​ Interest Rate Risk ​ We are exposed to market risks in the ordinary course of our business. These risks primarily relate to interest rates. Our Credit Line had an interest rate of 30-day LIBOR plus 1.10%.
An incremental change in the borrowing rate of 100 basis points would increase our annual interest expense by $0.8 million based on our $80.4 million gross debt outstanding on our Credit Line, including principal and accrued interest as of December 31, 2022.
An incremental change in the borrowing rate of 100 basis points would increase our annual interest expense by $0.8 million based on our 82 Table of Contents $80.4 million gross debt outstanding on our Credit Line, including principal and accrued interest as of December 31, 2023.
The interest rate was subsequently changed to the 30-day Secured Overnight Financing Rate (“SOFR”) average, plus 1.21%. The SOFR rate is variable.
The interest rate was subsequently changed to the 30-day Secured Overnight Financing Rate, or SOFR, average, plus 1.21%. The SOFR rate is variable. In October 2023, the interest rate for the Credit Line was subsequently changed to the 30-day SOFR average, plus 0.5%.
Added
For the fiscal year ending December 31, 2023, compared to the fiscal year ending December 31, 2022, our unrealized loss on available for sale securities decreased due to the change in average yield rate, resulting in an unrealized gain of $13.3 million for the year ended December 31, 2023. ​ Foreign Currency Exchange Rate Fluctuations ​ Our operations are currently conducted primarily in the United States.

Other NTRA 10-K year-over-year comparisons